Covance Inc. Reports Operating Results (10-K)
Covance Inc. has a market cap of $3.69 billion; its shares were traded at around $56.84 with a P/E ratio of 26.44 and P/S ratio of 1.81. Covance Inc. had an annual average earning growth of 11.3% over the past 10 years. GuruFocus rated Covance Inc. the business predictability rank of 3.5-star.Hedge Fund Gurus that owns CVD: Joel Greenblatt of Gotham Capital, Jim Simons of Renaissance Technologies LLC, George Soros of Soros Fund Management LLC. Mutual Fund and Other Gurus that owns CVD: Ron Baron of Baron Funds, Chuck Royce of Royce& Associates, Jeremy Grantham of GMO LLC, Mario Gabelli of GAMCO Investors.
Highlight of Business Operations: Our strategy is to provide services that will generate high-quality and timely data in support of new drug approval or use expansion. We do this by developing and delivering innovative high-quality services that apply science, technology and global reach to capture, manage and integrate a vast array of drug development data. An increasing portion of our business is being provided through strategic, long-term arrangements with clients. These strategic arrangements include dedicated laboratory testing services contracts, in which our clients commit to purchasing a specific dollar amount of services in exchange for guaranteed access to a portion of our facilities. This arrangement benefits our clients by guaranteeing them long-term capacity and infrastructure to run their preclinical studies, and benefits Covance by allowing us to more efficiently utilize our capacity and resources. The trend towards dedicated service agreements and strategic collaborations has been moving from preclinical work to broader drug-development contracts. In 2010, Covance acquired sanofi-aventis' facilities in Porcheville, France and Alnwick, United Kingdom and entered into agreements to provide sanofi-aventis with a broad range of early and late stage drug development services over a ten year period with estimated payments ranging from $1.2 billion to $2.2 billion. These agreements include a ten year sole coverage relationship for central laboratory services and the acquisition of sanofi-aventis' CMC (Chemistry, Manufacturing and Controls) services in connection with the acquisition of the Porcheville and Alnwick sites. In 2009, Covance acquired Merck & Co., Inc.'s ("Merck") Seattle, Washington based gene expression laboratory, which performs genomic analysis services, and entered into a five year $145 million contract to supply such services to Merck. Also in 2009, Covance entered into a seven year $42 million agreement with Kellogg Company for the provision of nutritional chemistry services in a facility in Battle Creek, Michigan. In 2008, Covance entered into a strategic research and development collaboration with Eli Lilly and Company ("Lilly"). Under this agreement, Covance acquired Lilly's 450 acre early development campus in Greenfield, Indiana. Covance agreed to provide Lilly with a broad range of drug development services over a ten year period for a minimum agreement value of $1.6 billion. Under this agreement, Lilly transferred responsibility to Covance for its non-GLP (Good Laboratory Practice) toxicology, in vivo pharmacology, quality control laboratory and imaging services. In addition, the agreement includes a committed level of clinical pharmacology, central laboratory, GLP toxicology studies and clinical Phase II-IV services.
In 2009, we purchased Merck's gene expression laboratory for $9.75 million in cash and entered into a contract for the sale of genomic analysis services to Merck for $145 million over five years.
Some of our studies and projects are performed over an extended period of time, which may exceed several years. We maintain an order backlog to track anticipated net revenues yet to be earned for work that has not yet been performed. However, we do not maintain an order backlog for other services that are performed within a short period of time or where it is not otherwise practical or feasible to maintain an order backlog. Our aggregate backlog at December 31, 2010 and December 31, 2009 was $6.19 billion and $4.87 billion respectively.
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