Free Medpace (MEDP) Report
by Kyle Dennis | Nov 6, 2016 | Blog | 0 comments
Medpace (MEDP) is a recent IPO that provides services to small, mid, and large cap biopharma companies to run Phase 1-4 trials. This sector is growing very rapidly. The company reported 5 straight quarters of revenue growth and also year-over-year growth. Because of the growth, the valuation metrics are actually pretty undervalued. For this company, the main catalyst will be the earnings calls and not a data release. The company will hold an earnings call on November 3. If this dips any more in bad general market conditions, I think it presents a great fundamental growth story.
Medpace was founded, and is still run, by August Troendle, MD. Dr Troendle has worked at the FDA as a Medical officer, and has also been a director at Sandoz, among other places. He sits on the board of various biopharmaceuticals, and is widely respected as an industry pioneer in the Contract Research (CRO) space.
MEDP was founded in 1992 with expertise in cardiology, endocrinology, and metabolic diseases, and has now developed into areas like oncology, CNS, and other popular therapeutic areas. The company has operations in 35 countries.
Source: Baird Global Healthcare Presentation
One of the USPs of MEDP is that it is full-service, meaning it does not outsource partial contracts or functions to outside agencies. This is a critical problem in the space as one often hears of nightmares involving third-party contract researchers who mess up data delivery due to inefficiencies of scale or cultural differences etc. MEDP’s work ethic provides for timely, efficient and high-quality results to customers.
MEDP has a diverse client base, with the top 10 clients making only 40% of revenues, which means that it does not depend on any one large client to generate revenues. Its largest customer accounts for only 7% of revenues; in many CROs, their entire business revolves around one, maybe two, major customers, so much that CROs often become captured arms of major pharma, doing all the drudge work, getting none of the profits and benefits. That is not the case with MEDP.
Source: Baird Global Healthcare Presentation
Its client mix, as can be seen above, is also diverse – it has clients from all segments of the pharma space, large, mid and small cap. However, MEDP’s stated focus is on small-cap pharmaceuticals who still do not have a drug in the market or have less than $250 million in annual revenues. This segment makes up more than half of its client base.
MEDP has one of the highest organic revenue growth rates in the CRO sector – net service revenue and adjusted EBITDA CAGRs of 22% and 26%, respectively, from 2012 to 2015, with an average adjusted EBITDA margin of 31.7%. In fact, the company has consistently maintained near 30% EBITDA margin for the last two decades.
Source: Baird Global Healthcare Presentation
MEDP’s net new customer growth has maintained at 18% over the last few years. This year, it has projected new business of about $415 million, up $55 million from last year.
Medpace possesses four global CAP accredited facilities in US, Netherlands, China, and Singapore. It has its own GLP-compliant bioanalytical laboratories, a central imaging core lab and an ECG Lab. According to an industry report from Industry Standard Research: “the most important attribute used in the selection of central lab providers was “Quality,†which is being led by Medpace.†According to the same report from an earlier year, mid-sized CROs outperform larger ones in terms of speed of site and investigator recruitment. “Cincinnati, Ohio-based Medpace was the highest scoring CRO in survey responses for that category while large CROs such as Covance, Parexel, PPD, PRA International and Quintiles all received negative marks.†Medpace also received the “highest marks for upfront contingency planning†– meaning it has the flexibility to adapt to changing circumstances as a clinical trial progresses from planning to execution to analysis.
The global CRO market is projected to grow to $59 billion by 2020, and in this pace, the fastest growing segment are mid-sized, Tier II CROs like Medpace.
In my opinion, MEDP presents a great opportunity for investors. Risks here include a slow in growth or a loss of customers.
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