Here are the important themes I took away from calendar Q1 earnings reports across publicly traded CRO and eClinical companies:
Book to bills and revenue growth are rapidly diverging, suggesting significant shifts in market share towards IQVIA and Medpace at the expense of Syneos and, based on their commentary and my own exposure to the industry, midsize CROs.
For most of 2020-2022, larger CROs were posting book to bills mostly within a 0.05 range of each other, while you are now seeing IQVIA and Medpace consistently post 1.25 – 1.30 and higher while ICON and LabCorp are slipping towards 1.20 and lower, and Syneos is continuously well below 1.0.
The lower performing CROs explain their declining performance to "macroeconomic headwinds", "funding challenges for our customers", the "non human primate issue", and- the most bizarre comes from LabCorp and was repeated multiple times- "customers are waiting until after the (spinoff) transaction is complete to award new business".
The higher performing CROs, by contrast, might mention some funding difficulty among parts of the customer base, but insist they’re not seeing it impact RFP and award flows, and most importantly they’ve been emphasizing that for multiple quarters now. IQVIA’s CEO flat out says “we are not seeing any funding issues" and "we’re not seeing any sort of slowdown in terms of clients not wanting to start trials".
Cancellation rates are tough to tease out, but across most CROs, eClinical companies, and non-publicly traded parts of the industry I work with, they are increasing from 2020-2022 levels to pre-COVID norms of 15%-20%.
The pricing environment is far more competitive and difficult than in recent years. A few quarters ago the commentary was price increases being a non-issue, and that’s no longer the case.
I was asked why Syneos was acquired for “such a low premium”. You have to look at their abysmal quarterly results that were reported a few minutes after their go-private transaction was announced. I can’t prove it, but I’m fairly certain their share price was going to implode following those results. On that basis, the premium was not so low.
Labor attrition is rapidly declining, back towards and in some cases low than pre-COVID norms. It was mentioned, however, that clinical sites continue to see elevated labor attrition which is affecting study performance.
Backlog conversion continues to lag out as vaccine backlog is replaced with oncology and other longer-duration therapeutic work. This dynamic explains why a 1.20 book to bill doesn't get you the same revenue growth as it did the past few years.
Bad debt reserves are increasing in response to bankruptcies and payment delays.
AI/ML was mentioned far more frequently than decentralized trials, the latter hardly an afterthought.
Thermo Fisher needs to get more specific on PPD’s performance- if anything for the sake of its share price, since PPD seems to be outperforming the rest of its business and likely gaining market share (revenue growth “mid-teens”, book to bill undisclosed).
I’ll say it again- we need more publicly traded standalone CROs, site networks, patient recruitment, and eClinical companies! We’ll lose one when Syneos goes private, and gain one when Fortrea is spun out from LabCorp.