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Covance's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Now please turn to Slide 5. In the third quarter, Early Development contributed 44% of net revenue and a Late-Stage contributed 56%. Also, 53% of our revenue came from the U.S., 15% from Switzerland, 11% from the U.K., 9% from countries in the eurozone and the remaining 12% from the rest of the world.

Now turn to Slide 6, please. In Early Development, in the third quarter, net revenues were $240 million, a 16.3% increase year-on-year or 14.9% net of the impact of foreign exchange. The year-on-year increase was driven by the addition of our Alnwick, U.K. and Porcheville, France sites, as well as strong growth in our Clinical Pharmacology, Analytical Chemistry and North American Toxicology services. Sequentially, revenues increased $8.4 million on growth in Clinical Pharmacology, Discovery Support services and Research Products operations, partially offset by a slight decline in Toxicology.

Third quarter operating income on a GAAP basis was $33.2 million and on a pro forma basis was $35 million or 14.6% of revenue. OM increased 40 basis points sequentially on margin expansion in Discovery Support, Clinical Pharmacology and North American Toxicology services.

Turning to Late-Stage Development. Net revenues in the third quarter was $303 million, up $17 million sequentially, and up 12% from the third quarter of last year or 4%, excluding the impact of foreign exchange. Growth in both periods was driven by continued strong performance of our Clinical Development services. Late-Stage Development operating income on a GAAP basis was $56.3 million and on a pro forma basis was $58.4 million or 19.3% of revenue, and that compares to 20% last quarter and 20.4% in the prior year. The sequential decline in profitability was partly -- or primarily, actually, due to normal seasonal factors coupled with significant increases in staffing levels in Clinical Development, which offset a sequential increase in margins in Central Labs.

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