Okay, good morning, everyone, again. I'm Eric Coldwell, Pharma Services analyst at Baird. It's our pleasure to have IQVIA with us today, Ron Bruehlman, the CFO. We're going to. I've convinced Ron, I don't think it was a lot of arm twisting, not to do the slides. We're just gonna jump straight into the fireside chat. If you have a introductory comment you'd like to make, feel free, or otherwise, I can, I can go right at it.
No, look, I think everybody here, I'm assuming everybody here knows something about us, so and probably wanna get into the details, so why don't we go straight to the Q&A?
Perfect. Perfect. Well, look, I'd like to ask, and I'd probably be shut down if I didn't, just a general environmental update.
Okay.
I know it's only been a handful of weeks since you reported, second quarter, but what's your big picture on the take on the environment, client mood, whether you wanna talk about across the divisions, big pharma versus biotech, certain services versus others? Just any lay of the land update would be fantastic to start.
Sure. Look, I would say, generally speaking, the environment is as we saw it on the Q2 call, which is to say, the R&DS business, the clinical trial business, remains very solid. We haven't seen any change in the environment there and what we see in terms of RFP flow and so forth. Our outlook there remains unchanged. The commercial business, that is TAS in particular, CSMS is also part of our commercial business. You know, we had hoped we would see some nascent signs of improvement in that business. You know, clients have been cautious about their spending level on discretionary programs, and that continues. There's no change there, and it's a little bit disappointing to us. We would hope that we had seen some improvement by now, but it hasn't happened yet.
But, similar to, you know, what we told you on the Q2 call, that it remains an area of relative softness in the business. I mean, we're talking about mid-single-digit growth in that business on a, ex-COVID, constant dollar organic basis. So it's not like we're seeing a decline, but, it is coming off of the rates of increase that we saw coming into the year, which we were hoping would be, high single-digit growth. So we haven't seen a sign of improvement there yet, or a re-acceleration in the growth rate, I should say, and that's probably a 2024 event at this point. But, you know, I guess there hasn't been a big change in the environment is the, the overall, conclusion.
Perfect. I'm gonna stick with TAS for a second because that's obviously been one of the more, one of the bigger conversation pieces here over the last year, and, and you mentioned that mid-single digit, constant dollar organic, ex, ex-COVID commentary. I think you're technically around 6% versus maybe normally thinking 7%-9%?
Right.
Somewhere in that ballpark. So not, not end-of-the-world stuff, but the recovery, I think, is what is on everybody's mind or when the potential recovery could occur. And I know that's a, a "if we all knew that" kind of question, but in past periods of distrust or disruption in the market, what have you seen in the past? What—how long can clients delay these decisions, which I think in most cases, eventually, they have to get back to business, and this work will come back.
Right.
Um-
It can last up to a year, based on what we've seen in the past, and some of the work clearly has to be done and gets pushed to the right and eventually gets done. Some of it is truly discretionary and gets canceled altogether. Calling the exact turn point where we see a re-acceleration is difficult to do. We had a lot of, you know, having constant conversations with our management team, and they hear good rumblings from customers about restarting it. But, you know, I'm a numbers guy, and until I see it in the numbers, I say, "Okay, we haven't seen the turn yet." So, at this point, I would say it's probably a 2024 event before we see a re-acceleration of growth rates.
We'll obviously update you as we get into the... you know, have the third quarter call, and-
Yeah
... we have more information going forward, but, we haven't seen it yet.
Fair enough. On the last call and on some prior calls, I think Ari, in particular, likes to do in his opening commentary, talk about the macro, the market environment, and he's highlighted some leading indicators that the company looks at. And of course, you have by far the most data and perhaps information sources of any company in the world in this field. So when you do the analysis on leading indicators, one of the ones that came up was FDA approvals.
Right.
I can see how that could be positive across all of your businesses, but maybe talk a bit about what you're seeing on the approval side and how that specifically ties into commercial-
Right
... as we try to put more pieces together on what could drive some of the analytics and consulting recovery or maybe just a little bit better mood overall in the TAS segment.
Right. Well, let me recap the numbers from memory here. I think our FDA drug approvals were 27 in the first six months, which is up about a third from the rate that we've seen over the prior five years. So there has been an uptick in FDA approvals, and where does that matter for us? What matters for us, mainly in our commercial business, is TAS and CSMS. And, let me put some more specifics around that. I mean, typically, when you get an FDA approval, a company has to decide, for instance, how they're gonna price the drug, and we do a lot of that analysis for them. What are the competitive offerings? What's the market gonna accept? What sort of reimbursements do we expect from payers, from governments, and so forth, and where can we price?
You're also doing market access studies. How do you go to market? How do you get the on people's formularies and so forth. You're doing profiling, segmentation, and targeting work. So, you say, "Okay, you got a drug in a given therapeutic class." Pharma wants to know: What doctors should we be calling on? Who write the most scripts? How should we align our sales force? How many calls, how many salespeople, how frequently? We do that sort of work for them as well. So there's a lot of work, the launch planning work and pricing, market access, targeting, that flows from those launches. Now, ultimately, then you also get requirements for your data business because pharma needs to track how the sales are going. And it's...
You know, the unique thing about drugs is you don't really know what doctors wrote the scripts without our data. You can have a salesperson go and call on a doctor, and he or she may or may not write the script, and they don't know without our data, whether they have. So our data is critical for tracking what's going on with the sales of drugs and for paying the pharma reps. And we also have our Midas offering, which looks for brand managers at drugs on a global scale, and that flows out of the data work, too. And that's easier said than done because you have to have data around the world, and we have about 85% pharma coverage, over 90% in the U.S., script coverage.
Another thing that flows out of launches, ultimately, maybe a little bit delayed, is real-world evidence work, where you're tracking the efficacy and economic efficiency of the drugs in real-world applications. Now, I'd say somewhere a third to 40% of real-world evidence work is mandated, it's regulatory requirement, and then the balance is work that pharma, a lot of cases, needs to do in order to support, to give the underlying support to the drugs that they use with payers, for instance, and governments. In fact, in a country like Germany, it's required in order to support the pricing of branded drugs. You know, of course, we have our CSMS business, where we have contract sales reps, and that's affected by launches as well.
So the long and the short of it, there are many elements of our commercial business which are directly affected by the number of launches. And what you see, too, is that in the first two to three years post-launch, that's when pharma spends about half of its marketing budget, so there is an upfront on that. And that's one of the reasons we're optimistic about our TAS business going forward, because a lot of work inevitably spins out of these launches. So when you see approvals, it's a good sign for our business. You may not see it next quarter, but over time you will.
It's a good leading indicator.
Yes.
Okay. R&DS, the CRO business, 1.34 service book-to-bill last quarter and over the last 12 months. Whether that's, you know, the overall market or IQV taking share is, you know, probably neither here nor there, but nonetheless a good number. You've commented on the environmental factors, what you're seeing in the moment. I'm wanting to dig in on this a little bit.
Sure.
With your RFPs, where have you seen changes in terms of mix maybe today versus the beginning of the year, big pharma versus biotech, FSP versus full service, certain therapeutic classes? If you could get a little more granular-
Sure
... with what's a little better, what's a little less good, perhaps, than where it was 6, 12 months ago.
Yeah, and I'll focus on the first half of the year. And let's take the mix of customers by size. We saw the strongest growth in RFP flow, actually, in mid-size pharma in the first six months of the year, and second would EBP, both strong growth. A little softer in large pharma. Now, when you dig beneath the numbers, in large pharma, you had some difficult compares to the prior year. We did honestly see some large pharma customers pausing to reevaluate their pipeline, and that probably contributed as well. But overall, our RFP flow, I think, was up 8% year-over-year. In the second quarter, it was the highest ever, so our overall RFP flow remains very strong.
Now, if you look at it by therapeutic class, I would say, it's shifted back from the COVID sort of work now towards kind of pre-pandemic, what we saw, which is to say a lot in oncology. That would be number one, rare disease, rare and orphan diseases. We had some pretty strong flow in the cardiology area, so those areas. So it's kind of returning to where it was prior, to COVID. We, we've seen a snapback. When you... You know, geographically, it's interesting. Europe has been very strong, North America next, and probably Asia is the one area we've seen a little softness due to China. China, as you know, the economy there is in turmoil right now, and it's not a huge business for us, but we have seen some, some impact there.
Now, cutting it a different way, you look at FSP versus full service, you know, over the last few years, the trend has been towards more FSP work, but interestingly, in the first half, it was more full service than FSP. But when we kind of look out to what we think is coming down the road from the pipeline, we think there'll be more FSP coming back. So I don't know that that trend has, has reversed yet. Is there anything else I missed?
Yeah. Well, look, let's take that and run with it. FSP, remind us where you are in terms of % of R&DS revenue as a mix.
It's, you know, we're probably two times as large or more in full service as we are in FSP, but FSP has been growing-
Okay.
- recently.
I would think FSP. Maybe I'm not asking the question correctly. I've historically thought of it as about 15% of your mix.
Yeah, more than you know, I don't have the percentage, but it's certainly more... and I'm also thinking about the overall mix of everything we have-
Yeah.
- in our business too.
Got you.
When you say... It's probably more than 15%. You know, the one thing that counters that trend is that you have the EBP growing at a faster rate than large pharma, and EBP, by definition, is more full service-oriented.
Yeah.
But large pharma has definitely been moving towards more FSP.
When you talk about the large pharma, where you've seen some pockets, is this 2, 3, 4, 5 of your top accounts having a maybe a disproportionate... You're noticing it more because it's bigger customers? Is it broad-based? I know you said it was more Asia-Pacific and maybe more China-specific, but any more fine detail on what you're seeing? Because, you know, frankly, what you're saying aligns with what some CROs are saying-
Well, I think-
It doesn't align with what some others are saying.
I think the Inflation Reduction Act and all of the, you know, the turmoil around that is causing large pharma customers to stop and look at their portfolio. We've seen certain of them start to shift and reprioritize, and certainly, they've been trying to get their arms around what it means. This first, the first ten drugs that were announced has given new information and has caused, you know, further inspection. So there, there's no question there's some of the, I say some cautiousness or maybe that's a wrong term. We definitely have some of our large pharma clients who right now are relooking at their portfolios, but it. Overall, we haven't really seen it affect the flow that we've had. Our business remains strong. It's more anecdotal.
You're going to say, "Okay, well, this client or that client has announced this or that, or we're having discussions with them." So it's been more anecdotal this, at this point than it has been showing up in the numbers per se.
So I don't want to put words in your mouth, but I would think, though, the days of blowout book-to-bills at the moment are probably behind us, but that you're not signaling book-to-bills dramatically different than where you've been.
No, no, I think our book-to-bill, at least so far as we can see, you know, that obviously you have various... You have the RFP flow, you have the pipeline before that, so you're, it gets more certain or uncertain the further out you get. But no, no, no change in what we see in the business.
Think you've taken share over the last few years?
Yes, I think so. Look, I think the large CROs in general have taken share from smaller CROs. I attribute that in part to the increased complexity of the trials, where it's harder to find patients, investigators. It's helpful to be more global in nature, and we've taken, we think, some share from everybody in the market, just based on... You got to look at share over a period of time. You can't look at it in any given quarter, but if you look at our bookings and our book-to-bill over the past several years, yes, I believe we have.
One of your competitors that we visited with last week made a comment that they think share capture should be measured by revenue growth, not book-to-bills. That ultimately, that's the ultimate arbiter of whether you're, if you're growing faster consistently than the industry, and I think you might have a bit of a presentation challenge because you have this massive COVID headwind.
Right.
We've had the volatility in pass-throughs. There obviously have been FX influences and different things. Maybe just highlight your underlying constant dollar organic service revenue growth in the CRO year to date, last year, just for perspective.
Well, look, we've been, we've been, now had, you know, this year, we've been disclosing ex-Covid growth rates that have been double digit in the R&DS business. I think you have to be a little bit... I, I, look, I can't agree con- disagree conceptually with what the, the peer is saying. Ultimately, it's revenue that matters, right? But you've got to be really careful with that because we've had certain customers that had a longer Covid tail than us, that probably are gonna be suffering from a decline in Covid revenue later than us. So if you isolate any given quarter or year or whatever, you can draw, draw the wrong conclusions.
Also, depending on what types of trials you take, too, I mean, granted, we tend to take longer burning, slower burning, more complex trials, and it shows up in our burn rate. On the other hand, there's a lot of staying power in our backlog, and we're gonna say, we're not gonna be as affected by short-term ups and downs in the industry. So over time, I think our revenue will bear out exactly what our bookings are bearing out, which is that we, we have taken some share.
Since you bring up the conversion, let's spend a second on that. We're given where you are today, right? Tons of backlog, lower conversion rate than what some of your peers report. Of course, what goes into the baking of these backlog and bookings metrics varies across every company in the space at some level. But you do have, on paper, the lowest burn rate in the sector of the public companies, which glass half full, means the least downside potential and maybe more upside potential over time. So where are you today, and what would be your longer-term goal for finding opportunities to potentially re-accelerate that backlog burn?
Well, look, we're always trying to do things to accelerate the pace of trials, because we like the revenue burn, and our customers want to get the trials done quicker for obvious reasons. You know, the patent clock is ticking. But when you are the leader in the most complex trials, that ends up weighing on your burn rate. So, yes, I think we will make improvements. If you're looking at any given trial, you will make improvements in burn rates because we are shortening the time to project startup, finding finding patients, and we're gonna shorten that front end of the trial. On the other hand, we're gonna see a continued movement, I think, towards more complex trials, so that works kind of in the opposite direction.
As you mentioned, there's a lot of staying power and momentum in having a big backlog. Even if upfront, you're burning a little bit slower over time, we're gonna get great revenues and, and great revenue growth out of that backlog for a longer period of time. I don't see that burn rate changing dramatically in the absence of something like COVID, another COVID scare or something where you get a huge bolus of, very quick-burning work.
Okay. Back to TAS for a minute. A couple of, just maybe more speed dating here on the questions, but when, when quizzed on the environment, the demand environment, what was leading to your reduction in TAS to the 6%-
Mm-hmm
... underlying growth rate from the 7-9 goal, the big focus was on analytics and consulting that maybe in normal times would be up mid-single digits, give or take, and now is down mid-single digits.
Mm-hmm.
So not a dramatic shift, but enough to pull you out of your range. The comments that followed were an acknowledgment that maybe at the margin you'd seen a little softer tech demand, a little softer RWE demand, real-world evidence-
Right
... real-world late phase. Not enough to be material or overly impactful this year, but I think it led to some questions from the street about, you know, is this the beginning of another round of potential cautionary comments as we go into next year? How long could you survive slightly slower bookings in those segments without having to actually lower your projected growth rate?
Look, I don't... Let me get back to the original concern was: Is this an indicator of another leg of slowdown next year? No, I don't think it is.
Okay.
I think we focused on analytics and consulting as being the area that's slowing us down, 'cause that had the biggest impact. But, I mean, I would say generally, purely discretionary spending, of which some of it is in RWE, some of it's in tech, across the commercial sector, saw some slowdown just because of clients pulling back on their spending generally. And I think Ari mentioned on the call that we did see some slowdown in real-world, particularly real-world late phase, and also a little bit in tech decision-making, but that's all kind of baked into the mix. We just provided a little bit more granularity and color around it. I wouldn't take that as an indicator that, okay, we had one leg, and here's another leg. We're just trying-
Not a trial-
... to provide some additional context.
Not a trial balloon of-
No.
Yeah. Okay. I wanna hit on data, and so maybe, I will lead you with my thought, and then you tell me where I'm wrong. As I've tried to triangulate your four segments, data information services-
Right
... analytics and consulting, Real-World Evidence, real-world late phase, and tech, right? The four buckets. And over time, I've tried to triangulate how big each one is, what, what percent of the total it might be. My internal conclusion is that maybe data's growing a little bit this year, maybe even a little bit more than normal. Is that way off base?
Data is growing this year, maybe a little bit more than normal, but not dramatically so. It's a pretty steady business in general. And, yeah, I mean, data, data's holding up well. Let's put it that way, but is it meaningfully moving the needle in growth rate? No.
No. Right, I wouldn't think so. Yeah. Is that pricing? Is it new services? I mean, you know, we hear some companies say, "Look, data's everywhere. Everybody's selling data. It's a complex world.
I-
I'm seeing growth, so I'm curious what this is.
There's a little bit of pricing, but I don't think it's an abnormal amount of pricing. You have to remember that our data costs are disconnected from labor costs. So, there's not the same dynamics there in the other part of the business where you're trying to price to offset big increases in labor costs. We do have new offerings. We're making really good progress in our global market measurement. You know, we had sold a lot of that to very large pharma clients, and now we're going back after the mid and smaller clients and selling to them. So there, you know, med tech, consumer health, things like that, areas that weren't as penetrated as before, we're seeing growth in that we didn't see before.
The underlying, you know, kind of life sciences, data business, national and subnational, is pretty much the same. It's a slow grower.
... Last couple on this. You have a unique competitor who likes to talk about you on stage a lot, and you tend to avoid the fray, but I'm gonna open the door a bit.
Mm-hmm.
So Veeva's talking a lot about your data business or their data business, next generation solutions, the cat's meow. They've got some great product coming. Everybody's gonna love it. What are you seeing? What are you seeing on the data competitive front, and are you worried about this competitor opening up some new modality or new data set that historically clients didn't have access to?
Look, you never want to be dismissive of competitors 'cause that's how you get in trouble. But we don't run into Veeva a whole lot. They have a very limited data offering. It's mainly in patient data. I think they have a small number of small clients. I think when you put it in context versus us, it's two different galaxies or universes, if you want. I mean, we've been at data since the 1950s, so we have over 70 years of experience. We have 150,000 different data suppliers. We have... I can't remember how many petabytes of data we have now, whether it's-
Sixty-five.
Yeah. Well, I can't keep up with it. We have 1.2 billion plus anonymized patient lives that are all linked together, non-identified patient lives that are all linked together over time. There's a lot of expertise that go into data. It's not just going out and buying it and putting it in a flat file. You really need to know how to code, bridge, cleanse it, link it together so you can get longitudinal records. It's a different world, so, you know, fine, we welcome the competition, but honestly, we have two-
Do they come up in RFP mentions? Do clients use them as a reason not to buy or to change-
No
... pricing?
No, not at all. Where we run into data competitors is in selected markets, and it'd be somebody like Symphony in the U.S. or, you know, we have various, Insight Health in Europe or whatever. We have various market-by-market competitors, nobody on a global level, and Veeva, honestly, I mean, there might be very s- narrow slices of the market where they come up. But do they come up in management meetings relating to data? No, not at all.
Yeah. In tech, which frankly, it bothers me to even say tech, right? This is hundreds of products. You have all kinds of suites. You span regulatory and CRO, clinical trial tech and commercial tech, and the list goes on and on. You do a lot of things. So to talk about tech broadly is, I think, a disservice, but, one area that gets a lot of attention is OCE-
Mm-hmm
... and the CRM marketplace, and I think more broadly, maybe the clinical trial management software space as well. We've seen Oracle, Medidata, Veeva. We've seen a lot of competitors shift their platform, their software partners, take things away from people, open up new suites, promise new suites. To what extent is that causing disruption in the marketplace in terms of clients saying, "Whoa, there's too much going on. The market's tough enough anyway. I'm just gonna step back for a while and see what's happening"?
Well, I think there's some of that, and in particular, let's look at the CRM space and OCE, with Veeva announcing that they were gonna go off the Salesforce platform-
Yeah
... onto their own Vault platform. And that's gonna cause clients to have to switch over, and actually, we see it as being a net benefit because, look, we've been very good in head-to-head competitions against Veeva in the CRM space, but it's been for smaller clients because they had pretty much locked up the market for large clients. And it's very tough, even with a very good product like OCE, to convince a large pharma customer to switch thousands of their reps to a new CRM platform. Now, we're gonna have the opportunity because they have no option but to switch now. Because Veeva has announced that they're changing their platform, so they're gonna have to switch.
And we've noticed that a lot of customers are unhappy about this, and it's generated more interest in OCE, and unsurprisingly, because now there's a fork in the road. They can't continue straight anymore.
All right, last minute and a half, I'm gonna put the pressure on with some speed questions. Cash flow, are you gonna hit your targets?
Well, we've typically said we target 80%-90% of net income in any given year, but we don't put out targets for a year. Sometimes it's 120, and sometimes it's 70. So I'm going to avoid changing our specific practice of not giving annual guidance.
Where I'm gonna try to get to with all of this is interest expense, optically and fundamentally—I mean, actually, has been a tremendous headwind-
Yes
... to earnings growth. I mean, your earnings growth is off the chart if I take out interest expense. I add in 80% year-over-year growth, it's not so great. When do we annualize the increases in interest expense, and what are you gonna do to bring that number down in 2024?
Well, look, we've had 10 points, at least, of drag to our EPS-
Yeah
... because of interest expense this year. That's not gonna recur next year. Will interest expense come down next year? In the absence of a big decline in rates, probably not, because the math just doesn't work. I mean, we could use every dollar of free cash flow we have to retire debt, and it would make a small dent in interest expense. But the good news is that it's not gonna be a drag on our earnings growth going forward. We're also not gonna have, hopefully, fingers crossed, another tax issue like we had in the U.K., which put a much smaller drag on our earnings growth. So we think the below the. And the growth also in DNA should slow down into next year.
So we think the below-the-line items aren't gonna be the drag next year that they were this year, not nearly the drag they were.
The removal of this year's-
Yes
... headwind. It's not necessarily a tailwind, but-
Right. It's not, not necessarily a tailwind. Okay, we'll see what happens with rates, but
Yeah
... that, it's, it's a one-time event. And going forward, we feel that that drag is behind us.
Okay, we're at time. I'm gonna make a quick introduction of the next four presenters, and then I'm gonna ask everyone to thank Ron. First, Tandem Diabetes in this room, Pliant Therapeutics, Carisma Therapeutics, and I will be with Inotiv in session four coming up in a few minutes. Okay.
Great. Thank you.
Ron, thank you so much.