As we reflect on takeaways from Q1 earnings, we feel better about near-term COVID-19 disruption given lower-than-feared decremental margins expected in 2020 and a relatively successful shift to site monitoring alternatives. With that good news behind us, we believe it is important to acknowledge that the path towards normalized clinical trial site access and patient recruiting remains highly uncertain and potentially vulnerable to second wave COVID-19 outbreaks – we are officially in “wait and see” mode. Our 2020 estimates across the group move significantly higher on better margins, but our 2021 estimates are generally unchanged. As discussed below, we are downgrading MEDP to Peer Perform from Outperform as stock performance feels increasingly disconnected from the company’s exposure to smaller and less financially robust biopharma customers relative to peers. Our top picks in the group remain CRL and IQV.
Search Coverage List, Models & Reports
Search Results1-10 out of 29
This morning SYNH reported 1Q20 adjusted EPS of $0.68 vs. Wolfe/Consensus EPS of $0.69/$0.64. Clinical results were better than expected on both top and bottom line, with Commercial worse on both. Quarterly net book-to-bill was strong in Clinical for the 2nd straight quarter. Recall that SYNH withdrew 2020 guidance on 4/7/20 due to business disruption from COVID-19 but noted aggregate Q1 performance was expected to be in-line with prior guidance. Interestingly, SYNH believes its cost management strategies will allow it to maintain a 13-14% EBITDA margin in 2020 vs. initial guidance of 14.2%. Our estimates assume ~10% with consensus at ~12.5%.
According to a report from Medidata Solutions, new patient enrollment in clinical trials decreased 75% y/y during the first half of April, above the 65% decrease seen in March. Given the progression of COVID-19 in Western Europe and North America during March, we don’t see the April increase as much of a surprise. Encouragingly, the decrease for China was 39% y/y during the first half of April, a material improvement from the 68% decline seen in March. New patient enrollment in oncology trials decreased 51% y/y so far in April, up only slightly from the 48% decrease in March and well below the overall new patient enrollment decrease.
Modeling the impact of COVID-19 on the CRO group is quite challenging. For ongoing clinical trials, some work streams continue (and thus generate revenue given % completion revenue recognition) while others are on hold given extremely limited access to trial sites. With each passing month, revenue becomes more dependent on new clinical trials that for now are mostly not launching – and thus generating little to no revenue for CROs. Importantly, while the near-term impact on revenue and profitability will be significant, there have been no indications that a meaningful amount of this work / revenue has been lost. We built a revenue model that allows the user to make a series of assumptions for existing clinical trials and new clinical trials starts to arrive at the estimated revenue impact by month, quarter, and year.
Given the highly uncertain outlook for earnings and cash flow this year as a result of COVID-19, we wanted to assess each company’s comfort level vs. financial covenants where applicable and benchmark liquidity vs. recent cash flows. In short, liquidity is 2-3x annual cash flow and the CROs average a ~45% EBITDA buffer vs. covenants.
Yesterday a trial date was set for the opioid multidistrict litigation (MDL) Track 2 bellwether case in West Virginia following a status conference. Recall that the Track 2 bellwether case consists of Huntington, WV and Cabell County’s cases against ABC, CAH, and MCK. The trial is scheduled to begin on 8/31. Both the plaintiffs and defendants will have 6 weeks to present their cases, and inclusive of breaks in the schedule the case would run through the week of 12/14. Plaintiffs wanted the trial to start almost immediately, the and defendants had argued that a trial before the summer of 2021 “would be rushed”.
CROs have underperformed both the S&P 500 and XLV this week as fears of a coronavirus contagion have grown. We are quite obviously not epidemiologists and are making no predictions about when the coronavirus outbreak will be contained and impacted companies and industries can resume normal operations. Instead what we thought what would be helpful is to consolidate everything the CROs said on coronavirus during Q4 earnings calls and to summarize / compare guidance assumptions across the companies. We also note the time elapsed since these comments were made, with all but MEDP coming before the escalation of concern over the weekend.
Last week (2/20/20) SYNH reported Q4 results that were slightly above expectations, with strong bookings in both businesses. The company reaffirmed 2020 revenue, EBITDA, and EPS guidance introduced at the JPM Healthcare Conference last month. The company discussed improving momentum with large pharma post the company’s preferred provider relationship wins and expectations that SMID business would remain strong. Our EPS estimates increase by 1-2%, and we are increasing our year-end 2020 target price to $75 from $62 (details below) based on improving clinical bookings trend and expectations that bookings volatility will lessen going forward given increased contribution from preferred provider relationships. We maintain our Peer Perform rating.
This morning (02/20/20) SYNH reported 4Q19 adjusted EPS of $1.03, slightly above Wolfe/Consensus EPS of $1.02/$1.01. Revenue was above implied Q4 guidance, with Clinical upside partially offset by lower than expected Commercial revenue. EBITDA was in line with our est, with the EPS upside driven by below the line items. Quarterly bookings were strong in both businesses. SYNH’s 2020 guidance was reaffirmed.
Immediately ahead of a conference presentation this morning (01/15/20) at 11AM EST / 8AM PST, SYNH posted slides that included the company’s 2020 financial guidance. Overall the guidance looks pretty solid – revenue growth slightly above estimates, with EBITDA & EPS in-line to slightly better. The company also reiterated 2019 financial guidance. Clearly, the outlook is being received well – SYNH is outperforming the CRO group by 4-5% since the slides were posted.
- 1 of 3
- next →