CRO产业现状：生物科技融资分析复杂

1、24 January 2019 Americas/United States Equity ResearchHealthcare Technology & DistributionContract Research OrganizationsResearch AnalystsErin Wilson Wright212 538 4080 HYPERLINK mailto:erin.wright erin.wrightCharles Lederer, CPA212 538 1822 HYPERLINK mailto:charles.lederer charles.ledererKatie Tryh

2、ane212 325 2713 HYPERLINK mailto:katie.tryhane katie.tryhaneGeorge Engroff212 325 2289 HYPERLINK mailto:george.engroff george.engroffSECTOR REVIEWState of the CRO Industry: CT.gov analysis positive, Biotech Funding Analysis MixedProprietary analysis of : We track all active and closed studies regist

3、ered on the database by location, sponsor, and lead investigator for leading CROs. According to our analysis,LabCorp (Covance/Chiltern) was the most active in 4Q, adding 22 trials, followed by PAREXEL (8), Syneos Health (8), IQVIA (7), PRA Health Sciences (6), PPD1 (5), ICON PLC (3), and Medpace (1)

4、. In terms of average enrollment, ICON led the way with the most enrollees per newly registered trial, averaging 191 total patients across three trials. Our analysis showed three new terminations in 4Q, below the average (six) experienced over the last two years. CROs impacted included IQVIA, PAREXE

5、L, PPD, and Chiltern. Details enclosed.4Q biotech funding dips (-23%), but still a strong 2018 (+30%): We track multiple data points to measure the health of the biotech fundingenvironment, and according to BioWorld, a comprehensive data source, biotech funding, including public and private sources,

6、 decreased 23% y/y to$13 billion in 4Q18, on the heels of a flat experience in 3Q. By month, funding in December rose 17%, helping to offset a steep 63% decline in November (on a difficult comp, Nov. 2017 funding of $8.1 billion was the third greatest funding month since Sept. 2015). Importantly, fu

7、ll year 2018 funding increased a robust 30%, and we view it remains to be seen whether the more recent volatile growth rates are indicative of a continuing trend. More broadly, we view promising molecules will get funded and biotech balance sheets remain robust, which bodes well for fundamental dema

8、nd across our CRO universe. As a caveat, we emphasize that funding can stem from multiple sources that may not be fully represented in this data. For instance, large pharmaceutical companies can represent a key source of funding for small and mid-sized biotech companies, inherently more insulated fr

9、om broader capital market activities than venture capital and public market funding.SYNH - Refining our model; reducing 18/19 estimates: We are lowering our 2018 EPS est. to $2.73 (from $2.76), as well as our 2019 EPSto $3.07 (from $3.19) on a slower revenue growth trajectory, reflecting+MSD (+5.4%)

10、 ASC 606 CRO growth and +8.8% growth across its Commercial segment. That being said, we maintain our positive bias on SYNH, given its favorable valuation amidst a relatively healthy fundamental backdrop. At 14.0 x our 2020 EPS, SYNH trades at a marked discount to its clinical CRO peers (17.7x), whic

11、h we view as unjustified given its scale and breadth of services. Risks: shifts in demand, sponsor consolidation,integration headwinds.1 PPD figures may only be a partial snapshot of its total studies as a result of search limitations associated with the frequency of use of the acronym “PPD” in tria

12、ls unrelated to the company.DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: CreditSuisse does and seeks to do business with companies covered in its research reports. As a

13、 result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.CROs downplay impact of pharma M&A: Concerns over a potentially consoli

14、dating pharma customer base percolated following significant M&Aactivity in early January (BMY/CELG and LLY/LOXO). As it relates to BMY/CELG, we are aware of a relationship between inVentiv (now SYNH) and CELG (date June 2016), and for BMY, we have previously noted partnerships with ICLR (Apr. 2013

15、and Jun. 2010), LH (Apr. 2013), PRXL (Jun. 2010), and IQVIA (Apr. 2013). While we acknowledge pharma M&A can provide an overhang for CROs, we view the impetus of recent deals as more of an effort to bolster R&D pipelines as opposed to rationalize, with more broad-based major M&A across the industry

16、less clear. Recent commentary from BMY alluding to minimal overlap with CELG also suggests limited disruption for relevant constituents.ReviewCROs into the 4Q18 PrintWith 4Q reports approaching, we provide our expectations for the quarter below. In a strong underlying fundamental backdrop, we contin

17、ue to favor larger global CROs, such as IQVIA and Covance (LabCorp, LH, including Chiltern), with unique data capabilities supplementing their extensive geographic scale that should provide them with greater wherewithal to undertake increasingly international and complex clinical trials.Importantly,

18、 in drawing comparisons between the CROs and assessing year-over-year performance/projections, it is important to note the impact of the new revenue accounting standard implemented this year ASC 606 on results, as well as on comparability across years and the industry.Each CRO has reported 2018 resu

19、lts thus far in accordance with ASC 606, and notably, Medpace is the only member in the group to not issue full year guidance under the new standard. Fortunately, 4Q will hopefully be the last quarter with YoY comparability issues as we fully lap the accounting change in 1Q. While IQVIA and LabCorp

20、elected to disclose the full retrospective method and restated 2017 results to reflect ASC 606, ICON PLC, Medpace, PRA Health Sciences, and Syneos Health opted for the modified retrospective method. The accounting change has not had a material impact on Charles River Laboratories results, as pass th

21、rough costs/investigator fees are not applicable for preclinical CROs. On average, across CROs disclosing financial information under both standards, the impact of the reporting change has been an increase on revenues of 9% in 2018, but a 5% reduction to EPS. With each of our covered companies lappi

22、ng the impact of the new accounting standard in 4Q, we expect 2019 guidance to be on an ASC 606 basis, though backlog disclosure methodologies will likely still differ from company-to- company. To date, only Syneos and ICON have provided 2019 guidance, whereas IQVIA, PRA, Medpace, LabCorp, and Charl

23、es River will provide an update on their respective 4Q earnings call.IQVIA Holdings (IQV, Outperform, Target Price: $141): For IQVIA, our top pure-play pick, we forecast 4Q EPS of $1.46 (+20.6%, vs. consensus $1.47), including revenuegrowth of +3.3% and +95 bps operating margin expansion. We forecas

24、t a net book-to- bill of 1.20 x and maintain our positive bias on the name, based on persistent strength in outsourcing demand (consistent with our channel checks) and IQVs ability to leverage its global data assets, a unique competitive advantage. In 4Q, we also expect more details on Vision 22, it

25、s cost savings initiative, first disclosed at our CS Healthcare Conference (see note, HYPERLINK /s/V7eUrE4AF-ZGDB IQV: Scoops from Scottsdale) expected to be implemented in 2020. Points of focus: Guidance, Next Gen Solution wins, cost structure initiatives, capital deployment, revenue ramp/2019 expe

26、ctations.Syneos Health (SYNH, Outperform, Target Price: $49): Syneos remains the most controversial name in our CRO coverage universe. We forecast 4Q EPS of $0.82(+17.5%, vs. consensus $0.82), driven by +4.6% revenue growth and operating margin expansion of +53 bps. Of note, its Commercial segment e

27、xperienced its third consecutive sequential improvement in topline growth in 3Q (+8.3% vs. -5.2% in 2Q), where it continues to work through segment challenges amidst inherent lumpiness. Also, the company recently provided clarity to its 2019 high level guidance (initially provided during its 11/6 ca

28、ll), calling for Clinical topline growth of +4-6% and +8-12% growth in Commercial, along with incremental detail of EBITDA margin expansion of 20-30 bps. It also noted $500 million across six project wins from its rebranded Syneos One unit (formerly ISG), most of which are excluded from Clinical/Com

29、mercial bookings due to contingencies. Our sum of the parts analysis indicates the market currently ascribes de minimis value to its Commercial segment (30% of revenues),which we view as unwarranted. Points of focus: ISG (Integrated Solutions Group) business awards, guidance, integration progress, u

30、nderlying demand in Commercial, as well as Clinical and Commercial BTB.ICON PLC (ICLR, Outperform, Target Price: $159): We forecast 4Q EPS of $1.60 (+11.7%, vs. consensus $1.60), predicated on organic constant currency growth of+9.0% and operating margin expansion of +68 bps (ASC 605). We expect a q

31、uarterly net book-to-bill of 1.29x. Earlier this month, ICON introduced its 2019 guidance calling for revenue growth of +5.2%-9.0% to $2,735-$2,835 million, encompassing our $2,818 million estimate. Guidance also calls for EPS of $6.69-$6.89 (vs. our est. and consensus of $6.79), an effective tax ra

32、te of 12%, as well as share repurchases of up to 1 million shares in 2019. Additionally, ICON reaffirmed its 2018 revenue and EPS guidance of $5.98-$6.12 (vs. our est. and consensus of $6.07), while it noted a healthy TTM BTB of 1.28x. In 3Q, it posted impressive cc organic revenue growth ex-PFE of+

33、21%, and the gross margin expanded 29 bps on higher utilization, with the stronger trend expected to persist into 4Q. With a strong balance sheet (net cash of $142 million), M&A is a NT focus, and areas of potential interest include late stage/pharmacovigilance, site networks, APAC, and central lab

34、expansion. Points of focus: capital deployment, organic constant currency growth ex-PFE.PRA Health Sciences (PRAH, Outperform, Target Price: $115): For PRAH, we forecast 4Q EPS of $1.26 (+21.2%, vs. consensus $1.27) driven by +17.3% revenuegrowth offset slightly by EBITDA margin contraction of 23 bp

35、s. We forecast a 4Q net book-to-bill of 1.26x, which includes new project awards, as well as healthy new business from existing clients, including major partnerships such as Takeda. Of note, 4Q is usually Symphonys strongest quarter, as pharmaceutical companies spend residual funds from their annual

36、 budgets to purchase data offerings. With persistently strong bookings supporting revenue growth ahead of its peers as well as incremental market share gains, we expect PRA to continue to trade at a premium (21.1x 2020 EPS) to peers (17.3x). Points of focus: strategic partnership wins, guidance, Sym

37、phony integration, hiring activity, underlying demand trends, Shire implications, as well as Bayer partnership.Medpace (MEDP, Outperform, Target Price: $62): We forecast a 4Q EPS of $0.60 for MEDP (+53.7%, vs. consensus $0.66) including revenue growth of +65.5% andEBITDA margin degradation of 625 bp

38、s to 17.7%, a sequential deterioration from 3Q (20.3%) on previously disclosed internal investments. We estimate a net book-to-bill of 1.15x, reflecting MEDPs conservative booking policies relative to its peers as well as a$20 million cancellation disclosed on its 3Q conference call (0.12x-0.16x neg

39、ative impact on 4Q net BTB). We expect MEDP to continue to benefit from strong underlying fundamentals, as well as exposure to a biotech customer base that continues to represent a faster growing segment of the market. Points of focus: profitability, bookings, RFP flow, and guidance.LabCorp of Ameri

40、ca (LH, Outperform, Target Price: $160): LabCorp, the parent company of Covance, will report 4Q earnings on February 7th. Our 4Q EPS forecast of$2.51 (+8.7%, vs. consensus $2.50) reflects revenue growth of +2.0% and EBITDA margin contraction of 184 bps. We estimate a TTM net book-to-bill of 1.22x (v

41、s. 1.25x in 3Q), as the CRO segment gains traction. Moreover, we expect Covance to leverage bolstered abilities in FSP/APAC. Of note, it is now the second largest provider of FSP with Chiltern. Points of focus: Covance LaunchPad progress, new business wins related to combined offering, Chiltern inte

42、gration, core clinical laboratory dynamics, UNH/AET financial details, Covance BTB sequential improvement, clinical laboratory volume dynamics.Charles River Laboratories (CRL, Neutral, Target Price: $110): For CRL, we forecast 4Q EPS of $1.41 (+0.4%, vs. consensus $1.40), predicated on revenuegrowth

43、 of +25.0%, supported by the MPI acquisition (closed April 3rd), with 54 bps of operating margin contraction. At a recent industry conference, CRL reiterated its organic revenue guidance of +8.0%-8.5% on demand strength across all three segments, with RMS growth buoyed by its new five-year contract

44、with the National Institute of Allergy and Infectious Diseases (started September 14). Charles River management also spoke constructively on China, noting that it is looking to expand outside of Shanghai and Beijing due to exceptional growth. CRL also upped its forecasted contributions from MPI by 1

45、00 bps while also noting deal synergies remain on track. While wage hikes are tempering profitability NT (-75 bps in 4Q), broadly, we are optimistic on CRLs prospects with MPI as it expands its exposure to a fast-paced biotech customer base, while adding new services capabilities and scale, where it

46、 continues to distance itself from its competitors. Additionally, at the recent healthcare conference CEO, James Foster, emphasized that it would be surprising if Charles River remained inactive in the M&A space in 2019, as he believes strategic acquisitions remain the companys best use of cash. Poi

47、nts of focus: M&A pipeline update, biotech demand, guidance.Figure 1: CRO Revenue Accounting Standard Reporting Summary2018 CRO Guidance TrackerTo restateGuide measured onASC 605ASC 606historicals?total or net serviceEst. 606 Impactrevenues?Pass-through revenue is expected to dampen 2018 RDS revenue

48、IQVxYesTotalgrowth by 3.5%-4% and total revenue growth by 2%; limited impact to adj. EBITDALHxYesTotalRevenue growth in Covance Drug Development of 24.0%-26.0% over 2017 restated revenue of $3.6 billionPRAH expects a material impact on reported revenue, but it doesPRAHxNot disclosedTotalnot expect t

49、he adoption to have a material impact on adjusted netincome or EPS. Reports under ASC 606, but also provides ASC 605disclosure for comparabilityLess than 1% impact on revenues in 2018; no change to EPS;ICLRxxNot disclosedBothdifference between pre-announce and formal guide was justincorporation of p

50、ass-through revenues-1-2% revenue headwind ($40+ million), most of which falls throughSYNHxxNoASC 605: Netto the adj. EBITDA line. Largely in clinical.ASC 606: Total-Provided 2018 guidance under ASC 606 in conjunction with Q1earningsMEDPxNoNetReports under ASC 606, but also provides ASC 605 disclosu

51、re for comparability. Guidance provided under ASC 605 only.Source: Company data, Credit Suisse estimatesFigure 2: Comparable Company Analysis ($ in millions, excl. per share values)CSPrice Upside / 10/17/18 Market Avg Vol Revenue (CY) Avg (5yr) EPS (CY) Avg (5yr) EBITDA (CY) Avg (5yr) P/Sales (CY) P

52、/E (CY) EV/EBITDA (CY) DividendTickerRating Target Downside PriceCap(000s) 2018 2019 Growth 2018 2019Growth20182019Growth2018 20192018 20192018 2019YieldContract Research OrganizationsIQVIA HoldingsIQVOutperform$1376%$129.47$26,2291,124$10,322$10,864-$5.48$6.1413%$2,204$2,3588%2.5x2.4x23.6x21.1x16.4

53、x15.3x-ICON PLCICLROutperform$1599%$146.16$7,941222$2,587$2,7997%$6.04$6.7333%$452$49824%3.1x2.8x24.2x21.7x17.5x15.9x-PRA Health SciencesPRAHOutperform$11511%$103.33$6,651461$2,908$3,22425%$4.18$4.7858%$455$51229%2.3x2.1x24.7x21.6x17.2x15.3x-Syneos HealthSYNHOutperform$5416%$46.67$4,803532$4,419$4,7

54、7273%$2.68$3.1471%$582$63674%1.1x1.0 x17.4x14.9x12.5x11.5x-MedpaceMEDPOutperform$6213%$54.65$1,944689$690$75412%$2.36$2.62-4%$127$1386%2.8x2.6x23.2x20.8x16.4x15.1x-Charles River LaboratoriesCRLNeutral$1281%$127.30$6,114409$2,240$2,46413%$5.93$6.4616%$528$59014%2.7x2.5x21.5x19.7x13.4x12.0 x-Average26

55、%31%26%2.4x2.2x22.4x20.0 x15.6x14.2xContract Manufacturing OrganizationsWest Pharmaceutical ServicesWST$119.12$8,760354$1,735$1,8644%$2.82$3.289%$365$4248%5.1x4.7x42.3x36.3x23.9x20.6x0%CatalentCTLT$43.45$6,309805$2,513$2,6336%$1.81$1.9868%$585$6455%2.5x2.4x24.0 x21.9x14.7x13.4x-CambrexCBM$58.67$1,95

56、1380$554$61314%$2.84$3.1021%$153$17529%3.5x3.2x20.7x18.9x11.6x10.1x24%Lonza Group AG (in CHF)LONN-CH$326.60$24,321327$6,090$6,48510%$12.30$13.8142%$1,564$1,73713%4.0 x3.8x26.6x23.6x18.0 x16.2x1%Average8%35%14%3.8x3.5x28.4x25.2x17.0 x15.0 xClinical LaboratoriesLaboratory Corp of AmericaLHOutperform$1

57、9512%$174.43$17,774695$11,412$11,69316%$11.57$11.938%$2,132$2,17315%1.6x1.5x15.1x14.6x11.3x11.0 x0%Quest Diagnostics*DGXOutperform$12825%$102.57$14,017979$7,712$7,9781%$6.61$7.106%$1,596$1,6682%1.8x1.8x15.5x14.4x11.1x10.6x0%Average8%7%8%1.7x1.6x15.3x14.5x11.2x10.8xTotal Average16%28%19%2.7x2.6x23.2x

58、20.8x15.3x13.9xSource: Company data, Credit Suisse estimates*Covered by AJ Rice, CS Healthcare Facilities & Managed CareBiotech Funding UpdateBiotechnology companies remain a key source of growth for CROs. Emerging biotechnology companies often lack the financial resources and infrastructure to cond

59、uct extensive clinical trials and complete other parts of the development process autonomously, but they represent an increasing portion of therapeutics currently in development. The proliferation of new, more complex therapeutics (such as immune- oncology therapies) with disease modifying capabilit

60、ies in recent years should help drive continuing investments in biotechnology companies from broader capital markets, venture capital, and large pharmaceutical companies, fueling demand for outsourced research and development services from CROs, in our view. We estimate that emerging and mid-sized b