Iqvia – Part 1 – RFP Volumes, Order Book Growth & Labour Dynamics

Can you discuss the impact of the current R&D funding environment on trial-sponsor demand for CRO [contract research organisation] services and RFPs [request for proposals]? If you look at Iqvia’s Q3 2022 results, posted on 26 October, the company suggested very solid indicators of demand including new trial starts and RFP flow. Is that sustainable? Could we see a lag phenomenon at play here, before we see those headwinds materialise?

You mention 12-18 months. Is that the time frame we should be thinking of before we see a decline in RFPs and cancellations impacting the P&L of a player such as Iqvia, or do you think this could be a nearer-term event? Sequentially, the company’s order book and book-to-bill ratios have been expanding. When do you think we’re going to hit the peak there?

To what extent do you think the sustained growth in RFP volumes over the past 3-4 quarters has been due to a bonus of catch-up work that was put on pause during the peak pandemic years and therefore actually not representative of underlying demand?

You highlighted a slowdown in RFPs and an increase in the number of cancellations. Is this predominantly coming from a certain customer bucket or within a certain modality?

How should we be thinking about the magnitude of the slowdown in RFPs from biotech sponsors, and indeed the magnitude of the slowdown we’ll see from enterprise customers down the line? You mentioned it will happen, it’s just there will be a lag.

We will revisit the great resignation in a few minutes. Before we do, if I may, I’d like to bring this back to RFPs. We’ve seen a slowdown in RFPs and you mentioned cancellations. Are we seeing a shift in the which CROs are sent the RFPs to begin with? For example, Iqvia is considered as a high price point premium provider, and so are we seeing the company or its premium priced peers being disproportionately impacted, as customers look to go for the cheaper option?

Iqvia has reiterated over the course of 2022 and in its Q3 2022 earnings that it expects USD 7.1bn of the backlog to convert into revenue over the coming 12 months. This compares vs USD 6.9bn this time in 2021. Given everything we’ve discussed, is that likely to remain the case? Could you build on the different pushes and pulls that would go into this order book conversion?

How much of Iqvia’s backlog would you say falls under the umbrella of ATMPs [advanced therapy medicinal products] – which are at the forefront of innovation – vs somewhat more legacy therapeutics?

Iqvia has a DCT [decentralised clinical trial] offering, which the company highlighted in its Q3 2022 earnings call. In fact, it underlined the fact that the company received independent compliance validation under EU GDPR from TrustArc, which seemed to be a big deal. Is Iqvia uniquely positioned with its DCT capabilities, and does this allow the company to accelerate the time it takes to work through its backlog? We’ve been speaking about USD 7.1bn of backlog converting into revenue over the next year, do you see Iqvia actually working through more than that USD 7.1bn because of adoption of DCTs?

I’d like to talk about a hypothetical situation where we see a significant decrease in demand. How does that feed through to margins for a CRO such as Iqvia? My assumption is that this is a high variable cost business, so margins would be fairly protected in such a situation. Is that a fair assumption?

If we think about Iqvia’s RDS [Research & Development Solutions] division, what percentage of the cost base would be variable vs fixed?

How are you thinking about the ability of CRO service providers, including Iqvia, to meet demand following the Great Resignation?

Iqvia was seeing 20% attrition, down to 16-17% today. How does that benchmark vs other tier one CROs? At the market level, is this worse, better or in line?

How do Iqvia’s churn levels feed through to staffing vacancies today? What percentage of personnel are still missing at Iqvia?

You highlighted that the DCT aspect wasn’t particularly differentiating at Iqvia, but the company nevertheless estimates that around one-third of its clinical trials incorporate an aspect of DCT tech, according to an earnings call in February 2022. The term, “an aspect”, leads me to ask how penetrated is Iqvia’s DCT tech, realistically? Does this to any extent offset the labour and therefore potential margin pressures this business could be experiencing?

Assuming one-third of Iqvia’s clinical trials incorporate an aspect of DCT, what percentage of those do you think the company is realistically capturing as a meaningful ROI on or otherwise generating cost savings or efficiencies with labour, etc?

In its Q3 2022 earnings, Iqvia talks about a lag or a delay before it can pass any cost increases through to its customers, but beyond that, there wasn’t a lot of colour there. How should we be thinking about the percentage price increases that can be passed through to the company’s end customers and indeed the timelines involved, once you factor in the customer mix and the fact that the contracted backlog was contracted several years ago?

In its earnings call, Iqvia mentioned 8-9% inflation. How much of this can be passed on to biopharma customers?

What are the timelines involved in Iqvia passing on inflation to biopharma customers, especially given how these contracts are structured and when they were originally signed? Could this happen in 6-12 months? Is it happening already?

What are the other mechanisms or levers, other than price increases, that Iqvia could look to employ to protect its margins going forward? We’ve discussed how DCT probably won’t move the needle in the near term. It sounds as if the company can only pass through 2pp of that 8-9% inflation we’re seeing.

We’ve spoken about the Great Resignation at CROs. What about at the clinical trial sites themselves? What percentage of these global clinical trial sites are actually accessible today, whether due to staffing or indeed any other factor, including a coronavirus hangover effect? I’ve read that we’re not back to 100%, and there are still pockets of inactivity. Is there any way you can quantify that and discuss how you’re thinking about the ramp-up to 100% accessibility?

We talked about RFP slowdowns, but you also mentioned cancellations. How much of the USD 24bn-25bn backlog is at risk of being cancelled?

You mentioned a 35-40% decline in RFPs from biotechs vs 10-15% for enterprise. Could you run us through some similar maths for the backlog cancellation across the different customer buckets?

What percentage of Iqvia’s contracted order book do you think would involve customers that are under these so-called payment plans or other mechanisms that the company employs to keep them on the order book? We’ve spoken about RFP slowdown and cancellations. I’m now looking to understand the magnitude of that at-risk business, which is only hanging on by a thread through Iqvia’s means.

I’d like to shift gears and talk about Iqvia’s C&GT [cell and gene therapy] competencies and the wider cell and gene therapy CRO space. How should we be thinking about the level of outsourcing for C&GT clinical trials, and how that benchmarks to non-C&GT modalities?

Just to play devil’s advocate, previous Forum Interviews with former executives from companies such as Lonza, and indeed with former executives from the players that are selling bioprocessing equipment into CDMOs [contract development and manufacturing organisations], state that the outsourcing rate for C&GT CDMO services, including viral vector-based technologies, is actually decreasing and biopharma and big pharma are looking to retake control. To clarify, we’re not seeing such a phenomenon when it comes to the demand for CRO services?

Iqvia has a market-leading reputation with deep penetration into conventional and established biopharma customers. We’ve spoken about the company’s customer mix. How successfully has it pivoted into ATMPs such as C&GT? My assumption would be that the majority of C&GT players would fall in the pre-commercial emerging biopharma segment that make up less than 10% of the order book today.

How much investment is Iqvia putting into C&GT? Given the company’s capital structure – and it actually confirms as such in its Q3 2022 earnings call – it seems as if it’s increasingly changing its capital allocation priorities towards debt paydown. Presumably that comes at the expense of investing in innovation, M&A to acquire C&GT capabilities or any other CAPEX project. How sustainable is Iqvia’s position in C&GT, given that fact?

How many of Iqvia’s group level competencies and sources of competitive advantage do you think have been applied or translated well across to the C&GT unit specifically?