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  • Writer's pictureJoel White

Clinical Research Focus: Q2 Earnings Review

To new readers- I write these for my own edification, so that I can serve clients better. Not investment advice.


Calendar Q2 earnings recap across publicly traded clinical research companies:

  • Yes, IQVIA paid $300 million for a site network (CCT in Arizona). This extends several years of large CROs acquiring substantial site networks. PPD runs over 150 sites through AES. I remember taking a peek at PMG while at Chiltern, only to see ICON swoop in buy it. ICON, by the way, quietly acquired the rest of Oncacare recently. Sites are not poor- the best site networks have better margins than most CROs. I anticipate much more M&A activity in the site space for some time.

  • There are pros and cons to private equity entering the site space more forcefully, but a clear positive is private equity’s ability to help service providers like sites rapidly improve cash flow performance.

  • Is it ethical for a CRO to own sites and SMOs? I’m not the expert there, and would like to hear other’s thoughts. Several years ago, I interviewed at a company where its CRO was on one floor of a high rise, its SMO was a couple floors down, and its premier research site was down the road. Personally, I didn’t see a problem with it.

  • IQVIA mentioned buying an SMO for $30m. I deleted a recent post suggesting this was Benchmark, after the seller told me they sold for far more. IQVIA IR never got back to me. Done chasing this down!

  • Medpace and IQVIA continue holding extremely strong while I see and sense slowdowns across the other bigs- simply a continuation from prior quarters and suggests an ongoing longer-term shift in market share.

  • For capital allocation geeks out there- Medpace has reduced its share count by >15% since going public. Soon I will share a multi-year comparison of Medpace and Syneos with respect to capital allocation decisions. Eye-opening, to say the least.

  • DSOs / cash flow performance continues to be called out as a concern across the board. First time I’m seeing reference to part of this being due to biopharmas of all sizes holding on a bit to take advantage of higher interest rates. Folks- be cash positive!

  • Attrition is noted as largely being back to pre-COVID levels, with progress finally seen on the site side.

  • Charles River performed well financially (as usual), but expects pressure over coming quarters due to “reprioritizing pipelines and tightening R&D budgets” and a “more cautious biopharma spending environment”. I don’t subscribe to the theory that early stage predestines later stage demand in a forecastable way, but if YOU do then the outlook is negative.

  • Walgreens is off to a slow start. They hired up to start the business in late 2021, launched in mid 2022, and only have 8 contracts through June 2023. Maybe those are wonderful high-quality contracts. But a company like Walgreens needs quality AND quantity. Given the lack of press or details around those contracts thus far, I’m not seeing significant progress. CVS was off to a better start and is shutting it down. I want all service providers to succeed, but I don’t see biopharmas flocking to pharmacy chains for breakthrough performance in patient recruitment.

  • Pharmacy chains can make this work, but they have to be extraordinarily patient. Contract bookings take time to convert to meaningful revenue. That revenue will simply not make a dent in their total company growth rates for many years. A company with cash flow problems like Walgreens is not going to find near-term salvation in clinical research.

  • Fortrea had a tough entry to the public markets that surprised few. Book to bill looked good on paper but was heavy on renewals, with RFP volume “soft” with “mix” issues. Revenue is shrinking. A “margin optimization plan” (the “MOP”?) is in effect. DSO is 86 days. Tom Pike has his work cut out for him, but let me tell you- Tom Pike is the right guy for the job. I’m eager to see improvements from here. They should buy some sites. And FINALLY- they acknowledged the existence of Endpoint!

  • Syneos, on the other hand, leaves the public markets shortly (date TBD). It was Q2 last year where Syneos posted its first <1.0 book to bill, explained at the time as delayed customer decisions. The bottom fell out in Q3, and I was telling investment firm clients at the time that if Syneos didn’t at least get back up to where everyone else was in 1-2 quarters, you could be looking at long-term market share losses. Fast forward and you now see the 5th consecutive <1.0 book to bill (0.92 for clinical), and consequently consecutive negative growth rates in revenue. Long road back but I’m bullish given the go-private and certain executive team upgrades.

  • Thermo Fisher keeps leaving me wondering “Where’s Waldo?” when it comes to PPD. Amidst a difficult quarter, with several of its business seeing significant declines in revenue, it took multiple analyst questions to tease out that PPD is running “double digit” growth rates. Happens every quarter. It’s ok to shout it from the rooftops- PPD is a great business!

  • Science37- I don’t usually cover their financials because they’re so small (~$15m rev/qtr). It’s their stock price volatility that got my attention. On a typical day, ~500k shares change hands and the price moves a few pennies. Yet on 09-10 August, 63m shares traded, against a float of 95m, and the price more than doubled! More confounding is the lack of obvious reason why. I don’t think it was earnings- earnings came out that Tuesday morning and were unremarkable, and volatility didn’t kick in until Wednesday, and even then not until an hour after the market opened. I called it a “meme stock” rally because when I was watching it real-time, the only cause I could find was serious pumping on Twitter and Reddit. Dan Sfera called it a “pump and dump”, and I think he’s right. By the way, the price is back around where it was before the pump.

  • I’m starting to cover Certara (owner of Pinnacle21), Veeva, and Catalent, which may start appearing in future recaps.

Have a great Monday!


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