Mid-sized CROs set to outperform larger providers, analyst

By Dan Stanton contact

- Last updated on GMT

Image: iStock/Delpixart
Image: iStock/Delpixart
Quintiles, Parexel and Icon are likely to report declining bookings growth in their upcoming financials, says a Jefferies’ analyst, but mid-sized CROs should fare much better.

Public companies are preparing to present their results for the quarter ending December 31 – and for many the full year 2016 – over the next few weeks, but according to Jefferies’ analyst David Windley, market growth in the contract research organisation (CRO) space will fall short of the industry predicted 6-8% through to 2020​.

“Our industry analysis suggests actual market growth is 5-6%, and 4-6% for CROs core Phase II/III market,”​ he said in a note.

One factor of concern going forward is the decline in net bookings over the past few quarters, among the largest public CROs. Such figures are often overlooked by more positive book-to-bill ratios, but Quintiles, Parexel and Icon have all seen a decline in outright bookings in four of the past five quarters.

“We believe the declining bookings growth among the largest CROs has been a matter of slower R&D growth from large pharma and higher than usual cancellations in 2016,”​ Windley noted.

On the flip side, a number of the mid-sized public players – PRA Health Sciences, Parexel, and INC Research and Medpace – have reported double-digit growth in bookings over the past two years, he continued, adding such players “are better positioned for continued 2017 growth.”

Late-stage vs early-stage

Windley places the overall CRO penetration rate at 46-50% but says the core Phase II/III space is more mature at 55-60%.

“Our recent sponsor survey suggests that ‘peak’ outsourcing is declining as sponsors re-evaluate the strategies around late-stage outsourcing. This ultimately is decreasing the outsourcing penetration runway and signals CROs will need to expand services sooner rather than later.”

And this is driving the early-stage development space, he continued.

“Early development CROs are benefiting from increased outsourcing penetration while seeing their long-term growth runways extend; a win-win in the near, intermediate, and long term.”

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