MedPace Holdings (MEDP) is trading higher today, albeit on light volume after it was announced Friday after the close that the company will be added to the S&P SmallCap 600 effective prior to the open on January 2. We thought this would be a good opportunity to explain what the company does and what has been going on with them.
MedPace Holdings is what's known as a clinical contract research organization, or CRO. It provides clinical development services to biotech, pharma and medical device companies. MEDP provides full-service Phase I-IV clinical development services. MEDP focuses on small and mid-sized clients.
MEDP focuses on conducting clinical trials across all major therapeutic areas, with particular strength in oncology, cardiology, metabolic disease, endocrinology, central nervous system and anti-viral and anti-infective. Its model entails partnering with customers from the beginning of the clinical trial process and holistically navigating all subsequent components of the process. This approach differs from other CROs that provide functional or partial outsourcing services.
Biopharmas are increasingly seeking clinical expertise to outsource clinical services to CROs. Clinical trial design and structure have become increasingly complex based on regulatory agency sophistication, more complicated protocols and a growing focus on developing new cutting-edge drug therapies. This growing complexity is a big reason why more biopharmas are outsourcing the clinical trial work to CROs like MedPace. Specifically, about 52% of Phase I-IV clinical development was outsourced in 2014. MEDP expects that to grow to 62% in 2019.
The stock jumped in late July on a particularly strong Q2 report as revenue jumped to $170 mln with a net book-to-bill ratio of 1.41x. MEDP followed that up with a strong Q3 report in late October with revenue rising 44.4% YoY to $179 mln with upside full year guidance.
MEDP cited a strong biotech funding environment for its strong revenue growth in recent quarters. MEDP is also seeing solid net awards and continued momentum with existing projects. Regarding its mix by customer size, MEDP remains focused on serving small and mid-sized biopharma customers that represent a large portion of MEDP's total business and a segment of the market where MEDP sees further opportunities for growth. Most of the revenue growth in Q3 was in the small biopharma customer group.
In sum, MEDP has been doing a solid job overall, posting nice upside quarters and growing revenue at a good clip. MEDP is right to focus on the small and medium sized biotech market as there is good opportunity there. As FDA protocols get more complex, these smaller companies are increasingly turning to CROs like MEDP to help them navigate this process. Companies like MEDP have greater expertise in this area, which is its core competency.
The stock has been up and down since that gap higher in late July on the strong Q2 results. The stock performance seems more related to the choppy nature of the overall market rather than any concerns at MEDP. But compared to some other stocks, MEDP has held up pretty well. Overall, this stock has been a big winner since its IPO debut in August 2016, when it priced at $23. It's now trading around $47. Hopefully, the stock gets back on an upward trend in 2019.