starting here. Welcome everybody to the JPMorgan Healthcare Conference. My name is Casey Woodring from the Life Science Tools and Diagnostics team. I'm pleased to introduce Fortrea here. We have CEO, Tom Pike, CFO, Jill McConnell, and they'll be doing a presentation here, followed by Q&A. So with that, take it away, guys.
Great. Thank you, Casey. Good afternoon, everybody. Wednesday, so everybody is, I'm sure, starting to slow down a little bit. We'll see if we can go fast to keep you on your schedules. Forward-looking statements. We may make some forward-looking statements, so you have all the usual stuff here. You know, the thing about Fortrea, you know, we do focus a lot on our mission, and our mission really is: how do we bring life-changing patients to, life-changing medicines to patients faster? But the thing that's important about this slide is we are about solutions. We're not just about medicines, we're not in that business of creating product. We want to bring solutions that actually help transform this industry over the next five years. With respect to the market that we have, this, this slide hasn't changed too much over the last number of years
You've seen consistent growth associated with R&D spend. You've seen a large market opportunity. You see in different organizations, you'll see a slightly different number, but all of us are going after a very large market that's made up of two things: R&D growth, and then some increase in the outsourcing that's taking place in the industry. Very attractive. On the right side of this, I do have a few themes that are relevant that are to now. First, 2024, 2025 might be a little bit slower growth than we've historically seen. You've seen this in some of the analyst reports as well. I think we think it's gonna be about a 4%-5% growth year across the industry. Some of this is coming after in the post-COVID environment.
Perhaps, you know, post- GLP-1, you know, as we're coming to conclusion on some of those studies, and we're starting to go into a market that it's a solid market, but not the growth that we typically see, which is high- single- digits in the market. That being said, like many of the analysts say, we do believe that this market will continue to grow at those high single-digit rates as we go out in the out years, because we continue to have a huge amount of innovation on the product side, and then at the same time, we are continuing to see outsourcing opportunities, and that will continue to drive growth of our CRO sector. In terms of RFPs and in terms of the marketplace, for us at Fortrea, it's healthy. Remember, we're a $3 billion organization in revenues.
We're not an enormous organization, so we're big enough to be able to do really large full-service outsourcing. We're big enough to be able to do FSP. We're large enough to work with the largest pharmaceutical firms. We're small and nimble enough to be able to work with the biotechs. So for us, at our size, the number of RFPs, the flow of RFPs, as we say, looks healthy. With respect to the bottom issue here, we do think that some of the issues you hear about, whether it's Inflation Reduction Act, even some of the cuts associated with some of the pharmaceutical firms, generally create opportunities. There's been a number of questions here today about whether we're getting near another patent cliff-type moment, and some discussion about the next few years.
But in general, having been through one of those before, leading a leading CRO, in general, that creates opportunities for CROs because the pharmaceutical firms are trying to variabilize costs during those periods of time. So again, you know, sometimes these short-term issues actually turn into positives for this industry. With respect to the, this company, you know, it's an interesting company. It's a new company, so we spun out of Labcorp in very late in June. Literally, the last minute of June, we spun out of Labcorp. However, this is a 30+-year-old company, one of the first CROs, one of the largest CROs. If you meet one of our project teams, you might meet Dr. Michael George, who's been with us, 25 years or so. You might meet one of our executives, Terry, who's been with us over 20 years.
So we have a deep root system here that is really rooted in science and high-quality practices. Over the years, Labcorp made quite a number of investments after the acquisition. You can see in addition to things like pharmacovigilance capabilities, we also made a major acquisition of an organization called Chiltern, and Chiltern actually gave us global capabilities that were stronger than what we had in the core, Covance, Labcorp root system of this company. And then there were continuing investments that brought this organization to a size of about 19,000 people. So we say, built through decades of experience, because we have a tremendous medical team, we have a tremendous operational team, and we've been doing this a long time. We just haven't been doing it as Fortrea. With respect to our business platform, we are, a large 19,000-person organization.
We're very clinically focused, so about 95% of our business is really focused on phase I through phase IV in different ways. We are focused in all therapeutic areas. We actually cross about 20 therapeutic areas, but we are strongest in oncology in terms of percentage of our mix. That's a place you wanna be in this industry, because I think you all know that's the largest segment for clinical research, so it's a place you wanna be. And we do have great strength in all of them. But there are some areas that we're gonna continue to try to build. We've just hired a terrific leader in CNS to try to expand our market share there. I think we've been a little under-penetrated in some areas like metabolism. We'll continue to focus there.
So we have a wide breadth, we have some great specialties, but there's still more opportunity for us. In terms of the business segments, we are in clinical pharmacology, that's also known as Phase I. We have built-for-purpose centers. Those are very attractive, and so we're a leader in that area with a great client list. We do have Phase II, Phase III, Phase IV real-world evidence capabilities associated with traditional clinical development, if you will, the larger projects. We have a segment called Enabling Services, and this has a number of technology-related businesses in it. We may get into a case where we can talk about a little bit more, but it has some technology businesses and a historical business that Covance was a leader in, called Patient Access. And then finally, who do we serve?
We're about half Big Pharma, about half biotech, and we are a leader in medical device. With respect to our strategies, we've spent the spring talking to the pharmaceutical firms, larger pharmaceutical firms, trying to understand what they want, trying to understand the capabilities they're not getting from our competitors. We put together this list of strategies that are evidenced on this slide. I'm not gonna talk about them all today for time, but let me hit on a couple of them. Complementary tech strategies. If you saw the press release that we just did yesterday, it's a good example of this. If you saw the one we did with Medidata a few weeks ago, it's a good example of this.
The tech side of our business and clinical research has fundamentally changed over the last five or six years, where we have larger players spending large amounts to really be leaders in technology in this large sector. So we've had Veeva come in, we've had Advarra come in. Advarra works more from the site side, Veeva works more across the clinical trials at all sizes of pharmaceutical firms. We're bringing them together in a unique way to make it simpler at a site to use technology. We can get into that a little bit more, but it's a good example of what we're trying to do, is really facilitate practical, creative solutions. We'll add our own intellectual property where it makes sense, but we're gonna leverage the leaders in technology.
Another one I'll mention here is another press release you may have seen a couple of weeks ago associated with sites. So over the last few years, in between Quintiles and then coming here to Fortrea, I've been doing a lot of work on innovations around use of AI at sites, around site management organizations, direct-to-patient activities. And one of the things I came to believe is we have fundamental opportunities to improve how we interact with sites as CROs. And so we have an initiative now, where we're trying to do what we can to simplify, to supplement, to help the sites be more effective. The sites have been heavily impacted by things like the Great Resignation, by COVID, by being closed, and we're really trying to help them be more efficient. We call it the last mile, like the telecommunications industry.
You know, they talk about the last mile as to your curb, you know, from your curb to your home, and it's the hardest part of telecommunications. In the same way, in our business, the most challenging part for us to control is the site, so we're solving that problem. With respect to next-generation data strategies, we have a new strategy for this. I think times have changed. Proprietary data is not enough. We've had an explosion of investments around data over the last, again, six or seven years, a lot of it private equity-driven, some of it driven by large companies. And so now it's not about having your own data, it's really about stacking it together and getting insights out of it. So what we do is we leverage the Labcorp data, which we still have unique access to.
We leverage our own data, but then we're using other data as well and putting it in. So we have relationships with a number of providers in different areas. Some of them are much more narrow and focused in a particular therapeutic area, like a ConcertAI . Some of them are broader, like a Komodo. But essentially, what we're doing is working together with a number of providers to really bring insights to different organizations associated with data. You can see on the right what we believe. It's, it's actually a broader data set, improved speed and agility. We're able to do things like we have a really unique piece of software that helps identify, diverse populations and, you know, where we may be able to go to fill those diversity needs. And then we do have our own direct-to-patient capabilities as well.
Another thing I'll talk about, and the last thing I'll talk about before handing over to Jill McConnell, is the commercial evolution. You know, as you can imagine, as part of a larger organization that had a big central lab, had a preclinical business, the sales organization was fundamentally different within Labcorp than it's going to be at Fortrea. And what we've done is we've hired a, a top executive who's done commercial activities before for both one of the largest CROs, as well as other businesses where he's been an executive. And he is in the process of working with us to really transform that commercial organization.
What we're doing is a whole range of things, from putting in world-class processes, where every week we look at all of the larger deals, we look at how they're positioned, we look at who's making the decision, we look at our pricing. You know, everything about a deal, we look at as an executive team, make sure we're engaging properly. But we're doing a lot more. We're also bringing the medical talent to bear on these opportunities. We're getting the medical talent out in the field to work in early engagement. We're changing the way we do strategies to make sure we're more commercially savvy. You know, we're essentially doing everything we can to bring the best of Fortrea to these opportunities, and it's fundamentally different. We like to say everyone is in sales here.... Those of you who know me know I'm out with customers regularly.
I expect all my executives to be. And so when you interact with Fortrea, you're interacting with an organization that is customer-focused. I think we've covered most of the stuff here. A couple of things I'd add. We are looking at large pharma. We have new approaches to penetrate additional large pharmaceutical firms. We are continuing to be a partner of choice and think about offerings that are effective for biotechs, because we know it's a very different value proposition. Very importantly, we've focused on the mix of business here. So historically, one of the things I'm sure Casey's gonna talk to us about, and Jill may talk about a little bit here, is the margins of this business have not been comparable to the margin of our peers. And part of that is making sure we consistently have a good mix of attractive business running through here.
So we've had a huge focus, change sales incentives and other things on getting the right mix of business here. Finally, agile processes in decision making. We can make decisions fast. We can respond quickly. There aren't many layers here. The leadership team gets customers, so this has been a tremendous part of our evolution, and I think, I think we're well into it. You probably saw that, we just announced we've had book-to-bills that exceed 1.2 in our first two quarters as an independent company, and we're gonna continue to drive that transformation over the next year to try to add some consistency and effectiveness to the commercialization process. So I think with that, I'm gonna hand to the CFO, Jill, here.
Okay. Thanks, Tom. So I'm just gonna touch on very quickly in my few slides about the progress that we've made post-spin, because Tom commented on the margin, and yes, I will address it. I would be remiss if I didn't in my role. But I think that the first point here around the leaders in the organization, we really made some significant changes. There were some good, strong leaders within the organization, but Tom brought in a number of individuals. He talked about the commercial leader, for example, and we're really doing things very differently. We've had a very positive market response to the organization. Customers are really excited. Actually, you know, customers that we haven't worked with historically are reaching out and asking for conversations. We'll see where that goes, but it, you know, I think we've had really good reception.
We clearly are getting a seat at the table when it comes to all the opportunities that are out there. Tom already talked about the 1.2, so we're seeing really good progress in that book-to-bill, which is really essential. I'll talk about that a bit more on the margin value, but the pipeline is solid, as Tom said, and that's really key for us to continue to fill that so that we can go forward. You know, the next point, what I'll call out here, is we also know that one of the best ways to get new business awards is to do a great job of delivering on the ones you're working on, so we have the whole organization focused on that, and operational excellence, which will tie into the margin stuff I'll touch on a little bit more in a moment.
Those TSAs in the press release that came out Monday morning, we talked about the fact that we exited about 40% of them in our first six months as a standalone company, slightly ahead of schedule. 2024 is the more complex year. There are. You know, this is where all the system technology ones that we really have to exit, and those are the ones that are really key to unlocking a lot of that margin optimization. So those are a big focus for us this year, but we feel good about where we started, and we continue to make targeted organic investments, small ones, but Tom talked about some of the magnet talent, some of the partnerships that we've been doing, so we feel really good about our progress in the first six months.
I'm not gonna dwell on this slide, but I think 2023 was really about laying the right foundation as we go forward, and 2024 is really how do we make sure we exit those TSAs, start moving towards a more fit-for-purpose infrastructure? You know, I think we, we were part of an organization that was predominantly lab-based, and so a lot of the tools that came with us are more fit for that, rightly so, but now we need to build things that are more appropriate for a CRO. We did a study late Q3, early Q4, around our SG&A because we had a very strong belief that we were not aligned with our peers on a benchmarking basis.
That study proved that to be true, and there's significant opportunity there, so we have that opportunity in front of us for 2024, and we're just looking at our workforce productivity. Some of that will come through us better utilizing the resource we have, but some of that is just putting more revenue through the funnel. And that, you know, to the far right, we're thinking about how does 2024 really unlock the more significant margin expansion in 2025 and beyond? We wanna be in that, in that range where we're hitting that 1.2 every single quarter from a book-to-bill perspective, continuing to do some organic investments to further differentiate. And, you know, and I think that last point is important. You know, we do still have this medium-term, commitment to getting to 2.5-3 times leverage.
Where we are right now is not where we want to be longer term, and we'll be looking to manage that more as we go forward from a capital allocation perspective. So I think on revenue growth and margin expansion, the most important things to call out here, Tom mentioned we are not where we need to be relative to our peers. When you think about that journey over time, we're thinking of it roughly half on SG&A and cost optimization, and the other half around really revenue growth and better utilization of our, you know, our revenue-generating individuals. So I think the first couple of points here, we've talked a lot about the environment, the pipeline. We are really looking at performance differently within the organization.
Every month, we're getting together and not just talking about the financials, but really operational delivery, quality metrics, and that's been really important in terms of everyone understanding what are the most important things that are in front of us in that next four weeks, and what are we all doing, and making sure we break down some of the silos that might have existed previously. We did, late in Q3, early Q4, initiate some initial cost structure reductions. We're starting to see some of the benefits of those late in 2023. As I mentioned, we did this benchmarking exercise, which is really helpful in terms of setting that roadmap for us to move our SG&A more in line with peers. Some significant opportunity there. Just have a couple quick slides here. We really wanted to call out our quality organization.
We think it's important to understand. Tom talked about our 30-year heritage. Our head of quality is someone who also was head of quality, led quality at another large CRO previously. She's built a phenomenal team. It's really integrated into everything we do, and it's a very important part of where we are. You know, we're in hundreds of audits every year. You know, we've got a robust system around that. We use that technology and automation to make sure we're on top of it. You know, this is something that's really important to all of us, and we understand that this is really critical for our customers to continue to work with us, and we take it very seriously at Fortrea. You know, we've been pleased over the last few years.
I'll just highlight a couple that were more relevant in terms of 2023. We had multiple of our employees be nominated for Pharma Times and some winners in the, you know, the Pharma Times Researchers of the Year and America's Multiple Awards. Really excited about that. Our CRO Leadership Award capabilities and actually Medidata down there, the next digital innovation. It was really around how we are starting to bring more use of real-world evidence to our clinical trials versus some of the more traditional ways of working them, and that's something that we're working with them on closely as we think about some of the things Tom talked about, how to make things easier for sites and move the medicines through the, the funnel faster. And my very last slide is just, you know, around governance and ESG.
You know, we obviously were part of an organization where there was an ESG program that made a lot of sense for them. I think we're working on what does that look like. We're very different from the organization that we left. You know, the couple of things that I just call out here, obviously, things like privacy, data security, they're paramount to our license to operate. You know, the environmental piece is really important, particularly with a lot of our customers. We hear that and our employees, and so we're looking at something where we figure out how we do that in a way that's appropriately balanced for us as an organization, but meets the expectations of our stakeholders.
And then under social, really, that diversity and inclusion in clinical trials, that's a mandate now by many of the regulatory agencies, and we think we've got some really great insights how to do that better. So we're looking forward to building something here that's sustainable and fit for purpose for us going forward. And with that, I think we will move to questions.
Great. Thank you for that overview. Maybe just to start, and you guys talked about it a bit, on the 4Q pre-announced book-to-bill, the 1.2. Can you talk about how booking shaped up, exiting the year relative to expectations, and then maybe split out that activity between, different customer groups? You know, like, how did small versus large pharma orders trend?
Sure. You know, I, I think overall, Casey, we're really pleased with how this organization's responded. If you looked historically, because we were part of a larger organization, there were ups and downs in the book-to-bill of this particular organization. With this concentrated effort we've had at commercial transformation, involvement of the executive team, the first 2 quarters ended up with this consistent 1.2 book-to-bill. I suspect a number of people in here know that that is a marker that we all try to hit as CROs, because that means high single digit growth at a, at a minimum over the coming years. So we're really pleased with that. The RFP flow has returned to the organization since we've spun.
The RFPs, as we look at them right now for this quarter, look like a solid foundation for us, as long as we execute against them, which is always the challenge in these businesses. As long as we execute against them, we have a solid flow. So from our vantage point, that, it, it's a solid book of opportunities, and they are diverse. They, they continue to be about what we are as an organization. We're about half biotech and about half larger pharma, and we continue to see a similar mix associated with our opportunities.
Got it. That's helpful. You know, in the Book-to-Bill pre-announcement, you did call out impact from a small biotech client. Should we think about this impact more related to one Q or something the company will have to work through the first half of 2024? And then stepping back, just do you see this as an overhang at all? And maybe walk through what you learned through that review process and some of the customer feedback since.
Yeah, thanks for bringing that up. I mean, I think, I think anybody who's been in business for a while knows that you sometimes encounter unexpected things, and, unfortunately, there was a press release from a biotech, a promising biotech firm, that press release had a little run in the media. The media ran with some of the information in the press release, and, it caused... To me, it caused us to be placed in a bad light, potentially on a couple of studies that we're doing with them. And what we ended up doing, and it was in that press release, we did an assessment of the situation. We tried to look at our own conduct. Were there any issues, as the media was implying in its remarks? And we brought in an independent expert, Dr. McNair, who we've never known before.
I'd never known her, and she's a highly qualified ex-chief medical officer at WCG, teaches at a Boston University, master's in bioethics. She looked at all of our information and felt that the conduct that we had associated with those studies was strong, you know, it was appropriate for the industry, and actually, Acceleron's oversight was appropriate as well. And so unfortunately, this issue that happened did spill into our our contracts and opportunities, and toward the very end of the year, we had a couple of contracts that we lost because of this matter.
We are hoping, to your point about what is the impact of that, we're hoping with the combination of the expert report and really constructive discussions with that customer, you know, I'm, I'm personally trying to really help, because I think for the biotech industry and for CROs, the most constructive thing is if we hold hands and deal with the challenges of this industry together. I'm, I'm hoping that it was event that is like an asterisk, doesn't affect our book-to-bill. We're hoping if it has any effect, it was only Q1. Right now, as I told you, we have enough in our pipeline that if we work hard and things go our way, we'll be able to deliver that, that 1.2. But, you know, we felt like we had to be candid about it.
We're always gonna be candid about this business. I mean, one of the things about a spin that's interesting is you are going through some transitions that other people aren't going through. So we're committed to having real transparency, whether it's about a TSA, whether it's about something like this, we're committed to real transparency so you can understand our journey as investors. And so I'm hoping with the constructive discussions and with things going on, that that's all behind us, and it's just an asterisk, and we kind of forget we ever talked about it.
Got it. That all makes sense. So, you know, yesterday, one of the larger CROs in the space talked about, SMid biotech demand sort of attenuating a bit in Q4, after growing sequentially the past couple quarters. Can you just talk about your exposure in the SMid space, what you're hearing from customers there? And, you know, how would you assess the cautiousness in the space that some of the others are calling out in CROs? Like, are you seeing the same thing? Maybe just kinda-
Yeah.
talk about your, your exposure.
I think what we generally see is, in biotech, is pretty consistent with the reports out there that indicate that it's not a tremendous funding environment, but it's a solid funding environment. So in terms of what we see and at our size, and Casey and I were talking about this on the way in, it's very interesting when you're the size we are. You're an up-and-comer, you're interesting to pharmaceutical firms. We are seeing enough opportunity that we can continue to have that mix of 50/50 biotech and large pharma, you know, and continue to build relationships and win. I think if we were larger, it might look different, but our bucket just isn't as big to fill.
So from our vantage point, it looks like there's enough opportunity of organizations that are interested in Fortrea to be able to deliver the results that investors hope. And so I'd be probably where I'd leave it on that.
Okay. What's your take on the current state of the large pharma customer demand? Peers have talked about relative resilience there, despite IRA impacts, pipeline reprioritizations, budget tightening. Is that something you would agree with? What gives you confidence in CRO spend from large pharma kind of sustaining in 2024?
Yeah, I would agree with that characterization. I think, our larger pharmaceutical firms are continuing to try to drive innovation. They're doing it through some combination of their own in-house research, plus really looking at biotechs. By the way, Casey, I think we think it's a nice, potential tailwind when you start seeing acquisitions of biotechs by large pharma, because that means more money will be pulled into the biotech sector. So we think that both of those things are healthy signs in terms of large pharma. There are some individual company issues. We haven't been affected by those, so in our particular case, we haven't been affected by those.
Overall, I'm pleased to see, and I think if you listen to what's come out of this conference, I'm pleased to see pretty healthy R&D pipelines and activities from the larger pharmaceutical firms and spend as we go forward.
Got it. And then just on the TSAs, you- you know, as you noted, 40% exited by the end of the year. How much of a margin lift should we expect from that, to begin the year? And do you have a better idea in terms of the cadence of, you know, when the remaining 60% are gonna roll off over the course of the year?
Yeah, and I'll introduce Jill here in a slightly different way. You know, one of the benefits we have as an organization is she actually ran the spin program for Labcorp before we came up and spun out. And so she really has a great understanding of both the challenges and opportunities of, you know, these TSAs and coming out of them, and what it can do for our business to be an independent company. So I'll give you that intro. You take that.
Yeah. Thanks, Tom. So I think in terms of the TSAs, you know, the 40% as a, as a dollar amount, is probably not necessarily reflective of the complexity of the whole suite of TSAs. Clearly, the ones that we have in 2024, because they relate to our systems, our technology, the infrastructure, end user computing, that, you know, those are gonna take a bit more time. So we do, we have detailed exit plans for everyone. They're really scheduled to roll off in tranches, starting with the second quarter, Q3, Q4, as you can imagine. But, you know, we're, we've also announced recently we're working with a couple of external partners, Cognizant in particular, who are helping us with that, because we know that we were gonna need that additional support to be able to do that in a timely manner.
What that really so I would say the ones that we've come out of aren't gonna in and of themselves, do a lot in terms of the margin, but these exits, it's really what we replace them with. And so every single one of those exits, you know, those owners have been tasked with coming back with a replacement system or technology or process that is more cost-effective. And so really, as we go through, you know, we've talked a little bit about where we think we would exit 2024. Getting through all those TSAs is really critical to unlocking that next step in margin expansion versus, like, individual TSAs in particular. It's. I'll maybe just quickly give an example. If you think about an ERP system, we've been able to do some things.
You know, you have to have certain types of roles because we're so reliant on our former parent there. You can maybe move those roles to somewhere where they're lower cost, but you can't really not have those types of roles. And so hopefully, as you're building some of those new systems, you build in more automation so that the roles that you have are a lot more productive going forward, if that makes sense.
Mm-hmm. Gotcha. And then maybe just stepping back, you know, what do you think explains the margin gap versus peers? And is there anything structurally holding Fortrea back from realizing peer margins?
Yeah, I'll start on that. I think, you know, fundamentally, if you look at the mix of our business and if we continue to sell the mix that we have, our mix looks like some of the largest CROs.
Mm-hmm.
And so we don't see anything structurally there that prevents us from getting to those margins. The pricing has been disciplined over time. We do price in that band that the other CROs tend to price in, so it's not a pricing problem in particular. It seems to be a combination of a few things. Historically, Covance, and then into Labcorp, did put some things like technology into the gross margin, and so the costs associated with gross margin. So our gross margins are actually a little bit better from a comparator than they look, but our SG&A is actually a little bit worse than it looked. And so, you know, one thing is trying to reduce our technology costs associated with the organization. We do have SG&A opportunities.
Then the other primary thing is, if you think about global clinical trials, many times people have heard me, I refer to it in a way like a package delivery network or like a large manufacturing plant. To be able to run a global clinical trial, and they're typically in 20-30 countries, you have to have a pretty big footprint to do it. And you know, you're running literally hundreds of these trials, pretty big footprint. And that footprint, the more you feed it, the more efficient it is. So these revenues that we've had over the past number of years, being up and down in terms of full service outsourcing, have created a relatively lower utilization of those resources than our peers.
So as we go forward here, we think about half of that margin gap is driving more revenue through the current enterprise, and about half comes out through operating in SG&A improvements over time. But we see no reason why this organization can't be similar to our competition in terms of margin improvement over the next several years.
I wanted to touch on FSP work. So a lot of your peers have noted a shift towards FSP and away from full service contracts, but we're trying to notice the opposite in bookings last quarter. Did you see this again in Q4, and maybe help frame up this mix shift just from a margin standpoint?
Yeah. Our, our bookings were... Again, they were the mix we wanted, so that means that it had an appropriate full service mix and really appropriate mix across the board. We actually did have a particularly strong quarter for clinical pharmacology, which was nice to see. And again, I think some of it is the way we've focused our sales team, and some of it is the opportunities that we see. So, you know, just based on the customers that we talk to, we seem to have and, and our size, it seems like there's adequate growth in each of those areas to feed a business that will grow its margins and grow and expand its top line over time, too.
Got it. Maybe just taking a step back. You know, during the Analyst Day in June, you pointed to a near-term CRO market growth rate of 3%-5% and a longer-term growth rate of 6-9. Today, you kinda-- you mentioned 3-5. Is that the right benchmark to use for 2024? And then, you know, just kind of talk about what would need to happen for Fortrea to kinda come in line with that market growth rate for next year.
Yeah, two things, and Jill, you may wanna add to this. First, we do think longer term, we'll get back to that 6%-9%. We do think coming post-COVID, it probably is this 3%-5%, maybe 4%, somewhere in that range for the industry overall. The way we've started to think about it is really a tale of two halves. So if you think, the people who have gotten to know us a little bit know that the spin year. So the spin was announced in July 2022, and following that, there was a softness in sales in the business for about a year, right to when we spun. And so with that softness, it's gonna take about another year for it to really work its way out of the system.
So the good bookings that we've had these last two quarters will really start showing themselves in Q3 of 2024. And so, you know, we think you'll start seeing real margin improvement toward those industry levels in the second half of this year. In particular, as Jill said, as we exit the TSAs, you'll really fully be able to see it, 'cause we're gonna be held back from margin improvement until we're out of those TSAs, which kind of force us into a cost structure that's higher than we would like. And so tale of two halves. First half should look different than the second half. First half is gonna be less attractive. Second half, you'll really start seeing the progress on the top line and the bottom line.
Got it. That's helpful. And then you touched on enabling services during the presentation. Can you just elaborate on, you know, how should we think about this business both next year and over the longer term? What are the growth drivers there, and what's the margin profile look like?
Yeah, there are two attractive businesses there. There's a bunch of businesses in there, but there's two that are particularly attractive. It's interesting, so it may seem like a bit of a backwater, but a pretty good percentage of every major pharmaceutical product is available to patients through programs like a patient access program, where, you know, patients who are indigent, who don't have the money or don't have the insurance, are able to get the drug through other mechanisms. So patient access is a multibillion-dollar market where Covance had been a leader, but it's been underinvested in terms of CRM systems and other things over the last several years. That being said, there's been some new investments in terms of non-commercial pharmacies and some big wins there.
So basically, what we need to do with that business is improve some of the technology capabilities and then really execute the non-commercial pharmaceutical piece of it, non-commercial pharmacy piece of it. And, you know, I think if we do that, that's a business that historically had, you know, a contribution margin that was above some of our other business units. Same thing with... There's a business that's actually, we call it IRT in the business, but also randomization. So it's essentially the kind of tools that help with drug supply and randomization in a doctor's office. The organization that is their Endpoint Clinical was one of the leaders. That's another market that's attractive. It's growing....
It's one that typically produces margins that are at or above normal clinical margins, and that business is actually going through one of those product cycles where they've been developing their next generation product. It's not gonna roll out until 2024, you know, mid-2024. So you'll start to see that green shoots in that business, we think, in 2024 of that next generation product. It's interesting, the leader we have there knows that business very well, and he really believes it's a next generation improvement. It's cloud-based, has other capabilities that will allow us to pick up share there. So two good businesses, both need some work. Both probably won't contribute much in 2024, to be honest with you, Casey.
Okay. Looks like we have a couple of minutes left here. Just quickly, any update on the Labcorp relationship? Just how should we think about that moving forward and just the progression there?
Yeah, I think it's strong. You know, I mean, they have an interest. We were spun out, most of the executives end up being shareholders in Fortrea, given the nature of it. And, you know, I have a really warm relationship with the CEO of Labcorp, I think the world of. And so, you know, while they're a really important partner in terms of coming out of the TSAs, and we have other things we're working on together, I think that relationship is one that is gonna weather all this and help us get through this next year and a half of exiting from them.
Okay. We have a minute left to do. Does anybody have any questions from the audience? Okay, maybe one last one. Tom, Jill, what do you think is the most misunderstood part of the Fortrea story, and then what are you most excited about for 2024?
Wow, that's almost like a surprise question. That's good. End on a surprise. I think... Actually, I think our story is really starting to resonate with people, that there is an opportunity in the industry for a mid-size CRO. So somebody who's not the largest CRO to be more innovative, but be at that Goldilocks size, where we're just big enough, but not too big, to really service this industry. And in the beginning, I think there were some questions about that, but our book-to-bill, the interest we're getting from customers is really, you know, starting to create belief, both in the customers and certainly in our organization, that this is an organization that can be really successful. So, you know, I think overall, I don't underestimate us.
I think, we're gonna have a great ride over the next few years, and we do have the kind of team that has the opportunity and ability to change this industry.
Got it. Well, we'll leave it at that. Thank you to the Fortrea team for joining us today. Thank you all for joining, and enjoy the rest of the conference.
Thank you.