ICON Public Limited Company (ICLR) Earnings Call Transcript & Summary

Hi, and welcome to the 2021 Credit Suisse Healthcare Conference. I'm Judah Frommer, the senior analyst covering biotech at CS. I'm happy to introduce ICON and Brendan Brennan, who will be presenting in the next couple of minutes. [Operator Instructions] And with that, I'll turn it over to ICON. Thanks again.

Thank you, Judah. It's great to be asked if only virtually the Credit Suisse conference. Those of you who know ICON well will know that I'm usually based in Dublin, and you may be somewhat confused by the sun streaming through the window here today because I'm actually in our Raleigh office in North Carolina. So enjoying some nice U.S. sunshine and very excited about the fact that later in the week, we'll be meeting some investors face-to-face for the first time in what feels like quite some time. I'm ably accompanied today by Kate Haven, who is our new VP of Investor Relations. Kate's doing the magic in the background, as you can see on the screen. And I suppose one of the big piecing and we want to talk about it today and the talking points, of course, is the combination of 2 great organizations and what we're calling the New ICON, that was the legacy ICON organization and PRA organization. When we start off our slide deck today with some of the stats of the combination of those 2 great organizations. Now a company globally with 38,000 employees right across the globe, 147 offices, 46 countries and 31 years. So a very, very strong organization. We have the real breadth and strength and depth that we need as a global CRO to be a partner to both a large pharma but also to the very small biotech because, as we all know, what's most important in terms of clinical research is that people are getting patients on trials and that's why you need that span and breadth of the service and depth of geographical presence. So ICON is predominantly a Phase II through III Phase clinical organization. Of course, we do Phase I through IV clinical studies, and you can see it mentioned on the slide there. As you can see, our gleaning background of that particular slide is the ICON Dublin office, which is, of course, where we were headquartered as an organization. My accent isn't just for show. I'm Irish, myself, and I'm based there with a number of the senior executives. Here in the states, obviously, we have a very large presence also with our predominant office in Blue Bell now, here in Raleigh. We share all elements of the marketplace, be it large pharma, biotechnology, medical device. And we really see ourselves as one of the major players in clinical research today. And of course, we have service lines right across the breadth of both doing your Phase I through IV clinical research trials, but also all the ancillary pieces of that, be that your lab services, be it through your drug discovery analytics, be it your data services. So we really do have a very, very broad span of organization. But I think one of the key strengths of ICON is that we really know what we are. We are very much a fundamental Phase I through IV clinical development partner. We have all of the services and pieces around that, but we don't do with the preclinical. We don't want the commercial. So we're very, very focused with our customers on that crucial segment of their development. A story of growth. Obviously, ICON was develop in -- ICON or I should say, in Ireland, you got the beautiful picture of the sun setting there over the Ha'penny Bridge in the middle of Dublin City, which is obviously where we grew up. In 1990, John Climax and Ronan Lambe found the organization. I'm very proud to say that John is still a Board member of the New ICON on our combination with PRA. And as we said, referenced there, the fact we've now 38,000 people and real, real strength in major therapeutic areas and in major great geographical areas. So very significant headcounts in the North America and Western Europe, as you would expect, but also in Asia Pacific and in Latin America. And we also have a very, very well organized and structured back-office element in some offshore areas such as India and the Philippines as well. So a very, very well-structured organization, as I said, developing from a humble small start. And we like to think we still consider ourselves a humble and straightforward organization. In fact, the kind of hallmarks of both of our legacy organizations, ICON and PRA that we are spread tutors that we tell it as we see it, and that's very much a hallmark of the organization, that we are an honest broker in clinical research and a very good partner from that perspective. It's been -- obviously, it's been an extraordinary journey. And has been led, as you can see, predominantly from organic growth right up until this year, I'd say probably that's fair. But you can also assume we've had a very, very significant history of bolt-on acquisitions over the years. And that's been to really augment our services, our geographic presence in many, many perhaps places in the world. Of course, the transformative deal in the current year, as you can see on the slide there in 2021 was our combination with PRA. PRA were and a strong organization indeed, as part of the ICON. They really were a partner and a competitor actually in the marketplace that we've really, really respected. They were super strong and developed, of course, their own skill sets in terms of how they develop as an organization, much more interface of biotechnology, West Coast presence and developing that, growing internationally, growing their FSP business to acquisition as well, of course, and really, really represented towards a very, very strong competitor. So when we were out doing our scans of the markets and considering about how ICON as a stand-alone entity would evolve and grow indeed and what was the right partner for us, we couldn't have bought and happened upon a better partner. Quality of their services, the quality of their delivery has been parament to them and a huge importance and that really rings true in the experiences that we've had over the last quarter. So bringing together of these organizations is super important because it really comes at a point when both organizations were moving from a point of growth -- from a point of strength and bringing these 2 organizations really now create a leader in the industry that's moving with that strength and growth forward and doing that integration from that perspective. So when we look at how companies come together, generally speaking, we're looking at, obviously, in terms of our markets were both very good strong backlogs of business, both very good customer lists. We have a bigger, better, more diversified business now as a combination, as a result of the combination. And we're really, really seeing the benefits and dividends indeed of having a very focused pharma part of our organization and a very focused biotech and SMID part of our organization. I think one of the things certainly versus our competitors, we can definitely say is that we have dedicated organizations in our Phase II to III think of development around servicing those different parts of the spectrum of customers. And I think that's really ringing true with our customers now really appreciating the fact that there is really well developed organizations and infrastructure indeed behind both if you're a small biotech customer or if you're a large pharma partner. And that's ringing true very well. And the market reaction a combination today has been very, very strong, and we're very, very proud of how we're doing certainly in the market since we closed the pharma. This gives you an idea of the size and scale and the diversity of business that I talked to earlier on. Obviously, the 38,000 people, as I mentioned, very strong in North America, 14,500 people, 13,500 people in EMA. You can also see the significant strength in APAC 7,350 with nearly 1,000 people in both China and Japan within that so servicing those markets well. And of course, a more nascent market, Latin America at 2,250, but certainly growing strongly, particularly over the last year or so with development of a lot of the COVID work being done in Latin America as well. So a very, very well diversified headcount from that perspective. You can also see now is we break it into the major elements of the market, which ICON plays, and you can see where we're really leading the field. We are a world leader in FSP, and that's obviously the business model where you have embedded staff in your usually large pharma organization where those large pharma people are actually our ICON embedded staff in their organizations. And they will offer work across the globe in certain areas. So you might have all your finger monitors, for example, being ICON embedded staff in your organization, for example. A very, very strong part of our business, high growth part the market in overall terms, and we are the world leader in that space. Number two, in our Phase II to III clinical group and a very, very significant player in that space as well. Of course, this is where the vast majority of the dollars are in clinical development, and we see ourselves as confident not only from a scale perspective, but from a therapeutic and medical expertise perspective. We have a real strength and depth of medical expertise, which allows us to really go across all therapeutic areas and be experts with you as a partner in terms of delivering your clinical trials right across all areas of therapeutic development. A very strong presence, #2 in the world in early phase as well. Of course, this was a large part of the legacy PRA organization that were very, very strong in that area. We augment that to some degree, with some Phase I and biological units in our legacy ICON organization, but a very, very strong offering, led very, very well. And something that we're very excited about in terms of its for development phase, early phase development has been an important and will continue to be an important part of clinical development and has been a market that has been somewhat underserved. So we really feel that we have put together an offering there right across numerous geographies and, of course, across numerous therapeutic areas, where we can really be a world leader and, of course, we have a vision of getting that business to the #1 position in the world. In our late Phase, real-world evidence or Phase IV trials and consulting type elements of what we do, we're significant as well, as you can see in the marketplace, there are #3. And then the Central and Speciality Labs where we have seen really, really strong growth. I think people are in the marketplace looking for alternatives. They're looking for additional labs, central lab, clinical lab providers, and we've seen really strong growth and really, really good cross-sell from our large pharma partners into our Central Lab over the last -- particularly over the last 18 months or 2 years. Of course, there's been huge events of volume going through Central Labs and people are being challenged about the capacity of those labs. So we've seen it as a great growth opportunity in that particular space across the last number of years. On the bottom, we also -- obviously -- sorry, Kate, can you just roll back? We also talked to the scale of services, which I've mentioned. One of the things that -- some of the things that we're very excited about in terms of bringing the organization towards our DCT focus and our differentiation around DCT really was a very, very big part of the strategic logic of bringing the organizations to greater innovative real-world evidence solutions, specialty services, which I've spoken to. But they just remain some of the key tangible parts of why this combination rates of concerns. And as we see that the spots coming on the board there, you can obviously see the significant presence across the globe. Why is it so important and why was that? It's always been a question of why is in clinical research is it's so important to have this level of geographical space. And of course, the answer being that you're always looking at where are the patients. And of course, we need to be as an organization where the patients are. And so that still represents, I mean, the key clinical outsourcing markets in the world, still are, of course, North America and Western Europe. And you can see the significant number of dots on both of those points, 13,500 in the EMEA region and 14,500, close to 14,400 in North America. Still a very, very significant part of our organization. But I suppose if we go back to 2006, 2007, you would have seen significant growth in Eastern European market, and you can see it there, obviously, quite a lot of infrastructure in that part of the world. Now certainly, over the last probably a decade or so, we've seen significantly more growth in Asia Pac. As those markets develop, as they become less so developed, or I should say, more developed and less developing parts of the world and, of course, really good medical infrastructure in a lot of those parts of the world. So great patient access, and we're actually seeing that really significantly impact. And you can see we've called out and I mentioned earlier on that very significant impacts in much more mature markets like Japan, where we go in just in excess of 1,000 staff there and in excess of 1,000 staff in China as well. This gives us access to all of those markets in terms of both local business, but also our global business, where we are really using these as locations to drive patient inclusion, patient identification. And of course, the big race and the biggest nut to crack in our industry is always and will continue to be how fast can you get patients onto the clinical trial. And of course, that geographical presence really allows us to really be -- to be second to none effectively in the world in terms of being able to locate your patients on your trial as quickly. Quickly to our overall strategy and organizational -- how we think about our company, from our mission, our vision and our core pillars of how we look at our organization. These are important tools as an organization. Obviously, our mission is to accelerate the development of drugs and devices, to save and improve the quality of lives. How do we go about that? What are really the pillars of our live temple here. And that's really by customer focus and partnership focus. We want to always have our customers to feel like it is we are taking ownerships. And actually, one of the core pieces of how we describe this is down at the bottom there, on it at ICON. We really want our staff to feel like they're on the drug development process with our partners that it's important to us as it is to our partners about their drug and our drug development, and that's a key importance. And that's something that our partners have asked us for down through the years is something we've been happy to be with them in that process, not to just be a third party provider from that perspective, but to really be very embedded in how we get involved in the design of the process. But also how we execute and ensuring excellence which brings me on to the next pillar, operational excellence and quality. That's really a hallmark of the new ICON organization. The operational excellence and quality, of course, in clinical research has to be exactly and we know that from the procedural guidelines that are there in the industry. And so we're very, very focused on that as a core element of how we deliver, what we deliver to our customers, and that will always be the case. People talk a about ancillary elements of what differentiates a certain CRO from another CRO. And there's always talk about, kind of, if you like, in more on-trend pieces, whether that be DCT, whether it be e-source documentation, whatever the case may be, core operational excellence and quality is still probably the most significant differentiator between CROs and that adherence to excellence is extremely important to us. Not surprisingly, we have 38,000 people. All of our assets work out of the -- out of their -- I was going to say walk out of the lift. Of course, I'm not sure any walk out of the lifts anymore, walks out of the bedroom doors or whatever the right appropriate phrase is for was now in this post-COVID world. But it sounds that our people are -- what drives our organization investing in them and ensuring that they are developing well, is of key importance to us. And of course, they are the most significant piece in any service organization, and that's very true of ICON as well. We've done a lot in terms of really creating a university type environment for them to -- for their development and training and has been a big part of how we look that talent to develop them in terms of career development as well. One of the key elements we've looked at is how do we -- how does each person have a roadmap in terms of their own career and career development. And we have seen in the CRO industry, where there has been times of turnover and indeed, some of our markets are very hot from a turnover perspective. At the moment, of course, in North America, the entire workforce is somewhat in a state of churn at the moment, and that's right across all industries and not particular to health care or CROs. But what have we found it is very good to retain people is really around the training and career development, ensuring that they're moving up at a pace that they're comfortable with that they are seeing the opportunities within organizations. And then we're not losing them because they're a month or 2 offer promotion and they take that promotion by moving to an external party. So by in very much focusing on the individual working with the managers, getting a good structure in terms of their career development in place and making sure that they're on that path with us and that they believe that we're acting in their interest in terms of their career development is extremely important. And then, of course, the last piece is patient site and data solutions. We obviously have a huge amount of data in the ICON, combined ICON organization now. Using that data as a top-down way of identifying patients is extremely strong from the ability of heat mapping where those patients are and creating tables to allow us to identify locations for those patients. The bottom-up piece is as important, and that's what we talk about when we talk about patients and site solution. So not only is it important, but you have the heat map of your patients, but you also have an infrastructure in place that allows you to go that last mile and identify these patients to get them into the trial. So we have and it is somewhat unusual within CROs, a patient site organization, that is specific that we have embedded relationships at numerous sites, in fact, in excess of 100 sites now where we are the primary clinical research partner at those particular sites. And we are working with doctors and the patients at those sites to make them effectively supersites and form the fastest enrolling sites that we have on our clinical research. In addition to those dedicated sites, we are then using the metadata that we have from across the organization in terms of our data solutions and layering that on to the site information, and they were able to identify those patients, close that gap and bring those patients into the trial. The other really exciting development has been around this has been a home -- nurse to home patient network, where during COVID, particularly, it's been very, very strong, where we've seen the ability to actually have our own nurses resource, go to the patient's home to ensure that they can continue on the clinical research trial even in periods where they couldn't make it to the doctor site. The doctor site may have been closed because of COVID or restricted access because of COVID. We have had a very safe way of bringing nurses to patients' homes to ensure that they've been able to stay involved in the clinical research trial. And of course, all of those elements, be it patient to -- or sorry, a nurse to patient or indeed data solutions are allowing us to augment and bring forward decentralized clinical trials, which, of course, we see as one of the major strategic elements of how we do publicly. Our values, again, this really speaks to the core of the organization. And I've spoken to what we've talked about here in the middle, which is that sense of owning it with our customers and being very much involved with them. And I suppose a lot of these values that we have on the screen, accountability and delivery, collaboration, partnership integrity are kind of what you would expect but very much speak to how we perceive ourselves. I think one of the things we do always say is that we are the honest broker in this industry. We tell it like it is. We come in with a straight path, we don't oversell to people. If we think it's going to take longer, we tell them that because we really believe in the integrity of what we do. But also to be a good partner, sometimes you need to be honest. And sometimes that means saying not what the customer wants you to hear, but actually what you believe to be the absolute true. And so that's something that we are very, very focused on as an organization. And that's something where I think we have has really paid dividends to us in terms of the stickiness of our relationships and the longevity of our relationships over the years. In fact, some of the very first CRO partners that we've worked with in some of the large pharma companies that we work with from day 1, we still have in our top 5 customers. So I think that really shows that if you're -- if you have integrity, if you partner with your pharma partners in a way that shows real ownership that you are accountable and you deliver, so you do what you say you're going to do in terms of your own processes and your own delivery. I think that really shows the stickiness of the relationships and really speaks to our overall culture, as I said, only at ICON. I quickly mentioned these before, so I won't dwell on a very huge amount of time. But you can see we have a full -- very full suite of services there, right from Early Phased Services, Commercialization & Outcomes, which is kind of more on that Phase IV of [indiscernible], Clinical Research Services, obviously, which is still about 60% of our overall organization. That's probably about 70% of our overall organization. Global Strategic Solutions, there is down the bottom, which are our Functional Service Solutions, which I mentioned early on. Our Lab Services, which have been growing strongly. Our Advisory Services and Consulting Services as well, which are a smaller part of our business, but it's still very, very critical from the perspective of the design of your trial or the delivery of your data. So very, very important product. We're really filling all the pieces on the Phase I through IV spectrum. So we're also very proud of the tools that we use within the organization, and that covers a numerous elements here, as you can see, right across the patient's experience there. And I suppose what we're getting out with the camera is the doctor-patient relationship and allowing new ways of having that relationship take place. And of course, you can see that as part of our site platforms and support Telehealth, a direct-to-patient call centers, care innovations are remote patient monitoring. So all of the elements that will allow us to effectively be better at making sure that patients can go on the journey and stay involved even as they are remote from the clinical trial and using our technology platforms to really ensure that we're doing that. We do that with all of the other elements on the screen as well. These were real world data. The other pieces that access the patient support encompasses are Accellacare organization, which is our embedded clinical research services in at those sites I was talking about and Oncacare which is our joint venture particularly around oncology and the element of being embedded at Cypress Oncology Partner. Our analytics platforms are what takes the data I was mentioning on the previous page, and really create an ability to analyze where those patients are and the ability to get them on to clinical trials. We've done that through our own OneSearch platform but also through our most recent DeepLens, which is really analytics looking at medical records, particularly in the oncology setting to help us better identify some oncology patients there as well. So right across the spectrum here, we feel we have a very, very significant suite of technologies that allow us to keep the patient, to identify the patient and to make the process an easier one for clinical research enabled by technology, enabling both an easier life for the patient and the doctor on the clinical trial costs. So we've mentioned this a little bit previously that we're very proud of our best-in-class TCT capabilities. This runs right across the board there. And you could see our Accellacare as well as our Firecrest platforms and I have spoken Accellacare already. But again, it led you to all of the elements, which are kind of coming up in the circle here. So you've got Telehealth and remote monitoring. And of course, that comes through the technologies that really came in the PRA organization. Our in-house clinical services, of course, that is the nursing organization that I referenced in terms of being able to have the nurse get to the patients' home. Patient support centers as well to make sure that patients are properly supported during the trial. We have our site networks, of course, as well, which allow us to have, as I said, these supersites where we can have embedded clinical staff there, really making sure that we've got fast speed to patient recruitment. But also then they can act as supersites for decentralized trials in order to have one doctor very familiar with the protocol, dealing with numerous patients and not just the 1 or 2 that would be normal in winning clinical research, but actually with broader breadth of patients as we use more of the Telehealth and remote monitoring elements of how we deliver our solutions to customer. And then, of course, digital solutions, education and automation for sites as well. So we're using technology at sites to make their lives easier. But we're also using, as I said, the Telehealth and the remote monitoring homes that are making the entire patient and doctor experience much easier and much more manageable from a remote perspective. We're very excited about this. The other element is to mention as well, of course, is remote monitoring clubs, whereby where we have these supersites, we were working with patients using telemedicine. We also have remote monitoring happening from a CRA perspective from a single research associate perspective. And then that allows it to produce a much, much more efficient trial. These are -- there are a few, if any, trials of the world where we have all of the elements that are being worked on at the moment in terms of DCT. What we are seeing a lot of is people coming together looking at different various elements of DCT to be applied within trials. And as people get more comfortable with one element, they tend to expand and increase the other elements that we're using. This is super important in terms of the development of the job of the clinical research associates and how we deliver clinical research as well as ensuring that patients and doctors have a straightforward and an easier process in terms of doing clinical research. And one of the things that makes this really super important is a lot of patients and a lot of doctors fall off trials. They do one, they do -- they never do another, why? This is a lot of logistics for the patient coming to the hospital side, coming to the doctor site, there are increased visits because you're in clinical research. So even if -- for example, if your DCT was an analyst , okay, so that's to come in and want for 6 months, but every second or third month, you could do your visit remotely through technology, that would be a significant improvement. So making the life of the patient easier from a logistics perspective, making the life to the doctor easier from a technology and ability to have the data in his hand when he walked into the room or she walked into the room to do the interview or the meeting with the patient as well as taking the administrative burden away by having a site network in developing them and making sure that technology and administrative board has taken away from the doctor so the doctor can focus on what they're for, which is obviously the ongoing trial and the patient can be supported both in their home and offices. The last year has been obviously an extraordinary one for everyone in the world. It's been a very challenging time for us all. And I think, hopefully, we're all coming out of the other side of that. But certainly, one of the things that has allowed us to come through that has been a development of so many vaccines in the treatment of COVID-19 and indeed antivirals. We were very, very proud to be involved in numerous, numerous live trials effect in excess of 100 trials from a COVID perspective. But obviously, we're very proud to be involved in the development of the Pfizer-BioNTech vaccine. You can see the number is here on the page, but it was one of the most efficient and effective and fast clinical trial ever run. We were involved in the development of the trial and 150 sites developing, getting 44,000 patients onto those trials. As we said on the screen the fastest vaccine ever developed and a huge, huge boost of the world, generally speaking, but also a massive, massive impact to us as an organization. And of course, we were one the things we're very proud of the fact that we could use our own Accellacare or embedded clinical sites to ensure that speed to patient equipment and then we were actually critical to rapid start-up and high recruitment rates, and they were very, very fast and effective in terms of getting this vaccine developed. So we were super proud to be involved in that part of that process with our partners in [indiscernible]. So to finish off on some of the numbers, for the quarter, we have just closed our Q3 numbers, and it's obviously our first quarter as a combined organization. So what we saw in the quarter was a record new business wins of $2.37 billion. So still very, very strong marketplace, book-to-bill of 1.27%. On a combined company basis, 25% revenue growth over Q3 of 2020. And of course, 2020 was an odd year, but certainly, the business has significantly started to recover by the time Q3 had come true. So that's a really good strong start. Backlog growth of just up 3% in just the first 3 months of the combination, so 14% on a combined company basis from Q3 2020. So a very, very strong start. We're very happy with. Increased revenue and adjusted EPS guidance. Obviously, revenue increased by 1.5%, and EPS guidance increased to 3.8% at midpoint after just our first quarter. And then just to reiterate the long-term targets and expected transaction synergies. Cost synergies of $150 million and revenue synergies is $100 million over a full year period. But of those we think are very, very doable, and we've got good road maps to achieving both of those targets. And our targeted leverage of 2.5x net debt to adjusted EBITDA by the end of '23. We can still see revenue growth in the high single digits over the long term or the medium term, I should say. Adjusted EBITDA growth in the low teens and adjusted EPS growth in the mid-teens over the medium term as well. So a very, very strong platform, 2 great organizations going together really, really well in this first quarter. We're very proud of our first quarter as a combined New ICON. And that's all of my prepared remarks. I'm happy to take questions if there are any, Judah, at this moment.

With that, Brendan, I think we'll conclude. I don't have any questions that came in. So thank you very much for your participation, and everyone, have a great day.

Thank you.