EUR 850.00 For Business Accounts Only

Morningstar | Narrow-Moat Icon Continues to Benefit From Strong Operating Environment

We believe Icon possesses all the necessary elements to win share in the late-stage contract research organization market: global capabilities, full-service offerings, extensive regulatory and clinical expertise, investment in innovation and technology, and operational excellence. Icon is one of a handful of CROs with the global infrastructure to carry out late-stage, multinational trials and hone international regulatory expertise. Icon competes in the most lucrative area of the CRO market: long, complex trials that require hundreds if not thousands of patients and thus have ample room for missteps. Late-stage trials consume a significant portion of drug patent lives, making reduction in clinical trial time a priority for CROs and their customers. Icon has done well in focusing on driving trial efficiencies, with consulting services and technology for patient identification and clinical trial management. As a result, we expect the firm to profit from near-term increases in outsourcing, but we are closely watching nascent trends in drug development, including the potential of real-world evidence and the use of data and analytics to reduce a drug's time to market. The firm's historically conservative approach to capital allocation and investment has kept revenue growth moderate in the past few years, with revenue growing in the midsingle digits, save for a boost in 2012 through 2014 due to capacity expansion after a couple of lucrative deals with big pharmaceutical companies. While we expect this strategy of steady top-line growth to continue, we highlight the company's ability to keep costs in control and avoid large, expensive acquisitions. Operationally, the company boasts impressive margins compared with similar-size peers. The firm's disciplined acquisition strategy has kept returns above its cost of capital and strengthened its core competencies, making it the closest pure play in the late-stage CRO industry. While we believe that most of the opportunity for margin improvement has played out, we expect the company will be able to maintain operational excellence and its meticulous acquisition strategy.