Specialist
Former Director at Cytel Inc
Agenda
- Significant trends and developments within a capital-constrained CRO (contract research organisation) market, delineating the major competitors in the space, including Iqvia (NYSE: IQV), Icon (NASDAQ: ICLR), PPD, Medpace (NASDAQ: MEDP) and Syneos (NASDAQ: SYNH)
- Overall market growth assessment breaking down key criteria – book-to-bills, product expansion, market shares and price wars
- Pre-clinical and clinical research capabilities and associated funding environments, differentiating on the basis of competency and required assets
- Consolidation and divestiture activity, especially following Labcorp’s (NYSE: LH) divestiture of Covance, discussing areas of potential M&A – pharmacovigilance, health economics, clinical trial design and tech solutions
- 6-12-month market outlook, outlining near-term headwinds/tailwinds, R&D growth opportunities and therapeutic clinical advancements
Questions
1.
One trend that I’ve been hearing about is that CRO [contract research organisation] giants have become very rigid and inflexible, leading to significant customer fatigue. Do you think mid-tier players will continue to steal that market share due to their nimbleness and agility compared to the larger CRO players?
2.
To provide clarification on the general CRO landscape, could you break down the relative positioning of larger and mid-tier conglomerates? What really draws the line between those tier 1 and tier 2 players?
3.
Do you think larger CROs are able to keep up with the newer technological trial designs as well as utilisation of AI at the level that smaller CROs have? You mentioned larger players have been struggling with this, so are we going to see erosion in market share with smaller players coming to the forefront? Who has been able to lead in that regard?
4.
Could you elaborate on the trade-off in terms of the customer criteria? How does it differ for one customer? How many customers are willing to pay that higher cost just for the patients?
5.
You mentioned there are a lot of price wars going on within the CRO space, including higher price sensitivity. What does that mean for the major CRO players and how would that hurt them? Might this be a significant problem going forward?
6.
I’ve heard concern around larger CROs possibly not being able to give customers the same amount of attention as a smaller or mid-sized CRO. Is that a risk or determining factor that could lead customers away from larger CROs?
7.
To address the elephant in the room, Syneos is to be acquired by a consortium of PE investors for about USD 1.3bn. Does this make sense, given the timing? What implications will this have on Syneos as a company given all the challenges it has been facing in the past year?
8.
Appreciating all the concerns around Syneos, what could the PE buyout really mean for the company? Could this be the opportunity for it to turn things around? Previous specialists have noted that they don’t think the company will be able to turn around, given the leadership issues, lack of data presence and therapeutic problems.
9.
What are your thoughts on Labcorp’s divestiture of Covance and its rebranding to Fortrea? Has this been a long time coming, given all the challenges following the acquisition and market sentiment? You mentioned the company needs to clean up its act a bit. How has this evolved over the last six months?
10.
Do you think the rebranding will have any impact on Covance and Fortrea, especially with increasing customer adoption and more competitive positioning? Covance historically had its pre-clinical and central lab business, which may have been a differentiating factor. How do you view Fortrea’s position as phase 1-4 focus?
11.
Fortrea’s most recent 10-K showed a margin profile quite below its public peers. Why do you think that is? What could be driving that? Is that a side effect of the rebranding and refocus?
12.
The CRO deal space continues to buzz following Genesis Drug Discovery’s acquisition of JSS Medical Research in May 2023 – another in a string of industry consolidations. What deal-making decisions are worth mentioning and have changed the scope of the CRO industry? How do you see consolidation evolving? There’s PE interest and, as you said, Iqvia needs to pick up smaller candidates to remain competitive.
13.
Thermo Fisher acquired PPD in 2021, and we’ve seen other life sciences company making M&A moves – Danaher was looking at a CDMO [contract development and manufacturing organisation] company. What is your expectation for the entry of life sciences or large-scale pharmacies to the clinical trial space? What nuances do they need to be aware of?
14.
From a life sciences perspective, pharmacy chains such as CVS and Walgreens don’t quite make sense as entrants to this space. Danaher, however, could be a potential player, and could be a notable entrant into the CRO market. Is that something that you could see it potentially doing, and perhaps acquiring a smaller player as Thermo did with PPD?
15.
What are some noteworthy changes with clinical trial designs, especially as in a hybrid and decentralised clinical trial environment, there have been multiple attempts to increase levels of competency and find alternative approaches? How are CROs optimising DCT [decentralised clinical trial] capabilities either organically or inorganically?
16.
The lack of vendors in the pre-clinical space, despite huge investments here, is a problem. How significant is this lack of competency and what challenges exist? Access to resources and supplies of non-human primates remain problematic.
17.
What are your expectations for book-to-bill ratios and RFP [request for proposal] flow for major CROs? Do you believe investors unfairly overvalue the book-to-bill ratio? The general health range is 1-1.3x. What is your assessment for B2B ratio growth? What challenges prompt that conclusion?
18.
Do you have any concluding thoughts on CRO industry-related headwinds, tailwinds or focus areas?
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