Kendle trims down as profits slump
pharmafile | May 15, 2009 | News story | Research and Development |Â Â KendleÂ
Contract research organisation Kendle joined many of its peers in reporting a slump in demand for its clinical research services which pegged back revenues in the first quarter of 2009.
In addition to the reduction in demand, Kendle also reiterated earlier statements that its business was affected by pricing pressure in the first quarter.
There is ample evidence that biopharmaceutical companies, particularly smaller firms, are cancelling or postponing trials in order to eke out scarce financial resources caused by the credit crunch.
Meanwhile the current wave of merger and acquisition activity in big pharma also has the potential to create inertia in R&D programmes, and this could create "short-term volatility", said Kendle's chief executive, Candace Kendle, on a conference call to present the first-quarter figures.
Last month, Kendle suggested that that some CROs have started discounting service fees in order to grab their share of a smaller contracts pool.
Updating on those statements in the call, she said that "pricing has become more important to customers", adding: "the cost reductions we have proposed in 2009 will give us an opportunity to take cost out of the pricing."
Although many believe that the pharmaceutical industry's efforts to streamline operations and reduce costs will be a benefit to the CRO industry in the long-term, Kendle said that in the short-term pricing pressure will be a key block on growth.
Net service revenues were down 5% to $108 million, while net income plunged 78% to $886,000. In response, Kendle has started cost-cutting, including reductions in its headcount "to better balance our staffing levels with customer demand", as well as a wage freeze and strict controls on discretionary spending.
The company expects to make cost reductions of $17.5m to $22.5m in the remainder of 2009 as a result of the restructuring, around 5% down on 2008. However severance costs of $3.5m to $4.5m will be charged in the second quarter.
"The near-term performance of CROs may be uneven or even diminished compared to historical levels," said Kendle. "But we are optimistic of the long-term prospects for larger CROs such as Kendle."
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