Recently, Covance Inc. (COV) took a step further to strengthen its grip on the growing contract research market in the U.S. The company, in an effort to fortify its position, has come up with a new offering, managed market services, for biopharmaceutical and medical device clients. This service will help the clients to manage contracts in managed markets effectively.
According to Covance, the managed market services’ offering makes the labor-intensive, time-consuming and costly contract management process more efficient and convenient. Vice President, Managed Market Services, Steve Medina has been put in charge of this new venture. Management believes that under his leadership the new offering will help clients maximize value with better controls and management of contract terms and payments. It will also provide better visibility into contract performance with managed care organizations, group purchasing organizations, federal and state programs, and wholesalers. This in turn will aid clients garner higher market share.
We believe that this effort by Covance will yield strong results and the new venture will be well accepted by the biopharmaceutical and medical device companies. According to statistics, these companies are forced to forego up to 4.4% of the U.S. revenues ($11 billion a year) due to inadequate processes and the absence of proper contract management systems.
According to the company, this managed market service will improve processes and contract management systems. It targets a substantial need in the marketplace as chargebacks and rebates used in contracts account for 20% of the U.S. gross sales ($50 billion a year) for biopharmaceutical and medical device companies.
Our Take
We are impressed with Covance’s efforts to boost business across the nation. The company is taking all the necessary steps to improve its top line. In the last reported quarter, net revenue from Early Development declined 2.3% year over year to $214.6 million. Growth in nutritional chemistry and clinical pharmacology was offset by pharmaceutical chemistry services and discovery support services.
Nevertheless, Late-stage Development continues to solely drive growth on the back of better-than-expected kit volumes in central laboratories and Clinical development. In April, Covance expanded its central laboratory facility in Singapore by 50%. With the expansion process complete, the company will now be able to meet the demand for drug development in Asia-Pacific going forward.
Covance also has central laboratories in Indianapolis, the U.S.; Geneva, Switzerland; Shanghai, China; and Tokyo, Japan. The expansion project reflects the company’s focus and investment in the country. The Singapore project complements the company’s strategy of business expansion in Asia-Pacific, with special focus on China and India.
Covance retains a Zacks Rank #2 (Buy). Other medical device stocks worth a look are Affymetrix Inc. (AFFX), Hanger, Inc. (HGR) and Align Technology Inc. (ALGN). All these stocks carry a Zacks Rank #1 (Strong Buy).
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