LabCorp 2014 Annual Report Download - page 41

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Changes in government regulation or in practices relating to the pharmaceutical industry could decrease the need for
certain services that Covance Drug Development provides.
Following the Company's acquisition of Covance, a portion of its business involves assisting pharmaceutical and biotechnology
companies navigate the regulatory drug approval process. Changes in regulations such as a relaxation in regulatory requirements
or the introduction of simplified drug approval procedures, or an increase in regulatory requirements that Covance Drug
Development has difficulty satisfying or that make its service less competitive, could eliminate or substantially reduce the demand
for its services. Also, if government efforts to contain drug costs impact pharmaceutical and biotechnology company profits
from new drugs, some of Covance Drug Development's customers may spend less, or reduce their growth in spending on research
and development. If health insurers were to change their practices with respect to reimbursement for pharmaceutical products,
some of Covance Drug Development's customers may spend less, or reduce their growth in spending on research and development.
Covance Drug Development’s revenues depend on the pharmaceutical and biotechnology industries.
Covance Drug Development's revenues depend greatly on the expenditures made by the pharmaceutical and biotechnology
industries in research and development. In some instances, companies in these industries are reliant on their ability to raise
capital in order to fund their research and development projects. Accordingly, economic factors and industry trends that affect
Covance Drug Development's clients in these industries also affect Covance Drug Development. If companies in these industries
were to reduce the number of research and development projects they conduct or outsource, whether through inability to raise
capital, industry trends, economic conditions or otherwise, Covance Drug Development could be materially adversely affected.
Covance Drug Development may bear financial losses because many of its contracts are of a fixed price nature and may
be delayed or terminated or reduced in scope for reasons beyond its control.
Many of Covance Drug Development's contracts provide for services on a fixed price or fee-for-service with a cap basis and
they may be terminated or reduced in scope either immediately or upon notice. Cancellations may occur for a variety of reasons,
including:
• the failure of products to satisfy safety requirements;
• unexpected or undesired results of the products;
• insufficient patient enrollment;
• insufficient investigator recruitment;
• the client’s decision to terminate the development of a product or to end a particular study; and
• Covance Drug Development's failure to perform properly its duties under the contract.
The loss, reduction in scope or delay of a large contract or the loss, delay or conclusion of multiple contracts could materially
adversely affect Covance Drug Development, although its contracts often entitle it to receive the costs of winding down the
terminated projects, as well as all fees earned up to the time of termination.
Covance Drug Development operates in a highly competitive industry.
Competitors in the contract research organization industry range from small, limited-service providers to full service global
contract research organizations. Covance Drug Development's main competition consists of in-house departments of
pharmaceutical companies, full-service and functional contract research organizations, and, to a lesser degree, universities and
teaching hospitals. Covance Drug Development competes on a variety of factors, including:
• reputation for on-time quality performance and regulatory compliance;
• expertise and experience in specific areas;
• scope of service offerings;
• strengths in various geographic markets;
• price;
• technological expertise and efficient drug development processes;
• quality of facilities;
• ability to acquire, process, analyze and report data in an accurate manner;
• ability to manage large-scale clinical trials both domestically and internationally;
• expertise and experience in market access services; and
• size.
For instance, certain of Covance Drug Development's services have from time-to-time experienced periods of increased price
competition which had an adverse effect on a segment's profitability and consolidated net revenues and net income.
There is competition among contract research organizations for both clients and potential acquisition candidates. Additionally,
entities considering entering the contract research organization industry will find few barriers to entry, thus further increasing