ICON (ICLR) Gets Some Love from Investors Business Daily

ICON (ICLR) has to be the one company I constantly throw roses at, that I have yet to put into the fund. I keep waiting for that "selloff" that never seems to happen when I have my eye on this specific name. I have not been posting to the blog the individual earning reports of the Contract Research Organizations but most individual names continue to impress - for example Parexel International (PRXL) has put on 17% in 2 days post earnings.

• Shares of Parexel International Corp. jumped to an all-time high Thursday after the pharmaceutical services company reported a strong quarter, with results boosted by greater service revenue and a favorable tax adjustment.
• The Waltham, Mass., company said its profit more than doubled to $25 million, or 43 cents per share, from $10.4 million, or 18 cents per share a year earlier. Excluding a one-time tax benefit of $8.7 million, Parexel earned $16.3 million, or 28 cents per share. Revenue increased 31 percent, to $331.9 million from $254 million.
• On average, analysts had expected 26 cents per share in profit and revenue of $259.7 million, according to Thomson Financial. Those estimates usually exclude one-time gains and expenses.
• Parexel's service revenue increased 33 percent, to $272.2 million, and reimbursement revenue rose 23 percent to $59.8 million.

As I've said in the past this is a nice steady Eddie group (except of late when the hedge funds have moved wholesale into "healthcare") that does not have FDA exposure and I like - the valuations seem to be getting stretched however as more and more funds go there to "hide out" - we know how that ends. I own the one dog of the group (stock wise at least) as the much unloved WuXi PharmaTech (WX) spins in oblivion. But as the story states - foreign share of outsourcing will only grow - that was my thesis - I guess I need to wait a few more years for it to play out.

Investors Business Daily has a very rose worthy article on ICON this week.

• Icon has the kind of customer demand that many businesses these days can only dream about. The company (NasdaqGS:ICLR - News) manages clinical trials for drug and biotech firms, and its clients are clamoring, if not desperate, for its services.
• Drug firms are increasingly outsourcing at least some of their research and development work as part of ongoing cost-cutting moves.
• "(Clinical trial) volume is growing as drug companies are downsizing and consolidating," said Ken Getz, senior fellow at the Tufts Center for the Study of Drug Development. "So they're looking to hire flexible contract resource organizations (CROs) to manage the volume."
• At the same time, biotech outfits are looking to outsiders to handle clinical trials since they typically don't have the means to handle the work in-house. Many of the smaller firms, in particular, are entering their drugs for clinical trial for the first time.
• "Big pharmaceuticals need to outsource to save money. Biotechs have to outsource because they don't have an option," said analyst Eric Coldwell of Robert W. Baird.
• Demand for CROs will likely grow 16% a year for at least the next few years, a recent Tufts forecast said
• What's more, up to 65% of FDA-regulated clinical trials of the top drug firms will be done outside the U.S. within three years, up from 43% today, Tufts said in its report. The reason cited: lower costs abroad and ready access to large numbers of "treatment-naive patients." The latter are patients who don't take any prescription drugs and thus are best suited for clinical trials. Treatment-naive patients are more likely to be found in emerging markets outside of the U.S. and Western Europe.
• "Growth in this industry is increasingly happening in emerging economies like Eastern Europe, South America and the Pacific Rim," said John Kreger, an analyst at William Blair & Co. "This work is going where the patients are."
• Icon is there. It has 71 offices in 38 countries, including emerging markets in Asia and Latin America.
• Most of the top CROs have global operations as well. But unlike larger firms such as Covance (NYSE:CVD - News), Parexel (NasdaqGS:PRXL - News) and Charles River Labs (NYSE:CRL - News), Icon is based outside the U.S., in Dublin, Ireland.
• About half of the firm's revenue comes from outside the mature and slowing U.S. clinical-trial market.
• Icon's net business wins in the second quarter jumped 47% from a year earlier to $337 million. Total revenue in the quarter rose 48.5% to $218.3 million.
• The backlog at the end of June stood at $1.6 billion, up 56% from a year earlier.
• Icon is gaining on rivals, says Kreger of William Blair. "When we talk to people in the industry, we consistently hear them mentioned as the company that appears to be rising above the fray," Kreger said. "This is a service business, and they are doing excellent work -- on time, on budget, with clean data."
• Icon's core business as a project manager of clinical trials involves oversight of the physicians who enroll patients and the data that are collected. The firm also has a staffing business for clients who want extra help to self-manage their own studies and a central lab that processes lab tests.
• "The barrier to entry in this business is all about a track record," Kreger said. "A client is unlikely to hire a company that doesn't have a track record."
• Icon works in a broad number of therapies for most of the major drug and biotech companies. A little more than 20% of revenue comes from biotech firms. Oncology trials account for the largest portion of the firm's backlog, followed by heart disease.
• Awards are getting larger, CEO Gray said in the conference call. In the second quarter, 12 awards were over $5 million. "That's a feature of more phase three programs going on and the amount of data required," Gray said.

ICON trades at 33x forward estimates but since we no longer worry about fundamentals in these here parts we are looking to see if the chart below is a potential top top (negative) or has breakout potential (bullish) on a close above $85 or so. Valuation means nothing to these computers. It's all trend.


[Jul 22: ICON - they Never Miss and Give us a Chance at Cheap Shares]
[Apr 14: Keep an Eye on... Parexel International]
[Mar 12: WuXi PharmaTech - Very Good Earnings]
[Feb 21: ICON with a Solid Report]

Long WuXi PharmaTech in fund; no personal position