IQVIA Holdings Inc. (IQV) Earnings Call Transcript & Summary

All right. Here we go. Good afternoon. I guess it's still late good morning. I'm Dave Windley with Jefferies Healthcare Equity Research. I appreciate your attendance here at our 2022 Healthcare Conference in New York. Ron and I were just talking about Friday attendance at conferences like this in the summer in New York. Everybody is probably hanging on for this and then you can head to the Hamptons. So I'm very pleased to have with us Ron Bruehlman, IQVIA Holdings' Executive Vice President and Chief Financial Officer. Ron has made, I guess it wasn't a red eye, but made the trip back from London and an executive management meeting, and we really appreciate the extra effort to be here with us today. So Ron, thanks a lot for coming.

I'm going to start in what may be nontraditional because I imagine all the discussion lately has been around research and development services in the CRO space. But I wanted to start on TAS just to make sure we gave that its proper due, the technology and analytical services. So in that space, Ron, on the fourth quarter call, we got a really nice update on the pieces of that TAS business, the relative size and kind of the growth contributors there. With that RWE and tech business not only being the growth driver and the highest growth part of that business, but now growing to 40% or 45% of the revenue there and so a pretty attractive space. Do you foresee that RWE and tech can continue to grow at that mid-teens level? Maybe talk about some of the dynamics around those growth drivers.

Sure. Sure. Well, let me just recap our TAS business and the 3 pieces that Ari talked about on the call. Our information business, which is how IMS Health, one of our predecessor companies started, is about 30% of the business, high margin, but a slow grower. It's a low single-digit grower. And we have our analytics and consulting business, which is another 25%. And it's actually recently accelerated and is now a low double-digit grower. And then there's the third part of the business that Dave talked about, which is our real-world evidence and technology business, which is 45% of our revenue, roughly speaking, and is kind of a mid-teens sort of grower. The question is, do we perceive it continuing to be a mid-teens grower? And the short answer is yes. I mean, in the tech space, I think there's been a lot of focus around our Orchestrated Customer Engagement or OCE offering because we compete directly with Veeva there and it gets a lot of attention. But we actually have a much broader portfolio than that. We have information management. We have regulatory, safety, quality. We have performance management, social media monitoring. So we have a very broad portfolio of offerings there. And we're, frankly, depending on which you're talking about, not necessarily very penetrated in the market. Tech is a recently, a fairly recent new area of investment for us. So we see a lot of opportunity to continue to grow there for no other reason that our penetration is low and we feel we have some really good offerings. Now in the real-world evidence space, we're the clear leader there. We have unparalleled data, 1.2 billion non-identified patient lives, longitudinal globally. We have tech solutions like E360, natural language processing and so forth, a very extensive service knowledge of the business, of the various components of how you use the data and so forth. And there's just a tremendous amount of demand in that sector. And we may get into that a little bit more coming up. But we see the real-world evidence business continuing to be a strong grower for us. So short answer is, overall, no reason we shouldn't continue the type of growth we see.

Yes. That's great. And so with it approaching half of the business and the biggest piece being the fastest grower, you have some kind of mixing up benefits to growth over time?

Well, in the short run, there's actually a mix challenge there because our highest margin business is the information business, and that's the slowest grower. And our real-world evidence and our tech business are somewhat lower margin. Now within those 2 businesses, we believe there's reason for margin expansion potential. In particular, in the tech business, in the early stages, a lot of the revenue you have is implementation revenue and then it's followed on by license revenue. And as we grow that business, we've had quite a bit of implementation revenue, lower margin, and the license revenue has come on afterwards. Now as we see the mix shift towards license revenue, what you're going to see is that the margin percentage come up because obviously software margins are better in license revenue than they are initially when you're implementing. On the real-world evidence side, we also see opportunity for margin expansion. Historically, this has been a business where you've got a bunch of PhDs together and you did a one-off study and you marked it up a little bit on labor, and it's very prestigious intellectual work but not very good margins. Well, we've moved away from that. We're now doing more value-based pricing. We have a greater recurring revenue component to the business as opposed to one-off studies. And we have some very specific offerings which are valuable to our customers, such as external comparators where you can actually use synthetic control arms for one-arm trials where you don't have a lot of patients, you have issues recruiting people or there are ethical issues with having placebo groups. And so we have some particular offerings which are valuable and we can price well. Now in both the real-world evidence and in the tech business, we see opportunities for efficiency. We're doing more offshoring. There's work you can move to lower cost areas to support those businesses and increased use of automation. So there's also the efficiency component to margins improving. So the long and the short of it is, we have some short-run challenges from mix because the information business is the highest margin and growing the slowest. But within the real-world and tech businesses themselves, we're seeing definite margin lift.

Yes, excellent. I appreciate the detail there. So before I leave the 3 pieces of TAS, the one, I think, element from a revenue growth standpoint that Ari kind of highlighted had improved was the analytics piece. And it was kind of growing the last several years faster than kind of the structure that you laid out earlier post-merger. Is that sustainable? Kind of what's driving that and is that sustainable?

Well, yes, look, historically, our analytics and consulting business, if you go back to the old IMS, was kind of a mid-single-digit grower and in good years a high single-digit grower. And that's really shifted. We've seen it go into a low double-digit growth mode, which has been very encouraging. We think it will continue, and it's really a combination of 2 things. It's the market dynamics and then our positioning. On the market, and you've had a record number of new launches. You have a lot of strength of new drugs coming into the pipeline. You have the challenges of the pandemic, which have caused pharma companies to take a fresh look at how do we need to approach health care professionals when it's harder to engage them in person. They need new means of going to market. We've also seen continued outsourcing. We have a lot of clients come to us and say, hey, look, we buy your data and we have big groups that we put together to analyze that data and do studies for us and so forth. And frankly, we don't think we're very efficient at it. You guys understand your data better than anyone, please do the work for us. We can do it more cheaply for them and get better results. So you see pharma companies actually outsourcing pieces of their commercial work, including analytics. So that's the market side of things. On the IQVIA side, obviously, one of the advantages we have is what I just said, is we know our data better than anyone. We have very deep analytical expertise. And we've also made some investments in certain areas that historically have maybe been underserved or had less demand that we're now seeing an explosion in demand. One is medtech, where you haven't had as much tracking of data and as much analytics. It's been kind of underserved historically. And we've built a pretty sizable medtech-related business in analytics and consulting that's growing well. And also emerging biopharma. If you go back 20 years, large pharma was much more dominant. Now over half the new molecules are coming out of emerging biopharma. And increasingly, what you're seeing now, in the past, a lot of times, these companies would sell to mid and large-size pharma than come to market. A lot of the emerging biopharma companies now want to come to market on their own, but they need help with that because they don't have well-established commercial functions, and they come to IQVIA for that. So we offer some special expertise there that's healthy. So yes, we just had our management meetings and executive leadership group meeting over in London, and all signs are really green for the analytics and consulting business. The market is large and growing, and we don't see any slowing in demand for our products there.

Yes. That's great. That's great. I just thought that was a little, an interesting positive nugget that came out of that dialogue. So let's shift to R&DS and start on the large customer side of that business. As we've had several of your CRO peers here at the conference and in other discussions, we're hearing of a lot of partnership activity either awarded or seemingly maybe out in the market at the moment doing some evaluations for partnerships. Are you seeing that? And how is IQVIA's RDS segment positioning for or around those opportunities?

Well, the question is, are we seeing any big shift in partnerships within the industry? And the short answer to that is no. But in our case, I mean, we already have partnerships, I think, with 23 of the top 30 pharma companies. We're very embedded with these clients. Remember, we have both commercial and R&DS partnerships. So there's always some shift where someone will move their FSP work from one CRO to another. But we haven't seen any big shifts there. But the long and the short of it is, the industry remains very strong, and we're doing very well within that industry and picking up share. If you just look at the statistics, we had a record $10 billion of net new bookings in 2021 in the Research and Development Solutions. First quarter, our service bookings of over $1.9 billion were also a record. We ended the quarter with $25.3 billion of backlog. That's up 9%. Our RFP flow year-to-date is up 11%. So overall, the industry remains very strong. We have several things that we think differentiate us. One is obviously our global scale. Also our data, which underpin the merger of Quintiles and IMS. We have an industry-leading decentralized trial capability. We have a very large lab business, central lab business that a lot of our competitors don't have. And we've built out a specialized group, which we call IQVIA Biotech, which was an outgrowth of an acquisition we made of Novella some years ago that specifically focuses on giving high-touch contact and sales and execution activity to the EDP sector. And back to that data point, I want to touch on that a second because there was a lot of skepticism when we did our merger about is it, all of the CROs talk about data informing clinical trials. What's going to be any different with you guys? And I think it's one thing to talk about, it's another thing to have proof points and just a few here. We help pharma increasingly with protocol amendments and designing protocols because protocol amendments slow down trials. And in the majority of the cases, we're now helping our pharma clients out on designing their protocols. And in those cases, 90% of the time, we're helping them to make changes to the protocol before they start the trial, which reduces delays. We have reduced site ID time versus historical benchmarks by an average of 33%. First patient in, which is a key benchmark in the industry, down 11% in terms of time, 11% better. And overall patient recruitment time across trials, 1/3 better, 1/3 lower than historical benchmark. So we have a lot of proof points that say that what we're doing in the industry is different than others and the data really does make a difference. And I guess imitation is the sincerest form of flattery. And we've seen a lot of our competitors go out there and try to build similar data capabilities. But honestly, no one is close in terms of the data they have, certainly on a global scale.

Right. Right. Yes. Those are some good proof points. Thanks for sharing those. And it's a good segue into the DCT question I was going to ask, which seems to have gotten a shot in the arm from COVID, albeit clients still seem cautious in their progress forward. So maybe you could talk about what you see in the demand for DCT and protocols in RFPs and how you position against that kind of slowly evolving trend.

Yes. Look, DCT is becoming, decentralized trials are becoming increasingly important in clinical trials. And you put it in simple terms, trials used to be about bringing patients to the trials. Now increasingly, we're trying to bring the trial to the patient. Obviously, it's a mixture of both right now. The principal benefit of decentralized trials is in faster and better recruitment because the average patient has to travel some incredible distance. I think it's like 60 or 70 miles to get to an investigator site, which means that a lot of people are going to be reluctant to participate in trials and you're going to have less opportunity for interaction and data gathering. So decentralized trials, because more can be done at the patient's home, make it easier to recruit patients. It also makes it easier to recruit a very diverse patient population, one that's more representative of the country, which is important. And just to put some numbers on it, about 1/3 of our clinical trials right now have some component of our decentralized trials offerings. Now we don't ever think you're going to get, at least not in my lifetime, to 100% decentralized trials. There's still a lot of trials in therapeutic areas where doctor visits are very important, and there are a variety of reasons why you're going to continue to see dispersed investigator sites. But you are going to see an increase in the amount of decentralized trial activities. And I think to be effective in decentralized trials, really truly effective, you need 3 things. First, you need a tech platform. And we have that as something we call Study Hub, which has things like e-consent; eCOA, which is patient diaries, wearable devices, electronic data capture and so forth. Okay. That's one thing. You need the technology component, and you see there are companies specifically set up for that. But you also have to understand the regulatory environment, how you make decentralized trials work within the regulatory environment, how you keep data private. And you have to have services around those trials because you need nurses, nurse networks that go out and visit people's home. We have over 2,000 nurses in IQVIA that do that work. You need phlebotomist. You need decentralized trial coordinator. So it's really a combination of those attributes that you need to be really successful, and we see a lot of peers that have one or the other, but we're really, we think, one of the few CROs that combines all 3 of those characteristics together.

Yes. That's very interesting. So you do have, I was unaware, so you have the 2,000 nurses that are already trained, skilled to go out into the home, administer drug, help patients with wearables, if they're wearing something, things like that?

That's correct. And we're constantly adding to the field force we have to help run decentralized trials because the demand is going up.

Yes. Absolutely. And that's an owned?

Yes. That's owned.

Owned?

Yes.

Okay. Fantastic. A couple of other things that are a little more, call it, short-term disruptive are the conflict, the unfortunate conflict in Ukraine and Russia. China has been, parts of China have been shut down for parts of the first half of the year. FX is a little bit of a headwind. I'm kind of throwing a lot of these things together, but those have been a little bit disruptive to the near term. Can you give us an update on what that looks like?

Yes, sure. Look, in the case of Russia, Ukraine, it's been a difficult situation. We, in both countries, have shut down recruiting new patients or starting new trials there, and we're actively working with our sponsors to relocate those trials to other parts of the world, Eastern Europe being one. But that's going to take time. So there is some short-term disruption to revenue. You saw in our first quarter guidance for the balance of the year, we incorporated, we said it's probably expected to be about a $40 million to $50 million negative revenue impact, Ukraine, in particular, because it's very difficult to get people to the sites there. Now we've done the best we can. We have direct-to-patient shipments of investigational products. We've set up central call centers. I mean, to an amazing extent, we're still able to service the patients, but there's disruption there. In the case of Russia, we had to evaluate as a firm what do we want to do there. And we made the decision for clinical trials that we really needed to see through existing clinical trials. So there's an ethical component to it. You just don't want to cut off patients in the middle of those trials. And that presents some challenges. You have to get investigational product in. You have to get lab samples out. And it's difficult to do because a lot of the transportation systems into and out of Russia have been shut down. And we've really had to kind of pull on our logistics capabilities to be able to do that. And it's been costly and there's been some lost revenue and so forth, but that's all factored into the guidance that we gave you. And things are pretty much to expectations as they were on our first quarter call. Now in the case of China, look, about 2.5% of our revenue comes from China. And about 2/3 of that is research and development solutions, 1/3 commercial. Commercial really hasn't been affected at all. It's research where you've had some impact. And that's because when you have shutdowns in cities, it's difficult or impossible for patients to get to the investigators to continue the trials. And there's a knock-on effect there that, and we have a lab business there. Any of the lab samples don't get taken or processed. So there has been some revenue impact in China. It hasn't been a major revenue impact. We have seen some loosening up now of restrictions in places like Shanghai and Beijing. We're always a bit cautious here because it's a fluid situation. You don't know what's going to happen. As it stands right now, it's very manageable. But we, like everybody else, are going to keep our eyes on what's going on there and see whether there are further shutdowns, further disruptions. And it's just impossible to predict.

So what I hear you saying, these are conflicts that you enumerated on the first quarter call, updated your guidance at that time, and you think it's tracking pretty much to what your expectations were?

Yes, exactly, exactly.

Yes. Excellent.

No big surprise.

Okay. And then FX as well?

FX as well, yes. I mean, look, we've got a little bit of weakening since but not enough that we would change our guidance or anything like that.

Okay. Great. Last question, I think we're landing the plane here pretty much on time. Your capital position has improved. Your leverage ratio, as management promised to investors, you were going to lower your leverage ratio. You've done that very effectively. I thought it was interesting. I know Ari seems like he's probably champing at the bit with the stock where it is to buy back more stock, but resisted the urge to commit to that. So I'd be curious, what are your allocation of capital priorities?

Well, look, first off, I think what Ari said was, he was going to run the leverage ratio way up to buy back stock. But that doesn't mean we're not buying back more stock. We think it's very attractive at today's price, and we are buying back more stock. It's just full stop. But it's always a trade-off between stock and acquisitions. Some of the acquisition pricing has been a little bit slow to adjust, and we probably passed on more things than we would have in the past. But there's still some attractive acquisition opportunities that are strategic in our pipeline. So we're not going to shut down acquisitions. So there's always that kind of give and take between share repurchase and acquisitions. I think in a normal environment, you say kind of acquisitions are one, share repurchases two, debt reduction is kind of a distant third, even with rates going up, it's still historically low. And so you're going to see quarter-to-quarter some fluctuations. But no question about it, the stock has been at an attractive level from a repurchase standpoint. We're not happy about it, but attractive from a repurchase standpoint lately.

Right. So lower price, you can buy back more shares at a lower price.

That's true.

And to re-emphasize your point, I didn't mean that you're not buying back stock but rather not increasing leverage again to do it is the point that you're driving home?

Exactly.

Right. Well, that brings us to the end of the session. Ron, again, thanks for making the trip back to be here with us, really appreciate it. Thanks for the audience's attention. Wish you all a great weekend, and we'll talk to you soon. Thank you.

Yes. Thanks.