Valuations in the CRO Sector

June 2020

Market Valuations - Global CROs

Valuations in the sector remain robust even in the face of the recent market volatility
Since the start of the year, EBITDA trading multiples have remained on par with that at the beginning of the year, even with the revised earnings guidance
Despite the strong recoveries, share prices most companies are trading at a 10-15% discount to 52-week highs

Sources: Public data, Capital IQ. Data calendarised to December YE. Data accurate as at 27/05/2020. No data for PPD on 01/01/2020 as did not list on the Nasdaq until 27/012020

Market Valuations – Impact by Sector

Within the life sciences and healthcare value chains there remains a wide variation of impact directly related to the crisis, depending on the product and disease area and stage
Share price performance in the healthcare sector remains relatively robust and particularly in contract research where it surpassed pre-COVID-19 level and trading 10% higher
Life sciences and healthcare has outperformed other industry sectors which are traditionally considered defensive
Biopharma valuations remain higher due to their defensive qualities and in some cases their ability to capitalise on COVID-19 environment

Sources: Public data, Capital IQ. Data accurate from 01/01/2020 to 27/05/2020. Index starts at 100. Share price growth for other sectors based on performance for SPDR ETF funds which track S&P 500 companies.

Impact of Recessionary Environment

During the 2008 GFC the CRO index fell by 28%, however, the drop was staggered compared to the rest of the market. Share prices were heavily impacted by the lack of biopharma funding
The index took almost 18 months to recover losses, which was roughly in line with S&P 500
Since COVID-19 outbreak the CRO index has fallen by as much as 70% in a much shorter period of time.
CRO prices have taken less than 2 months to recover and the bounce back has been somewhat market-wide. Given the disconnect between future earnings and valuations some are speculating that his is false rally likely to re-correct

Sources: Public data, CapitalIQ. Data accurate from 31/12/2020 to 27/05/2020. Index starts at 100. Healthcare index is the MSCI European healthcare index. CRO group contains the following companies: LabCorp, IQVIA, Syneos Health, PRA Health Sciences, PPD, Charles River, ICON, Wuxi AppTec, Medpace.