Earnings Call Transcript - ICLR Q4 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to today's ICON PLC Q4 2020 Earnings Conference Call. I must advise you that this conference is being recorded today, and that's Wednesday, the 24th of February 2021. I'd now like to hand the conference over to your first speaker today, Jonathan Curtain. Please go ahead, sir.

Operator, Operator

Thanks, Jan. Good day everyone, and thank you for joining us on this call regarding the quarter and full year that ended on December 31st, 2020. With us today are our CEO, Dr. Steve Cutler, and our CFO, Mr. Brendan Brennan. We are also pleased to have Colin Shannon, Chairman and CEO of PRA Health Sciences, join us. I want to mention that this call is being webcast and slides are available for download on our website to accompany today's call. Some statements made during this call will be forward-looking and are based on management's current expectations and available information, including economic and industry conditions. Actual results may differ significantly from those expressed in these forward-looking statements due to various risks and uncertainties related to the company's business. Forward-looking statements are only valid as of the date they are made, and we do not have an obligation to update them publicly, regardless of new information or future events. Additional details about the risks and uncertainties surrounding these forward-looking statements can be found in our SEC filings. Furthermore, as announced this morning, ICON and PRA Health Sciences have reached a definitive merger agreement, which will be discussed during this call. Please remember that this call does not serve as an offer to sell or buy any securities, nor should it be considered a solicitation for such offers. No sale of securities will occur in jurisdictions where such an offer was lawful before registration under local securities law. The sale of securities will only take place through a prospectus compliant with Section 10 of the Securities Act of 1933. In relation to the proposed transaction, ICON intends to file a registration statement on Form 4F with the SEC, which will include a preliminary prospectus and proxy statement for both ICON and PRA. Other related documents will also be filed with the SEC. Investors and security holders of ICON and PRA are highly encouraged to read the entire registration statement and proxy statement/prospectus once filed and available on our websites and at sec.gov prior to making any voting or investment decisions. This presentation includes some non-GAAP financial measures. For comparable GAAP financial measures, please refer to the press release, which includes the condensed consolidated statements of operations as per U.S. GAAP. While non-GAAP measures should not be seen as superior to GAAP measures, we believe certain non-GAAP information is more beneficial for historical comparisons. We will limit today's call to one hour, so we ask participants to keep their questions to one each, with an opportunity for one related follow-up question. Now, I would like to turn the call over to our CEO, Dr. Steve Cutler.

Steve Cutler, CEO

Thank you, Jonathan, and good day everyone. It's an exciting day for ICON and a significant industry milestone, as we announce that ICON has agreed to acquire PRA Health Sciences, one of the world's leading CROs with over 19,000 employees and offices in 42 countries. This strategic transaction brings together two high-quality, innovative, growing organizations with similar culture and values, combining to become a world-leading health care intelligence and clinical CRO. With the addition of PRA, ICON will create a new paradigm for bringing clinical research to patients, offering expanded capabilities to customers, and growth opportunities for employees, while delivering significant shareholder value. There are several key strategic reasons why we have decided to proactively unite our organizations at this time. First, by joining together, we will significantly enhance our operational scale, which is essential to meeting current and future customer demands. With broader and deeper service, geographic and therapeutic offerings, and extensive data-driven health care technology, we can deliver enhanced solutions for all customers, increasing access to patients and reducing development time and cost. The combined businesses will have over 35,000 employees across the globe, pro forma revenue of approximately $6 billion, and will be number one or two across all key clinical CRO market segments. The united companies have a highly complementary customer base through strategic partnerships with the majority of the world's top biopharma companies, providing a platform for sustainable growth. Secondly, ICON and PRA share a common focus on leveraging data and applying technology to execute clinical trials and post-approval studies with the highest quality and speed. The pandemic has accelerated the transformation of the clinical trial landscape and opened up significant opportunities to decentralize trials. We believe this trend is here to stay. And by integrating capabilities, including PRA's mobile and connected health platforms, real-world data and information solutions with ICON's global site network, home health services, and wearables expertise, we can deliver truly differentiated, decentralized, and hybrid trial solutions. Continuing to build on our patient site and data strategy has been a primary focus at ICON. And with the addition of PRA's technology and expertise, we will innovate and evolve our strategy in this area, which will continue to be at the forefront of our strategic priorities. And finally, from a shareholder perspective, as outlined in our press release and accompanying slide deck, the transaction is anticipated to be highly accretive, delivering double-digit accretion in the first full year and growing to 20% plus thereafter. This will be driven by growth momentum, estimated annual cost synergies of $150 million, and a combined effective tax rate decreasing to 14%, both to be realized in approximately four years. We also expect to further leverage our industry-leading global business services platform to generate strong and sustainable EPS growth over the longer term. ICON and PRA are proactively consolidating from positions of strength in an expanding market, which will enable us to take full advantage of the current robust industry demand as evidenced by the quarter four bookings reported by both companies. We are confident that our focus in the clinical development space will continue to engage our customers and drive strong growth over the longer term. Our combined strength in delivering global functional and full-service clinical solutions is industry leading, and we believe the need for these larger-scale, flexible solutions will continue to grow. The complementary nature of our services will also present revenue synergies across our broader customer base. We see near-term opportunities in areas such as Central and Specialty Labs, the Accellacare Site Network, language services, home health, early phase, mobile health, and data information solutions. Most importantly, at the heart of both our companies are our people, and notably, ICON and PRA share a common culture focused on operational excellence, customer delivery, technology application, and employee development. The strength of our cultures has been evident during the current COVID pandemic, where our people have demonstrated great strength and resilience. As a combined company with expanded capabilities and expertise, we expect to offer employees exciting roles and significant career development opportunities within and across the key service areas and geographies in the company. The combined company will be headquartered in Dublin, Ireland. I will serve as the Chief Executive Officer, and Brendan will serve as the Chief Financial Officer. Ciaran Murray will serve as the Chairman of the Board of Directors. PRA will nominate two Directors to join the ICON Board, one of whom I'm delighted to say will be Colin. Both ICON and PRA have a solid track record of delivery and highly experienced management teams who have a strong history of integrating successful businesses. To ensure our continued success, we will harness the outstanding leadership and talent that resides in both organizations to deliver operational excellence and continue our focus and mission on patient-centered drug and device development. Before turning over the call to Colin, I'd like to thank the ICON and PRA teams who put together this transaction over the last couple of months. They've all worked extremely hard, and we're very grateful to them. And with that, I'll turn it over to Colin.

Colin Shannon, Chairman and CEO of PRA Health Sciences

Thank you, Steve, and hello everyone. I would like to also echo Steve's enthusiasm for this historic day for PRA Health Sciences and ICON. I have been honored to serve as an executive at PRA since 2007, and I'm incredibly proud of the achievements of our 19,000 employees and their dedication to improving the lives of patients around the globe. I believe joining forces with ICON at this time presents a unique opportunity to create a stronger organization that is aligned culturally and is united in our missions and passion to deliver life-saving therapies to patients. This transaction better positions both PRA and ICON to not only serve the companies of the market, but to work together to develop and build new patient-centered solutions in the future. PRA has always prided itself on being an innovator, and we believe the investments we have made in areas such as mobile and connected health, real-world evidence, data solutions, and wearables will serve the new organization well as we move forward towards a more patient-centered focused industry. I have talked frequently about the need to apply health care intelligence to enhance development, and I know Steve shares my vision to find better ways of leveraging all of our data assets around patient health care to better optimize clinical trial design and execution to maximize efficiency and speed to market for new drugs and devices. Our respective organizations have a shared heritage of building strong, long-term customer partnerships across all market segments, ranging from small-early-stage biotech firms to the world's largest biopharma companies. We intend to continue to focus on being a partner of choice across all these segments. I look forward to my continued involvement in the new organization as a member of the Board of Directors and will fully support Steve and the rest of our teams as they work through the integration of the businesses following the closing. I would now like to hand the call over to Brendan.

Brendan Brennan, CFO

Thank you, Colin. Firstly, I would like to cover the terms of the deal. Today, we are announcing that we signed a definitive agreement to acquire all of the outstanding shares of PRA in a cash and stock transaction, whereby PRA Health shareholders will receive $80 in cash and 0.4125 ICON common shares for each PRA Health common share. This represents an aggregate value of $12 billion, with consideration consisting of 48% cash and 52% stock, with a pro forma equity ownership comprised of approximately 66% ICON shareholders and approximately 34% PRA shareholders. The definitive agreement has been approved by the Boards of Directors of both companies. The transaction is subject to the required regulatory approvals and customary closing conditions, as well as the approval of ICON and PRA shareholders. We currently expect the transaction to close in Q3 2021. We expect to finance the transaction through a mix of cash on hand and new financing. Upon closing of the transaction, we expect our net leverage to be approximately 4.5 times adjusted EBITDA, including credit for the $150 million of run rate synergies. Both ICON and PRA have a long track record of effective execution, sustainable growth, and increasing shareholder value. Using our shared management expertise, best practice operating models, synergies, and efficient tax structures, we expect to create significant future shareholder value from full year one. In terms of our longer-term growth outlook, we believe we can grow our revenues in the high single-digits, supported by the strong market demand, our expanded relationships with large pharma, growing base of mid-sized customers, and leveraging the continued strong biotech environment. Both companies have a strong track record of EBITDA growth. And as we grow our topline, we will look to leverage our best-in-class support infrastructure to deliver adjusted EBITDA growth in the low teens. As I mentioned, we are targeting annualized cost synergies to be in the range of $150 million, realized in approximately four years. And these will come from a number of areas, including optimizing business processes and IT infrastructure, facility-related savings, corporate costs, and leveraging our support service centers of excellence. The blended tax rate of the combined business will be 17% at close, and we are targeting to reduce this to 14% in approximately four years. This will support adjusted earnings per share growth in the mid-teens plus range. Overall, the combination of strong revenue and EBITDA growth will drive double-digit accretion in full year 2022, growing to 20% plus thereafter. As we grow, we will continue to generate robust cash flows, which we expect will enable us to delever from 4.5 times net debt to adjusted EBITDA to close to target of below 2.5 times net debt to adjusted EBITDA by the end of 2023. Our shared track record of delivering against our financial objectives gives us confidence in our ability to hit these financial goals, as does the strong momentum that both ICON and PRA bring into the union. This is demonstrated by our Q4 and FY 2020 results, which I will now talk to briefly. In quarter four results, ICON achieved gross business wins of $1.285 billion and recorded $205 million worth of cancellations. Consequently, net awards in the quarter were a record $1.80 billion, resulting in a net book-to-bill of 1.42 times. Full year gross business wins were $4.572 billion, and cancellations were $725 million, resulting in net business wins of $3.847 billion and a net book-to-bill of 1.38 times. With the addition of these new awards, our backlog grew to $9.7 billion. This represents a year-on-year increase of 13.4%. Revenue in quarter four was $760.2 million. This represents a year-on-year increase of 4.8%, or 3.3% on a constant currency basis, and 2.8% on a constant dollar organic basis. Full year 2020 revenue was $2.7973 billion. This represents a year-on-year decrease of 0.3%, or 0.5% on a constant currency basis. On a constant dollar organic basis, revenue decline was 1.7%. Operating income for quarter four was $119.9 million, a margin of 15.8%. This compared to 15.4% last quarter and 15.9% in the comparable quarter last year. For the full year 2020, operating income was $409.6 million, a margin of 14.6% compared to a margin of 15.4% for the full year 2019. Net income for the quarter was $101.2 million, a margin of 13.3%, equated to diluted earnings per share of $1.90. This compares to earnings per share of $1.83 in the comparable quarter last year. Net income attributable to the group for the full year 2020 was $348.2 million, a margin of 12.4%, equating to diluted earnings per share of $6.53. This compares to earnings per share of $6.88 in 2019. For the full year 2021, we are guiding for the ICON standalone business, revenues in the range of $3.2 billion to $3.3 billion, representing growth between 14.4% and 18% and EPS in the range of $8 to $8.50, representing growth of 24% to 30%. With all of that said, operator, I'd like to hand back to you now for questions.

Operator, Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. And we will take our first question. Our first question comes from the line of Robert Jones. Your line is open.

Robert Jones, Analyst

Thank you for the question and congratulations to both teams on the deal. To start, for those of us who have followed this industry for a long time, it's clear that significant deals between large CROs have been rare due to concerns about customer and employee attrition. While I recognize that there are clear synergies from this combination, it seems to be largely influenced by the desire for scale. So, my question is, why now? Additionally, what specific capabilities do you believe this merger will provide to meet the evolving needs of the market?

Steve Cutler, CEO

Yes, Robert, I'll address that first. This isn't something that's just come up recently; we've been looking into similar transactions for several years now. Our interest in this market has been ongoing for the past three to four years. When considering the timing, several factors have played a role. One significant aspect is our acquisition target. PRA has always been a well-respected competitor, and we've admired what Colin and his team have accomplished over the years. They have always been highly desirable to us and have been a strong competitor, which has been important. In terms of the opportunity, the synergies in customer relationships, services, and enhancing our scale present a perfect fit. PRA specializes as a clinically focused CRO, while we primarily operate in the Phase 1 to late phase space, particularly in data and technology. Culturally, there appears to be a good alignment between our two organizations. Moreover, as we emerge from the pandemic, the clinical trials landscape is evolving, and we see a pivotal moment to merge two strong organizations and capitalize on that chance. Together, we leverage significant capabilities, especially in key functional therapeutic and medical areas, along with our technological strengths. PRA introduces new technological innovations and data opportunities that align well with ICON's strategies in site, patient, and data management. Our global site network and home health services integrate seamlessly with PRA's mobile and healthcare platform. We believe that these combinations offer a tremendous opportunity to redefine the way we conduct clinical trials, transforming ourselves into a healthcare intelligence organization that elevates data utilization and significantly enhances the efficiency of clinical trial execution. Multiple factors converged to prompt our decision to merge these two organizations.

Robert Jones, Analyst

Okay. And I guess, maybe, Brendan, just one on the synergies, $150 million ramp over four years. Anything you can give us as far as the breakdown on where the synergies are coming from, the SG&A versus COGS? And then just anything on the ramp of the $150 million over the four years would be really helpful.

Brendan Brennan, CFO

Sure, Bob. While we don’t have all the details finalized yet, I can provide a broad overview. We'll focus on optimizing our global infrastructure to ensure maximum efficiency in our office spaces. Additionally, we will aim to harmonize some of our software systems, which will create further opportunities. As noted, we plan to fully utilize our operational centers of excellence in support services to ensure that, as a strong growth company, we can effectively manage our selling, general, and administrative expenses moving forward. We are examining all these key areas very closely and want to move on them as quickly as possible. We believe a four-year timeframe is a reasonable estimate for achieving the complete synergies, and we will strive to meet those targets steadily over time. While we don’t have an exact timeline at this moment, we are confident in our capability to reach those figures within that period.

Robert Jones, Analyst

Okay, great. Thanks and congrats again.

Operator, Operator

Thank you. And your next question comes from the line of Jack Meehan. Your line is open.

Jack Meehan, Analyst

Thank you. Good morning and congratulations on the deal. I was wondering if you could provide more details about the client base for ICON compared to PRA. Could you share some information regarding customer overlap and where there might be intersections between the two companies?

Steve Cutler, CEO

Sure. Jack, let me discuss that, and Colin might want to add his input. I believe this is one of the advantages of the deal. We have seen strong complementarity among our customers. As I mentioned earlier, we now have strategic partnerships with a majority of the top 20 pharmaceutical companies across the combined organization. We also hold a robust position in the vital biotech market, which Colin and I have been focusing on. We are witnessing ongoing strength and continued success in that market. When you examine the key strategic partnerships and their complementarities, there is some overlap with certain customers, but we don't perceive significant risk in that area. We maintain solid relationships with those customers, and there are also customers with which either of us has strong ties. So, from my perspective, this complementarity is one of the deal's highlights and a key reason for moving forward. Colin, would you like to add anything?

Colin Shannon, Chairman and CEO of PRA Health Sciences

Just a brief, I was thinking about the fact that we've got such a well-diversified portfolio of clients, ranging from the largest to the smallest. I love the fact that Steve and his team are very focused on the innovations by the biotechs and helping support the larger clients. We're looking to structure an organization that actually meets all types of clients, because we know how important it is to get medicines to patients faster. That's really the determining factor here. And I think we all support that. And the great thing is, is that as we really looked at the whole client mix, it was, as Steve said, it was a very complementary mix. So, it's a fantastic opportunity.

Brendan Brennan, CFO

And if I could just add, Jack, to that, just to make a point that in the new organization, no individual customer will be greater than 10%. So, again, it just speaks about diversification of the customer base.

Jack Meehan, Analyst

Yes, that's helpful. You've mentioned the potential for cost synergies, and I'm curious if you believe there's also an opportunity for revenue synergies over time. Specifically, do you think there's potential for more investment in the central lab and for bringing in work from PRA? Additionally, what are your thoughts on the data solutions business and its potential?

Steve Cutler, CEO

Yes, I believe there is a substantial opportunity for revenue synergies. As I mentioned earlier, the lab sector is a clear area of focus, including both the central lab and specialty lab. Our Home Health Services group is currently experiencing strong growth. The Accellacare Site Network will integrate well with some technology and data platforms that PRA offers. We are assembling multiple elements in the decentralized clinical trial space, which results in a very attractive offering in that area. I am genuinely excited about this opportunity. The potential for revenue synergies is significant, and we believe they will be quite strong.

Jack Meehan, Analyst

Thanks Steve.

Operator, Operator

Thank you. And your next question comes from the line of Tycho Peterson. Your line is open.

Tycho Peterson, Analyst

Thanks. Real-world evidence is obviously part of the focus here. Can you just talk about how much exposure you think the combined company has to that segment of the business post-close?

Steve Cutler, CEO

Yes, Tycho, we have substantial exposure and a great opportunity to engage further through the technology and data that PRA contributes to the combined entity. We believe this is an area where we can make significant progress. Our late phase group is poised to be among the top providers in the industry. The real-world data and evidence that PRA brings through its various components will be crucial in advancing that segment.

Tycho Peterson, Analyst

Okay. And then can you elaborate a little bit on your comments on leveraging the Accellacare Site Network, just how meaningful you think that could be? You mentioned it a couple of times.

Steve Cutler, CEO

Yes, the Accellacare network is expanding. We now have a global presence with the acquisition of MeDiNova in Europe and the PMG sites in the United States. These sites are increasingly contributing to our overall patient recruitment numbers, especially during the pandemic when they played a significant role. As we develop our decentralized trial model, their involvement will be crucial because we have our team on the ground there. This will help enhance our decentralized trial network. Additionally, with the mobile platform provided by PRA, we can create a cohesive offering in decentralized clinical trials. While we need to spend some time integrating these efforts, all the essential components are in place, and it will be a key focus for our operations moving forward.

Tycho Peterson, Analyst

Okay. And then lastly, CRO mergers have not always been smooth. Bob Jones mentioned the attrition risks. I'm just curious where you see any potential risks on the merger going forward?

Steve Cutler, CEO

We evaluated the risks while considering the merger. However, when we looked at the clear benefits, which include new technology, growth opportunities, and decentralized trials, we believe the advantages significantly outweigh the risks. That said, we acknowledge there are risks, and we will actively work to mitigate them through various plans. We will assemble a dedicated team to ensure our employees fully understand their future opportunities. Regular communication will be a priority to help them grasp their roles in this process. We will also stress to our customers and employees that ongoing work needs to continue, and this will remain a strong focus across both organizations and into the combined entity. We will implement various tools and processes as part of the integration, which we expect to take some time. We anticipate completing a significant portion of this by the end of 2022, but it will extend beyond that period. We will communicate clearly with our employees and customers about our actions and the reasons behind them. Overall, we believe the benefits of the merger far outweigh the risks, but we understand that this will be a gradual process. We are committed to ensuring continued delivery on our current portfolio as we move forward.

Colin Shannon, Chairman and CEO of PRA Health Sciences

I would like to expand on Steve's comments. As we observed the changes within the industry, we recognized the importance of being innovative and forward-thinking. Both of our companies are in strong positions, and there are no distressed assets that require fixing. We are excited about the prospect of combining two successful companies and exploring ways to enhance the marketplace by driving innovation and change. What we are developing will create an appealing opportunity for employees, making it a desirable place to join as part of this evolution.

Tycho Peterson, Analyst

Okay. Thank you.

Operator, Operator

Thank you. And your next question, sir, comes from the line of Erin Wright. Your line is now open.

Erin Wright, Analyst

Great. Thanks. Can you speak to how you're thinking about the FSP opportunity and how you're thinking about the growth prospects across that segment and how you can better leverage that, given it's a larger portion of PRA?

Steve Cutler, CEO

Yes, I'll take that. Colin may want to add in afterward. We have observed notable growth in the FSP space over the past year, and we expect this trend to continue. It's important to highlight that this growth is fueled by our product registration work in Phase 2 and Phase 3, which is a crucial part of our overall business. The synergy and resource sharing between these areas provide us with the flexibility needed for large-scale projects, enabling us to offer more hybrid solutions to our customers. FSP will remain a major focus for us. We aim to be the largest FSP provider in the industry, advancing our position by becoming more data-driven, incorporating technology, and distinguishing ourselves within this sector. We recognize that PRA has also seen success in this area, making it an important opportunity for us moving forward. Colin?

Colin Shannon, Chairman and CEO of PRA Health Sciences

Yes. Steve, you covered that nicely. I think the only thing I would add is that our goal is to supply the services the client needs. And we have got this large opportunity. And we don't try to make the client change their mind. We try to work with them. That's why it's strategic in nature. And we try to figure out the best way of having them achieve their goals. We'll be able to utilize a lot of our internal tools to help drive productivity and other mechanisms and gains. But with an improved service offering, it gives us more opportunity to expand the range of our services that we can actually provide to our clients. So, we see opportunities not just in FSP, but across all service offerings, and we see a lot of opportunity to expand the whole of our client base.

Erin Wright, Analyst

Okay, great. Thanks. And then a broader question here. How did you think about this, weighing this versus smaller tuck-in deals? You obviously had some optionality from a balance sheet perspective. But do you think now makes more sense to be a bigger CRO with scale maybe with the global nature of clinical trials that we're looking at today than maybe it did several years ago?

Steve Cutler, CEO

We do, Erin. Yes, we do. It's about having the right partner, which we believe we have in PRA; they have been a strong competitor over the years, and we recognize what a good organization PRA is. That was crucial. Additionally, we see ourselves emerging from the pandemic, and we believe this is a crucial moment for how we conduct clinical trials. People are now more aware of what a clinical trial entails. There has been unprecedented public acknowledgment of our industry's role, alongside the pharmaceutical sector, in the pandemic and the delivery of vaccines. I think we will look back on this period as significant. We believe this is the right time to engage in a deal like this, to advance our industry, and the combination of ICON and PRA provides us with a significant long-term opportunity.

Erin Wright, Analyst

Great. Thank you.

Operator, Operator

Thank you. And your next question comes from the line of Eric Coldwell. Your line is now open.

Eric Coldwell, Analyst

Thanks very much. Good morning, good afternoon. I have several. Let's hopefully do these in bullet point form. Brendan, it looks like ICON will be moving to an adjusted EPS presentation from prior GAAP. I'm curious if you have any early clues for us on what the exclusions will be, what you will treat as non-GAAP?

Brendan Brennan, CFO

Well, we'll look to be kind of more industry standard, Eric. But at this stage, we're certainly only thinking about kind of the big line items. I think it wouldn't be ICON if we put too many of them in, to be honest. So, it will be deal costs, stock compensation, and amortization. They will be the big three.

Eric Coldwell, Analyst

Deal costs, stock comp, and amort. That's about what I expected you to say. Leverage four and a half times. Did you say that was pro forma for the synergies? Or is that as-reported?

Brendan Brennan, CFO

That includes the synergies.

Eric Coldwell, Analyst

Okay. So, you're pulling the synergies forward into that leverage account?

Brendan Brennan, CFO

Yes.

Eric Coldwell, Analyst

Okay. And maybe one for Colin and Steve. Obviously, PRA management, other than Colin being on the Board, notably absent here. I'm not sure, there could be a lot of stuff behind the scenes. But look, we highly respect ICON leadership. I think having continuity certainly has its benefits. On the other hand, not having top visible executives from PRA in management, unless I missed something, might that not increase flight risk for PRA in this incredibly hot CRO market, where there is growing demand for talent?

Colin Shannon, Chairman and CEO of PRA Health Sciences

Eric, let me address that. This is the initial announcement of the deal, so the absence of PRA executives on the call shouldn't suggest that they won't be part of the organization moving forward. We will conduct our assessment over the next four to six months until we close. This gives us time to gauge their interest in remaining with us and how the organization will integrate. We'll approach this assessment objectively to ensure we have the best talent. We hold great respect for PRA and their management team, and we recognize the talent within their organization. We will work diligently to create roles for those individuals. Initially, we will operate as two separate organizations, gradually coming together while maintaining our focus on delivering for our customers. Both organizations are performing well, and we have capable teams driving that success. In time, we'll integrate our efforts, but our approach will prioritize merit rather than being dominated by any single organization.

Eric Coldwell, Analyst

Very understandable. A couple of quick ones, apologize for hogging the mic here. But expected debt costs, Brendan, what's the weighted average cost of capital expected for the transaction?

Brendan Brennan, CFO

Weighted average cost of capital?

Operator, Operator

Eric, it's Jonathan here. Yes. We expect it to be above our weighted cost of capital, so it'll be above 10%.

Eric Coldwell, Analyst

Okay. And the debt specifically?

Steve Cutler, CEO

That's referring to debt specifically, yes.

Brendan Brennan, CFO

Yes. Sorry, Eric, what was the question on the debt?

Eric Coldwell, Analyst

Yes. We can discuss this later. It seems we might have different perspectives on this matter. I will now hand the call over. Thank you very much. Best of luck with everything.

Brendan Brennan, CFO

Thanks, Eric.

Eric Coldwell, Analyst

Thank you.

Operator, Operator

Thank you. And your next question comes from the line of David Windley. Your line is open.

David Windley, Analyst

Hi, good morning. Thank you for taking my questions and congratulations to the teams. I would like to hear from both Steve and Colin regarding the decentralized trial capabilities mentioned on the slide, which I find particularly compelling. However, it seems that we had a push for these trials in 2020 due to the pandemic and the need for different approaches. I'm curious about your assessment of how clients feel about continuing to actively adopt these capabilities, and how the features listed on that slide may support that. Additionally, I would like to know how this might influence trial pricing and potential cost synergies as you consider executing trials with reduced staff. It's quite a broad question.

Steve Cutler, CEO

Yes, that's a significant question. As you've pointed out, I'll let Colin share his thoughts shortly, as he has a clear perspective on this. We've observed a change in how we conduct clinical trials since the pandemic. About a year ago, the industry quickly transitioned from primarily on-site monitoring to remote monitoring, which has significantly accelerated the conversation around decentralized trials. I don’t believe we will revert to previous methods. We're witnessing extraordinary interest in our decentralized trial offerings, even in areas like oncology where it wasn't traditionally expected. There is substantial demand across our client base, from large companies to mid-sized firms and biotechs, regarding how we conduct these trials more focused on patient needs in the future. The capabilities you mentioned position us strongly in a market segment that will likely see considerable advancement over the next three to five years. While we won't see a complete shift to 100% decentralized trials in the next six months, the pace of change is expected to accelerate due to the pandemic. Almost every trial we initiate now includes some level of off-site monitoring, remote monitoring, or decentralization, and Colin can elaborate on some fully decentralized trials we are conducting that are pivotal. We anticipate that this trend will continue without regression. Regarding pricing, it may vary, but we see opportunities to maintain or even improve margins because we will avoid some of the inefficient practices of the past, like traveling to sites and billing clients for those trips. We’ll be more efficient in data monitoring, presenting substantial margin opportunities for us. Our resource utilization can improve significantly; for example, we recently conducted a large-scale trial for a major client, monitoring it remotely from a site in Argentina with our team based in Asia. This opens up significant possibilities for us to improve efficiency while offering competitive pricing to our clients. We can conduct more trials with better resource use, resulting in stronger margins moving forward. I'll pause here to let Colin add his insights.

Brendan Brennan, CFO

I mean, Steve, that was quite thorough, but the only thing I would really add there is that one of the key components here is back to this health care intelligence, I mean what we're producing is now how to get a trial optimized and done as quickly and with as little labor as possible. And using this combination of expertise with data and mingling that together, gives us a really quite unique offering. And we've been able to, with this union, accelerate components that may have taken us years to build out equally by ourselves. And it's the same with ICON. So, together, we're getting things done faster, so we can take advantage of these opportunities. We've seen very, very strong pipelines coming through. We had a record Q4 book-to-bill. I was delighted to post an old-fashioned 605, a 1.42, I think, that just is a testament to the work volume that's out there, and we're seeing that continue. So, I think that we're nicely positioned.

David Windley, Analyst

Great. I appreciate those answers. A kind of splitting the hair one here, probably for Brendan. In terms of the adjusted EPS that you answered to Eric's question, he stole that one from me, but also wanted to make sure I understood the before and after as relates to your accretion number. So when you say double-digit accretion and 20% longer term, should we be starting at ICON the way you report today? Or starting at ICON adjusted for the things that you are going to adjust, and then add the 10%?

Brendan Brennan, CFO

With the adjustments in, Dave, to put too fine a point on it. So, we can take that off-line as well, but with the adjustments in, so a like-for-like basis.

Sandy Draper, Analyst

Thank you very much, and I would like to extend my congratulations. My first question is about whether there are any limits on the stock component regarding potential increases or decreases.

Brendan Brennan, CFO

No. No, Sandy, there's no collars of that nature.

Sandy Draper, Analyst

Okay, great. And then second is maybe an ICON-specific, and I know they're a little bit of PRA numbers and look like the fourth quarter was solid. I don't have any guidance there. But Brendan, when I look at the guidance that you gave for ICON stand-alone, it looks like if I do a quick back of the envelope, you're not really assuming any notable improvement in the burn rate. One, just wanted to make sure that's right? And so should we think about sort of what we saw in the fourth quarter and where you're projecting as sort of the new level? I was thinking maybe there would be potential for that to lift up once we get through COVID, just any comments around that? And then I don't know, Colin, if you're willing to make any comments about how you guys are seeing the burn rate and recovery as we move past COVID?

Brendan Brennan, CFO

Sandy, we're very pleased with the guidance we are providing today, indicating a revenue uplift of 14.4% to 18%, which we view as a strong performance following a challenging year. We expect that conversion rates will likely improve more quickly in the first part of the year. We're anticipating continuous revenue growth throughout the year, especially as we take on additional vaccine projects, which should accelerate our overall conversion. You can calculate how this affects the year based on the burn rates. The situation is not significantly different from where we ended, but we expect a more rapid pace in the first half compared to the second half. I hope this clarifies things, and I'm available for any further questions you may have afterwards.

Elizabeth Anderson, Analyst

Hi everyone. Thank you for the question and congratulations on the transaction today. Can you elaborate more on how the transaction came together? I know you had your net cash position and were emerging from COVID, but was it a competitive situation? How long had you been in discussions? This would provide us with more context for the decision at this time. Thank you.

Steve Cutler, CEO

Sure, Elizabeth. This goes back about four years. I took on this role in early 2017, and we had an interest in another CRO during that time, which prompted us to start reviewing the marketplace. We believed that pursuing a transaction like this was the right approach. Over the years, we evaluated all of our key competitors in a careful and thoughtful manner. By early 2020, Colin and I connected and acknowledged a cultural and clinical alignment between our organizations. Then the pandemic hit, and we were occupied with our own operations during the middle months of 2020. However, as we began to see light at the end of the tunnel, we revisited the idea and recognized the complementary nature of our customers and services, as well as the opportunity to enhance our presence in key regions. This made a strong case for our merger. We initiated discussions, and it didn't take long once we focused on it, as the benefits were clear from the beginning—cultural fit, service alignment, and technology integration. PRA contributes significant revenue synergies to our site network and home health division, which we felt were too advantageous to overlook. This has been a long-term process, not a sudden decision, as we have been carefully considering this for years while thoroughly examining the market.

Brendan Brennan, CFO

Yes, Elizabeth, I'll address that. It's Brendan here. We didn't provide detailed guidance in January because we needed more time to understand our new customers better. Over the past couple of months, we've gained increased visibility, particularly regarding the vaccine trials and their progression into revenue. I discussed the conversion levels and patterns we expect to see from those trials earlier. Additionally, we had an exceptionally strong Q4, which was beneficial from a business perspective, and we observed similar results in PRA, which was excellent. This gave us greater confidence heading into the year. We took the extra time to refine our numbers and ensure they were accurate, and we feel very confident in the figures we are presenting today.

Donald Hooker, Analyst

Good morning. I wanted to get an assessment of the broader marketplace in light of this combination. What percentage of the CRO outsourcing market do you believe is outside the top five or six CROs currently? Additionally, how do you think the private and smaller CROs have performed in 2020 compared to the larger public CROs, considering all the changes?

Steve Cutler, CEO

Yes, I'll address that, Donald, and then possibly Jonathan Curtain, who manages that data, and Colin might want to chime in. Regarding the overall market, we still observe growth in that area. The larger CROs, particularly the top six or seven, are capturing most of that growth. While smaller CROs are also growing, we don't think they are expanding at the same pace as the leading group. We believe that being part of that top tier positions us well to seize the majority of the market growth. As for the portion of the market outside the top, it's still a highly competitive space, with many hundreds of CROs globally. The top five likely holds around 50 percent of the market, and I suspect that number will increase over time. We aim to maintain our presence in this elite group, as it would benefit our shareholders, employees, and customers. There are certainly more opportunities ahead, and as the market grows, we anticipate increasing our market share as we progress. Colin, Jonathan, do you have anything to add?

Colin Shannon, Chairman and CEO of PRA Health Sciences

Yes. Yes, I'll add a little bit there, Steve. Thank you. One of the other aspects here is that with the size of our organization, pharma are massive, and they want to partner with companies that they can keep up with them and have the capability to continue to grow without eating into that beyond 10%. So, we'll be able to actually be able to grow a lot more substantially with some of the larger clients. I mean, and you're right to point out, there are thousands of CROs that are not in the top tier. And it's a very fragmented industry. But to Steve's point, we continue to see the larger ones able to offer more. And there's all the work that's done by pharma just now gives them an opportunity to start looking at the larger companies to share some of the workload.

Operator, Operator

Hey Don, it's Jonathan here. I don't have much to add to that. What we've observed is a broadening and diversification within our customer base. Over the past several years, mid-sized customers, who might not have considered working with larger CROs a decade ago, are changing their perspective. They realize that finding patients can be challenging in certain therapeutic areas, and they understand that larger CROs have the scale and resources to meet their needs. This shift complements our services and offerings alongside those larger clients.

Donald Hooker, Analyst

Great. And a quick follow-up. With all the operational disruptions over the past year, I see you reported very strong results; both CROs, PRA and ICON reported very strong awards for the quarter. Was there a significant number of rescue studies or any insights from studies that were difficult to restart? Have you seen that yet, or is that something that might emerge this year? How do you view the opportunity for rescue studies?

Steve Cutler, CEO

We haven't observed a notable increase in rescue opportunities, Donald. They appear occasionally. The growth we've seen is largely influenced by factors related to COVID and vaccines. Colin may want to share his insights on this. Beyond our top five clients, the small and midsized biotech companies have shown strong growth for us. As for rescues, while they usually emerge after some time, we haven't experienced any significant rise in our typical rescue rates.

Colin Shannon, Chairman and CEO of PRA Health Sciences

I echo that, Steve. There was nothing substantially different from our mix as well. So, I agree with Steve.

Operator, Operator

Thank you. And your next question comes from the line of George Hill. Your line is now open.

George Hill, Analyst

Yes, good morning and I appreciate you taking the question. I have a couple of quick ones, since I think a lot has already been covered. Is number one, I didn't see if there was a breakup fee on the deal. Number two, I would ask if you guys could comment quickly on if you see any significant white space in the combined company's offering post the transaction close. And lastly, I guess, Steve, I don't know if you would comment on how much of the market do you think is not being realized due to people not being able to readily access clinical trials or trial locations? You talked about kind of the explosion in consumer recognition of the trial process. But I'd be interested in kind of how you guys think about how much of the market is untapped just because people are hard to get to? Thanks.

Colin Shannon, Chairman and CEO of PRA Health Sciences

The data analysis consistently shows that only about 5% of eligible patients participate in clinical trials, indicating a significant opportunity. As Steve mentioned earlier, the pandemic has served as a global educational moment regarding clinical trials, and we anticipate a substantial change over time. We aim to support this shift, as we believe it will accelerate the entire clinical trial process. This will require us to collaborate closely with our partners and clients to streamline our approach, enabling us to deliver medicines to patients more quickly.

Steve Cutler, CEO

Yes, I agree with Colin's comments, George. Regarding your second question about areas we don’t cover, there is very little we don’t address, and we have significant depth in medical segments. We are focused on clinical aspects and will continue to be. This focus brings strength to our organization and is a key consideration for this transaction. There's not much we can’t do in the clinical space. However, we are always open to further innovation and technology opportunities, especially as the decentralized trial market evolves. We will actively engage with top providers and consider further acquisitions in that area to ensure strong delivery. Brendan, would you like to address the breakup fee?

Brendan Brennan, CFO

Yes, just maybe to point out, George, at this point, we haven't disclosed those as yet. There are breakup fees. They will be included in the proxy. So, watch this space, and you'll be able to find them.

John Kreger, Analyst

Hi thanks very much. Steve and Colin, can you guys just elaborate a little bit more on how the combined company will be able to better serve emerging biotech? That's the one category where it doesn't necessarily seem obvious that enhanced scale is necessarily helpful. Do you agree that more innovation is coming out of emerging biotech? And how does the combination allow you to sort of address that market better? Thanks.

Colin Shannon, Chairman and CEO of PRA Health Sciences

Thank you, John. I’ll take this question first. Steve and I spoke about how crucial this aspect is, as it is a significant source of innovation. We are committed to ensuring that both our current clients and the emerging biotechs we collaborate with receive the attention they deserve. We understand the importance of their innovation and will continue to focus on nurturing this segment of our business, which has been a fundamental part of our strategy for many years. Steve also values our efforts in this area and wants to expand our initiatives further.

Steve Cutler, CEO

Yes. And John, I'd concur with what Colin just said. But I'm not sure I'd agree with your perspective around enhanced scale not being useful for biotech. Many of these companies, smaller companies are in the rare disease areas. And when you're in the rare disease areas, there's a real benefit to being able to broaden and deepen in terms of access to patients. So, there's an opportunity, I think, there to really make a compelling offering to our biotech. We've shown that. I mean, the PRA guys have been really preeminent in that market. ICON has also been very successful in that market. And we've shown we can deliver. The old sort of model, the old sort of mantra of we're too big and we don't care, has really gone away, I think. We've shown, I think, operationally and delivery-wise that we really can put it out there and deliver for these biotech customers, particularly around their challenging and complex trials.

Dan Brennan, Analyst

Great. Thanks for taking the questions. Maybe just one that was asked earlier, but I just wanted to get clarification. So just on the interest cost, Brendan, on the $6 billion of debt. I know Eric's asked it, but just wondering if you can disclose what that is in the term and the other secured indebtedness.

Brendan Brennan, CFO

Yes, we're kind of in the high 2s on that. I mean, we'll obviously move. We've got a bridge facility in place and we'll swap across to longer types of debt. But the market is very good for debt at the moment, as you well know, Dan. So, at the moment, we're looking in the kind of the high two range, 2.75, that kind of ballpark.

Dan Brennan, Analyst

Got it. And then I know it was asked earlier too on the $150 million of cost savings, and you said you'll give us more color on that. But I'm just wondering, if you look at just PRA's SG&A, obviously, just applied to that, that would be meaningful. But obviously, you're getting some savings on synergies on the combined scale and purchasing power, but can you give us any way to help think about some of the components of that? I know in the deck, you've got some bullet points here, but I'm just trying to think through that number conservative or not, just would be helpful to get some qualitative color?

Brendan Brennan, CFO

I think, Dan, what we will say about that is it's very achievable, is the way I'd put it. We've looked at the numbers, obviously, on the combined business. There's a lot of infrastructure in the combined business. There's a lot of overlap of IT systems. And as we said, we want to leverage our centers of excellence around how we run support services. So, I do think it's a very, very achievable number. And certainly, in the time frame that we've given it there, it's very achievable. So, we feel very confident about getting to that number across those bullets.

Operator, Operator

Thank you. So, there are currently no further questions from the phone lines.

Steve Cutler, CEO

Okay. Well, thank you, operator. Let me just close by saying the union of ICON and PRA brings together two high-quality growing organizations with similar customer-centric cultures to create a world-leading health intelligence and clinical CRO. Our focus is on executing trials from Phase 1 to post-approval studies with the highest quality and expertise, and we'll leverage innovative strategies to accelerate development through the use of new data and technologies, while remaining focused on delivering our current projects. So, with that, again, I'd like to thank both the PRA and the ICON team who worked so hard over the last few months to bring this deal together and also a shout out to all of our employees, both PRA and ICON, for delivering such strong results over the course of 2020. Thank you all. Have a great day.