For life. Awesome. Okay. Good afternoon, everyone. My name is Eric Caldwell. I cover healthcare, distribution and services, and it's really an honor to have the whole cast here from ICON. I wasn't expecting this. I'm probably catching my breath here. I have to remind myself of who I'm even talking to these days because we have some changes announced. A few weeks ago, I didn't think ICON would be here. It was going to be two of you. Now I have the all-star cast. Everybody's involved. Steve, welcome. Thank you.
Thank you.
Good luck.
Thank you.
We're going to have some fun talking about what's going on. Barry, we know we've known each other for a long time, but obviously we'll be seeing a lot more of you in these events in the future. And Nigel, thank you for being with us as well. It's great to have you here. Okay, I gotta cut to the chase. What just happened?
Yeah, it may look a little sudden from the outside, Eric, but this has been a process that's been ongoing for some time now. I indicated some time ago to our board that I, you know, my 65th birthday was in July, just passed. I wanted to, you know, just, I wanted to go and move on. I thought it was the right time for us to do that. Some time ago we identified Barry as someone who could move through the organization. He's been someone I've worked with for the past six years directly, but then I've been in the organization 14 and I've been aware of him and somewhat facilitated his move through the organization. Notwithstanding that, the board did a very systematic and controlled exercise, looked at external candidates, looked at internal candidates, and Barry came out head and shoulders above everyone else in that space.
I think he's a very competent and intelligent leader, someone who I guess a little bit in my mold, I suppose. That may be good, that may be bad, I don't know. He's an operational guy. He knows the business very well. He's been with the organization for 20 years, and we feel this was the right time for him to move into the spot. We very purposely have a very quick changeover period because we're an organization that needs to move fast and needs to make decisions quickly and needs to be agile. Having two popes in charge, I've never seen work terribly well for organizations. We made a very conscious decision to make that a very limited changeover period. Essentially, this month, Barry starts as the CEO on the 1st of October. I will be there in transition to annoy him and to help him move through.
I'll continue to be on the board for the foreseeable future, certainly at least until the middle of next year. I'm going to be around. I think the transition, we've been kind of working through it. We've been planning more intensively over the last six months, but really this has been a process that's been ongoing for about 12 now. It is a very controlled and systematic process that's happened within ICON. The timing, as you've noted and as everyone noted, is coincident with one or two other changes in other competitors. That is just a coincidence. It's the way it's happened, and that's fine. We can only talk for what's happened at ICON, but this is a controlled and systematic process. I'm highly vested in Barry's success.
I think he's going to be an excellent leader of our organization going forward, and I'm very confident that he'll take the organization to new heights.
Barry?
The only thing I guess I would add, other than thanking Steve, he's not usually that nice to me or about me. We've worked together for a very, very long time. We built this plan together. We built our sense of this market together and how we think ICON plays in it together. Having had the guts of a year, Steve's been tremendously supportive in managing the glide path up to this point. As he says, four weeks isn't a huge amount of time, but we've been handing blood for a significant and sustained period. A lot of that iceberg is actually below the waterline. The fact that Steve continues as an advisor, but also as a director, is a tremendous comfort to me and to the team, which remains a very stable long-term management team in the organization.
Lots of continuity, lots of stability, lots of points of agreement, almost exclusively. I'm sure there'll be some points of color where we look to lean in in different areas slightly differently, but very honestly, as I said, this was our plan and I think we're squarely aligned on where we take it from here.
Yeah, I think that there were, I didn't agree. I did, I felt I had a different perspective, but there were a lot of folks who said, oh, that came suddenly. It came in a period where, as you've already highlighted, there were a couple of other changes and the transition is really rapid, right? I mean, sometimes you see people sticking around for an extra quarter or two and there's a longer future date. I actually love the idea of the quick change. I think guys like you are pretty good at counter-detailing other CROs when they go through challenges. You don't wanna be counter-detailed.
No.
I hear a lot about that.
Right.
I think it's easier for customers to know exactly what's happening. I'm curious, to the extent you can share any of this, how do you feel like your customer base, at least the more strategic larger accounts, they were prepared for this or is this something that they all wake up on one day and you're on the phone talking to them?
Yeah, I mean, there's an element of confidentiality on this. Barry was appointed as the COO earlier in the year. He's had a relatively high profile with our larger customers. He is the main contact with many of our larger contacts. He's been the facilitator of a number of these partnerships that have come on. He is front and center already with a number of these customers. There's certainly been very little surprise from our customers and from our largest partners as to this partnership. Clearly, I have a number of relationships. We're both very passionate about talking with customers and about engaging with customers. That's something that we share. That's a passion that we share. That's a characteristic that we share. Our major customers know both of us in much of the time, and that's worked, I think, very well from the transition.
Really, there's very little surprise from any of our major partners on this transition.
Yeah, we've talked a lot about that. I think it was a case of nobody knew, but nobody was shocked either, and close ICON watchers will recognize the pattern. I think this is the fourth CEO transition in 35 years, and three of them were preceded close to a year ahead with a COO appointment and then a relatively swift passing of the baton, at least in official terms. We certainly haven't had any whiplash incidents to report, Eric.
I like that. Now, what is your first, what is the first task order on the reverse everything Steve did list?
Look, this has been the subject of some humor internally. We really have worked very, very closely. We do have a syndicated leadership group in the company and there's very little change. A lot of what we've been joking about is there's 40,000 people in the company, two of them are going through a role change. That needs not to be a distraction.
Yeah.
It won't be a distraction from the day job. It won't be a distraction from our strategic purpose, and it won't be a distraction in terms of the work we do internally and externally. I think we are squarely aligned on that picture. Now, whether Steve was staying in the seat or not, the other variable here is time. You are always going to see some changing of emphasis over time, and there certainly are a couple of color points. I came into the COO role in January. At that point, I took over oversight of our biotech organization, for example, which I hadn't been directly involved with before. We've been really focusing on broadening and deepening our penetration of that market. Not that we hadn't been before, but with some specific intent since then. Pleased with how that's going.
Certainly keen to keep doing that, to double down and accelerate on that. We've spoken broadly about our very high, exceptionally high win rates in large pharma and the fact that we've been growing our incumbency across the large pharma sphere, which is great. The builder on that is to make sure we're diversifying the revenue streams within that large pharma sector. That's one where I've been working with Steve and with the team, and there certainly are some areas where I'm keen to accelerate. Maybe just the third one where I think there is a pivot point. If you look at the great work we've done around automation, specifically through the deployment of bots, and we think a lot about efficiency. People who know the company will know we talk a lot about efficiency and management cost. That doesn't change.
I think the and, rather than but, is to look to push beyond a bot that I can deploy a task to, or a GPT that I can ask a question of, and really pivot towards the deployment of agents to which you can delegate entire processes. We look at not just an efficiency play, but there are some more transformational capabilities in the works that I'm very, very passionate about. Not to say Steve isn't, but we are looking at accelerating, giving them faster into some of those spaces because that's what our customers need from us at this point.
What else can you do with large pharma? You have phase one, you're one of the, it's small for your total footprint, but it's one of the more decently sized clin pharma businesses. You have imaging, specialty labs, central lab, of course, decently sized central lab. Maybe you could do more there.
Mm-hmm.
You have functional, one of the biggest, maybe the biggest.
By default, the biggest.
Yeah. I mean, you do all the therapeutic categories, you do them around the world. You have maybe some room to expand pharmacovigilance or real world or later phase. I'm just trying to get a sense. I'm hoping you're not going to say that you're going out and buying a big primate talk shop tomorrow. I'm not getting that sense, but please tell me no.
I think we'd be pretty comfortable with a no. Look, when you look across all of the areas you just mentioned, we talk about being big, but our gross market share is probably hovering somewhere around 16%, right? Depending on the data, 15.7%, 15.9%. That's what I tend to see. It's not like we can't grow across all of these areas. I think if I were to call out some interesting areas, you mentioned phase one. Yeah, we're a large phase one player, but it's also one of our fastest, if not our fastest, growth.
It's a very hot space.
There is a space where I look at significant acceleration opportunity. One of the jobs the man on my right gave me when I came into the COO role was to say, too many of these partnerships are either labs or full service or functional. Why aren't we doing them all? For me, a lot of it is about this diversification of revenue streams within, when we say large, we mean the top 20, but let's look at customers 21 through 60. There is a lot more blue ocean for us out there as well. As we think of the evolution of the business, yes, we will scale organically, potentially inorganically in some of the areas you've mentioned, and we'd love to be bigger in labs. We've talked about that.
We'd love to be bigger in some of these other functions or geographies. We will continue to press, no change there. When I look at sectors in particular, if we can continue to diversify in large pharma to broaden and deepen the penetration in biotech, there is a big opportunity in between those two. Brackets, there's about 40 companies in there that sit between our definition of large pharma and biotech, where we're seeing some nice solid signs of progress. We have, thankfully, the capacity to continue to invest in capabilities to make sure that we can satisfy those markets.
Pretty much every top pharma went through a re-contracting. Sometimes I call it a dance-off over the last few years, musical chairs, what have you. You and your two largest peers won at least 85%. You're in, it's some combination of the top three across the board, the top 20, top 25 foreign pharmas. My math, if you want to say different than 85%, fine, but it's an exceptionally high hit rate across the big three. Then there's a tier two and then a tier nobody. It really falls off a cliff. Are we really just waiting for pharma to stabilize? I don't want to pull in what others are saying or what competitors are writing, but you have had some challenges with a couple of larger pharmas that have been well advertised for a long time.
I got the sense maybe that was more behind you, rearview mirror than forward looking. You've won some new partnerships. We could debate how quickly they're ramping, but are we really just at the end of the day waiting for big pharma to, these new deals and these new re-contracted contracts to get their stride and pick up momentum? I mean, I know it'd be great to have more emerging biotechs, but if you go from 16% or 17% of mix to 18% or 19%, it's not going to change the world. It'd be nice, but.
If anybody who knows the company, and I know you do, will know that neither Steve nor myself nor the business at large are in the business of waiting for anybody.
Yeah.
We are certainly not doing that. While we do believe the breadth of incumbency and the improvement in the breadth of the incumbency positions us disproportionately to benefit from the rebound that you're alluding to, which, you know, I think we all believe we're moving towards, pace and speed we'll come to. No, we don't wait at all. Some of these areas around sourcing partnerships are a particular point of competitive advantage to us. You tend to hear a lot of people say, is that an FSP shop or a full service shop? I guess here to tell you again, there's no such thing as A or B. They're all gravitating towards the middle. We've sought to differentiate over many years, but certainly in the last three or four, by virtue of enthusiastically meeting customers and where they want to be in those blended sourcing models.
That's, I think, a criticism of us as an industry. CROs for too long were dragged, kicking and screaming to higher value, higher customization models that benefited the customers. We're happy to chase there and meet you there. We are not waiting at all. On the point of the emergent alliances, and you rightly said, I'm really glad you do. I'm not sure it's reported enough. I think every major pharma re-upped its alliance partnerships between the beginning of 2023 and the first or second quarter of 2024. These are generally three to five-year terms. I'm doing this 25 years. I've never seen that level of intensity before. We were fortunate that we came out with all the partnerships we went in, and we came out with a few that we didn't have coming in. That was a good thing.
Am I pleased with the rate at which they're ramping up? Yes. We can talk about the post-COVID challenges. We could talk about one or two large pharma who happen to be very large customers of ours. We went from being their largest FSO to their largest FSP, but that hurts you in the immediate term. We've outpaced all of those challenges relatively well in what we all know have been reasonably turbulent markets, but we don't wait. The continued investment, you look at areas like internal medicine, the fact that we've been able to ramp up as fast as we have in the cardiometabolic space and areas like MASH to outpace what were some fairly substantial headwinds for the sector in infectious disease, particularly vaccines. They give us real heart about our ability to absorb those headwinds.
Most recently, we talked about it, and Nigel might talk about this some more, but we obviously had some vaccine news, which is probably down to 1% to 2% of our book now since we sent out our guide, and the guide remains unchanged, right? There's a certain amount of robustness in the business as we've navigated those trends, but waiting is not part of the plan.
I am glad you said that five times. I am going to clarify that I said, when I said we, I was thinking we.
Oh, I understand.
The audience was waiting for pharma recovery. I know you're not, there's no lethargy there. I know that. Thank you for saying it. I do appreciate it. I like the confidence. On BARDA, someone recently suggested that perhaps the work stop order that a customer of yours faced would, I mean, you admitted that it would impact revenue this year, and it obviously changes some dynamics, but it's been suggested publicly in the market that that could also lead to heightened cancellations above and beyond what was mentioned in prior calls where you've suggested to the street, like, let's get through this year, let's model 1.0s for the next couple of quarters and then see what happens. I'm not sure. Is there an additional step down from the BARDA trial? What some are calling cancellation? Or is that not, in fact, it's not canceled, right?
I'll start on that one. You guys might want to comment on this one. This particular trial, and we try and make a point of not commenting on individual studies. We made an exception for this one, just given the significance of it coming into the year, and frankly, I regretted that ever since because I seem to get asked questions about it.
It's a government contract and it's in print. I mean, everybody sees it.
The reality is half of the patients were recruited per protocol. That's important to know. Half of the 10,000 patients that were planned will be treated per protocol and will move through as planned. For the other half, to your point, it is not a cancel. The study continues at a smaller scope. For the remainder, the sponsor, and that's why we can't say too much about individual studies, remains in discussions as to whether they might use other sources of funding to pursue protocol designs or different comparators, whatever it may be. Let's not get too specific. No, it is not a cancel. Obviously, it's a headwind to the year.
Yeah.
We also know that these COVID studies skewed disproportionately towards pass-through revenues. Nigel, I don't know if you wanna say anything else on the impact of the year.
No, I'd not be off of what we've already said, Eric, frankly. Obviously, to your point, it does have some impact on revenue for the second half, but doesn't change our view on the ranges that we put out there. Obviously, hence we reiterated the guidance when we did.
We came out of Q2. I wound up being the outlier on the upper end of guidance, and I got staring at those numbers and my eyes got a little teary and bloody, and I said, I don't need to be the outlier. I pulled in numbers a week or two ago. I think most of us are struggling with what kind of a range is realistic for 2026, and you're way too soon from not asking for guidance here. In our conversations, I definitely sense this sort of balance between let's stay guarded and cautious because the world's been topsy-turvy and there's a lot of uncertainty, but also some commentary about optimism and green shoots and the higher gross bookings and big hit rate with pharma. It's been noisy, but big hit rate with pharma. I know you're not waiting for them to come back.
You're going to go steal it away from them, but we do need to see a lot of activity pick up in this space broadly. What's your intermediate to long-term sense? I don't want to put you in a tough spot with guidance, but are we thinking about this world correctly that we just need to get through the next couple of quarters of cancels? The net bookings start to grow again next year.
It's a great question. What I'll be looking at, and what we're looking at very carefully as a team, is to the extent that we weren't the only ones who saw pretty much overlapping green shoots in some Q2 data, right? There was something of a sectoral trend there. Now, as you rightly point out, we are not the people to call somewhere on the back of a single swallow. That's not who we are. That's not who we're about to become. I'll be looking very cautiously and carefully to see, do we sustain multiple quarters around the opportunity flow data, which was encouraging quarter over quarter, year over year, trailing 12, and around the gross awards data. Now, without getting into the quarter, we don't call quarters before they're over.
Certainly not going to start now, but is there enough opportunity out there to suggest that putting two quarters back to back, Q3 after Q2, is possible? Yeah, there absolutely is. September's a funny month. Post, post the summer, there's obviously more activity in September, disproportionately to the being the third month of the quarter versus any other quarter in the year, but that's encouraging. If we're sitting here in a few quarters' time and we've sustained those opportunity trends and we've sustained those conversion trends, and we're pretty happy with the win rate in biotech too, by the way, it's moving in the right direction for us, and we've sustained the gross bookings number, that to me will be confirmatory of our thesis on this marketplace and where it goes. Your point on cancels is germane.
There really is no quarter over quarter correlation in cancels in this business, right? I mean, clinical data falls out of the sky on a Monday morning, and it means we keep going or it means we stop. Portfolio prioritization is notwithstanding. I hear you. Sometimes you do go through phases. I actually don't particularly have a view on quarter four cancels. When you talk about a couple of quarters, we've been pretty open that we think Q3 might look a little bit like Q2. I read some notes sometimes that people are trying to extrapolate from extraneous data sources, and I think you'd be as well off to read the horoscopes, right? It just doesn't correlate.
If you get a chunky nut that falls into Q3, right, I'm thinking of a specific example, and that falls on top of a run rate, you're going to see a slightly elevated number in Q3, which is why we were in a position to say, hey, Q3 might look a little bit like Q2, but I would avoid drawing a straight line through those and making long-term extrapolations on cancels. I don't believe that's ever been possible in this space.
I'm glad to hear you say that because I have not been able to figure out anything for the last 10 years, but the last 90 days for sure. I think there might be, again, the we being the audience, the Wall Street side of the equation, the outsiders looking in. I think there may have been, and myself included, some interpretation that you somehow knew or had a very high level of confidence, reasonability that cancels would be high in fourth quarter. It maybe sounds a bit more like you're saying, we don't know, so assume more of the same until we don't see it, and then we'll adjust.
It's almost impossible to give you comfort on that other than to say there will be times when I'm made aware a study is likely to cancel in Q2, but we gotta do a windup process, and therefore the cancel gets recorded in Q3, which is why we were able to give the heads up on Q3 that we were. I'm not making any specific comments about Q4, and I guess we should read into that.
You talked, we have six minutes left. By the way, if anyone has a question, raise your hand, or I can check the iPad here in a second. You did say you made a positive comment about hit rate in biotech, and I'd be laughed out of the room if I didn't highlight that some other companies are talking about more aggression. One of the biggest players out there was very open last quarter saying, win more, you know, see more, win more, we're going to go after it with price. What drove your uptick? Was it, hey, good luck, great mid-size pharma, bought a biotech, you got the next contract? There was a little bit of that, I think, but what drove your uptick and where do you see that going in biotech?
I'll leave that for a view, but you might want to jump in on this one as well, Steve. My view on biotech specifically would be that we have to make sure we're tailoring, not the capabilities. We're very fortunate that we have the full breadth of capabilities and the global reach, but that we're tailoring the delivery of those capabilities, that we're treating every one of those opportunities in the same way as if we did if it walked in off the street from an established pharma partner. There's a certain amount of cost in the front end because, you know, lots of those opportunities won't go anywhere, but there was a prioritization of them earlier in the process that I think helps for sure. Things like the pull through from mid-size to biotech, I mean, they're very much outliers, but we made no bones about it.
I think we came out 24 months ago, was it May of the prior year, and said, we don't think we're feeling the full weight of the biotech market. We want to bid on more of it. We want to win more of it. Quarter over quarter, and I'll speak just, it's my direct involvement in just since January, but Steve, you might want to speak to this. We've been moving in the right direction, the opportunity flow, we're moving in the right direction on conversions, and consequently the growth follows through. I don't know if you've done any theories on biotech.
I think we've made good progress in biotech, and that, you know, we probably expected to be a little bit faster than we were, but we have made good progress. The fact is these biotechs are doing very significant programs these days. Back when I started, you know, a $5 million project that a biotech was huge. Nowadays, there could be hundreds of millions of dollars, and that a little bit plays back to the cancellation issue because they are in a volatile environment. They have one or two drugs, and if they die, there's a, so that's a slight negative to us going forward. On the other hand, the fact that they are doing these large programs is a huge opportunity for us as a business, as a company, and of course for our industry as well.
We exist because, you know, projects go forward or don't, as the case may be. When we see these biotechs with these very significant programs, many of them very ambitious to take drugs to market, I think that's a very positive, constructive thing for our industry. Overall, we're pretty upbeat on our progress on biotech and where we're going in the longer term. It's, you know, we make incremental progress each quarter, I think.
Outside of having an acceptable, reasonable price that the client is interested in, what is the ICON biotech pitch? Why ICON?
I think the way you win in biotech, frankly, whether it's us or not, can you deploy the level of focus, expertise, and capacity that they require? If I threw all of my therapeutic, scientific, and project delivery resources into a bucket and said they're fungible, the reality is there's a real concern with some cause in certain cases I can think of that their established large pharma teams are going to come along and take the best of the best, and I'll be left with what's left. That's why we maintain two separate pools of resources, right? That's fundamentally important. Maybe even more important is can you take the data set that you have, the range of capabilities, and whether it's corporate experience or the experience of the individuals that are dedicated to biotech, and add value from a scientific and a development operations perspective.
If you're going to run a MASH study for the first time in a biotech and you've never run one before, you better have a team of people who've run five of them and come over and say, here's all the mistakes that were made before. You don't have to make them again just 'cause we made them previously.
Yeah.
I think that's central to where we're going. A lot of it has just been about tweaking the deployment interface with those companies to make it digestible, to make it right size, and take away the sense of this is a very large company working with a very small company. These are two very small teams working together to access huge data and expertise in the background.
One thing is to have bookings, another is to have backlog burn stabilize or go up. We got a minute or two to talk about, we keep that higher level, Nigel, but I am curious when you think about your therapeutic mix, the nature of awards, you know, inside a backlog where the cancels head, if they're long-term, short-term, what you gotta backfill, et cetera. When is the industry, we saw maybe some signs of backlog burn stabilizing in Q2. There were a couple of companies up. Most were stable to up quarter over quarter. Are we there yet? Are we at a point where the work is accelerating again enough? People are moving forward enough that you can at least sequentially hold at 8%+ on backlog burn?
That's our plan anyway, Eric. I can't really talk too much about anyone else, obviously, but certainly, you know, the guidance we set out for the year assumes exactly that. That's obviously what we've seen in Q1 and Q2, certainly what we expect to see through the balance of the year as well at this point. To your point, I mean, there's obviously different factors at play there. You obviously have, you know, studies getting more complex, which tends to lead to longer study time and therefore slower burn.
On the other hand, and you've heard Barry talk about this a lot before, there's a ton of work that we're doing internally to try and counteract that in terms of using automation, using the technologies that we have to identify sites, better sites, to get them started quicker, to get patients recruited faster, all of which ultimately counteracts those other factors. For us, at least, I wouldn't say we're happy with comfortable with where we are. We obviously want to continue to improve, but we certainly feel we are making progress there. Yes, for this year, at least, we certainly feel we're at that point of stabilization, and then let's see where we get to from there.
I heard a stone cold guarantee 8% plus.
I did.
That is our expectation. Obviously, let's see what we deliver against that.
I'm really looking forward to that February update. Not JP Morgan this year?
That's something we'll have to sit and talk about. Good question. We'll take a look at it. It's probably one for Nigel and I on the plane on the way back.
For the guidance timing?
Frankly, there's some merit in taking time and being sure, but that's not a decision that I feel the need to make today.
Okay. I may have misheard you earlier, so I don't want to put words in your mouth, but we would love to get that update when you're ready to give it. We'll be here.
Thank you, sir.
All right.
Yep.
Congrats, Steve, by the way.
Thank you, Eric.
I hope that golf swing improves every day.
going to, there's a lot of improving that needs to happen, Eric. Let me tell you, I've got a lot of work to do on that front.
Congratulations to Barry.
Thanks.
Thank you.
Thank you.
Glad to have you here.
Pleasure.
Thank you.
Thank you.