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

All right. Good morning, everybody. Welcome to Day 3 of the Healthcare Conference. It's my pleasure to introduce our first company this morning, ICON. Just a very quick reminder, if you want questions that answered, you can submit them through the website. And with that, let me turn it over to Steve.

Thanks, Tycho, and good morning, everybody. Looking forward to presenting on ICON, and I'm starting to walk through the slide presentation now. So I'll go to the forward-looking statements, give you a second or 2 to peruse that. I'm sure you've seen that a number of times as these conferences has progressed. So in terms of ICON and what we do. We are a global provider of clinical development services. Essentially, we are a company that assists pharmaceutical and device companies in getting their products to market. We are focused in the clinical space, and we help them develop their products as fast and effectively and efficiently as possible. We're an outsourcing company. We don't hold intellectual property, but we have the expertise, processes and systems that allow those companies to get their pharmaceutical, as I say, products and devices to market as quickly as possible. In terms of our mission and our vision, we're here to improve the lives of patients, but we're morphing to be a healthcare intelligence partner of choice. Traditionally, our industry has been arms and legs and muscle. Increasingly, I think we have the opportunity, and our aspirational vision is to move forward to be a much more cerebral partner to our customers. To look at the opportunities with technology, with analytics, with data and of course, with expertise and focus on execution to develop those products, as I say, efficiently and effectively. It still takes too long and it's too expensive to develop products. We believe we are very much a part of the answer to allow our pharmaceutical brethren to get their products, as I say, to market faster. We're focused on patients. We're focused on the career development of our employees. We want to be an employer of choice, and we've had some significant progress on that over the last few years. We also focus very much on the enduring customer partnerships. We're an Irish-based company, based in Dublin. And then that extroverted sort of personality, I believe, gives us some focus and some opportunity to develop those customer partnerships perhaps ahead of some of our competitors. And then finally, that health care intelligence part, that application of technology, of data and of analytics really allows us to be a very effective partner in terms of how we bring those products to market. Moving to Slide 5. We are a story of growth. We started in Dublin about 30 years ago as a team of 5 people. We remain headquartered in Dublin, but we're now 38,000 people. That story, I'll talk about a little bit more in a moment. Most recently, we've doubled our size as we merge with PRA, another similar sized organization about 6 months ago with that closed. But we really started from very humble beginnings. One of our founders, John Climax, remains on our Board and remains a powerhouse for us in terms of developing our organization. We have a very supportive Board, but we're one that's, as I say, very much anchored in Dublin, and our Irish roots really worked through our entire organization. On Slide 6, you can see our journey so far. Initially, establishment of offices back in the '90s, and then very much through an acquisition phase. We've been routinely bringing on a number of companies over the last 25 years or so. We're adding to our service strength, our functional strength. Adding, of course, to our geographic strength. And then most recently, you can see on the far right there, the acquisition of PRA, which is a $12 billion deal, which essentially doubled our size, and we'll talk about that more, I'm sure in the question session with Tycho going forward. But that has really made us one of the, if not the preeminent clinical CRO in the space going forward now. We have a number of capabilities that, that merger has brought to us, and I'll talk about that as well as we go through. But we are now a very significant player in this market, and we plan to continue to develop that through the growth that we've already achieved. Going to Slide 7, to give you a little bit of an idea of the scope of our organization around the world. We have a very significant global footprint. Drug development is -- the pilot story in drug development is one of scale, the ability to be able to develop and to run clinical trials essentially in all parts of the world. Whether it be in Asia Pacific, in Europe, in the United States or in Latin America. All of those countries, all of those regions have advantages and disadvantages in the ability for us to bring patients to clinical trials, and ultimately to generate the data that's required to bring products to market. We have scale now in a number of those service areas. We are the world leader in functional service provision. We're certainly a world leader in our full service business. We're focused both in the biotech, small area, and that's very much a focus for us. But also in the large pharma, which of course, continues to be a significant source of growth for us going forward. We're #2 in our Early Phase division and significantly expanded through our PRA acquisition, now we have a number of early phase groups around the world now. And we're also #3 in our Late Phase or Real World Evidence. We also have a number of other peri-clinical services, including the labs, a site network home health care, which all plays into our strength in the decentralized clinical trial space, of which I'll speak about in a moment. But you can see right across the world, we have a very much a global footprint, which allows us to provide those differentiated solutions. Whether they be in decentralized trials or in normal -- in what we call traditional Phase II, Phase III clinical trials, or in the more Real World Evidence phase, the Late Phase opportunities that are increasingly part of our business going forward. Moving to Slide 8. Just to talk about the sort of comprehensive portfolio supporting all aspects of clinical development. As I mentioned, full-service solutions. These are solutions where we provide pretty much all of the clinical trial services in one integrated approach, typically the biotech and small and mid-size companies. We also do that for large pharma as well, but they also have an interest in our functional services. And we have the ability to bring a functional group, in other words, a provision of labor to those people, whether they be working in-house or within our facility. So we have different models, which allows us to provide the services to a greater or a lesser extent depending on our customers' particular needs. We also have a particular strength in the decentralized clinical trial approach, and I'll talk about that specifically on the next slide, so I'll hold that one. In terms of specialty services, as I've mentioned, we're in early development, #2 in the world now. We have a site in patient services group. We have a site network which helps us as we develop our decentralized trial approach. We have a laboratory and an imaging group, which is growing nicely. Commercialization and outcome services more in the Late Phase, Real World Evidence group. And of course, Symphony Health, which came in through our PRA merger as well, which allows us to access data to drive the execution of our clinical trials going forward. So all in all, as I say, a comprehensive and integrated clinical approach. We're not in the commercial space. We're not in the data space per se. From a conversion point of view, the data we use is predominantly used to drive our clinical trials. So we focus very much in the clinical space where we believe we get the most advantage and we can provide the best and differentiated solutions for our customers. Moving to Slide 9 and to talk a little bit about the decentralized clinical trial offerings. So post pandemic, the pandemic has been a tragic event, of course, around the world and continues to challenge us through Omicron. But if there's a silver lining from a clinical development point of view, it is that people know what clinical trials are now. They know what -- what's happened in terms of the development of the vaccines, and we've been very much involved in that, I'll talk about that in a moment. But it's also allowed us and allowed our customers to be more forward thinking in terms of how they use the available technology that -- to run their clinical trials going forward. In the middle of -- at the start of the pandemic, really, we had to pivot very quickly to move our trials that we had ongoing to a much more remote focused and decentralized approach. We were able to do that very quickly, pivoting very much on a dime. And we -- as we come out of the pandemic, hopefully, we believe there's a real opportunity now to develop that approach on the more traditional trial. So really, as we go forward, most of the trials that we run now have a decentralized component. They're not all totally decentralized, but there is a decentralized component. And what we bring as an organization is very much an integrated approach. So we have our site networks. It's still important that we have connections with sites. And our site network is going to play a pivotal part in our decentralized approach. We have access to real-world data, and that's important for us. We have a site platform which allows us -- which supports the sites. We have a patient platform and a mobile health platform, which allows patients to access things like electronic informed consent, the COA, Clinical Outcomes Assessments. We have analytical tools. So the advantage we bring, I believe, in the decentralized approach is that integrated approach. We have all of the components. Very few, if any of our competitors have all of those components, the ability to bring things like home health services as well to the network and to that integrated jigsaw puzzle or on a decentralized clinical trial is, I believe, is going to give us a significant advantage as we go forward in this space. Just moving to Slide 10. And just to acknowledge, you've all heard of the COVID, probably most famous clinical trial that's been done ever. I think was the Pfizer-BioNTech Phase III trial. We had a significant role in that trial, of course, with a number of others, including our partners, Pfizer and of course, the sites and the patients that were involved. With something like 44,000 patients enrolled over a very, very short period of time. Was certainly the fastest vaccine ever developed, was certainly the fastest clinical trial of that scale that we've ever done. And we're very proud of our role in that role. We've been involved in a number of the vaccines development. This one is one, as I said, that we're very proud of. 150 sites plus worldwide in a number of regions in the world using a number of those decentralized risk-based type monitoring approaches and access to electronic healthcare records as well. We were able to deploy those resources and implement those resources very effectively and very quickly. We had something like 1,000 people working on that clinical trial at one point, and it's something that we continue to be very proud of as we go forward. Just to talk on Slide 11, around ICON's history of performance in a couple of the -- sort of financial slides here. We've had a tradition of increasing revenue over the years. You can see in the last few years that it jumped up significantly, so the 2018 into 2020 revenue increase is really more around the change in the accounting approach as we will move to a 606 standard, where pass-through costs, we're included in our revenues by specification from the accounting authorities. And of course, you can see in 2021, virtually a doubling of our revenues through the acquisition of PRA International. That was a very -- that continues. That acquisition continues, it's going very well from my point of view, and we'll certainly -- we'll probably talk about that a little bit more on that, but that's the trajectory of our revenues over the last 20 years or so. You can see from an EPS point of view, we've also seen significant success, and we certainly anticipate our continuing growth. We've released guidance this morning, and I'll talk about that in a moment. We certainly see increase on the EPS numbers at around about the 20-plus percent mark going forward in next year, and that's an area we continue to be highly focused on. Moving to Slide 12. You can see again the change in our backlog with the acquisition of PRA that pretty much doubled, we may add it significantly there. Our book-to-bills have consistently been above 1.25 over the last few years. We continue to see great success in the business development area. The biotech funding continues to be strong, and that's an area of significant growth for it as we move forward. Our margins have been strong and been solid. They've been charged a little bit by our pass-through -- the part -- the increase in pass-through costs. Which, of course, a 0 margin for us, but we certainly see plenty of opportunity to continue to improve those as we go forward into '22 and beyond. And as you see on the bottom right there, adjusted earnings per share has continued to show a solid increase on a quarter-by-quarter basis over the last year or 2. So Slide 13, just to talk about the CRO market overview. We see the market growing at around about 6.5% on a compound annual growth rate sort of basis. That's made up of essentially of 2 components, an increase in development spend. That's a company's budget, particularly large pharma, and also the biotech, the small and mid-sized companies play into that as well. They -- we see an increase in their spend. We see an increase in understanding and acceptance that companies like ICON can provide development services better than they can. And that's an area I think we've seen increasing acceptance and understanding of over the last, realistically, last till the 10, the 20 years, and then that's driven that increased penetration, which is in the lighter green bars below. We still see about 100 to 200 bps of penetration going up and around. It's around 50% at the moment. I believe that can go up to 65%, even 70% in the longer term. But it's around about, say, 100 to 200 bps each year. So we see growth in our market from those to increase penetration. We do more of the development work but also more development work as more dollars are spent in that space. So on Slide 14, let me make a few comments about the CRO market dynamics and how they remain strong. As I've mentioned, the biotech companies continue to be well capitalized. The capital of the market there has probably attenuated a little bit over the last few quarters, but they're still extremely well-funded. And a number of our customers have very, very full balance sheets and money ready to spend in terms of their development. They also have an ambition now to move through to Phase III and beyond, much more so than when I come into the industry 20, 30 years ago where they would typically source a partner or find a partner, a large pharma partner subsequent to a sort of a proof-of-concept trial. These biotech companies are large, they're significant. They're large in terms of capital. They don't necessarily have a large number of people, which, of course, provides huge opportunity for companies like ICON to develop their drugs and to make decisions and to help them to get to market faster. We see our RFP volume continuing to be positive in the mid-teens in terms of growth year-on-year from RFP. A lot of that, as I said, coming from the biotech space, but also large pharma also helping to fuel that sort of RFP volume. We're certainly seeing increased opportunities to develop strategic partnerships with our large pharma customers, particularly as we've increased our size over the last 6 months or so. And then site access. If we talk about the Omicron impact, it has been challenging, but not to the extent that it was early in the pandemic. Our sites have been relatively resilient through Q4. We haven't seen a major impact in that space. I don't anticipate that, that's going to change irrespective of the significant impact in terms of the number of infections that are happening. We see -- we believe we'll be able to work through that without a significant impact. How that -- of course, remains to be seen as we get into 2022. But overall, we see about 10% to 15% of sites impacted and continue to be impacted. That hasn't changed dramatically over the last quarter or so, so we haven't improved it much. But Omicron hasn't deteriorated much either, so we see opportunity to sort of move that through. And hopefully, as we get into the summer, for that to really come back to a much lower percentage. And then as I say, strong customer interest. As we come out of the pandemic, one of the opportunities I alluded to previously was the opportunity to bring in some of the technology. And really, I think we're on the cusp of a golden age from a development point of view. Customers see the technology that's available not just in terms of operational technology and the ability to run clinical trials more effectively, but the science is very exciting at the moment. The mRNA techniques for developing new vaccines, the checkpoint inhibitors in the cancer space have all given us opportunities to develop and to bring to market drugs that really have a major impact on diseases with unmet medical need. And those -- as that science develops and continues, ICON and companies like us have a huge opportunity to bring that development expertise and technology, analytics and expertise to that science and move those drugs through the market. So again, I'm very optimistic about the longer-term future of drug development as we move forward post-pandemic. Slide 15. Our guidance, which we released this morning. First of all, just to reiterate our 2021 guidance, $5.43 billion to $5.53 billion, $9.55 to $9.75 is reiterated. We'll be releasing our fourth quarter results later in February, but that's reiterated. And our full year '22 guidance at $7.77 billion to $8.05 billion on the revenue line. That represents about a 43% to 46% increase on what we reported or what we report from the midpoint in '21. And on an adjusted EPS basis, $11.55 to $11.95, which represents a 21% to 23% increase. So I think you can see this very significant improvement increase in our earnings per share. We continue to drive that through the integration, and we see opportunities to continue to do that through the continuing leverage of our strong global business services group and the opportunities around our revenue synergies. And of course, the cost synergies that we've already identified. You can see the key assumptions there that relate to that. But I'd really point you to the improvement in our earnings per share and the continued improvement on our earnings per share. We're certainly seeing our direct fee revenue grow significantly at the low double digits. Albeit we are lapping on a complete revenue on the 606 basis, the first half of the year will be a little lower than what we've normally shown because we had some very high pass-throughs in the first half of the year last year. So the pass-through revenue component -- the past-through revenue component is really impacting us a little bit the first half of the year. In the second half of the year, we really start to move forward and on the overall revenue point of view. But I would, as I say, point you to the growth in our earnings per share. That's really where we're focused as we drive our direct fee revenues. On Slide 16, the final slide for us here. I really just want to reiterate the strong overall market environment. We're in a good place. The market continues to grow, outsourcing continues to grow, R&D budgets continue to grow. And so we see that 6.5% being a solid long-term growth number. And I think we have the opportunity and certainly the ability as we come together as an integrated organization, as the preeminent CRO, to really grow that sort of market and really take market share. So that's the other area of opportunity for us to take market share, particularly from the midsize CROs as we bring our integrated -- things like our integrated and decentralized trials together and to the market, and really prove that to our customers. We are poised, as I say, to move our company to become a healthcare intelligence partner. And that really means using analytics, using data, using the technology that's now becoming and are now available to run clinical trials in a more intelligent in a more efficient manner. Our customers are looking for that. We believe we have all of the components to do that in a very effective manner. We're committed to the healthcare going forward with investments in terms of technology. We've got a budget of about $150 million to deploy in terms of CapEx this year. And we really believe, as I say, that the market and the mood of the development environment is ripe to drive those sorts of spends and drive that sort of investment. So we're very confident in our ability to bring our integrated approach to decentralized trials forward and really make that a market leader going forward. Integration, as I mentioned, is progressing very well. I couldn't be happier with where we are from an integration point of view. Our PRA colleagues have joined our ICON colleagues, we're now new ICON. And together, we're really taking the market by storm. We've engaged in a number of strategic partner discussions with large pharma customers. We are part of the conversation now in every way. We've really moved ourselves forward, and so it's certainly been a good move. And I think, as I say, coming out of the pandemic, we look to be in a very good place, I believe. And I think I would then point to the track record. I showed you some of the slides in the financial section there. Track record of continued financial performance, whether it be cost focus, free cash flow generation, our ability to leverage our global business services group and to move that forward. We continue to do that, and we think we believe we can continue to improve our operating income and, as I said, our earnings per share on a long-term basis. So with that, I'll hold up and turn it over to Tycho for questions. Thanks.

Great. Thanks, Steve, that was a great overview. Maybe I'll start with the '22 guidance. Obviously, there's a lot of focus on the market on wage inflation and cost pressures. And I'm curious what the drivers of margin expansion are for this year, aside from the synergies tied to the deal?

Yes. I'll be cracking and then Brendan might jump in on that one, too, Tycho. Really, we see the opportunity for consolidation of the 2 companies. I think that's going to help us. But our SG&A number, we believe we can get more leverage out of that. We shoot for 10% and under. We've moved that down as legacy ICON, we move down to that sort of number. We believe we can do that across the larger organization and get some more leverage there, which will drive our operating income. And we have a very strong centralized global business model around our IT, our finances. There's plenty of opportunity for us to continue to drive that, so I would say that's primarily the area for driving of the margin. Brendan?

Yes, I'd agree, Steve. I think we've got a well-worn path there in terms of understanding how to optimize your cost base. We've got a great discipline in the organization around our zero-based budgeting approach. And of course, we'll be deploying that in '22. And of course, we're taking the opportunity, as Steve mentioned, from a synergy perspective to bring the organization together, and that has a big impact on the footprint of the organization from a rental perspective as well. All of those pieces will help us, to Steve's point, drive that number as we see it going forward under the 10% mark.

Great. And maybe we can talk a little bit on the integration, which seems to be going incredibly well. Obviously, there's been trepidation in the past on kind of big CRO mergers. But can you maybe just talk towards what you've seen from a customer perspective? You mentioned more strategic discussions. Are you starting to gain more momentum? Just talk a little bit about the customer reception. And then also, where do you see the greatest opportunities to kind of take share on the back of the merger as you think about your portfolio?

Yes. So certainly from a customer point of view, we've had some very positive discussions, not just with existing customers. I think the 2 organizations had strategic partnerships with something like 12 or 13 of the top 20. We've started to engage the 7 in the top 20 that we didn't have. It just -- and to some point where we've actually moved forward with a much more strategic partner with one of those -- with one of those customers in terms of doing their global monitoring. So we've actually seen some very tangible opportunities that are starting to come to fruition on the large pharma side of things, Tycho. These things do take a little bit of time. These things don't happen overnight, and it does take us a little bit of time. And there's always -- the customers are kind of waiting and seeing a little bit in terms of new opportunities. But we've certainly had -- no one's canceled any work on us. We've had a number of discussions with current partners, many of them have reiterated and re-upped the agreements we have with them. And so we see a very, very positive environment, particularly in the large pharmacies, where these strategic partnerships tend to focus. In terms of opportunity going forward in terms of market share, the biotech, small and mid-size is a very much a growing market. Probably growing in a little bit faster than our large pharma segment at the moment, although they both are growing nicely in direct fee terms. But the funding in that environment continues to be strong. As I said, the RFPs continue to be strong. And I think there's an increasing understanding and acceptance from biotechs who have that ambition, as I mentioned, that they want to work with a vendor. A CRO that has a comprehensive suite of services, particularly going forward and has the ability to bring some of the technology analytics and data to them. So they are growing up. The biotechs are not such small companies anymore, certainly from a market cap point of view. But they're growing up, they have ambition, and they're not frightened. They're working with a large partner now, and I think we're seeing those sorts of opportunities as well.

I think one of the fears around these mergers is you're dealing with human capital, and your talent base can kind of walk out the door at any given point. Can you talk about churn? Have you kept the people you need to keep? How have you avoided some of the tractions from some of the other CRO mergers from an operational standpoint?

Yes. We've put in place retention approaches with key people. We've really focused on making sure we're keeping the key -- identifying the key people and trying to keep them. That's very important. We've engaged them in terms of the vision of the organization. We've also -- in terms of the integration, we haven't jammed things together. We've -- the legacy PRA Phase II, Phase III is really focusing in the biotech, small and mid-sized area. And that's what they've done extremely well in that up until now, and they continue to do that. We haven't changed that, quite frankly. And then on the large pharma side, the ICON Phase II, Phase III group has been focusing on that large pharma group. So again, haven't sort of tried to jam that together and worry people and bring that. We let them continue to focus on current projects. And, I got to say, our employees have done a fantastic job in continuing the business as usual, continuing there to focus on their project, continue to win new work. Of course, at the back end of the organization and the global business, that's where we've been focusing more of our time in terms of the integration. And we're seeing some good progress there. But really on the operational front, the operational side of things, it's been continued business as usual. And that's helped us in terms of retention of key people and making sure they all have -- they have a role and understanding. We've been very strong on the communication of where we're going as an organization. And that's all helped us to retain people. That's not to say it's not a challenging environment from a retention point of view at the moment. It's just, as we all know, right across every industry, and our customers understand this as well, keeping people has been challenging. But we've been focusing very much on the systems and processes so that if we do have changes in people, we have an infrastructure. We have a process. We have systems that people can come into and very quickly adopt and adapt to, and bring forward the outcomes and the output. So we get our customers to focus on the delivery, the outputs, the data rather than too much on the inputs, which helps them to understand -- and us in terms of our overall infrastructure to continue to deliver for them, in terms of what they need for their development programs.

How about with your larger customers? I think there was always some fear that they would need to diversify a way, so kind of a share of wallet issue if they need to kind of spread the risk. Can you maybe just talk to how that's played out with some of your biggest customers?

Yes, generally, it's played out well. I mean, there are always puts and calls on these sorts of things, and they need to make their own decisions on that. But our approach has really been to double down on what we've been doing for them to make sure that what we do for them is even better than what we've been doing for them. What we're doing for them is one combined and integrated organization is better than what we've been doing for them as 2 separate organizations. And generally, that's been moving along pretty well. So they make their own decisions and there are always puts and calls in terms of whether they want to bring in other partners to compete. That always takes some time. But really, that's only been a discussion with very few of our customers. We tend to -- the net-net, I suppose, is that we've engaged some of -- particularly in the large pharma space, in positive conversations and the opportunity for more work and greater -- or greater share of wallet with more customers than we have in terms of their thinking about bringing in others. It's a net-net. Very positive, and that's one of the things that really PRA brought to us. That relationship with a number of strategic customers that ICON didn't have. And so as we come together as 2 organizations, we really do cover strategically a larger number of customers, and the net-net there is extremely, extremely positive for us as a combined organization.

Steve, you touched a couple of times today during the presentation on decentralized trials, and it seems like you're in a pretty strong position here on the back of the merger. Can you elaborate a little bit more on the opportunity as we come out of the pandemic? I guess the real question is, what got pulled forward, what was already in flight, what's permanent, what's going to go back? And where do you think decentralized trials go as a percentage of trials, call it, in 3 or 5 years?

Yes. As I mentioned in my presentation, the pandemic, really, we turned on a dime. The trials that were run traditionally, we had to switch to a much more remote monitoring. And that's continued. It may have attenuated a little bit from the height of the pandemic. But really, as we go forward, pretty much every -- I would say, 80%, 90% of our new trials have a component of decentralized monitoring or decentralized clinical trial. Now, it's not always the full duty match. But there's very few who don't have a kind of either a remote-based monitoring component or a home healthcare or our site or our stellar care site or our mobile health platform. Typically, going forward, these hybrids, the remote and risk-based monitoring approach, the off-site access to electronic health records, the ability to monitor from anywhere in the world has gone forward. That's probably the largest component of it. Now I would see that that's certainly continuing. That's starting to make us, I think, more efficient. That has some opportunity for us in margin, in terms of being more efficient. In terms of the full decentralized, there are more rare animal, and I think that will probably continue to be the case for a while here. But we do see more and more opportunities to do those. We certainly see customers engaging in -- engaging us in discussions around our platform and the ability to use our platform on a more enterprise basis. I think we've talked about on the Q3 call, a large pharma customer who decided to adopt and to utilize our mobile health platform for all of their trials. So it's a little patchy, Tycho, but it's -- there's certainly a momentum and there's certainly a time. I'm anxious, of course, to see the industry continue to adopt and not to fall back. And so we're pushing that very hard as an organization and as an industry, because I think that's -- that certainly is the future. But we do work in a relatively conservative environment, of course, highly regulated environment, we have to respect that. But this, I do believe if we grasp this opportunity, and I think we will, that over the next 3 to 5 years, a good proportion. And I would say, I don't want to be too specific here, but at least 1/4 to 1/3 of our trials will really be fully decentralized in 3 to 5 years' time. And pretty much all of our trials will have a decentralized component going forward.

And speaking of coming out of the pandemic, I think you've noted 6% to 7% of the backlog that's currently kind of COVID work. Should we assume that all kind of converts? Is that all kind of baked into the outlook for '22?

I think that's a reasonable assumption. That sort of number -- the backlog will flow through. The big vaccine trials are pretty much done now. It's more in the treatment space and follow-up of those vaccine trials, but I think that's a reasonable sort of assumption on the -- for '22. I think going forward, assuming -- let's make -- assume no new variants, what's the next letter, Epsilon or something. So assuming no new variants, no new requirement for further big vaccine trials, I think it will probably drop down the sort of low single digits going forward. But we certainly got plenty of work to do in the COVID space over the next few years.

And then how are you thinking about backlog conversion overall? I mean for the combined company, it's about 200 basis points greater given you've the larger contribution from the PRA, FSP business. So how do you think about the burn rate going forward?

Yes. We think we can hold it at around about that 10% rate, but we were a little higher than that. I think, in Q3. I think our aim is to hold it at around about that. Obviously, again, that depends a little bit on the things like the vaccine, the vaccine trials tend to burn very quickly. They contribute to it. And then, of course, the legacy PRA world, [indiscernible] Group that work -- that can burn a little faster as well. But we think that's a reasonable sort of number that will be at a hold too over the longer term.

And I guess, as we kind of think about the scale that you've kind of put together here, obviously, there's been a lot of consolidation in the space. I mean, how are you thinking about bolt-ons as going forward? I mean, are you going to use this kind of merger as a platform to kind of continue to roll up the space, or how do you think about it?

Yes. I mean we've done well in terms of generation of cash even over the last 6 months or so. To the point where we've made a paydown on our debt, we'll exit '22 at less than 3x leverage. We're coming into -- sorry, we'll enter '22 with less than 3%. We're coming into '22 at around about 3.5%. So we've made some significant progress in terms of paying down our debt, reducing our leverage already. I'm very pleased with how we've been able to do that. And as we move to our stated goal of around about 2.5%, we'll certainly engage in looking at opportunities on the M&A space, and it can be in a number of areas. There's a couple of areas we'd like to probably expand a little bit. Our emerging group, labs is an area that we've seen significant growth in the last few years. We see some opportunities potentially there. The technology analytics data space, there's some opportunities, I think, in those spaces to -- again, to become more of this healthcare intelligence organization that we aspire to. I think the geographic -- the bums on seats in various parts of the world, that race is pretty much run. We have a global organization. We have 1,200 people in China, we have over 1,000 people in Japan. We've got that. I don't think there's any particular advantage in having more people out there. We're well established in the key geographical markets. It's really around how we effectively use those people through, as I say, the technology and the data, and those are the areas, I think, we'll certainly get active about as we work through this year. I think -- talking about bringing our leverage down to around that 2.5%. I don't anticipate us going much below the 2.5% in the medium to longer term. We'll deploy that capital, I think, as we see opportunities and potentially even share buybacks, but we'll be more opportunistic about those things in the more medium term.

And I know when we've asked in the past about some of the noise in the background with some of your competitors under strategic review or getting acquired, it sounds like that hasn't really changed a lot in terms of the competitive dynamic. Is that still the case in your view? Now that LabCorp is going to hang on to Covance and PPD has been absorbed, you haven't really seen a big change in the competitive environment?

No. No, we haven't. And I still think there's a potential for some consolidation in the competitive environment in the medium term I would say. But I don't -- we don't lie awake at night worrying too much about that. We've got our own race to run, and we're very focused on our own organization. It doesn't make a huge difference to us at ICON what happens in that space. We're probably more focused in terms of taking market share from some of the mid-tier players. I think that's where we have some real opportunities. There are always going to be niche players in this market players, those who focus on various therapeutic areas or various functions. That's always part of the course. But it's the mid-tier players, I think we have a real opportunity to take some market share from.

And customer concentration has obviously been a big focus for ICON prior to the merger. You're down to about 8% with your largest customer. Should we assume that kind of hold is going forward? Or is there a risk that could wind down?

I think that's about right. I think we certainly -- that's one of the big advantages of the merger. We've seen our customer concentration come down. We're well under 10% with all of our customers. We're certainly -- with our biggest, I think that's probably going to continue in the longer term. That's certainly our goal. So we want to increase the number of strategic partners, those customers who give us at least $100 million in revenue each year. I think that's certainly a goal for us. We're making good progress in terms of those discussions. But I think our customer concentration issue is that we had, maybe 3 or 4 years ago, a long-distant past now.

We're bumping at the end of time, maybe just 1 or 2 quickly for Brendan on tax rate expectations. Is 17% the right way to be thinking about it for this year, and maybe a blended rate of about 15% in a couple of years?

Yes, Tycho. We think we're a little better on that in '22. We think about 16.5% for full year '22. That may be more 17% in first half, 16% in second half. We'll look at it as we go forward into '23. As you guys know, there's a lot of moving pieces, both on the international tax scene and in the U.S. specifically, and the interaction between those 2 sets of regulations is going to be key in determining the future tax rates. We talked about 15% being now the OECD minimum tax rate, so we don't think we'll go below that. But I think as we get through the course of the year, we'll give further color on how we think that will evolve from the 16.5% onwards, when we see more of, I suppose, of the real legislation coming out and how it interacts from about a U.S. and international perspective.

Okay. And then last one, how should we think about share repurchases going forward?

Again, I think we'll be opportunistic with it. I mean, as Steve mentioned in the same light as M&A, we feel like we're in a good position from our debt paydowns, especially as we came into the back end of this year on our exit point in '22. If we feel it's opportune and the marketplace gives us opportunity to do that, I think that's something we could do and certainly look at in the back half of the year. But still focus and the primary focus will be on continuing the M&A story of the bolt-on piece.

Great. Well, I know we ran it over, so we'll leave it at that. Good to see you both. Enjoy the conference, and we'll talk in a couple of weeks with earnings.

Great. Thanks, Tycho.

Thank you.