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Executives

Joe Herring - Chairman & Chief Executive Officer

Bill Klitgaard - Senior Vice President & Chief Financial Officer

Paul Surdez - Vice President of Investor Relation

Analysts

Greg Bolan - Wachovia Capital

John Wood - Banc of America

Eric Coldwell - Baird

John Kreger - William Blair

Douglas Anmuth - Barclays Capital

Stephan - Goldman Sachs

Todd Van Fleet - First Analysis

Ricky Goldwasser - UBS

David Windley - Jefferies & Company

Sean Wieland - Piper Jaffray

Douglas Tsao - Barclays Capital

Sandy Draper - Raymond James

Covance Inc. (CVD) Q1 2009 Earnings Call April 30, 2009 9:00 AM ET

Operator

Good day everyone and welcome to this Covance first quarter 2009 earnings conference call. Today’s conference is being recorded. At this time, I’d like to turn the call over to the Mr. Paul Surdez. Please go ahead, sir.

Paul Surdez

Good morning and thank you for joining us, for Covance’s first quarter 2009 earnings call and webcast. Today Joe Herring, Covance’s Chairman and Chief Executive Officer; and Bill Klitgaard, Covance’s Chief Financial Officer, will be presenting our first quarter financial results. Following our opening comments we will host a Q-and-A session. In addition to the press release and 19 slides corresponding to the commentary you are about to hear are available on our website at www.covance.com.

Before we begin the commentary, I would like to remind you that statements made during today’s conference call webcast, which are not historical facts, might be considered forward-looking statements. Such statements may include comments regarding future financial results and are subject to a number of risks and uncertainties, certain of which are beyond Covance’s control. Actual results could differ materially from such statements due to a variety of factors, including the ones outlined in our SEC filings.

Now I’ll turn it over to Bill for a review of our financial performance, which begins on page four of the slide show.

Bill Klitgaard

Thank you, Paul. Net revenues for the first quarter were $441 million, which is an increase of 7% over last year. Year-on-year foreign exchange negatively impacted revenue growth by 6.8%, approximately $28 million of revenue loss in FX translation due to the strengthening of the US dollar.

Historical schedule, a foreign exchange impact on revenue can be found in the appendix of the slide presentation. Note that at current exchange rate the negative impact on year-on-year growth rates and the strengthening of the US dollar will be as peak in Q2 and Q3 of this year.

Operating income in the first quarter was down $56 million, which is down 10.8% in the first quarter of last year. Operating margin was 12.7% compared to 15.2% last year and 14.5% last quarter. Net income was $40 million, which is down 14.6% from the first quarter of last year and finally EPS was $0.63 per share in the quarter, which is down from $0.73 last year. The FX impact on EPS was approximately $0.06 in the quarter.

Please turn to page five of the slide show. In the first quarter of 2009, Early Development contributed 44% of our net revenue and Late-Stage contributed 56%. In the first quarter, 61.2% of our revenue came from the US, 10.6% from the UK, 13.9% from Switzerland, 6.1% from countries within the euro zone and the remaining 8.2% from the rest of the world.

Now please turn to page six to discuss segment results. In early development, net revenue in the quarter declined 4.7% year-on-year and 10.1% sequentially to $192 million. The $20 million sequential decline in revenue is attributable to lower demand across our Early Development service offerings. The impact of foreign exchange year-on-year was a negative 670 basis points in the quarter. If you exclude the impact of foreign exchange, Early Development revenues grew 2% over the first quarter of last year.

Early Development operating income in the quarter was $27 million, a decrease of 46.3% over the last year and operating margin was 14.1% as compared to 25% in the first quarter of last year and 21.4% last quarter.

The major drivers of reduced operating income and operating margins were lower levels of study activity; costs related to the staffing and validating of our new preclinical drug development facility in Chandler, Arizona; costs incurred for the consolidation of two small clinical pharmacology sites; reduced operating income due to foreign exchange translation; and maintenance of staffing levels from the fourth quarter to support expected increases in revenue generation in the second half of the year.

If you remove Chandler, Greenfield and the closure costs from the quarter, to get to a more normalized based operations, our OM in the first quarter was 17.3%. On a similar basis, the Q4 OM, excluding the impact of the Lilly transition payment would have been closer to 20%. So our OM is down from historical levels and what we look to improve from here is not down as severely as the raw number of the quarter might indicate, as largely driven by reduced volume. We expect Early Development results to be flat in the second quarter, but growth in the third and fourth quarter.

Now turning to Late-Stage development, net revenues in the quarter were $249 million, which is up 18.2% over the last year. The impact of foreign exchange and revenue growth was negative 680 basis points for the quarter. So excluding this, Late-Stage development grew 25% over the first quarter of last year.

Operating income in the quarter was $56 million, representing a 44.9% growth over the first quarter of last year. Operating margin was an exceptional 22.6% in the quarter, compared to 19.6%, last quarter at 18.5% last year. This marked a 290 basis point improvement over our previous record high.

Both central labs and clinical development achieved record margins in the quarter. The central labs kit volumes in the first quarter and exceeded expectations and the marginal profitability of the higher volume, coupled with a shift in mix towards more complex and highly priced tests led to the margin expansion.

Looking forward, we are modeling continued above planned kit testing volume, but a returned to more normal mix of kit, which we expect to result in margins slightly below this quarter’s level.

Clinical development also delivered a very strong first quarter results and the business is on track with similar results in Q2. We expect clinical development profitability to moderate in the back half of the year due to significant increases in planned staffing levels, in order to service increased study activity and also due to normal seasonality in Q3 of the year. Finally, we are forecasting typical seasonal slowdown across Late-Stage services during the summer months, if people take vacations and build on the decreases.

Please turn to page seven, to recap the order and backlog numbers. Adjusted net orders in the first quarter were a record $589 million, resulting in an adjusted book-to-bill of 1.34:1 for the quarter. The backlog at March 31 grew 54% year-on-year to $4.42 billion, compared to $2.86 billion as of March 31 last year and up $82 million from year end. Foreign exchange negatively impacted sequential backlog growth by approximately $30 million and 36% of backlog relates to contracts with minimum volume commitment.

Now please turn to page eight for a view of the cash flow statement. Net DSO at March was 39 days, as compared to 37 days at the end of last year and 39 days at the end of the first quarter of last year. Cash and cash equivalents at March 31 were $190 million, compared to $221 million at year end and $233 million at the end of the first quarter of last year. During the quarter we use $90 million of our overseas cash for the acquisition of Swiss Pharma Contract and March 31, 2009 short term debt totaled $80 million.

Free cash flow for the first quarter of 2009 was negative $31 million, consisting of operating cash flow of $9 million plus capital expenditures of $40 million. If we exclude normal bonus payments, free cash flow was positive in the quarter. For the year we now expect free cash flow to be approximately $75 million and capital spending to be approximately $180 million. The free cash flow target for 2009 assumes DSO at 40 days.

Finally, corporate expense totaled $28 million in the quarter. We continue to expect corporate expense to average between 6% and 7% of revenue going forward as we continue to make investment in the infrastructure to enhance our ability to manage future growth.

Now I’d like to turn the call over to Joe for his comments.

Joe Herring

Thank you Bill and good morning everyone. First quarter financial results for Covance were clearly a tale of two cities with Early Development performing well below our expectations and Late-Stage results accelerating more quickly. Despite the weak economy and lower Early Development demand, our diversified business model and strategic client relationships enable us to meet our first quarter EPS target of $0.63 per share and grow constant currency revenues at our historical mid teen levels.

A clear highlight in the quarter was our success in new business development, led by record performances in both clinical development and central laboratory. Adjusted net orders in the first quarter were $589 million, representing a 22% increase over the first quarter of last year. As Bill said, our adjusted book-to-bill was 1.34:1, the highest achievement in the last two year and cancellations remained inline with historical levels.

The sustained strong order performance we have delivered over the last several years illustrates the client’s value to breadth and the quality of our service portfolio. We believe we are taking a little market share in Late-Stage, but more importantly converting internal work form our big pharma clients.

Moving to guidance, we announced last night that we’re revising our 2009 financial targets and like to provide the rational for our change and outlook. As you recall in December, we released our initial financial targets for 2009, including revenue growth of 5% to 10% over 2008 and earnings per share in the range of $3 to $3.20. As we discussed over December call, these targets contained three key assumptions.

First, foreign exchange rates will remain at budget levels throughout the year and while the dollar has been volatile, the average has remained close to our budget assumption. Second assumption was the Late-Stage backlog; we’d continued to convert to revenue at historical rates. In fact Late-Stage performance exceeded our expectations in the first quarter.

Finally demand for Early Development services will remain flat coming into the year and begin picking up between the second and third quarters of 2009. Additionally, we commented that in the case of flat Early Development demand from Q4 levels throughout 2009, the resulting earnings per share would be around 285, assuming both foreign exchange and Late-Stage were inline.

So, Early Development demand in fact did not hold flat from the fourth quarter, instead it declined and while we assume January, February would follow the historical trend of being light compared to year end, actual results were below those assumptions and March did not re-bounce as it has in the past.

So, we now expect growth in this segment to return later and less sharply than originally projected and importantly from the lower starting point I just described. However, we believe the bottoming of demand is underway, as few of our Early Development services are now in track for sequential increases in revenue and profit.

Our expectations for Early Developments based on existing backlog conversion and expected new orders is for revenue to be sequentially flat in the second quarter, and then we expect some sequential growth in revenue and profit in the third and fourth quarters of this year. As a result, we are now lowering our full year earnings per share target to be in the range of $2.50 to $2.70 per share, with EPS expected to be near current levels in Q2 and Q3.

The bottom of this range does include possible downside events that we currently do not expect, such as a couple of very large clinical trial cancellations beyond our historical rate or a slower than forecasted recovery in Early Development demand.

Let me now update you on each of our Early Development services starting with toxicology. While demands in the biotech sector were weak as expected, we actually felt a bigger impact from the late study decisions in our large pharmaceutical client base. We have several reasons to expect increased demand from our large pharmaceutical clients in the back half of this year.

First, some of the delays from big pharma should be naturally resolved and has postponed non-critical path work for Phase III projects that still needs to be completed for NDA submission. Second, all part of our dedicated space clients are projecting they will meet or exceed their commitments to Covance, which will require them to place more studies in the second half of the year.

Third, we are seeing some improved business development results. Each week we have been analyzing toxicology proposals and orders and these metrics improved in February and March from the January lows. April is tracking at or slight above the March levels and is inline with our earnings forecast. Because of these three factors and forecast and conversion of backlog to revenue, we now expect toxicology results to bottom in the second quarter and grow sequentially from there.

With respect to our toxicology cost structure, we have been managing our business for the long term; including carrying headcount in excess of current volume needs, which significantly impacted first quarter operating margins. The broad relief is that our people are our competitive advantage and we have invested severally in the recruiting, training and retaining our scientific and operational staff over the years.

We’ve continued to maintain these teams who are well know and well respected by clients around the world. We needed motivated and experience staff in place to execute our client’s important drug development projects and to help us to take market share as demand recovers.

In addition, during this period of uncertainty, we have continued to invest in scientific talent and the marketing of program management, which integrates multiple elements of our early development services. Even in this difficult market, the number of molecules and program management increased 5% sequentially from the fourth quarter.

In Chandler, Arizona, we opened our state-of-the-art preclinical facility at the end of March and again the first study for our inter client in April. In addition to our inter clients, we hosted audit business from five large Covance clients and expect some of them to begin placing work in Q2 and Q3.

The China lab as we told you was dilutive in Q1 as we incurred the expenses of staffing and validating the new facility without any associated revenues. Even though revenue generation has now comments, the second quarter will be a couple of pennies more diluted than in the first quarter as depreciation expense begins and we continue to increase staffing levels ahead of these study starts. As the year progresses and we perform more work at the site, including work for other clients, we expect results to improve with channel getting to breakeven levels in the fourth quarter.

In Greenfield the transition of staff, facilities and studies from Eli Lilly to Covance has gone very well. We are happy to hear John Lechleiter, Lilly’s CEO express the same sentiments during the fourth quarter earnings call. We continue to uncover new opportunities within Greenfield specialty capabilities, which we believe open significant new market opportunities in non-GLP and discovery support services in the future.

In addition, five clients have already visited the site and we won our first two non-Lilly orders from the Greenfield site from top ten drug companies. Clinical pharmacology was our first service line experiencing a slowdown in the back half of last year and I’m pleased to report that it is the first Early Development service line on its way to a visible recovery.

Clin pharm revenue and operating margin, excluding the consolidation costs we called out, are up from the fourth quarter and their second quarter forecast shows further sequential improvement. During the quarter we made two strategic moves in clinical pharmacology to support our model of running larger full service clinics with expertise in translational medicine and registration studies that contain the most complex first in human studies.

The first move was to close two small underperforming sites in North America and the second was the acquisition of Swiss Pharma Contract, a highly respected 50-bed clinic located in Basel, Switzerland. This strategic acquisition significantly increases Covance’s early clinical development footprint in Europe.

Swiss Pharma Contract has an 11 year history of sustained growth and a very talented team of drug development professionals. In addition it has eight high observation beds, nine full time medical doctors, four CGMP laboratory capabilities, access special patient populations and a variety of specialized diagnostic and medical capabilities. They have historically conducted 7 to 10 first in human studies per year and we are very excited to add the talents of SPC with the clinical pharmacology businesses of Covance.

Now I’d like to discuss the Late-Stage segment, which once again delivered outstanding performance, including constant currency revenue growth of 25% and exceptional operating margins, which exceeded 20% for the first time in company history.

Late-Stage also had very encouraging new orders exceeding the results delivered in the fourth quarter. Late-Stage book-to-bill was 1.7:1 in Q1 and now stands at greater than 1.5:1 over the trailing 12 months. We continue to see a nice flow of new projects from our growing list of strategic lines.

Central laboratory services grew revenues 16% sequentially on increased kit volumes and delivered record operating margin. We’re seeing the benefits of economies of scale and our automation investments, as well as the drop through on increased volumes, which drove high margins. Orders also topped previous levels, including increased business from the two top 10 biopharmaceutical companies, which signed sole source agreements with us later last year.

Now, lets discussed total developments, which continues to develop as a growth engine for our company. The quarter clinical grew revenues 9% or more than 20% on a constant currency basis. Our clinical development team also delivered record operating margins and record net orders.

Three years ago we made the commitment to invest in this business, so it could effectively compete against the market leaders. Our improved operational performance and strategic advice on Phase II, III clinical trials is being rewarded by clients.

We have now built strategic relationships with three major pharmaceutical clients, to use Covance clinical development as one of two preferred providers and a fourth top 25 pharmaceutical companies recently decided to use us as their primary provider of clinical development services. While we are pleased with the progress we’ve made, we have done and we continue to find ways to grow this business by creating more efficient clinical trial designs with our clients.

Covance as a whole, we remain optimistic about the growth of our business for the long term. We have a huge market to address with global development spend, with the pharmaceutical and biotechnology industries running at $75 billion to $80 billion a year. The primary end point for the majority of this work is an IND or an NDA.

We believe that Covance generates more drug safety and efficacy data faster and more cost effectively than any other organization in the world. Despite this, our revenue of $1.7 billion last year was only 2% of this R&D spend. Over time we’re highly motivated to find ways to improve our share to 5% or 6% or 10%, which allow us to continue growing our business even if R&D spending pulls back.

We also continue to make important investments to help us capture this opportunity, such as strategic expansion of our portfolio in to new services such as discovery support toxicology and Bio-Imaging on the Greenfield campus; IT investments, such as enterprise architecture, automation, client reporting tools and middleware, which help us speed data for our clients; unique forecast includes the development superior clinical trial strategies with clients; adding exceptional medical regulatory and operational talent; increasing our global foot print in clinical development; strategic acquisitions such as Swiss Pharma contract, which enhance our integrated drug development capabilities and help us speed development for clients and the expansion of six sigma, including projects with clients, which help us reduce variation and improve the productivity of drug development.

So, in summary we don’t believe we are running out of market opportunity or capability anytime soon. Our clients have an increased appetite for new models of outsourcing and a more pressing need than ever to make their fixed cost more flexible. Covance has been building a track record for integrating services and helping our clients take time and cost out of drug development.

We’ve demonstrated our ability to form innovative collaborations valued by our client, including dedicated capacity toxicology contracts, asset transfers and sole-source central lab agreement. Looking forward, we are going to either drive these new outsourcing models or break our backs trying, because in the process we are creating new market opportunities where we are very well positioned to win. We are determined to be a part of the solution.

So, thanks for your time this morning and now I’d like to turn it over to operator for the Q-and-A session.

Question-and-Answer Session

Operator

(Operator Instructions) and our first question comes from Greg Bolan from Wachovia Capital

Greg Bolan - Wachovia Capital

Thanks. Joe can you touch on the late discovery market; obviously far sort of durations in GLP and seems to have been historically considered in-house co-work, but can you talk about how large you believe this market maybe relative to GLP talks?

Joe Herring

Greg, the market is not that much smaller than GLP toxicology, but as you pointed out, this has largely been an in-house capability, because it requires incredibly fast turn around and active dialogue. For example a compound maybe sent to the facility in the morning and with out any GLP bureaucracy, they want to know the results; what was the activity; was there receptor binding or whatever. So it requires very close dialogues.

What we are learning in the Greenfield campus, which is 25 miles away from where the scientific decision makers are, is that geography is somewhat important, but it’s maybe not as important as thought in the past.

We also see that there’s tremendous opportunity for integrating late discovery service or discovery services in general because it’s very solid with inclined organizations. So, it’s slower to move to the outsourcing model, but we are learning an awful lot and we’re excited, because again the market opportunity is similar to the total GLP market.

Greg Bolan - Wachovia Capital

That’s helpful and then, I know you briefly touch on this, but can you talk a little bit more about what gives you confident that a bottoming of demand is underway in early development? Are you seeing demand return from some of the smaller biopharma clients or perhaps, your belief stems from conversations with the fleet of large pharma or maybe both; if you could just touch on that a little bit more it would be wonderful?

Joe Herring

We are not counting on emerging biotech. What we are seeing is that in total orders have picked up. We don’t want to overcall at this point, but we continue to see some sequential improvement. We know that our five largest clients need to meet their contractual commitments, know that, see it and said they’re going to get it, so that gives us ramp in the backside.

I also had a very interesting conversation with a client executive this week. They have been looking at the biotech industry and saying “Gee, the Wal-Mart fields are going to be on (Inaudible)” and so they looked at the therapeutic focus of their company and with an exhausted evaluation and determine if there were 86 companies that had molecules that would be for helping their company grow, it turns out only seven of those 86 needed money at all, the other ones had no interest in their money and the seven that needed money, they had good molecules in early development, but we’re burning their money up on a week Late-Stage molecules.

So, what that tells us more then any other point, is that good molecules continue to be funded and we’re going to continue to see work on biotech and I think you’ve heard that from some of our competitors, but what we’re not counting on is emerging biotech coming back any time soon and that’s factored into our outlook.

Again, the two biggest issues we had in early development; one was delays of our large pharma projects that we think are going to come back for financial reasons and the fact that we’ve maintained our staff through the 10% sequential decline in early development revenue.

Greg Bolan - Wachovia Capital

That’s helpful and then obviously, toxicology activity suffered in the quarter. So can you perhaps kind of touch on the other segments within Early Development, like chemistry, clinical pharmacology. I assuming chemistry was a source of strengthen and you can touch a little bit more on Clinpharm and the resource products maybe?

Joe Herring

Yes, chemistry was the tale two cities. The chemistry supported toxicology was down, which means overall chemistry was not all that robust, offset by some stronger performance in Late-Stage by analytical support.

Nutritional Chemistry has a bigger quarter; Clinpharm as we said was the first service line that experienced significant project raise in the back half of last year. While those projects have dropped in now, they had a pretty good first quarter and are forecasting based on current backlog and study starts; sequential improvement again in Q2, which is very good news; research products, which is sort of okay.

Greg Bolan - Wachovia Capital

Okay and then just this last question here. With regards to the two seven year sole-source, since a lot of contracts were won in the fourth quarter, how significant where their contribution to the strong Late-Stage revenue growth and orders in the quarter?

Joe Herrring

One had a relatively light quarter, not a bad quarter, but just sort of average. The other one had a very strong quarter. So on average I would say, they help, but I wouldn’t look at our Late-Stage order performance and point to either of those two clients. It’s actually driven more by Phase II and III clinical trial, strategic partners that we’ve signed last year.

Again, we haven’t made too much hey about that; we want to have the results speak rather than forecasting something that didn’t have to take or pay and I think you’re seeing Greg, what we’ve been talking about over the last three or four months about Late-Stage being pretty strong and I think the results speak.

Greg Bolan - Wachovia Capital

Very strong. Thanks so much for your time.

Operator

Our next question comes from John Wood from Banc of America

John Wood - Banc of America

Thanks. So in the central lab bookings you talked about mix already, but can you comment if the duration of the bookings you saw 4Q, 1Q vary at all from the base book of business there?

Joe Herring

I’m not sure. Could you restate the question, I’m not sure I understand what you ask.

John Wood – Banc of America

Just the duration of the bookings, so are they longer studies coming into backlog or shorter than the mix, the current book mix.

Joe Herring

No, (Inaudible).

John Wood – Banc of America

Okay and then Joe on the Early-Stage business, can we assume when you take actions to address that cost structure, in the event you don’t see some demand vitality by the end of the second quarter?

Joe Herring

Trust me John; we know how to baseline our cost structure, but we have been signaling for quite a while that we’re going to be slow to act on that. Its an easy thing to do from a technical and logistic standpoint, but it’s a long time recovering from that because of the kind of specialized talent that we have and for a long term investor, I think that’s good news and I think it tells you that we have confidence as we look at the back half of the year, but certainly should we reach that point, we know exactly what to do.

John Wood - Banc of America

Understood and one quick one for Bill. The CapEx forecast down by $20 million or so, can you just comment what that’s a result of?

Bill Klitgaard

We understand in Q1 a little bit and I’m looking to that to sort of hold as we go into the rest of the year.

John Wood - Banc of America

It’s not a result of a specific delay or cancellation, just tighter cost controls across all the projects?

Bill Klitgaard

Yes, exactly; it’s the later.

Joe Herring

John, the biggest part to an attribution of our capital spending, the largest block of our small projects that’s far under the radar screen, and so the major strategic investments and some of the IT translation objectives finishing of the channel facility and those kind of things know that being delayed, it’s just some of the smaller dribs and drabs here and there that may not tie to revenue production in the next quarter or two, that people will pullback from.

John Wood - Banc of America

Understood, thank you.

Operator

Our next question comes from Eric Coldwell with Baird

Eric Coldwell - Baird

Thanks, good morning. I think when folks first saw the 14% operating margin in Early Development, there was kind of an immediate reaction that it must be pricing. I think you’ve identified that pricing might not have been the biggest factor, but could you perhaps link quarter, the impact of the various issues impacting profitability in Q1 for early stage and let us know where pricing fell out on that chart?

Bill Klitgaard

Okay Eric. I think the first thing we noted in my comment is that if you take out of Q1 Phase I usual item to try and get to a more normalized level, we take out the Clinpharm restructuring, the start-up of the channel operation. In fact the Greenfield is still pretty early days and it’s not contributing huge amounts of profitability. You kind of take those things out and you look at baseline; you’re at something more like 17/3 or something on operating margin. If you go back into Q4, in that same level you’re kind of in the 20% range.

So, we went from a 25% margin sort of the middle of last year, down to 20 in Q4, down the 17 in Q1. It’s not clearly what we want to be, but it’s relating to volume of activity and as Joe mentioned, we want to maintain our highly trained staff and that’s the biggest contributing reason for this, that we just don’t want to lose people that took years and years to develop.

As volumes come back, this is the kind of business that can turn quickly. When it does, revenue comes back quickly and the contribution the way up should be pretty nice. So, we hope to improve from 70% surely. It’s mostly due to volume, not a price issue.

Eric Coldwell - Baird

Right, agreed and I guess what I’m trying to drives to is, is there any kind of back of the envelope margin that you could share with us; what you think you could have delivered had you immediately adjusted your infrastructure and staff to current market demand. Would that have been a 20%, 22%, 24% operating margin. Obviously pricing is having some impact, but I’m just trying to get a better sense on how much the excess staff that you’re carrying is or infrastructure that you’re carrying is weighing on the profitability?

Bill Klitgaard

It’s hard for us to give you an exact quantification of that. I think one of the things to keep in mind is if you took the cost action, you have severance costs, which was certainly you’d have to call it out and try and get to the more base low rate.

We’d like to be at higher levels of volume utilization, there’s no doubt about it, but we expect this to be a margin opportunity for us as we come forward, because we see upside that looks pretty good and the contribution margin coming up on the way up. Eric, I think you can get to 20%, but again, in the broader scheme of things, it’s that important right now at this point in time.

Eric Coldwell - Baird

No, I tend to agree with the business philosophy, but I’m just wanting to get a sense on that, so we’ll know what the contingency plans could be if the market doesn’t pick up. Shifting gears, one of the competitors obviously sent sharp rates through the industry last Tuesday, with a pretty amazing conference call, talking about pricing being the only decision, drugging Late-Stage demand globally. I’d love to hear your thoughts on pricing and obviously we’re not seeing it with your numbers, but what are your thoughts on how important pricing has become for customers in the Late-Stage business?

Joe Herring

Well Eric, as you well know, this is a price competitive market. There’s 800 Phase II and III clinical trial companies around the world and so there’s not massive pricing opportunities, but there are peers in the market and frankly, an experienced person in clinical development or preclinical development or whatever, understands that a clinical trial is not a commodity.

I think what you’re seeing is large pharma clients are making a strategic decision to outsource more. They’re narrowing their proprietors and the people who are making these final cuts are the ones who have robust EDC capabilities; a strong ability to provide feasibility and clinical trial strategies; companies that have well developed relationships with investigators side; companies that can integrate multiple service capabilities; companies that understand how to set-up government structures and strategic relationships; companies with global footprint.

I mean you sort of keep adding all those thing up and you come up with a pretty short list of companies that really can go the distance with a major pharmaceutical company and in those cases, you sort of separate out companies that compete primarily on price, because if you compete primarily on price, you have been building the infrastructure necessarily and I’m commenting specific company, but just theoretically, you can’t develop these strategic capabilities and be the low cost price spread.

So I think, both in clinical and toxicology, there have been wild speculation about pricing based on very limited data points and coming from bottoming, clients who do see it as a commodity see that again, as well as some competitors who historically compete down at the lower end and I think that that’s been way over done.

Again, price has always been an issue and it’s competitive, but I think it just markets maturing and involving and outsourcing is going to become a critical strategy than I think price has got to be in the middle of the mix, but if its number one, whole industry fails. If you think about the two mergers that are going on right now, the most visible ones, they’re looking for $3.5 billion, $4 billion in synergies. We’re not going to get that incrementally and even if you do it by making your fixed cost more flexible.

There’s also Eric as you well know, there’s this continuity concern. Having a Phase III clinical trials go un-priced and collapse or delay, destroys very more value in terms of the net present value of that molecule and pay a little bit more or pay a similar price that you’ve been playing, but to trusted partners. I didn’t mean to go on so long, but I just think there’s been some lost speculation in the market.

Eric Coldwell –Baird

I would agree with that. Thanks for the detailed responses. In early development, Phase I was the first to slow and the first to show quantifiable trends in recovery. I’m curious weather the recovery you’re seeing is with those same three large pharma clients that were the first to delay or is the recovery coming from other customers?

Joe Herring

It’s actually a combination of both. Some of the projects that were delayed are now dropping and a few new clients.

Eric Coldwell - Baird

That’s great. Thank you for the response.

Joe Herring

Okay.

Operator

Our next question comes from John Kreger with William Blair.

John Kreger - William Blair

Hi, thanks very much. I have another question about Early Development. Joe, given your long history in watching the toxicology market, if you’re right and we have a bottoming in the second quarter, what would your expectation be about when pricing would start to stabilize and move back towards a more normal level.

If you’re willing, since you’re the leader in this space, I would assume you’ve got a fair amount of influence on that. When will you guys start to try to move pricing more back towards your typical levels?

Joe Herring

Well, we certainly don’t set the price in this marketplace, so many, many alternatives for our clients. I can answer your question. We did for a period of time try to dip down in to some of those lower priced peers and so our focus is really on clients who are more interested in integrating drug development, taking four to six months worth of time out of their R&D work; than someone who wants a spot buy on a rat study for a month. So I think you’re going to have to talk to somebody else to get something more definitive in that, but price again is not a major issue for us.

John Kreger - William Blair

Great, thank you. Shifting to the later stage, part of the business, it sounds like you’re describing a little of a sequential pattern where our Phase I is the first to slow and the first to recover and perhaps a similar pattern with toxicology. Clearly your experiencing very good trends in your later stage business, but are you seeing any signs of it suggest maybe that the Later Stage businesses might be sort of the next to slow in that sequential pattern?

Joe Herring

We have zero packs to suggest that, but we are sensitive to watch some competitors are seeing and the overall issues facing our pharmaceutical clients, but the things we watch are new orders and I think you would agree John, fourth quarter and the first quarter are the worst economic times of our lifetime. We posted a record and then a record ahead of that.

Proposals so far in April are consistent with those trends. We look at our central lab and 75% to 80% of our central lab is not attached to a CRO; it’s coming from big pharma and to have that powerful order flow that we’ve had, tells us that pharma companies are still in a Phase II-III studies.

We suspect that maybe from a consolidation standpoint, maybe they’re not outsourcing as much or as broadly as they were and you could make the argument that our central lab a the leading indicator that pharma is doing Phase II-III work or if you want to take the bear side, you could say “Well, the slowdown that clinical companies are seeing, Covance’s is going to seen in central lab.”

We just don’t see that right now, but if you look at the clinical companies that have the results so far in this quarter, we estimate that the consolidated book-to-bill for the sector is about 1.25 and that compares pretty favorably to the go-go days, where it was 1.3 and maybe pop into 1.35 or something like that. So at this point in time John, I just have hard time with facts making that call. I do think there is some shaking out of the competitive environment, but that’s not what we see right now.

John Kreger - William Blair

Great, thanks very much.

Operator

Our next question comes from Douglas Anmuth from Barclays Capital.

Douglas Anmuth - Barclays Capital

Hi Joe, good morning guys. Thinking about Greenfield, which was more or less custom fit based on Lilly’s drug discovery organization, sort of how it came into the company; can you talk about the opportunity for getting into the sort of guarantee of the toxicology work and that discovery support?

Given the fact that drug companies, each have their own unique operating structures, especially in drug discovery, have you begun thinking about new services that you might need to add at the Greenfield campus and would that test be done organically through acquisition or combination of both and how do you think about the timing you can make those investment?

Joe Herring

Okay. First of all, we do a vision expanding new discovery support services on the Greenfield site. We think that we have the scientific staff and the space to build it there; and my precluding and acquisitions bolster that certainly not as we’ve learned and done a substantial amount of market research over the last couple of months.

Seeing the potential size of that market, is pretty existing, but we just don’t want to get too carried away too fast. As I did mention in my prepared comments Doug, two top 10 pharma companies, five companies actually visited the site; two have actually replaced, integrated discovery projects there, so that’s very encouraging.

We sort of delayed it, but maybe a little different thing to your question, we have designated the Greenfield campus as our biomark or center of excellence. We’ve moved scientific staff there and that ramping up that capability, well they’re excited about that. We are expanding our nutritional chemistry footprint. There we have a medical client that’s going into that facility and we’re considering that site for our biotech, bio-safety, cell line, cell banking business that we have at Arrogate; that might be a good place from a North American standpoint.

So again, lots of opportunities there, but I think the most strategic opportunity is really learning a lot more about how to do drug discovery support on an outsource basis, but doing it very fast non-GLP, rapid response, high client touch, which is different than a two year cog study.

Douglas Anmuth - Barclays Capital

Okay, and then sort of sticking to the idea of new market opportunity, I was just wondering if you could provide an updated view on your thoughts regarding adding a preclinical capability in China. Obviously, since you sort of changed course with the (Inaudible) opportunity, it’s helping you to improvise. Give your thoughts in terms of both bad market and timing in particular?

Joe Herring

Well, I think the market in China, like we’ve said we think it’s going to be important. We think it’s going to take time to build it, primarily because of the talent piece. I think the chatter about that has slowed down. I thought I would go faster, obviously it hasn’t, but I think the market opportunity is there; it’s real today and it’s going to grow from a small base, but it’s going to grow. We are going to be there and I would just say that at this point in time we’re not prepared to make an official announcement, but stay tuned.

Douglas Anmuth - Barclays Capital

Okay, great. I’ll hop off for now. Thanks for taking the question.

Operator

(Operator Instructions) Our next question comes from Randall Stanicky from Goldman Sachs.

Stephan - Goldman Sachs

Hi, guys thanks for the question. It’s actually Stephan calling in for Randall; I just wanted to check up more on the research products part of the business. I know you guys mentioned last quarter that research product was actually up 4Q, but seasonally down into the start of 1Q. Are you guys seeing anything different there in terms of trends of unit volume pricing etc?

Joe Herring

Research products across the board is flattish.

Randall Stanicky - Goldman Sachs

Flattish, okay. Thanks a lot.

Operator

Our next question comes from Todd Van Fleet from First Analysis.

Todd Van Fleet - First Analysis

Good morning, guys. Under the guidance of trying to understand how quickly, the early development segment might be able to return to kind of the mid 20s margin range, you gave us an outlook regarding margins for late-stage in the back half of this year; I apologize if I missed it, but can you do something similar for early development?

Bill Klitgaard

I think what we said is that we expect margins to be more or less flat from Q1 to Q2, might be a little bit, but I think we kind of indicated flattish and then improving from there.

Todd Van Fleet - First Analysis

So, what is the circumstances then by which, given where you’re at with Greenfield, understanding what has to happen at Greenfield, what has to happen in Chandler and Chandler you said that I think previously that about 50% of the space is under dedicated capacity type of an arrangements and that the folks that you have dedicated capacity arrangements which are generally speaking back to kind of fulfill those obligations to their minimums or better in the back half of this year.

I’m just trying to understand, what are the circumstances, what’s the environment that has to exit in the industry in order for you guys to kind of get back to that mid 25% range and is it going to be a multiyear period given the growth that you expect in the back half of this year, because it’s going to take that same trajectory. If there is some kind of color you can give us on that it will be great?

Joe Herring

Todd, what we have is sort of mid point of our range here. We anticipate getting back to 20% margin by the fourth quarter and that’s the Chandler getting to breakeven and a couple of the other items that you mentioned. To get back to 25%, we’re going to have to have more volume and we are not calling substantially more volume this year, but again looking to next year, we’ll see.

Todd Van Fleet - First Analysis

Okay and so then with respect to Chandler in particular then, you said breakeven by the end of this year. Is Chandler operating at 50% capacity utilization at that point?

Bill Klitgaard

I don’t have that number on the top of my head, but again we’re less concerned with capacity utilization and more concerned with giving revenue to cover the costs and I don’t have that exact figure.

Todd Van Fleet - First Analysis

Alright, thanks guys.

Operator

Our next question comes from Ricky Goldwasser from UBS

Ricky Goldwasser - UBS

Hi, good morning. Just in clarification on guidance and I’m sorry if miss it, I came on late to the call. When we look at our model kind of under 260, it seems like very conservative assumptions. Can you just provide a little bit more color in what’s kind of like factored into the 250? Does 250 assume no margin improvement in Q3 and Q4 on the Early Development and then does it include any slowdown in Late-Stage. I understand if you’re not seeing it, but is some of it factored in the 250, the mid of the range? Thank you.

Joe Herring

Yes Ricky, it’s in our transcript, but basically the lower end of our guidance will move to hockey stick. Take the first quarter times four and that gets you to the low end of our range. That’s not what we currently see right now. A couple of things that could get you to the bottom end of the range would be a couple of major clinical trial cancellations and I’m talk about taking our historical range and add $100 million and $125 million on top of that, but for it to have an impact it needs to happen pretty quickly. All the Early Development does not recover that like we perceive.

We also have in our guidance, seasonal slowdown in Q3, which we historically see in clinical and central labs as people and investigator sites, how they and our monitors are on summer vacations, we normally see that slowdown. With the powering backlog we have, you make the argument that maybe it’s not as severe as you normally see, but that’s not how we’re calling it at this point in time. Again as we said, our Early Development is sort of flattish in Q2 and Q3 and then some recoveries starting in Q4.

So I guess, overall Ricky we’re finding it a little bit difficult to forecast in this environment. If you roll the calendar back to 2008, we’re sitting September with a record third quarter across the board, including in toxicology a record September; some slowdowns, a little light order activity in October and then booming orders in toxicology in November ended up being a false positive.

At that point in time, we’re feeling a bit more robust and then we’ve been sharing with investors since then and in January that Early Development was below budget, below forecast and below what we’re seeing as a historical sort of pick back-up after the holidays. Then Offset by a very strong Late-Stage, which we’ve been seeing that Late-Stage better than you expected it, much better.

So, we’re trying to be cautious as we can, and again the bottom of the range is flat from here for the rest of the year if anybody wants to hear it today, but I can cook up a number of scenarios that will be much better than that and if you want to be completely bearish, you can probably come up with a little bit of downsize from there, so that’s where it came from.

Ricky Goldwasser - UBS

Okay, thank you.

Joe Herring

I think the other thing Ricky is, if you turn to the page and look at 2010, there is a long list of vary favorable comps for our company, a very long list and so I think that’s something you should consider as well.

Operator

We’ll now go to David Windley with Jefferies & Company.

David Windley - Jefferies & Company

Hi, good morning, thanks for taking the question. Joe you mentioned, I think a sort of 5% increase in compounds and program management. As I remember from early years of that, that was an offering that was very appealing to smaller biotechs that didn’t have the infrastructure to manage those types of things and how, so that client base migrated up overtime? Is that becoming even in attractive offering for companies that you might assume do you have that infrastructure?

Joe Herring

We have increased nicely with large pharma companies, but still the larger portion of that days would be the companies without the infrastructure, but again even in this economic environment, molecules were up 5% sequentially and I think that’s really an important data point that shows how much that service is value.

David Windley - Jefferies & Company

Right, that is interesting; and your comments about you not expecting emerging biotech to be a driver of improvement in, I can remember if you said Early Development or toxicology specifically, but it seems like it could be I guess based on the molecules. Am I comparing apples and oranges there?

Bill Klitgaard

I think Dave we’re sort of differentiating between sort of established funded balance sheet, maybe marketed product biotech from emerging biotech and there is more of those out than I think most people realize.

David Windley - Jefferies & Company

Sure, some many hundreds. On the Lilly and taking dedicated capacity, I was wondering, if you wouldn’t mind quantifying if Lilly paid you I guess 15 plus three in the fourth quarter, what was the number in the first quarter to get a sense for how they’re tracking towards our 2009 commitment?

Bill Klitgaard

I don’t want to parse it that closely; what I will tell you is that Lilly is tracking to its annual minimum commitment for the entire contract. We expected a little bit slower ramp up in Greenfield for obvious reasons, but that’s being more than offset by GLP work and couldn’t find more clinical works, central lab work.

David Windley - Jefferies & Company

Okay, so that was going to be my next question. Some of the work that they’re sending, it’s not all an Early Development impact, so some of that’s showing up in other places.

Joe Herring

Absolutely not. As we’ve said, this is a broad based contract that covers our entire service portfolio and that’s what we’re seeing.

David Windley - Jefferies & Company

Right, absolutely. Okay, as you look out over the balance of the year and you’ve provided some detail around how you are anticipating that margins will move and things like that; how are cushioning yourself or how are you thinking about the potential for disruption of order flow and perhaps trial progress and things like that as the mergers close.

In prior conference call you said, “We picked up business from Pfizer and Michigan after they shutdown their toxic facilities” and you’ve quantified a name, some specific exposures that makes most of these companies involved clients of yours. I’m wondering, how you are anticipating that that flow may change in the midst of those kind of closures and integrations?

Joe Herring

Well, I think it’s a little early to call. I would say that in this round of mergers, we’re fortunate to be on the acquiring and in strategic relationships in Late-Stage and in preclinical, but I think our model is going to be not only in the mix, but understood and proven that the executive level of these companies.

I’m not going to make a call of that right now, but I think what we’re going to probably see is not that much of a downside impact, a continued slow from the acquired company, but there’s some really nice opportunities coming up the back end as the acquired company falls into the strategic model, which we develop with the acquiring company. Again, too early to call, but we’re at the table, so we’re pretty excited about that.

Bill Klitgaard

Again Steve, the only cushion that I would mention is the diversification we have in client base and in our revenue.

David Windley - Jefferies & Company

Right on the thought of like looking at opportunities that might come from sharing, being the targets; any historical precedent on how long it takes to get from kind of the nuts and bolts of figuring out the odd chart and working through the pipeline and killing the over locking projects; things like that that are actually being ready to have those kinds of discussions.

Joe Herring

I think Dave, you can throw out historical and the reason why is because these guys are on the hook for $4 billion, $3.5 billion and $4 billion worth of cost synergies; and I’m think in prior times it wasn’t that big and everybody sort of having a little go-get, it all rolled off or whatever.

In this I think executive management is involved and saying, “Guys look. We know we need some big ideas, we need the long list of ideas and people are going to be on the hook.” So, I think its creating a different environment. Again, pharma still moves very slow, all that kind of thing, but I think the decisions are moving higher and higher up in the organization and Bill and I am going to have a breakfast tomorrow morning with the top 10 CFO. We’ve got a dinner next week with the top 10 CFO and we’ve got a dinner next week with top 10 CEO.

I think that much activity in a lonely period of time is unprecedented and it’s not because Bill’s cute or I’m smart. They’re looking for solutions, they want to talk to somebody with a proving track record with a portfolio that can help make their fixed cost more flexible and it’s going to be really interesting.

I will tell you that, we’ve walked away from five asset transfer deals in the last 90 days. We looked at them and said “Great idea. I think it’s a right move for you, but it doesn’t go with our business model.” It’s doesn’t come with the kind of work that is really a partnership. Right now there is some that are in play where a more push it off the back of the truck can be done with it and that’s not what we’re looking at, but I do think it’s an interesting fact for you to have that I think gives you further evidence that big pharma is ready to do something bigger and different than the incremental.

David Windley - Jefferies & Company

Right, one last question; if we look at you mentioned book-to-bills kind of a space in the first quarter; if we look at dollar values, the four or five companies that have reported, the cancellations in Late-Stage efforts to $400 million and you’ve talked often in the past about the central lab being a pretty good proxy for the market, given your market share and so forth?

I guess, what I’m try to get at is, have you seen some cancellations? It seems likely that Covance had to have some of that business just by the share? Have you seen that and has it showed up and you’re observing that? Is it possible that you haven’t been notified on some of that yet and it might still be coming or do you think that the answer is that maybe you’re strength is because it’s being propped up by activities run by internal pharma staff?

Joe Herring

Okay, well first of all as we stated, cancellation rates were at the low end of our historical range. If we right now knew that there is a couple of clinical trials, where the client will notice and we may have a cancellation, we’ll be caught in that right now. We just don’t have that.

Part of it is, I think that we are building our clinical business with strategic partners who have a commitment to new molecular entities and bring innovation to the markets. Those are tend to be less susceptible to cancellation and less as an unforeseen safety signal. We have less of our portfolio in a sort of three week line extension sort of work.

So, I think there’s some things that we’ve been doing strategically that maybe help us a little bit, but to be honest with you, I’d rather stick my neck out and say “we are kind of not going forward, because you are right $400 million in cancellations is a stunning number” and some of it’s probably just a little good fortune and some of it is some of the ways we’re building our clinical relationships.

David Windley - Jefferies & Company

Alright, great. I’ll jump off, thank you.

Operator

Our next question comes from Sean Wieland with Piper Jaffray.

Sean Wieland - Piper Jaffray

Hi, thanks. Good morning. Could you quantify the level of excess capacity that you have right now in Early Stage?

Joe Herring

No. I wish we could do so, but we can’t. I mean for competitive reasons it just doesn’t make sense to do that. Everybody is guessing right now and that’s just not something we’re ready to disclose.

Sean Wieland - Piper Jaffray

Okay, let me take a step at it maybe a different way. From these levels, what’s the incremental operating margin in that business?

Joe Herring

A lot of variables, the biggest issues on operating margin in our toxicology business is a 10% sequential decline in revenue and we kept our heads and we have no attrition. Again, we think we build back to something maybe nearly 20% in the fourth quarter and during that timeframe we’ll evaluate our cost structure and again, we look at some pretty favorable comparisons in 2010.

So our goal was to try to bridge what we think is one of the best scientific staffs in the industry and be there as clients comeback. So if you think about capacity there’s room and we have room capacity, we can do rapid study starts, the biggest cost of capacity was really the incremental hedge and so if you think about that for a second, if we maintain the hedge, every new dollar of revenue that comes in has high drop through, just like every dollar that began revenue, in the first quarter had a big drop as well.

Sean Wieland - Piper Jaffray

Okay, that’s what I’m trying to get at. If I drop $1 dollar into early stage right now, how much is going to come out on the operating line?

Bill Klitgaard

A lot. I don’t have that exact number, but just if you think about our cost structure, a lot.

Sean Wieland - Piper Jaffray

$0.80, $0.50?

Bill Klitgaard

What Sean you’re trying to get at here is highly comparative information that I think we want be careful about. I think the way to think about it tough is for small units of volume, the incremental cost here is probably the animal cost and not much else and then as you start to ramp up to higher levels of volumes, start adding some marginal heads here and there, some marginal costs another way. So, the drop will vary depending upon how much incremental volume you’re taking about. At current levels the drops are high as Joe mentioned.

Sean Wieland - Piper Jaffray

Okay. Alright, thanks for taking the question.

Operator

We’ll now take the question from Douglas Tsao from Barclays Capital

Douglas Tsao - Barclays Capital

Hi, good morning. I was just wondering if you could walk though a little bit of the assumptions in terms of the Late-Stage margin and how we should think about the progression through the year. Obviously, in the press release you sort of noted that you think they’ll see some aggression if you go closer back to 20%.

Does that mean that we should look at that as finishing the year at 20% on a full year basis or is that sort of you expect for various reason an aggregate margin of 20% in Late-Stage segment and also sort of some of the things that would cause it to go back down since you clearly expect to see your progress in terms of revenue?

Bill Klitgaard

Okay Doug, I think the main thing to mention here is in Q1 and I think I included in some of my comments, we had some pretty nice richness in kits in central labs, which you’re normally testing with some other things which favorably impacted margins and so you can’t count on that for all period in times. So, there will be some decrease in margin because of that depending upon how volumes come in.

Well, to we have seasonal factors that come in usually in Q3, due to summer season people take vacations, the billability and clinical goes down. I also mentioned we’re hiring in the back half of the year to meet the volume commitment that we anticipate coming through and when you hire those people, at first are not quite as productive as they will be six months or a year from know.

So, although are factors that cause us to be a little bit more cautious about operating margins and as you suggest, you kind of exit the year with something down and closely 20% as opposed to 22% we’re at now.

Douglas Tsao - Barclays Capital

Okay, great and then obviously given the commentary from one of your competitors last week in terms of pricing in the Late-Stage business, I was just wondering if you could provide some color around the amount of no bid work that you see and what I mean by that is, particular in the Late-Stage businesses and particular in clinical development, what is the new trend in terms of the number of studies that you’re awarded, but you don’t go as your competitors did?

Joe Herring

Well Doug, I don’t think we want to comment on that. I would just say that we’ve got 22.7% operating margin over the Late-Stage and that just feels like a different planet.

Bill Klitgaard

I guess the thing that Joe mentioned earlier is that, you look at the clinical development part of our franchise and we’re now a number one or number two player for three very large strategic clients and we continue to make head way in terms of establishing our reputation for quality with clients that will pay long term benefit.

Douglas Tsao - Barclays Capital

Is that sort suggested that the amount of that is going up, has been increasing?

Bill Klitgaard

Yes, I think we’ve been successful in clinical and developing strategic relationships.

Joe Herring

Yes, absolutely and in those cases, the price is set.

Douglas Tsao - Barclays Capital

No, that’s what I sort of getting at in asking the question?

Joe Herring

Okay, you got it.

Douglas Tsao - Barclays Capital

Thank you very much.

Operator

Our final question comes from Sandy Draper with Raymond James.

Sandy Draper - Raymond James

Thanks very much. Most of my specific questions have been answered, but maybe Joe, at a very high level you talked about last quarter, are you expecting some R&D growth to be moderating down or some of the assets to come down sort of 2% to 3% of low single digit level.

I know that mostly we look at quarters as a long term, to almost maybe different; has anything happened that would change your view on long term R&D spend in the last 90 days of that merger. Just what were you seeing in competitors? Is anything changing about your long term deal about some R&D spend?

Joe Herring

Same now at this point; I think if you look at the large pharma companies that have reported so far in the quarter, almost all of them, R&D is up 2% or 3% or whatever. So in these economic times, they’re still putting money into innovation. I don’t see any other win for the pharma and biotechnology industry other than innovation. There is…

There is no hope without that and so I think you’re going to continue to see them challenge what’s in the pipeline and we’ll just never see the light of day and it is going to be meaningfully different and doesn’t have a better safety profile or how to survive under comparative effectiveness and on and on and on and on; and all that is going to require development expenditures.

So I think the attribution of that spend has contributed change. I think more of its going to be outsourced. I think changes in complexity, but I think our large pharma clients and the advisors that we’re meeting with, the advisory clients, other than that they got to get new products and so I think a lot of other furniture gets burned before that

Again, if you think about, as I said in my prepared comments, the goal post promotes this spending as an IND or NDA and if Covance can deliver that data faster and more cost effectively with nearly 2% that R&D spend, there is many, many different ways for us to win in this marketplace. Some that we can see where we have a line of sight to, other ones we haven’t thought about and our clients haven’t thought about, but again because we have such a low percentage and have such an attractive platform, we’re in a sliding.

Sandy Draper - Raymond James

Great, thanks Joe.

Joe Herring

Operator, I believe that’s the last in the queue.

Operator

Yes it is.

Joe Herring

Great. Well, thank you operator and thank you everyone for your participation on today’s call. I’ll available this afternoon, tomorrow, next week, if you have follow-ups and enjoy the rest of the day.

Operator

This concludes today’s presentation. Thank you for your participation.

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Source: Covance Inc. Q1 2009 Earnings Call Transcript
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