Icon braces for BMS-Celgene merger to slow RFP activity

Bristol-Myers Squibb looks set to close its $74bn (€67bn) takeover of Celgene​ around the middle of next year. Based on what happened in the previous round of biopharma mega-mergers, analysts have tipped​ the takeover to cause a degree of disruption for the contract research organizations (CROs) that serve BMS and Celgene.

Icon was one of two CROs BMS partnered with in 2010 and has retained the client through two contract renewals. 

David Windley, an analyst at Jefferies, thinks BMS and Celgene may collectively account for more than 10% of Icon’s revenues, an estimate that management at the CRO confirmed is in the right ballpark.

Icon CFO, Brendan Brennan, recently discussed the situation with Windley.

Windley said, “[Management] told us that both clients were continuing to issue RFPs (acting pretty normally) through 3Q and that continues. However, Brennan is prepared for activity to slow down. It’s just hard to anticipate when and for how long.​ That expectation seems appropriate, while also characteristic of [Icon’s] conservatism​.”

The slowdown could create a headwind in a large, but relatively slow growing, part of Icon’s client base.

Large pharma companies currently account for around 60% Icon’s revenues. Pre-revenue biotechs bring in less than 10% of Icon’s sales, with mid-sized biopharma companies, between these two extremes, accounting for the rest.

The growth rates among the three pools of customers are inverse to their size, with large pharma being slow and steady compared to the faster-rising revenues from smaller clients.

Brennan said, “The large pharma partners are still chugging away. They’re doing their 2​-3% of R&D growth on an annual basis. We still see some rotation between CROs. That’s been an area where there have been a couple of competitions during the course of the year. We’ve been successful in getting our foot in the door on a couple of new accounts.​”

Icon did not publicize the wins at the time, in part because they are just a step on the road to making more revenue from the undisclosed clients.

As a new partner, Icon expects clients to initially try it out with relatively small, $20m projects, rather than hand it $200m in business straightaway. If Icon proves it can meet the client’s needs, the $20m project will be the start of a slow ramp that over time results in a significant amount of business.