Transcript Net Service Revenue ($ in millions) - Corporate-ir

(NASDAQ: IRGI)
William Blair Growth Stock Conference
June 25, 2003
Safe Harbor Disclaimer
Statements contained in this presentation that are forward-looking are
based on current expectations that are subject to a number of uncertainties
and risks, and actual results may differ materially. Factors that might
cause such a difference include, but are not limited to, risks associated
with: the reduction in research and development activities by
pharmaceutical and biotechnology clients, changes in government
regulations, the effects of interest rate and foreign exchange fluctuations,
our ability to attract and retain employees, the loss or delay of contracts
due to economic uncertainty or other factors, our ability to efficiently
manage backlog, our ability to expand our business through strategic
acquisitions, competition within the industry and the potential adverse
impact of health care reform. Further information about these risks and
uncertainties can be found in the information included in the company’s
recent filings with the Securities and Exchange Commission, including the
company’s Registration Statement on Form S-1 and Form 10-K filed on
February 18, 2003.
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Building the world’s leading and
most profitable drug development
services company
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Operational Overview
Strategy for Profitable Growth
2002 Financial Overview
First Quarter 2003 Financial Overview
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Investment Summary
• Global market presence
• Full-service drug development capability
• Large market opportunity
• Established leadership position in pre-clinical development
• Unique position in clinical development
• Diversified revenue mix and client base
• Proven management team
• Track record of growth and profitability
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Company History
1964
Inveresk performs first pharmacology/toxicology studies (in
Edinburgh)
1965
CTBR (Pre-clinical Americas) founded (in Montreal)
1988
Inveresk Clinical Research founded (in Edinburgh)
1989
ClinTrials Research founded (in Nashville)
1996
ClinTrials Research and CTBR merge
2001
Acquisition of ClinTrials by Inveresk Research
2002
NASDAQ listing (“IRGI”)
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Global Market Coverage
Origin of Clients - 2002
Japan
7%
Europe
31%
Client Type
Other
12%
RoW
6%
USA
56%
Biotech
32%
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Pharma
56%
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Full-service Drug Development Capability
Final Patent
Application
File
IND
Discovery
Research
Marketing
Application
Development Research
Market
Approval
Regulatory
Review
Post-Mktg
Review
Pre-clinical Testing, Toxicology,
Drug
Metabolism &
Pharmacokinetic
Studies (DMPK)
Basic
Research
Genomics
Proteomics
Virtual
chemistry
Synthesis
Biological testing Phase
I
Pharmacological
screening
Phase
II
Phase
III
Phase
IV
Clinical Trials
Market segments covered by Inveresk Research
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Large Market Opportunity
Growth in R&D vs. Revenue
(Indexed)
Market for Outsourced Drug
Development Services
20.0
180
($ in billions)
18.0
170
16.3
16.0
160
150
14.3
14.0
R&D
Growth
12.5
12.0
11.0
9.8
10.0
140
130
8.0
Revenue
Growth
8.5
7.6
6.0
120
4.0
110
2.0
100
0.0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
1999
2000
2001
2002F
2003F
2004F
2005F
Source: Frost & Sullivan
Source: CMR International, IMS Health
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Pre-clinical Overview
• World #3 in toxicology
% of 2002 Net Service Revenue
• World #1 in speciality toxicology
• Integrated laboratory sciences
• Established over 35 years ago
64%
Revenues - $142.2 million
1,830 Employees
Locations – Edinburgh,
Scotland and
Montreal, Canada
• 85% repeat business
• Diverse client base
• Focus on quality, value-added
• Clients - USA, Europe and Japan
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Clinical Overview
• Key global capability
% of 2002 Net Service Revenue
• Phase I-IV coverage
• European #4
36%
Revenues - $80.3 million
720 Employees
Locations – USA, UK,
Germany, France, Spain, Italy,
Belgium, Poland, Czech
Republic
• World class Phase I - 62 bed
clinic with “first-into-man” focus
• ClinTrials integration completed
successfully
• Further opportunity for revenue
growth and improved profitability
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Highly Diversified Client Base
Percentage of 2002 Net Service Revenue
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Major Pharma
Major Pharma
Biotech
Major Pharma
Major Pharma
Biotech
Major Pharma
Biotech
Biotech
Biotech
Major Pharma
Major Pharma
Major Pharma
Major Pharma
Top client – 5.9%
Pharma
Pharma
Top 5 clients – 21.1%
Biotech
Biotech
Top 20 clients – 43.2%
Biotech
Biotech
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Proven Management Team
Walter Nimmo
President & CEO
(15 years)
Nick Thornton
Corp. Development
(2 years)
Pre-clinical
Mike Ankcorn
President - CTBR
(24 years)
Paul Cowan
CFO
(1 year)
Clinical
Brian Bathgate
President - Europe
(12 years)
Alastair McEwan
President
(7 years)
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Track Record of Growth and Profitability
Income From Operations(i)
($ in millions)
Net Service Revenue
($ in millions)
250.0
60.0
222.5
Acquisition
of ClinTrials
– April, 2001
200.0
50.0
45.6
180.6
40.0
150.0
Acquisition of
ClinTrials –
April, 2001
30.0
100.0
20.9
51.6
58.2
63.9
20.0
65.5
50.0
10.0
0.0
9.4
10.3
11.1
8.1
1997
1998
1999
2000
0.0
1997
1998
1999
2000
2001PF
2002
2001PF 2002PF
5478706charges related to our IPO in 2002 of $54.6 million.
(i) Excludes amortization of goodwill prior to 2002 and exceptional
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Operational Overview
Strategy for Profitable Growth
2002 Financial Overview
First Quarter 2003 Financial Overview
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Response to Market Characteristics
Key Market Drivers
Drug Industry Trends:
• Huge demand for new therapeutics
• Impact of new technologies - genomics
• Growth of “biotech” and biotech products
• Increased “pharma” competition
Impact on Research & Development:
• Increasingly demanding regulation
• Escalating R&D expenditures
• Need for improved R&D productivity
Industry Response:
• Increasing and more focussed R&D
• Greater trend to outsourcing
• Need for global drug development
IRGI Response
Strategic:
• Continue focus in earlier development stages
– Pre-clinical, Phase I through early Phase III
• Differentiate through a higher value-added
service offering
• Maintain global reach
• Concentrate on areas with the highest
barriers to entry – toxicology, lab sciences
• Maintain diverse, high quality client base
• Provide solutions, not just science
Service Offering:
• Focus on quality and responsiveness
• Maintain broad based service offering
• Address both pharma and biotech
• Continue emphasis on speciality services
• Leverage Pre-clinical/Clinical cross selling
opportunity
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Financials - Key Growth Drivers
• Maintain revenue growth in Pre-clinical, accelerate in Clinical
• Controlled capacity expansion in Pre-clinical and Phase I – to
sustain/enhance operating margins
• Progress margin expansion in Clinical - towards target levels of
15% to 20%
• Continue migration of “old ClinTrials” clinical contracts to higher
margin business – to be completed in 2003
• Maintain emphasis on cost control and improved business
processes across all business areas
Target bottom line growth of over 20% per annum
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Key Elements for Organic Growth
2003
Stage 1 Montreal
2004
2005
Toxicology and Lab Sciences
Stage 1 Edinburgh
Toxicology
Stage 2 Edinburgh
Lab Sciences
Stage 1 –
Clinical Europe
Phase I
Stage 1 –
Clinical Americas
Phase I
Stage 2 Montreal
Toxicology &
Lab Sciences
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Operational Overview
Strategy For Profitable Growth
2002 Financial Overview
First Quarter 2003 Financial Overview
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2002 Key Highlights
•
IPO completed in June; 12 million shares sold at $13.00 per share
•
Net revenue up 42% to $222.5 million
•
Pro forma operating income up 104% to $45.6 million
•
Full-year operating margin 20.5%
•
2002 diluted EPS of $0.88, pro forma
•
Cash flow from operations $51.3 million(i)
•
Stage 1 Montreal pre-clinical expansion completed, on time and
within budget, and pre-sold on a multi-year basis
•
Reorganization and integration of former loss-making ClinTrials
clinical businesses has progressed beyond expectations
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(i) Before payment of accumulated shareholder loan interest.
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2002 Segment Results – Pro Forma
Income From Operations (i)
($ in millions)
Net Service Revenue
($ in millions)
60.0
300.0
250.0
50.0
222.5
200.0
+104%
+95%
+42%
45.6
43.5
40.0
+49%
156.3
142.2
150.0
30.0
+31%
100.0
22.3
95.2
+100%
22.4
20.0
80.3
61.1
50.0
9.0
10.0
4.5
0.0
0.0
Pre-clinical
Clinical
Total
Pre-clinical
2001
(i)
Clinical
Total
2002
Pro forma, excluding amortization in 2001 and exceptional
5478706charges in 2002 relating to the Company’s IPO.
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Relative Profitability - 2002
35.0%
30.0%
25.0%
20.0%
15.0%
Peer Group - Mean
10.0%
5.0%
0.0%
IG
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Review of Cash Flows
•
Net cash provided by operations: $51.3 million, before deducting
accumulated interest of $21.5 million on pre-IPO shareholder loans
•
Capital expenditure: $25.5 million
•
Cash flow (before accumulated shareholder loan interest paid) as a
% of Pro forma net income - 155%
•
Net DSO’s at year end: 30 (45 at December 30, 2001)
•
Cash and equivalents at year end: $19.9 million
•
Gross financial debt at year end: $68.0 million
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Operational Overview
Strategy For Profitable Growth
2002 Financial Overview
First Quarter 2003 Financial Overview
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Q1, 2003 Financial Highlights
•
Net service revenue up 8.5% to $57.7 million ($53.2 million in Q1, 2002)
•
Income from operations $8.6 million ($5.2 million in Q1, 2002)
•
Pro forma income from operations $9.2 million ($9.8 million in Q1, 2002)
•
Significant rebound in activity levels at our Montreal-based pre-clinical
operations
•
Clinical revenues grew 14.3% year-on-year. Operating margin increased to
10.6% in Q1, 2003, from 4.1% in Q1, 2002
•
Diluted EPS of $0.20, compared to a loss per share of $0.02 in 2002
•
Pro forma diluted EPS of $0.22, a 22% increase over Q1, 2002
•
Cash flow from operations $4.8 million, before capex of $4.3 million
•
New business signings $76.6 million in Q1, 2003
•
Confirmed backlog - $222 million at March 31, 2003
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Q1, 2003 Financial Results by Segment
Income from Operations
($ millions)
Net Service Revenue
($ millions)
70.0
+9%
14.0
57.7
60.0
53.2
50.0
40.0
12.0
-15%
-6%
10.4
+5%
34.5
10.0
36.3
+64%
8.8
9.8
9.2
8.6
8.0
+14%
30.0
6.0
18.7
20.0
5.2
21.4
+194%
4.0
2.3
10.0
2.0
0.8
0.0
Preclinical
Clinical
0.0
Total
Reported
2002
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Preclinical
Clinical
Total
Reported
Total
Pro Forma
2003
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Key Factors Influencing Q1, 2003 Results
•
Volatility in short-term business flows in Montreal-based pre-clinical
operations – strong rebound experienced in March/April
•
Reduced levels of pass-through costs in European pre-clinical operation
deflate revenue, but not profitability
•
Continued recovery in clinical business – in terms of growth and profitability
•
Transaction exchange losses recorded totaling $1.5 million – now hedged
•
Social security costs on employee share option exercises booked in Q1
totaling $0.2 million
•
Negative mark-to-market adjustment on interest rate swaps of $0.2 million
•
Share offering costs of $0.7 million expensed in quarter
•
Positive impact of Canadian and UK tax credits, reduced Canadian
corporate tax rates and newly available UK tax deductions for share option
expenses
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Moving Annual Total of Signed Contracts
350
325
300
$ millions
275
250
265.1
266.3
262.1
Mar 02
Jun 02
Sep 02
271.2
274.4
Dec 02
Mar 03
242.9
225
200
175
150
125
100
Dec 01
Moving Annual Total of Signed Contracts – cumulative previous twelve months new signed
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contracts, net
of cancellations
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Confirmed Backlog
300
275
250
225
193.2
$ millions
200
175
150
165.0
202.0
206.1
209.8
222.0
171.8
148.5
125
100
75
50
25
0
Jun 01 Sep 01 Dec 01 Mar 02 Jun 02 Sep 02 Dec 02 Mar 03
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Outlook and Strategy
•
Continued strength in new business signings across all operations
•
Rebound in Montreal-based pre-clinical operations experienced in March
and April
•
European pre-clinical operations experiencing continued strong demand
for both toxicology and laboratory sciences services
•
Clinical businesses continuing strong performance of 2002
•
2003 EPS forecast to total between $1.07 and $1.09, on revenue growth
of 11% to 14%
•
Continue to service our clients with quality, high value-added services
•
Pre-clinical expansion on track, Stage 1 Montreal expansion pre-sold –
leveraging our world leading capability
•
Diverse revenue and client base, positions IRGI well for the future
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Investment Summary
• Global market presence
• Full-service drug development capability
• Large market opportunity
• Established leadership position in pre-clinical development
• Unique position in clinical development
• Diversified revenue mix and client base
• Proven management team
• Track record of growth and profitability
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