The following segment was excerpted from this fund letter.
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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Risks: The Adviser believes that there is more potential for capital appreciation in mid-sized companies, but there also may be more risk. Specific risks associated with investing in mid-sized companies include that the securities may be thinly traded and they may be more difficult to sell during market downturns. Even though the Fund is diversified, it may establish significant positions where the Adviser has the greatest conviction. This could increase volatility of the Fund’s returns. The Fund may not achieve its objectives. Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.
The discussions of the companies herein are not intended as advice to any person regarding the advisability of investing in any particular security. The views expressed in this report reflect those of the respective portfolio managers only through the end of the period stated in this report. The portfolio manager’s views are not intended as recommendations or investment advice to any person reading this report and are subject to change at any time based on market and other conditions and Baron has no obligation to update them.
This report does not constitute an offer to sell or a solicitation of any offer to buy securities of Baron Asset Fund by anyone in any jurisdiction where it would be unlawful under the laws of that jurisdiction to make such offer or solicitation. The portfolio manager defines “Best-in-class” as well-managed, competitively advantaged, faster growing companies with higher margins and returns on invested capital and lower leverage that are leaders in their respective markets. Note that this statement represents the manager’s opinion and is not based on a third-party ranking.
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