In the bygone year, CROs outperformed the general market +27% against a 16% jump in the S&P 500 index.
In the aftermath of a pandemic that has wreaked havoc across the globe with over 2 million people dead, the importance of the healthcare sector has been accentuated. In a recent report, analysts at Credit Suisse said that biotech funding levels remain elevated, a move that is expected to boost contract research organizations (CRO) offering attractive, alternative biopharma exposure. Credit Suisse highlighted that Net bookings trends for CROs have been recovering ahead of expectations, an important indicator when assessing their fundamentals.
In the bygone year, CROs outperformed the general market +27% against a 16% jump in the S&P 500 index. “We remain positive on the group heading into 2021 on improving fundamentals and continued strength in demand/outsourcing trends,” analysts at Credit Suisse said. Primarily, in the field of CROs, the brokerage firm sees some key themes that can be played in the coming year.
First, is the biopharma supporting elevated innovation. Emerging Biopharma firms play a critical role in developing drugs, accounting for 72% of the pipeline in 2018, up from 52% in 2003. EBP companies represent critical innovation drivers, patenting 64% of the 59 new active substances (NAS) launched in 2018, compared to half in 2010, Credit Suisse said. Biotech funding has zoomed to $133.2 billion in 2020, hinting at sustained R&D outsourcing. The second theme in the space is emerging tools enhancing productivity. “Real-world evidence (RWE) and decentralized trials are among the most meaningful long-term implications of COVID-19 across the drug research and development landscape,” the report noted.
IQVIA is a contract research organization. The stock is the most compelling CRO idea for Credit Suisse for the fourth year in a row. “Heading into 2021, we still view its proprietary CORE integrated data solutions as underappreciated by the Street, where it has the ability to address >80% of the pipeline (up from 60% in 2018) and has powered 800+ clinical trials as of 4Q19 (up from 500 as of its June 2019 Investor Day), offering significant budget and time savings for customers,” the report said. The stock trades above its historic average of 18.5x, after zooming 15% in the previous year. Currently, the stock trades ar $177 per share and the target price has been raised to $198 apiece.
Syneos Health is an integrated biopharmaceutical solution organisation. Analysts at Credit Suisse see Syneos Health from a positive angle after its recent investor day on solid +HSD revenue growth over the medium term, prudent cost management driving EBITDA growth ahead of topline growth, as well as building momentum in it end-to-end offering. Syneos Health commands strong industry fundamentals. In 2020 shares of the firm zoomed 14% in line with S&P index. The stock currently trades at $74 per share and 14.8x 2020 EPS, well below its historical average (15.5x) and at a 32% discounted to its CRO peers at 21.7x. Target price of the stock has been increased to $79 per share.