Ladies and gentlemen, thank you for standing by, and welcome to the ICON Plc Q1 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. After the presentation, there will be a question and answer session. I must advise you this conference is being recorded today on Thursday, 23rd April, 2020. I would now like to turn the conference over to your speaker today, Jonathan Curtin.
Please go ahead, sir.
Thanks, Tim. Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter ended March 31, 2020. Also on the call today, we have our CEO, Doctor. Steve Cutler and our CFO, Mr.
Brendan Brennan. I would like to note that this call is webcast and that there are slides available to download on our website to accompany today's call. Certain statements in today's call will be forward looking statements. These statements are based on management's current expectations and information currently available, including current economic and industry conditions. Actual results may differ materially from those stated or implied by forward looking statements due to the risks and uncertainties associated with the company's business, and listeners are cautioned that forward looking statements are not guarantees of future performance.
Forward looking statements are only as of the date that they are made, and we do not undertake any obligation to update publicly any forward looking statement, either as a result of new information, future events or otherwise. More information about the risks and uncertainties related to these forward looking statements may be found in SEC reports filed by the company. This presentation includes selected non GAAP financial measures. For a presentation of the most directly comparable GAAP financial measures, please refer to the press release statement headed Consolidated Statements of Operations U. S.
GAAP Unaudited. While non GAAP financial measures are not superior to or substitute for the comparable GAAP measures, we believe certain non GAAP information is more useful to investors for historical comparison purposes. We will be limiting the call today to 1 hour and would therefore ask participants to keep their questions to 1 each with an opportunity to ask one related follow-up question. I would now like to hand over the call to our CFO, Mr. Brendan Brennan.
Thank you, Jonathan. In February, on ICON's quarter 4 2019 earnings call, we outlined our expectations that the COVID-nineteen impact to our quarter 1 2020 revenue would be in the range of $4,000,000 to $7,000,000 the majority of which was associated with our Chinese operations. Following that call, we have seen a very rapid escalation into a global pandemic. Accordingly, whilst we are pleased with the operational and financial momentum we brought into 2020, the significant disruption and uncertainty caused by COVID-nineteen means that we have taken the decision to withdraw our full year 2020 financial guidance. My following comments will focus on our quarter 1 performance, and Steve will then outline further details in relation to our current and future operational challenges as well as the various measures we are putting in place to mitigate these risks.
In quarter 1, we achieved gross business wins of $1,027,000,000 and recorded $160,000,000 worth of cancellations. Consequently, net awards in quarter 1 were $867,000,000 resulting in a net book to bill of 1.21. With the addition of these new awards, our backlog grew to $8,700,000,000 This represented a year on year increase of 10.4%. Revenue in quarter 1 was $715,100,000 This represented year on year growth of 6% or 6.5% on a constant currency basis. And on a constant dollar organic basis, revenue growth was 5%.
Our top customer represented 11.4 percent of revenue for the quarter compared with 14.8% in quarter 1 2019. Our top 5 customers represented 39.9 percent of quarter 1 revenue compared to 39.9% last year. Our top 10 represented 52.2% compared to 53.1% last year, while our top 25 represented 69.6% compared to 71.6% last year. Gross margin for the quarter was 29.3% compared to 29.9% in our quarter 4 and 29.5% in the comparable quarter last year. Our SG and A was 12.2 percent of revenue in quarter 1, which compared to 11.9% last quarter and 12.1% in the comparable period last year.
Operating income for the quarter was $106,300,000 a margin of 14.9%. This compared to 15.9 percent last quarter and 15.1% in the comparable quarter last year. The net interest expense was $1,400,000 for the quarter and the effective tax rate was 12% for the quarter. Net income attributable to the group for the quarter was $91,700,000 a margin of 12.8 percent, equating to diluted earnings per share of $1.70 This compares to earnings per share of $1.83 in quarter 4 and $1.63 in the comparable quarter last year, an increase of 4.3%. On a comparative basis, days sales outstanding were 55 days at March 31, 2020.
This compares with 54 days at the end of December 2019 and 59 days at the end of March 2019. Cash generated from operating activities in the quarter was strong at $142,800,000 Capital expenditure was $11,300,000 in quarter 1. In addition, dollars 175,000,000 worth of stock was repurchased in quarter 1 at an average price of $141.68 This equated to over 1,235,000 shares, which is in excess of our stated goal of repurchasing 1,000,000 shares over the course of the full year. Do not have any immediate plans to repurchase any further shares. At March 31, 2020, the company had gross cash balances of $484,000,000 and debt of $350,000,000 leaving a net cash balance of $134,400,000 This compared to net cash of $220,000,000 at December 31, 2019, and net cash of $128,600,000 at March 31, 2019.
In addition to the significant cash profile, we currently have undrawn revolving credit facility of $150,000,000 available to use. Our robust cash generation and strong access to liquidity puts us in a very resilient position as we work through the challenges that 2020 brings. And with all of that said, I'd now like to hand the call over to Steve.
Thank you, Brendan, and good morning to all of you. As we entered 2020, the key industry drivers of a positive outsourcing landscape, growth in R and D budgets and a continued strong biotech environment remained in place. In quarter 1, we booked strong levels of gross and net awards of $1,027,000,000 867,000,000 dollars representing book to bills of $1,440,000,000 and $1,21,000,000 respectively. Consequently, we grew our backlog year over year by 10 point 4% to $8,700,000,000 with revenues expanding to $715,100,000 or 6.5 percent on a constant currency basis. We achieved a gross margin of 29 0.3% and we continued our strong SG and A performance with SG and A at 12.2% of revenue.
This delivered earnings per share growth year over year of 4.3 percent to $1.70 In addition, in April, we were very pleased to announce the continuation of our long term relationship with our top customer with the signing of a new multi year services agreement. However, while the impact of COVID-nineteen was relatively modest in quarter 1 this year, it is our expectation that we will experience a more severe downturn in our business in quarters 23 and possibly beyond. And it is clear that 2020 is going to be a difficult year for the CRO industry as we face the extraordinary challenges brought about by the sudden onset the coronavirus pandemic. Our core Phase twothree business is the service line most impacted. New trials are being put on hold, patient enrollment has slowed and approximately 2 thirds of our sites have either restricted or stopped access altogether for our CRAs, resulting in significantly fewer monitoring visits.
Furthermore, although a smaller part of our business in our central laboratories, sample volumes received into our facilities have been reduced by approximately 40 percent due to the drop off in site activity levels. The consequences of these challenges will curtail our ability to execute in the quarters ahead. However, despite the obvious issues, we are proactively reviewing implementing alternative trial monitoring approaches with customers on a study by study basis, including remote and risk based management, and we are seeing significant demand for our at home services delivered through our recently acquired Symphony Clinical Research Group. The active push to develop a treatment for COVID-nineteen is also resulting in a large number of RFPs and some significant success with projects that we anticipate will start quickly. In addition, since mid March, we are seeing conditions gradually improving in China with over 70% of our sites now reopened and monitoring activities recommencing.
Our hope is that other regions will follow suit in quick order as they stabilize and recover. Furthermore, I want to point out that the impact to our business is not revenue growth. Whilst access to revenue growth. Whilst access to 3rd party sites is currently significantly reduced, we are realizing the benefits of previous investments and acquisitions, which are in part helping to offset this impact. Through our site network model, we are able to provide a proven method to engage physicians and patients into clinical research programs.
Our embedded staff also have direct access to the site's patient database, which helps evaluate the patient population during the study feasibility phase, increasing enrollment and making clinical trial participation a much more efficient process for the physician. As country restrictions ease and enrollment restarts, this network will play a crucial part in accelerating the recruitment process for new and ongoing trials. Our acquisition of Symphony Clinical Research has also positioned ICON as the leading global provider of at home and alternative site visits with over 300 clinical trials completed across 5 continents. Since the outbreak of the COVID-nineteen pandemic, we have experienced tremendous interest in this service with serious inquiries from over 60 sponsors. We've been ramping up the scale of this delivery method with staff being transferred from other areas of our clinical research services in order to enable delivery of trials using this approach across more studies.
Furthermore, whilst all CROs and sponsors, including ICON will be placing emphasis on remote and risk based monitoring, ICON is also differentiated by its ICONIC platform and FireCrest technology. Iconic helps analyze operational, clinical and real world data, enhancing the design and delivery of our projects as well as strengthening our engagement with investigators and customers. And FireCrest enables remote management of aspects of clinical trials such as investigator and staff training on protocol and patient education through portal and video delivery. Firecrest is used by all of the top 20 global pharma companies with almost 500,000 registered users. Nevertheless, as we are not immune to the impact of COVID-nineteen, we are taking immediate and proactive cost reduction measures to protect jobs, maintain our business performance and ensure that we are ready to move quickly when business conditions improve later in the year.
To address the challenges brought on by the pandemic, we have developed a comprehensive cost optimization strategy. It includes an immediate freeze on hiring in certain business units, the removal of contract staff where permanent employees can assume responsibilities and a reduction of our non labor variable spend in discretionary areas such as travel and facilities. As a people business, the majority of our costs are employee related, which also means that a major part of our cost optimization strategy is the implementation of a temporary salary reduction for all employees. Since the middle of April, the Board and senior leadership have taken a 30% reduction in fees and salary respectively and our Chairman, Kieran Murray and I have taken a 40% reduction. The remainder of the company, we are adopting a progressive approach with the vast majority of employees taking a single digit salary reduction.
Whilst these measures are designed to protect jobs, I realize that these actions are difficult and I would like to thank all of our staff for their flexibility and understanding. Taking these cost containment plans into account and in conjunction with our current revenue forecast, our quarter 2 outlook is for revenue to be in the range of $575,000,000 to $625,000,000 and earnings per share to be in the range of $0.90 to 1 $0.30 Our balance sheet remains resilient and industry leading. At the end of quarter 1, we a gross cash balance of $484,000,000 $350,000,000 of debt and thus a net positive cash balance of $134,000,000 In closing, I want to make it clear that we see the significant disruption caused by this pandemic as relatively short term. And as we move beyond 2020, we expect global conditions to improve and the core fundamentals that have driven growth in the CRO space to reemerge. In the medium to long term, we see increased opportunities to deploy capital more cost effectively and build our global franchise.
However, for the time being, we are well placed to weather the challenges of pandemic and position ourselves for the growth opportunities that lie ahead. Before moving to Q and A, I'd like to thank the entire ICON team for all their hard work and commitment during this challenging time. Your safety and well-being are the company's priority. At Icon, our mission is to help our customers to accelerate the development of innovative medicines and devices that save lives and improve the quality of life. Over the years, we have helped to bring many such treatments, vaccines and medical devices to market, positively impacting the lives of millions of patients.
This ethos will remain during the current crisis as we work on a number of important COVID-nineteen trials on behalf of customers as well as much needed treatments for our other illnesses and diseases. Thank you everyone and we're now ready for questions. Thank
Your first question today comes from the line of Erin Wright. Please go ahead.
Great, thanks. This guidance that you just gave for the Q2, did it assume any sort of improvement throughout the quarter? Or are you extrapolating what you're currently seeing? I'm just curious how you're thinking about things progressing throughout the Q2. Thanks.
Well, first of all, Aaron, I wouldn't call it guidance. We specifically call it our outlook. So it's what we can foresee at the moment given we're really not only we haven't even had one full calendar month of the significant impact. March was a sort of a month where the second half of it was much more significant than the first half. And so I would call it more of an outlook and what we're seeing going forward.
In terms of improvement during the quarter, we haven't modeled any of that at the moment. We're seeing a challenging quarter. We see it relative we see it we believe we're kind of at the bottom of the challenges or at the max of the challenges during the quarter, we don't see a particular phased approach during the quarter. At the moment, we're literally just starting to come through April and starting to get some initial indications. So it's very early days, but we believe that the quarter will be relatively flat and will be relatively stable in terms of being the bottom of the curve.
Okay, great. And then are you seeing any sort of abnormal cancellations? Are you viewing this more of a timing delay? Or do you think of this as also being a bolus or an acceleration in the back half of the year if the environment normalizes?
Couple of points there. One is no, we're not seeing any significant cancellations. You saw our cancellation rate in Q1 was on par. And certainly as we've gone through April, we've not seen any further cancellations above the normal sort of run of the mill approach there. We do see this being a relatively short term issue and we do see us moving forward as we get into quarter 3 and particularly quarter 4 and into next year that will come through.
We are that is that, of course, assumes some sort of therapeutic will be developed fairly quickly and possibly a vaccine will be available within the next 12 months or so. So there are some assumptions with that. But we do see that this is going to be a relatively short term issue that we need to deal with and we need to work through. But that in the longer term, we're going to be in a very good position.
Great. Thank you.
Thank you. Your next question comes from the line of Jack Meehan. Please go ahead.
Thanks. Good morning. Good afternoon. Wanted to drill in a little bit more on the commentary related to what you're seeing in terms of the sites open versus closed. So it's been roughly 2 thirds of your sites have been impacted at some point.
How is that if you went from March beginning of March to beginning of April to where you are today, how has that trended at any given point? And just to confirm what Aaron was going after, you're assuming it stays where it is through the end of the second quarter. That's what your outlook assumes?
Yes. Jack, in terms of I mean, this came upon us incredibly quickly. So really, we talked about 2 thirds of the sites being impacted. When I say impacted, that's a number of things. CRA is not able to get access to recruitment on hold or paused.
The inability then to sort of access to do sites, do visits, get on-site and do visits. So it's a there's a variety of different things there that come into that sort of 2 thirds of sites. And really, it I don't want to say it happened overnight, but certainly within sort of, I'd say, 3 to 4 weeks that happened. And to be honest, we're not seeing, at least in the last couple of weeks, any further challenges there, any further diminution of our ability to access sites. So about a third of them remain open to us, and we've been doing remote monitoring visits on many of the sites that we can't actually go to physically.
But that number came down very quickly and it hasn't at this stage anyway further diminished. And so we're hopeful. And quite frankly, we expect that that's going to be around the number. And from here, it should start to improve and it should start to come back to us. And I think it will be in a fairly staged and fragmented manner, the sites start to open up as their countries open up and as the states that they're in open up.
Some will happen relatively quickly, others it will be much slower, others will have priorities on either doing COVID trials or doing other things. So it's not just whether the states open up or whether the countries open up, it's the priorities within the sites on what those clinical trials are. We are highly involved in oncology trials and we believe oncology trials are likely to be a priority as they reengage and as the sites reengage. So that's to some extent advantage. But the bottom line is, we believe we're we've hit the bottom pretty quickly and it's a slow uptick from here over the next 6 to 9 months.
Great. And then it does seem like the biggest impact is on the monitoring and recruitment, but there's obviously other aspects of clinical trials as well. I was just curious if you could talk a little bit about any success you're having at maybe reallocating where you're focusing the resources of your CRAs as some of these sites are closed? Just what are some of the things you're working on? Sure.
And you're right. The monitoring of our studies is the major impact on this at the moment. And that's significant, but we I think one of the benefits we have as a business with our different service areas is the ability to transfer resources across. So for instance, our Symphony Clinical Research Group, the people who visit patients in an at home environment, the people within our clinical business who have nursing qualifications and are qualified to do that work, are able to potentially transfer and have been we have been looking at doing that as we've seen, as I say, a lot of inquiries, a lot of interest coming in on that business. The other part of our business is our FSP, which hasn't at this stage been impacted in any significant way.
And we have, in fact, a requirement for people in that business and that and they are hence we're able to transfer a number of people from our Phase 2, Phase 3 business in the clinical space across to our docs FSP business. So the ability and the collaboration and the flexibility of resource management deployment is certainly an advantage that we have and we're actively looking at how we do that. And so that we can minimize that lack of or maximize utilization of our resources right across the business.
Thank you, Steve.
Thank you. Your next question comes from the line of Elizabeth Anderson. Please go ahead.
Hi, guys. Good morning. Thanks for the update. I had a question about how sponsors are reacting to sort of more digital solutions. I mean, you mentioned some and I'm sure some of it's early conversations.
But how are people are people looking at it more like in terms of forward going trials? Is it sort of things that they can convert? Are there particular areas that you're seeing more interest in? Any details you could provide there would be helpful.
Yes, Elizabeth, it's Steve. It's early days for that. We're all sort of just running around trying to make sure that we're getting the basic stuff I think there's a lot of talk around how the pandemic will impact the clinical trial process in the longer term. And I think we could all see certainly more remote monitoring. Remote monitoring has been going for a while.
Now. There's nothing terribly new about that. I think it will certainly help to accelerate that within some customers. We certainly see some more interest on the virtual trial, but this is not the time to be setting up virtual trials or hybrid trials. This is it's more a discussion and a lot of talk about it, but we need a more stable environment, I think, in order to actually move that forward.
But I do think there's no doubt that that's going to happen going forward and we'll see more digital opportunities and virtual hybrid type trials. It will accelerate the conversation, I think, and I certainly see that happening. However, I've been around this industry long enough to know that things don't happen always as fast as perhaps we'd like or we think they will happen. So at the moment, everyone's telling you how things are going to be never going to be the same and it's all going to be different. That will inevitably to some extent be true, but as we get through this, I think those conversations will increase.
People will be more ready to pilot and to move forward. But I don't see a dramatic change in the digitalization of clinical trials at this point, at least not in the immediate future.
Okay. That's helpful. And then if we think about sort of like the RFPs that you guys have seen in the last few weeks, I know obviously the funding market for biotech is largely closed, but they've raised a lot of money. Are you seeing any sort of like significant mix shift? I mean obviously I'm sure COVID RFPs are way up, but in terms of the rest of your book of business?
I mean, I'm talking about quarter one. And remember, quarter 1 was moderately normal until the last 2 to 3 weeks, I suppose. So in terms of quarter 1, our RFP dollars were up in sort of the high single digit numbers. It was a good I was very pleased with that dollars availability. It was across the spectrum, large pharma, smaller pharma.
So we saw so we're seeing plenty of opportunity. And that's continued at least in the last few weeks. We haven't seen a significant drop off in opportunities. There was a little bit of a slowdown in decision making towards the end of the quarter with everybody sort of taking a stock of what they were doing. And I think that may well be the case in quarter 2 as well.
But overall, opportunities on a year on year basis were actually following the trend that they have over the last few years.
Okay, perfect. That's helpful. Thank you.
Thank you. Your next question comes from the line of Dave Windley. Please go ahead.
Hi, good afternoon, gentlemen. Thank you for taking my questions. Hope you're healthy and safe. Sounds like you are. I wanted to try to get a little more precision.
So, Steve, in your comments about sites impacted, you said 2 thirds. When you call a site impacted, does that mean that it's basically totally inaccessible? Or is there a way to think about kind of partial accessibility and an ability to move forward? Just wondering kind of definitionally around that. And then in terms of your ability to pivot to digital remote risk based type solutions?
Are you able to put a percentage on that like the number of visits that you've been able to switch to some type of digital remote access that mitigates the overall downside to visit activity?
Yes. Thanks, Dave. Hope you're all well as well. I know it's a challenging time for everyone, but yes, I think we're all trying to stay safe. In terms of sites impacted, there's a every site is a little different to be honest with you.
The way I'm looking at that number is that we talked about the 65% the 2 thirds are impacted in some way. So that is certainly not totally inaccessible. That is not the case. What that means is either the CRAs can't visit on-site or we're not able to do risk based or remote monitoring or they've paused recruitment or they're not starting studies. So I recognize that there's a whole bunch of different sort of issues and items there, but that was that's figure really.
About 2 thirds of sites are impacted in some way rather than being totally there are very few sites that are totally inaccessible in any way. But there are 2 thirds of them that have and I would say a significant impact on our business. In terms of the risk based monitoring, as we look at those sites that can't do the physical on-site visits, It's about a third of those about a third of sites have an ability to be monitored from a remote basis. Sorry, I beg your pardon, I misspoke. About 2 thirds of those sites can be monitored on a risk based basis.
It's about 2 thirds of it. But and there's about a third or so about half of those are actually happening. And so there's an element of yes, we can do it, but they're not they can't we can't implement it all, at least not in the short term. So we're working with a number of those sites to actually be able to implement that. So as I say, about a third of them can actually do it and 2 thirds of them can actually do it, but then a third we can actually implement.
So it's again a moving picture and not entirely easy. I mean, this is not the focus of many sites at the moment. So actually implementing the remote monitoring does have its challenges, but it is something we're actively working on and trying to get as many visits as possible. And I would say that about half the time we're able to move that forward. And we're certainly being able to implement the risk of remote monitoring in those sites.
Got it. Thank you. So many questions to ask. Only one more left to do. I'm going to focus on bookings for my second.
So appreciate your comments about the environment. It sounds like any impact was pretty late in the quarter, albeit usually I think the 3rd month of the quarter is a little bit, say, seasonally, if you want to call it more important to closing bookings. So I guess what I'm trying to gauge is your gross and net bookings are comparable gross dollars year over year, a little bit down from last year. So it would seem that if the environment is holding up, as you said, similar to what it has been the last couple of years from an RFP opportunity standpoint that maybe your close rate was impacted by COVID. Wanted to make sure I understood that.
And if you're able to put a number on that, that'd be appreciated. But just kind of trying to understand what maybe what bookings would have looked like had you closed what you thought you were going to close by the end of the quarter if not for COVID? Thank you.
Yes. David, it's hard to say what we would have closed if not for COVID. Certainly, COVID had a significant impact I think right across the business. And I do include bookings in the last couple of weeks of the quarter. And so I think it is fair to say that the number would have been higher absent COVID.
There were decisions that were delayed and not made because of that. I'm not going to try to put a number on that, but I do think it was a significant factor, put it that way. And I do think that in quarter 2, that will probably continue in terms of decisions being made by customers. The whole pandemic is causing them all to look hard at what they're doing, obviously. And so I wouldn't be surprised to see some impact there in terms of decision making.
But I think what I was trying to say in my comments is that overall, the environment is still pretty positive. The biotech funding might have come down a little bit, and then we'll see where that goes. But R and D spending, we can talk about that's a more long term thing. I think as long as this remains a fairly short term issue and that's our premise at the moment that the overall environment will remain positive, albeit with some volatility and perhaps some short term issues. But I was encouraged to see the RFP number, albeit for the Q1.
It will be to see where it is in the Q2. But overall, I think the environment remains solid. The fundamentals remain good. But there's no doubt there's going to be some short some very short term challenges as we all know, and they will play out, I think, in Q2 and Q3.
Thank you. Appreciate your perspective.
Good.
Thank you. And our next question comes from the line of Dan Leonard. Please go ahead.
Thank you. So thinking about what the rebound looks like post COVID, do you anticipate any bottlenecks in the clinical trial system with a lot of molecules that have been delayed, all trying to get trials started and continued at the same time? And how does your site network play in to your opportunity there?
I think there's I think it's possible there'll be some challenges as everyone rushes back. Although I think as we look at it, it's unlikely that we're going to flick a switch and every site is going to be open from day 1 and we're all rushing back in there. I think this is going to be staged and phased process. It's probably going to happen over at least, I think, a 6 to 9 month period, possibly starting in the next few weeks even. So I think as you look at it in those ways, I think it's a manageable process as we go back.
Clearly, we want to make sure that the studies that we have ongoing at the moment are brought back and to make sure we've collected as much of the data as we possibly can. We've made up for any issues that have occurred or we've rectified any issues. We clearly try to do that remotely at the moment. We want to start. We want to get studies started.
No question about that. There will be an element of catch up as well. There will be some work that we can do that will catch up. There will be some work, of course, that we won't be able to catch up on as well. So it's not exclusively we're just delaying revenue.
Some of it probably won't happen or at least not in the short term. But there's certainly a large component of work. I think we'll be able to catch up as well. But we certainly see a huge amount of activity around the COVID space. I'm actually really encouraged about the speed at which these trials are getting up.
We had a I was talking to a customer the other day who'd submitted an IND and 3 weeks later, we think we'll get a first patient in. So this is 3 weeks after the submission of an IND, which is unheard of in my experience anyway. So we're probably testing a little bit some of the norms of the regulatory process. I'm not suggesting that we're going to get studies up in 3 weeks in on a regular basis in the future. But I do think we're looking hard at what we do as an industry to get studies started and perhaps challenging some of those accepted sort of timelines.
And it may well be an opportunity. We talk about digital technology and virtual trials. It may well be an opportunity I think to get things moving a little faster in a more normal setting in the future. So that I think is I have some optimism around it. I think we can handle the move back into the sites.
I don't think that's going to cause us too much pain as we get back to it.
Okay. That's helpful. And then just secondly, can you comment on impact on your M and A pipeline from a COVID disruption? Yes.
Thanks, Alan. It's Brendan here. I think, obviously, the focus of the organization is weathering the storm at the moment. We've done a lot of M and A, and we're very thankful to that. Obviously, businesses like Symphony have been a great bolus to us over the last couple of weeks.
But certainly, we'll be looking at being a little more careful with our balance sheet over the next couple of months. We've done some significant buyback in the Q1. I did mention in my prepared comments that we're also going to be holding on that at the moment. So I think it will be one where we will be focusing internally and really making sure that our balance sheet remains at very good price over the next couple of months, say, for the next couple of quarters. And that's where the focus will be.
Okay. Thank you.
And I would just add, I think Brendan is absolutely right. The focus at the moment is on cash conservation and making sure we get through these EMEA channels. But in the longer term, as I said in my comments, we do think there'll be some opportunities. And we got to make sure we're in position to take advantage of those opportunities. Typically, crises provide opportunity.
We're very aware of that, and we want to be able to benefit from that. But it's a more longer term opportunity, I think.
Okay. Understood. Thanks.
Thank you. Your next question comes from the line of Steven Baxter. Please go ahead.
Hey, thanks for all the information this morning. So you touched on this a little bit and obviously the business is quite hard to model over the near term. But when you look at Q2 revenue with the outlook you guys gave for down somewhere between 10% to 17% year over year and off your previous trajectory, obviously by more than that. I think what a lot of people are trying to figure out is whether demand and the associated revenue over the next couple of quarters is seeing lost or replaced with lower cost services or kind of simply shifted out to the right. So I'd love to get your perspective on that and anything you can say about the balance between what feels like is likely to be lost versus recoverable at this point would be really helpful.
Thank you.
Thanks, Stephen. I might take that one as well. It's Brendan here. I mean, the timing of the effects that we are seeing at the moment is more on the delay side of things. The book of business and the backlog that we have, as we said, we haven't seen significant cancellations off the back of this.
So it really is about the accessibility of our sites, getting our CRAs back to those sites and really ramping up on the trials. None of the trials are going away. The activity levels are good. What we see coming through the door from an RFP perspective is pretty solid as well. We'd be hopeful that this is a delay because of that issue.
And as time goes by, we'll burn through our backlog and get back on course certainly as we get back into the back end of the year. So we don't see any kind of diminution of our business. And we don't see significant shift away from in terms of proper profile of our business either. As Steve said, our FSP business is doing well during the course of this year. There are certainly other parts of our businesses like the in home monitoring and the home nurse business that we'll be doing well during the course of this year.
So that may shift things a little bit. But overall, we don't see any long term shifts in our profitability book home. Thanks. And then just as we
think about, at some point, we'll potentially be out of sort of this lockdown situation that we're in and potentially the economy is going to be in what is more of a normal recessionary environment. I guess what are the key metrics that you guys are watching on demand side there? And if there's anything that's different about your business this time versus the last recession that we had, Any changes you've been doing there to recession proof your business would be great to hear about? Thank you.
Yes. We look at our metrics assiduously on a very regular basis right across the operational group. So there's all of the normal operational metrics where we're looking at randomization rates, CRA days on-site, contacts with investigators. Obviously, the metric around the sites availability is going to be one that we'll be watching very closely. And as I said, I think we've seen the bottom of that.
Certainly, over the last week or 2, it hasn't got any worse. So I'm not sure I want to call a victory on that just yet. But we're certainly seeing, I'd like to think, some hope or at least some hope that that number is only going to get better going forward. There'll be fewer sites that are impacted, I suppose. But those are the sorts of things.
Brendan can talk on a financial basis. But from an operational point of view, we measure a multitude of key metrics across our business. And those all of those things will be relevant as we swing back into action. Brendan, do you want to work on this and talk about the financial stuff?
Yes. And I think from the financial side, obviously, we've put in a number of cost containment measures that we're that are going to actually to help us focus very much on the balance sheet in the next couple of months to make sure that our cash collections are solid, to make sure our balance sheet position is very solid, as Steve said, in this relating balance sheet. And we want to maintain that and make good use of it on the back end of this hopefully, the passing of this pandemic. And we'll be looking at those metrics every day, say, every month. And making sure that when we can invest back in the organization that we're ready to do that.
So it'll be careful management on a day by day basis, Steve.
Opportunity to remind all participants to just stick to one question at this time. If there is opportunity for further questions, this will be done at the end. Your next question today comes from the line of Tycho Peterson. Please go ahead.
Hey, thanks. Steve, as we think about getting back up and running, can you talk to how much of a different the sites up and running, how do we think about things like FDA sign off in terms of changing protocols kind of mid trial and agreeing on costs with splitting costs with sponsors. Can you talk to some of the other things beyond just having patients having the freedom to travel that are required to get sites up more?
Sure, Tycho. I'm very I do believe our site network is going to be a significant advantage for us as we get our projects back up and running as we come through this. These are sites that we have our own folks in, integrated sites embedded and who we have very strong alliances with and who do recruit better and who start up better, who's faster,
who recruit
faster and who have ultimately a better quality in terms of protocol violators or fewer protocol violators and queries. So I think it's going to be an important advantage for us particularly early on as we get back to it. They're going to be ready to go and very much accessible as they are at the moment where, of course, local guidelines allow them to be. So having said that, I don't want to overstate that because they're still a relatively small part of our overall patient recruitment services. So it will have I think an important impact on our business.
But I wouldn't I don't want to overstate it in terms of the materiality of it. In terms of the regulators and the sign off of protocol changes, etcetera, I've been very encouraged by the interactions we've seen with the FDA, certainly through our ACRO, the CRO Association. We've got a lot of engagement from the EMA and the FDA in terms of how we document protocol changes, how we communicate that and what those changes are. So I think the regulators have put out some guidance and have also I think we talked about sponsors moving on and in terms of their attitude towards digitalization of trials. I think we'll see the regulators also seeing that this is going to be an important component of the trials going forward and adjusting their guidance and their outlook and their viewpoints to make sure that they are embracing that.
Now that's again, at the end of the day, you've got to do the trials and they need to be rigorous and the data needs to be and so we have to have the auditing groups and all that make sure we catch up with that. And we don't want to be in a situation in a year or 2 where we're submitting these trials for approval and there are questions around the data. I don't think we'll be because we're very deciduous about I think all industry is about documenting those sorts of changes and making sure that we're very clear on what's being done and why it's been done and what were the circumstances etcetera, etcetera. So I think the regulators have been extremely accommodating under the circumstances and also very fast moving under the circumstances. In terms of our customers and costs and change, again, we're having a number of discussions clearly on a range of all of our projects around the cost implications of the pandemic.
What's happening? Clearly, we're trying to minimize their cost overruns, try to work proactively with them to help to make sure that we don't blow their budgets out. But there are cost implications in a number of cases and we have to reflect that. We're having good discussions and negotiations around how that's being worked through. That's an ongoing process and of course every project is a little different, every customer is a little different.
But we are engaging with them on that. And it's they certainly understand the challenges we're all under to make that work.
And then for the follow-up, I appreciate you talking about the number of inbounds around COVID related work. Can you just maybe help us put some context on how much you think COVID related vaccine and therapy work could be a tailwind potentially this year? And then how should we think about central lab coming back in the context of the recovery too? Thanks.
Yes. I think the COVID work such as we're seeing it will be a tailwind, will be a but I think it will be relatively modest. The benefit of course is that this is vaccine work and the urgency that I see around getting these studies up and running is quite frankly incredible and not surprising given the challenge we're facing, but it really is moving fast. So I think it will be a tailwind for us. I hesitate again to be too bullish on it because it's still a relatively small component of our work and the trials need to get going.
What we've seen is really rapid start up and ability to still recruit. Think said that, there are some trials that have recruited very quickly and we're starting to see the lab samples come through. So there's no doubt that they are going to help us and the work there is going to be a positive. How much I find it's harder for us the moment to forecast the materiality of that or even put a number on that. It will be certainly a wind going in the right direction and we can certainly do with all as many of those sort of wins as we can.
In terms of Central Lab, I think I quoted to you about a 40% reduction from our run rate in February on samples. I think again that will come back slowly. I don't think we're going to get much lower than that. It may be plus or minus 5%. But I don't think we're going to go too much lower than that.
Some of the as I indicated, some of the COVID work as it ramps will be very will start to ameliorate or attenuate some of that downturn. And we're engaged in some of those trials. So there's some possible sort of attenuation or upside there. But I think 40% to 50% probably the nadir and we'll slowly move back up. I think it will probably take most of the year to get back up to a normal run rate.
But I do think it will get back. And there will be, I believe, some catch up there as well. Samples will have been taken that haven't been sent. There'll be some missed samples, of course, as well. So it won't all be catch up, but there will be, I think, the opportunity to for some catch up revenue in the lab space in addition.
And your next question today comes from the line of Robert Jones.
Thanks for the questions.
I guess, Steve, clearly you've shared your view that you think this or the company thinks this could be somewhat short lived recovery over the 6 to 9 months. I guess maybe just to dig in a little bit more on what informs that view as you sit here today, appreciating obviously that's an extremely fluid situation. And then just related to that, as far as sites being able to come back online, just given the drop in patient visits visits that we've seen globally, how are you thinking about clinical trials being prioritized relative to just routine patient visits, which clearly will have a backlog as well?
Yes. What informs our view that this is a relatively short term? I think there's a couple of things, Robert. I think there's no doubt that this has been the world's been a little bit surprised. There's been some governments, etcetera, have been caught out a little bit.
Some 2, 3 months ago thought this was going to be a much less of an issue than it's turned out to be. So I think that's one area. I think we are forewarned and clearly there's a possibility that the virus comes back or returns in the fall in the Northern Hemisphere, which would cause if it does, there'll certainly be some further challenges. And however, I don't think we'll quite it'll be quite the impact that we've had over the last month and a half or so. So I think that the preparedness or the understanding of what we need to do, I think, it will be much more available and much more in place for the fall.
I think that's a positive. I do think from what I've seen around not so much the vaccines, which I think might take a little longer, but around the therapeutics, I think we'll have made some progress in the next 3 to 6 months in terms of therapeutics that can be deployed, particularly obviously for the higher risk patients and patients who are at severe in a much more serious situation. I think that will help us. And so there is and then I think as I said, the whole community willingness to address and to move and to move probably a bit faster than we've moved as a global community this time, we'll be there. Now of course, you got to overlay potential for the flu to be an issue in the fall as well.
And you add this and all the rest of it, whether there's a vaccine going to be available, I think that's probably challenge that will be challenging for the fall. But there'll be some, I think, some experiments and some Phase 3 trials certainly ongoing out there, which will perhaps help a little bit as well. So that's the sort of information that sort of informs my view that I think we will be moving forward, we will be getting better. I don't think we're going to be back to normal in quarter 4, but I do think we're going to be certainly on the up and up. And as we get into quarter 1 or the 1st part of next year, we will return, I think, to a much more normal cadence.
That's certainly my expectation. In terms of the priority for clinical trials for sites, as I see it, this may actually even help in some ways. The understanding that we need treatments for things like COVID-nineteen and many other diseases as well could push sites to be more perhaps more involved in clinical trials. As I said, I think the regulators have seen move very quickly to adjust protocols and they've been very flexible on that. I think the time lines, I talked about the 3 weeks from IND to first patient.
That won't happen on a regular basis. But I think we're challenging some of the norms there. And I think the administrative processes around clinical trials could be challenged a little bit. And I think that may well be a net positive in the more medium to long term in terms of trials within sites and the priority of trials. Clinical research as a care option is something we've been pushing particularly through our site network for a long time now.
I think there are a number of organizations who do the same thing. And so we see that as something that really is perhaps even going to get a tailwind or get a push along from this pandemic. I've never heard so much talk about clinical trials and new drugs and the development process. And I think in the end, the public's imagination, the public's understanding of what we do as an organization, as an industry is going to be enhanced by this whole crisis. And that, as I say, may well have some long term benefits.
Okay, great. Thank you.
Thank you. Your next question today comes from the line of John Kreger. Please go ahead.
Hi, thanks very much. Steve, congrats on the Pfizer renewal. Are you able to elaborate at all on any interesting sort of changes of scope or structure of that relationship? Or should we view it as pretty much kind of steady as she goes versus the old contract? And do you have any other kind of significant renewals to that we should be thinking about for the remainder of the year?
Hey, John. No, there's nothing in particular that we changed in terms of the Pfizer. There were some areas of discussion, but really it was a very collegial and very positive negotiation with Pfizer. So no major changes to that. And as I think about it, no, I don't think there are any significant alliance agreements that are up for discussion or negotiation specifically anyway for the remainder of the year.
Excellent. That's good news. And then one quick follow-up. You mentioned China is showing at least some signs of opening up. Are there any lessons you can take away from that as you watch that play out as to what you might see later in the year in Western Europe or the U.
S?
Yes. We look at how China is starting to open up, albeit relatively slowly and some of the other Asian countries as well. And we do take some solace from how that's moving forward. And we believe that it can be broadly applied. Obviously, China is a relatively small part of our business.
So I hesitate to draw too much from one particular country. But given that it was the epicenter or the initiation, the start of the whole pandemic and the fact that it does seem to be moving on now. It gives us again hope that this is a relatively short term issue that we believe we can get through, as I say, by the end of the year. But I'm a little care I want to be a little careful about lessons learned from China. John, just to go back to your previous question on the alliance, I think the other area is in the labs where we've been seeing some opportunities.
And certainly, we've been able to agree in a couple of significant opportunity to alliance partnerships for our lab operations, our central lab and our bioanalytical lab in the last 6 months. So I tend to think about clinical, of course, as it's the largest part of our business. But our lab operations have been able to secure a couple of partnerships recently and that's I think it puts them in a good position to really build that business.
Great. Thank you.
Thank you. And your next question today comes from the line of Patrick Donnelly. Please go
ahead. Great. Thanks. Steve, maybe just on the biotech funding environment. I know you mentioned a couple times, obviously, there's been a bit of a pause here given the disruption, new raises have been pretty minimal.
When you look out to the other side of this and even maybe the midterm view, 'twenty one years like that, has your opinion changed in terms of what the growth rate could be for the overall market given a little bit of pullback in that funding? Or do you think things come back pretty quickly and we're in a pretty normalized market for next year?
Yes, go on. Sorry. Let me let Brendan have a crack at that one, Pat.
Yes. No, I think we've seen a pretty stable environment from a funding perspective. And the guys that we've seen there have been well funded as they came into this year. There's some good science out there as well, which is always the underlying piece in terms of whether biotechs deserve to get funded or not. And as we go out and I think your question is a good one in terms of the longer term, we still think there's opportunity there.
It's been a really strong part of our marketplace. And so the fundamentals of this pandemic that we're seeing don't really change the fundamentals of drug development. So we do see that there is continued opportunity, particularly in the biotech space, where there has been a lot of innovation, a lot of creativity. And we'd expect that the good science and decent funding levels as well as the fact that folks are still looking for decent returns on their cash and then putting money out there To persist on FPL, I think it will persist. It might be going to take a bit of a pause as we think about this year as the entire global economy probably will.
Certainly, as we think about 2021, we'd be very hopeful that we'll see that bounce back quite well.
Great. And then, Brendan, maybe another quick one. Obviously, DSOs have been a big focus for you guys. I assume this external shock changes things a little bit. But what's your perspective on the focus there as we go through this pandemic?
Yes. And I'll still be listen, we'll be still very focused as an element of our business. And we saw decent progress. I mean, we didn't see any great diminution to it as we came into the Q1. Actually, even as we started off Q2, cash collections remain relatively solid.
So we're not seeing any particular issues there yet. That said, we're going to be keeping a close focus on it as we go through the months and quarters ahead. But at the moment, it still looks like we're in a very solid position.
And our next question today comes from the line of Sandy Draper.
Thank you very much for squeezing me in at the end of the call. And glad to hear you guys are doing well over there, all things considered. My question is on the expense side. I mean, it's an area you guys have incredibly outperformed over years years and done a great job there. Brendan, when you think about your near term cost controls and what you're doing, as you start to when we start to come back to a more normalized environment, are there specific areas you think you may be able to take a more of a look at and say, hey, what we thought we really need spend here, but we realized we can live without this or we can do it differently.
I mean, do you think this changes maybe longer term how you think about the cost structure of the business? And or basically once things come back on, do all those costs that you're pulling out all have to ramp back up in line, if not faster than the revenue? Thanks.
That's a good question, Sandy. We you know, as we're pretty tight cost managers on a good day. This has obviously been a very challenging period, and we are thinking about our cost base from that perspective and have looked at the levers that we really how we take that down a step. A large chunk of that is around remuneration and salaries. That is something I think that will ramp back up.
That said, however, I think this whole environment in this kind of this virtual work environment does give us pause for talk around what is absolutely necessary. So we'll be looking at our cost base as it does ramp up. Some of it certainly will come back in. There's no question about that. And we'd like to see that come in sooner rather than later with hopefully a recovery in the general business environment.
But certainly, we'll be looking at all cost lines and actually very much asking the question, can we do things more virtually? Do we need as much travel? I think there are questions that we constantly ask ourselves. And I suppose this environment has tested all businesses in the world as to whether they can be more virtual and how they operate. So that is certainly something we'll bear in mind as we go through.
I appreciate that. That was really my only question. Everything else has been asked and answered. So thanks guys.
Thanks Andy. Thanks Eddie.
Thank you. And our next question today comes from the line of Juan Avendano. Please go ahead.
Hi. Thank you for fitting me in. And I joined the call late, so I apologize if this has been asked. And so I'll try to ask a couple of questions from last field. I guess, can you talk to us about how remote monitoring activities impact CRO revenue and profitability?
In particular, I guess, I'm interested in how alternative site visits could impact pass throughs. Based on some of my research and consultations, it seems like remote monitoring could be a positive mix for CROs, but I was curious if you could confirm that.
Yes. Juan, I think the potential for us to if we do remote monitoring effectively and well is actually a tailwind from a profitability point of view. There's a lot of time spent. And then I think it's also a boon for customers potentially too and that they'll spend less money getting their data reviewed. We'll be able to do I would say that give us more opportunity to do more work.
So I think it's a dare I say it, a win win. I'm sorry to say sorry to use the term from a profitability point of view, but also from a customer point of view going forward. In terms of pass through, I don't think that's going to make a huge difference. The pass throughs in terms of monitoring are pretty modest. The major part of the pass through costs are investigator fees.
So it's why it may have a small impact and Brendan maybe comment on that, but I don't think that's going to have a huge impact. But I'm optimistic in terms of remote monitoring and how that's going to go forward. However, at the end of the day, I don't think it's going to happen, as I said, as fast as perhaps everybody thinks it is. It will get the conversation going. We'll certainly be doing some more virtual trials and some more remote monitoring, but we were already doing quite a bit of remote monitoring anyway.
I think it will just move the conversation forward and accelerate the conversation rather than transform the whole industry. That's my assessment.
Okay, got it. And a follow-up, I guess, is I understand the studies in the startup or activation phase could possibly be the most prone to delays on potential cancellations. And so, can you tell us what percentage of your studies are in the startup phase versus accrual and past database lockout?
I'm sort of I can give you sort of high level ballpark one. I'm not sure I we certainly haven't seen any evidence that the studies in start up are more likely to be canceled. We haven't had I think 2 cancellations, which is on par with where we'd normally be. So I don't we haven't seen an up cancellations and certainly haven't seen anything related to the start up of studies in terms of cancellations. I would say probably 20%, 25% of our studies are in start up, about 50% to 60% are in sort of ongoing recruitment and enrollment and data plays.
And then there's probably 20% that are in sort of the final stages of database lock and report writing, etcetera, etcetera. Very broad high level figures, but I think that's where it would be. As I say, we haven't seen any evidence that studies early on in their life cycle are more prone to canceled.
Okay. Thank you. And SG and A as a percentage of revenue actually picked up by 10 basis points on a year over year basis. This is the first time that I see this happening in many years. Can you talk about how perhaps the COVID-nineteen dynamic could be impacting or would impact, if any at all, your ability to continue to offshore and drive SG and A leverage?
I mean, we'll continue to look at that one as time goes by. I mean, it will I don't think this is a block to any of the costs. Control pieces that we've done in the past, There's no real issue why one country or another country will be better or worse from that perspective. And to be honest as well, Juan, to be honest, the dollar amount didn't change from Q4 to Q1 in terms of SG and A. So yes, in percentage terms, you see a bit of a mix, but we'll continue to manage our cost base
you said. And your next question comes from the line of Dan Brennan.
Thanks for taking the questions.
I guess I was hoping to get a little color on how you think about times kind of gradual throughout the year, maybe Q4 we get back to or maybe Q1 some normalcy. But if we think about the 65% that are impacted in some way, shape or form today, if we're sitting here like December 31, I mean, is that down to 5%, 10%? Obviously, we don't have a crystal ball, but you're in a better position than we are to kind of have a sense of how these sites may open up?
I missed the first part of your question, Dan. But I think what you're asking is of the sites that are impacted the 65% today, what's the sort of the logical sort of bring back or at what rate will they come back to being? Is that where I'm at?
Exactly. Yes, exactly.
Okay. So as I said, I think the 65% is the Nordea. I don't think we're going to go much below that. Maybe it will maybe it's 70 percent, but I don't I think this I think that is pretty much the idea. I think as we go back and we get deeper into the Q2, 3rd, 4th, I'd like to think that by December 31, that number is going to be much closer.
I would just say under 20% in that sort of range. No, I'd love to think it's 0. But we're not expecting this to completely disappear in the sort of immediate future. We do think there'll be some impact. And I do think that those 20% of sites that are impacted, if it's that number, they'll be accessible in terms of remote monitoring.
They may have some impact in terms of slower recruitment rates, etcetera, etcetera. But I think it will be the vast majority of sites, but still a reasonable proportion that will have some impact. I think as we get into next year, number will I think assuming that the virus doesn't reappear and we don't have all that further lockdowns, and that's a big assumption, but that's what we're saying. As we get into the Q1, I think that will get to 0.
Got it. And then and that's a good kind of lead into my follow-up question, which I think you mentioned earlier in the conversation, there'll be some ability to catch up on kind of what's been delayed here. But we've had several conversations with some experts. And I think investors alike, I mean, 2020 volatility is just extreme. But a lot of people are trying to think about 'twenty one, 'twenty two and how it looks on a normalized basis.
And we've heard mixed things about the ability to catch up next year and you could see actually some overage. You can actually see some upside from where you might be pre COVID in 'twenty one versus others have suggested maybe the capacity of the system just can't handle that. So it's really hard to catch up. So I'm just wondering, as you look ahead further,
could you comment a little
bit on that? I'm not expecting a number, but as if we think about going beyond 2020 and the potential to catch up and see possibly some upside. Is that fair or there's structural issues in the system and capacity issues and things like that, that just will lead to more of like just a deferral and a push out?
Yes. I would hesitate to say that we would be able to catch up everything that is going to every sort of reduction that we're going to see in the next couple of quarters. I think there'll be some catch up. And I think the system is maybe part of the issue. But at the end of the day, if data isn't collected or samples aren't taken because patients didn't visit or there's not much to catch up, You're just going to have to miss that piece of data, that sample.
So it certainly won't be anything like 100%. And so I'd be very careful about upside or tailwinds. I think it's more likely we'll that the catch up will help us get back to a more normal cadence and then that normal growth curve will kick in. That's the way I'm thinking about it at the moment. I don't think there's a huge bolus of work out there that we're going to suddenly be able to get done in quarter 4 or quarter 3 that will make up for the challenges we're going to see in Q2 and Q3.
I think that would be overstating it. But I do think there is some work that will and that uptick that I think we'll see in quarter 4, part of that will be the catch up work that we'll be able to do.
Great. Thank you.
Thank you. And our next question today comes from the line of Eric Coldwell. Please go ahead.
Hey, thank you. So first one, it was briefly addressed. I think I got the answer, but I want to be very specific. Pass through versus service level impacts both for bookings and revenue outlook, please?
Hass, Rupert, just let me make sure I understand your question. You're looking for what are
Well, you've got revenue down sorry, you've got revenue down 10% to 17% in the second quarter. Is pass through at the midpoint of that range just like service or more or less?
I think you can guide. Given that most of the impact is in the clinical business where the pass through happens, Eric, you can model it in the same lines, pass through and direct equally.
Equally. Thank you. We never I don't think we ever got an actual number on the savings projected. It would be very helpful if we had that.
No, no. You didn't get an actual number, Eric. And I'm not sure you're going to get an actual number, unfortunately. We will Come on,
I can't twist your arm.
No, I'm afraid not. I we'll be looking at it. The reason being, Eric, listen, we're all here. We've given you guidance for Q2. We're very hopeful that we see a better recovery, and we're hoping for that in Q3 and Q4.
But that number might have to change if we don't see that pace of that recovery. So it is a little fluid at the moment, and we'll obviously, it's baked into the earnings guidance that we've given you for Q2. Beyond that, obviously, we'll give you more color when we get to Q3 and Q4.
Maybe I could ask it this way. It looks like based on the guidance given, if we've if our quick math is accurate that you're calling for basically a net 40% decremental margin in Q2. Would we be expecting that to improve the decremental to improve as 3Q, 4Q unfold as volumes come back and maybe some cost actions happening in the 2nd quarter are fully recognized in the 3rd 4th? And if that decremental target is to improve, maybe some color on how much you think it could improve?
I think it's fair to say that our expectation is that it should improve in Q3 and Q4 as we see revenue coming back in. That being said, I think there are cost actions. It's depending on speed that the revenue comes back that will actually ease up on a little bit, which will probably keep the margin a little flatter. So probably the way to look at it, Erik, from your margin perspective is not a massive amount of variance. So you're probably in a 2% margin range as you go through the next couple of quarters with cost containment managing that profile as revenue comes back.
That's very helpful. And last question. That's very helpful. And last question, you have highlighted some businesses that have done, performed better, been more stable, the in home nurse and the monitoring, the remote monitoring, of course, functional service provider. Are there any other businesses you would call out that have actually seen upside from pandemic response and implications, thinking things like maybe biostats, but I'm not sure.
And then conversely, would it be possible to get you to talk about which businesses have been most impacted on the negative side? Central Lab, obviously, bigger impact there than I was hoping for, maybe thinking Phase 1 and some other areas that possibly in the short term have been more severely impacted, but I was hoping you could go into a little more granularity on that?
Yes. Let me hit with the upside. I mean, we sort of outlined, Eric, where we see some in the Symphony that the at home patient services, that's again a relatively small part of our business, but that's seen a lot of activity going forward. We do think the site business is poised for some opportunity as we get back into restarting studies. So I think that's an area where confident is going to move along nicely.
In terms of the pharmacovigilance, medical monitoring, there's been certainly no diminution, I suppose, in those parts of our clinical business. And that's whether there's upside there, I think it's a little too early to tell. We're certainly not seeing a dramatic upside in that, but we're certainly seeing plenty of work still going on there. Biostats and data management haven't been impacted too much at the moment, but I again I hesitate there's not too many areas where we're really seeing upside at the moment. Vaccine trials and nurse services I think it'd probably be where we're seeing some opportunity, but that those vaccine trials will play into of course our clinical group, which has been impacted.
And that's we've talked I think we've talked enough about that. Phase 1, we've certainly seen some impact. Again, it's a very small part of our business. So it's not hugely material. But the CPU that we have, we have the 1 CPU in San Antonio, certainly has been doing a very limited amount of work in some of our other sites that we do early phase studies and have been fairly limited as well.
So I think those are the areas that we've seen sort of most impact. On the other back on the upsizing, I think the FSP business has certainly continued to expand based on some significant wins we had at the back end of last year. We're actively recruiting. And again, I think as I said, the ability of for us as an organization to move and shift and redeploy resources, take significant resource cost out of one area and deploy them in another way we're actually earning solid revenues is, I think, a strength of our organization.
Thank you very much for all that. It's been the longest call in ICON history. I think 3 times your norm. So I'll let it go there. Thanks,
Derek.
And our final question today comes from the line of George Hill.
And I'm not going to let Eric Caldwell off the hook that easy. I guess the one thing that hasn't been touched on is could you guys talk about, I guess, engagement by client size? And should we think about the sites that are continuing to do business or the sites that you expect to come back first? Would we I guess, is there any correlation between client size or client funding type? Or is it more therapeutic area, which we where we should see kind of the growth come back first and the business come back first?
George, it's a little early to be calling sort of correlations in that. I hesitate to do that in terms of so larger clients or smaller clients or midsized clients doing things differently. Certainly, in terms of our larger the larger pharma customers have taken a fairly conservative attitude, I would say, or approach in terms of their trials. Perhaps the biotechs are little less so in terms of specific instructions around how we should manage their trials. At the end of the day, determinant in terms of what we can do and what they ultimately are going to do in terms correlation between client size in that respect.
In terms of therapeutic areas, as I mentioned in my comments, we have a significant amount of oncology business. And I believe that will be less impacted than some of the other more, dare I say, less life threatening type indications. Clearly, the vaccines and the COVID stuff is high priority and that's moving forward very fast. But I think oncology will and those life threatening trials, those life threatening conditions will come back faster than others and certainly will reignite in terms of recruitment, reaccelerate in terms of recruitment faster than the others. That's the way I look at it.
And that's to our benefit. In fact, most of the industries in oncology. So I think those will be a priority, but we'll see the rest of them come back in the medium to longer term.
Okay. Thanks for squeezing me in. We have no further questions. I'll hand back to Steve Cutler for closing remarks.
Thanks, Tim. So thank you everyone for listening in today as the impact of the COVID pandemic continues to evolve, Icon is focused on protecting the safety and well-being of our employees and patients and continuing to service the important work we undertake on behalf of our customers and in turn preserving the strength of our business. I want to take this opportunity again to recognize our entire workforce and to thank them sincerely for the tireless efforts and the ongoing resilience they're showing during this very challenging period. Thank you, everyone.
Our thanks to each of our speakers. That does conclude today's conference. Thank you all for participating. You may all now disconnect.