Specialist
Former EVP at Syneos Health Inc
Agenda
- Near-term portfolio capitalisation opportunities for Syneos (NASDAQ: SYNH) within the DCT (decentralised clinical trial), data analysis and remote monitoring spaces
- Syneos’s strengths and weaknesses vs other CROs (contract research organisations) such as Iqvia (NYSE: IQV), Icon (NASDAQ: ICLR), PPD (NASDAQ: PPD) and Covance (NYSE: LH), highlighting key therapeutic growth drivers in clinical and commercial segments
- Q4 2022 performance expectations, discussing new business wins, expected book-to-bill ratio, staffing and client retention ability
- Potential acquisition of Syneos and possible near-term consolidation strategy post financial deterioration
- 6-12-month company outlook under new CEO and CFO, given deceleration of invested capital in biotech
Questions
1.
Q3 2022 was an extremely hard quarter for Syneos, as predicted by many in the market before that as well, with a very low reported clinical book-to-bill ratio. This ratio was about 1.39x in 2021 and ended up being 0.67x at the end of Q3 2022. Some attribute this to operational inefficiencies, slower adoption of new technologies and the inability to complete all the mergers it had conducted. What do you think contributed to the substantial decline? Do you think this was a one-off? Where did those missing bookings go?
2.
Hiring CRAs [clinical research associates] has been a major problem for CROs [contract research organisations]. Do you mind highlighting this problem for Syneos?
3.
How much would you attribute the unpredictability of the dependence on small-to-mid-size biotech customers for Syneos? Is that a particularly large problem the company is running into?
4.
I’m hearing that Syneos has huge issues on the operational and talent side, but there could potentially be some hope in a turnaround. I’ve heard from another specialist [see Syneos Health – Clinical Service Offering Analysis, CRO Strategic Positioning & H1 2023 Outlook – 23 November 2022] that the company still should post a book-to-bill ratio over one in 2023. Would you agree with that or do you still expect it to be less than one over subsequent quarters?
5.
You touched on RFP [request for proposal] flow, but what are your expectations for Syneos’s RFP flow at the end of Q4 2022? RFP flow was down YoY across the board for the large and mid-sized clinical segments. Why was there a decrease in customer relationships? Can the company’s existing partnerships make up for this loss?
6.
Given Syneos has taken some money out of the sales force reduction and RFP flow, how significant do you think that will be over Q1 2023? Can the company potentially increase that RFP flow over subsequent quarters? How long will it take to rebuild a pipeline after the weak bookings performance in Q3 2022, and what is its ability to bounce back?
7.
You mentioned there has been a deterioration in Syneos’s portfolio over the last year or so. Apart from the issues we discussed, I just wanted to focus more on the service offering side of things. What makes you come to this conclusion? Is there a lack of focus on the high-growth-margin therapeutic areas such as CNS [central nervous system] and immuno-oncology? What are some of these ancillary drivers for the company’s worsening portfolio?
8.
Other than talent, does Syneos have any other issues at the scientific or operational level for high-growth-margin therapeutic areas?
9.
What parallels can be drawn between Syneos and other similar-sized CROs? Can you provide some reasoning for the company’s competitive losses? What factors do others possess that it doesn’t? It seems to be losing market share rapidly. Why would a customer choose it over another vendor, and vice versa?
10.
Could you expand on Syneos One?
11.
Given the downturn, do you expect mid-market players, other than Parexel, and tier 2 CROs such as Medpace to disrupt Syneos’s market share in the near term? Could this be a significant threat right now? Some specialists have said Medpace is probably one of the only few CROs who could potentially catch up, but how is that distinction taking place right now?
12.
Syneos’s clinical segment has always been the clear breadwinner, with a lot of its talent in place. Can you comment on the segment’s growth potential, given the ability to staff and book-to-bill are both at risk? In addition, given CEO Michelle Keefe has more of a commercial background, do you think there’s a possibility for this division to suffer even more in Q1-2 2023?
13.
You mentioned Syneos’s commercial segment had decent quarters but nothing out of the ballpark. What are your expectations for the company’s commercial pipeline, given customer uptake. How would you assess the demand for that? I know there was a slight commercial bump last reporting period. Is this growth sufficient, not to make up for the loss but maybe to keep it afloat for a bit?
14.
Syneos now has a commercial leader who is trying to throw more resources at the commercial group, and clinical is the bigger dominant part of the company’s portfolio at around 70/30. How might that percentage shift?
15.
An alternative point is that the commercial space is not as attractive for customers at the moment. Would you agree with that? Why or why not? How would you assess customer demand, given Syneos is trying to do so much with the commercial pipeline? Is it worth pursuing during a recession?
16.
Do sponsors prefer an end-to-end solution that can do everything using a collection of best-in-class vs more of the niche FSP [functional service provider] players? In which direction is the trend headed, and how would you describe Syneos’s efforts to be in hybrid solutions? Is it moving the needle that much?
17.
Given how poorly Syneos has performed the last several quarters, what is the likelihood that it will get acquired? I know you indicated the company is a target for acquisition. Even the market volatility indicates a huge sell-off. What do you think the time frame looks like, and who could be the potential acquirers in terms of who is a natural fit? I’ve heard a PE firm could acquire it, or it could merge with a player such as PPD or Covance.
18.
You touched on Syneos’s lack of ability to retain larger pharma customers. What challenges does the company face around retaining large pharma customers? Is it at the mercy of the significant amount of delays and cancellations with these large pharma customers that could have potentially disrupted its relationship there? How does it deal with this? Is this considered a strong pain point?
19.
Could you elaborate on Syneos’s diversifying customer segmentation, given there are challenges across the board? How can it keep up with diversifying customers?
20.
How integral is Syneos’s partnership with Cryoport to advance C> [cell and gene therapy] by integrating biopharmaceutical and supply chain solutions? What synergies can be realised on the C> front? I know some CROs struggle with this, such as Iqvia – which is actually one of the biggest players – so it’s interesting to see what steps each CRO has taken in this space.
21.
Do you think Syneos is well-positioned to pursue DCT [decentralised clinical trial] opportunities in comparison to others? Does the company still lag here? I know you mentioned it is at a disadvantage, given the data management platform it has used over the years, with Medidata, Veeva and other companies. Could you elaborate on that and how significantly it has fallen behind on the innovation front here?
22.
How has Syneos’s strategic partnership with Medable assisted in reducing the site and patient burden by improving enrolment and retention? The company just expanded its partnership with Medable in December 2022. Do you think this could possibly augment DCT capabilities and help in catching up, given it’s so weak in this segment?
23.
There have been rumours around Syneos potentially acquiring Medable. Is that something you could see going forward?
24.
One of Syneos’s surveys recently showed an increased focus on digital health technologies, with approximately 33% of respondents stating they are actively seeking deals or it remains a cornerstone of their deal-making strategies. It seems a big missed opportunity. How has and could the company have taken advantage of digital health partnerships?
25.
Syneos recently announced the transition of the new CFO at the end of March 2023, probably as a result of multiple factors. What are your thoughts on Jason Meggs and the company’s leadership team in its entirety, to potentially streamline the organisation before handing it over? How timely is this transition?
26.
What is your 6-12-month outlook for Syneos? Is there much leeway for the company to wiggle out of this situation it’s in, or is it potentially only downhill from here for the next couple of months? Can you highlight a couple of growth metrics or something investors should be paying attention to over the next couple of months?
27.
Is there anything else that we should be aware of that we may have missed, or anything you think is important to summarise?
