Shares in ICON, the global provider of outsourced development services based in Ireland, sagged by as much as 10% last week after the company delivered fourth-quarter earnings in line with analysts’ expectations but fell short on its profit forecast for 2011.

ICON said it was making substantial investments to address the accelerated pace of change in the biopharmaceutical industry but did not expect the benefit of these initiatives to be felt until late in the year and 2012. At US$1.10 to US$1.25, its guidance for earnings per share (EPS) in 2011 was some way below the consensus estimate cited by Thomson Reuters.

For the three months ended 31 December 2010, ICON reported net revenues of US$232.1 million, an increase of 2.0% over the same period of 2009. On a constant currency basis, revenues were 5.6% ahead year on year, the company said.

Operating income according to US Generally Accepted Accounting Principles (GAAP) was 26.0% lower at US$22.0 million. That comprised operating profit of US$26 million from clinical services and a US$4 million operating loss from the central laboratories business.

Diluted EPS dropped to US$0.36 from US$0.51 in the year-before period. EPS in the latest quarter were US$0.36 on both a GAAP basis and before one-off net charges and tax credits, matching the analyst consensus. Net revenues came in above the average forecast of US$228.7 million from analysts polled by Thomson Reuters.  

In the full year, ICON’s net revenues grew by 1.4% (+3.1% without currency fluctuations) to US$900.0 million and operating income fell by 20.8% to US$92.1 million.

Operating income of US$104.8 million from clinical services was offset by a US$12.8 million operating loss from central labs. Diluted EPS for the year came in at US$1.44 compared with US$1.57 for 2009.

Net new business awards in 2010 amounted to US$1.05 billion, giving a book-to-bill ratio of 1.16. In the fourth quarter, net new business awards were US$237 million and the book-to-bill was 1.0.

ICON is projecting revenues of US$945 million to US$980 million for 2011, which would represent growth of 5-9% over 2010. The analyst consensus is about in the middle of that range, at US$961.6 million.

The guidance for EPS this year, however, is US$1.10 to US$1.25, while analysts were aiming much higher at US$1.49 for 2011.

Challenging year

Chief executive officer Peter Gray said 2010 had been “a challenging year, as some parts of our business, and particularly our central lab, absorbed the impact of the weak business environment in 2009”.

The year also saw “an acceleration in the pace of change in the biopharmaceutical industry, which is creating strong opportunities for the future, but is requiring us to adapt our business model and structures to effectively capitalise on these”, Gray noted. 

This programme continues, he added, “and we are making 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”.

Nonetheless, ICON does not expect the benefit of its investments to be realised until late 2011 and “into 2012”.