CRO earnings roundup: Big pharma picking up biotech slack?

By Melissa Fassbender contact

- Last updated on GMT

(Image: Getty/z_wei)
(Image: Getty/z_wei)

Related tags: Syneos Health, Icon, Medpace, Pra health sciences, LabCorp, Covance, IQVIA

Big pharma is driving demand for CROs, backed by promising pipelines and an ‘appetite to spend,’ says analyst.

“We continue to see a positive outlook for pharma outsourcing demand, and stand by our view that accelerating big pharma outsourcing is the primary driver,”​ said David Windley, equity analyst at Jefferies.

In line with this, industry executives at the company’s health care conference in New York earlier this year said it’s the best environment they’ve ever seen, though biotech funding is down – and has been steadily down – after peaking in May and June of last year.

In turn, big pharma is accelerating its investments, said Windley: “My read of this is that where small biotech is maybe moderating, big pharma is actually accelerating and picking up the slack.”

While pharma shifted toward functional service provider (FSP) models and internalizing work, the CRO industry went through a period in which big pharma was relatively stagnant. “Fast forward to today, and that readjustment period appears to be over,” ​said Windley. The industry is now increasing R&D budgets, backed by promising pipelines and an ‘appetite to spend’ – driving growth for CROs.

Currently, big pharma outsources an estimated 40-45% of its work; though Windley expects this percentage to trend upward, toward 60% over time. 

Across small- to mid-sized firms, outsourcing penetration averages 65-70%, a number that remains steady, balanced by the maturation of companies building internal capabilities as they grow, with the constant influx of new companies outsourcing nearly 90% of work.

Continue reading below for an overview of the recent earnings calls for the quarter ended June 30, 2019.

Syneos Health

Syneos reported a total revenue increase of 8.8% to $1,166.8m compared to the same period last year. For the company’s Clinical Solutions business, revenue increased by 8.4% to $849.9m.

This growth was driven mainly by new business, according to the company, which at the end of the quarter was awarded a ‘significant’ clinical preferred provider relationship. CEO Alistair Macdonald said the win validates the company’s “major thesis that top-tier scale would enhance our large pharma penetration.”

The client – unnamed – is one of Syenos’ largest commercial customers, which added clinical services. The additional business is expected to contribute to revenue in a more meaningful way from 2020 onward, said Macdonald.

“While this new award represents the second new clinical preferred provider relationship we've secured with the top 20 pharma companies since the first quarter of 2018, we’ve also maintained our strength in providing strategic comprehensive solutions for the small to midsize market,”​ he added.

Compared to last year, this customer segment saw double-digit growth in the first half of 2019.

Syneos also in June launched​ a “reimagined FSP model for today’s customer challenges.”​ According to the company, FSP 360 combines traditional service functions, like monitoring, project management, pharmacovigilance, and data services, with less-traditional capabilities, such as investigator payments, eTMF, site contracts, feasibility, and study startup.

Icon

The Dublin, Ireland-headquartered CRO reported revenue of $695.1m, which represents a year-on-year increase of 8.3%. For the quarter, the company’s top customer represented 12.9% of revenue compared to 14.1% in Q2 2018.

“We expect revenue concentration from our top customer to remain in line with our previous stated guidance of 11% to 13% of revenue for the full year,” ​said Brendan Brennan, chief financial officer, on the earnings call, noting that growth outside the top customers remains ‘robust.’

Said Brennan, “Our top five customers represented 36.9% compared to 40.3% last year. Our top 10 represented 49.5% compared to 55.8% last year, while our top 25 represented 69.5% compared to 73.7% last year.”

Also during the quarter, Icon completed its $39.3mn acquisition of MeDiNova​, a UK-headquartered site network with operations across the EMEA region – and access to more than 5m potential patients.

“Market demand fundamentals continue to remain healthy,”​ added Icon CEO Dr. Steve Cutler, reaffirming the company’s 2019 revenue guidance to be in the range of $2,760m to $2,840m.

Cutler noted that the CRO also is benefiting from the trend of mid-sized pharma and biotech firms reducing the number of partners with which they work. “Demand from smaller and specialty pharma also remains healthy,”​ he added.

Medpace

Compared to the same period last year, Medpace’s revenue increased 25.8%, from $170.1m in Q2 2018 to $214.1m in this year’s second quarter.

Net new business awards were $279.2m in the second quarter of 2019, representing an increase of 16.4% from net new business awards of $239.9m for the prior year.

“Regarding customer concentration, we maintain a well-diversified mix with our top 5 and top 10 customers representing roughly 21% and 31%, respectively of our total revenue for the first half of the year,”​ said Jesse Geiger, chief financial officer.

The company also updated its 2019 guidance, forecasting total revenue in the range of $840m to $860m for the full year 2019 – a growth of 19.2% to 22.1% over 2018 total revenue of $704.6m.

PRA Health Sciences

PRA reported total revenue of $763.3m in the quarter – a 5.6% growth at actual foreign exchange rates and 6.8% growth on a constant currency basis.

The company's clinical research segment increased by 6% to $702.2m for the quarter, and the data solutions segment reported revenue of $61.1m, an increase of 5%.

Read more:‘The future is challenging us to innovate our delivery methods’: PRA

“Regarding our revenue concentration, we derived 55% of our service revenue from large pharmaceutical companies, 11% from small- to mid-sized pharmaceutical companies, 16% from large biotechnology companies and 18% from all other biotechnology companies,” ​explained Mike Bonello, chief financial officer.

The company’s top five clients represented approximately 39% of revenues, with the largest client representing approximately 9%, explained CEO Colin Shannon.

Said Shannon, “Overall, the CRO environment remains stable.”

In July, PRA also bought out its joint venture with Takeda​, establishing a new subsidiary based in Japan.

LabCorp

LabCorp’s Covance Drug Development business reported revenue for the quarter at $1.1bn. Marking an increase of 6.8% compared to last year, CEO David King cited investments in the Covance team, its end-to-end capabilities, therapeutic expertise, and global infrastructure.

The company also won several new awards in the quarter, including an 8-year Phase IIIb cell and gene therapy study. Said King, “The sponsors cited a unique ability to conduct blood draws at the LabCorp PSCs, deliver and track kits and samples, perform a full range of testing at Covance's central labs, provide patient support through the Covance market access business and deliver FDA compliance data in selecting LabCorp for this important opportunity.”

Additionally, Covance introduced a new patient direct offering, which King said will streamline patient recruitment using LabCorp data.

“Taking the sponsors criteria, we sent e-mails to a targeted set of patients likely to qualify for the study based on Diagnostics code, test results and geographic location,” ​he explained. “The emails referred the patients to the sponsor's website to enroll, and they were then routed to a LabCorp service center for testing.”

Further addressing the company’s companion diagnostics capabilities, King noted that revenue from all aspects of this business grew nearly 30%, with orders more than doubling compared to the second quarter last year.

Additionally, LabCorp completed its Envigo transaction​ in June and continues to execute its Launchpad initiative​, which was expanded in 2017 to include the Covance business. As part of this, King said the company is on track to deliver $150m in net savings by the end of 2020.

Also in June, Covance filed for an Economic Revitalization Area designation​ at its Indianapolis, IN-based site, at which it looks to expand sample storage capacity and add space ‘dedicated to innovation’ as part of an $11.8m construction project, per the filing.

“We completed the $30m in cost synergies from the integration of Chiltern​ that we committed to deliver in 2020 and expect to achieve $10m in net cost synergies from the integration of Envigo by the end of 2021,”​ he added.

Iqvia

Iqvia reported revenue of $2.74bn in the second quarter, an increase of 6.7% compared to the same period in 2018. This includes a Technology & Analytics Solutions (TAS) revenue of $1,102m, Research & Development Solutions (R&DS) revenue of $1,435m and Contract Sales & Medical Solutions revenue of $203m.

Read more: Iqvia is looking to the future and opportunities in AI, after reporting $2.74bn in revenue for Q2 FY19

Last month, Iqvia also led a $14m investment round in Belong.Life​. The company's mobile app "Belong – Beating Cancer Together," is a social network and navigator app for cancer patients, caregivers, and health care professionals.

In June, the company launched​ a new ‘patient-centered endpoints’ solution, which captures the patient experience during clinical trials and real-world studies.

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