And So It Begins: Covance Cuts 100+ Employees in Shut Down

Covance to Pink Slip 100+ Employees in Shut Down of Indiana Facility April 26, 2017
By Mark Terry, Breaking News Staff

Covance , a contract research organization with headquarters in Princeton, NJ (CVD) has indicated it plans to shutter its laboratory in Evansville, IN this summer. More than 100 staffers are expected to be laid off.

The Evansville laboratory is a clinical research site and conducts research on healthy individuals, as well as patients with high cholesterol, diabetes, and obesity. Layoffs are expected to begin on or after July 24, and are expected to be permanent.

Covance is a subsidiary of Laboratory Corporation of American (LabCorp) . Yesterday, LabCorp announced that it was starting cost-cutting in its CRO business after the Covance Drug Development unit’s revenue and earnings slipped in the first quarter of this year.

LabCorp acquired Covance in 2015 for about $6.1 billion.

LabCorp, generally viewed as the largest clinical diagnostic laboratory corporation in the U.S., and possibly the world, reported net income of $192.2 million on revenue of $2.45 billion in the first quarter. This compared to $164.1 million net income on revenue of $2.37 billion in the first quarter of 2016.

Covance’s revenue dropped 2 percent in the first quarter to $690.3 million. LabCorp indicates that there will be facility closures and layoffs.

In part, Covance was hit by the cancellation of two big clinical trials in late 2016. According to the company, Covance provided central laboratory services for those trials.

The cancellations, increasing personnel costs, and some booked project revenue delays resulted in Covance’s operating income dropping to $83.5 million for the quarter. That compared to operating income of $103.2 million in the first quarter in 2016.

Modern Healthcare reported, “Despite the first-quarter wobble, LabCorp expects to deliver $100 million in synergies from the Covance acquisition in the three years ending in 2017, the company said. Covance represents about 29 percent of LabCorp’s total revenue.”

However, on April 21, LabCorp announced that Covance Drug Development was planning to expand its biopharmaceutical chemistry, manufacturing and control (BioPharmCMC) capabilities in Harrogate, England, into a laboratory facility at the National Agri-Food Innovation Campus (NAFIC) in York, England.

“Covance is a recognized leader in providing global BioPharmCMC solutions, in large part due to its reputation for operational, service and scientific excellence at our Harrogate facility,” said John Ratliff, chief executive officer of Covance, in a statement. “By investing in the Harrogate BioPharmCMC expansion into nearby York, we continue to strengthen our leadership in this space, providing our clients with the end-to-end expertise and support they need from our highly skilled scientists to improve health and improve lives of patients around the world.”

LabCorp indicated in its quarterly report that the decrease in net revenue for Covance “was primarily due to slower revenue conversion from the backlog, and the impact of the previously-discussed cancellation by sponsors of two large clinical studies in late 2016, for which Covance Drug Development provided central laboratory services.”

LabCorp expects $100 million in cost synergies related to the Covance acquisition through the end of 2017. It has also expanded its LaunchPad initiative to include Covance Drug Development. LabCorp stated, “This initiative will consist of two phases implemented over three years. The first phase is intended to better align Covance Drug Development’s resources with its near-term outlook. This phase is expected to generate pre-tax savings of approximately $20 million in 2017 and approximately $45 million on an annualized basis thereafter, with pre-tax charges primarily related to severance and facility-closure costs expected to be approximately $30 million in 2017. The second phase will focus on long-term structural changes designed to create a more efficient business model for Covance Drug Development. Additional details on the second phase will be provided later this year.”

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