ICON PLC (ICLR) 2008 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the third quarter 2008 earnings conference call hosted by Ciaran Murray. My name is Louise, I will be your coordinator for today's conference. For the duration of the call you will be on listen only. However, at the end of the call you will have the opportunity to ask questions. (Operator Instructions). I am now handing over to Mr. Murray to begin today's conference.

Good day, ladies and gentlemen. I would like to confirm that this is Ciaran Murray and not Ciaran Murphy and there has been no late change in the running order, happy to say. Thank you for joining us today on this call covering the quarter ended September 30, 2008. On the call today with me I have Dr. John Climax, our Chairman and Mr. Peter Gray, our CEO. Before I hand the call over to John, I would like to note that this call is webcast. There are slides available, and the comments will follow the slideshow. I will now make the customary statement in relation to forward-looking statements.

Certain statements in today's call may constitute forward-looking statements concerning the Company's operations, performance, 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 place undue reliance on 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.

Today's commentary refers to our third quarter ending September 30, 2008. Please note that in the following commentary the earnings per share numbers reflect the two-for-one share split that occurred in August. Also please note that the financials for both current and prior quarters and any reference to margin is after charging stock compensation expense. All of that said, I will now hand the call over to John.

Thank you. Good day, ladies and gentlemen. We are very pleased to report another excellent performance by ICON in quarter three 2008. The group's net revenue grew 35.1% from $166.9 million in quarter three last year to $225.5 million excluding the impact of HCD, the US Phase I unit which we acquired in February 2008, the organic growth rate was 32.9%. Excluding the impact of currency movements, the organic growth rate was 28.5%.

The year to date net revenue was up 43.4% from $450 million to $645 million. Operating income for the quarter was $27.1 million, representing a 45.1% increase over the same quarter last year. Year-to-date operating income was $73 million, representing an increase of 47.7% over the prior year. Group operating margin grew for the quarter to 12% compared to 11.2% in the same quarter last year. Year-to-date group operating margin increased to 11.3% up from 11% in the prior year.

The margin in our clinical business was up for the quarter at 12.5% compared with 11.6% in the same quarter last year. Year-to-date our clinical business posted a margin of 11.7%, which was up compared with 11.3% in the prior year.

The Central Laboratories revenue grew by 33.7% to $18.5 million and achieved operating margins of 7.1% compared with 7% in the same quarter last year. The investment in our new facility in India and the upgrading of our laboratory in Singapore are progressing well, and we are currently validating equipment and tests prior to commencing operations.

Year to date our central laboratory has achieved operating margins of 7.5% on revenues of $51.5 million compared to a margin of 6.5% on revenues of $39.8 million in prior year.

Group net income rose to $21.4 million from $14.5 million last year, representing 47.4% growth. EPS grew from $0.24 per share to $0.35 per share, a 45.8% increase. The effective tax rate for the quarter was 20%. Year to date net income increased to $57.1 million from $40.1 million last year, representing 42.4% growth. EPS grew from $0.67 per share last year to $0.93, a 38.8% increase.

The effective tax rate for the year to date was 20%, down from 22% in the previous year. Cash flow provided by operating activities was $58 million in the quarter. We invested $18.1 million on capital expenditure, which was related to the continuing expansion of a global infrastructure in line with our strong growth. Of this $5.6 million related to the extension of our Dublin facility, which is now almost complete.

Year-to-date cash flow from operations was $86 million, and capital expenditure was $53.6 million, of which $17.6 million was in Dublin. In addition, we invested $12 million in the acquisition of HCD, our new Phase I facility in San Antonio.

At September 30, the company's net cash amounted to $55.6 million compared to net cash of $6.9 million at June 30, 2008. DSO at the end of September were 54 days compared to 58 days at the end of June 2008, and 66 days at the end of December 2007.

At this point I would like to hand the call over to Peter Gray who would give you an update of the business outlook.

Thanks, John. Just talking about business and how business has been, gross awards as you will have seen from the press release for the quarter were $394 million, cancellations were $44 million which is about 11% of gross awards. As a result, the net business wins were $350 million compared to $230 million in the same quarter last year, which represents an increase in net awards of 52% and a strong book to bill of 1.6 to 1.

Year-to-date gross business awards were $1.2 billion, cancellations were $171 million, which represents 14% of gross awards. Plus in the last, in our most recent quarter, our cancellation rate is actually down a little on the average we have encountered so far this year. Net business wins for the year to date were $1.1 billion compared to $683 million in the same period last year, which again represents an increase in net awards of 54.6% and an average book to bill of 1.6.

As a result of all of this our total backlog at the end of September was $1.74 billion, which is a 54% increase over last year, and of this backlog we are expecting $763 million to be earned in the next four quarters, representing a coverage of approximately 77% of our expected revenues in those four quarters.

Overall, the tone of business continued to be strong. While RFP volumes were down by a couple percent, the value was up by approximately 9% in the quarter. Interestingly, we can't detect any slowing in the value of opportunities coming from biotech companies, although I think we should note that the majority of ICON's biotech business tends to come from more established companies rather than emerging startup type biotechs.

That concludes our formal comments, but before handing over to questions I would like to take the opportunity to thank all of our 6600 employees around the world in 71 offices and in 38 countries for their continuing significant contribution and to our success. Can we take the first question now, please?

(Operator Instructions). Ian Hunter, Goodbody Stockbrokers.

Peter, I think you already covered what I was going to ask there but I will go through it anyway. I do see there is good visibility on the business over the next 12 months on the strong net new business wins you have. But I am just again kind of rethink what you feel the feeling is within the sector on the ability of your clients to weather the external financial conditions and be able to fund future research. I think you alluded to the fact that your biotech -- I'm not going to call it exposure, biotech clients are mainly the large cap, I am presuming, and not the smaller companies but I'm just wondering can you give us a feel for the breakdown in your revenue numbers as to what the percentage would be between large-cap pharma, large-cap biotech, mid and small pharma and mid and small biotech. That's all I need to know.

Yes, you wouldn't like any more granularity?

I wasn't going to say granularity.

In the year to date, Ian, revenue from biotech companies including the large-cap biotechs represents about 19% of our total revenues. And from midsize companies we have about 22% of our revenues coming from midsize companies. That leaves you with just about 60%, a little over 60% coming from large-cap. Back to your more general question in relation to what is our feeling about the ability of our customer base in general to weather the financial storm; I think it is very good.

People don't stop obviously buying medicines and don't stop needing treatment for disease when there is a recession on. And because the timeframes involved in developing new compounds are, as we all know, years and years and years, our experience in the past and our expectation for the future is we are not going to see certainly among more established companies, any diminution in their commitment to developing compounds for the future and therefore ensuring the future of their research pipelines. So we are not anticipating any impact on the larger, well capitalized companies.

As I commented, the view we have at the moment is biotechs and I know people have been expressing concern about biotechs. We are not seeing any slowdown in the value of opportunities coming from biotechs although I do qualify and did qualify that by saying that in general our customer base, our biotech customer base, tends to be pretty well capitalized organizations. Although I don't want anyone to imply from that, that it is only the mega biotechs we are talking about. There are, as you know, there are quite a number of smaller biotechs. The important factor that I look at it, are they earning revenues, do they make profit, therefore do they have a cash flow to support their research spending. And the majority of our biotech customers fall into that category.

Maybe just a quick follow-up there from your comments there saying that their RFPs were down, but the values were up. Is it a feeling generally that the contracts you are winning now are larger in size?

I think we have been commenting that now for the last year, year and a half, Ian. And we show data at our investor day earlier this year about how significantly the value of individual opportunities had increased. And I think what we continue to see is that the opportunities get larger and larger.

Okay. Thanks very much.

John Kreger, William Blair.

Just a follow-up on Ian's question. Peter, we have the sense that a lot of the large pharma companies are in the process of restructuring their R&D models. Would you concur with that, and are you seeing any interesting trends coming out of that as they make their decisions about how they are going to change their model? What has that done for their outsourcing patterns and how they work with a company like yours?

I think the thing we all need to remember as we talk about these things, John, is this industry moves slowly. At our guidance call last December we talked about the fact that we were seeing signs of increasing, embracing by large pharma companies of strategic outsourcing, a more strategic approach to outsourcing. And through the year we have continued to see that, and obviously there have been a few announcements over the last while that emphasize the fact that there are companies looking at outsourcing in a more strategic way.

The words you used in the question was do we see a lot of or most of the large pharma companies changing their model. I wouldn't want to give the impression that there's a tidal wave of change has suddenly happened. I think what we see is a number of companies over the last number of years have been changing their approach. I think that continues to develop, is gaining a little momentum, but I don't think the world as we know it changed last week or two months ago or at the beginning of this year. I think the world as we know it is morphing slowly. And large pharma companies are responding to two things. Obviously they have their own pressures to deal with, but secondly, the CRO industry has become a much more mature industry.

And the quality and the depth that the CROs in general can deliver to pharma companies is now perceived and viewed very positively I think by large pharma. And the net result is they are comfortable and getting comfortable with the idea of CROs being their partners as opposed to just being arms and legs that they hire from time to time.

So I think we are seeing that change, but I wouldn't want the community at large out there to think that somehow or other the game changed on a particular midnight of one day during this year. It is a slow progression that is taking place.

Thank you, Peter. A question for Ciaran. I noticed that your gross margins were down a bit year-over-year. Can you comment on that? Were there any particular drivers?

No, John. There were no particular drivers in there. I suppose it is just a number of small things, the influence by foreign exchange, by recovery and various reasons and probably a little bit of softness there coming from the fact that the Phase I unit in Manchester had a poor quarter this year in Q3 and a good quarter last year in Q3. That would be principally what is behind that.

Thanks very much.

David Windley, Jefferies & Co.

Congratulations on the quarter. Peter, thanks for the additional detail. I wanted to dig into the RFP flow metric that you've given. If I remember correctly, I can't remember if it was 1Q or 2Q but one of the earlier quarters of this year your value of RFPs had increased some 20%, and your year-over-year net new business wins have outpaced RFP flows by at least a factor of two, sometimes three, I suppose. This quarter your number is an RFP value growth of 9%, which is decent growth, but certainly slower than what you have seen. So I guess my question is twofold.

One, if you are not seeing weakness from biotechs, where is that growth slowing? And two, what do you think -- what is ICON's positioning that is allowing you to have such a high hit rate that you are winning, you are growing your wins some four or fivefold above the RFP growth rate?

The first part of your question was if we are not seeing weakness from biotech, where is the growth slowing. What we are saying is we are not seeing weakness from biotech, but across the board, Dave, what we are seeing is growth, albeit the growth in value across the board is a little slower than it was last year. If I can, I think I recall that last quarter we said actually that the RFP value growth was 10% up. So the 9% is pretty consistent with what it was last quarter. I'm not sure when the 20% relates to. It might have been during last year or towards the back end of last year, I would have to go back and check on that.

So I think the fact that growth is 10% rather than 20% or something like that is really more a function of the law of large numbers. It is really a function of we grew so spectacularly and we grew our value last year it was 80%, as I recall from our investor day presentation, the value of opportunities in 2007 was up 80%. So for it to slow down to a more modest growth rate this year I think is hardly surprising. Wouldn't read too much into it. We certainly are not reading too much into it.

And then we turn to the second part of your question, which is our win rate and book to bill. I am not sure I actually understand the math of your question. Our bookings are at the book to bill of 1.6, so can you explain to me what you are really asking there?

I think if I look at your, I believe John said or it would have been in your comments, that net new business was up 52%; so you are clearly able to grow your wins --.

We are not comparing apples with apples though there. The 10% increase in value of RFPs -- I do see what you are saying, yes, the growth in RFPs as compared to last year at the same period last year and obviously our wins are up 52%. We are just damn good, David. That is the answer. We're just damn good.

That's easy enough.

And you have to remember there is a lot of that RFP activity as we explained in our investor day, some of it never goes anywhere. So we haven't tried to analyze whether more of what is coming to us this year is real and less of it is budgeting exercise stuff. So it is difficult to draw a correlation between those two numbers.

Okay. Just one follow-up on that. Do you think that the 9% -- or can you hazard a guess even if the 9% RFP value growth represents the market.

I haven't the faintest idea, Dave. I have no idea whatsoever.

Okay, last question. Ciaran, can you comment a little bit on the FX impact on operating income or operating margin. It has been in the first half of the year a little bit of a drag on operating margin. What did it do in the third quarter?

In the third quarter, as we would expect with our model, Dave, it was positive sequentially, it added about 50 basis points to our operating margin.

Okay, great. Thank you very much.

Doug Tsao, Barclays Capital.

To start off with, Ciaran,the cash flow performance was very strong this quarter and to some extent bucked the trend we had seen where we had very strong performance in the even quarters and not the strong performance in the odd quarters. I was just wondering if there was some kind of renewed focus by the company recently or sort of initiative which [are paying some] dividends.

Gosh, you are way ahead of me. You're noticing trends in even quarters and odd quarters. You must give me lessons on this.

No, we always work hard at DSO. And if you look back at 2007 I think we had an average of 55 and was as low as 51 in one quarter, and other quarters it was 59. And towards the end of that year it slipped a little bit into the 60s. I think we finished the year at 66. Just due to a number of operational factors and milestones. The trouble with DSO is you work hard at it all the time, but once it slips and you have a bad quarter it just takes a while to get it back. It is hard yards, and it is down to that game of inches.

So from when we hit the low point back in Q4 and then in Q1 we improved it to 58 days in Q2. We've kept the improvement into Q3, and it is not, unfortunately, it is not as a result of any magical or individual's approach. It is just doing the same things that we always do, trying to watch our payment schedules and our milestones. And we design contracts trying to get passthroughs billed efficiently and as quickly as we can after we pay them, getting fee invoices out and collected and primed.

So it has been a good quarter. We head into Q4; you never quite know how Q4 goes with budget cycles and people may want to hang onto cash for their year-end balance sheets and things. So we will see how it goes. We are targeting -- our target is sort of 60 days is what we aspire to. We are running ahead of that at the minute. I would like to stay there, but we will see what happens in this quarter.

Okay, and then you alluded to the Phase I business in the UK not having the best quarter. This has been a business that is sort of obviously had some management changes I believe at the beginning of last year and results have continued to lag. And I was just wondering are you thinking about further changes, not necessarily in the management team, but just simply in the approach that you are taking there.

Yes, is the short answer to that. We have made some further changes in the current quarter and some changes in approach. And we are hopeful that we will -- that will begin to pay dividends. The history of the business in Manchester has been one of feast and famine. They have a couple of good quarters, and then they suffer a lot of cancellations and they have a couple of bad quarters. And it has been a very variable business, and we feel our business development efforts have not been strong enough and haven't been consistent enough for that business. And that is one of the areas that we have addressed and that we have made some changes in.

Happily the HCD acquisition in San Antonio, which we made earlier this year, had a very good quarter and its backlog is built nicely. So the poor execution we've had in business development I suppose in, for the Manchester unit has not been replicated in the Phase I unit so far. In San Antonio and as I say, it had a good quarter; its backlog is in good shape and it is continuing to build that backlog.

Thank you very much for that detail. And then one last question. The central lab, the operating margin was down a little bit sequentially even though we saw what I think is a nice increase in terms of the revenue growth; and I was just wondering if we could get a little color around that.

As John said in his comments, the India and Singapore investments are in the I suppose in the expensive phase at the moment. It is easy to spend capital. It is harder to actually when you've hired the people and you are validating the machines and you are validating the tests; so we've got an expense run rate in India and to a lesser extent in Singapore at the moment that isn't mitigated by any revenue. So it has increased our costs.

And as Ciaran points out to me regularly, the difference between the margin we had last quarter and the margin we have this quarter is about $150,000. So very small amounts of money make a significant -- can have a significant impact on that margin because the business is a relatively small part of our business overall. So there is nothing significant there, Doug. Would have liked to have seen obviously more leverage from that revenue increase, but we are in investment mode.

Okay, great. Thank you very much. I'll hop out.

Greg Bolan, Wachovia Capital.

Thanks for taking the questions, gentlemen, and just kind of following on Doug's question if you just add a little bit of additional color on business wins at the HCD unit during the quarter; and any additional insight on any improvment you might be seeing in bookings at Manchester, the Manchester Clinic during the quarter.

We don't drill down into that level of detail, Greg, in terms of our business wins. So safe to say, as I said in response to Doug, that HCD had a good quarter in terms of its performance in revenues and bottom line. Its backlog has been growing. When we acquired it, it had a relatively weak backlog, and it's nice to see a good, solid backlog building there. But we are talking about a business we paid $10 million for, and therefore its backlog needs are pretty de minimis in relation to the overall backlog of ICON. So we don't really want to get into that level of granularity around our business wins at any point in time.

And in terms of the profitability of the Phase I operation in 3Q, was it better or worse than the breakeven level posted last quarter?

In Manchester it was worse and in HCD was considerably better.

So net-net positive compared to last quarter?

I think net-net a little negative compared to last quarter.

Fair enough. Thank you.

Sandy Draper, Raymond James.

Just a question, on the backlog earned in the next 12 months relative to the very strong bookings, that number didn't pick up maybe quite as much. Is there any sort of trend developing where your wins this quarter were more skewed towards longer contracts and so that is why it wouldn't jump up as much, or is this normal quarterly volatility? I'm trying to sort of match those things up. Thanks.

No, Sandy, it's a good question. I think if you go back even as far as the guidance call last December and you may recall that I was forecasting that our backlog conversion slowed down as we went through 2008, and it has really driven by, as you say, larger, more global, more complex projects. But it is not this quarter that we started to win them. What we've seen is that if you were to go back to Q4 '07 we posted a book to bill of 1.9 to 1. And in those wins there were a number of large projects that we discussed at the time. We followed it up in Q1 and with a book to bill of 1.8 to 1. And again, when you get numbers that size it contains more than its fair share of large, complex, global high-dollar value trials.

And through the year we've seen that we've been maintaining a very robust book to bill, 1.5 in Q2 and 1.6 in Q3. So what this is really saying is that the past year the mix of our backlog compared to our historical kind of backlog has been changing. And I think if you take every quarter from Q4 last year to now you will have seen the backlog conversion rate reduce modestly quarter on quarter. All we see now is a continuation of that, and what we've seen is it comes closer to what I would have forecast back in December. It actually didn't slow down as much in the first half of the year as I had forecast; hence we had a couple of big revenue beats earlier in the year.

And I think what we are seeing is that our conversion rates and has traditionally been a bit higher than the industry; and I think now that with the mix in our backlog we are seeing as converge towards industry levels. So I would hold to what I've said sort of all year, the conversion rate will slow. The backlog is very strong. It is $1.74 billion. It is very robust. The business wins are very good so it's that that conversion rate is reflecting really the complexity that lies within the backlog.

Great. That's very helpful. And then just one follow-up. If you can just repeat; I missed some of the numbers. The organic growth and then the FX impact both on the total business and the clinical side, that would be great. Thanks.

On the total business -- we gave the total business, we don't split it out to the clinical side separately. The organic growth was 28.5% when you exclude it, the ForEx benefit --

And HCD.

And HCD, yes, hence organic. And with the ForEx element in it, it was 32.9%. So foreign exchange year on year gave us a bounce of just over 400 basis points on the revenue growth number.

Okay, great. Thank you.

(Operator Instructions). Greg Bolan, Wachovia Capital.

Thanks for taking the follow-up. One quick last question here. Based on your current assumptions for FX, as well as kind of slow revenue burn to finish up the year, would you think that revenues in the fourth quarter may grow at a similar sequential rate that it did from 2Q to 3Q?

I think, yes, broadly I would expect that. I certainly wouldn't expect it to be going back to the sort of very elevated sequential growth rates that we had earlier in the year. I think it would be a fair assumption. I think we've been consistent all along. We've given our numbers and our guidance to talk about the foreign exchange impact, which increases our revenue when the dollar weakens. But has an adverse impact on our margin. Now we are seeing the opposite happen.

The dollar is strengthening, so it is taking a little bit of heat out of the revenue number and as we saw this quarter where we had a 50 basis point (inaudible) sequentially because the ForEx had operating margin, it strengthens our EPS. So when I look forward towards the end of the year I would think our revenue will hover around the lower end of our expectations where the earnings will be up at or above the top end. And certainly not materially different from what we said before. But I think we will just see a slight switch from revenue to operating margin because of that foreign exchange movement.

Makes sense. Thanks, Ciaran.

Eric Coldwell, Baird.

Most of my questions have been addressed at this point, but I was just curious about, I know, Peter, you don't like to give a ton of granularity into the subsegment businesses in terms of backlog or business development, but I think historically you have provided it on central lab. And I may have missed it today, but I was hoping we could get the net bookings in central lab.

Net bookings in the lab were just over $20 million, so it was a 1.1 or 1. something like -- about a 1.1 book to bill, which is a little lower than we would have liked.

Okay, thank you. And just qualitatively any changes in the hiring or environment or turnover rates in the staff? I notice you had some modest growth in headcount in the quarter. Just curious what you are seeing on the recruiting front.

On the recruiting front we haven't been enormously active this quarter, so I guess can't give you up to date information but the view certainly that I am hearing is recruitment is still there if we need and if we want it. I think I understand where your question is coming from given the economic climate, is it changing the game in any way. We certainly have seen our turnover rate come down a little this year. And I would anticipate, Eric, that that would probably be retained if not further improved given the uncertainties in the economic climate front.

Right, I think you read me right; and also with some of the restructurings in pharma it might potentially free up some employees or at least reduce the recruiting activity in pharma, which could be a benefit. Finally, just again qualitatively, could you speak to geographic trends in terms of areas of particular strength or changes in momentum in terms of your various global geographies?

I think we've commented on this before and it hasn't materially changed. What we've seen in the last year, year and a half, is that the growth in the US in terms of execution of clinical trials had moderated and we are seeing very low percentage growth, I suppose in the US and very high percentage growth everywhere else in the world.

Eastern Europe continues to be a favored location. Asia continues to grow strongly and Latin America continues to grow strongly. So I can think it is a function, Eric, in our view of the patient pool in the US is pretty stretched, it is pretty saturated. And therefore as additional work is placed in these larger and larger RFPs the incremental activity is going outside of the US where people believe the patients can be recruited.

Thanks very much.

John wanted to make a comment here yet.

Eric, not to misunderstand, also we are winning significant amount of work in the US. But where it has been placed in the various geographies is different. So we continue to win significant amounts of work from our clients in the US. That hasn't gone away. It is just the geographical spread, as Peter has said, of where it is executed, is just moving around in Europe and ROW.

That makes a lot of sense. We have seen some data from IMS and other forecasters recently about particular strength in what are being called the pharmerging markets, and Eastern Europe, Asia Pacific, Latin America, etc. And I just have had the sense that perhaps the growth rates might actually be accelerating a little bit in some of those markets versus the US, and it doesn't sound like you would largely disagree.

I think the major acceleration we saw back in 2007 growth in Europe this year, for example, in the way that we measure it internally is probably around 50%, which is similar to what it was in 2007. So accelerating I wouldn't say; I think the big acceleration really took place in 2007.

Very fair. Let me add my congratulations for good results. Thanks, guys.

Ian Hunter, Goodbody Stockbrokers.

Thank you very much, gentlemen. I jumped in with a supplemental, and Greg jumped in before me and asked most of the question I think. Really just getting a handle here now that with the foreign exchange effects what we are really doing is the revenue will be fairly flat because of the dollar impact, but your margins will be up. Am I correct in that side of things and that we can be expecting if the dollar stays as it is, and you are guiding that net revenue maybe have a similar sequential effect Q4 on Q3 as it has had Q3 on Q2, that the operating margins will still stay up in the 12% level?

Insofar as you can foresee these turbulent times. Our exchange rates are going to go, yes, Ian, yes.

I was just making sure I got that right. And I was also going to ask of course the old guidance but you did give guidance on the back of that for this one quarter, and I'm just wondering whether we might hear where you as I quote, view 2009 with optimism will come through in actual guidance of numbers.

Where it will come through? You're asking me to give you guidance into 2009 --?

I can ask for guidance for 2009. Otherwise I am just asking for a timing as to when we might get some guidance.

We actually haven't set a time yet. We have a bit of a debate internally about this to be honest. The last two years we've given guidance in December and fairly quickly into the new year we've had to revise guidance upwards. So we were contemplating perhaps holding back our guidance until we do our year end results in February, but we see advantages as well to getting the guidance out there before the beginning of the financial year. So we haven't made a decision on that yet; we will clarify that over the next -- before the end of November we will make a decision on that. We are going through our budgeting process at the moment, so we have not got clarity on that yet. So as that all becomes clear we will make a decision as to when is the appropriate time for us to offer guidance.

Okay. Thanks very much.

Douglas Tsao, Barclays Capital.

Thanks for taking a follow-up question. Just sort of following up on the questions earlier in terms of where work is getting done, is this -- and Peter you made the comment that work is going abroad because that is where the patients are. I was curious, is this something that sponsors are coming to you with and saying, we would like work to be done in these particular regions. Or is this a situation where they are, perhaps, suggesting work getting done in the US and you make a counter proposal that you think the study can get executed more quickly and efficiently ex-US?

Generally I think clients have a fair idea of where they want to execute the work. What we try to do is influence them if we think that there will be a better outcome for them, if they change the balance. But it would be rare, for example, for a client to say I want to do this study in the United States and we for say, and we come to them and say, well actually we think you should do it in Russia. It is unlikely that the client is going to be prepared to make that degree of change. So typically they have a shape, an idea of how they want the balance to work. And we may advise on changing that balance.

Or if it is a very difficult situation we may say to them, we do not believe you will get the patients in the proportions that you are projecting here in the geographies that you are seeking. And we think you need to look at it radically, but that would be the exception rather than the rule. The norm would be nuanced changes in balance, but not dramatic changes in balance.

Okay, and then, Ciaran, in terms of FX, I was hoping you could provide a little detail in terms of your currency exposure and whether we should be looking at the British pound more? Or is it a question or are most of your contracts denominated -- your foreign contracts denominated in euros?

I think you've known me long enough to know I'm not going to give you too much detail on foreign exchange exposure, and I won't say whether or not --.

I thought it was worth a shot, though.

Because it's too complicated. I don't even really understand it. But it is simple enough. We don't have a great deal of exposure to the British pound and substantially our business is contracted in US dollars and in euro. And then when it comes to our operations and the fact that our global footprint goes around the world, we would have cost streams in 25 or 30 different currencies but no one of them would be particularly material except for the euro taken on its own.

So we've seen even during the most turbulent times of the dollar that we can have some modest adverse impact on the margin; as things turn around there would be modest upside in the margin. So it's not a hugely significant factor. That arises from the fact that we do our best to get natural hedges in our currency between our revenue stream and our cost base.

If you were to go back a year ago or probably more than a year now just over a year, and when the dollar started to weaken our European business probably had 50% of its revenues in dollars, and 50% in euro. Over that year we have taken the opportunity to increase the amount of euro proportion as we've managed contracts where possible; obviously you need sponsor cooperation to contract in certain currencies. So we have increased the proportion of euro which has increased the natural hedge. Of course the downside is then as the dollar strengthens, you won't get the benefit because you made a decision for certainty on hedging by that.

The other thing that restricts our exposure is the caps that we've talked about in our contracts where in the past when the dollar moves beyond a certain rate we look at repricing, and we look at recovering that element of the costs for an adverse dollar movement for us.

And of course the corollary will hold as we go forward we could be in situations whereby the dollar strengthens; we have potentially a lot of upside. But sponsors have stood by us during the past year and have been very cooperative in terms of covering foreign exchange exposure. We won't milk the advantage and our contract will provide that we would reimburse them.

So you are not going to see really significant differences arising from the dollar/euro rate. They are the two principal currencies. I think at the worst times we estimated the downside to be 100 to 150 basis points on really, really volatile and significant movements. So as we go forward, we will see some modest benefit as the dollar keeps strengthening, but not -- there is no huge, huge payday in there.

Thank you very much.

Jack Gorman, Davy Stockbrokers.

Two questions, please, maybe more general questions. Peter, you talked about obviously the perceived turbulence in the market in general. Just wondering if you have seen any evidence of any changes in commercial behavior or, indeed in pricing behavior from any of your competitors in the CRO market in more recent times.

No, is the short answer to that, Jack. I suppose pricing is a very long-term decision in this business, and the turbulence, the dramatic turbulence is only a fairly recent phenomenon. So if there was anything, I suppose we wouldn't have seen it yet or wouldn't have really hit our radar, but I don't anticipate that there will be any. Demand continues to be strong in the industry and what we've seen through the last number of years is a very good pricing discipline across the industry. I don't think that is likely to change.

Great. Thanks. And the other trend you mentioned obviously -- you've mentioned previously is the move towards perhaps more strategic outsourcing by some of your larger clients. Just looking across your own business base, what impact do you think that may have if it has any, on your contract staffing business as you position that over the next couple of years?

I think as our clients and as large pharma in particular, restructure and make changes to their structures I think it could create opportunity for our staffing business. Because what we are seeing, and I think everyone has talked about the Lilly Covance deal, for example. And what you see in that is a combination of a number of different outsourcing models being used as Lilly makes some changes within its own business, including a use of a staffing model for one aspect or some aspects of what they are doing. So I see opportunity for all of our business lines in the changes that are taking place and the to more strategic approach to outsourcing that our large clients seem to be embracing.

Peter, you mentioned before I think in discussions that you believe that your more mainstream [serial] business essentially targets a different type of market than contract staffing. So what you are saying here is that you don't see those lines blurring between those particular segments or requirements on the part of big pharma.

It depends on what your definition of lines blurring is, Jack. If you think about where does contract staffing gets used, what we are seeing in our contract staffing business in Europe so far this year is they had a small proportion of their revenues in permanent placement revenue where they are actually acting as a recruitment agency. That is down not surprisingly, because if the economic environment is a little tougher, people tend to be more circumspect about adding to their permanent headcount. On the other hand their contract placement business is up.

So again in economic and difficult economic times people are more inclined to choose to bring in a contractor for a defined period rather than bringing in a permanent employee. So we are seeing some of those trends in our business. The contract staffs that pharma companies bring in usually to supplement their own internal resource; and therefore it doesn't compete as such with the full-service outsourcing. As changes take place will they have less and less of their own internal resource, and therefore will they have less and less need for contract staff? Possibly. More likely and what we see in a lot of companies is they are just freezing the amount of their internal activity, or freezing the amount of their internal resource.

And therefore they are using contractors where they have gaps, but they are not growing that segment of their business. Instead, all of the growth that's taking place in activity is going to full service outsourcing. I wouldn't want you to interpret that is the way the world is but for a lot of clients certainly that seems to be the way that they are behaving. So there is no one answer to your question. I think there is opportunity for our staffing business from a variety of different factors. And it is a different market or a subset of the market that staffing business addresses.

As a final wrap up to that, Peter, would your clients mix in the contract staffing business be very different from your more mainstream CRO business? As regard to big pharma versus biotech or specialty pharma?

I could give you an off-the-top-of-my head answer, which would probably be wrong, Jack. I am not sure I have the information. I do know that the staffing business has a good percentage of its activity with large pharma companies but I don't think it would be a very different mix to that which we have in our mainstream CRO business.

David Windley, Jefferies & Co.

Thanks for taking the follow-ups. I believe late in the quarter the updates that management was giving in conferences and so forth on bookings were targeting about a 1.3 to 1.4 book to bill and had about two-thirds of that in hand. Can you confirm that September accelerated in terms of, perhaps, RFP flow and wins?

I think what you are referring to is when I was on the road in September I was saying at that point I expected 1.3 to 1.5 as I recall in the range; and that the two summer months were meeting expectation in terms of our target. To try and simplify it down to such a binary thing in September accelerate, and I would be reluctant to go there, I would just sort of say that we had an expectation of a certain amount of wins in that range. We knew September would be stronger than July and August because it is traditionally summertime in Europe. We factor that into our planning.

I think maybe what you are seeing in the US now is that you are acquiring bad European habits and starting to go to the seaside in August, too. But we factor that into our plan. So September was strong. It was as we expected. It exceeded a little bit the kind of guidance that I give or spoke about when I was out. But you have to remember, Dave, when we are talking about numbers that at any given point in the quarter you are looking at information flows that are quite raw. The book to bill that we all look at is a net book to bill, so at any given point in a quarter you have more certainty on your gross number. But of course, the merry-go-round that is cancellations it is impossible to know where it is going to stop. So September was good. It was what we expected. I wouldn't say more than that.

That's an important point. It was what we expected because July and August have become typical holiday months. And as Ciaran said, you Americans have picked up on us Europeans' bad habits.

Not good. On prior calls you have given us some sense of the larger awards in the overall wins in the quarter. I think last quarter you said 12 over 5 million. Can you give us any similar characterization of [size of] the awards?

9 over 5 and 3 over 20, David.

Okay, great. And Peter, I think maybe it was Doug or Jack's line of questioning, but on these larger deals you referred to the Lilly deal and the variety of models that are incorporated in that. I am hearing of an increasing number of discussions with large pharma that would include the CRO assuming staff or buildings or labs or whatever it might be, but in your case I would assume the types of conversations would be more around staff. And my question is, is that -- are those types of deals interesting to ICON?

Yes, I suppose is the short answer. John, do you want to say something?

It is, of course, interesting to us and when those opportunities present to us we will certainly go for it.

I think the key point there, Dave, is of course they should be interesting to us, because it is again the embracing by pharma of the outsourcing model and the recognition by them that CROs are going to be their partners for the future as opposed to just hired guns. And I think that is a very healthy thing. I think that is a healthy thing for pharma but I think it is obviously a very healthy thing for our industry in general and therefore it is something we would enthusiastically participate in.

Are they -- excuse me -- getting into the nuts and bolts of labor rates being different and different cost structures and different, say, pace of work and all those cultural differences and things of that sort, do you feel like ICON's, say HR and training groups and all the supporting groups that would be taxed by the assumption of a big block of staff like that, are they developed to the point of being able to do that right now?

Well as you all -- you were all worried last year that we couldn't grow as we were growing and we would have difficulty getting the people in and maintaining our quality and so on. And we did all of that. So I think we are happy that we have the infrastructure to support whatever might come our way. Obviously if one was assuming a bolus of people from a large pharma Company, typically they are already trained. They have been -- they have been working for the pharma company and therefore have good habits. Of course, we would want to train them in our own way and our own SOPs and our own quality systems and so on, but they have a very good grounding as they were joining us. So that would not cause us any concern.

David, I don't think this is also anything new because we have made a number of acquisitions in the past, and we successfully grappled with culture and different salary structures. So this is yet another -- you could just another market.

Okay.

On the salary structure point, I think certainly any deals that we have been involved in discussing it has been clear and no one has been under any illusions that perhaps salary structures and benefits have to be adapted to the CRO model rather than the pharma model. And any deals have generally taken that into consideration.

And are you in ongoing discussions around these types of deals now?

You don't really expect me to answer that question, do you?

I was hoping. Could you maybe alternatively theoretically could you talk about what you view as the minimum criteria to really, seriously entertain discussions perhaps in terms of years of committed work or things of that sort? Can you get those types of things in these discussions?

One of the things when we do customer surveys on ICON is that we are regarded as a very flexible company, so we don't have -- we don't go into such a discussion with a set of rigid we must have's. It depends on what the circumstances are. It depends on what the client is trying to achieve and it depends on what the terms are. Of course, if one is taking over a large fixed cost infrastructure from a client, you would be very careful about taking it over without some commitment of revenues to support that cost structure at least for a period of time. You would want to be very brave or you would want to have a lot of assurance about something for you to take on a cost base without any revenue to go with it.

Okay. Thank you very much.

(inaudible) Goldman Sachs.

I just figured out how to push the seven button. Two very specific follow-ups here. On the competitive or on the wins that you talk about in the US market, increased wins, was that skewed to competitive wins, or were those just broad-based RFP type of situations?

I'm not understanding your question.

Were you -- where the winds that you were seeing in the US, where those more competitive? In other words, business that you are taking from other CROs, or were they just generally competitive from pharma?

Why are you focusing on the US, Randall? Sorry, I am not quite sure where you are coming from.

You talk about some increased wins in the US market.

Not really. No, I think you may have misunderstood something that John said, which was that we are having strong wins from the US and from companies in the US, in case because I think of a phrase I used earlier, in case anyone thought that we were winning lots of business and it was outside of the US. What we were saying was we were still winning strong business from companies within the US, albeit a lot of the execution on that work may be ex-US. But there isn't a change in our acceleration in wins in the US. We are just saying the wins generally are good, and the balance across different companies from different geographies hasn't really changed significantly.

Got it. And just to be specific, I know you talked a lot about this, but is it fair -- you are not seeing any slowing in decision-making at pharma specifically with any of these companies that have announced restructurings at all?

No, we have not.

And finally, Ciaran, just on the SG&A number, can you help us how would you think about that going forward?

I wouldn't say that it is going to change significantly going forward. If you go back over the years we have seen very modest leverage as the business is growing. We will continue to see modest leverage but certainly nothing --.

So it pulled back.

(multiple speakers) what the past pattern has been.

It pulled back a little bit this quarter, so is that a fair run rate to think about going forward?

Well, I pulled back a little bit this quarter because the SG&A line also includes the balance sheet of foreign exchange translation of accounts receivable and cash and accounts payable balances in the European, Euro denominated business. So a little bit of the benefit was coming from that. So we would really look at the year to date number, I think it's about 29%. 29% to 30% is the right number.

Perfect. That's helpful. Thanks a lot.

We have no further questions coming through, so I would like to hand back to your host to wrap up today's call.

Thank you very much, ladies and gentlemen. In conclusion all I want to say is that to date 2008 has been a great quarter and a great year to date. The revenues, the operating income, the net income and the margins all grew strongly. And business wins continued to be buoyant. Thank you for participating in the call. Thank you.

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