Specialist
Former director at Medpace Holdings Inc
Agenda
- CRO (contract research organisation) operating environment post the biotech funding slowdown and subsequent impact on Medpace’s (NASQ: MEDP) positioning
- Service offering analysis across early and late stage clinical trials – DCT (decentralised clinical trial) offerings, C> (cell and gene therapy) research, bioanalytical capabilities and oncology and neurology pipeline among many others
- Competitive landscape for Medpace vs other CROs, noting key points of differentiation such as its one-stop shop offering, science-oriented leadership team and unique partnerships
- Expectations for Q4 2022 results, focusing on backlog conversion rates, projected revenue growth, customer adoption and new revised guidance
- Medpace’s 6-12-month growth trajectory, discussing elbow room for potential M&A and capitalisation opportunities
Questions
1.
There was a large market decline in the biotech funding between 2022 and 2021. Is this a critical point for Medpace? Some have suspected so, but you seem to think the company is well-positioned to garner a larger market share. What makes you say so and has it been able to figure out its priorities and invest in the right places?
2.
Could you elaborate on some of the larger macro trends at play for Medpace?
3.
Shifting gear, let’s discuss Medpace’s Q3 2022 results and Q4 expectations. The company had a slight decrease in YoY net book-to-bill ratio at the end of Q3 from 1.3 to 1.23, perhaps indicating diminishing demand. What is going on here? What are some of the issues that you’d like to address? Do you think this was a one-off?
4.
Medpace is expecting more than USD 1.7bn in revenue in Q1 2023 . Do you think that is a reasonable expectation or an attainable goal for the company given some of the challenges?
5.
Should we be expecting a continued decrease in net book-to-bill ratio or some sort of turnaround at the end of Q4 2022? Do you think Medpace can reach its peak of 1.49x in Q4 2022 or do you expect it to fluctuate more going forward? I know the company seems to have a lot of up and downs.
6.
Could you elaborate on what is driving cancellations? You said Medpace may have one large study that may have been delayed or cancelled, so what is going on in there? Is it only attributed to labour or are there other factors at play for the company?
7.
Would you expect Medpace’s net book-to-bill ratio to be higher or lower than 1.38 going forward, given everything we’ve spoken about?
8.
Would you expect the cancellation rate for Medpace to be more than 3-5%, which is categorised as the industry norm, and are there any other red flags to highlight? You mentioned some of the possible risks of cancellation are dried-up funding or recruitment, or discouraging results mid-study.
9.
Backlog is an essential indicator of CRO [contract research organisation] due diligence, with a growing one considered a sign of momentum while a declining backlog signifies challenges. Medpace witnessed a decline of backlog all through 2021 but started to wiggle out at the beginning of 2022. Other than the pandemic, what are some other factors at play here?
10.
Medpace experienced quite a jump in revenue, with a 29.8% change from 2021 at the end of Q3 2022. What has been driving this growth and what are your expectations going forward? Can the company keep up with the sustainable growth?
11.
Do you think the cost of doing C> [cell and gene therapy] trials is what is limiting Medpace, or has it started to go into that space? I know a lot of CROs have already started to make movement into that space so how is the company positioned on the C> side?
12.
A previous specialist noted that strategic sourcing, which is labour including CRA [clinical research associate] changes, has been a pain point for Medpace’s clinical pharmacology unit for phase 1 trials. What challenges may the company have been facing in this segment or do you think there haven’t been many challenges?
13.
Given Medpace mostly starts out with phase 1 with smaller biotech clients, how fortunate has the company been in moving to phase 2 research? Can you comment on the various stages of clinical research and how it’s been able to monitor success and move into the next phase, and how good it is at doing that?
14.
How significantly is Medpace impacted by the industry-wide shift towards DCTs [decentralised clinical trials] and hybrid trials? As you said, why is the company not trying to do any large-scale all-remote trials? I’ve heard there is no such thing as a fully DCT. Is there a particular reason for this? Is it not as big an opportunity as people think?
15.
Medpace has its own in-house bioanalytical and imaging arm. Can you comment on both these departments and how they’ve evolved over 2022? The company has been known to have extremely strong capabilities for both. Do you see it potentially undergoing more organic growth?
16.
I have heard positive things about Medpace’s leadership team across the board, including yourself. Could you elaborate on the team’s capabilities and how this would be a potential differentiating factor, respective to other CROs? Is this a standout factor for the company?
17.
To circle back to the previous question, is having the capability to do bioanalytical and imaging in-house something that differentiates Medpace significantly?
18.
Do you expect Medpace to potentially grow more organically, or to buy out some smaller firms?
19.
How would you compare Medpace and Covance’s positionings in the CRO market, given Labcorp just decided to finally spin off Covance? Do you think that might level the playing field for the two players, given Covance, while not a new company, has to rebuild itself after this spin-off?
20.
You indicated that Medpace’s key differentiating factor is being very science- and biotech-oriented. Could this also be a cause for concern in terms of being too focused on small-to-mid-sized biotechs, maybe slimming margins in that sense, given all the past funding issues? Do you think the company needs to diversify its customer base or should it continue in this light?
21.
How would you assess the potential for increased partnerships or mergers for Medpace? Do you think the company will be quick enough to pick up on these partnerships? Could it be quicker than Pfizer or larger companies? Do you think it can outpace those acquisition rates that are going on?
22.
Which therapeutic specialities has Medpace found its niche in? Nephrology, oncology and cardiology seem to be some of the leading fortes. What might I be missing? Could you elaborate?
23.
You mentioned that Medpace’s central lab doesn’t conduct all the tests, so the company may have to outsource to other labs. To what extent might this drive away customers who are looking for a one-stop-shop offering? Is that a potential risk?
24.
Might you distinguish between Medpace and larger CROs, including Iqvia, PPD and Syneos, on the basis of service offerings, quality, price differential and quality of regulatory oversight? How does it differentiate itself from the rest?
25.
Other than the laser focus and scientific foresight, are there any other factors that might differentiate Medpace?
26.
How vulnerable is Medpace to high customer turnover? Is the company frequently dealing with one-product companies, or do the benefits of this diversification outweigh the high turnover rates?
27.
What projects and programmes should Medpace prioritise vs de-prioritise? What are the high-growth opportunities at the moment and what strategy could the company implement? Is it missing the boat somewhere?
28.
What are 2-3 key takeaways investors should be paying attention to with Medpace’s Q4 2022 results releasing mid-February 2023? Is there anything specific that investors might have overlooked or misunderstood that might help the assess the company’s real growth, or what’s happening behind the curtain?
29.
Is there anything else investors should be paying attention to around Medpace?
