COVANCE INC. NYSE: CVD

Transcription

1 COVANCE INC. NYSE: CVD JOE HERRING CHAIRMAN AND CEO June 3, 2014

2 Safe Harbor Statements contained in this press release, which are not historical facts, such as statements about prospective earnings, savings, revenue, operations, revenue and earnings growth and other financial results are forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of All such forward-looking statements including the statements contained herein regarding anticipated trends in the Company s business are based largely on management s expectations and are subject to and qualified by risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, without limitation, competitive factors, outsourcing trends in the pharmaceutical industry, levels of industry research and development spending, the Company s ability to continue to attract and retain qualified personnel, the fixed price nature of contracts or the loss or delay of large studies, risks associated with acquisitions and investments, the Company s ability to increase order volume, the pace of translation of orders into revenue in late-stage development services, testing mix and geographic mix of kit receipts in central laboratories, fluctuations in currency exchange rates, the realization of savings from the Company s announced restructuring actions, the cost and pace of completion of our information technology projects and the realization of benefits therefrom, and other factors described in the Company s filings with the Securities and Exchange Commission including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company s expectations. 2

3 Covance Profile Annual Revenue >$2.4 billion Market Cap ~$5 billion Only provider of preclinical and clinical services Market leader in central laboratory and preclinical services Top five provider of Phase III clinical trial management services Market leader in nutritional chemistry Operations in >30 countries Trial activity in >100 countries >12,500 employees in >60 countries 3

4 $ Billions Markets We Serve: >$150 Billion >$150 Billion Covance revenues can increase through: 1. outsourcing penetration 2. market share gains 3. growth in adjacent markets $2.4 Billion ~$40B: Other (Private R&D, Post R&D, Food, Environment, Government) ~$40B: Biopharmaceutical Research Spend ~$75B: Biopharmaceutical Development Spend 4

5 Only CRO with Full-Range of R&D Services Pharmaceutical/Biotechnology Research & Development Discovery Drug Safety (IND) Efficacy (NDA) Approval 5 Covance generates more safety and efficacy data than any other entity involved in drug development

6 Informatics and Clinical Trial Transformation Significant investments in IT infrastructure and talent Created a Center of Excellence in Informatics Rapidly building an elite team of ~30 data scientists & engineers Leveraging recent strategic IT investments (CTMS, ETMF, SAS, PV) Xcellerate is the world s most comprehensive investigator performance database Unique data driven by leadership in central lab (touches ~40% of all clinical trials) Spans >11,000 protocols, >600 clinical indications, >175,000 investigators, >15,000,000 patient visits Incorporates real-world evidence data Utilizes industry-leading forecasting algorithms A leader and innovator in RBM (Risk Based Monitoring) Covance is dedicated to improving the quality, lowering the risk, and reducing the time and cost of drug development 6

7 Diversified Revenue Base (1Q14 Distribution of Net Revenues) By Service Offering *Central Laboratory 32.7% Early Development (toxicology, food/drug chemistry, clinical pharmacology, research products, discovery services) 35.2% By Geography *Phase II-IV Clinical Development and other 32.1% Euro Zone 9.0% Other* 16.9% USA 45.6% * 64.8% Late-Stage Development Switzerland 17.0% UK 11.5% * Other includes a mix of >20 currencies; largest is Singapore Dollar 7

8 Estimated Toxicology Volume Toxicology Volume Trends 2013 demand at 2004 levels (industry capacity is near 2006 levels) 2013 demand ~20% lower than 2007 peak (price also ~20% lower) Assumption: high probability compounds have grown/will grow at ~2% CAGR Covance toxicology revenue 15 year CAGR = ~5% 8 * Includes full testing packages, pulling work forward, dedicated space agreements, etc, due to fear of delayed filings resulting from constrained capacity (could return if industry capacity is tight for a long period of time) Source: Covance market analysis

9 Covance Core Strategies 9

10 1. Operational and Service Excellence People: Talent attraction and retention rates at historic highs PEOPLE Process: Informatics investments; hundreds of Six Sigma projects annually; IT automation PROCESS Clients: Backlog and client satisfaction at historic highs CLIENTS 10

11 Independent Surveys Rank Covance Most Preferred CRO Covance is the clear favorite clinical CRO to work with 62% vs. next CROs at 44%, 37%, 29%, 21% and 9%, N = 104 Baird Equity Research (3/20/14) Covance received the most mentions as the best-positioned CRO to win preclinical work (n=100) William Blair Equity Research (4/25/14) Covance received highest score in both preclinical and clinical quality N=43 Morgan Stanley Research North America (3/3/13) Covance Central Laboratory Services named most preferred lab by investigators, by a wide margin 47% vs. 23% and 9% for next two preferred; N= 258 Life Science Strategy Group (7/26/13)

12 2. Integrated Service Solutions DISCOVERY DEVELOPMENT COMMERCIALIZATION RESEARCH PRECLINICAL PHASE I PHASE II PHASE III PHASE IV INDIVIDUAL SERVICES MILESTONE-BASED SOLUTIONS Lead Opt IND/CTA FIH POC Ph II - IV MULTI-MILESTONE SOLUTIONS Lead Optimization through FIH IND / CTA through POC FIH through Ph IV FULL DRUG DEVELOPMENT Lead Optimization through Ph IV 12

13 3. Drive Strategic Outsourcing Strategic Service Integration Executive Relationships Operational and Service Excellence = Accelerators 13

14 $ in millions Net Revenue 2014 Target: 6%-9% growth* 14 * Revenue growth target issued on May 1, 2014

15 Operating Income $ millions Operating Margin % Operating Income and OM% * 2010, 2011, 2012, 2013 are presented on a pro forma basis. See appendix for reconciliations. 15

16 Operating Income ($ millions) Segment Operating Income Trends Annual Segment Operating Income and OM%* Operating Margin * Corporate overhead not included; are presented on a pro forma basis. 16

17 Earnings Per Share* 2014 Pro forma target: $3.70- $3.95* * Results are presented on a pro forma basis, please see appendix for GAAP to Pro Forma reconciliations; Pro forma EPS target issued on May 1,

18 Net Order Trends $ in millions 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 Adjusted Net Book-to-Bill (consolidated) Trailing 8 quarter adjusted net BTB: Consolidated 1.25:1 Late-Stage Development Segment 1.35:1

19 $ in Millions Balance Sheet, Cash Flow, and CapEx BALANCE SHEET $660 million in cash/short-term investments at 3/31/14 Total debt (all long-term) outstanding at 3/31/14: $250M FREE CASH FLOW (FREE CASH FLOW IS DEFINED AS CASH FROM OPERATIONS LESS CAPITAL SPENDING) FY2013 Free Cash Flow was $243 million ($173M normalized) FY2014 Free Cash Flow target ~$130 million ($200M normalized) 19 * Excludes $50M purchase of Greenfield campus; when including Cap Ex was $319 in 2008

20 Capital Deployment Priorities Invest in the business to generate profitable organic growth and drive free cash flow Acquire strategic capabilities Return excess cash to shareholders ~$600M shares repurchased since 2010; $100M of shares authorized for repurchase in

21 Investment Summary Covance is well-positioned in dynamic and growing industry Unique, integrated drug development portfolio with emerging informatics capabilities enable biopharma clients to reduce the time and cost of drug development Leader in creating true strategic partnerships Ability to grow revenue through increased outsourcing penetration, market share gains and growth in adjacent markets Revenue growth, lower cost structure, continued process efficiencies and share repurchases to drive long-term EPS growth 21

22 COVANCE INC. NYSE: CVD JOE HERRING CHAIRMAN AND CEO June 3, 2014

23 Biotech Funding Trends Quarterly Biotech Funding Source: BioWorld, Covance analysis 23

24 Backlog and Adjusted Net Orders $ in millions 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 CMV Backlog $1,945 $1,877 $1,919 $1,816 $1,734 $1,660 $1,585 $1,480 All Other Backlog $4,288 $4,489 $4,724 $4,792 $4,991 $5,171 $5,337 $5,423 Total Backlog $6,233 $6,366 $6,643 $6,608 $6,725 $6,831 $6,922 $6,903 Net Orders $613 $609 $796 $628 $682 $642 $679 $618 CMV revenue less CMV orders $88 $91 ($26) $88 $94 $90 $90 $92 Adjusted Net Orders $701 $701 $769 $716 $776 $732 $769 $710 Adjusted Net Book-to-Bill CMV represents the contractual minimum volume commitment under certain strategic/dedicated agreements Covance believes backlog is not always a predictor of future results 24

25 Free Cash Flow 2013 vs Actual Expected Free Cash Flow* $243M $130M Variance Drivers: DSO** $42M ($42M) VAT*** $28M ($28M) Normalized FCF $173M $200M * Free cash flow equals cash from operations less capital spending ** 2013 DSO was 6 days under target at 34 days; 2014 expected to return to 40 days (6 day headwind) *** $28M received in 4Q13; remitted to tax authorities in 1Q14 25

26 Constant-Currency Net Revenue Growth 1Q14 $ 1Q14 % Total $ % Exchange Impact $ % Total As Adjusted $ % Early Development $ % Exchange Impact $ % Early Dev As Adjusted $ % Late-Stage Development $ % Exchange Impact $ % Late-Stage As Adjusted $ % * Exchange impact is computed as the difference between current period local currency net revenue translated to US Dollars at current period exchange rates and current period local currency net revenue translated to US Dollars at the exchange rates in effect during the corresponding period of the prior year. 26

27 Net Revenue by Geography $ in millions United United Euro States Kingdom Switzerland Zone Other* Q1 14 $283 $71 $105 $56 $105 Q1 13 $285 $62 $92 $53 $88 Q % 11.5% 17.0% 9.0% 16.9% Q % 10.7% 15.8% 9.2% 15.2% Q1 14 average rate Q1 13 average rate March 31, * Other includes a mix of >20 currencies 27

28 $ in Millions FX Net Revenue Impact 28

29 Days Sales Outstanding ($ in thousands) Period Accounts Unbilled Total Client Trailing 3 Mos Ended Receivable Receivables A/R + Unbilled Advances Net GAAP Net Rev 31-Mar-14 $337,381 $159,092 $496,473 $(236,596) $259,877 $620,052 Days (35) Dec-13 $331,815 $141,707 $473,522 $(240,398) $233,124 $623,094 Days (35) Sept-13 $353,940 $147,355 $501,295 $(266,522) $234,773 $606,722 Days (40) June-13 $396,653 $154,345 $550,998 $(241,681) $309,317 $592,298 Days (37) Mar-13 $344,362 $155,754 $500,116 $(241,011) $259,105 $580,199 Days (38) Dec-12 $339,558 $136,878 $476,436 $(255,776) $220,660 $562,180 Days (41) Sep-12 $321,421 $141,020 $462,441 $(234,152) $228,289 $544,818 Days (39) Jun-12 $313,160 $134,163 $447,323 $(237,220) $210,103 $542,782 Days (40) Mar-12 $312,466 $121,315 $433,781 $(261,827) $171,954 $530,841 Days (45) Dec-11 $312,127 $114,095 $426,222 $(202,210) $224,012 $532,478 Days (35) 38 29

30 Other Information ($ millions) 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 CAPEX $39.5 $35.9 $46.5 $30.4 $38.0 $35.0 $58.5 $35.1 D&A GAAP $29.9 $30.1 $30.4 $31.4 $31.5 $32.2 $32.8 $33.3 Pro Forma $27.8 $28.1 $28.7 $29.9 $30.9 $31.8 $32.4 $32.9 Corp Admin* GAAP $38.9 $40.9 $48.3 $51.3 $49.9 $51.4 $56.2 $45.6 Pro Forma $38.6 $40.4 $46.7 $50.5 $47.6 $48.7 $52.4 $43.4 Employees 11,499 11,582 11,790 12,019 12,157 12,359 12,501 12,630 *Corp admin includes stock-based compensation expense 30

31 Reconciliation of FY13 As Reported to Pro Forma Amounts Pro forma GAAP ($ in millions except EPS) FY13 FY12 Change Net Revenues $2,402.3 $2, % Operating Income $217.3 $ % Operating Margin 9.0% 5.3% Net Income $179.2 $ % Earnings per Share $3.15 $ % Revenue from Facilities Closed in 2012** - $8.8 Net Revenue, continuing ops* $2,402.3 $2, % Restructuring Costs and Other Items ($26.8) ($73.1) Loss from Facilities Closed in 2012** - ($9.3) Operating Income, excluding items* $244.2 $ % Operating Margin, excluding items* 10.2% 9.1% Gain on Sale of Investments $16.4 $1.5 Impairment of Equity Investment - ($7.4) Favorable Income Tax Developments $3.0 $11.5 Net Income, excluding items* $183.7 $ % Diluted EPS, excluding items* $3.23 $ % * See press release for pro forma income statements for reconciliation of 2013/2012 GAAP to pro forma amounts. ** Facilities closed in 2012 include Chandler, Honolulu, and Basel.

32 Reconciliation of FY2012 As Reported to Pro Forma Amounts ($ in millions except EPS) FY2012 Total Revenues $2,365.7 Less: Reimbursable Out-of-Pockets $185.1 Net Revenues $2,180.6 Operating Income $115.9 Operating Margin 5.3% Net Income $94.7 Diluted Earnings per Share $1.68 Revenue from facilities closed in 2012** $8.8 Net Revenue, continuing ops* $2,171.9 Restructuring costs and other items ($73.1) Loss from facilities closed in 2012** ($9.3) Operating Income, excluding items $198.2 Operating Margin, excluding items 9.1% Impairment of Equity Investment ($7.4) Gain on Sale of Investment $1.5 Favorable Income Tax Developments $11.5 Net Income, excluding items $151.9 Diluted EPS, excluding items $2.70 ** Facilities closed in 2012 include Chandler, Honolulu, and Basel

33 Reconciliation of FY2011 As Reported to Pro Forma Amounts ($ in millions except EPS) FY 2011 Total Revenues $2,236.4 Less: Reimbursable Out-of-Pockets $140.5 Net Revenues $2,095.9 Operating Income $180.6 Net Income $132.2 Earnings Per Share $ Charges ($46.8) Favorable Income Tax items $2.5 Operating Income, ex items $215.3 Operating Margin %, ex items 10.3% Net Income, excluding items $165.0 Diluted EPS, excluding items $2.70

34 Reconciliation of FY2010 As Reported to Pro Forma Amounts ($ in millions except EPS) FY2010 Net Revenues $1,925.6 Operating Income $47.5 Operating Margin % 2.5% Net Income $68.3 Diluted EPS $1.06 Impairment charge $(119.2) Restructuring Costs $(18.4) Operating Income, ex items $185.1 Operating Margin %, ex items 9.6% Favorable Income Tax Items $17.3 Gain on Sale, net of tax - Net Income, excluding items $138.6 Diluted EPS, excluding items $2.15

35 Reconciliation of FY2009 As Reported to Pro Forma Amounts $ in millions, except EPS FY2009 Reported Net Income $175.9 Reported Diluted EPS $2.73 Less: Gains of Sales, net of tax $6.3 Less: Favorable tax items $2.1 Pro Forma Net Income $167.5 Pro Forma Diluted EPS $2.60

36 Reconciliation of FY2008 As Reported to Pro Forma Amounts $ in millions, except EPS FY2008 As Reported Exclude Gain on Sale FY2008 Pro Forma Pre Tax Income $274.3 ($4.1) $270.2 Taxes on Income $79.4 ($1.4) $78.0 Net Income $196.8 ($2.7) $194.1 Diluted EPS $3.08 ($0.05) $3.03

37 Reconciliation of FY2007 As Reported to Pro Forma Amounts $ in millions, except EPS FY2007 Exclude FY2007 As Reported Gain on Sale Pro Forma Pre Tax Income $246.4 ($6.6) $239.8 Taxes on Income $72.9 ($2.4) $70.5 Net Income $175.9 ($4.1) $171.8 Diluted EPS $2.71 ($0.06) $2.65

38 Reconciliation of FY2006 As Reported to Pro Forma Amounts $ in millions, except EPS FY2006 Exclude FY2006 As Reported 3Q06 Tax Gain Pro Forma Pre tax income $ $200.6 Taxes on income ($57.2) ($2.5) ($59.7) Equity Earnings $1.6 - $1.6 Net Income $145.0 ($2.5) $142.5 Diluted EPS $2.24 ($0.04) $2.20

39 Reconciliation of FY2005 As Reported to Pro Forma Amounts $ in millions, except EPS Exclude 4Q FY2005 As Repatriation FY 2005 Reported Tax Charge Pro Forma Operating Income $ $175.1 Net Income $119.6 $4.4 $124.0 Diluted EPS $1.88 $0.07 $1.94