Covance Signs Research Pact With Merck; Reports Strong 2Q
July 29 2009 - 5:47PM
Dow Jones News
Covance Inc. (CVD) agreed to provide genomic analysis services
to Merck & Co. (MRK), and acquire some of the drug giant's
related facilities, under a five-year contract valued at $145
million.
Separately, the Princeton, N.J., company Wednesday reported
better-than-expected second-quarter earnings, and boosted its
expectations for the full year after cutting those expectations in
April.
Shares of Covance rose 2.7% to $51.50 in after hours
trading.
Under the agreement, Covance will acquire Merck's Seattle-based
Gene Expression Laboratory for an undisclosed amount. The lab
performs drug discovery services to identify biomarkers related to
a drug or a patient for so-called personalized medicine, the idea
of tailoring treatment to an individual's genetic makeup.
Joseph Herring, Covance's chief executive, said such genomic
testing services are becoming more important for large drug
developers, but the high cost of owning such a lab can be
impractical.
"Merck is looking to cut costs," said Herring. "It is a big
fixed-cost investment that they don't use all the time."
A Merck spokesman didn't have estimates for the company's cost
savings, but said that it announced its decision to make such a
deal for the Gene Expression Lab in December as part of its global
research strategy.
Contract research organizations like Covance have benefited from
pharmaceutical companies cutting costs and improving development
efficiency as they deal with pipeline and patent pressures.
Though smaller, the deal is similar in structure to Covance's
$1.6 billion deal with Eli Lilly & Co. (LLY) last August to
provide broad drug development services over 10 years and assume
control of Lilly's early drug development facility and related
workers.
Herring said the deal will be "immediately profitable" for
Covance. He noted that the acquired lab is far beyond Merck's needs
and includes about 70 to 80 workers who will become Covance
employees when it takes over in mid-August.
Separately, Covance reported second-quarter earnings of $43
million, or 67 cents a shares, compared with $50.9 million, or 81
cents a share, in the year-earlier quarter. Excluding items, the
company earned 66 cents a share, beating an analysts estimate of 63
cents, according to Thomson Reuters.
Revenue rose 6% to $489.3 million, also beating expectations of
$447.5 million.
Looking forward, the company now expects 2009 earnings,
excluding items, of $2.60 to $2.80 a share, up from its previously
lowered range of $2.50 to $2.70 a share. Wall Street expects $2.62
a share for the full year.
Covance said the strengthened outlook was based on weakening of
the U.S. dollar and a lower tax rate.
The company now expects 2009 revenue growth in the "mid- to
upper-single digits" compared with a previous target of
"single-digit" growth
Despite that previous guidance, Wall Street has projected
revenue for the year to be essentially flat at $1.81 billion.
-Thomas Gryta; Dow Jones Newswires; 212-416-2169;
thomas.gryta@dowjones.com