Goldman Sachs: 2008 Could Favor Clinical Research Companies With an Early-Stage Focus
NEW YORK (AP) -- Charles River Laboratories International Inc. caught a boost Thursday after Goldman Sachs painted a bright outlook for companies focusing on early-stage drug development. Record bookings continue to support a positive outlook for the sector, analyst Randall Stanicky said in a note to investors. The sector is further supported by a larger movement to outsource drug development and higher spending on research and development by large pharmaceutical companies.
But, the trend will bring a bigger benefit to companies like Wilmington, Del.-base Charles River and Princeton, N.J.-based Covance Inc., which have a large focus on the less labor-intensive preclinical and early-stage drug development programs. Meanwhile, companies with a larger focus on late-stage drug development, including Wilmington, N.C.-based Pharmaceutical Product Development Inc., could face higher risks in 2008.
"Given the aggressive hiring, we see a risk to late-stage margins should we see unanticipated cancellations or greater than expected increases in backlog duration as we do not expect headcount reductions in the current market environment," Stanicky said.
Pipeline development activity may signal strong demand for early-stage development, he said, citing early-stage pipeline growth of about 25 percent in recent months. Late-stage growth remains steady, he said, but more moderate with 15 percent growth for midstage and late-stage programs.
Charles River shares rose $1.57, or 2.9 percent, to $55.52, while shares of PPD fell $2.19, or 5 percent, to $41.74. Covance shares fell 70 cents to $41.75.
Overall, clinical research organization shares have been outpacing the S&P 500, he said. He upgraded Charles River to "Buy" from "Neutral" while increasing the price target to $73 from $71. Meanwhile, he downgraded PPD to "Neutral" from "Buy" while cutting the price target to $51 from $55. He also reaffirmed a "Buy" rating and $22 price target for Covance.
Elsewhere in the sector, he cut price targets for several companies including Canada-based MDS Inc., Cincinnati-based Kendle International Inc. and Waltham, Mass.-based Parexel International Corp.
MDS shares fell 2 cents to $16.93, Kendle shares rose 9 cents to $41.14, and Parexel shares rose 3 cents to $26.24.