Baron Funds - ICON Plc: Positioned For An Extended Period Of Revenue And Earnings Growth
Summary
- We established a position in ICON Plc, the second largest participant in the $50 billion Contract Management Organization (CMO) market.
- We believe that there remains a long runway for further drug development services to be outsourced to the CMO industry.
- ICLR is yet to fully capitalize on the potential revenue and cost synergies stemming from its 2020 merger with PRA Health Sciences, Inc.
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The following segment was excerpted from this fund letter.
ICON Plc (NASDAQ:ICLR)
We established a position in ICON Plc, the second largest participant in the $50 billion Contract Management Organization (CMO) market. Founded in 1990, ICON provides outsourced drug and device development and commercialization services to pharmaceutical, biotechnology, and medical device companies, as well as to governments and public health organizations. We believe the CMO industry and ICON, in particular, is poised to benefit from a variety of positive secular growth trends, and we believe that ICON should remain relatively unimpacted by potential disruption in the broader economy.
As clinical drug trials become increasingly complex and global in their scope, market share among CMOs has been shifting to large-scale providers like ICON. The company offers several important advantages to drug developers, particularly smaller and mid-sized biotechnology firms that lack the internal infrastructure to run the trials necessary to obtain regulatory approval for their drugs. These include the economic efficiency associated with converting previously fixed costs to variable costs, and a significant reduction in the time required to bring new drug treatments to market.
ICON’s large scale has also enabled the company to secure long-term strategic partnerships with multiple large pharmaceutical customers, which provides added visibility into their revenue pipeline. Lastly, we believe that there remains a long runway for further drug development services to be outsourced to the CMO industry.
ICON has expertise running trials in multiple therapeutic areas, including oncology, orphan and rare diseases, central nervous system, dermatology, infectious disease, women’s health, and immunology. The company offers its clients differentiated technology, including proprietary data gathering and analytics solutions that target inefficiencies in the clinical trial process. In particular, the company’s unique network site strategy addresses two of the largest challenges in overseeing drug trials–the time needed to recruit patients and the generation of the clean data needed for submission to regulators.
We believe ICON is positioned to deliver high single-digit revenue and mid-teens earnings growth for an extended period. We believe ICON is perhaps the best managed company within its industry, with a long history of developing new products and services that are embraced by customers, coupled with excellent cost management. Furthermore, we believe ICON has yet to fully capitalize on the potential revenue and cost synergies stemming from its 2020 merger with PRA Health Sciences, Inc., then the fifth largest player in the industry.
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