Restructuring costs of US$5 million during the first quarter of 2011 amplified a steep decline in ICON’s operating income, which fell by 59.0% against the same quarter of 2010 to US$11.0 million.
The Dublin, Ireland-based provider of outsourced development services managed better at the revenue level, with net revenues for the three months ended 31 March 2011 climbing 4.6% year on year to US$229.3 million. Without the impact of currency translation, the increase in net revenues was 5.5%, ICON pointed out.
The company is also predicting an upswing during the second half of this year. “2011 has started in line with expectations,” commented chief executive officer Peter Gray. “With strong gross bookings of US$329 million, a strengthening pipeline of new opportunities and the Central Lab progressing as planned, we believe we are on track for a return to growth in the second half.”
When ICON announced its fourth-quarter results for 2010 in March, with operating income down by 26.0% year on year to US$22.0 million on a 2.0% increase in net revenues (to US$232.1 million), Gray said the company was having to adapt its business model and structures to capitalise effectively on opportunities created by the accelerated pace of change in the biopharmaceutical industry. .
That involved “significant investments to build additional capabilities, to leverage our scale more effectively, and to implement process and systems change necessary to prosper in the evolving market”, Gray noted at the time, adding that ICON did not expect the benefit of these investments to be realised until late 2011 and early 2012.
Operational review
According to a Form 6-K filing with the US Securities and Exchange Commission, the company started an operational review during the first quarter of 2011 “to improve resource utilisation within the business and better align resources to current and future growth opportunities”.
The resulting restructuring plan involved the closure of ICON’s facility in Edinburgh, UK and “resource rationalisations in certain of the more mature markets in which it operates”, the Form 10-K noted.
Of the US$5.0 million restructuring charge recognised during the quarter, US$1.0 million was for lease termination and exit costs associated with the closure of the Edinburgh facility and US$4.0 million for “workforce reductions”.
Stripping out the restructuring charges, operating income for the first quarter was 40.4% lower at US$16.0 million and net income was down by 42.3% year on year at US$12.8 million or US$0.21 per diluted share (US$0.37 in Q1 2010).
That accorded with the average earnings forecast from analysts polled by Thomson Reuters (i.e., US$0.21 per share), who were expecting net revenues for the first quarter to come in slightly lower than reported, at US$224.3 million.
Taking the restructuring charges into account, operating income as a percentage of net revenues narrowed from 12.2% in the first quarter of 2010 to 4.8% in the latest quarter, ICON reported.
In the company’s clinical research segment, the operating margin was down from 13.2% to 7.2%, while in the central laboratory business the margin shrank from 0.4% in last year’s quarter to a 25.8% loss in Q1 2011.
The gross bookings of $329 million recorded in the latest quarter produced a gross book- to-bill ratio of 1.43, ICON noted. Net business wins were $257 million, representing a net book to bill of 1.12.
ICON also revealed that it paid an initial cash consideration of US$27.7 million during the first quarter for Oxford Outcomes, the UK-based health outcomes consultancy it acquired in January. Further payments of up to US$10.2 million may be due
during the period to 31 March 2012 if certain performance milestones are met.
ACRONET alliance
The company also announced an alliance agreement with ACRONET Corporation, a wholly owned subsidiary of the ITOCHU group described “as one of Japan’s largest CROs”.
Under the agreement, ICON and ACRONET will team up to offer global and Japanese pharmaceutical clients a full range of clinical development capabilities to manage trials on a regional or global basis.
With headquarters in Tokyo and additional offices in Osaka, Fukuoka and New York, US, ACRONET employs some 500 clinical development professionals, offering a wide range of clinical development and contract staffing services including clinical monitoring, data management and statistical analysis, ICON said.
Recent changes in the regulatory landscape “mean that an increasing number of Japanese-based pharmaceutical companies are looking to run development projects on both a domestic and pan regional basis”, commented Alan Morgan, ICON’s group president, Clinical Research Services.
