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Medpace Holdings Facing Some Challenges To A Model That Has Worked Well

Stephen Simpson profile picture
Stephen Simpson


  • Once a double-digit grower with well-above-average margins, Medpace is seeing pressure as larger rivals move into its core market segment.
  • Engaging with clients earlier in their business development needs could restore some of the growth, but there are risks and up-front costs involved.
  • The ongoing trend of increased outsourcing should continue to benefit Medpace, as should the ongoing growth of biopharma start-ups in response to less early-stage research activity from Big Pharma.
  • MEDP shares look priced for a high-single-digit/low-double-digit return on the basis of mid-single-digit long-term growth, and reaccelerating growth or margins offer upside.

Medpace (NASDAQ:MEDP) had some challenges in its first year as a publicly-traded company, as this full-service contract research organization (or CRO) saw revenue growth and margins weaken through 2017. Compounding those issues is a greater effort on the part of Medpace's larger rivals to target its core business - smaller biotechs that have historically been ill-served by the larger players in the CRO market.

Valuation is an interesting dilemma right now. It would seem that Medpace could generate high-single-digit to low-double-digit annual returns to shareholders even if it can't reaccelerate growth beyond peer/industry norms and has to absorb some additional margin pressure. While I don't expect it to be a quick (or certain) process, if management were to succeed with its efforts to reignite revenue growth there would be enough incremental return to make this a more interesting idea.

Committed To A Model That Has Worked

Although I wouldn't call Medpace's model unique, it's definitely not the model that its other publicly-traded peers use. While other players in the space like IQVIA (IQV), Lab Corp (LH), and Icon plc (ICLR) offer a wide range of services and try to get their clients to use as many of these as possible, they also allow and support customers to do partial or functional outsourcing. Medpace, in contrast, is an all-or-nothing proposition, as they don't do partial outsourcing.

On the plus side, this has allowed Medpace to create a consistent and efficient operating model that has worked very well for the company - to the tune of around 10 points of EBITDA margin outperformance versus its peers. On the negative side, that committed focus to its model costs Medpace customers, as not all biopharma clients want to outsource all of their needs (or outsource them all to a single provider).

Medpace has also

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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