Covance Laboratories Inc.

  • Overview

Behind every great big drug company stands a great big contract research organization (CRO), and Covance is one of the biggest. Covance helps pharmaceutical and biotech companies worldwide develop new drugs by providing the fullest range of testing services from preclinical investigations all the way through designing and carrying out human clinical trials, and conducting post-marketing studies to determine if drugs are safe and/or effective. Services include toxicology studies and biostatistical analysis. Among the company's customers are pharmaceutical, biotech, and medical device companies. Covance also offers laboratory testing services to companies in the chemical, agrochemical, and food industries.

Geographic Reach

Covance has about 50 offices and labs in more than 30 countries (with field operations in more) in the Americas, Europe, and the Asia/Pacific region. It is expanding its clinical development services particularly in Eastern Europe and Asia. The company has also beefed up its presence in South and Central America, adding or expanding offices in Argentina, Brazil, Chile, Mexico, and Peru. Despite its extensive international operations, however, the US market continues to make up a little more than 50% of Covance's annual revenues.

Operations

Covance's revenue is split between early development and late-stage development services. Covance's late-stage development segment accounts for a little more than half of revenues and includes its massive central laboratory services. Its central lab facilities provide testing of urine, blood, and tissue samples from patients enrolled in drug trials. Other services in that segment include design and management of late-stage clinical trials and commercialization services, including post-marketing studies and various marketing consulting services.

Its Early Development segment provides preclinical toxicology testing to determine a drug's effects on animals and chromosomes, as well as and chemical stability testing. The division also produces monoclonal antibodies and lab animals used in drug research, and it provides early stage clinical services such as pharmacology testing in humans. For its chemical and food industry customers, Covance provides early development services such as testing pesticides for risks to humans and determining nutritional information for food labels.

Marketing and Sales

Covance serves about 1,000 customers from the pharmaceutical, biotechnology, and medical device industries, as well as selected clients in the chemical and food manufacturing industries. The company operates a direct sales force in primary markets in the Americas, Europe, and the Asia/Pacific region. It functions largely by entering into long-term contracts with its clients, a strategy that gives Covance some stability in the fragmented drug-development industry.

Financial Analysis

Covance has reported steady revenue growth over the last five years. In 2012 the company reported a 6% increase in sales to some $2.4 billion. Its improved results were attributed to higher demand for certain late-stage development services including phase II-IV clinical trials and central laboratory services. The 13% growth rate in the late-stage development segment was offset by a 7% decline in the early development segment on lower volumes of toxicology, pharmacology, and support services.

Net income has fluctuated in recent years. The company reported a 28% drop in profits to some $95 million in 2012, attributed to higher operating expenses (including sales, administrative, and corporate expenses), as well as costs from restructuring, impairments, and write-downs in the early development segment. Previously, profits in 2011 got a 94% boost to $132 million due to the absence of asset impairment and restructuring charges that caused net income to drop in 2010.

Strategy

Covance is capitalizing on the industry's trend toward more outsourcing of drug development activities, a practice which generally saves money for drug and medical device companies who can avoid making investments in their own R&D labs and personnel. Additionally, Covance has been widening its global presence to reach new clients, as well as to meet existing clients' desire to test compounds simultaneously in multiple geographic markets. To expand its capabilities in Asia, the company opened a new early development facility in China and expanded a clinical trial lab in Japan during 2012. Other facility expansion efforts are conducted through acquisitions and by forming partnerships with other CROs.

The company also expands its service offerings to provide a one-stop shop for customers. In 2011 it added new chemistry formulation services for the active pharmaceutical ingredient (API) market. Covance is also adding new data solutions to help clients conduct cost-efficient development programs.

To control expenses within its own organization, however, the company conducts cost-control and restructuring measures on a regular basis. To better align capacity to a decrease in demand for early development services, in 2012 Covance closed several toxicology and pharmacology facilities. In 2010 and 2011 it conducted additional restructuring initiatives that included capacity rationalization and overhead reduction measures.

Mergers and Acquisitions

Covance's acquisition strategy in recent years has taken advantage of the industry trend to outsource services that companies once conducted in-house, buying up research facilities of large drugmaker (such as Eli Lilly, SanofiKellogg, and Merck) and then forming long-term contracts to provide R&D services to the companies. The new facilities added chemistry, formulation, and active pharmaceutical ingredient (API) manufacturing capacity to Covance's operations. To expand its food safety services, the company also acquired laboratory operator TRAC Microbiology in 2011.

Ownership

Two investment firms own 10% stakes in Covance: T. Rowe Price and Brown Advisory.

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Covance Laboratories Inc.


3301 Kinsman Blvd
Madison, WI 53704-2523
Phone: 1 (608) 241-4471
Fax: 1 (608) 2417227
www.covance.com

STATS


  • Employer Type: Unknown
  • Coo: Shana Dalton
  • President: Jason Davis
  • Coo: William Popper

Major Office Locations

  • Madison, WI

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