First Look | ICON’s stock is down 60%, but it still has a massive backlog, healthy cash flow, and sector tailwinds. The market stopped caring but should it?
I work at a CRO, feel free to reach out if you would like.
One thing I’ve noticed recently is that biopharmas seem to be cutting costs wherever possible, and while they aren’t being transparent about why I think it is likely due to Trumps EO about drug pricing and them staring down the barrel of lost revenue, so they need to pull things in house.
Contract modifications can take a few months, so returning that backlog isn’t immediate. Also, indirect costs can take longer to return but still prop up the 606 revenue.
I have raised over $500 m in biotech, but I have never seen it this bad. Money seems to be going into tech and crypto. The few companies with a lot of cash are doing better, but even they are not starting many new projects. Yes, it will have to turn around because if it does not, biotech will die as an industry. You buy an ICON only after the companies they serve have gotten healthy again. Right now you can play the biotech companies themselves. Many of them will either go away or will have massive comebacks.
The best time to buy is at max fear. And coming from someone in the industry it sounds like just that time!
You are right that more money could be made by betting on the biotech company themselves but I dont have the expertise to do that. Icon is a way to play the resurgence without needing deep knowledge of any individual drug.
Often if you wait until fear is gone so is the opportunity. I buy when others won't touch a company because that is when the most risk has come OUT of the company. The downside is already priced in at that point.
Are we there right now? Probably not but that is how I think about it.
The funding situation for biotech has never been worse. Pharma is paralyzed. It makes no sense to buy a company that depends on biotech and also pharma funding new studies when those companies cannot or will not finance new studies.
But will it always be that way? No. In fact it is partly because of that concern the opportunity presents itself now.
Share prices do not go down for no reason. You have to look past the fear and determine if they are temporary or permanent.
If this is a permanent impairment on drug R&D the world will be in a whole lot of trouble.
To be clear I am not saying this isn’t a risk. The company may struggle for the short term and keep going lower. It is about weighing that risk vs the potential reward.
I spent a few minutes looking into SLP this morning and while I do think they are an interesting company. They are not one I like at today's prices.
They currently trade at almost 90x FCF and even if you adjust their margins to a normalized level it is still over 36x. Granted they are growing revenue at about 17% per year over the last 10 years but that is still expensive in my opinion.
My only concern I saw on the company’s fundamentals was their ROIC and ROCE in a consistent decline now to low single digits since 2008. Their leadership is not allocating capital well anymore and it may become a concern.
Those are just my 2 cents on the company after a quick look though. I could certainly be missing something!
I work at a CRO, feel free to reach out if you would like.
One thing I’ve noticed recently is that biopharmas seem to be cutting costs wherever possible, and while they aren’t being transparent about why I think it is likely due to Trumps EO about drug pricing and them staring down the barrel of lost revenue, so they need to pull things in house.
Contract modifications can take a few months, so returning that backlog isn’t immediate. Also, indirect costs can take longer to return but still prop up the 606 revenue.
Looks like a potentially very good opportunity
have you ever looked at SLP? to me it looks like a direct comp to ICON but smaller scale.
I have raised over $500 m in biotech, but I have never seen it this bad. Money seems to be going into tech and crypto. The few companies with a lot of cash are doing better, but even they are not starting many new projects. Yes, it will have to turn around because if it does not, biotech will die as an industry. You buy an ICON only after the companies they serve have gotten healthy again. Right now you can play the biotech companies themselves. Many of them will either go away or will have massive comebacks.
The best time to buy is at max fear. And coming from someone in the industry it sounds like just that time!
You are right that more money could be made by betting on the biotech company themselves but I dont have the expertise to do that. Icon is a way to play the resurgence without needing deep knowledge of any individual drug.
Often if you wait until fear is gone so is the opportunity. I buy when others won't touch a company because that is when the most risk has come OUT of the company. The downside is already priced in at that point.
Are we there right now? Probably not but that is how I think about it.
Appreciate your thoughts and push back!
I believe I saw them in a quick glance of competitors. I will certainly looks a little closer though!
Awesome! would love to hear your thoughts. Great write up
The funding situation for biotech has never been worse. Pharma is paralyzed. It makes no sense to buy a company that depends on biotech and also pharma funding new studies when those companies cannot or will not finance new studies.
But will it always be that way? No. In fact it is partly because of that concern the opportunity presents itself now.
Share prices do not go down for no reason. You have to look past the fear and determine if they are temporary or permanent.
If this is a permanent impairment on drug R&D the world will be in a whole lot of trouble.
To be clear I am not saying this isn’t a risk. The company may struggle for the short term and keep going lower. It is about weighing that risk vs the potential reward.
I spent a few minutes looking into SLP this morning and while I do think they are an interesting company. They are not one I like at today's prices.
They currently trade at almost 90x FCF and even if you adjust their margins to a normalized level it is still over 36x. Granted they are growing revenue at about 17% per year over the last 10 years but that is still expensive in my opinion.
My only concern I saw on the company’s fundamentals was their ROIC and ROCE in a consistent decline now to low single digits since 2008. Their leadership is not allocating capital well anymore and it may become a concern.
Those are just my 2 cents on the company after a quick look though. I could certainly be missing something!