Contract research organization (CRO) 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. In late 2014 the company agreed to be acquired by lab services giant LabCorp for some $5.6 billion.
Change in Ownership
The combined company will be a global leader in health care diagnostics, bringing Covance's contract research business to LabCorp's existing prowess in medical testing. After the acquisition, Covance will maintain its brand and operational headquarters.
Covance has about 50 offices and labs in more than 30 countries (with field operations in more than 60) 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 about 50% of Covance's annual revenues.
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. It also offers bioanalytical testing services to determine the appropriate dose and frequency of drug application from late discovery evaluation through Phase III clinical testing on a full-scale, globally integrated basis.
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.
Covance has reported steady revenue growth over the last five years. In 2013 the company reported a 10% increase in sales to some $2.6 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 early development segment reported flat revenues in 2013.
The company reported an 89% growth in net income in 2013 due to an increase in revenues, a gain on sale of investments, and the absence of impairment of equity investment and loss on sale of businesses, partially offset by higher operating expenses (sales, administrative, and corporate).
In 2013 Covance's operating cash flow increased by $145 million as the result of higher cash generated from accounts receivable, accounts payable, and accrued liabilities, and a decline in cash used in unbilled services.
The company’s strategy is to provide services that will generate high-quality and timely data in support of new drug approval or use expansion.
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. Facility expansion efforts are also conducted through acquisitions and by forming partnerships with other CROs.
In 2014 the company introduced Covance MarketPlace, to enable Covance’s emerging biotechnology and established pharmaceutical clients to easily find and forge new partnerships in a secure online forum.
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 drugmakers (such as Eli Lilly, Sanofi, Kellogg, 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.