ICON PLC (ICLR) 2003 Q4 法說會逐字稿

Standing by and welcome to the ICON plc's Fourth-Quarter Fiscal 2003 Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. As a reminder, this conference is being recorded Monday, July 21st, 2003. I would now like to turn the conference over to Sean Leech, CFO with ICON plc. Please go ahead.

Good day, Ladies and Gentlemen and thank you for joining us on our fourth-quarter fiscal 2003 conference call covering you with -- for the quarter and year end of May 31, 2003. On the call today, we have Dr. John Climax, our Chairman and our CEO, Peter Gray. I'd just like to point out that myself and Peter are in London and John is in Dublin so you'll bear with us if there is some gaps when we come to the Q&A segments. Before I hand the call over to John, I would just like to make the customer cautionary statement in relation to forward-looking statements. Certain statements in these opening remarks constitutes forward-looking statements concerning the company's operations, performance and financial condition and prospects. Because such statements involve known and unknown risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Given these uncertainties, Investors and prospective Investors are cautioned not to from such forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. And with that out of the way, I'd like to hand the call over to John. John.

Thank you, Sean. Good day, Ladies and Gentlemen. Thank you for joining our conference call covering the results for the quarter and the year ended 31 May, 2003. Net revenue in the quarter was $66 million, an increase of 54% over the same period last year. Of this, net revenues in the U.S. were up on the comparable quarter while Europe and the rest of the world grew by 56% over the same period. Excluding the impact of our recent acquisitions, net revenue growth was 34%. For the year, net revenue was $225.7 million which represented a 44% increase over the comparable period.

Of this, net revenues in the U.S. were up 48% and Europe and the rest of world were up 37%. Excluding acquisitions, the net revenue growth was 33% for the year. Direct costs were $34.9 million for the quarter representing 52.8% of net revenue compared to 53.3% in the comparable period. SG&A and D&A costs were 36.2% of net revenues for the quarter compared to 34.9% in the same quarter last year. For the year, direct costs were $122.4 million which represented 54.2% of net revenue compared to 53.3% for the same period last year. SG&A and D&A costs were 34.8% of net revenues for the year ending 31st, June 2003 compared to 35.1% for the same period last year. Operating income for the quarter grew by 43% over the same quarter last year from $5.1 million to $7.2 million. For the year, operating income grew by 37% over the same period last year from $18.2 million to $24.9 million.

Operating margins were 11% for the quarter compared with 11.8% for the same quarter last year. Our clinical business performed well during the quarter recording an operating margin of 12.4%. Our central laboratory performance was disappointing, was is line with our expectations and was an improvement on the previous quarter. Overall, operating margin for fiscal 2003 were 11% compared to 11.6% for the comparable period. Taxation was 26.5% of pretax income for the quarter compared with 28.3% for the comparable periods last year. For the year, taxation was 27.7% of pretax income compared to 26.5% in fiscal 2002.

As a result, net income for the quarter was $5.3 million or 43 cents per share compared to $3.8 million or 31 cents per share last year. The net income for the year-to-date was $18.3 million or a $1.50 per share compared to $14.2 million or $1.16 per share for the comparable period last year. Cash generated from operations was $4.9 million in the quarter. Capital expenditure was $4.6 million and payment made for acquisitions million in the quarter. For fiscal 2003 as a whole, cash generated from operations was $21.5 million. Capital expenditure was $15.8 million and payments relating to acquisitions was $40 million. Our investment in days sales outstanding were 64 days compared to 67 days at the 31st of May, 2002. As a result of these factors, net cash at 31st of May, 2003 was $11.2 million compared to $11.3 million at the end of our last quarter and $43.1 million at the end of fiscal 2002. Net new business awards in the quarter were $88 million compared with $63 million last quarter and $53 million for the comparable period, an increase of 66%.

Cancellations were $5 million representing approximately 1% of our opening backlog in the quarter. As a result, at the end of the year, we had a total backlog of $352 million. Of this, we estimate that $221 million will be earned in fiscal 2004 subjective cost to the risk of cancellations or delays. These represent an increase of 54% on the comparable period or 35% when the effective acquisitions has been excluded. We estimate that this represents 78% of current markets and census forecast and gives us an excellent foundation of business entering a new financial year. We are very pleased with the results for the quarter and the year as a whole. In particular, we're pleased with the strong growth and the record levels of new business which was awarded to us during fiscal 2003. We believe that this performance is as a direct result of our strong quality standard and our disciplined approach to the executions and management of clinical . For the company, it's fundamental strong and with an excellent backlog, we are looking forward to fiscal 2004 with strong confidence. That, ladies and gentlemen concludes our opening remarks. I would like to now open the call up for questions.

Thank you, ladies and gentlemen. If you would like to register a question, please press the one followed by the four on your telephone. You will hear a three tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. If you are using a speaker phone, please lift your handset before entering your request. One moment please for the first question. Our first question comes from the line of Peter with Stock Brokers. Please go ahead with your question.

Good afternoon, Gentlemen. Anyway, just a few questions, if I may. Firstly, the plating. I'm wondering what the timetable is at this stage for the plating when you expect to -- in position, plate the three million shares. Secondly, the new business wins. I wonder -- can you split up the clinical trials business and the lab and just a general question whether that level, the $88 million recorded in the quarter is sustainable or was there any seasonality impacting and thus and strong performance, and just on the labs business itself, what's the U.S. net loss incurred on the quarter and when you see the business actually turning back to profitability?

Peter, on the time the plating, we're not that liberty to comment on that. Obviously we put out a press release last week to say that we were proceeding and that is most that we can say at this stage and clearly, however, I'm sure you can understand that having brought forward our results timetable, we are planning to move forward relatively expeditiously with this but that's I think as much as we can predict at this point.

And you planning a road show at this stage?

Yes, we are planning a road show.

OK. And that will last around two to three weeks?

Something around those lines, yes.

OK. Thank you.

In terms of your other question, breakdown between lab and the rest of the business I think was about -- sorry 88, about seven was for the lab and the balance was for the rest of the business, ...

OK.

... and, in terms of seasonality, is $88 million a sustainable number? I think if you go back and look at our level our business wins quarter-on-quarter over the last three years, you'll see that the rates don't fluctuation on it but they follow a seasonal pattern. As you expected, in any business, you know, your uptake of orders, those fluctuate from time to time and is also influenced by capacity as to whether one has capacity or not. I wouldn't -- certainly wouldn't characterize this as a seasonal peak and as to whether it's sustainable, we see confidence that the market condition we're enjoying at the moment are strong and we therefore don't foresee a significant decline of that number in this quarter or in the quarters ahead. In fact, we've got some confidence that we see continues over. And the last question was in relation to the lab and how we preformed. It made a small net loss of around $100,000 in the quarter.

OK. Just on the business ones. Was there any one particular contract that stood out or was it just a spread of business and what's driving the new business wins at that growth and at that level?

It's a very broad selection of business wins. There was one significant award in excess of $15 million, but the balance were made up of our, what I would call the bread and butter of the business which are the 2 to $4 million value contract and very broadly based and across our different business segments. And the second part of your question was ...

No, that was it?

OK. Thank you.

Thank you.

Our next question comes from the line of Ian Hunter with Goodbody's Stockbrokers. Please go ahead with your question.

Good afternoon, Gentlemen. I was just wondering if you could give us some detail on your Globomax acquisition and first of all, how it will fit in the existing business and maybe a guide on what you see the revenues going forward and the margins for that business? And, on the margin side as well, I noted that there has been some improvement from quarter three to quarter four, but will it be firmly at the current level of 11.1% or are you looking for further strengthening through 2004?

Do you want me to take that?

Would you take that?

Yes, OK. On Globomax in -- it's a consulting business. It's something -- and consulting is an area that we've been putting investment into and developing over the last number of years. When we made our first acquisition in 2000, we acquired a group on the west coast which also had a significant consulting element in their business and believe we were developing that is because we've stronger needs as young companies emerging and new products emerging from such companies. We believe that strategically, I've been able to provide advise from early stage right through the development. The growth development process is an important service for ICON to offer and also, gives us the opportunity to form relationships at an early stage in the development of compound which we hope permanently leads to us giving the high value which compound gets to phase three. Globomax is -- I think is the best reason indicated about based in the United States and will had critical math to our consulting business and will add a high level of additional expertise it were existing into our existing operation. In regards -- revenues and margins, I'm not -- ideally, I'm not allowed to give you guidance on those. You can take it from the price that we've paid or have indicated that we are likely to pay. This will after all, only a letter of intent we've learned at this stage.

Yes.

You can take it that from our previous transaction, we tend to pay around the one- timed revenue and we would not have deviated significantly from that -- one would not want to be here significantly from that. In terms of the margins, again, our own margins are higher, are the kind of margins we expect from any business that we acquire, and again, Globomax will not be different from that, but I cannot give you any more future guidance on their margins or indeed on our own margins. Suffice to say that 11.4 -- 11% in the -- for the year as a whole and we would be hopeful that we could see further progress in our margin in the future.

Yes, OK. I mean the margin question, I just going to, if I could, have a second turnout just to see whether you've seen any evidence across the board within the industry of any margin pressures that, you know, they're trying to reduce their expenditures.

And, I don't think so. Again, if you -- you know, our own margins will be impacted securely by the performance of our lab business which .

Yes.

Our core margins in the last -- in the last few quarters have in fact been above historical norms. In the quarter just ended, our core margin was 12.4%. I think John just mentioned that in his comments and so in fact, over the last, let me say three of four quarters, our core margins have been above the level they've been after the last few years. So we'd be pretty bullish in terms of the environment out there and the opportunity it creates for open margin .

OK. Thanks very much.

Our next question comes from the line of Chris McFadden with Goldman Sachs. Please go ahead with your question.

Thank you, Peter and John and good morning. Could we start on the central labs' business. You've shown as you indicated in your prepared comments some sequential improvement in the business. Could you talk beyond the breakdown of new business wins that you've already provided about the general operating environment, therefore, perhaps an update on the capacity side of your central labs' operation and perhaps any improvements that you would expect from here both in volumes as well as in margin looking out into the FO4 period? Thanks.

Sure, Chris. Again, to put your -- put my comment a few moments ago in context, the wins that the lab had in the quarter were only about together one to one. So, not a performance by the lab in the quarter in that regard, although the previous quarter had been very strong and the early part of this quarter has also been very strong. So it's the environment we believe for the lab -- is that we see for the lab is quite positive. We see -- we expect that our revenues are going to commence going again through the rest of this financial year that we've now come in to.

In terms of volume to expect volume to increase and this is a highly leveraged -- operationally leveraged business and it would not take significant increases in revenues to turn the small losses we've been incurring into initially small profits and later, quite substantial profits. In fact, this time last year, the lab was reporting -- and, was reporting at almost $1 million in the quarter -- a year ago reported almost $1 million in operating profit. So, on revenue levels similar to this, we'll still be taking a lot of revenue to turn this business into quite a profitable one and we're expecting to be able to see that in the quarters ahead. on the last couple of conference calls and predicted what's going to happen in the next quarter and I'm not going to stick my neck out and say that at this time, but the way the business is tracking -- the way the have been tracking over the last few quarters has been quite satisfactory and we're expecting it will grow through into the performance of the business in the coming quarters.

Peter, thank you for that. And if I could ask a follow-up which is, in the consolidated P&L, you've reported the peak gross margins of the fiscal year in the fourth-quarter that would seem to set expectations or sorry, set a platform for, you know, strong momentum into '04. I guess, could you talk about some of the factors driving that beyond the strong organic revenue growth. If there's anything on the cost or operating side that's helping you drive that and then perhaps if you could flush out a little more detail in just general expectations for the consolidated P&L in F04. Thank you.

Well, I thought you'd know better than that -- the last question, Chris. I'm -- as I said to an earlier questioner there, I'm not at liberty to comment unfortunately on expectations for F04, but the factors that are -- that are impacting on our margins are high -- good volumes of business and high levels of business. As long as you translate into significant ramp ups in our revenue levels which should in turn help us to leverage operationally as the business. And that's why we've been achieving. Again, going back to an earlier comment I made, that's why we've been achieving and record or -- better than the last few years levels of operating margins in our core business. And, we think with continuing high levels of business wins, we should I believe to see those margins of the core business sustain, if not perhaps see them improve a little.

Over the last while, one of the comments that made was that our European business was not delivering in terms of of it's staff and in terms of it's margins. Not delivering as well as we would have liked it to. And it's anticipated strongly in the level of business wins we've had recently and we're expecting. Therefore, the margins in Europe to edge off for us. And overall, therefore, that should have our core margins to continue to edge forward. I wouldn't like to create a forward excited expectation in that regard but I think we would anticipate some improvement in the margins there. Clearly, the lab is going to be the biggest swinging factor on our margins and if we can and do as I've been promising for some time now which is see those -- see that the lab turn from small losses to profits, that would in itself have a positive impact on our margins.

I appreciate the detail. Thank you.

Our next question comes from the line of John Kreger with William Blair. Please go ahead with your question.

Thanks very much. Peter, could you give us an update on the concentration of your revenues and of your backlog in terms of top clients?

John, I will take that.

Thanks, John.

For the year, we would classify client concentration of those who have contributed more than 10% of our revenues. Only three folks here in that category. After a time, you get to . Again, to put that into context, in total, with all these three clients, we are working on a total of 59 projects covering 29 drugs. And only six of them have contributed more than a million and a quarter. Taking that in another sense, of the 59 projects we are working for all these three clients together, 40 of them are in case 3B, which means to say that the drugs are already marketed out there and we're looking at new claims. So, there isn't a real risk of client -- line concentration.

And great. And I think in the past, you've added those three or up and said in total what they would contribute in the quarter. Could you do that again?

Yes, we could do that. The top five clients -- if I compare that to last year, last year was 61% and this year, it's 51%. I'll give you a bit more. If I look at the top 10 clients, in the last year was 80% and the year that just passed for 2003 is 67%, so it's coming down.

Great, thanks. And then a separate question. Can you talk about the utilization rates in your business, in your U.S. and your European business and if you're willing to go to this level in your phase one business and your lab business as well?

Peter, would you take that?

Well, I'm passing it back to Sean, John.

We don't really -- on a comparable basis, this is different measurements for the phase one, so I don't think we'll be getting into that one, John, but I'm happy to share the ones.

OK.

Overall, it's just a little over 85% in the quarter and would be sitting by the core margins which earlier. In Europe we were slightly below and the U.S. just slightly below. But overall, we averaged a little over 85. In fact, it was actually flat from the previous quarter.

And in general, how's your phase one business doing?

It's performing level line with our guidance, probably a little bit ahead in terms of where we expect it to be at this stage, John. But I think we're for the acquisition so far.

Great. And just one last -- one last general question. Can you guys just talk about the environment that you're seeing for your core regular business. Getting better, getting worse, how's pricing holding up, things like that?

Yes, John, pardon me. I think I mentioned this earlier that our view of the market is quite positive at the moment, John. I think in common with our peers, we certainly would have shared the view that decision making and slower than certainly it was last year. I think we'd also share the view that last year was an exceptionally robust year in terms of activity and it appear that every company was very active in it's outsourcing activities. I think that we would have to describe calendar 2003 as a little bit less frenetic but nonetheless, we will regard that it is strong and that's showing through briefly in our business we're in.

And again, as I commented earlier, we have a wee little bit of confidence that our -- for example, our $88 million in the last quarter is not a and that we think we can achieve further progress on that in the quarters ahead. So, that's the -- that's the background to the question you're asking. In terms of pricing environment, a happy position and that having got this level of wins and finding the market quite strong, we've now been somewhat selective in the business we take, and that's enabling us to be reasonably disciplined in our pricing. I think I'm using discipline with our tongue in my cheek.

I think we're very pleased with the level of pricing that we're achieving and again, in terms of our margins that you've seen in our core business, they have been a little stronger in recent quarters and we would be disappointed if they could not continue to be so.

Great. Thanks very much.

Our next question comes from the line of Dave with Jefferies & Company. Please go ahead with you question.

Hi. Good afternoon, Gentlemen. Congratulations on the quarter. If I'm calculating this correctly, it looks like a little over $8 million in revenue in the quarter came from non-organic or acquired activity. Would you be willing to break that down between I believe there are two acquisitions in that bucket?

Sean, will you take that?

Of course. In the quarter, Dave, revenues from the net of our acquisition were $3.2 million with the remainder coming from .

OK, great. The -- Peter, you just answered one of my questions very well on general pricing activity. Would your comments be similar in the central lab area and clearly the dynamics for that business not quite the same as your clinical business right now. Is pricing in that environment also reasonably good or are you finding that there is more pressure in the smaller sized contracts that you would be going after in your central lab business?

Not that I'm aware of, I think is the honest answer to that question, Dave. The lab clearly hasn't had a robust to a history of business over the last few quarters as the rest of our business. So, they'd be more anxious about how they're performing. So I think we all recognize them, they recognize them, we make sure that they continue to recognize that discounting is the modern game and that winning business for the sake of revenue rather than bottom line is not a very cleaver strategy. So I don't believe -- in fact, it's not that I don't believe. I am certain that they are not -- they haven't changed their pricing policies or their pricing stamps and again, as I've indicated, they've had on average over the last two quarters and into the early part of this quarter, quite good business success and it's not on the back of taking a very sharp pencil .

And so on that basis and again with the , they were not predicting exactly when, but on that basis, do you believe that the business -- that the central lab is seeing would be capable of, over time, pushing that business back to margins achieved say in the -- using your example a year ago quarter?

Yes, we do believe that. I mean, I say that with some conscious because I'm aware that a number of our competitors who also have lab businesses have reported some difficulties or some disappointments in that business segment. Overall, our clinical trials business is performing well and our clinical trials' business is a self segment of the total clinical trials' activity going on in the market place. The lab businesses are addressing pretty much the total clinical trials' business. I would not expect that they would therefore be experiencing a different environment to that which we're experiencing. I don't know if I'm being too in that comment, but broadly I'm saying, the overall environment people are enjoying in our main business is good and there is nothing that we've seen that suggests that somehow or another the labs business market is different. It shouldn't be different and there's nothing we're seeing that suggests it is different.

OK. And then the last question I'll ask and I'll jump off this. Are you seeing a shift in the last say three to six months in the type of sponsor -- the relative mix of business in your new business activity between large pharma, specialty pharma, biotech categories?

What we have seen is a continuing trend of the percentage of our revenues coming from non-big pharma companies and increasing. And, the year ended May, 2003, 39% approximately of our revenues came from non-top 20 pharma companies. And of that, about 17% came from what we -- what would be normally classified as biotech. A year ago, that was 12% biotech and 37% non-top 20 pharma. So, our presenting is up 5%. Our percentage from non-top 20 pharma is up a couple of percent overall. From trend, it's continuing. It's not a huge rapid shift, but it's a very notable shift at the same, David.

OK, great. Thank you.

Our next question comes from the line of David with NCB Stock Brokers. Please go ahead with your question.

Good afternoon, Gentlemen. Just a couple of quick questions. Just given the financing you guys lined in the further and 16 year bank debt now in place, just wondering, in terms of your acquisition targets moving forward, has there been any change in the types of targets you're looking for? Is it the type of service in lines and that would be the main question and then if you commented on the rate of RSPs as continuing into the current quarter?

John, you want to take that?

Yes, Peter, you take that.

OK. Hi David. In terms of the line of credits, the answer is no. There is no change in our strategy and as you've seen over the last number of years, we had made a number of strategic acquisitions relatively modest in size and they call them both usually adding a new service or ICON as opposed to being in our core activity level. We don't see ourselves changing from that strategy. And, the point we're at now is prudent for us and was prudent for us to put in place somewhat more substantial bank lines than we had up until now, to have a $1 million or whatever shown it was with our main banker with somewhat line of credit to have, so we just put something more substantial in line with size of the company. And the potential offering doesn't significantly change that and nor does it signal some change in strategy in our part. And the second part of your question was ...

RSPs.

The rate or RSPs into the current quarter. Again, as I've indicated, we've had some confidence that the business environment continues to be positive. June was already good for us in terms of business wins. So we see the , we see confidence that the quarter will be a good solid quarter.

OK. Just in terms of Globomax, do you have a timeframe of which you hope to close that deal? You said the end of the month there.

I think we sign -- if we sign and complete , probably middle to the end of August.

OK. OK. Great. Thanks very much.

Our next question comes from the line of Steve Unger with Bear Stearns. Please go ahead with your question.

Hi. Good morning. On PPDIs or PPDs conference call, they discussed a 37% decline in proposal lines from Big Pharma. Is that something that you are not seeing? Is that where I should be taking away?

Steve, you know, it's typical for us to make comments about other organizations when we don't know the details. Having said that, Peter, do you want to answer this?

I think the comment is a 37% decline in Big Pharma proposal. I don't think we want to cover the data in that way but I'm not never owned that myself, Steve. And it would not be , I would not believe that we had seen any similar trend. I think I would say that there are two companies who the volume of RSPs from them in the last six to nine months has been lower than traditionally, but they were -- the companies concerned going through a merger, that's not unusual for the volume level to slow down. So that would be one for us and we would have seen a lower volume from those particular companies. But generally, as I say, I haven't got the date yet but my intuitive answer would be, no, we haven't seen anything like that.

OK. And then, as you grow in scale, has there been somewhat of a change in your business development strategy that you would go after? Some larger contracts, some much larger contracts?

Again, the short answer to that is no. As we have grown larger, we have been offered larger opportunities. And we used exactly the same pricing methodology for a large contract as for a small one. We use the same rates at the pricing of those contracts and so therefore, there is no difference in -- there should be no difference in the margin we make on the large contract versus the small contract.

OK. So, in the past, you kind of shied away from doing contracts that are in excess of that 40 to $50 million range? Is that still your philosophy?

I can assure you we've never got shied away from doing them, we just never gotten invited to the party. I can assure you we never shied away from such contracts. I think that you're maybe alluding to, Steve, the fact that purely at our side four or five years ago, our 40 or $50 million contract would have been a large exposure to any one project or any one or any one client. And of course, we put a brave face on it and said that we wouldn't really want that kind of business anyway but the honest answer is now, several years later when I can pay this, is that most of the anyway. We've been just to one such party and we did several years ago. But in the last two or three years, we've become to see larger and larger contracts and we're very confident while executing them. We have the infrastructure to do that. And, we're also very comfortable pricing them. We use the methodology, we use the same rates and as I say, we expect at least the same margins.

OK.

Also, in addition to what Peter has said, having said all that, we have always focused on global programs. That's how the company has itself. So, we have, overall, seen large contracts, but not to that level, as Peter was saying, when we were a couple of years younger. But now we're seeing more of the larger contracts as we -- as our size increase and our universe increase and this is quite expected.

OK. And then the significant awards that you said was in excess of $15 million, is that less than $20 million? Should I infer that?

Yes, you can infer that.

OK. So, it's somewhere in the 15 to $20 million range. And then, just a last question. Or at least previously, in previous quarters, your hiring rate, it appears, was a lot faster than I think the $33 million -- or 25 bodies this quarter. Is there a reason for that? Was there excess capacity in the previous quarter?

Peter, do you understand the question? I did not.

I understand the question. Sean, do you want to take that or?

I think it's just pure timing. If you look at the wins through the quarter, you're right, . We've probably 35 people in the quarter. I think that's probably more a timing issue, we're improving heavily at the moment. I can see that number somewhat larger in the current quarter.

OK. And how is the hiring environment right now?

It continues to be and that in a way validates a number of things we've been saying, for example, about the general environment. Trying to hire experienced clinical research staff has also been difficult as long as I've been in this business, and it continues to be difficult. I don't -- I think what that signals it boasts demand for people with these skills. That being said, as it not being a barrier to our globe in the past and we don't expect it will be a barrier to our globe in the future. We are, as John and Sean said, we've accelerated our hiring globe ground again in the last month or two and we are finding a reasonable slow of good candidates and ICON has always had a policy also of bringing in people who aren't necessarily experienced as a clinical research associate or have some clinical research experience of other types and have -- we have a comprehensive training program that brings them into our methodology and makes them competent to execute very quickly and we're continuing to bring in those type of people as well.

OK. Great, thank you.

Our next question comes from the line of Jack with Stock Brokers. Please go ahead with your question.

Thank you very much. I think many of my questions have been answered, but I have two perhaps that I could ask you in general terms. First of all, just if you could give us an insight perhaps as regard the acquisitions you made over the last number of quarters, BPA, MCS and also . And, what are you -- since you've acquired them, would you have made any significant operational changes to those business or indeed any significant changes in your pricing strategies within those as you have -- as you learned more about them and integrated them into the group? And secondly, and I think, Peter, you might have touched upon this already but you might just give maybe a observation of how you've seen the Pfizer Pharmacia merger progress and what impact it had on the industry overall.

John, will take all of it?

Yes, Pete, go ahead. You might as well.

OK. On the acquisition, Jack, have we've made changes? Yes to a greater or lesser degree. If you take BPA first of all, that was a comparable to our own business and we've integrated into our business in the United States. It's now a wholly integrated part of our ICON researching business. And NTS was always intended to be a new business segment for us. So, we have not made changes there other than the management who are running both BPA and MCS are now wholly focused on the NTS business and on growing it. And as you probably recall, there's in our note and which is tied with solely for the purpose of MCS and that's why they are focused on that part of the business. And, we haven't made further management changes to that business. The previous owners are focused on growing it. In the case of , all of the pre-acquisitions management team are in place. W

e did transfer one of our own long-standing senior employee, Dr. Andrew Griffith, who in recent times was our head of business development, but in his prior alliance was head of clinical and was head of the phase one unit in another company. And, Andrew oversees and is the manager, if you like, of , so we have somebody on the ground working with the management team on a day to day basis in , and obviously Globomax because it's only a letter of intent. We haven't acquired it at this stage. Second part of your question was, have we instituted any pricing changes in those acquisitions, and the answer to that is, negative. If anything, we might have instituted some pricing suggestions in the area that we thought was appropriate. So it would not be significant. Any changes of that nature would not be significant.

Would that be across all three businesses, Peter or most of it is still activated in ?

It could be more selectively than that. MCS for example, we would not have choice to change their pricing policy to say -- the talk we've given the old management team there is to go forth and multiply and we're letting them get on and do that using the strategies that they believe is appropriate. But that's, as I say, a different business segment and they have not changed their pricing policies since we acquired them. And in the case of , I don't believe we've instituted -- shown any, or John, any change in policy on pricing?

No.

So the answer is no to those. In the case of BPA which was again a CRO, probably some changes there, because now BPA has integrated into our larger business and as John said, our focus is always on global business where BPA would have been a local CRO. So, there might be some changes to their pricing hopefully.

OK. .

The second parts to your question.

Yes, just on Pfizer Pharmacia.

Pfizer Pharmacia.

And again, probably inappropriate for us to comment. We hear lots of things but not sure how they are and certainly wouldn't want to be making comments publicly about things that are going on within that company. I think there's a profit of integration is well advanced from what we hear and we'll be hopeful and we will hear certainly indications that the profits of outsourcing will accelerate in the months ahead, but I don't think I'll be in position to comment beyond that.

From your previous experience of perhaps Pfizer and others, Peter, is it usually a number of quarters after the integration occurs that the flow begins again or does it tend to anticipate integration completion?

I think the answer to that is usually but certainly on a number of the larger mergers that have taken place, yes, it's intended to be anything up to a year opposed the merger actually taking place before the outsourcing activities mergers and reaccelerate. That was certainly the case with Astrozenica and was the case as we saw it with . Wasn't always the case. Pfizer appears to take place almost seamlessly but they were not necessarily of the same scale as Pfizer Pharmacia, for example.

Great. Thanks.

Our next question comes from the line of with . Please go ahead with your question.

Thank you very much. Most of my questions have actually been answered. Two quick questions. First I was hoping that you could be slightly more granular in terms of your fortification plans, if you will, for the central lab facilities. Maybe specific steps you're taking to improve that business activity and margin. And then secondary to that, in prior periods, you have provided client concentration individually for each of the top three clients and I may have missed that on the call but I was hoping you could provide that today. Thank you.

More fortification on the lab. , the answer is, essentially this is an operationally leveraged business. Business wins translating into increased revenues is what's going to turn this business around. We shouldn't lose sight of the fact that three years ago, we acquired this business that was doing $12 million in revenue, then it $4 million in the year before we acquired it. And the year we acquired it broke even on $13 million of revenues. In the following year, it did $24 million of revenues and did $3.3 million of operating profit and this year, it has made a small operating profit overall for the year on $26 million of revenue. So, it's had a bad year. Revenues have not fallen back.

They continue to grow, but not as robustly as we planned, but we put cost structures in place that were designed for a higher revenue levels than they actually achieved. What we're expecting is, that that now. We've made our investments and we are winning the business and we expect that business wins will translate into higher revenues and better margins in the quarters ahead. Are we a little anxious about it? You're damned right we are. What steps have we taken about it? There have been some changes within the management team already in the lab and therefore, we have taken action. We are now doing defensible thing as a business in that we are allowing a build action to their course and actually expect that they will be successful, and in terms of the top three customers, John, you already gave that data a few minutes ago, do you want to repeat it very quickly?

Yes. The top three clients are AstraZeneca, and Pfizer from a year. And from a year AstraZeneca was 21%, 11% and Pfizer 10%. This is for the year. Does that answer your question, ?

Yes, it does. Do you have the -- happen to have the quarterly break out as well?

No. No. I don't have the quarterly break out.

The quarterly break outs are, to be honest with you, can be phobia. They tend to, you know, move up and down. I think an annual number is a much more meaningful number.

Thank you.

Ladies and Gentlemen, as a reminder, to register for a question, press the one, four. Our next question comes from the line of John with Shumway Capital. Please go ahead with your question.

Yes, hi. I was wondering if you could talk a little bit more about the $15 million plus win. I guess -- how typical is that in one of your quarters, and if it's not typical, you know, why wouldn't a more reasonable run-rate going forward be what you booked minus 15? How -- you know, what gives you confidence? As you said that you think you can sustain this run-rate because it's very impressive then if -- I'd like to get appreciation for what you're seeing that gives you confidence in the run-rate.

Peter, can you take that?

Hi, John. A win of in excess of $15 million not out of the ordinary. Obviously we don't win three, four, five of those every quarter and we don't even win one in excess of $15 million every quarter, but we probably win one in excess of $10 million every quarter, and sometimes, it's over $15 million. And so, I wouldn't -- I would not see it as a one off exceptional item. If I told you we won a project of $40 million, which we won a few years ago on a one off basis, yes, I'd say that was a one off that this one should discount somewhat. But that $40 million win of several years ago was a seven year contract and therefore, you have to also take into account the much longer duration of that particular project in reading into the significance of the win number. And we pointed that out to everyone at the time.

So I would not zero in on that particular win as a proxy for saying, well, is exceptional, it might be difficult to repeat. What gives us confidence -- I suppose what gives us confidence is the number of opportunities we currently have outstanding that we believe we have a good chance of winning. Plus, the strong level of wins that we've already achieved halfway through the quarter. Again obviously I can't say more than that, but it certainly gives us a good degree of confidence.

In many ways, it seems to me that ICON stands today maybe in a similar position where PPD might have stood a few years ago where they had their own very impressive growth, where ICON from my knowledge has a fabulous reputation for quality and it seems that maybe you're now being invited into companies where you weren't before.

Is that a reasonable statement, that you're just being considered for opportunities that you weren't doing business with before and on a scale that you weren't considering doing before?

Sorry, John. Do you want to take that?

Yes. Perhaps so, John. Perhaps so. But having said that, at the end of the day, what really gets anyone to the table is consistent performance. And I'm sure PPD and all the other companies out there have performed in a similar fashion, and we are the same. What perhaps is slightly different is that we are more of a critical size today and we can do much larger global programs.

And that ability, together with the consistency in performance, opens up a lot of opportunities.

OK, great. Thanks a lot.

Our next question comes from the line of with Argus Partners. Please go ahead with your question.

Good morning. I just had a question on the central lab business. Does the bookings in there follow the fees clinical business, or is it a leading indicator. I'm just wondering why central lab bookings aren't booking up when the clinical business is so strong?

Well, I think as I indicated that not in the last quarter, but in the previous quarter, the third quarter, we had awards that represented a book to bill of 1.3 or 1.4 in the lab. Yes, we've had a quarter where it was won, but if our activities so far in this quarter continue, we'll have, again, a very strong book to bill performance for the lab. So I think it is tracking similarly to our clinical business.

Thank you.

There are no further questions at this time. Please continue.

There seem to be no more questions. I would like to thank you all for joining us today. It's been another record year for us, with organic revenue growth of 36% and excellent performance in our clinical trial segment, and further progress on our strategic development. I believe we can look back on fiscal 2003 with satisfaction and look forward to fiscal 2004 with confidence. Thank you again, ladies and gentlemen.

Ladies and gentlemen, that does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines.