Quintiles Transnational Holdings, the world's largest medical contract research provider, forecast full-year profit above market expectations as drugmakers looking to launch new products choose to outsource clinical development as a way to cut costs.
Chief Executive Tom Pike said drug companies had more drugs in development as approval rates increase, benefiting large contract research organizations that will run the trials for the drugmakers.
Spending on drug development, especially by Big Pharma, had fallen in the wake of the recession and a profit squeeze brought on by several blockbuster drugs going off patent.
"We are seeing increase in (request for proposal) volume which supports our belief that the industry is growing by 5 to 8 percent," Pike said on a conference call with analysts.
"There is an aversion among top (pharma) executives to repeating the pattern of the last 15 years — hiring followed by layoffs."
Smaller peer Charles River Laboratories International Inc cited an increase in clinical development for the better-than-expected quarterly profit that it reported on Wednesday.
Quintiles, which raised $947 million in its initial public offering in May, says it helped develop or commercialize all of the top 50 best-selling drugs on the market.
The company on Thursday forecast a 2013 adjusted profit in a range of $1.95 to $2.05 per share on service revenues of $3.76 billion to $3.81 billion.
Analysts on average were expecting a full-year profit of $1.88 per share on revenue of $3.81 billion, according to Thomson Reuters I/B/E/S.
Quintiles reported net income of $38.5 million, or 30 cents per share, for the second quarter. Revenue was $1.29 billion, while new business rose 13 percent.
Excluding certain items, earnings were 50 cents per share.
Analysts expected earnings of 46 cents per share on revenue of $942.93 million.
Margins improved as the company reduced costs by nearly 12 percent in its integrated healthcare services business which provides marketing and consulting services to biopharmaceutical companies.
Quintiles shares were up 2.8 percent at $46.13 on the New York Stock Exchange on Thursday. They touched a high of $47.49 earlier.
(Editing by Robin Paxton and Joyjeet Das)