The Long Case for ICON Clinical Public Limited

| About: Icon PLC (ICLR)

ICON Clinical Public Limited Company (NASDAQ:ICLR), a contract research organization, provides clinical research and development services to the pharmaceutical, biotechnology, and medical device industries worldwide. Its clinical research services include clinical pharmacology, bioanalysis, pharmacokinetic and pharmacodynamic analysis, study protocol preparation, case report form preparation, clinical trial approvals, investigator recruitment, study monitoring and data collection, patient safety monitoring, clinical data management, biostatistical services, medical reporting, central laboratory services, regulatory consultancy, and drug development services.

In addition, the company offers interactive voice response systems that are used in clinical studies primarily for study site administration, enrolling and randomizing patients, management of clinical supplies, and collection of patient diaries; and engages in clinical research for the development of drugs, vaccines, and devices for the animal health industry. Further, ICON provides digital imaging services, which focus on centralized management, processing, and reading of digitized medical images generated in clinical trials, including X-ray, MRI, CT, PET, Nuclear Medicine, and Ultrasound. As of December 31, 2005, the company operated in 41 locations in 27 countries.


Dr. John Climax, one of ICON`s co-founders, has served as a Director and Chief Executive Officer of ICON and its subsidiaries since June 1990. In November 2002, he was appointed Executive Chairman. He has over 25 years of experience in the contract research industry globally. John received his primary degree in pharmacy in 1977 from the University of Singapore, his masters in applied pharmacology in 1979 from the University of Wales and his PhD in clinical pharmacology from the National University of Ireland in 1982. He has authored a significant number of papers and presentations.

Peter Gray is the Chief Executive and a Director of ICON. He has been with the company since 1997, initially as CFO and later as COO. He became CEO in 2002. Peter has over 12 years experience in the pharmaceutical services industry and has also worked in the engineering and food sectors. Peter qualified in Law from Trinity College Dublin in 1977 and with KPMG became a chartered accountant in 1980.

Ciaran Murry joined ICON on October 3, 2005, to succeed Sean Leech as CFO. Mr. Murray was previously CFO of Codec Systems Limited, an IT company headquartered in Ireland. He has also held Senior Financial positions with Novell Inc. and Kraft Foods and has worked in Ireland, Italy the UK and the US during his career. Ciaran graduated with a Bachelor of Commerce from University College Dublin and qualified as a Chartered Accountant with Pricewaterhouse Coopers in 1988.

As you can see management receives very reasonable compensation for their services.

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Third Quarter 2006 Results

Net revenues for the quarter ending September 30, 2006 were $120.7 million, representing a 40% increase over net revenues of $85.9 million for the comparative quarter last year. Income from operations, on a US GAAP basis, was $12.6 million and net income was $10.1 million or 35 cents per share, on a diluted basis. Adjusting for $1.0 million in relation to the expensing of stock compensation in accordance with options expensing regulations, income from operations was $13.6 million, compared to $8.4 million last year and net income was $11.1 million or a diluted 38 cents per share, compared with $6.4 million or 23 cents per share last year. Adjusted operating margin was 11.3%, compared with 9.7% for last year.

Year to date, net revenues were $326.6 million, a 28% increase over the comparative period last year. Income from operations was $34.0 million and net income was $26.9 million or 94 cents per share, on a diluted basis. Adjusting these figures to exclude $3.0 million in relation to the expensing of stock compensation in the current year and the one-time charge of $11.3 million, relating primarily to the impairment of goodwill in the prior year, income from operations for the period ended September 30, 2006 was $37.0 million, an increase of 70% from $21.8 million last year and operating margin was 11.3%, compared with 8.5% for last year. Adjusted net income was $29.9 million or a diluted 103 cents share, compared with $17.4 million, or 61 cents per share last year.

Days sales outstanding, comprising accounts receivable and unbilled revenue less payments on account, were 57 days at September 30, 2006, a decrease from 65 days at December 31, 2005.

For the quarter ending September 30, 2006, cash in-flows from operating activities were $2.6 million, $6.5 million was invested in acquisitions and capital expenditures were $8.4 million, of which $2.3 million related to the extension of their Dublin facility. Year-to-date, cash in-flows from operating activities were $33.0 million and capital expenditure was $19.3 million. As a result, the company's cash and short-term investments, net of debt, was $90.7 million at September 30, 2006, compared to $101.0 million at June 30, 2006 and $77.5 million at December 31, 2005.

Revenues seem to be accelerating as they increased 45% in the 3rd quarter when compared to the nine month growth of 28.2%. Profits are continuing to expand a very rapid rate.

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Long Term

For 2007 the company gave the following guidance:

  • 2006 Revenue raised to $448 – $452 million
  • 2006 EPS raised to $1.28 - $1.30
  • Revenue forecast to grow 20% in 2007, compared to 2006
  • 2

  • 007 EPS forecast to grow 29%, compared to 2006
  • The company has six year net revenue Compound Annual Growth Rate [CAGR] of 33.1%.


    R&D spending by pharmaceutical, drug and biotech companies is growing at 6 – 8 % per year. These same companies are outsourcing their drug testing so their can change their costs from fixed to variable, achieve faster results, improve quality and lower costs. This outsourcing market is growing at 15% per year. Also, the recent failures in phase III trials is encouraging the pharmaceutical companies to look for better ways to manage the trials and lower costs.

    Icon is building expertise in key therapeutic areas such as oncology, where its back log is 21%. They also are creating a specialized Phase IV Safety Division to handle the growing post marketing safety issues that are rising, representing another high growth opportunity. The company is expanding in India and Japan. In the last two years RFO volume has grown 21% and value of contracts as grown 59%.


    The company has global coverage – 49 locations in 30 countries giving it the ability to serve many companies as well as the global drug firms.

    Also, net revenue growth compares favorably to Icon peers, another sign of good performance and an indication it has created sufficient barriers to entry..

    icon net revenue growth vs peers

    When looking at net income across the world, the company is experiencing excellent growth within the U.S. and Ireland. The growth in the U.S. stems from its investments in the country and its position with the drug and biotech companies.

    geographic area

    The turn around in the Central Laboratory is helping to drive Net Income while the larger clinical research continues to be a key driver of performance.

    business segment


    This is a growth stock with a 30 PE. Should revenue growth slow down, the company’s stock is likely to experience a pull back in the stock. Keep in mind ICLR is not widely held, so it can also be subject to price fluctuation on any bad news.

    The Bottom Line

    Fundamentally, ICLR is a growing firm with good prospects to continue its growth. As a specialized player in the healthcare sector, the company should benefit from the continued spending that is taking place. The turn around of the Central Laboratory segment is helping the company generate revenue growth. Clinical research should continue to grow with the demand for their services

    This is a growth stock so expect to see it move on news and with the market (the Beta is 1.47) both up and down.

    This is a good buy for aggressive investors. Look to buy near support levels and on breaks of resistance with strong volume. Be sure to use stops to protect from unexpected moves down.

    Disclosure: Author has no position in ICON.