Good morning, everyone. My name is Tejas Savant, and I'm the Life Sciences Tools and Diagnostics Analyst here at Morgan Stanley. Before we begin, for important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you have any questions, do reach out to your Morgan Stanley sales rep. So it's my great pleasure this morning to have CEO and Chairman of IQVIA, Ari Bousbib, and Head of Investor Relations, Nick Childs, on stage here with me. Now, for those of you who've been following this space for a while, Ari is a bit of a rare commodity at sell-side sort of conferences. In my many years at JP Morgan, you know, he's also one of those healthcare CEOs who's allergic to the west in San Francisco. So it is truly a privilege to share the stage with you.
Maybe, maybe to kick things off, Ari, could you just outline for us, you know, what you view as IQVIA's key accomplishments this year against a decidedly sort of tough macro backdrop? What are you particularly proud of, and is there anything you wish you'd handled sort of differently going into this year?
Okay. Well, the year is not over, so, we'll see what happens. But, look, it's a tough environment out there, but, we have two large businesses serving life sciences. One is our clinical trial business or the RDS segment, which is the largest one. And that's a business that's fairly resilient because it's a long cycle business. It's relatively immune to economic cycles and the ups and downs that the macro environment presents. And that business has been performing exceptionally well. Our numbers obviously are—the reported numbers reflect the step down from the very disproportionate share of vaccine development that we all had during the COVID years.
On an organic basis, excluding M&A effects and the step- and the COVID from all years, revenue so far on the R&DS business is double digits, year-over-year, which reflects a very strong underlying, operating momentum. Our bookings have been very strong.
Mm-hmm.
Our backlog is up 11%, our pipeline is up 11%. RFPs were up 8% year-over-year last quarter. So the underlying momentum of the business continues to be very strong. There were questions about funding, which we frankly have not seen in our business. We have not been affected by that at all. On the commercial side, we have a significant part of our business that's more discretionary spend, and that's subject to the budgetary constraints that most life science companies have put in place this year.
Mm-hmm.
As well as we've observed delayed decision-making. So at this time last year, when we were planning for 2023, we anticipated our commercial business would grow organically. That is, excluding COVID from both years and excluding FX and M&A. We thought it would grow mid- to high-single digits, and in fact, year- to- date, it's grown only mid-single digits, and that's what we expect for the year. We are not seeing that discretionary piece, that discretionary spend portion of our business come back yet. So that's a disappointment. So on the plus side, our clinical side business has done very well-
Mm-hmm.
- extremely well, and is very resilient and shows no signs of slowing down. On the commercial side, because a portion of our business is discretionary spend, that has gone down significantly year-over-year, and as a result, we're growing mid-single digits instead of mid- to high-single digits, as we were originally anticipating. Having said that, in the current environment, when you look at life science companies in general, tools providers and otherwise, you see that they are showing declining revenue, reflecting the budgetary constraints and delayed decision-making that pharma companies are experiencing. So in that environment, to grow mid-single digits is very good. We're very pleased with that in the current environment.
Mm-hmm.
And that reflects the fact that a portion of what we sell is sort of mission-critical or, or necessary, or required by regulatory agencies such as, obviously, the data, some of the analytics, the real-world studies that are compulsory. So that's the overall picture on our business for 2023. On the balance sheet side, we're also very pleased we were able to take advantage of a depressed stock price. That you asked me about disappointments, that's one of them. We've been trading at multiples that you have to go back to maybe 2017, right after we announced our merger, to see multiples like that. So we were able to repurchase, I think, about $600 million of stock at attractive numbers.
We've also continued to buy some interesting strategic acquisitions in the area of site dynamic organizations and lab and some technology. We spent about $400 million to date in acquisitions.
Correct.
So again, overall, you know, we are happy with the performance, not happy with the stock price.
Mm-hmm. Got it. Fair enough. So looking at sort of R&D Solutions, right? To your point, I mean, really strong quarter, low double-digit growth in backlog as well. But we hear sort of discord and commentary, if you will, from, you know, some CROs talking of elongating customer decision timelines, others talking about not CROs, but just tools companies citing these biopharma funding headwinds. What is it that keeps your R&D Solutions segment, you know, insulated from this broader trend? And second, what convinces you that perhaps there's not gonna be this weird lag effect, and then it'll come catch up with you in the back half of 2024 or 2025?
Okay. So again, what you cite about tools companies and so on, we are experiencing on the discretionary part of the commercial business, and that's true. But clinical trial decisions are not made by life science companies because of annual budget constraints. These are long-term projects that have been maturing over several years sometimes. So when a molecule goes through a preclinical phase I, phase II, and is now in phase III, you know, you're not gonna stop the trial or decide not to spend the money because of the annual budget constraint that you can experience that you see-
Mm-hmm
for tools companies or that we see in the commercial side. It's a long cycle business, and in our case, the vast majority, I think 100% of what we do, is phase III and some phase II.
Mm-hmm.
So we are less exposed to perhaps delayed decision-making on whether or not to start a trial. Once the trial is started, it goes on. You cannot just stop. And so that's one reason, again, the nature of the business. And number two, our unique position in it, where we are largely a phase III clinical trial services provider. There were concerns about funding, and we've been saying for a long time now that there are no funding issues.
Mm-hmm.
I remind everyone that before the pandemic, in the five years, 2015 to 2019, the annual biotech funding was between $50 billion and $60 billion. That was double what it was the prior five years. The first five years of the prior decade, it was between $20 billion and $30 billion a year. So that ramped up to $50-$60 billion, or between $15 billion and $20 billion. In 2020 and 2021, because of COVID, there was a lot of frankly, dumb money that was poured into all kinds of antivirals, and anyone who had the slightest idea or a formula to defeat COVID or variants of COVID, got funded. And you had really, I don't know what to call it, but 100 and
I think 100, it was $134 billion spent in biotech funding in 2020, and $120-something billion in 2021. So of course, we're down from those levels, but those levels are absolutely an aberration, and I cannot imagine that, that we're gonna see that anytime soon. Now, in 2022, the funding level was $61 billion. That's higher by, I think, 6% or 7% than the average of the five years before the pandemic.
Mm-hmm.
And in 2023, the first quarter was $15.6 billion, and the second quarter was, I think, $17.1 billion. So we are on pace to have a record year-
Mm-hmm
of biotech funding in 2023. Again, excluding the 2020 and 2021 years of COVID, a record year in 2023, and that is in what we are describing as a very difficult constrained macro environment.
Got it. That context is actually super helpful. How are your customers preparing for the impact of the IRA now that the initial list of drugs up for price negotiation is out? There's still a lot that could change in terms of timelines for implementation, et cetera. There's legal challenges underway as well. But is there a greater sense of urgency now to prepare for a bear case outcome? And how do you expect that scenario to impact the CRO industry?
Well, I mean, the reason why there's a lot of talk about the IRA is because it's very imprecise and because we don't know exactly how it will be implemented. If anything, the list that was published-
Mm-hmm
the last few days, for the first 10 drugs that are being subject to negotiation, to price negotiation, you know, it's pretty puzzling. I think seven out of the 10 drugs are, I think, diabetes indications and cardiovascular indications. Those drugs, first of all, are nearing patent expiration, I think, in 2026.
Mm-hmm.
So we're talking about discounting or negotiating the price of drug for 2025, that are going to anyway become generic in 2026. Secondly, those drugs, because it's diabetes and cardiovascular, and it's been, you know, shopped for a long time, these drugs happen to be extremely discounted already.
Mm-hmm.
I mean, extremely discounted. There is not going to be much cost savings to the system-
Mm.
From these 10 drugs. So, you know, you scratch your head, why those 10 drugs? So I know that the IRA calls for a total of 100 drugs over the next few years. They'll have other drugs. But for now, at least, I don't see the impact at all. And as you pointed out, there are legal challenges, and there's still an uncertainty on implementation. If you step back from all of that and you think about what are the implications? So the 50,000-foot reaction, if you will, is obviously if price is going to be lower, my IRR on the development of a given molecule is going to be lower than what I expected, and therefore I'm not gonna do the program.
So I think that's nonsense, because when you have a molecule that's promising, when you have data that's favorable, and I don't know of any pharma type company, any biotech that is not going to get funded or to develop that drug that's promising to cure a specific disease. Obviously, if I were the CEO of a pharma company, I would say that you know, you're killing research and so on and so forth, which they are saying, but I just don't believe that that is going to be the case. For our company, look, those the IRA calls for a renegotiation of prices between 9 and, I think 9 and 13 years-
Mm-hmm.
post-market introduction, depending on if it's a small or a large molecule. And that's obviously different than the duration of the patent protection. So what that means is simply that pharma has to. Assuming this happens the way the authors of the IRA intended, which is a big assumption.
Mm-hmm.
If I'm a pharma company, you will look at maximizing the value of your drug earlier in the program. Now, today, what happens is, you let it go, and then towards the As you're approaching the expiry of the patent protection, you look at alternative ways of prolonging the value of that drug, including, and often by seeking alternative, indications and applications of the drug.
Mm-hmm.
and seeking protection on that. Now, if you want to maximize the value of the drug earlier, at post-market introduction, then the likelihood is you are gonna seek those alternative indications much earlier in the program. And what that means for us, is that we will have just more opportunities to do additional clinical trials for the same, molecule. So I see that as a favorable, consequence for our clinical trial business. On the commercial side of the house, I also see that it is going to be favorable because you want to maximize sales of your drug, and therefore you want to maximize country coverage, geographic coverage-
Mm.
-channel, segments, demographics, and therefore, you need a lot more data analytics and commercialization services, which is what we do, at IQVIA.
Got it. Swistching to, you know, the TAS segment, you talked about the weakness there in consulting and analytics. And just longer decision timelines, right? I think you talked about sort of 2-3 months have now become more like 6 months. So have those delays started to improve or perhaps even worsen? And you'd alluded to the need for this, you know, delayed work to eventually happen as it all relates to critical projects, right? So does this mean that we could get a catch-up at some point, or have customers essentially moved on, supported by their internal analysis, rather than relying on consulting and saying that, "You know, we're gonna make a decision, we're gonna move on, and we'll see what happens?
Right. So some of the things that were not done are never gonna happen.
Mm-hmm.
But there's a portion that's delayed.
Mm-hmm.
There are drugs that are being introduced, there are pricing studies that need to be done, there are market access studies that need to be done, and a variety of related analytics. So the drugs still need to be launched in different geographies. What we have seen is, again, delayed decision-making. A bigger disconnect than usual between the pipeline-
Mm-hmm
-of opportunities that we track in the selling process, and the actual sale-
Mm
or booking of the project. And so, you know, the. We track this obviously with 100 different metrics, but it's unusual to observe since the beginning of the year that there is a disconnect between . Because if the product is not gonna happen, then it's taken out of the pipeline.
Right.
Over here, we still have the pipeline, but the revenues are not coming in at the same pace as we would have normally expected, based on the pipeline. So we're not seeing that improve.
Mm-hmm.
We were expecting early in the year that it would turn around middle of the year, but it hasn't.
Mm-hmm.
As of now, we're not expecting it to come back until 2024.
Got it.
So that's for the budgetary management at within pharma.
Mm-hmm.
I attribute this to caution due to the uncertain environment, and you know, cost of money and unusual circumstances. But hard to predict, you know, when it's going to come back, but some of these projects have to be done.
Right.
That's why I say, you know, early 2024 and onwards should come back.
Got it. You previously talked about sort of Veeva's decision to switch CRM providers as contributing to some of those delays as clients evaluate the portfolio of offerings, you know, specific to the OCE business. I mean, help us sort of dimension the opportunity for share gain here, on the back of this switch. And have those spiking inbounds, you know, from frustrated customers, perhaps translated into meaningful wins for you yet?
So, look, you're talking about the CRM-
Yeah.
Tool in particular. Yeah, just to step back, and take a couple of minutes to, discuss what this is supposed to do. You know, the historic way of, commercializing drugs or marketing drugs was for sales reps to visit, healthcare providers, face-to-face and in between two patients, and squeeze in a few samples to try to persuade the prescriber to, go with drug A versus drug B. And we've all experienced that. You visit a physician office, and, the physician will give you a, sample that they just received. That's yesterday's way of marketing drugs, and as you know, the level of sales reps is disappearing. Not disappearing, but going down, you know, slowly, because they still exist in many parts of the world. There's no digital interaction between physicians and drug companies. It's still face-to-face.
That's gradually going down, and during COVID, it has taken a significant step down. Now, CRM was simply a tool that equipped those sales reps.
Mm-hmm.
So if you have less sales reps over time, your CRM market, by definition, is finite and shrinking. CRM, of course, took different shapes. When we introduced our competing, cloud-based, CRM tool, which we call OCE, this was about 5, 6 years ago, it had intelligence in it, meaning you wanna go to visit, your physicians, and you want to know a lot about the physician, you want to optimize your route. Your selling message is targeted and customized to the healthcare provider that you are visiting.
Over the years, we've introduced more modules, and as you know, our CRM tool is built on Salesforce, on whatever they call it, force.com, or it's moving to Health Cloud, but it's basically a Salesforce platform, most advanced Salesforce platform, and the same was true of the main competitor. The main competitor had essentially swept the market, you know, long before we came into the market. We were able to recapture or win back a few of those.
Mm-hmm.
3 of the top 20 and, almost every competition where we bid against the main competitor, we won 2 out of 3 of those with all of the rest of the market that hadn't been taken over. Now, recently, the competitor announced that they were going to re-platform. They are a technology company. Technology companies like to have their own proprietary platform, so the customer is stuck with them forever.
Mm-hmm.
We all know this model. It works very well for the technology companies, not so much for the users, but that's the way it is. So they've decided to move to a proprietary platform as opposed to staying on a Salesforce platform. Obviously, that will force their customers to make a change.
Mm-hmm.
A significant change. As a result, they are pausing. That's an opportunity for us to, that we perhaps didn't have before, to offer an alternative solution. But again, I want to emphasize that it's a declining market, it's a finite market, it's a small market in relative terms, and it's yesterday's way of marketing drugs. We are working with Salesforce. We're not a technology company per se, in the same sense. We are a technology-enabled company, but we are essentially a data analytics, enabled services company, and we use technology. We create, technology content and application that's specific for life sciences, that's based on the Salesforce platform. And I think Salesforce has their big meeting, tomorrow, and they'll continue to, work with us, in life sciences on a variety of, topics, including AI and so on.
We've got the content-
Mm-hmm.
Others have the technology, the plumbing, if you will, and that's how we work together. It's important to understand that like most products today, marketing is shifting toward digital channels.
Mm-hmm.
and not face-to-face.
Right.
As a result, again, CRM is yesterday's tool. As you know, we've invested considerably in the development of tools, and we bought companies that enable us to accelerate the migration of the commercialization of drugs from face-to-face marketing to digital interactions.
Got it. Fair enough. I wanna hit on, you know, your, your data lake, right? You've got about, you know, well north of, I think, 1.2 billion patients. You've talked about using AI to help improve and differentiate your product suite across, you know, both R&D solutions as well as TAS. But just as important is the fact that, you know, not all healthcare data is created equal, right? And it's fair that your ability to cleanse and curate that data is, is as much a part of your secret sauce. That said, why couldn't your sort of competitors leverage, you know, publicly available databases to do the same, perhaps with, you know, some of these generative AI tools and so on, and narrow that gap?
Well, I think as by now, everybody knows, you know, these tools, you know, GPT and so on, even the GPT-4 and more-most. We are working, by the way, with all of these companies. They come to us because we've got the content and as we discussed, more importantly, the business rules of how to manage that content. That content is proprietary. It's not available on a Google search. So, if you using any of these tools, try to answer any basic questions, you will get no answer. Get, you know, we are unable to give you the answer. I would love to show you illustrations, but maybe on future forums. The important thing here is the content.
Mm-hmm.
You cannot. This is a technology that requires to be trained, right? You train on content, you learn, and you cannot learn on generic material that's floating out there. I mean, it's just not, it's just not possible. It will not happen. So on the other hand, you know, any basic questions you wanna ask, how many patients between the ages of 45 and 60 have used any of the top 10 diabetes drugs in the state of Ohio in the past 5 years? You know, it's an important question for marketers of diabetes drugs and to understand shares and everything. Try doing that using ChatGPT or anything, and you'll get no answer. Not even an hallucination, no answers.
The tool will respond to you that they are unable to give you that because that's their proprietary data. But if you use the same exact tool within-
Mm-hmm.
IQVIA, then you'll get very granular information, cut in any way you want.
Mm.
The number of patients who use it, their ages, the locations, their specific conditions, which medicines, et cetera, et cetera. Again, that's a simple question, but, you know, we. The potential is huge, and we are using it both internally for our own process efficiencies, as well as to develop new offerings.
Got it. I wanna hit on China quickly, Ari. You know, it's only 3% of your total revenue. It's an area of focus for investors, you know, given the geopolitical risks at play here and also more near term, you know, the biopharma disruption there is pretty significant. We've heard of this conference, other companies talk about, you know-
Yes
pretty significant cuts to the guide and so on, or incremental weakness from some of this anti-corruption crackdown.
Right.
Walk us through what, what you're seeing there in the region and, and how you see sort of China evolving over the next 12-18 months.
Right. Well, our clients in China are pharma companies, either multinationals or local pharma companies. And because of this crackdown on corruption-
Mm-hmm
and these investigations that the government has launched in the pharma industry, obviously, it has put the brakes on the business activity-
Mm-hmm
on the commercial side. Now, thankfully, in this case, it's relatively small piece of our business, but it's not an insignificant drop in China. We are observing it. It's costing us, you know, some amount, you know, in our revenues, but it's a drop.
Mm.
You know, it's a rounding error for our company, but it is something that happens. We are a large company. We can manage things.
Mm-hmm.
Now that is not happening on the clinical side, right? Because that's. Once again, the clinical trial business is very resilient. You know, we got a lot of flak because, you know, when the Russia-Ukraine thing happened, still happening unfortunately, you know, everyone said: Well, we are, we're out of Russia.
Mm-hmm.
You know, whatever we could get out, we got out. But we can't leave patients, cancer patients or any patients that are enrolled in the clinical trials and get out of the country. It's just not possible. So there are a lot of considerations there. So clinical trial business is very resilient, including to a China crackdown-
Mm-hmm
to Russia-Ukraine war, to a macroeconomic downturn. And that's an important factor.
Mm.
We are in 100 countries.
Right.
Whenever we have an issue in a country, we could shift sites, which is what we did regarding when the Ukraine situation developed. With respect to China, on the commercial side, yes, it is, the activity is actually interrupted on the commercial side because of the government state investigation. With respect to the clinical trial business, it's very resilient, there is no issue there.
Got it. Last question on M&A. You know, where do you see the most compelling opportunities? And has there been, you know, any shift in your view of, you know, that like for like CRO mergers are not for you? And just in terms of, you know, what adjacencies make the most sense? I mean, there's preclinical, there's, you know, potentially, you know, expansion into manufacturing. Has the FTC regime prompted a rethink in terms of, you know, size and type of target for you at all?
So, the last part of the question first, the answer is no.
Mm-hmm.
The FTC can do whatever they want, and we are, you know, developing our strategy and doing the acquisitions that we think are appropriate. As you're very well aware, we are investing in the digital space, and we bought a couple of companies, and we announced about a year ago that we were buying a company called DeepIntent, and the FTC decided to block that transaction, which is what they do with virtually every transaction. We think they're wrong. They don't understand the rationale, and we're fighting them in court. The other areas of investment, again, the lab business, when we have capabilities that we need.
The CROs, you know, there have been a number of CROs that were either for sale or had been for sale for a while, or had faltered in terms of performance. We look at everything.
Mm-hmm.
And when we don't do something, it's because we feel that the valuation does not reflect or the pricing does not reflect the underlying valuation of the business. But we will look at everything, and the FTC is not something that we are . Again, we're not buying things that are, you know, if we have, if we had the 50% market share, we would. I would say this, but that's not the case, so.
Got it. Fair enough. We're pleased to leave it at. Thank you so much for joining us, Ari.
My pleasure.
Yeah, of course.