Chit Chat Stocks - Medpace Holdings: An Undiscovered High Quality Biotech Stock, With Luis Sanchez (Ticker: MEDP)

Episode Date: April 2, 2025

On this episode of Chit Chat Stocks, Brett and Ryan speak with Luis Sanchez to discuss Medpace Holdings (Ticker: MEDP). We discuss: (00:00) Introduction to MedPace Holdings (10:51) Understanding the CRO Business Model (21:54) Medpace's Unique Positioning and Growth (33:05) Industry Trends and Future Outlook (42:16) Leadership and Company Culture (47:52) Valuation and Investment Considerations MEDPACE MEMO: https://lvsadvisory.com/wp-content/uploads/2025/02/LVS-Advisory-Medpace-Memo.pdf LVS ADVISORY WEBSITE: https://lvsadvisory.com/ ***************************************************** JOIN OUR NEWSLETTER AND FREE CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* FinChat.io is the complete stock research platform for fundamental investors. With its beautiful design and institutional-quality data, FinChat is incredibly powerful and easy to use. Use our LINK and get 15% off any premium plan: ⁠finchat.io/chitchat  ********************************************************************* Bluechippers Club is a tight-knit community of stock focused investors. Members share ideas, participate in weekly calls, and compete in portfolio competitions. To join, go to ⁠Blue Chippers and apply! Link: ⁠https://bluechippersclub.com/ ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Welcome to Chitchat Stocks. On this episode, we are joined by Luis Sanchez. I believe this is his Henderson, and I am joined, as always, by Brett Schaefer. Today, we are talking about MedPace Holdings, which is a clinical research organization. And it's a company I had not come across until you mentioned it, actually. So I'm excited to dig in. Luis, I guess, first of all, welcome to the show. How did you come across MedPace? Oh, man. Well, first of all, thank you guys for having me again. Always a pleasure. I think it's been more than a year since the last time I was on. Glad to be back. I'll be honest, I don't quite remember how I came across MedPace. Probably through a screen. I run, as part of our investment process, we regularly run all sorts of

different types of screens. And it always excites me when I find a company that looks like really good on a screen for some metric that we're trying to look for but i've never heard of the company before which was definitely the case here yeah it's exciting and i should say uh the last time i think you were on was talking interactive brokers and that was quite i'm still kicking myself for not listening to your pitch and buying bs we are talking med pace holdings today what exactly does med pace do this is not a company that most listeners are going to interact with in their day-to-day life um honestly as ryan said i hadn't heard about it before i think i talked about it with jim gillies one time so what do they do and what is a quote cro in their

industry? Sure. So a CRO stands for a contract research organization. And basically, a CRO works with a pharmaceutical company or a biotech company to manage their clinical trials. So CROs partner with drug pipeline companies. So if you think of like the FDA process for getting a drug through like phase one through phase four. To the extent that a pharmaceutical company wants to work with a outsourced provider of management services, that's what a CRO does. Not all drugs are managed by CROs. It's roughly 50-50. So 50% of the clinical trials are in some form of being outsourced. And the reason that pharmaceutical companies do that is for one is cost savings. So CROs can be more efficient and they, another, another reason is specialization. So, you know,

especially for like a smaller, like biotech company that maybe this is the first time they've done a clinical trial process. They may not have the in-house expertise to do this. So a CRO could be like a really value added provider there um from the perspective of like a business if you want to think about how the business works so um a typical cro contract is goes for like each phase of the trial so there's four phases of an fda trial each phase can take anywhere from like one to five years so when um a cro sends an agreement to let's say manage a phase two or phase three trial that's usually like a multi-year contract to do like a two or three year study that is scoped according to what kind of approval the drug company is trying to get typically

and typically they charge like a fee like a consulting fee to manage the project and then like all the expenses for a project are like passed through to the customer so if you want to think of like an analogy, it looks really similar to like an Accenture in terms of like a business model, or it looks like a, or even like a business process outsource firm, with the exception that this is like kind of a more specialized niche. So there are some barriers to entry to becoming a CRO. You can't, like you or I probably wouldn't be very successful if we try to start a CRO tomorrow. It takes many years to develop good relationships and build the trust and the ability to navigate through this process for the pharmaceutical companies.

Is it typically the largest drug makers that choose not to go with the CRO because they can afford to take it in-house or is it totally different variables that determine that? Um, so there's been a long-term trend towards outsourcing. So this industry, I think the first CROs were started in like the seventies. And so basically before the seventies, there was no outsourcing of, of, uh, of clinical trials, but over time, basically the outsourcing market has taken like one or two points of share from the, uh, uh, like there's been a shift about by one or two percent per year towards outsourcing so today to to maybe get into like the the total addressable market um like rough last year roughly uh 125 billion dollars was spent on

pharmaceutical r&d in the u.s about 65 billion of that was outsourced um and so roughly half maybe a little bit more than half and actually the trend is people think that over time more more um more work is going to be outsourced for a few different reasons one of the reasons is these large pharmaceutical companies are looking a lot more like uh they're turning into more of like royalty companies where you know they want to like if you think about it to some degree managing a clinical trial process is really is somewhat of a commodity at a surface level i mean I'll talk in a bit about why I think what MedPace does is not commoditize. But from the perspective of a pharmaceutical company, if you can get the same outcome and spend less money, then you're probably going to do it.

So there's very little strategic reason for like a really big pharma company like Pfizer or Merck to do this in-house. um the other the other reason is kind of like what you're seeing with like the oil and gas industry like the pharmaceutical industry is how is is becoming more of like you know they acquire ip and they try to run it really efficiently they specialize in commercializing it and collecting that really high uh high margin income and it's a lot more certain for them so their boards are much more comfortable allowing pharmaceutical companies to like like instead of internally doing r&d and and you know because there actually tends to be a pretty low return on r&d spend for pharma companies it's something like like i think i think the number i saw was like seven or eight

percent which is much lower than the roic for just buying good ip and then doing a really good job at commercializing it so i think there's actually going to be more pressure on the pharmaceutical companies to outsource over time. And then maybe the other thing I'll say, which is really interesting is just given where innovation's at and the pharmaceutical industry, like if you want to talk about like AI enabled drug discovery, or if you want to talk about like all these technologies that have been somewhat democratized. So you're seeing, you've seen a wave, actually a couple of waves of innovation happen where a bunch of farmers a bunch of biotech companies um have been spun out of like universities because maybe um some biology professor or

some like team of researchers leverage some like ai models um to discover some novel molecules and get funding so there's there's been like hundreds if not thousands of these like really really small biotech companies that have emerged over the last 10 to 15 years that probably would have otherwise never have been able to, like 20 years ago, 30 years ago, it probably wouldn't have been possible to the same degree for these small organizations to get started. And especially for these small companies, there's no way they're managing that trial in-house. Like they do not have that expertise. They do not have the resources. So they absolutely need a CRM real partner. Yeah, that is interesting with the digitization of the industry. Maybe

that's not the right way to put it, but that could lead to these smaller players having the resources to quote unquote build these products. And then when you have to actually go to trial, you turn to someone like MedPace. I want to make sure all of the listeners are understanding this business model properly is a proper analogy the semiconductor manufacturing industry where might not be the exact same where you have the intels could have been the old way of the model versus the taiwan semiconductor where you outsource it and given the better cost performance and essentially it's just a much better operating model if you outsource it to these large players is that similar here or is there any differences there are definitely some analogies i mean

the CROs are the picks and shovels of the biotech industry, right? And that's why I like this industry as somebody who I'm not a biotech specialist and I have a much heart. I don't think I'm going to personally have an edge in figuring out which molecules are better positioned than other molecules versus like a biotech focused fund. You know, I can look at a CRO and say, you know what? This is really more of like an industry play, right? Where as long as I think the overall level of industry activity is going to go up, I can have confidence in where this business is going to go in like five or 10 years, as opposed to trying to pick the winners. So to some degree, I think there is like a picks and shovels analogy there.

Okay. And you mentioned the CROs have been around for a long time, 1970s, 1980s. I look at MedPace, they're a bit newer. I'm looking at our friends at FinChat. And let me pull up the revenue quick. Revenue has grown since 2015 at a 23% rate. So, I mean, really phenomenal growth for this business. what how does their model differ from the industry and you talked about this in your write-up which we'll link in the show notes why does this give them an advantage and allows them to take share yeah so i think med pace is a very special company and is an n of one in their industry. And there's a few reasons why I would say that. So the first thing is, it's really all about where they've chosen to focus and how they've chosen to allocate capital is really what it comes down to. So the first thing you have to understand is there's two types of CROs. There's what are called full service outsourcers, and then there's functional service

providers. Um, a functional service provider is a CRO that only outsources like part of a project. So maybe if you're Merck or AstraZeneca, you're doing like, maybe, maybe you're doing the medical writing, but the CRO is managing the dosing of patients at the site, for example. So the site management, um, but what MedPace does is they do full service. So, um, and they don't, they don't not do full, they don't do any functional. And full service means they manage every single aspect of a clinical trial. And there's, it's really not easy to do that. And because they manage every aspect of a full trial, it's a higher value service. So they're able to charge a premium price and they're able to take a much higher margin. Now, as a function of them only being a full

service provider they primarily work with smaller biotech companies because as i was alluding to earlier um the small biotech companies are the key customer that basically they absolutely need a full service manager so about 80 of med pace's customer base is is small biotech and then the rest is kind of it's mostly mid mid mid-sized biotech and they have a really small sliver of large pharma business um there's there's like four really big cro companies and i think well that they they've all been public at one point so the biggest one is iqvia there's a company called icon and then there's a company called ppd there's also another is a smaller company called fortrea and then there's medpace and these are like the big five i would say um the big five

control about half of the industry and then the rest of the industry below that is like extremely extremely fragmented now med pace is the only company of the big five that is exclusively full service and that has um like you could you could see it in their numbers so if you stack up med paces, um, various metrics of ROIC and, um, margin, like they're superior. And the reason, one of the key reasons it's superior is because it's actually a different business model. Um, and so I think that there's, so some of the other providers have like a mixed business model where maybe they have a full service division and a functional service division. But, um, what I've found is because those other companies, um, lack the focus, um, they don't do as good of a job.

Okay. And so one of the, one of the other reasons why MedPace is kind of special is it's the only company that is completely vertically integrated. Um, so MedPace doesn't subcontract out many services. So it owns its IT stack. It owns its own core lab. It does all the monitoring. It does all the writing. It does all the quality control audits. You know, they even own some sites and a site is where the trials are managed, but they don't own all the sites. They just own like one really big site in ohio um and the reason why that's important is because most of their competitors well there's two reasons why that's important most of their competitors are like buying technology from a third-party vendor like uh like viva systems is like a really big provider

to this industry or um there's a few others but medpace doesn't do that so they're able to capture that margin and they actually pass it along to their customers. So they have a low cost advantage and their low cost advantage is so significant that their price that they offer for these like smaller clinical trials for biotech companies is below the cost of their competitors. So So it's in a way, it's like the, I wouldn't say it's like the Amazon, but it's like the Costco or there is like this aspect of scaled economy shared to this, where they have the lowest price, they pass it along to their customers, and they're able to do that because they're like super, super vertically integrated and super focused.

If they know that they need to provide a critical service, they're going to build it in-house. Um, now the last, maybe the last couple of important points I'll make is, um, like their culture is, is very unique. So if you look at, um, just geographically where most of the industry is like the biotech industry is really heavily concentrated in like Boston, New York and San Francisco. Um, and that's where a lot of the CROs have offices. Um, MedPace, their office is in Ohio. And they force everybody to work in Ohio. They don't hire people who are mid-career. They only hire people right out of college and they train them up. So the only way to advance at MedPace is to start at MedPace and to work your way up.

And that actually reinforces their low-cost advantage because they're able to have much lower turnover, and they're also able to pay people less because the tradeoff is they pay people less because they're earlier in their career, but they give them much more career advancement opportunity and much more responsibility. so um one of the most interesting things that we uncovered in our research is that um we believe that there's a really really strong cultural advantage they have and you could you could measure this in like the the like the revenue productivity of mid-pace like the revenue per employee at mid-pace is like significantly significantly greater than all their competitors And that's a big function of why. But also that gets reflected in what we hear their customers saying, which is that MedPace consistently delivers a really good product. It's very consistent. When they work on a project, they have the same team working on their project from beginning to end on a multi-year contract. Whereas the level of turnover at the competitors is really high.

And because the competitors have disjointed IT systems, the quality of the experience isn't as seamless. And so because MedPace owns the whole tech, they could actually offer more customization for a customer too, because they can just change something in the tech for a specific project. um and and um so there's like a really interesting cultural halo there's a very different um business model strategy and it kind of you know i alluded to capital allocation and so what med pace is really really focused on is internal reinvestment driving organic growth and when they have excess cash they do opportunistic buybacks and they've been really good at that versus what their competitors have done their competitors you'll see have done like a lot of m&a their competitors are really really aggressive with m&a and that's created a lot of volatility so what what you see

is like a company like icon is really kind of like a roll-up and this is why their turnover is so high because they they buy a company and their customers are they think they're working with xyz company but then it gets acquired and then the people change and there's a lot of restructuring that happens but at med pace it's all very consistent you know um very very good execution and i think that's really it really shows up in the numbers right like you just said uh 20 plus organic growth um which is like maybe three or four x the next best competitor much higher margins because they're way more efficient um super high roic because they're very disciplined and reflected in better cash conversion cycles and that's also i mean the

last point i'll make is um part of this too is also because of the like the fs the fso like the full service outsourcing versus the functional service because when you work with a larger so because med pace is bread and butter is working with these smaller biotechs these smaller biotechs don't have as much leverage to negotiate the contracts against MedPace. Whereas if you're working with, if you're an Icon or a Fortrea and you're working with like really, really big pharmaceutical companies and you have like these really, really big contracts, they tend to push you around more in price. And so that also results in lower margins and lower and inferior like payment terms.

It sounds a bit like Adyen from the build it internally type perspective, which ultimately tends to result in kind of more synergies in the tech stack. There's not as much difficulty integrating acquisitions and the complications that come with that. I guess my question, what does the go-to-market look like? How does MedPace get in touch with these drug manufacturers? Is it like a bidding process? Do they come directly to MedPace? How do these labs find, or not labs, drug makers find MedPace? Yeah, well, the first comment I'll make is that I have a really strong,

like these are the type of companies I like. I have a really strong bias towards companies that prioritize reinvestment, organic growth, have really strong runways, really strong cultural moats. There's a lot of similarities here. These themes came up in our Interactive Brokers call, if you remember, where a lot of the same things applied, where Interactive Brokers has a really particular culture. And we'll get to it later, but I actually think the CEO of MedPace reminds me a lot of Thomas Petterfy and the way he runs the company. So I agree. Addian is another company I admire.

I'm not quite there on the valuation of Addian stock. But, you know, totally, this is like, you know, this is like what I'm looking for. I'm looking for these types of companies. And I tend to believe that these companies will tend to outperform over the long run. And so your question was, what does the go to market look like? Like, how do they find MedPace? Yeah, it's a bidding process. And it's a bidding process. And, you know, RFPs go out. MedPace is one of the big, you know, five companies. And MedPace actually is the biggest company in like the biotech space. So they get a cut, they get a look at probably every RFP. and actually one thing that's interesting is that every stage in the clinical trial is rebid so med pace might do the phase one and phase two but they might not do the phase three they might actually lose that bid um and so you know that that's a thing um and despite the fact that med pace is the biggest player in in like full service for biotech they only have about five percent of market share so they have this tremendous runway uh to continue to grow and take share and you know

i'm not i don't i don't think they're gonna kager their their revenue by 20 over the next like five years but i think they'll hit a double digit kager um even even though the industry is just not growing that fast anymore actually i'll add one more thing that i think is really special about their go-to-market and it reflects their culture so med pace based on my research they're the only company in the industry that does what's called a fixed price so um when they bid a project they give a firm price it's a fixed price and they unless there's like a really big change to the scope of a project they will not change that and one of the big if you if you listen to the pain points that CRO customers have is that the price keeps changing. There's always like

change requests. And so this is like a big frustration. And what I would tell you is that the industry is smart. And although this is like a B2B business, MedPace has a really, really strong reputation for not only doing a good job, but also delivering, you know, very attractive terms for their customers and delivering on time and being able to deliver on time and under budget is actually not easy and it stands out yeah i imagine that's huge for winning new bids the i wanted to talk about the industry a bit it seems like just based on some of the numbers uh some of the recent numbers from med pays and you also kind of see this i think with some of the other picks and shovels providers to biotech, like Danaher, for example, there's been

a little bit of, I guess you could call it, a recession within biotech spending overall. Brett's pulling up a chart here to demonstrate that. What's happened as of late? And I guess, where do you think this heads general direction from here? Before we move on, we want to talk about Blue Chippers Club. Blue Chippers Club was started by two friends of ours with the goal of building a tight-knit community of stock-focused investors. Inside this community, everyone gets to share a breakdown of their portfolios, pitch stocks, receive feedback, and participate in weekly calls. I truly love this idea, and it's why we're promoting it here on the show. In fact, we are in this community ourselves and

enjoy just how much value we get by collaborating with other investors. When I first got into investing, a role model of mine recommended that I build a network or community of friends to bounce investing ideas off of and blue chippers does just that if you're interested in joining head on over to blue chippers club.com and hit apply the link will be in the show notes yeah so i'd actually look at the chart right above that first to set the context so what that chart is is it shows the total pipeline of us r&d since 1995 so last 30 years and it's basically been an up and to the right chart and so if you look at however you want to however you want to do it so that's actually by drug count but you could also do it by dollars it's basically kagered at

the industry has cagered at like double GDP. So like five or 6% per year. Um, and then it really, really took off during COVID. Um, so in 2020 and 2021, the industry got a lot of funding. Um, a lot of investors, uh, threw money into biotechs at, I would just call it bubble valuations. and what we've seen over the last three or four years is the bubble has been popped and it's been deflating and basically for the first time in probably 40 or 50 years the number of clinical trials has actually dropped year over year so it's down about six percent from the peak and that's because a combination of things, but it's primarily due to that cohort that received funding from COVID burning through all their money and being unable to raise new money

because either their IP just wasn't that compelling or they wasted it or the valuation didn't make sense and they're unwilling to take down rounds. So unfortunately, investor interest in this, a lot of investors got burned, a lot of institutional investors got burned. And the capital has really come out. So now, you know, you're in this situation where the number of FDA trials is like down, and it might be flat for the next year. And there's a couple of other factors here. So one factor here is that, especially last year, a lot of investors felt that they wanted to wait until they had more clarity on the regulatory environment with like a change in presidential administration. So, for example, the person who's running the FDA might have a different view on vaccines and might influence a pharmaceutical company to not invest in certain pipelines or invest more into other pipelines. Another factor here is that a lot of biotechs are funded with venture capital money, and that tends to be negatively correlated to interest rates. So we've actually seen, just given high interest rates, high opportunity cost to that capital, and that's been a bit of a headwind. So one of my expectations is if we do see rates decline in the coming years, that actually should result in potentially more dollars being unlocked to get funded into this ecosystem.

um but the most important thing here there's a couple there's a couple of things but the most important thing is although the number of trials is down it's not it's it's really a financial problem it's not due to a lack of like viable drugs and viable molecules right what i've actually heard is that right now a lot of viable molecules are being benched um just because there's not like it's not the right capital environment for those molecules so my expectation is once we kind of finish burning through the covid cohort and you know the types of investors who are comfortable with this industry um come back either due to low interest rates or regulatory clarity or maybe there's more exits from large pharma buying small biotechs i think that there's

actually a really, really healthy pipeline over the next few years. So, you know, at the end of the day, there needs to be more investment into new drugs because there's like massive patent cliffs that the big pharma companies have, and they always need to reinvest and reinvigorate that pipeline. So for me, it's not a question of if, it's a question of when this market bounces back. Let's talk about the CEO, August Trundle. I think that's how you pronounce it. You talk about it in the write-up how he's eccentric, drives a unique culture. What are your thoughts about him and the culture, management, all that good stuff at MedPace in general? yeah so he founded the company um about 30 years ago give or take and he's he's still the largest

shareholder um i think he owns about 15 of the company and um what i love is that um he is super super engaged in day-to-day operations so he's not like a founder who like went to the beach he is on the 10 a.m sales call every morning literally he is calling up customers he is visiting sites and he's so engaged that employees complain on like glass door that he micromanaged the business and um and i think that there's a a positive and a negative to that but this is where i think actually this is exactly what i've seen with like a thomas petterfee i think you could also make it like i think steve jobs has been known to to be a bit of a micromanager especially on product development and so what i think when you have a founder who's like this engage like

clearly this is their life's work um you know he's keeping the culture right as like uh charlie munger would say um but what gives me comfort actually is um there's a really deep bench of executive talent and august is still he's in his uh mid-60s so i think he still has some time left with us where he could be running the business um but the rest of the executive team is also really long tenured of like the c-suite the average tenure is like over uh 16 years so i think if he left tomorrow or i actually think the company would be in really good hands um and but it's just like what i said i think he's had his fingerprint on the company and shaping the culture and that's evident in all aspects of the business which i think is one

of the reasons why MedPace has really stayed long-term, has really avoided making really dumb acquisitions, has really watched over its capital. It's incredible. If you look at MedPace's buyback track record, they pretty much only buy back their stock when it's attractive. And guess what? They just reauthorized their buyback last quarter. So yeah, I think that's a really interesting pattern to observe. Yeah, that's certainly a good sign and actually leads kind of into our evaluation question. I could see how this reminds you of Interactive Brokers CEO, Peter Fee. And it's always nice when you've got a ceo who very easily could have gone to the beach and has built a multi-billion dollar

organization but you can tell it's more of a passion project for them and there's something more to it than just the financial benefits let's talk valuation uh you mentioned that they just reauthorized a share buyback i'm seeing a trailing ev to ebit of around 20 times what do you think they need to earn for this to work out and i guess what are your expectations for the financials moving forward yeah i you know it trades at about 20 times um which is not statistically cheap but if you put that into the context of a business that is organically growing double digits and has an roic exceeding 50 is buying back its stock and has keggered eps at over 30% over the last five years.

I actually don't think that's too unreasonable. Historically, this business has traded for as high as 35X, and it's basically as cheap as it's ever been. So if past is prologue here, then I think at least it's not overvalued. What you really need to see for the stock to work is you basically need to see fda pipeline come back and you know that that could be a one-year trend it could be it could take more than a year um there's obviously some uncertainty

um i'm not personally too i'm very long-term here i i just i look at i look at the pace of innovation that's happening in this industry. And, you know, the underlying potential here, MedPace, you know, roughly 10% of their market cap is, is just cash, they have no debt. And they generate a really, really healthy amount of cash flow. So if they just if this just becomes a buyback machine for the next couple of years, I think that's fine. I'm fine with that. And at some point i'm pretty confident the um the the python will return now if you think about like what like what else could go right for them and i think this is where people maybe are a bit short-sighted is like yeah i think everybody knows that the biotech market is in is in pretty bad

shape but medpace has consistently taken share over time and this is definitely a period of time where all their competitors are really, really weak. And the last time I spoke to the company, they told me about all these great investments that they're making to deepen their moat and to take more share. I think one of the things that I see as like a really big opportunity for them

is so MedPace has a really, really strong footprint in North America. They have a global footprint. They have like assets in Asia and in Europe, but they don't quite have the same level of scale outside of the US as some of the larger CROs like IQVIA or ICON. And that is actually a really big opportunity for them for two reasons. One reason is an FDA stage three trial actually is a global trial. And so MedPace historically has really low market share in stage three trials. So they do a

really really good job in stage one and stage two but then they tend to lose that stage three business so i think i see them over time um gaining share in stage three and by the way stage three also is like the largest trial in terms of dollars so if they actually can gain more traction there um that actually has the potential to you know significantly increase their revenue potential. And, and yet, like, similarly, as they, as they kind of deepen their roots in Asia, and in Europe, and in Latin America, I think they also have the potential to just win more contracts with foreign pharma companies, which they're definitely underrepresented in today. So my, my thought here is, even if the market is kind of flat in terms of the number of

trials, they'll still be able to drive a lot of market share gain, because they're really leaning in to reinvestment and deepening their moat at a time where if you look at every other company, there's deep layoffs. Most of their competitors are highly indebted. They're in bad shape. But MedPace is actually in great shape and is actually, from what I can tell, leaning in and trying to take advantage of that. All right, folks, if you are a regular listener to Chit Chat Stocks, then you know that we use FinChat.io daily. FinChat is the complete financial data platform for stock-focused investors. They have robust financial data on more than 100,000 stocks globally, including company-specific segment and KPI data. For

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our link will get you 15% off. That is finchat.io slash chitchat. Link will be in the show notes. Yeah, it seems like a promising opportunity. I mean, checks all my boxes. I have three criteria. Trusting the management, good valuation, long runway to grow you have all those boxes checked here we're running up on time so you

can answer this as quickly or as shortly as possible just two final closing thoughts first why would an investment in med pace holding holdings go poorly and second before we get out of here tell listeners where they can find more of your work and lvs advisory services i want to get the name right um yeah i think it's i think it's simple so like one is um although med pace at 20 times is in my opinion pretty reasonable for their financial profile it does trade at a premium to their peers like most of their peers trade for about 15 times maybe plus or minus so yeah there could be a little bit of a deflation in the valuation multiple wouldn't surprise me But what, what I really see is the risk is, um, like regulatory uncertainty. So if certain laws are passed that, um, makes, that makes it less favorable for biotech companies or for large pharmaceutical companies to like reinvest in, in pipeline.

So, for example, like a lot of people are worried about like vaccine trials right now, but there could be other like another like one of the one of the regulations that actually has kind of contributed to the flattening out of trials was in the Inflation Reduction Act. there was like price caps introduced and so some pharmaceutical companies indicated that well if we're not able to price raise prices a certain way then it makes the roi on these investments less attractive so instead of making 10 investments in r&d we're only going to make eight like these are these are rationalizations i've heard um and i think that that could happen Like if we get capped pricing power of drugs in the U.S., I think that does hurt ROIs and could have an impact on the number of clinical trials going forward. However, I think the other side of that is if you look at what this current regulatory administration could bring, is it could bring a lot of deregulation. And it could bring deregulation in a way that could accelerate the number of trials.

So if you remove certain regulatory requirements that maybe don't even touch the CRO, like there could just be like certain wait periods or certain types of paperwork, maybe, you know, maybe the cost of running a trial can come down. and you know maybe med pace can instead of running like they're currently running something like 500 trials maybe they'll be running a thousand trials and maybe they'll make a slightly lower um fee on each of those trials if they're cheaper um i guess another thing that we that we think a lot about is like exactly what ai is going to do to this industry so um this is definitely a situation where I think the CROs are going to leverage AI to make their services more efficient and that could impact the profit pool of the industry. So if all the CROs are more efficient, they may need to cut their prices and they may need to pass that along to their customers.

And I've spent a lot of time talking to people in this industry trying to figure out the implications of AI. I think there's a couple of things to keep in mind though. The first thing is that just due to regulation you still need to run a trial you can't avoid the fact that there's like you need to recruit x number of people you need to uh spend x amount of time following the results you need to do like in-person quality control audits it's not like you can't just automate this whole thing and i think some people get a little bit carried away with what they think could happen like what what what are ways that could be made more efficient is what part of this process is you're collecting data from patients, you're taking that data, and you're writing

reports, you're submitting that reports to the FDA, like AI could make that more efficient and speed it up. And I actually think MedPace is on the ball enough where they're going to be at the forefront of making those investments and figuring out how they can improve their service. So I actually think it's more of an opportunity. It's an opportunity for them to lean in, make those investments, take share, maybe drop their costs, but by a function of dropping their cost, I think that there's a lot of volume opportunity, a lot of volume upside. So I think if there's anything that is like, you don't quite know what's going to happen in five to 10 years, to the degree that there's any uncertainty, it's probably more along

the lines of AI. I think that regulations could be modified, but it's probably not going to be that dramatic. and at the end of the day i think their customers still need the service it's not something that can be completely uh disrupted or removed i don't think this is going to be like super economically cyclical for example okay i think that's all the questions we have uh i will go ahead and plug you right up here louise you have a great med pace research piece up on lvs advisory So if you're interested in all this advice, or sorry, if you're interested in MedPace, I'm talking to all the listeners here, I really do recommend going and checking it out and giving it a read. There's a lot of good charts and visuals in there that illustrate a lot of the points Louise made today.

I think that's pretty much it. Brett, do you have any more questions on MedPace? Not for me. Seems like a fascinating company. And yes, I would say the write-up is great. We read it in preparation for this episode. And we will link specifically to the write-up and the website for anyone interested to know more. Great. Thank you so much, guys.

Yeah, I'd encourage everybody to check out my website. If you like the content that we put out there, we share our write-ups. You could just sign up for our email list. I'm on Twitter. People can find me there, too. And, yeah, I'd love to stay in touch with the listeners. and I'd love people to give me feedback on what they think

and anything that they think could add value to what we do. All right, that is going to do it. Thank you all for tuning in. Thank you, Louise, for coming on the show. We want to remind all our listeners that Brett and I are not financial advisors. Anything we say or discuss here on the show

is not formal advice or a recommendation. Ourselves or the guests may buy, sell, or hold any of the positions discussed in this podcast. So please do your own work. That's going to do it. Thank you again for tuning in and we'll see you all next time.