CINCINNATI, Ohio — Kendle International Inc. and its contract research organization industry continued to struggle in 2009 with cutbacks in research and development spending among client biopharmaceutical companies, which are causing employee cutbacks across the board.
“We continue to be optimistic about the CRO marketplace over a two- to three-year horizon, but we also believe the next 12 months will have little or no growth,” Candace Kendle, chairman and chief executive of the Columbus organization that provides clinical development services, told securities analysts during a Thursday morning conference call
“From where we sit, we see the cutbacks in R&D spending by the very largest biopharmaceutical companies as having the most significant influence on 2010 and even early 2011. We think there are still numerous hurdles to near-term stabilization in the market,” Kendle said.
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“Here are just a few areas we feel are still in significant flux: the continued re-prioritization of pipelines and adjustments in planned regulatory filings,” Kendle said.
The continuing flux in the CRO industry caused profit and revenue drops for Kendle in the fourth quarter and year. Net income fell 31 percent to $2.3 million, or 16 cents a diluted share, in the fourth quarter from $3.4 million, or 22 cents a diluted share, a year ago, according to the company’s earnings release. For the year, net income fell 34 percent to $15.2 million, or $1.02 a diluted share, from $23.1 million, or $1.54 a diluted share, in 2008.
Revenue fell 19 percent to $130.9 million in the fourth quarter from $161.3 million a year ago. Revenue also fell 19 percent for the year, to $551.9 million, from $678.6 million in 2008.
“We are at the beginning of the right-sizing of the global R&D workforce within large pharma,” Kendle told analysts. Her own company also is cutting positions “in an effort to balance staffing levels with customer demand and sales.” Kendle International took a severance charge of $3.8 million in the just-ended quarter to cover the job cuts, which the company hopes will save between $16 million and $18 million this year, and between $21 million and $23 million each year thereafter.
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That was on top of cutting about 400 jobs, mostly in the United States and Western Europe, or 9 percent of its workforce, in the second 2009 quarter, at a cost of $4.5 million. At that time, the company put in place employee furloughs, reductions in work weeks, wage and hiring freezes, and discretionary spending controls, as well as employee benefits cuts and facility closures “to achieve operating efficiencies and reduce its cost structure,” according to a filing with the Securities and Exchange Commission.
Omitting the severance charge, Kendle International had operating income of $8.7 million in the fourth quarter. That was down 20 percent from $10.9 million a year ago. New business awards for the fourth quarter were $134.7 million, down 2 percent from $137.2 million in the third quarter.
“A lot of the change is underway,” Kendle said. “But it is our belief that we are far from finished. There have been numerous stops and starts in this complex market shift toward a more cost-effective drug development industry.”
Kendle noted one sign of hope: “We are encouraged by the improved funding to the smaller biopharmaceutical companies,” she said. “We believe that the impact for CROs in the near term will be primarily in early stage and smaller late-stage projects. We are also beginning to see the return of large biopharmaceutical partners with these smaller companies.”
Kendle International repurchased $5.5 million worth of its convertible notes at a cost of $4.9 million in the fourth quarter. For all of 2009, the company repurchased $45.5 million worth of convertible notes for $36.5 million.
The company’s shares fell 12 percent to $18.42 Thursday on the Nasdaq Stock Market.