Q1 2020 Earnings Call
[music].
Good morning, and welcome to Tpds first quarter 2020 earnings Conference call. Please note today's call is being recorded at this time I'd like to turn the conference over to Nate Spiker Senior Vice President of finance for PPD.
Mr. Spiker, you may begin.
Good morning, everyone. Thank you for joining me on his call today will review, our financial and operating results for the first quarter of 2020.
Joining me on the call today, or David Simmons, Pbds, Chairman and CEO Bill shrub all our COO and Chris Scully our CFO.
Please note that today's discussion contains forward looking statements based on the current business environment and as such includes certain risks and uncertainties, which could cause our actual results to differ materially from such forward looking statements.
More information about potential risk factors can be found in our 2019 form 10-K and in our upcoming form 10-Q filing.
Also in addition to U.S. GAAP reporting we will be discussing financial measures that do not conform to gap. We believe these non-GAAP measures enhance the understanding of our performance because they are more representative how we internally measure our business.
Please note. These non-GAAP financial measures should not be considered in isolation from or as a substitute for GAAP measures.
A reconciliation of GAAP to non-GAAP results is available in the press release, we issued last night and supplemental investor presentation posted to our Investor Relations website.
Lastly regarding the basis of presentation for today's discussion.
Please note that all piano metrics discussed, including revenue segment revenue and adjusted EBITDA on an assay six so six basis.
For commercial metrics discussed, including that authorizations net book to Bill backlog in backlog conversion those remain on a historical as awarded assay six so five direct only basis unless otherwise noted.
With that I'll turn the call over to David.
Thank you name it.
Good morning, everyone and thank you for joining our Q1 2020 earnings call I'd like to start by saying I Hope you your families and your colleagues are safe amid the threat posed by the covert 19 pandemic.
Given our collective focused on Coven 19. In addition to reviewing our Q1 results we plan to spend the sizable amount of our Tom This morning discussing the impact to our business stemming from the virus as well as our ability to minimize the negative impacts and to continue playing a critical role aiding.
Solution development in the form of treatments and vaccines.
In light of the uncertainty surrounding the pandemic, we have withdrawn our previously issued guidance for the full year 2020.
And today are issuing issuing new guidance for the second quarter, which Chris will cover on his remarks.
Regarding the first quarter results during the quarter, we saw strong growth across both key commercial NPL metrics a few highlights include.
Net authorizations of $1.06 billion, resulting in a Q1 net book to Bill of 1.30 acts and notably we did not see any unusual cancellation activity related to go over 19.
Site networks.
Digital one virtual trial solutions and remote site monitoring tools have enabled us to provide trial continuity solutions for our customers.
Our teams are working hand in hand, with our customers to ensure continuity of their studies and our customers are looking for our guidance in partnership related to digital and virtual solutions across their pipelines.
Bill will provide further details on this front, but the power of our enterprise to fulfill customers needs has never been more clear.
Although more than half of active investigator sites have been impacted we have adapted and shifted our resources to continue to make progress on our customer studies, such as focusing our team on the trial work not related to site visits and shifting available resources to support new covert 90.
Clinical trials.
The adaptability of our organization across all levels are low turnover and the cross training of our team members continues to embed confidence in our customers the P.D. as their partner of choice through this pandemic.
Regarding financial strength. It has been important to P.B.D. to maintain our balance sheet, while minimizing the impact or a talented colleagues.
We have taken a balanced approach to costs mitigation and implemented a program we call choice.
Where employees are permitted to take a short term sabbatical or temporary hours reduction.
With more than 600 employees, taking us up on this entirely voluntary program. It is clear that this was a needed offering for employees to balance work and family needs, while delivering cost savings to the company.
Most importantly, this program positions us well to quickly mobilize resources as sites resumed clinical trial activity.
Last point is critical because we believe when we do get back to something close to normalcy, we will have to execute on our full plan of work plus catch up work that has been building up.
In addition to the choice program, we have implemented a suite of more typical cost control actions, including fast and severe restrictions on travel a salary freeze for executive management.
And paused hiring in areas, where demand is delayed while still adding targeted resources for areas of work expansion such as covert 19 related work.
Speaking of covert 19 work, we are proud to be an active part of the solution to this pandemic.
The strength of our infectious diseases and vaccines franchises with experience on 300 trials over the last five years, coupled with our regulatory expertise in this space has allowed us to build a leadership position and cobin 19 related vaccines and treatments <unk>.
<unk> 39 awards to date spanning our clinical in labs segments.
We continue to be actively involved in bidding on several dozen additional clinical trials targeting covered 19.
And anticipation of the growing demand for our services, we are proactively building capacity across functions to partner with our customers as they tackled treatment and vaccine development recovered 19.
As you'll recall from the queue for earnings call I mentioned that we quickly mobilized to teen who was pro actively engaged all companies that have announced coven 19 work in the public domain.
Did not expect at that time, the depth and breadth of studies that would launch.
It has been incredible to see the power of the industry and how fast our customers have turned on a dime to address this global health crisis.
And our team has reacted justice quickly.
Current treatments studies that were partnered on our projected doing <unk> upwards of 13000 patients.
Looking forward, we remained fundamentally bullish about the outlook for P.B.D. in our industry.
This pandemic represents a dramatic real World example of the value the innovative life Sciences industry provides to society.
I expect this crisis to have a positive impact the r. and d. investment levels in the coming years as well as aiding accelerated adoption of innovative approaches to trial conduct.
We are also experiencing even greater collaboration between farmers sponsors see arose and regulators, which bodes well for the future of innovative new medicines.
Lastly, as demonstrated by the code at 19 examples I discussed we believe our differentiated services unique customer engagement model and continued commitment to operational excellence will be increasingly important to customers and positions as well for continued strong growth close.
This pandemic.
I'd like to close by saying how proud I am of our 24000 plus colleagues around the world.
Their willingness to go above and beyond for our customers and patience, while exercising caution to block the spread of the virus has been truly remarkable and I'm thankful for their dedication and hard work.
Will continue to provide updates on this topic in the coming corridors as the situation evolves.
I'll turn it over to Bill Sharbono, our Chief operating officer to review our operating results.
Thank you David and good morning, everyone.
During the first quarter, we saw continued operating momentum across the business.
Strong financial performance from both our segments I.
I would call out the exceptionally strong results within our laboratory services segments.
Our labs produced organic revenue growth in excess of 30% versus prior year.
<unk> from strong authorizations.
Rapid customer uptake of new facility expansions in our G.M.P. lab and increased F.T.E. contracts in the vaccine lab.
Given the focus on covert 19, my comments will largely center and our business continuity efforts and how we are responding to the crisis.
Are long standing history of operational excellence, along with our unique mix of clinical and lab services put us in a strong position heading into the pandemic.
Before I go through the segments.
I would know that while we are sharing certain operating metrics as our peers have done these are inherently difficult to compare across the space.
I'll start with commentary on our clinical development services business.
Are clinical business is impacted in three ways.
First as David noted earlier, the majority of studies or continuing and we haven't seen an increase in cancellations.
But we have seen several sponsors implement enrollment pauses for studies that have not started or studies with at risk patient populations.
<unk> immunocompromised individuals and the elderly.
For those studies that have yet to start up some sponsors are requesting us to complete preenrollment tasks, such as country and site selection remote site initiation visits study design and planning and database building. So that the new trial can start quickly once given the green light.
Overall, we estimate that approximately 10 per cent of our clinical services backlog is impacted by these pauses while 90 per cent continues.
Second physical access to sites has been disrupted despite regulatory agencies around the world issuing guide in supporting the continuance of clinical trials, while protecting patient safety in our case, we've seen approximately 54% of sight institutions impacted whether it be.
<unk> site visits or other site related activities about 70% of our clinical trial revenue is not related to cite monitoring of the 30 per cent tied to monitoring we've been able to migrate more than half our work to a remote based approach.
We've also deployed several strategies to ensure patient participation can continue.
<unk> network allows us to ship supplies and medications directly to the patient where appropriate.
In addition, we are using digital techniques to screen monitor enrolled patients for some clinical trials.
It is also looking beyond digital and virtual solutions and traditional sites to find other ways to help customers continue their clinical trials as an example, within a matter of weeks P.P.D. designed in operationalized a program that allows the transfer of clinical trial patients from sites that have closed due.
To the pandemic to our network of 180 research sites, which have remained open and can rescue delayed clinical trials.
In addition, several customers mood volume to our medical Communications call Center as smaller competitors were unable to maintain business continuity.
Third we have one a significant amount of fast burning coded 19 work, which is helping to partially offset the impacts I've mentioned our teams are working tirelessly to launch and execute these studies in several cases working through the night to activate sites to allow dosing a critically ill patients.
The following day.
New covert 19 studies, coupled with the backlog of tasks from ongoing clinical trials position us for a busy period as we enter recovery.
While we have seen work resume with a quick any pace in countries like China, including site monitoring visits and new Activations, we expect the recovery to be more gradual throughout the rest of the world.
We are poised to accelerate trial delivery as soon as sites reopened.
I believe the strength of our people managers in our industry low turnover will enable us to continue high quality execution throughout the pandemic and into recovery.
<unk>, we'll discuss the financial him packs in his comments.
Now turning to the laboratory services segment, let me provide some contacts on how this business has been impacted.
To minimize the pandemic impacts the lab's leadership team mobilize quickly to establish clear safety protocols implement split shifts segregate departmental teams and move remote capable employees home. These strategies. In addition to close coordination with state and local authorities insured our scientific.
Staff have access to facilities to progress work in a safe and efficient manner. As a reminder, P.P.D. labs is comprised of a broad range of capabilities focused on drug development and organized into bioanalytical G.M.P. vaccine in central labs in order of magnitude or.
M.P. by away and vaccine lab together represents about two thirds of our laboratory business R.G.M.P. by away and vaccine labs are not relying on sample volumes rather the key drivers for these labs are staff availability and facility capacity.
With respect to the Central lab, we have seen disruption to sample volumes, but as sites reopen we are seen volumes recover.
Lastly, P.P.D. is one of the leading experts in infectious disease and vaccines and this is underpinned by our 30 plus years of experience, which includes 15 F.D.A. approved vaccines and experiencing over 300 infectious disease and vaccine trials as a result, our labs are actively involved in.
Nitpicking amount of covert 19 work, which we expect to increase going forward.
While the pandemic has no doubt presented challenges are operations remain strong our leaders unemployed or adapting and we have and will find ways to ensure colleague and patient safety.
I'll now turn it over to Chris Scully, our Chief Financial Officer to review, our financial results fix their morning, everyone. My prepared comments on today's call I'll be covering our current one result.
Updating you want our cash liquidity position capital structure, given increased investor focus on balance sheets admits that covert 19 pandemic and lastly, providing you with an update on our forward guys before opening up for Q. and <unk>.
For for driving in as need mentioned throughout my comments, when referring to R.P. now I'll be doing so and S.C. six or six basis.
That and as you likely saw on her earnings release, an investor supplement we've now migrated our segment disclosures to be an A.S.T. six so six basis.
Based on how we now managed to business and to reduce the administrative burden of having to maintain and reconcile two sets of books.
Referring to other metrics such as net authorization.
Backlog netbook, the bill ratios and Dsos. These what currently remain on a historical S.C. six or five basis to maintain compatibility for investors. However, we have additionally included her investor press release and her invest or supplement these metrics on an S.C. six so six basis.
Both with and without indirect.
In addition, given the exceptional circumstances surrounding curve in 19, we have expanded the operational and financial metrics that we're providing on this call along with Sharon quarterly guys for quarter to.
That said I'd like to know that we are unlikely to provide demo level for disclosure on an ongoing basis post depend on me.
Turning the quarter one.
As David notice the first quarter with strong for us in terms of awards in which we book 1.06 billion in that authorizations, resulting in that book to build ratio of 1.30, X. and our record ending backlog of 7.31 billion, which is 11.9% from quarter 129.
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Putting this in context, the 1.30 X. netbook to build ratio in the quarter was our highest both the bill ratio in eight quarter's significantly above the 1.20 X. that has historically translated into double digit revenue growth based on our backlog conversion rate.
As David and Bill both noted during the quarter, we saw no unusual cancellation activity related to cope in 19.
With respect to the P. now quarter, one revenue 1.07 to.
11.3% over the first quarter of 2019 with strong contributions from both our clinical development services segment, which grew 7.6% and her laboratory services segment, which <unk>, 30.6% year round here.
Adjusted EBITDA of 196.9 million increase 17.3% over the first quarter of 2019.
Moving on to cash in liquidity.
Let me begin by saying that through quarter, one we did not experience a negative impact the cash flow as a result of covert 19.
In fact, R.D.S. so declined in quarter 120, 20 to 39 days as a pair as compared to 41 days in quarter of one of 19.
And we saw a further improvement in her a are aging profile versus prior year.
I'd add in our preliminary April herself, we have seen no deterioration in any of these metrics.
Rather we've seen an increase in our cash collections and our cash balance versus March.
Well. This is good news, it's not surprising to us given the strength of our large file format and biotech customer balance sheets and what has remained a healthy in funding environment. Further as we've shared previously approximately 80 per cent of our biotech backlog is in face to be or later studies, which tend to be lower risk and better.
And did that earlier stage assets.
Despite these positive dynamics out of an abundance of caution given the volatility in global markets.
He turned down 150 million from X. 300 million revolving credit facility and park you. This cash on our balance sheet inclusive with a revolver draw. We ended the quarter one with cash in cash equivalent of 738 million, which is our largest quarter ending cash balance in over 10 years and equates to approximately.
Four years of annual cash interest expense.
I'd also point out that historically, our cash conversion is meaningfully lower during the first quarter of the year do the pay out of the annual incentive compensation Awards.
As a result, setting aside potential curve in 19 impacts we would otherwise expect to see stronger cash flows in the quarter to through quarter for period as compared to the first quarter.
We'll see above we feel weird and strong shape in terms of our cash and liquidity position.
Turning to the capital structure.
Or last call, we previously guided to reducing our net leverage ratio to the low forced by the end of this year and into the Three's next year, we've made great progress towards the stock market with net leverage dropping from 6.9 X. pre I.P.O. with the stars a year to 4.7 X. immediately following the I.P.O. and down to 4.5 acts as.
Of quarter one.
In addition, our capital structure has ample flexibility with our nearest maturity or material that maturity not until August 2022, and we have only one <unk> no which relates to a revolver, which states that that secure leverage can't be higher than 5.0 x.
As of quarter, one are actual them that secured leverage ratio was 3.1, x., which is almost 40% below this threshold.
Put another way if you hold our cash cow static are trailing 12 month adjusted EBITDA would have to declined by approximately 300 million for us to trigger the covenant.
Turning to forward looking guys given the uncertainties associated with covert 19, we are with drawing our full year guidance.
However to assist investors in understanding the near term outlook, we are providing financial guidance for the next quarter on an exceptional basis on today's call.
As you heard as David and bills remarks to cope with 19 pandemic, we'll have negative impacts from sponsor halls and disruption from the pandemic on <unk>, they start up and monitoring in our clinical segment.
Reduced samples volumes and her central laps.
These impacts will be partially offset by revenues from faster burning cope in 19 of words and actions to manage our costs space, including the employee choice program and executive pay freezes discussed earlier blows out of not essential hirings in areas, where demand is reduced lower employee travel expense and managing corporate cost and other.
<unk>.
With that in mind, our second quarter 2020, guys is.
Revenues of 907 million to 946 million, which equates to a minus 9% to minus 5% decline versus quarter to have 2019.
Adjusted either to have 170 million 277 million, which equates to a minus 12% to a minus 8% decline versus quarter to have 2019 on an as reported basis.
So to wrap things up quarter, one was an exceptional quarter from both a commercial and financial perspective, Despite expanded cobin 19 related impacts in the second half of March.
Well, we expect the impacts from the pandemic to increasing quarter to our robust liquidity and extensive state of mitigation efforts at helped us to navigate the crisis today and positions as well for strong growth post covert 19.
With that I'll now <unk> handed over to the call back to the operator to open the line for Q. and.
Thank you. Please announce again the question and answer session. Please limit yourself to one question and one final that.
To join the question Q. you May <unk>, then one on your telephone keypad, you don't hear a tone acknowledging your request if you're using a speaker phone. Please pick up your hands factor for pressing any keys to withdraw your question <unk> start then too.
We will pass for a moment does college trying to Kim.
The first question is trim Tyco Peterson as J.P. Morgan he's kind of <unk>.
Yeah.
Good morning, I appreciate your not getting for your guidance, but as we think about you know sites getting back up again reopened I'm wondering if you could just give us some general parameters as to how you're thinking about your number of states that may be accessible in the back half of the year by year end and how well are carrying how you know say get back up and running faster. Thanks, Yeah.
Thanks, Tyco for the question I'll start this and then you may want Christen Bell to comment on that to follow up points of what we're looking at all to the financial impacts and then how we see a kurian in our site network through the year.
Let's say, it's a very difficult question, because we don't know how the recovery is going to calm and we don't be <unk>.
Be prudent to try to project, whether this is v. shaped u. shaped or some other shape. We do think in in our on our Q2 guidance, we have the impact that at its most extreme form that we face dots bar continuing through the second quarter, so that might be one one.
That helps.
As we see sites coming back on we'd probably have the most positive examples based on what's happening in China.
We don't forecast that western Europe in U.S. will follow the speed of recovery, but that that happened in China, maybe that's conservative in retrospect, we might look back and say it was conservative but that's what we we've currently planned Oh, let me see if Chris and then bill want to add anything to that I only thing I would add is I think you know David.
Comments apply to what we've forecasted for a quarter to kind of business that doesn't mean operationally that we're not prepared to kind of accelerate kind of things. If the pandemics impacts are are slower than that.
Yeah take a this is bill as David mentioned, you know China is a competitor, but we're not sure. It's the best comparative because activity has accelerated faster than we thought it would in forecasted it would we've seen project initiation increase I or be approvals increase a contract negotiations.
Increase slight initiation visits increase enrollments increasing site audits are increasing.
And you know based on our data and survey data. We've seen suggests that they're back you know in sort of you know I've recovered about 60%.
Don't you know as David said don't don't expect the same necessary trajectory in in Europe in in the U.S., but we are prepared so from a resourcing perspective were in really good shape. So our site network look we think this is a good asset to have in our mix the services and it can be used as a record rescue mechanism.
For delayed studies and we're in those kinds of conversations conversations with customers. It's true. It does have a fixed costs space associated with it that needs to be covered but that's clearly offset by its strategic value. When it's used by customers in its uniqueness. So you know it's early days, but we think this is a a good at.
Set and part of the solution to help delayed clinical trials.
That that's helpful and then sort of follow up on the two two guidance are you able to give us any color <unk>, you know clinical versus lab, how you're thinking about one versus the other.
Thanks for the question Tyco I think the answer to that is is that we don't plan on giving specific guidance beyond what we have for the talk company at the segment level that said <unk> those comments earlier on as well as some of the ones I met in in the the prepared comments for the call. We did kind of indicate that are.
Cynical business is more greatly impacted than our labs business. So in our labs business, specifically, we have lower sample volumes in the central laps. However, that's less than a third of this whole business bio and G.N.P.R. impacted by less of a degree it's it's likely that they're not going to continue to grow up at the same rate.
That they had in in a quarter. One you know came as a phenomenal growth rate that said, we continue to expect for them to grow faster than the market.
Okay. Thanks I appreciate it.
[noise]. The next question instrument Ricky Goldwasser as Morgan Stanley. Please go ahead.
[noise] Yeah hiked the morning independent in March you talked about your T. collaboration that you're seeing between you and clients and D.F.D.A. So maybe if you can just kind of like gays. For example, then color. It there and also as you've seen longer term post cozied, what do you think of the.
You know these days and a lot more sexual what do you think it's going to stake post go there and if you think about the approach declined have constant bringing you ours keys on I, they're starting to think kind of like longer term p. on closing off making changes in aiding thing just to resolve to stuff what we're seeing now.
The last part of the question when you say, adding things could you be a little more specific.
Meaning when when we kind of facts talking to past about R.S.P.'s I think it was just sensed it.
<unk> some of the remote monitoring capability is right or not isn't trend. She knows our skis. So are you starting to see client having conversations to think about how are we thinking about trial design post qualities or all the conversation.
Right now, okay and that and that's also linked to the second part of the question round. The F.D.A. flexibility. Your your same thing yeah. Okay. Let me let me take those two at the back and then.
We'll see if we got some examples of collaboration that that they're going to hit the mark on this so is we had in the prepared remarks, we do think that there'll be accelerated adoption of ER Virgil digital technologies into trials to be more patients centric to remove the burden on the patient to be able to take more of the.
Trial to the patient as opposed to the patient having to come to a physical infrastructure the ability to do that is different across different therapeutic areas in different studies. So I wouldn't look at this is one big general statement, it's gonna be very nuance, but some studies do lend themselves towards more virtualization except for that.
That term so well the way we look at it in terms of trying to sense the acceleration of adoption you've hit on on two of them. One is the regulators posture towards adoption of these technologies and deviations two more status quo approaches the trial conduct.
Second is readiness of the digital and virtual technologies to be applied to study somebody just pick that one off now that looks really solid the technologies work, they're they're they're able to go so you'd give that one a a box tick and then the third digit on his clients willingness to challenge the status quo.
And adopt these these new technologies out into the studies, so if I pick that all those go with customers first because the the.
The number of customer engagements, that's been going on with US has not changed <unk>, meaning the volume of interactions. We have are just as as a significant and robust as pre the crisis, they're just happening all over virtual virtual technologies like zoom, Microsoft teams Webex things like that.
In those conversations there is a dramatic increase in the volume of conversations around adapting these technologies into studies twofold first is it adopting the technologies and approaches into studies that are already actively in process and our backlog we've got.
Active conversations of changes to be considered being put in on 10% of the active studies that were running in our backlog. So that's a dramatic increase and volume of real discussions to modify the the protocols to adopt these technologies and the conversations of extended into future pipeline for the customers.
So on that collaboration I would give you that that volume is increased dramatically from pre covered too in the midst to cope it and it's not just related to the covert studies. It's also related to future pipeline. So that's one of the major reasons that we said that we see a an accelerated adoption now on the regulatory side.
The regulators and and we're not just focused on the F.D.A. regulators around the world have.
Given guidance during the pandemic to help studies continue into help patients continue to receive medicines continue to participate in the studies because it may be part of the practice of care and be very important to them. So they they're accepting deviations to the protocols to use these types of of technologies, we've had case.
Cases, the Italian regulators when the hospitals were overwhelmed we're allowing patients in the study that couldn't get into an investigator site. There was burden by covert 19 treatment of patients to go to another site on the study that was not shut down due to cope with 19 treatments and continue the protocol there. So that's an.
Examples not technology base. They also except that the use of televisions per patient follow up. So that's an example of regulators leaning in the Big question, we have and we don't know the answer to is posts pandemic do the regulators continue to be embracing the use of these type of technologies or do they shift back to a more concern.
Herve approach of back to the status quo trials and and that point, we don't know, but given all those three dimensions customers have clearly leaned into this more in their appetite to apply these technologies is greater Ah regulators have show more flexibility during the pandemic, but the big question is will they continue that post pandemic.
Thank you for the color and and just a quick slot there are there any given the changing in inclined to appetite.
Are there any strategic assets, Hey, do you think okay <unk>.
That are interesting for you to add to to meet this change and I didn't demand.
Not specifically were generally on the lookout be on the partnerships and investments we have as we engage on a specific trials and look at the right deployment of digital and virtual technologies on to each of these trials how much are covered by partners, we already work with on the technology and.
<unk> nations side, and as we see things that might be missing and it's not always technology related some of it is also non technology related to be able to enable the trial going to the patients home. For example, so we're keeping an eye on this and screening, but we don't have anything specifically that we think we need at this point.
Thank you.
The next question is from wrapper challenge at Goldman Sachs. Please go ahead.
Great. Thanks for taking my question is Jack rub off on Bob.
Do you help us understand that 31% growth in the lab segment. It sounded like a good amount of vaccine work in G.N.P. capacity uptake I'm curious how much of this was more of a lumpy pulled forward of choir capacity buildouts versus more sustainable growth for you guys.
Yeah.
So this is Chris I I'll start with that until May want to fill in some additional details beyond what I share, but quarter one growth. It laughs was result of the combination of a favorable factors, including what we ended with last year as is it really robust starting backlog second is the authorizations wins that that we.
Had in the current quarter that led to faster expected customer utilization of some of the capacity expansions that we did last year and we also benefited from nature accelerations in it and it vaccines development program at one of our current customers. So it was a combination of a multiple factors that went into it I I don't know Phil.
Like to add something.
Yeah, maybe just to add some color to Christmas commentary, we've got a diverse set of laboratories, we think there one two or three in you know their respective niches and we're recognize leader you know when our lab. So you know your question was is this lumpy well.
In Q1, you can.
See our authorization results and labs were certainly a big contributor to that and we've had strong authorization growth. You know so look we've added capacity, but we usually add capacity in a kind of a smart way, it's aligned with customer demand, but you have to build out enough capacity when when you go to the trouble and and applied.
The cat backs to to sustain you for a year too. So we certainly have enough capacity to grow and we have a customer and market.
A man that that suggests we're in a good space, we had an outstanding quarter and Q1, no doubt about it but we we feel good about our laboratory segment going forward.
Yeah.
Gotta. Thanks, that's helpful. And then are you expecting any change in your cat backs outlook this year or things progressing as normal in this area.
Yeah, we're not guiding specifically to where we'll end up in in terms of cap x. for the year, we tend to be a business, that's a little bit less capital intensive than than many other so we've averaged around 4% of of of S.C. Six so five kind of sales per year, I think a little bit below that on an A.C. six six basis you may.
C.S. hold back slightly on on some of these expenditures, where we deem that they're not essential given the pandemic in our desire to you know striking up liquidity Ah, but we're going to continue to kind of invested the same time, where there's opportunities that we have a high degree of confidence or needed that are going to eight our customers.
Mhm.
Thank you.
The next question answering Jane friendly as <unk>. Please go ahead.
Hi, Thanks for taking my question is good morning, gentlemen on I wanted to get some follow up on on a comment the bills made a couple of times around.
Around China, you talked about you you gave us a litany of of contracts side Activations things like that I'm wondering.
Since you know, we kind of don't fully trust the data we see in the in the major kind of infection. Trackers are you are you seen any spiking infection rate that would worry use that you would have to kind of retrench back into a a more restricted environment in China or is that continuing to progress without.
Inhibition.
Yeah, Dave I couldn't I couldn't comment on you know the infection rate in China overall, I'll I'll leave that to international health authorities in China. All I can do is tell you up what we've seen in our business. This is an interesting fact, <unk> makes me really happy, but none of our employees in <unk>.
Ah contracted the the the virus, so far which is amazing and you know reviewing with our team you know the progress is being made you know I'm you know I'm, just suggesting that we're we're seen activity resuming shine out you know the the the metrics in the month of you know.
Recently have suggested that there's a there's enough ticking activity in China. So that's positive and we're going to see what happens, but I I couldn't really comment on the the infection rate in that country or anything of that nature.
Got it but I was just digging for have you and your business had to had to rain back at any point in the last you know say couple of months when it sounds like no.
The second question that I wanted to explore was around your cost controls, which seem pretty significant I guess.
Annotated really I'm basically looking at a kind of one q. to to shoot sequential detrimental margin that is lower than your reported <unk> first quarter, so kind of looks like you're you're reducing costs by more than 100% of your costs and and I hear.
Are you talking about putting capacity in place for a covert related trials you have a lab business that obviously has a fair amount of fix fix capacity in it and I just want to better understand where you're able to pull levers on cost.
To mitigate the impact to even as you go into two q. Thanks.
Yeah, Thanks, Dave I'm not sure if we kind of looked at the math at the same way that you're you're you're looking at it as I kind of look at it or March and improves slightly from it believe it's about 18.4% in in in quarter wanting to 18.7 next quarter that does have embedded within a fair.
<unk> cost control one thing you have to keep in mind is in terms of the staffing or the resourcing.
Is to the extent that there are kind of colleagues that would not have demand if it weren't for cope in 19 awards were able in large part that kind of shift some of those bodies, where they have the capabilities to support to cope with 19 kind of work yeah. That's what David refer to an intersection about basically people being cross trained and really having a great degree of flexible.
<unk>, which has been part and parcel of how we've been able to manage our costs basis tightly as we have the last several years, so that adaptability and flexibility definitely you know place out favorably I I Miss a crisis like this.
Okay, but it does suggest that you're actually assuming greater productivity sequentially, despite the disruption and.
And having to shift people around.
Dave This is bill I I might answered in this way look the you know personnel is the biggest costs in our business right and <unk> and and given its nature. So utilization is is key to us and we have a lot of capability here analytically and an end to control that and see your point given the current.
Situation, there's a lot of tension between you know cost containment and and the expected increasing demand look we certainly slowed hiring our utilization is holding up pretty good. It's it's certainly not a target as you would expect and you know we.
We have taken of fun approach of reallocating team members between projects and and shifting team members between functions in some cases, and so you know overall, our priorities quality and ensuring that you know we can keep business continuity for for customers and studies in patients and so.
We're doing that through a variety of mechanisms and we're poised as recovery occurs to to take advantage of that now look clearly a lot of other drivers of cost <unk> you know travel costs have gone way down et cetera, David mentioned, some some activities in his.
His commentary and you know a we'd had employees who have voluntarily chosen to reduce their hours in the choice program that David mentioned, so I mean, we have a a lot of levers were pulling on on the cost side appropriately with the situation, but we are poised to to recover.
Just one other thing to add tape on the question is as you know you know these are some complicated kind of business. So in addition to all those things which were doing that kind of manage some other factors could skew the the percentages little bit here and there, including the effects rates for the court or the the the rationale ratio of <unk> you know, what we're kind of doing that.
<unk> compensation. So a series of those things could also like twist it but basically overall I think the story is is that that this is a team that has a lot of experience in terms of managing utilization and staffing and we do a great job at that and this is not the first time, we've been at it and you know we're going to execute this really well and quarter to.
Excellent. Thank you very much.
The next question <unk>.
Go ahead.
Hi, Thanks, very much <unk> gosh, how how well or the phase one clinics holding up I I would think they they're probably getting hit harder than some of your other areas.
Yeah. John This is this is bill.
Are phase one clinics are part of our early development services business, which is in in clinical and you know so it's it's a subset of you know that broad category defined his early development look we.
We did as you know the the.
Situation was developing a March we finished out ongoing studies that were near <unk> policing for clients. We took a look at the situation. We we decided to to shut down that clinic, we furloughed some of the employees.
And we thought that was the right thing to do because you know we didn't want to domiciled healthy normal patients based on all the guidance from National International National and local.
Local health authorities. So you know I would we looked at the market place we saw about half of those providing those services kept them open in some reduced capacity in about half closed we're in the camp of closing because we thought that was the right thing to do.
No. So that's that's a a subset of our business we have clinics in Las Vegas, Nevada in Austin, Texas, and in Orlando, Florida, and where in the process of of planning for reopening depending on how how the virus a progressive but I would see us taking a phased approach where.
These open up a at the end of Q. too for a small subset of <unk> studies, a whole bunch, a new procedures put in place and in through the course accuse three you know ramp up and then be at full capacity in Q4, that's how we're sort of thinking of our phase one clinics, there's a lot of d.
Tail around it but our teams done an excellent job and we think we've done the right thing as a company to protect both our staff and and patients.
Drawn it's David one one thing that AD with one thing that besides the bill set and then something the person to emphasizes that collagen patient safety is come first of all the three objectives that we're we're working on if they ever come in conflict colleague and patient safety wins, hence the very fast decision do.
Down the the the clinics the the that's the point I would emphasize bill brought up the point I would add is that customer demand for these services is very strong. So customers are keep asking us when are we going to be able to reopen the the the phase one clinics.
Oh.
That's very helpful. Thanks, and then a follow up around the site network I I'm guessing the patient flow there is better than what you're seeing and sites that you don't oh and or manage any metrics that you could provide on that I'm. Just curious how your your site network patient volume's might have trend in in a in Ah.
Quarter compared to the other sites, where you work.
Yeah. John This is bill so first of all our site network has remained open okay number one number two.
Ongoing clinical trials, many ongoing clinical trials have continued L.B. it at a slower pace and then some clinical trials have been put on hold by customers because they represent at these at risk patient populations that I that I mentioned earlier, no immunocompromised patients or elderly patients. So it's a bit of.
A mixed bag there the key thing. It's it has remained open they are screening recruiting and enrolling patients and as I said, it's a rescue mechanism for ongoing clinical trials and we're having discussions with customers around that right now we put into place a couple of virtual solutions to help.
Keep patients engaged enrolled in those those trials you know customers are very concerned about patients lost the follow up we've been able to maintain a lot of continuity. There. So yeah. We have experienced some studies that are delayed to enrollment or paused on enrollment just because.
Nature those patients, but it's remained open in many and many studies are continuing so we think as recovery strengthens that our site networks going to going to be a great solution and then those studies that are on pause are going to resume.
Sounds good thank you.
The next question <unk> Ehrenreich as credit Suisse. Just go ahead.
Great. Thanks, Fat Cat Sundeen, I would expect to be a little bit more volatile obviously in this environment <unk> <unk> <unk> <unk> across that California customers.
<unk>.
Thanks, a questionnaire and first.
Say that.
Biotech finding looks as robust as it's ever been in Q1, what we're seeing is funding from I.P.O. in debt financing, probably off a little bit or flatish, but funding from venture capital increased in Q1. So the total was a very robustness.
So we're not doing any signs of funding weakness on the biotech front second part as we continue to see cash on balance sheets of the funded biotech companies sitting at about two to three and training to the the three year number in terms of our cash on the balance sheet at current levels of R. and D. spending.
So the those are two those two elements of the amount of capital flowing in and the amount of cash on balance sheets that the well funded biotech companies are sitting on a boat as strong as they've ever been so that's the first point. The second is I think specific the P.P.D. I would bring out which is in our backlog.
If you look at the authorizations in our backlog from our biotech customers approximately 80% of that award volume is for phase two and later stage studies, which tend to be lower risk studies than the earlier stage biotech study. So you got an overall.
Climbing environment strong and then the particular types of work we do in the later stages of development, which makes up on a dollar value approximately 80% of our biotech backlog is relatively less risky.
Okay got it and then you mention they fix that you're feeding closely related they said twins, how should we be thinking about how meaningful those are two minutes I need help respected.
Yeah, I'm a couple things to consider as you think about them is one there fast burning. So this is tends to be revenue that's going to run this year and 2021. So it's the first 0.2nd is we think that the code book of work is dynamic.
Meaning you've got a lot you. The industry is really responded rapidly in are doing a lot of testing of scientific hypothesis around coded and some are gonna be good hypothesis that will get early data that's positive and others will be not so good hypothesis. So I I would expect with the awards that are coming in some.
And so some more expand and we've already seen some expansions in the work. We've we've won so we mentioned 39 awards. The other way to think about this is that 39 awards about two thirds of those awards or per treatments. One third of those awards are for vaccines. So the first and fast this.
Kind of runs out of the blocks, where the treatment programs and those that had really good early data if already expanded scope. So another thing to think about as as you see awards, they're starting in the earlier stage, but if the data comes out very positively you can see rapid expansion to these programs. An example of that is we had one <unk> one.
Treatment program that we were working on where our original scoping was to enroll approximately 700 patients within four weeks in the early data read outs on that the scope expansion went to well over 6000 patients I mean, it's just.
Wrap it in massive increase in scope and build talked about our people going 24 hours a day trying to make sure that we're able to enroll patients and get did medicines to patients. That's actually tied to the specific example, vaccines are lagging a little bit because it's being tested in healthy volunteers, but I would <unk>.
But the good vaccines programs are gonna see scope expansion start to pop in Q. too.
Now. The question is you got these double force, which early data redoubts aren't going to be so positive. So there could be some cancellations or just the studies stop after that early stage and then others, where the date is pause is going to be relatively large scope expansions and and you know because it's that's why we do these studies, it's hard to <unk>.
Act, what the what the volume is going to be in the future.
Great. Thank you.
The next question <unk> as bank of America.
Go ahead.
Hi, Thank you can you give us an update on the percentage of your overall patients, but you're able to recruit from your sorry networks and also what is the percentage of your site star exclusively dedicated to clinical research and potentially see in a smaller impact.
From healthcare resources pretty diverted to corporate 19.
But I'm sorry, I get the second part of your question again one.
<unk>.
Oh, yeah, and so what what is the percentage of your overall sites are exclusively dedicated to clinical research N. best potentially see in a smaller impact from healthcare resources being diverted to call. The 19.
Okay. I mean, we don't have a the specific data to to disclose on either those friends, but let me try to try to help with the the the questions on the the per cent of patients related to our site network versus other site networks. They proportionality hasn't changed through this.
Coded 19 crisis meeting the the majority of patients are still flowing through the the traditional site network versus 180 sites. We have I would say that that you know we we on our sites, while they're open and patients had been resilient. Many patients are willing to participate in clinical draw.
I'll have gone done the biggest factor affecting our own site network has been customer olds.
Where if you flip and go to the traditional investigator cites the biggest impact has been in that investigators sites as part of hospitals that are dealing with coded 19 outbreaks and there's severe impediments to our ability to do on site activity, which bill frame the proportionality in his and his opening comments.
So you have this kind of different impact from Cove. It in our sites, which is more driven by customer holds in proportionality standpoint, and zero impact on the sites being open from the pandemic versus traditional sites, which are more impacted by the pandemic than than from customer holds.
So that that'd be to try to help inform your question without disclosing the specific numbers you're asking for.
Goes or anything you want to add to that.
No I think you've hit it.
<unk>.
The next question as <unk> as you B.S. [laughter] he's going ahead.
Thanks for thanks for taking the questions.
Mentioned during the prepared remarks.
Got you've seen guy Kobe could actually have a net positive impact on the overall aren't they.
For you know Biopharm I was wondering in that context topic. We've tried to think about is when we look out beyond 2020, the ability for scared rose to huh.
So could you to speak a little bit about you know, maybe maybe give a little more color on the overall level of R. and D. and and you know covert impact and is there and abilities are a slight capacity whether it be at the sites investigators rooms here raised to actually have an ability to catch up for what's been.
Yeah, I think there's you were getting cut off in the question, but I think the questionnaire two parts is what was behind the statement up believing that this covert experience 12, a positive on effect on R. and D. investment and then I I think your second question was around what how do we see the complexity or challenge of.
Catch up once we get back to normalcy, so assuming that wasn't going into those questions. So on the first piece. The the the statement on R. and D. investment levels is is not a a technical technically based.
Feeling or belief, it's it's twofold, it's one that I think with the pandemic going out to think society is realizing that in the face of extreme health challenges are risks to help where does one turn for solutions and the.
Innovative bio farm on biotech industry is is the place that's mobilized on their own and we had speed and at pace in or or having a real impacts already I mean, just if we look at room that severe approval and the amount of work going on so I want it mixes all the maybe pre Cove and you may have.
Scene, just the general narrative out in the public Big one that's more negative to the industry because of drug pricing in a political focus on drawn pricing I think societies, probably seeing very clearly the role that this industry plays so I think the the the belief and and the importance of this industry to society is is.
Is pronounce them as does the main driver, but but behind the r. and D. investment levels, I think probably a sub chapter of that is a maybe a renewed focus in public private what I would believe would lead to a public private discussion.
On infectious disease preparedness, which maybe was was was lacking a bit but I'm heading into this so that's the first piece on the already investments on on the recovery sign. This is a really tough topic and it's one that we spend a lot of time on and business by business within.
The total P.B.D. that looks different but fundamentally it's we have to be prepared for different types of recovery curves, whether they be v. shaped u. shaped or w. shaped with re occurrence of of pandemic, but we do believe that we're going to get back to a point, where we're going to have to run whatever time.
Period, let's say, it's fourth quarter, Yeah, we don't know what it's gonna be able to afford border, where we get back to the requirement. When we've got to run a fool expected book of work for that quarter that was planned and then we have all of this.
Catch up work for delayed activities that have gone on so resourcing becomes very very important and this is why we been.
Very low to take draconian actions on our costs base, our leaders have done a great job adapting resourcing and re shifting resources to keep utilization as high as we can but it has taken a bit of a knock and this choice program has been key so people are managing their lives better, but we haven't given up that could pass.
That flex capacity to come back and but we do believe when that period of time hits, where we have to take do are are normally planned volume of work and do the catch up work that we're going to have to ramp up hiring and the timing of the ramp up of hiring add or in advance of this this bike is something.
He does really well and calibrate really well and we're going to have this is going to test our ability probably unlike any other spike build up that we've we've seen in the past, we'll see a bill wants to add anything to you. David I think you frame frame that quite well I think you know the challenges aren't technical in nature.
It's gonna be access to sites right. So access is a challenge clearly there's new procedures that will be in place that various instant countries institutions et cetera will put into place and we and and that you will have to react to that so the R.C.R.A.'s are prepared and able to enter those sites and then you know.
It's the nature of our business, it's core but clearly there's a lot of protocol amendments that have been put in place around a clinical trials as we've added digital services you know as we're in a a rescue mode opening up new sites are catching up on on activities that are required to be done at the site. We've done a lot of this work in advance.
It says I've said to the extent, we can to start up a new clinical trial, but you know that that's that's our bread and butter. Those protocol amendments and you know like Davis said from a resource in perspective, we're planning for recovery and ready for recovery.
Great. Thank you very much.
Yeah.
<unk> I I couldn't answer session.
<unk> friends back over to David Letterman start closing remarks.
Yes, I want to thank everyone. The participated in the call. We appreciate your your time and allocation of time to the P.B.D.
As you can tell we're very pleased with a quarter one results, but that's behind US now our full focus is on managing P.B.D. and being part of the solution to this pandemic as we go through two two and into the rest of 2020. So again. Thank you for your time and we'll close the call.
<unk> Conference call you may disconnect Caroline's, Thank you for <unk>.
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