David Windley

David Windley, a Managing Director and Founding member at Jefferies Group LLC, asked about the trajectory of pass-through revenues and their impact on IQVIA's margins. He also questioned how productivity gains are shared with clients, specifically whether price pressure from reprocurements extracts this value or if it's a program-by-program discussion, and how IQVIA monetizes efficiency.

Answer

Ari Bousbib, Chairman and CEO, and Ron Bruehlman, EVP and CFO of IQVIA, explained that strong pass-through growth was a significant driver of gross margin in the fourth quarter, with some product mix impact. They anticipate pass-through growth to moderate in 2026, leading to guidance for flat overall EBITDA margins, while SG&A margin continues to improve due to productivity. Regarding productivity sharing, they noted that reprocurements typically determine rates, implying that price pressure is a mechanism for clients to extract value. However, in the long term, productivity gains are shared with clients, and IQVIA offsets some impacts through its own efficiency improvements.

David Windley of Jefferies Group LLC inquired about the trajectory of pass-through costs and their effect on margins, and how productivity gains, particularly from AI, are shared with clients. He asked whether price pressure during reprocurements serves as the primary mechanism for clients to extract this value or if it's a more granular, contract-by-contract discussion driven by trial strategy.

Answer

IQVIA CEO Ari Bousbib clarified that productivity gains are generally shared with clients over the long term, and in the short term, procurement processes with determined rates largely dictate how value is extracted. EVP and CFO Ron Bruehlman added that strong pass-through growth was a significant driver of gross margin in Q4 2025, but this growth is expected to moderate in 2026. He also noted that SG&A margin continues to improve, largely due to productivity gains, which help offset some of the impact from high pass-throughs.

David Windley asked about IQVIA's 'see more, win more' strategy, its impact on RFP flows and win rates, and any associated price competitiveness affecting the P&L.

Answer

Chairman and CEO Ari Bousbib explained that improved market conditions and reduced uncertainty are driving RFP flow growth. He noted the 'see more, win more' strategy has opened new market segments. Bousbib stated that pricing competition has normalized, and earlier discounts on a small portion of the $32+ billion backlog are not expected to impact the P&L going forward.

David Windley asked about IQVIA's 'see more, win more' strategy, its impact on RFP flows and win rates, and any associated price competitiveness and P&L implications.

Answer

Ari Bousbib, Chairman and Chief Executive Officer, explained that the strategy, combined with reduced market uncertainty, has driven improved RFP flows. He clarified that earlier pricing adjustments were to align with market dynamics, not a continuing trend, and that any past discounts on a small portion of the backlog would have no material P&L impact over the next five years.

David Windley asked for details on margin performance by segment, the specific targets of restructuring activities, how cost takeouts affect segment margins, and if there were any significant changes in pass-through revenue.

Answer

Chairman and CEO Ari Bousbib explained that ongoing cost initiatives include optimizing overhead, labor arbitrage through offshore centers, and leveraging technology like AI. EVP and CFO Ron Bruehlman noted slightly more margin pressure in R&DS than TAS. Ari Bousbib added that segment margins are impacted by business mix: faster growth in lower-margin RWE affects TAS, while a higher proportion of lower-margin FSP and lab services affects R&DS. They confirmed no significant changes in pass-through revenue.

David Windley asked about the specific cost levers being used to achieve margin expansion amidst pressures from FSP mix, pricing, and carrying costs for delayed trials, and whether the FSP mix shift was already visible in the P&L.

Answer

Ari Bousbib, Chairman and CEO, responded that the higher FSP mix is primarily in new bookings and not yet significantly impacting the P&L. He attributed Q4 gross margin pressure to stranded costs from delayed trials and a stronger mix of lower-margin real-world business. Key cost levers to offset these pressures include optimizing labor rates, organizational restructuring, and accelerating the internal deployment of AI tools.

David Windley from Jefferies sought clarification on backlog accounting and asked how IQVIA plans to manage its cost structure to preserve margins amid trial delays, cancellations, and pricing pressure.

Answer

CEO Ari Bousbib confirmed the backlog math and acknowledged significant near-term cost headwinds. He explained that because resources were already hired for the two delayed mega-trials, the company will carry an 'extra bucket of costs' for the next 2-3 quarters, which will impact margins. While the company has other cost levers, he conceded this presents a challenge despite achieving a record 24.1% margin in Q3.

David Windley inquired about the specifics of SelectQuote's new multi-year PBM agreement, seeking clarification on whether it reestablishes previous economic terms and mitigates the $20 million fiscal 2026 impact. He also asked about the risk of other carriers reducing marketing budgets following a national carrier's decision.

Answer

CEO Tim Danker confirmed the new PBM agreement provides crucial stability and predictability, aligning with expectations and solidifying future visibility, making the $20 million impact a one-time event. Regarding carrier marketing cuts, Tim Danker stated the decision by one carrier was to truncate growth across all distribution channels, not unique to SelectQuote, and they do not anticipate similar material actions from other partners, emphasizing SelectQuote's resilient, diversified model and ability to drive high-quality volume and retention.

David Windley from Jefferies inquired about the details of SelectQuote's new multi-year PBM agreement, specifically asking if it reestablishes previous economic terms and provides long-term stability, especially concerning the $20 million fiscal 2026 impact. He also asked about the risk of other carriers reducing marketing budgets following a major partner's decision.

Answer

CEO Tim Danker confirmed satisfaction with the new multi-year PBM arrangement, noting it provides crucial stability and predictability, aligning with expectations for future visibility. Regarding the carrier marketing budget cut, Mr. Danker clarified it was a broad decision by one carrier to slow growth, not specific to SelectQuote, and expressed confidence in SelectQuote's diversified model to adapt. He does not foresee similar material actions from other carrier partners, emphasizing SelectQuote's value in driving high-quality volume and retention.

David Windley inquired about the lead times for starting studies in the DSA business, specifically how quickly studies can commence and client preferences. He also sought clarification on the sequential margin impact in the RMS segment, including the differential effect of the cyber event, and asked for insights into the RMS business mix across volume, price, animal types, and services.

Answer

CEO Bob Leasure explained that DSA studies typically start within weeks, while larger animal safety assessment studies have a 3-9 month lead time, with current large animal capacity operating at a very high level. For RMS margins, he attributed improvements in small animal and diet business to site consolidation and noted NHP segment margins can vary based on acquisition costs and market demand, which has become more stable. He also detailed the growth of services and domestic breeding at the Alice, Texas facility.

David Windley asked about the timeline for improving DSA margins, sought clarification on whether higher-cost NHPs were still impacting the DSA segment in Q2, questioned the current state of price discounting in the market, inquired about the contribution of NHP services to RMS revenue, and asked for more detail on the integration of scientific services.

Answer

Executive Robert Leasure stated that efforts to improve DSA margins have been underway for months and should yield benefits 'sooner than later,' noting that higher-cost NHPs did impact Q2 DSA results but are now mostly cycled through. He believes price discounting is less prevalent than it was 6-12 months ago. Executive Beth Taylor clarified that NHP service revenue increased about 10% quarter-over-quarter. Regarding service integration, Leasure and executive John Sagartz described it as a multi-year effort involving new project management systems, organizational realignment, and a cultural shift to improve project speed and on-time delivery for clients.

David Windley from Jefferies sought clarification on several topics, including the revenue recognition timing for presold NHP inventory, the size and growth of the colony management services business, capacity for that business, the cost trajectory for NHP sourcing, and the client and service mix behind the improving DSA bookings.

Answer

President and CEO Robert Leasure clarified that revenue from presold inventory is recognized only upon the transfer of ownership, not at the time of order. He detailed that colony management services, part of the RMS segment, grew to approximately $27 million last year and is projected to grow another 20%. Leasure confirmed Inotiv has ample capacity for this service on its 700-acre Texas site. He expects a 'step function' decrease in NHP costs now that high-cost inventory is cleared. Regarding DSA bookings, he noted the client base is over 95% biotech, with growth driven by specialty services like biotherapeutics and genetic toxicology.

David Windley asked how ICON plc balances labor force stability, which benefits productivity and client perception, with the defense of margins, especially given past risks from synergies and market demand.

Answer

CEO Barry Balfe explained that headcount moved by only about 100 FTE in Q3 2025 for a 40,000-person organization, with trailing attrition near historic lows. He emphasized driving efficiency through optimal resource allocation, using an algorithmic approach to manage risk across the portfolio. He views it not as a trade-off but as ensuring the best people and environment for success, continuously investing in talent and expertise.

David Windley inquired how ICON plc balances labor force stability, which benefits productivity and client perception, with the defense of its margins, especially given various market and synergy-driven risks.

Answer

CEO Barry Balfe explained that ICON's headcount moved minimally (about 100 FTE) in Q3, and attrition remains near historic lows. He emphasized focusing on efficiency, ensuring the right resources are in the right roles, and using an algorithmic approach to resource management to spread risk across the portfolio. Balfe stated that it's not a trade-off between margin and bookings, but rather about providing the best people and environment for success.

David Windley from Jefferies LLC asked about the progress of large pharma partnerships, including efforts to expand wallet share and replicate the partnership model with mid-sized pharma companies.

Answer

CEO Steve Cutler and COO Barry Balfe confirmed this strategy. Cutler noted that ICON's scale allows it to offer efficiencies in exchange for a greater share of a client's wallet. Balfe added that they are seeing success in broadening the partnership base beyond the top 20 clients into the '20 to 60' range, moving from transactional work to deeper portfolio relationships.

David Windley of Jefferies Financial Group Inc. questioned if ICON is seeing increased price sensitivity and RFP volume from smaller clients, and how the company accounts for potentially unproductive backlog.

Answer

CEO Dr. Steve Cutler acknowledged more competition and a lower strike rate in the biotech space, with an uptick in RFPs that are ultimately canceled. COO Barry Balfe added that this dynamic is more related to funding sensitivities than price pressure, and noted that win rates in large pharma remain very healthy.

David Windley asked a multi-part question centered on the backlog burn rate, questioning how the mix of FSP business (which has a higher burn rate) versus recent full-service partnership wins (which may have a lower burn rate) is affecting the metric, and why improving demand isn't immediately translating into a stronger revenue outlook.

Answer

CEO Dr. Steve Cutler agreed with the premise, noting FSP burns faster while new full-service wins take longer to ramp. CFO Nigel Clerkin added that the FSP mix has not materially changed and that the burn rate is expected to remain in the 'low 8s' (e.g., 8.x%), similar to the current 8.4% rate. This is attributed to a trend of more complex trials and persistent start-up delays in the biotech sector.

David Windley asked about the wallet share ICON captures in its large pharma partnerships and whether the observed development model changes are isolated or part of a broader industry shift due to pressures like the IRA and patent cliffs.

Answer

CEO Dr. Steve Cutler explained that wallet share varies; ICON is typically one of two or three strategic partners with access to the client's full portfolio. He suggested that model changes are often tied to leadership styles rather than a single industry-wide trend, noting ICON sees movement in both directions (functional and full-service). SVP Kate Haven added that macro pressures have created more opportunities for ICON to win new partnerships, highlighting three major wins in the past year.

David Windley of Jefferies LLC inquired about the product roadmap for the commercial business to rival the breadth of the R&D suite and whether AI agents are part of that expansion. He also sought confirmation that the IQVIA agreement does not restrict Veeva's data product development.

Answer

CEO Peter Gassner explained that commercial growth will be driven by maturing and increasing adoption of existing newer applications (like Campaign Manager and Patient CRM), which are now free of platform and data restrictions, as well as by the expansion from Veeva AI. He explicitly confirmed that the IQVIA agreement imposes no restrictions on Veeva's product development.

David Windley asked if the 'speed' driving a recent all-in deal referred to implementation or post-implementation efficiency, and inquired about Veeva's progress in validating Compass as 'compensation-grade' data.

Answer

CEO Peter Gassner clarified that 'speed' meant speed-to-value from a faster, more strategic evaluation and implementation process. On Compass, he stated they are early in the cycle for prescriber data to be used for incentive compensation, expecting the first customer next year, but it is already being used for segmentation and targeting.

David Windley asked about the theoretical business impact on Veeva if a new political administration were to eliminate direct-to-consumer (DTC) advertising.

Answer

EVP of Strategy Paul Shawah responded that such a change would face significant hurdles and likely take many years to enact due to policy, legislative, and legal challenges. He stated that Veeva expects no near-term impact and has not seen customers alter their behavior based on this possibility.

David Windley from Jefferies asked for clarification on the path to the 2027 CapEx target with a new project approved, whether Nelson Labs' margin beat was due to a one-time staffing adjustment, and if full-year margin expansion is still primarily Nelson-driven.

Answer

CEO Michael Petras and CFO Jonathan Lyons confirmed the 2027 CapEx target of $110M remains intact, as the approved project was always contemplated in the plan. Petras clarified there were no new rightsizing actions at Nelson Labs; the margin gain was from ongoing initiatives. Lyons reaffirmed that full-year margin expansion is expected to be driven by Nelson Labs, with stable margins at the other segments.

David Windley sought to understand the specific drivers of the expected volume improvement in Sterigenics, asking if it was due to specific customer normalization, general market growth, or share gains. He also asked about the potential long-term impact of biopharma R&D spending pressures on Sotera's business.

Answer

CEO Michael Petras explained that the Sterigenics volume improvement is a result of multiple factors, including working through issues with a couple of specific customers, a general ramp-up in volumes across categories like bioprocessing, and strong operational execution. Regarding biopharma R&D, he noted that new regulations like USP 665 are driving testing demand in Nelson Labs, and the company does not currently expect a significant pullback in this area.

David Windley of Jefferies asked about the lower CapEx outlook versus prior guidance, the validation status of the 2028 Darlington cobalt harvest, and which segment's performance is causing the 2025 guide to be below the long-range plan.

Answer

CEO Michael Petras explained that lower CapEx reflects disciplined capital allocation to ensure projects meet return thresholds, which does not impact the long-range revenue plan. He confirmed the Darlington cobalt project is on track and the 2028 harvest is expected to be usable, not just a test. He clarified that achieving the higher end of the long-range plan depends on volume recovery in the Nelson Labs and Sterigenics segments.

David Windley of Jefferies asked for an update on two volume drivers for Sterigenics: the status of a previously struggling med-tech customer and trends in the bioproduction market. He also inquired about the future capacity increase from the Darlington cobalt project.

Answer

CEO Michael Petras confirmed that the situation with the specific med-tech customer is improving. On bioprocessing, he noted sequential improvement but a significant year-over-year decline. Regarding cobalt, Petras explained the Darlington project, with its first harvest expected in 2028, is part of a broader strategy to manage its global supply base and keep pace with market demand.

David Windley of Jefferies LLC sought to confirm the financial framing of the lost CDMO client, calculating an annual headwind of around $38.5 million. He also asked about the DSA segment's backlog conversion rate and how it could support revenue despite a declining backlog, especially with cancellations in longer-term studies.

Answer

CFO Flavia Pease confirmed that the calculation for the CDMO headwind was in the correct 'zip code.' CEO James Foster addressed the backlog, stating it remains robust at about ten months of revenue, which provides stability and allows the company to replace slipped or canceled studies. He noted that they are now hiring to support the current demand, indicating confidence in the business trajectory.

David Windley challenged the company's characterization of the pricing environment, citing market intelligence of further pressure, and asked for clarification on the company's direct and indirect exposure to potential NIH funding cuts.

Answer

CFO Flavia Pease reiterated that spot pricing was stable in Q1 and the positive price/mix result was driven by study mix. CEO James Foster clarified that direct NIH exposure is about 2% of total revenue, while indirect exposure through academic and government clients is roughly 6%. He noted any impact from budget cuts would likely not materialize until late 2025 or 2026.

David Windley questioned the company's visibility into large pharma restructuring, asking if they are hearing about a potential 'second round' of cuts. He also sought clarification on whether recent commentary on DSA pricing signals an intensification of client demands.

Answer

Chair, President & CEO James Foster responded that while some restructuring is ongoing, they are not hearing about another major 'shoe to drop' and have good visibility due to close client relationships. He clarified that the pricing pressure is a continuation of the environment seen last year, not a new intensification, and the company uses strategic pricing to gain or preserve market share.

David Windley of Jefferies inquired about the DSA segment, focusing on the impact of pricing and backlog on revenue and the sustainability of the 27% operating margin. He also asked for more details on the newly mentioned 'global business service model'.

Answer

Chairman, President and CEO James Foster acknowledged that flatter pricing will impact revenue as it flows through the backlog. EVP and CFO Flavia Pease added that pricing will be a headwind in 2025, putting pressure on DSA margins. Pease then elaborated that the global business service model is a strategic initiative to streamline and standardize processes, leveraging technology to drive efficiency beyond initial headcount and footprint actions.

David Windley asked for clarity on the revenue cadence for the remainder of 2025, given the Q1 outperformance, and questioned how margins could improve if revenue is expected to be flat to down sequentially.

Answer

CFO Jill McConnell explained that Q1 revenue strength was driven by higher-than-expected pass-throughs in the clinical pharmacology business, a trend not expected to persist at the same level. She noted that service fees were in line with forecasts. McConnell stated that margin expansion will be gradual, with the full benefit of cost-saving initiatives materializing in the second half of the year, leading to more significant margin improvement in Q3 and Q4.

David Windley questioned the apparent disconnect between a projected lower backlog burn rate and a stable backlog, suggesting that if projects were ending, a backlog cleanup should occur, or if not, positive margin true-ups should be expected.

Answer

CEO Tom Pike clarified that the backlog was revalidated and is considered solid. He explained that at Fortrea, positive and negative true-ups at the end of projects tend to net out. The core issue is not dead backlog but a slower burn rate on older projects. CFO Jill McConnell added that cancellation rates have not increased and remain in line with historical norms, supporting the integrity of the reported backlog.

David Windley asked about Fortrea's experience with study cancellations, the composition of its qualified pipeline regarding high-spending pharma clients, and sought clarification on whether margin expansion is driven by TSA cost removal or operational control.

Answer

CFO Jill McConnell confirmed that cancellation rates have not increased and remain at normal levels. CEO Tom Pike added that the pipeline has a healthy mix of clients. McConnell clarified that margin expansion will be driven by gaining operational control via new systems post-TSA exit, which enables efficiency improvements, rather than just the cessation of TSA payments.

David Windley questioned if the recovery in EZ-fill vials was happening earlier than expected and if it was sustainable. He also asked for the company's specific revenue exposure to GLP-1 drugs.

Answer

CFO Marco Dal Lago confirmed strong order intake for both bulk and EZ-fill vials, which aided Q1 profitability, but stated the overall recovery trajectory remains unchanged. On GLP-1, he noted it's an important part of the biologics category, which reached 42% of BDS revenue. CEO Franco Stevanato added that they have multi-year contracts for a wide range of products and services supporting GLP-1 customers.

David Windley from Jefferies inquired about the relative utilization levels across syringe, cartridge, and vial production lines and sought clarity on the new device manufacturing capacity in Fishers, including its customer dedication and long-term margin profile.

Answer

CFO Marco Dal Lago confirmed strong utilization for syringes and cartridges, which requires capacity expansion, while vial lines have available capacity. Chairman and CEO Franco Stevanato noted high cartridge demand from both a large anchor customer and smaller firms. Dal Lago differentiated device margins between high-margin proprietary products (around 40%) and lower-margin CMO contracts (15-35%).

David Windley from Jefferies sought to understand where the Fishers plant stands on its profitability curve, asked for a clearer definition of the "gradual recovery" in vials for 2025, and questioned what caused the additional costs in Fishers and Engineering.

Answer

CFO Marco Dal Lago stated they believe Fishers "touched the lower point" of profitability in Q3 and expect improvement from here. Executive Lisa Miles clarified that the timing and pace of the vial recovery is the largest variable for 2025 and it's too early to define its trajectory. Management explained the extra costs were due to complex customer validation in Fishers and a strategic footprint optimization in Engineering.

David Windley asked what is needed to overcome pharma's inertia in adopting new methods, what a future IND-enabling package might look like without animal data, and how Certara's software fits into that new paradigm.

Answer

CEO William Feehery suggested that continued FDA encouragement and a successful drug approval using an animal-light process are key to shifting pharma's behavior. He outlined how Certara's solutions can support a new IND package in three areas: 1) first-in-human dosing, where models are already strong; 2) toxicology, an area for investment and expansion; and 3) long-term studies, which are the most difficult to replace with models currently.

David Windley requested quantification of the margin drag from the Chemaxon acquisition, inquired about the synergistic benefits of the growing product portfolio, and asked about the expected duration of the current period of increased investment.

Answer

CFO John Gallagher stated that of the approximate 100 basis point step-down in 2025 margin guidance, roughly half is due to Chemaxon and the other half is from incremental R&D investments. CEO William Feehery added that the investment is part of a multi-year plan to build an integrated platform, with a pipeline of new products expected to generate revenue along the way, rather than being a pure cost center.

David Windley of Jefferies asked for Oscar's view on the proposal to directly refund Cost-Sharing Reductions (CSRs) and the potential disruption this could cause to the 'silver loading' pricing structure, especially given the short timeline before 2026 plan bids are due.

Answer

CFO Scott Blackley characterized the direct refund of CSRs as a 'big undertaking' for both health plans and the government that would require significant new infrastructure. He stated that Oscar is not in favor of this change for 2026 due to the operational complexity and tight timeline, and would recommend that the government not move forward with it for the upcoming plan year.

David Windley asked about the margin benefit from exiting a large block of dual-eligible members, the potential to win them back in the future, and whether more significant plan exits are contemplated for 2026.

Answer

CFO Celeste Mellet confirmed the exits led to a material margin improvement but did not quantify it, stating future growth will target sustainable value. CEO Jim Rechtin added that 2026 is expected to be a 'normal year' for plan adjustments, without the outsized level of exits seen in 2025.

David Windley inquired about investments in sales channels to address broker capacity issues, the expected cadence of membership growth between AEP and the rest of the year, and any early outlook on 2026 MA rates.

Answer

George Renaudin, President of Insurance, detailed investments in both internal and external sales channels. CEO Jim Rechtin highlighted the focus on building internal channel capacity. CFO Susan Diamond addressed 2026 rates, noting it's hard to predict but that they are 'cautiously optimistic' for an appropriate adjustment for the higher medical cost trend seen across the industry.

David Windley sought clarification on whether management's comments implied that the risk adjustment for new Marketplace members should increase. He also asked what percentage of the exchange book is fully subsidized and if this mix changed during the recent enrollment period.

Answer

EVP and CFO Andrew Asher clarified that while new member utilization suggests a future risk adjustment offset, the company has not yet booked a receivable for it, representing potential upside. CEO Sarah London confirmed that the vast majority of their Marketplace membership remains subsidized, consistent with their historical focus on the lowest-income populations, with no major shift in that mix during the recent enrollment.

David Windley asked if Centene has conducted a 'zero utilizers' analysis on its exchange plans to identify potential areas of enrollment abuse or program integrity issues.

Answer

CFO Andrew Asher explained that the company proactively addressed significant broker-related issues with its broker of record lock in early 2024. He also confirmed that for 2025 pricing, the company factored in the business mix related to the 'failure to report' integrity measure and included a specific pricing load to account for it.

David Windley asked about SG&A expenses, seeking to quantify benefits from AI initiatives, determine if projects are 'shovel-ready,' and identify any spending timing differences between 2024 and 2025.

Answer

CEO Sarah London confirmed an AI project for provider contracts is 'shovel-ready' and part of a broader, ongoing automation strategy. She noted other opportunities in digital payments and vendor consolidation. CFO Andrew Asher mentioned the typical Q4 SG&A increase for selling season and stated a full 2025 bridge would be provided at Investor Day.

David Windley asked how margins remained flat year-over-year despite a negative mix shift away from high-margin FluroTec, inquiring about offsetting factors like Annex 1. He also asked about the recent executive changes and the vision for the future leadership team.

Answer

CFO Bernard Birkett explained that while Annex 1's impact is not yet material, the stable margin was driven by strong focus on manufacturing utilization, efficiencies, and disciplined OpEx control. CEO Eric Green characterized the leadership changes as a 'natural evolution' and an opportunity to bring in new leaders to drive the company's next phase of growth.

David Windley of Jefferies asked if 2024's incentive fees for the on-body wearable device were converted into base price for 2025. He also requested specifics on incremental R&D and SG&A investments and questioned the strategic justification for the device and contract manufacturing businesses given their margins and capital requirements.

Answer

CEO Eric Green and CFO Bernard Birkett indicated the 2024 incentives exceeded the 2025 base price but noted a focus on improving cost efficiencies. Green explained the R&D investment is for launching integrated prefilled syringe systems. He defended the Contract Manufacturing business as a strategic diversifier that strengthens key customer relationships, while stating all options are being evaluated for the on-body wearable device.

David Windley asked for a definition of the 'Nova' brand, its distinction from NovaPure, and why it served as both a growth driver and a headwind. He also inquired about the company's actual wallet share versus its stated high participation rate on new drugs.

Answer

CEO Eric Green explained that the 'Nova' brand includes NovaPure (laminated, for biologics) and NOVACHOICE (non-laminated, for pharma). The headwind was from destocking of NovaPure in biologics, while growth was driven by NOVACHOICE in areas like GLP-1s. Regarding market share, he reiterated that West's participation rate (being specified in drug filings) is very high, and even in dual-sourced situations, West typically secures a very high percentage of the volume.

David Windley requested further details on the Marketplace member reconciliations, asking about the subsidy clawbacks, the scope of the CMS review, and the potential impact on 2025 risk adjustment.

Answer

CFO Mark Keim clarified that the issue involved members who were unknowingly enrolled, leading to government clawbacks of subsidized premiums. This accounted for about a third of the $40 million prior-year adjustment. He considers the issue largely a one-time event that is now behind them, thanks to new CMS agent and broker integrity rules that have made the market more stable and less prone to such issues.

David Windley from Jefferies inquired about the quality of RFPs and pricing competition, the requirements to achieve a 1.15 book-to-bill ratio amid high cancellations, and the drivers behind increased pass-through costs, including potential impacts from NIH funding debates on academic medical centers.

Answer

CEO August Troendle confirmed increased price competition and a higher volume of RFPs from unfunded biotechs, noting the path to a 1.15 book-to-bill is narrow but achievable if cancellations moderate. He attributed rising pass-through costs to trial complexity and inflation, viewing NIH funding concerns as a future issue. CFO Kevin Brady added that Q1's high pass-throughs were timing-related.

David Windley from Jefferies asked for details on staff productivity and 2025 hiring plans, the status of offshoring investments, competitive pressures from larger CROs, clarification on 'late-stage' program revenue burn, and the quantified impact of foreign exchange on margins.

Answer

President Jesse Geiger confirmed high productivity and plans for mid-to-upper single-digit headcount growth in 2025. He and CEO August Troendle described offshoring as a long-term play with no near-term impact. Troendle acknowledged a tightened competitive environment requiring defense of both volume and margin. CFO Kevin Brady quantified the Q4 FX benefit to EBITDA at approximately $4 million.

David Windley inquired about the nature of the elevated cancellations, asking for trends by therapeutic area and the split between backlog and pre-backlog awards. He also questioned the competitive pricing environment, addressed rumors about a shift towards large pharma, sought clarification on pass-through estimates' impact on backlog, and asked about labor productivity's contribution to margins.

Answer

CEO August Troendle stated cancellations are not tied to a specific therapeutic area but rather to companies funded during the "COVID high" that are now running out of capital, with the impact split roughly equally between backlog and pre-backlog pipeline. He noted the competitive pricing environment is normalized and denied any change in their go-to-market strategy, reaffirming their focus on full-service work for biotech clients. CFO Kevin Brady confirmed that adjustments to future pass-through estimates are not a factor in the cancellations. President Jesse Geiger added that margins have benefited from high staff utilization and record-low turnover, but further significant productivity gains are unlikely.

David Windley posed a philosophical question on whether persistent underfunding of the healthcare system is the right way to force innovation and how UnitedHealth Group can operate in such an environment without disruptions like those from the V28 model.

Answer

Andrew Witty, an executive, argued against 'blunt instrument' approaches like the V28 price cuts, which he said targeted the most innovative areas. He advocated for a holistic system review to align incentives for patient-centered outcomes, which is the goal of value-based care. He asserted that UNH's mission is to drive this type of integrated innovation to deliver better health at a lower cost, rather than reacting to piecemeal funding cuts.

David Windley of Jefferies asked about the sources and durability of the significant SG&A efficiency improvements seen in 2024 and guided for 2025, beyond just portfolio adjustments.

Answer

Executive John Rex attributed the savings to accelerating digital adoption, which simplifies processes for their nearly 150 million users. He stressed these efforts are in their 'very early stage.' CTO Sandeep Dadlani added that their modernization agenda, including AI and automation, is focused on removing administrative tasks and is not yet fully scaled.

David Windley of Jefferies asked about the sources and durability of the significant SG&A efficiency improvements seen in 2024 and guided for 2025, beyond just AI.

Answer

Executive John Rex attributed the savings to accelerating digital adoption, which simplifies member experiences and makes service representatives more effective, stating these efforts are still in the 'very early stage.' CTO Sandeep Dadlani added that the technology agenda is focused on removing menial administrative tasks, scaling call center automation, and digitizing paperwork across the healthcare system, indicating a long runway for further efficiencies.

David Windley from Jefferies posed a two-part question on pricing. He asked why commercial ASO fee revenue is guided flat despite membership growth, and why Medicaid margins are expected to be stable rather than improving in early 2025, given that half the book repriced on January 1.

Answer

CFO Mark Kaye explained that flat service fee revenue is due to a strategic shift within Carelon from fee-based to risk-based contracts, which moves revenue to the premium line. Felicia Norwood, President of Government Health Benefits, clarified that while a large portion of the Medicaid book repriced in January, rates were insufficient to drive immediate margin improvement, and the critical July rate cycle will be key for second-half improvement.

Dave Windley of Jefferies asked for clarity on the margin expectations for Medicaid and Medicare in 2025 (up, flat, or down) that are embedded in the mid-single-digit EPS growth guidance.

Answer

CFO Mark Kaye provided a clear breakdown for 2025 expectations: Commercial margins will remain strong, Medicaid margins will be 'effectively stable year-over-year' and remain below the long-term target range, and Medicare margins are expected to improve compared to 2024, thanks to sustainable product positioning.

Asked for a timeline on when the strategic review committee would report its findings and questioned the conservatism of the PCH segment's mid- to high single-digit growth guidance, asking for justification.

Answer

Management declined to provide a specific timeline for the strategic review's conclusions but emphasized a sense of urgency. The PCH guidance is based on the resolution of a key product's supply chain issues, recent product approvals now launching, and stable consumer health trends, which offset a weak FY23. The company has also implemented a more conservative, ground-up forecasting process.

Questioned the timeline for the strategic review's findings and challenged the conservatism of the PCH segment's growth guidance, asking for justification.

Answer

The company declined to provide a specific timeline for the strategic review but stressed they are acting with urgency. The PCH guidance was defended as realistic, based on the reversal of several negative one-off factors from FY23, including new product launches from delayed approvals and the resolution of a major supply chain issue, rather than just macro optimism. The overall forecasting process is now more rigorous and bottom-up.