Icon hit by cancelled deals

Shares in clinical trials group Icon lost more than 4 per cent yesterday as the company recorded a higher number of contract cancellations than expected in its first quarter.

Icon, which had signalled that two contracts worth $25 million (€20.3 million) had been cancelled, has now announced that it faces $47 million of cancellations as a further four mid-sized contracts failed to materialise, due to both regulatory hitches and changes to clients' pipeline priorities.

But despite reporting net new business of just $46 million, compared to a gross figure of $93 million, the company managed to post a 26 per cent increase in first quarter pre-tax profit to $9.6 million.

Shares in Icon dipped following the release of the results, giving up 4.52 per cent to $33.60 on the Nasdaq, their main market. In Dublin, they closed unchanged at €29.85.

However, chief financial officer Mr Seán Leech pointed out that the company had not changed its full-year guidance and was sticking with projections of revenue growth of 10 per cent and full-year earnings per share of $2-$2.10.

"You get spikes and cancellations in our business but it's not something that concerns us," he said.

"We need to win a bit more new business in this quarter but we didn't change our guidance because we believe we can do that."

Analysts were last night considering their full-year forecasts, although company broker Davy said it was leaving its numbers unchanged for now. However, investors will be keeping a close eye on the level of new business wins in the coming months.

"It leaves little room for error between now and year-end," said Davy analyst Mr Jack Gorman. "They need to deliver on business wins over the next quarter or two."

Despite the high rate of cancellations, Icon delivered solid first-quarter numbers, reporting a 14 per cent increase in net revenues to $78.3 million.

Operating profit in the three months to August 31st rose by 24 per cent to $9.5 million. The group said its operating margin also rose to 12.1 per cent from 11.1 per cent over the period.

Earnings per share rose by 18 per cent to 52 cents, broadly in line with market expectations.

"Our operating margins were strong, earnings per share increased by 18 per cent and we made further progress on our strategic development, with the acquisition of a 70 per cent interest in Beacon Biosciences," Icon chairman Dr John Climax said.

The company, which remains on the lookout for bolt-on acquisitions, had net cash of $65.6 million at the end of the quarter, down from $78.8 million at the end of May, reflecting capital expenditure of $4.5 million and acquisition-related spending of $9.9 million.