ICON Plc (ICLR) Ciaran Murray on Q4 2015 Results - Earnings Call Transcript

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ICON Plc (NASDAQ:ICLR)

Q4 2015 Earnings Call

February 23, 2016 9:00 am ET

Executives

Simon Christopher Holmes - EVP Investor Relations and Corporate Development

Brendan Brennan - Chief Financial Officer

Ciaran Murray - Chief Executive Officer & Executive Director

Dr. Steve A. Cutler - Chief Operating Officer

Analysts

Steven J. Valiquette - UBS Securities LLC

David Howard Windley - Jefferies LLC

Eric W. Coldwell - Robert W. Baird & Co., Inc. (Broker)

John C. Kreger - William Blair & Co. LLC

Tim C. Evans - Wells Fargo Securities LLC

Robert Patrick Jones - Goldman Sachs & Co.

Tejas R. Savant - JPMorgan Securities LLC

Gregory T. Bolan - Avondale Partners LLC

Michael J. Baker - Raymond James & Associates, Inc.

Operator

Good day, ladies and gentlemen, and welcome to the ICON Quarter Four and Full Year 2015 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Simon Holmes. Please go ahead, sir.

Simon Christopher Holmes - EVP Investor Relations and Corporate Development

Thank you, Alex. Good day, ladies and gentlemen. Thank you for joining us on this call covering the quarter and full year ended December 31, 2015. Also on the call today we have our CEO, Mr. Ciaran Murray; our CFO, Mr. Brendan Brennan; and our COO, Dr. Steve Cutler. I would like to note that this call is webcast, and there are slides available to download on our website to accompany today's call.

Certain statements in today's call will be forward-looking statements. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, and listeners are cautioned that forward-looking statements are not guarantees of future performance. The company's filings with the Securities and Exchange Commission discuss the risks and uncertainties associated with the company's business.

This presentation includes selected non-GAAP financial measures. For a presentation of the most directly comparable GAAP financial measures, please refer to the press release statement headed Consolidated Income Statements (Unaudited) (U.S. GAAP). While non-GAAP financial measures are not superior to or a substitute for the comparable GAAP measures, we believe certain non-GAAP information is more useful to investors for historical comparison purposes.

We will be limiting the call today to one hour. I would therefore ask participants to keep their questions to one each with an opportunity to ask one related follow-up question.

I would now like to hand over the call to our CFO, Mr. Brendan Brennan.

Brendan Brennan - Chief Financial Officer

Thank you, Simon. Net revenues in quarter four of 2015 were $403 million. This represents year-on-year growth of 3.4% or 8% on a constant currency basis. On a constant dollar organic basis, year-on-year revenue growth was 3.7%. For the full year 2015, net revenues grew by 4.8% to $1,575,000,000. This represented 10% constant currency growth and 5.1% constant dollar organic growth year-on-year.

For the full year 2015, our top customer represented 31% of revenue, the same as last year. Our top five customers represented 49% of revenue compared to 53% last year. Our top 10 represented 63% compared to 64% last year. Our top 25 customers represented 78% compared to 79% last year. We added around 240 new staff in the quarter, which meant we ended the year with approximately 11,900 staff.

The gross margin expansion that we've consistently driven over the past number of years continued in quarter four. Group gross margin for the quarter was 43.1%, which compares to 42.6% in quarter three and 41.1% in the comparable quarter last year. For the full year 2015, group gross margin was 42.3%, up 240 bps from the 39.9% achieved in the full year 2014.

We continue to manage our cost base efficiency. And as a result, SG&A as reported was 20.7% of revenue in quarter four. This compares to 20.9% last quarter and 21.9% in the comparable period last year. For the full year 2015, SG&A was 20.7% of revenue, 170 bps reduction from the 22.4% reported for the full year 2014.

Operating income for the quarter was $75.3 million, an operating margin of 18.7%. This compared to 18.1% last quarter and 15.5% in the comparable quarter last year. For the full year 2015, operating margin was 17.9% compared to 14% for the full year 2014.

The net interest expense for the quarter was $2 million and the effective tax rate was 13.5% for the quarter and 14% for the full year. Net income for the quarter was $63.4 million, a margin of 15.7%, equating to diluted earnings per share of $1.11. This compares to earnings per share of $1.02 in quarter three and $0.87 in the comparable quarter last year, an increase of 28%.

For the full year, net income was $239.5 million, a margin of 15.2%, equating to pro forma earnings per share of $3.98. This represents an increase of 38.7% when compared to the $2.87 reported for the full year 2014.

DSOs in the quarter were 41 days, which compared to 46 days in quarter three and 40 days in the comparable quarter last year. Cash generated from operating activities during the quarter was $116.1 million and $279.5 million for the full year. Capital expenditure for the quarter was $13.5 million and $49.7 million for the full year. During the quarter, we spent $171 million on share repurchases, and this brought the value of total shares repurchased during 2015 to $459 million.

In addition, $166 million was spent on acquisitions during 2015. As a result, at December 31, 2015, the company had net debt of $160 million compared to net debt of $33 million at September 30, 2015 and net cash of $216 million at the end of December 2014.

With all of that said, I'd now like to hand over to Ciaran.

Ciaran Murray - Chief Executive Officer & Executive Director

Okay. Thank you, Brendan. 2015 was another year of progress for ICON. We booked $1.9 billion of new business, grew our backlog by 9% to $3.9 billion and increased revenue on a constant currency basis by 10% to $1.575 billion. By continuing to focus on operational excellence, we expanded our margins and increased our EPS by 39% to $3.98. All of this has created significant value for our shareholders.

Looking at the overall market for our CRO services, the key growth drivers remain in place. Pharma R&D spending continues to increase at an estimated 2% to 3% per annum, while outsourcing penetration effected a further increase as our customers look to improve the productivity and efficiency of their drug development programs. Market share continues to shift towards larger CROs that have the global footprint, breadth of services and patient access necessary to run increasingly more complex global studies. ICON is well positioned to capitalize on this growth, given our breadth of capabilities, scientific and therapeutic expertise and global scale, operating as we do across 37 countries from 90 locations.

We're also successfully evolving our strategy to address key market trends. Our CRO and sponsor relationships broadened and deepened. ICON is leading the market in deploying innovative partnership models. We continue to invest in our differentiated ICONIK, ADDPLAN and Firecrest technology platforms.

Through ICONIK, our project teams are analyzing operational and clinical study data and using this data to deliver innovative risk-based monitoring solutions. Our ADDPLAN software enables us to design, simulate and analyze adaptive trials, an area which is gaining market traction and where ICON is the market leader. Attracting and engaging sites and patients remains a significant industry challenge, and Firecrest is improving our engagement with both of these groups. The acquisition of PMG further enhances our ability to rapidly and cost effectively recruit sites and patients into clinical research programs.

All of our technology solutions enhance the quality of our trials, improve our customers' return on investment in R&D and are helping us to win new business. To further differentiate our services and enhance the development process, we are combining our long-established clinical expertise and advanced analytical capabilities with some unique data assets.

During 2015, we announced a partnership with IBM Watson to leverage its cognitive computing power to help identify patients for inclusion in selected oncology trials. Our recently announced partnership with Genomics England demonstrates our commitment to partnering with industry and government to gain insights and data to improve the development of targeted medicines tackling complex diseases.

During 2015, we have continued our strategy of targeted M&A that enhances our capabilities. The acquisition of MediMedia Pharma Solutions brought a scientific and medical communications capability that, combined with the existing expertise of our commercialization and outcomes group, is helping us to build a leading position in the growing late-phase market segment.

Towards the end of 2015, we acquired PMG Research through their U.S.-based research sites. PMG is improving patient access to trials facilitating faster patient recruitment times for our sponsors.

So, all of that being said, as we look forward to 2016, we believe we have a solid platform in which to build. The $1.9 billion of new business booked in 2015 has given us a healthy trailing 12 months net book-to-bill of 1.2, and our backlog now stands at $3.9 billion. As a result, we expect revenue for the full year 2016 to be in the range of $1.67 billion to $1.73 billion, which represents growth of between 6% to 9.8%. In addition, we expect earnings per share to grow between 15.6% and 20.6% to a range of $4.60 to $4.80.

Before moving to Q&A, I'd like to thank the entire ICON team. Its hard work and commitment have contributed to another successful year for ICON. Thank you, everyone, and we're now ready to take questions.

Question-and-Answer Session

Operator

Thank you. And we have an opening question from Steve Valiquette of UBS. Please go ahead. Your line is open.

Steven J. Valiquette - UBS Securities LLC

Hello. Thanks. Good morning, and good afternoon. Congrats on these strong results. I think, just for me, my question is within the SG&A in line. I think you mentioned that you added to the head count, but the raw SG&A dollars were still down year-over-year, which is obviously pretty positive. But just trying to get a little more color maybe on how much of that positive SG&A trend is just driven by the FX reporting impact versus actual cost reductions. And I guess the part two of the question would be just thinking about 2016, just categorically maybe any chance to get a little more color on where you can also still find cost reduction opportunities as well. Thanks.

Brendan Brennan - Chief Financial Officer

Hi, Steve. It's Brendan here. I might take the first part of that question about the SG&A. I did mention, of course, that we did add 240 new staff during the quarter. And of course, I included the acquisition of the staff from the PMG organization. So, as always and as has been the course of – starting the course of the last year, the vast majority of the staff that we've added to the organization have been above the line in the direct costs and the billable elements of the organization. So, we've had and kept a very tight hand on our head count in our support organization during the course of 2015, and I think that's really helped us in terms of leveraging that SG&A base.

As you can tell, yes, the dollar amount is down year-over-year. And while I will say that was probably – that was certainly helped by – on the face of it by FX, we have been very specifically focused with our support department heads to ensure that we are keeping and reducing costs. So, if I was going to break out that benefit year-over-year, I would say probably 60% or maybe even 70% was as a result of good cost-efficient management, and the remainder would be in relation to FX benefits. So, that covers that piece.

Ciaran, do you want to speak to the margin profile next year?

Ciaran Murray - Chief Executive Officer & Executive Director

I think it was SG&A cost reduction. Was that the question for next year?

Brendan Brennan - Chief Financial Officer

Yes.

Steven J. Valiquette - UBS Securities LLC

Just categorically, for 2016, just additional opportunity. Any more color on that would be great.

Ciaran Murray - Chief Executive Officer & Executive Director

Yeah. I mean, what we've done with the SG&A over the year has been very much an evolution, and we haven't done anything particularly radical. There's no rocket science here. The savings that we've seen accrued to us over the past four years to five years have been driven really by four things, Steve. And just as the company grows, we get some benefits of scale. We've deployed some good technology solutions when we started a few years ago.

In the early years, we rolled out a number of systems and built platforms that were very scalable and very efficient and increased productivity. We're very rigorous about our organization structure and the locations we have in the company. Our SG&A has pretty much dropped down to a limited number of locations around the world where the bulk of the work is done, therefore it's very efficient and very scalable. And the fourth thing that we've seen is just better management over the years in the investment we've made in our people who responded well and has paid dividend.

So, we're going to continue to do those things. And as we continue to do that and the company continues to grow, we will see further benefits accrue in our SG&A cost base. We will reduce it. But of course, we made significant step-change gains over the last few years. And we have seen over the last year or two that the rate of improvement has slowed down, but I still see us continuing to improve our SG&A cost base, albeit at a slower rate than in the past.

Steven J. Valiquette - UBS Securities LLC

Okay. All right. That's great color. Thanks.

Operator

We will take our next question from Dave Windley of Jefferies. Please go ahead. Your line is open.

David Howard Windley - Jefferies LLC

Hi. Good afternoon, gentlemen. Thanks for taking the questions. I was going to ask a two-parter as well. Wondering about 2016, what major renewals are anticipated with your customer relationships and what assumptions around those renewals you've included in guidance? And then, I think, mid-year 2015, Ciaran, you had kind of given us kind of a rough walk up on margin for 2016 from 18% to 19%. Wondering, in light of where you finished 2015, where your views are for operating margin goals for 2016. Thank you.

Ciaran Murray - Chief Executive Officer & Executive Director

Okay. Thanks, Dave. How are you?

David Howard Windley - Jefferies LLC

Fine.

Ciaran Murray - Chief Executive Officer & Executive Director

In 2016, I think the big renewal that we have coming up is the Pfizer account. That's due to renew at the end of May. We're in a good place with Pfizer. We continue to work on some of their biggest programs. We have the best part of $1 billion of backlog that we're working through and will continue to work through over the next number of years. And we have started the renewal discussions, and they're ongoing. They're going well. I think we're all in good place. So, we'd expect those discussions as they do to continue over the next couple of months and work towards renewing the MSA in May.

From the point of view of the assumptions that we have in 2016 around that, if you remember, most of our work from this point of year on is coming out of backlog. So, the backlog is there, and we have it burning at the rate that it burns and converting. So, there isn't a very significant level of assumptions of what new business wins, although we will expect to win new business with Pfizer going through the course of the year.

At this point of the year, it's pretty modest assumptions in that business wins continue on or about at the level we were at for the second half of last year. But in any case, most of what the revenue – most of where the revenue is going to come from this year will come out of backlog.

On the margin assumptions, yes, last year I had set the target of 18% to 19% for our kind of medium-term margin target. We got there a little bit quicker than expected, which has been the pattern over the last couple of years. I think, at this stage, I'm happy to say that we're going to continue to work on improving our margin performance in the future, but that – it's early in the year to be making any statements about next year. And given my poor forecasting record, I've always called it at too low and getting there too quickly. I should probably take some more time to consider it. But there'll be a number of moving pieces.

As we go through the year – and I've talked a little bit about the leverage we think we can continue to get in SG&A as the company grows and we leverage the platforms we have for efficiency. And then, as the business itself grows and gross margin, that becomes a function of decisions that we may choose to make in the future and what we want to do with growth, where we grow, the business mix that we have and the different margin profiles of different parts of the business.

So, for now, I'm kind of saying we have exited the year above 18%. I expect, if you look at our guidance, there's an implied 19% for the year in 2016, I'm happy with that. I can see the path to that for 2016, and I'll talk a little bit about 2017 when we get closer to it.

David Howard Windley - Jefferies LLC

Okay. Thank you very much.

Operator

We will take our next question from Eric Coldwell of Robert W. Baird. Please go ahead. Your line is open.

Eric W. Coldwell - Robert W. Baird & Co., Inc. (Broker)

Thanks. I might do two as well. So, on Pfizer, thanks for the comments on that. I guess, for me, the main one is, at the big investor event last month, it sounded like there really wasn't a formal RFP in the marketplace at that point. I'm curious if you can comment on that. Have they gone to market with an RFP now?

Ciaran Murray - Chief Executive Officer & Executive Director

We are negotiating with them on the basis of renewing the contract. I'm not aware of any RFP that's gone to the market to anyone else. The negotiations are ongoing with ourselves and I think Pfizer may have made their own comments on their call. So, that's all we can say. I believe your assumption is correct.

Eric W. Coldwell - Robert W. Baird & Co., Inc. (Broker)

Okay. Thank you. Thank you for that. My follow-up is also on Pfizer. And you talked about how you're not building in any substantial increase in bookings, kind of a steady pace with the second half of 2015. I'm curious if you can talk about the fourth quarter more specifically. I'm sorry if I missed it, but what was the bookings profile like when you consider the large account and then all others, if you could give us some color on the split between bookings, say, for all other accounts versus Pfizer?

Ciaran Murray - Chief Executive Officer & Executive Director

We do look at sort of our top accounts, not just Pfizer. But I'm happy to say that the trend that we saw through the first three quarters of the year continued in Q4. And our bookings outside our top couple of accounts was about $1.4 billion, $1.5 billion – probably closer to $1.5 billion, which was a strong performance.

So, we've seen that happen over the course of 2015, which gives us a good deal of confidence about as we go forward and look at them. We'll renew the – we believe we'll renew the accounts we have. We'll continue to work with the customers we have. But the new accounts that we've added last year are growing quickly. And they'll probably put us in a place where we would expect our top customer concentration to move to the mid-20%, somewhere around 25% for 2016. That requires the new accounts to kick in and to convert, which they will do. But of course, I think it's fair to say that the profile of the new business is interesting.

We're working much earlier with some of our new customers in the biotech and mid-sized pharma sector. So, we booked the business. And then, it doesn't convert quite as quickly as our traditional base because there's a little bit more work to do on the development of the protocol and to get approvals. And even before we get to site startup, that whole startup process of ethics boards and finalizing the work.

So, it's very good work, and we're winning strongly in that sector. I think it'll drive growth in the future. But we did see in quarter four it was converting a little bit more slowly than our other work and it's just taking – it's going to take a bit of a while just to get used to the fact that it is the new conversion rate for us. It was 10.6%, and I think that's a very fair rate somewhere in the mid-10%. That reflects the nature of the work now that we have in the backlog.

Eric W. Coldwell - Robert W. Baird & Co., Inc. (Broker)

Okay. That's great. Congrats again on a really strong margin performance. Nice to see that momentum continuing. Thanks, again.

Ciaran Murray - Chief Executive Officer & Executive Director

Thanks, Eric. Cheers.

Operator

We will take our next question from John Kreger of William Blair. Please go ahead. Your line is open.

John C. Kreger - William Blair & Co. LLC

Hi. Thanks very much. Ciaran, did you see any change in demand trends or spending trends from your smaller clients that might be dependent upon capital markets for funding?

Ciaran Murray - Chief Executive Officer & Executive Director

I'm happy to say we didn't. We're now in the position of dealing with pretty well funded customers. We triage things very carefully. So, we haven't seen any impact either on the work that's gone into our backlog. It's well funded and it's continuing the pace. We haven't seen any significant change that I could point to in our pipeline of opportunities with the biotech companies. We kind of have a view that a lot of companies are well funded and have the funds going to development for the midterm. And that good companies tend to get funded one way or the other, and we're in a position where we think we're dealing with good companies with good prospects. So, the short answer is no, not as yet. We haven't seen any impact at all.

John C. Kreger - William Blair & Co. LLC

Great, great. And then, one other one, you mentioned a couple minutes of ago, I think, three different technology platforms that you're starting to use more, the ADDPLAN, Firecrest and ICONIK. If you think about your recent trial starts, are those being used broadly? Are we still fairly early in the adoption of those types of tools?

Dr. Steve A. Cutler - Chief Operating Officer

John, it's Steve Cutler here to answer that one. I think it depends on the particular platform. Certainly, we're seeing a significant uptake in the patient-centric monitoring, so the ICONIK platform on which we base our patient-centric monitoring is certainly on the up and up. Firecrest, we use across a number of our customers and our portfolios, so that's also getting good traction.

The ADDPLAN is more on the adaptive trial. That's a little bit further back in the cycle as customers address and engage in a more adaptive approach. So, that one is a little bit further backward. The other areas we're seeing quite significant uptake and a move towards particularly the more cost-effective approaches to patient technology, our new customers are getting onboard with that.

John C. Kreger - William Blair & Co. LLC

Great. Thank you.

Operator

We will take our next question from Tim Evans of Wells Fargo Securities. Please go ahead. Your line is open.

Tim C. Evans - Wells Fargo Securities LLC

Thank you. Ciaran, in this quarter, I saw you do a pretty decent-sized acquisition and a pretty decent-sized share repurchase program. Can you comment on your priorities for capital allocation now that those two things are done? Should we be thinking more share repurchase or should we be thinking more tuck-ins?

Ciaran Murray - Chief Executive Officer & Executive Director

I think a bit of both, Tim, is probably the realistic answer. Our objective was always to deploy our capital in the best way to get shareholder return. It's about setting a balance between buyback opportunities when the market's right and then continuing to enhance the service offering with our traditional bolt-on or tuck-in acquisitions and drive top line growth and make sure we stay relevant for the future.

And I think, in the last couple of years, we've spent about $600 million in share repurchases between 2014 and 2015, and just say we've made a couple of chunky acquisitions. When I look forward, there are a couple of things that will guide what we do on this.

We have a pipeline with a number of interesting opportunities in it from the M&A point of view, again, around the same sort of scale that we usually do. That's somewhere between $50 million and $150 million, kind of, range of price. But again, you're never certain with M&A where it's going to end up. There are things you want to buy, and sometimes you can't get the valuation right.

And then, we have purchased all the stocks that we can purchase at the moment until our next AGM. We have certain legal constraints around the percentage of stock that we can purchase in the 12-month period between AGMs. Our AGM, as you know, is in July. So, when we announced the $400 million repurchase program last July, we expected that it would take longer than it did, and we actually got it finished probably a quarter earlier than we expected. So, at the minute we're becalmed share purchase. At our AGM in July, we will put forward the usual motion to shareholders to approve that we have the ability to repurchase, I think, up to 10% of our stock.

And then, when we look forward at our cash position and where we are on the M&A pipeline for next year, we will make a decision as to how to deploy the capital. I think it's fair to say we have had a policy over the last few years of then generally buying back whatever shares had been issued in options and in stock plans to make sure that it's not too dilutive. So, we'll be certainly be buying back that $50 million or $60 million of stock this year, and then we will make the decision on the balance based on shareholder value and market conditions and the M&A pipeline.

Tim C. Evans - Wells Fargo Securities LLC

Got you. That's helpful. And just a very quick follow-up for Brendan. Would you be willing to tell us what tax rate and 2016 average share count assumption you're using in your guidance?

Brendan Brennan - Chief Financial Officer

For the tax rate, what we're modeling in the forecast and indeed in the guidance is at 14% of an effective rate in the P&L account. And then, on the second part of your question, which is the number of shares in issue, I think it's about 57 million in the quarter. It's probably around that number you should be using.

Tim C. Evans - Wells Fargo Securities LLC

Thank you.

Operator

We will take our next question from the line of Ross Muken of Evercore ISI. Please go ahead. Your line is open.

Unknown Speaker

Hey, guys. It's Luke in for Ross today. I was just looking at getting your overall view on the next wave of pharma consolidation and whether you think it would be a net positive for the overall industry, I guess – and how this wave of consolidation will be different than in the past.

Ciaran Murray - Chief Executive Officer & Executive Director

I'm not really sure. When you say about the next wave, do you have something specific in mind or just generally...

Unknown Speaker

I mean, with the Pfizer-Allergan deal, and if there's more to follow following this deal.

Ciaran Murray - Chief Executive Officer & Executive Director

The Pfizer-Allergan deal, I think, will follow the same pattern that we generally see in CROs from the past, and it's a good thing. Consolidation leads to change. Change generally leads to more outsourcing. And so, we're happy with that. And Pfizer is a good customer of ours, so we'd expect at some point to see access to a larger budget.

But usually, it takes a little bit of time for those things to settle down, organization stuff to integrate. We can also see a little bit of short-term disruption on certain decisions when new products are delayed until everyone gets their ducks in a row. But our experience in the past is pretty benign. Ongoing work goes on and is rarely touched and keeps chugging away.

And in the medium term or beyond the short term, more outsourcing and more funds become available. So, it generally drives demand for us. Beyond that, deal in the market is probably not an outside – was appropriate for me to comment on at this point.

Unknown Speaker

Okay. Thanks.

Operator

We will take our next question from Donald Hooker of KeyBanc. Please go ahead. Your line is open. Donald Hooker, please go ahead. Your line is open.

Unknown Speaker

Sorry, guys. This is Jack in for Don. Question about the revenue guidance. What is the, I guess, implied impact for ForEx as well as the contribution from the PMG acquisition for 2016?

Brendan Brennan - Chief Financial Officer

Yeah. It's Brendan here again, Jack. The – for ForEx, we're assuming a fairly constant currency state from where we were. We had an average rate of $1.11 during 2015, so the implied constant currency of $1.11 for the guidance as well. For the PMG acquisition, we said at the time of acquisition that was a deal that was annually circa $25 million. So, that's pretty much what we have in there for 2016.

Unknown Speaker

Got you. Thanks. And if I can sneak a follow-up in here. The bookings in the last quarter, was there any kind of noticeable shift or any trend in programmatic versus functional outsourcing?

Ciaran Murray - Chief Executive Officer & Executive Director

Jack, maybe I'll take that one. We're certainly seeing plenty of interest in the functional outsourcing market, and we had a couple of strong wins in that area. I think it's early to call a trend in it. We're seeing strong interest in that area or across the board FSP. So, we feel we're well positioned with our DOCS group to be able to benefit from that and to take good notice of that trend. But I think it's an, call it a significant trend in the marketplace. I think the programmatic outsourcing remains very much a key part of our agenda and our backlog, and we feel we're well placed in those areas.

Unknown Speaker

Got it. Thanks, guys.

Operator

We will take our next question from Robert Jones of Goldman Sachs. Please go ahead. Your line is open.

Robert Patrick Jones - Goldman Sachs & Co.

Hey, guys. This is Bob in for himself. Ciaran, I wanted to go back to some of the comments that you had made around conversion. And I think, if you look at the guidance, it does seem like it is implying that the type of conversion rate we saw in the back half of 2015 is similar to what you guys are expecting in 2016.

And I guess the question for us is can you maybe talk a little bit more about how much of this is really the new normal? It sounds like some of it you are kind of positioning as this is the way backlog will convert, versus more situational dynamics that might be at play relative to some of the types of wins and types of customers that you might be adding to bookings recently. Just trying to get a little bit of a better understanding about new norm versus could this number reaccelerate back to historical levels in the future.

Ciaran Murray - Chief Executive Officer & Executive Director

My expectation, Rob, is that it's sort of the new norm. But that being said, there is a transitional kind of impact on our numbers in that we had a very good year over a very good last five quarters, I would say, in adding new accounts, new customers. So, you've kind of got the new norm of work – a lot of those accounts, I suppose, were biotech customers and mid-sized pharma and specialty pharma and some interesting models that we're working on. So, I think it's kind of the new norm is probably the short answer in that we're working much earlier in the process with that particular constituency of customers, and we'll continue to win business, I believe, in those segments. But it will still follow that pattern.

If you change the mix in your business and you are winning more heavily in certain large pharma accounts and the mix changed, you might see conversion accelerate because the larger customers tend to be closer to the go point of getting the trials started up by the time you get into backlog. But it would require a fair change in mix. So, I would sort of not expect conversion to increase certainly in the medium term in the foreseeable period.

But I mean – but that doesn't worry me. To be honest, I mean, the focus on conversion – I think, if you think about conversion it's fine if it goes fast or slow as long as you're able to forecast it, as long as you're able to resource it appropriately and that's – the problem if conversion is slow is if you don't forecast the slow and your resources are online too early, then you're paying a little bit in cost. But we've got relatively good forecasting substantially when we need the resources for the conversion.

So, convert's a bit slower just means it lasts a bit longer. And so, that's not a bad thing in terms of long-term visibility. So, we're pretty sanguine about it, but we are calling conversion at that sort of – I think it was 10.6% in Q4. It wouldn't surprise me if some quarter you'd see a 10.4% or something like that or something takes a while to go, but they'll be in that mid 10-point-something for the next, I'd say, four quarters or eight quarters anyway.

Robert Patrick Jones - Goldman Sachs & Co.

Great, great. That's helpful. Thank you.

Operator

We will take our next question from Tycho Peterson of JPMorgan. Please go ahead. Your line is open.

Tejas R. Savant - JPMorgan Securities LLC

Hey, guys. This is Tejas on for Tycho. So, Ciaran, can you comment a little bit on the recent commentary on the campaign trail given the election season here in the States? I mean, have you heard anything from your clients around just incremental caution on R&D spending going forward given the possibility of price cuts?

Ciaran Murray - Chief Executive Officer & Executive Director

No, we haven't heard anything at all in any discussions with our clients in relation to what's been happening in the campaign. I think everybody watches election campaigns with interest, but it's important not to overreact, particularly in the early stages where you get a lot of rhetoric. So, no, nothing concrete, nothing related to that that merits any comment.

Tejas R. Savant - JPMorgan Securities LLC

Got it. And then any comments on your exposure to the pound in light of the recent volatility and how that might impact you?

Ciaran Murray - Chief Executive Officer & Executive Director

We have no substantial exposure to the British pound, I'm happy to say.

Tejas R. Savant - JPMorgan Securities LLC

Got it. Okay. And then one final one on the Genomics England announcement. Can you help us think through how exactly the revenue kind of like flows through to you guys over what timeframe? And are you actively seeking to use the Genomics England project as a template and be involved in other population sequencing efforts in Europe and eventually even beyond?

Dr. Steve A. Cutler - Chief Operating Officer

Yeah. It's Steve Cutler here. I'll take that one. Certainly, from a revenue point of view, it's not material for us. It's a relatively small contract. What's more interesting, too, is the strategic element of the contract and the opportunity to be involved in something as innovative as that. And so, yes, we are looking to establish ourselves in that area to develop our expertise in that area and to use it in other areas. There are these sorts of initiatives, and it's not just Genomics England.

The ICHOM initiative is – you'll be aware of as well, too, I mentioned IBM Watson and some of the things we're doing there. We're looking at a number of areas to evolve ourselves to gain experience, to develop our approaches and then to apply those in probably larger areas, larger contract-related areas in the more medium to longer term. So, it's our R&D effort in some ways in that area we're looking to sort of gain experience.

Tejas R. Savant - JPMorgan Securities LLC

Got it. Thank you.

Operator

We will take our next question from Greg Bolan of Avondale Partners. Please go ahead. Your line is open.

Gregory T. Bolan - Avondale Partners LLC

Thanks, guys, for taking the question. I also wanted to reiterate my congrats on the strong margin performance this quarter. So, Ciaran, I guess there's a couple of schools of thoughts out there as it relates to biotech funding. And one is, hey, very well funded sponsors here, probably will be a source of bookings for the next year or two even if – as things obviously equals just the same things, just kind of continue to be turned off a little while.

I guess the other school of thought as well, the strong bookings or strong funding over the last, say, three years is to some degree or to a large degree has found its way into the zero backlogs and the question is this, where will the incremental RFP activity come from if funding kind of stays at or near zero for the non-revenue generating biotech? And so, I guess I – it sounds like you guys are kind of going – kind of feeling, I guess – or gravitating towards the former school of thought. I just wanted to see if there's – would you give any type of credence to the latter camp or is it just at this point everything seems to be steady as she goes and you guys aren't concerned really at all?

Ciaran Murray - Chief Executive Officer & Executive Director

Hi, Greg. How are you?

Gregory T. Bolan - Avondale Partners LLC

Hi.

Ciaran Murray - Chief Executive Officer & Executive Director

It's an option to be complacent and dismiss any other point of view. So, the way we would look at it is – you're correct. We're tending towards the former there. We see well-funded sponsors with money that will flow to development over the next number of years, three, four, five already in the backlog. We still see a lot of potential sponsors in the pipeline who have been funded that are only at the point now where their RFPs are cranking up. So, it will take some time over the next year for some of those projects to come into business wins. So, that's incremental in that portion in the future.

Beyond that, it's always hard to forecast. But our view is that generally good compounds get funding. I mean, we've seen very high levels of funding over the past few years in the market. As you go forward, the way we would look at it is funding may be a bit tight at the moment, but that could just as easily be temporary.

Gregory T. Bolan - Avondale Partners LLC

Sure.

Ciaran Murray - Chief Executive Officer & Executive Director

And they get turned on again at any point over the next few quarters when some of the uncertainty in the world around commodity prices in China and BREC and the U.S. election all create this sense of sort of fear and desperation and stuff like that when that settles then. So, we don't see anything to suggest that what has happened in funding is in any way permanent. And our experience in the past was, before, the market was so happy to fund these compounds.

Funding came from other sources. It came from licensing arrangements for pharma M&A. And ultimately, that work incrementally ended up in our backlog. And where we would be drawing some optimism from that is that, if you look at most of our CROs, we tend to fairly stable book-to-bill over the last long time. Sort of, 1.2 is very much the historical norm and the forecast norm. All that's really happened over the last couple of years is the mix of where that works.

As more money went directly to biotech, the mix of it has changed a little bit. With more biotech and mid-sized pharma, there's a portion of our business that we did in the past. Because in the past, those compounds probably ended up being acquired by their customers who already had in large pharma. So, we're relatively fine, certainly, for the medium term on this, and it would require something radical to change before we would revise that view.

Gregory T. Bolan - Avondale Partners LLC

Now, that's all fair. Thanks, Ciaran. And just the last question for Brendan. I don't imagine it's a whole lot, but just is there any way you can kind of maybe quantify what the contribution to 2015 bookings was in terms of just from the more non-revenue kind of – or maybe you want to call them capital markets-dependent biopharma innovators?

Brendan Brennan - Chief Financial Officer

Yeah. If you're getting down to the very, very small biotech companies, those who don't have revenue generation at the moment, you're probably looking at very, very small numbers in our backlog or even in our business win. So, I would say probably circa – certainly low-single digits, maybe even kind of 2 or less – 2% or less.

Gregory T. Bolan - Avondale Partners LLC

Perfect. Thanks, guys.

Operator

We will take our next question from Michael Baker of Raymond James. Please go ahead. Your line is open.

Michael J. Baker - Raymond James & Associates, Inc.

Yes. Thanks a lot. I was wondering if you could give some color for the backlog by therapeutic class and how has that changed over the course of last year.

Ciaran Murray - Chief Executive Officer & Executive Director

Steve, do you want to talk about that...

Dr. Steve A. Cutler - Chief Operating Officer

Sure. I'll talk about that. I mean, in A-PAC, we're strong on culture providers. So, that's the largest proportion of our backlog, Michael. We're big in that area right across the solid tumor, the hematological tumors. Cardiovascular has developed for us over the last 12 months or so. It's a large program. I put diabetes in there as well, endocrinology. CNS as well gastroenterology and then there's a whole bunch of others that comes in, but the big therapeutic areas for us are really oncology, cardiovascular, CNS and then gastro-IR areas.

Michael J. Baker - Raymond James & Associates, Inc.

So, with the others kind of picking up a bit, has oncology fallen a bit in terms of percentage of the backlog over the past year?

Dr. Steve A. Cutler - Chief Operating Officer

No, not really. We continue to be strong in that area. It continues to be around about 1/3 to 40% of our backlog and our revenue. So, that's important. So, now it's the biggest area of unmet medical need, as you guys all know, and it's the area that we work very well in.

Michael J. Baker - Raymond James & Associates, Inc.

That's helpful. Thank you, guys.

Operator

As we have no further questions queued, I will now hand the call back to Ciaran for any additional or closing remarks.

Ciaran Murray - Chief Executive Officer & Executive Director

Okay. Well, thank you, everyone. We are very pleased with the continued progress ICON has made in 2015. And once again, I would like to thank the entire ICON team for all of their hard work and commitment. We look forward to building on this progress during 2016, as we build in our position as a customers' trusted partner in drug development. Thank you, everyone, and good day.

Operator

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.

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