CROs - a different way to invest in the pharmaceutical industry

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Has anyone delved deeper into Contract Research Organizations (CROs)? They are essentially subcontractors for the pharmaceutical industry, conducting drug testing and research. The sector is highly fragmented, with a market size of approximately $38 billion, and is projected to grow by about 11% annually in the coming years, reaching an estimated market of $91 billion by the end of 2026.

The reason I’m interested in these is that they offer a slightly different way to invest in the healthcare sector. A traditional pharmaceutical company is highly dependent on the approvals and successes of its drugs. CROs, on the other hand, steadily earn money from testing – whether a drug passes or fails tests doesn’t affect their business, as all drug candidates must be tested. CROs accumulate their expertise cumulatively and become continuously more efficient and productive over time (information accumulates).

Among these companies, I picked ICON Plc (NASDAQ: ICLR). The company is among the largest CROs and is in good financial health.

Any thoughts or comments? At least this is a different way to invest in the pharmaceutical industry.

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I’m also interested in software providers related to the pharmaceutical industry. The main ones that come to mind are the recent Medidata, which Dassault acquired just as I was mulling over the idea of buying it, and Veeva, which never seems to be the right time to buy.

It’s a bit in the same category as CROs, so are they accepted in this thread?

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Yep, those fit into this thread too. CROs invest in data and its processing and are customers of those software providers.

As for pharmaceutical companies, the profit of an individual pharmaceutical company can be almost anything, but as a group, pharmaceutical companies are doing very well. This message was once conveyed by Seligson when they founded their pharmaceutical company fund. Over the longer term, this has indeed been the case, and the fund has performed quite nicely.

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From what I’ve seen of CRO (Contract Research Organization) work, those companies seem a bit old-fashioned. So if anyone has good insight into a slightly smaller, growing, “digital-first” CRO, I’d be very interested in exploring further. That’s an industry where digitalization still has room to disrupt. Partially, it’s probably due to pharma’s risk-averse culture, where a slightly higher price tag is acceptable if risks are minimized by choosing a traditional, reliable player who can deliver with certainty.

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An interesting topic indeed. I’ve worked both in CROs and on the Pharma side, and currently, I’m doing statistical programming on the CRO side. The industry definitely has opportunities for big leaps, especially in solutions that would work across the entire drug development lifecycle. Right now, a pharmaceutical company researching a drug might outsource the physical examination/treatment of patients to one CRO, data collection to another, and data analysis and preparation for regulatory submission/reporting to yet another. It’s hard to say why this is the case. Every serious CRO would, of course, want all these functions for themselves, but that’s not very often how things ultimately go. Many CROs have, however, developed relatively advanced automation models for this, but I don’t know how much these are actually in use and whether they work in practice as well as they do in their own development projects.

It also somehow feels like the industry attracts mostly those who are not the most innovative and creative people. At least according to my personal experience, in a large part of the studies, the people collecting data and creating databases are already in the twilight of their careers, and for them, processes and familiar ways of working seem to be the most important. This is just a gut feeling, of course, and I’m working at the very end, where data is modified and analyzed for submission to authorities. In an ideal world, 90% of the work could be standardized from one study to another already at the other end, but there’s no understanding why that isn’t done. It may, of course, be that due to the conservatism of the industry, this simply takes a remarkable/incomprehensible amount of time. A good example of this is the use of SAS as a programming language, whose share was supposed to at least decrease or be completely displaced ever since I started working in the early 2010s. But I still use it every day from morning to evening, and virtually nothing has happened in its displacement in practical work lately…

Regarding the matter itself, I’m not very well aware of the strengths/weaknesses between different CROs, as most of the research costs are incurred in the clinics themselves and in the treatment of the patients. I don’t really have much experience on this side, I just generally wrote something about the CRO world, since such a thread was put up :slight_smile: In programming, SAS is heavily used in that world, and R, for example, is trying to displace it. The problems with investing in these are that SAS is family-owned and R is a free, user-based programming language.

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This was an excellent summary of my own feelings about working with CROs, I wouldn’t have been able to put it so well myself. :smiley: Partly for that reason, I started thinking about the disruptive potential of digitalization.

I also have previous indirect experience from the CRO side and am currently working for a sponsor.

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It’s great to find firsthand experience on this topic here. Thanks for the effort!

I’ve had an impression of the entire pharmaceutical sector being conservative, but when I considered those CROs, I thought I saw great opportunities for increased efficiency and innovation. Perhaps I was a bit too optimistic :smiley:

I like to invest in quality, and when researching those companies, I didn’t invest in the market leader, but in a slightly smaller, (according to their own words) innovative company. The company is in good financial shape and has won numerous awards at the CRO Leadership Awards. As an outsider, one has to settle for a more superficial examination like this. One must always keep in mind, of course, that any company tries to highlight the good aspects of everything and leaves out criticism. That’s why I’m very interested in outside perspectives.

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I’ve been meaning to revive this old discussion for a long time with my Medpace analysis.

CROs occupy a rather unique position in the pharmaceutical market because they don’t carry the idiosyncratic risks of individual drugs like pharmaceutical companies do. Instead, they benefit simply from the fact that more and more efforts are being made to develop drugs.

A few observations on industry trends from the text and why, for example, Medpace is the largest public holding in my portfolio:

The CRO industry has grown steadily alongside the development of new drugs. The sector has grown very rapidly since it emerged at the turn of the 1970s and 80s. In the 1990s, the market grew at a rate of 15-20%, and in the early 2000s, it grew at 13%, while the pharmaceutical industry’s budget grew at an annual rate of only 9%. This indicates that, starting from the early 2000s, the pharmaceutical industry truly began outsourcing more and more of its drug development to CRO companies.

Today, the CRO market is expected to grow by 7-13% annually until 2032, according to various estimates. This is a combination of ever-increasing drug development costs and the continuing growth in the volume of outsourcing. As an industry, the CRO market is attractive because the money spent on drug development is likely to increase globally for the foreseeable future. Current estimates suggest that pharmaceutical companies outsource about 50% of all potential development to CROs, so there is still room for growth in this share alone.

It has been estimated that the entire lifecycle of developing a functional drug in the United States, through to approval, costs an average of 2.5 billion dollars. Yes, indeed. Developing one drug’s lifecycle is that expensive. Costs are also only rising as requirements and regulations become stricter, which continues to grow the market.

There are many unlisted companies in the industry, but also many publicly traded ones. The global Top 10 is:
1. Labcorp (approx. 14.8 billion EUR)
2. IQVIA (approx. 14.4 billion EUR)
3. ICON PLC (approx. 7.7 billion EUR)
4. PPD, Inc. (approx. 7.2 billion EUR)
5. Wuxi Apptec (approx. 5.7 billion EUR)
6. Syneos Health (approx. 5.41 billion EUR)
7. Charles River (approx. 3.98 billion EUR)
8. Parexel (approx. 2.4 billion EUR)
9. Medpace (approx. 1 billion EUR)
10. Medidata Solutions (approx. 700 million EUR)

What differentiates CRO companies from one another is, above all, their client mix. While Labcorp, for example, has a massive number of Big Pharma clients, for Medpace, Big Pharma generates less than 5% of revenue. When investing in CRO companies, I believe the most important thing is to look at that specific client mix and the types of risks/opportunities it carries for the company itself.

If medicine as a field interests you at all, I highly recommend taking a deeper look at the CRO market and its stocks. It contains many opportunities and potentially hidden gems that can benefit from the same megatrends as other pharmaceutical firms—without the risks of individual “hit or miss” drugs.

In the Medpace text, I also explain more key terms surrounding the industry, and it would be interesting to hear from others if you have looked into the sector and what it looks like to you. The industry is such that even in the US, there is surprisingly little analysis of it—usually a good sign for an investor, as the field isn’t “sexy” in any way; pharmaceutical companies tend to take all the headlines.

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I actually invested in ICON back in the day, but I haven’t invested in any of the others. The risks with these are indeed more diversified than with actual pharmaceutical companies, but I’d still like to diversify among these as well.

I suppose there isn’t an ETF that invests exclusively in these? One option would be to buy, say, the top ten, but the brokerage fees for smaller amounts would be a bit steep…

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Thank you for the excellent Medpace analysis. A few days ago, Medpace also ended up in my own portfolio with a fairly solid position. The stock price is also in a positive multi-year uptrend :rocket:
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Thanks for the interesting post! I’ll pick up on one point now, as the company in question happens to be on my watchlist (and in my portfolio as well).

Charles River is a US company similar to Medpace, about three times larger, but with a focus and customer base very similar to Medpace. The Glassdoor results for Charles River are actually almost the same as Medpace’s, and otherwise, there isn’t a huge difference between the companies, except for the lack of a CRA program. The company has also managed to grow slightly faster than the market in the 2020s, at an average annual rate of 15%.

Charles River Laboratories is actually a completely different company than Medpace. Medpace focuses on clinical research, i.e., the phase of medical research where the drug is tested on either healthy volunteers or patients. In other words, on humans. Charles River focuses on pre-clinical research, which is conducted in the lab as well as through computational models and animal testing, and the manufacturing of certain drugs. So, not on clinical research at all. This makes the business quite different, especially in the current operating environment.

Charles River consists of the following units:

  • Research Models and Services: This unit focuses mainly on animal models used in pre-clinical research and related services. Cell models are also included here.
  • Discovery and Safety Assessment: This is where pharmaceutical companies outsource the identification and validation of new targets and new molecules, i.e., very early-stage research. In addition, this includes services to ensure drug safety within regulatory frameworks, for example, through animal models.
  • Manufacturing Solutions: focuses on the manufacturing of complex biological drugs (so-called contract development and manufacturing organization, CDMO) and the quality assurance of that process.

So, how does this differ from Medpace’s clinical research? After all, expert services are being sold to the same customers here?

Firstly, I would say that the specialized expertise required for pre-clinical studies is much more specialized than what is needed for clinical studies (generally speaking; of course, there are also highly specialized experts on the clinical side). For example, there are about 500 pathologists worldwide specialized in veterinary medicine, which this safety assessment business requires. 150 of them work at Charles River. You can’t train these people straight out of school, so I find it hard to believe that a CRA-type training program would be sensible in this case, except perhaps for laboratory technicians.

Secondly, in the current operating environment where interest rates are rising, pharmaceutical companies (i.e., the customers) have invested more in so-called late-stage pipeline studies, i.e., clinical studies. So now the focus is on getting drugs to market as quickly as possible, and savings are being made in early-stage research (the fruits of which are much further in the future). Charles River has naturally suffered from this, and its book-to-bill ratio has been below 1 for many quarters now. Similarly, clinical CROs like Medpace have benefited accordingly. Especially those CROs focusing on small companies, as financing is tighter on that side than with large customers, so there’s more pressure to get products out. I believe this is temporary (early-stage research will be needed sooner or later too; otherwise, the whole industry will stall in a few years). When this turns around, it could soon be that work on the clinical side decreases because the basic research hasn’t been done yet. In this scenario, demand for pre-clinical work would increase again. This is why I became interested in researching pre-clinical CRO companies like Charles River a year ago.

Interesting thread, hopefully we can get some discussion going here!

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I asked AI Chat, i.e., artificial intelligence, what it thinks about investing in Medpace Holdings (How about investing to medpace). Below is the response translated into Finnish, as well as the original response in English:

Medpace Holdings, Inc. is a global clinical research organization (CRO) that provides Phase I–IV clinical development services to the biotechnology, pharmaceutical, and medical device industries. It offers services such as project management, regulatory affairs, data management, statistical analysis, and medical writing.

Investing in Medpace can be a good option for several reasons:

1. Growing industry: The global CRO market is expected to grow significantly in the coming years due to increasing clinical trials, research and development activities, and outsourcing by pharmaceutical companies. Medpace, a major player in this market, benefits from this growth trend.

2. Strong reputation and track record: Medpace is known for quality and efficiency in executing clinical trials. It has a strong track record of successfully completing studies, meeting timelines, and generating reliable data. This has earned the trust of its clients and positions Medpace well for future collaborations.

3. Diverse client base: Medpace serves a wide range of clients, including small biotechnology companies, mid-sized pharmaceutical companies, and large multinational corporations. Its diverse client base provides stability and reduces dependency on a single client or therapeutic area.

4. Focus on niche therapeutic areas: Medpace has expertise in several niche therapeutic areas, such as oncology, cardiovascular diseases, infectious diseases, and neurology. Focusing on these areas allows Medpace to leverage its knowledge and experience, gain a competitive advantage, and attract clients looking for specialized expertise.

5. Global presence: Medpace has a global footprint, with operations in over 45 countries. This allows the company to access a wide range of markets and benefit from regional growth opportunities. It also helps mitigate geopolitical risks by diversifying its geographic exposure.

However, as with any investment, there are some risks to consider:

  1. Dependence on clinical trial success: Medpace’s revenue largely depends on the successful completion of clinical trials by its clients. Delays, failures, or cancellations of trials could impact the company’s financial performance.

  2. Regulatory and compliance risks: The CRO industry is subject to strict regulatory requirements, and any non-compliance can lead to penalties or loss of contracts. Investors should analyze Medpace’s ability to effectively manage regulatory and compliance risks.

  3. Competitive landscape: The CRO market is competitive, with several established players and emerging startups. Medpace faces competition from other large CROs, as well as contract research divisions of pharmaceutical companies. Investors should assess Medpace’s differentiation strategy and ability to withstand competitive pressures.

  4. Macroeconomic factors: Like any global company, Medpace’s performance can be influenced by macroeconomic factors, such as economic downturns, currency fluctuations, and changes in healthcare policies. These factors can impact client spending and overall demand for CRO services.

Before investing in Medpace or any other stock, it is important to carefully analyze the company’s financial situation, history, industry trends, and conduct thorough due diligence. It is also recommended to discuss with a financial advisor or broker to get personalized investment advice based on your financial goals and risk tolerance.

In English:

Medpace Holdings, Inc. is a global clinical research organization (CRO) that provides Phase I-IV clinical development services to the biotechnology, pharmaceutical, and medical device industries. It offers services including project management, regulatory affairs, data management, statistical analysis, and medical writing.

Investing in Medpace may be a good option for several reasons:

  1. Growing industry: The global CRO market is expected to witness significant growth in the coming years due to increasing clinical trials, research and development activities, and outsourcing by pharmaceutical companies. Medpace, being a major player in this market, stands to benefit from this growth trend.

  2. Strong reputation and track record: Medpace has a reputation for quality and efficiency in executing clinical trials. It has a strong track record of successfully completing studies, meeting timelines, and generating reliable data. This has earned the trust of its clients and positions Medpace well for future collaborations.

  3. Diverse client base: Medpace serves a wide range of clients, including small biotechnology companies, mid-sized pharmaceutical companies, and large multinational corporations. Its diverse client base provides stability and reduces dependency on a single client or therapeutic area.

  4. Focus on niche therapeutic areas: Medpace has expertise in several niche therapeutic areas, such as oncology, cardiovascular diseases, infectious diseases, and neurology. Focusing on these areas allows Medpace to leverage its knowledge and experience, gaining a competitive advantage and attracting clients looking for specialized expertise.

  5. Global presence: Medpace has a global footprint, with operations in over 45 countries. This allows the company to tap into a wide range of markets and benefit from regional growth opportunities. It also helps mitigate geopolitical risks by diversifying its geographic exposure.

However, as with any investment, there are some risks to consider:

  1. Dependence on clinical trial success: Medpace’s revenue largely depends on the successful completion of clinical trials by its clients. Delays, failures, or cancellations of trials could impact the company’s financial performance.

  2. Regulatory and compliance risks: The CRO industry is subject to stringent regulatory requirements, and any non-compliance can lead to penalties or loss of contracts. Investors should analyze Medpace’s ability to effectively manage regulatory and compliance risks.

  3. Competitive landscape: The CRO market is competitive, with several established players and emerging startups. Medpace faces competition from other large CROs, as well as contract research divisions of pharmaceutical companies. Investors should assess Medpace’s differentiation strategy and ability to withstand competitive pressures.

  4. Macroeconomic factors: Like any global company, Medpace’s performance can be influenced by macroeconomic factors, such as economic downturns, currency fluctuations, and changes in healthcare policies. These factors can impact client spending and overall demand for CRO services.

Before investing in Medpace or any other stock, it’s important to carefully analyze the company’s financials, track record, industry trends, and conduct thorough due diligence. It’s also advisable to consult with a financial advisor or broker to gain personalized investment advice based on your financial goals and risk tolerance.

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Medpace Holdings, Inc. Reports Fourth Quarter and Full Year 2023 Results

  • Revenue of $498.4 million in the fourth quarter of 2023 increased 26.5% from revenue of $394.1 million for the comparable prior-year period, representing a backlog conversion rate of 18.5%.

  • Net new business awards were $614.7 million in the fourth quarter of 2023, representing an increase of 26.7% from net new business awards of $485.1 million for the comparable prior-year period, which resulted in a net book-to-bill ratio of 1.23x.

  • Fourth quarter of 2023 GAAP net income was $78.3 million, or $2.46 per diluted share, versus GAAP net income of $68.7 million, or $2.12 per diluted share, for the comparable prior-year period. Net income margin was 15.7% and 17.4% for the fourth quarter of 2023 and 2022, respectively.

  • EBITDA was $95.8 million for the fourth quarter of 2023, an increase of 19.2% from EBITDA of $80.4 million for the comparable prior-year period, resulting in an EBITDA margin of 19.2%.

https://finance.yahoo.com/news/medpace-holdings-inc-reports-fourth-211500290.html

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Wonder what kind of Viagra Medpace has been given :joy:

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Q1/2024 ylitti analyytikoiden odotukset kirkkaasti. On se vaan kova :muscle:

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Medpace Holdings, Inc. Reports First Quarter 2024 Results / April 22, 2024

  • Revenue of $511.0 million in the first quarter of 2024 increased 17.7% from revenue of $434.1 million for the comparable prior-year period, representing a backlog conversion rate of 18.2%.

  • Net new business awards were $615.6 million in the first quarter of 2024, representing an increase of 10.8% from net new business awards of $555.8 million for the comparable prior-year period, which resulted in a net book-to-bill ratio of 1.20x.

  • First quarter of 2024 GAAP net income was $102.6 million, or $3.20 per diluted share, versus GAAP net income of $72.9 million, or $2.27 per diluted share, for the comparable prior-year period. Net income margin was 20.1% and 16.8% for the first quarter of 2024 and 2023, respectively.

  • EBITDA was $115.7 million for the first quarter of 2024, an increase of 24.6% from EBITDA of $92.8 million for the comparable prior-year period, resulting in an EBITDA margin of 22.6%.

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Medpace Holdings 2024 Financial Outlook:

“The company forecasts 2024 revenue to be between $2.150 billion and $2.200 billion, representing a growth of 14.0% to 16.7% compared to the 2023 revenue of $1.886 billion. Full-year 2024 GAAP net income is projected to be $347.0 million to $369.0 million. Additionally, full-year 2024 EBITDA is expected to be $415.0 million to $445.0 million. Based on the 2024 forecast for revenue of $2.150 billion to $2.200 billion and GAAP net income of $347.0 million to $369.0 million, GAAP diluted earnings per share (EPS) is expected to be $10.79 to $11.47. This guidance assumes a 2024 tax rate of 15.0% to 16.0%, interest income of $22.9 million, and 32.1 million diluted shares. This guidance does not include the potential impact of any share repurchases under the company’s share buyback program after March 31, 2024.”

Nimetön

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Medpace hit all-time high numbers today.

medp

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Medpace Holdings, ticker symbol MEDP, just released its Q2 results. Continued growth once again. The company slightly lowered its revenue guidance for the full year but raised its earnings guidance for FY24. The stock is -15% in after-hours trading (on low volume). No buybacks during the last quarter - authorization to buy $304M worth remains.

Medpace Holdings, Inc. Reports Second Quarter 2024 Results
• Revenue of $528.1 million in the second quarter of 2024 increased 14.6% from revenue of $460.9 million for the
comparable prior-year period, representing a backlog conversion rate of 18.2%.
• Net new business awards were $551.0 million in the second quarter of 2024, representing a decrease of 4.1% from
net new business awards of $574.8 million for the comparable prior-year period, which resulted in a net book-to-bill
ratio of 1.04x.
• Second quarter of 2024 GAAP net income was $88.4 million, or $2.75 per diluted share, versus GAAP net income of
$61.1 million, or $1.93 per diluted share, for the comparable prior-year period. Net income margin was 16.7% and
13.3% for the second quarter of 2024 and 2023, respectively.
• EBITDA was $112.3 million for the second quarter of 2024, an increase of 34.2% from EBITDA of $83.6 million for the comparable prior-year period, resulting in an EBITDA margin of 21.3%.

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There has also been talk in the thread about pharmaceutical software companies, so:

Salesforce is launching a competitor to Veeva Systems. Part of Veeva’s software was previously built on Salesforce, but Veeva decided to end the partnership a couple of years ago.

https://theedgemalaysia.com/node/738946

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