Pricing Strategy and Margins
Q: Are price cuts impacting margins, and what is the outlook?
A: Management explained that they have been modestly adjusting prices to stay competitive due to clients' concerns about access to capital. They emphasized that price cuts are not dramatic but are necessary to win work responsibly. Margin pressure is more due to lower volume than pricing reductions. They expect margins to improve in the second half as volumes rebound and restructuring actions are implemented.

Confidence in Second Half Growth
Q: How confident are you in a ramp-up in the second half of the year?
A: Management expressed high confidence that business will accelerate meaningfully in the back half of the year. This confidence is based on factors like increased VC funding, which was the fourth best in biotech history last quarter, an increase in proposal volume, a modest reduction in cancellations, and pent-up client demand.

Impact of Inflation and Pricing
Q: How is inflation affecting margins relative to pricing adjustments?
A: Management noted that while inflation is moderating, lower volumes are putting pressure on margins. Previously, they could offset higher costs with stronger pricing, but now the relationship between price and cost is less favorable. They still anticipate positive pricing for the year but acknowledge it won't be as significant a tailwind as in prior years.

Capacity and Staffing for Increased Demand
Q: Are you prepared to handle increased demand in the second half?
A: They stated that they have sufficient physical capacity to accommodate increased work, especially in Safety Assessment. The potential bottleneck is the availability of staff; they will need to add personnel as business intensifies, considering the training time required.

Backlog and Book-to-Bill Trends
Q: How do you view your backlog and book-to-bill ratio impacting growth?
A: The backlog stands at 10 months, aligning with historical norms of 6 to 9 months. Management anticipates that increased proposal activity and reduced cancellations will lead to higher bookings after a typical lag period. They believe they are on track for improved performance in the second half.

Manufacturing Segment Performance
Q: Is there potential upside in the manufacturing segment this year?
A: Management noted that all three businesses in the Manufacturing segment showed strong growth in the first quarter. While they are pleased, they have modestly adjusted the guidance to mid-single-digit growth but are cautious about projecting further upside.

Proposal Activity and Cancellations
Q: Can you quantify the increase in proposal activity and improvements in cancellations?
A: While they did not provide specific percentages, management stated that proposal activity is up both sequentially and year-over-year. Cancellations have improved sequentially, resulting in a smaller decrease in backlog compared to previous quarters.

Impact of BIOSECURE Act
Q: Is potential legislation like the BIOSECURE Act factored into your guidance?
A: Management said they have not included any assumptions about the BIOSECURE Act in their guidance as it is not yet legislation. They would be surprised if it doesn't benefit them but are not counting on any immediate impact.

Large Pharma vs. Biotech Indicators
Q: What leading indicators are you seeing from large pharma clients?
A: Management observed that large pharma continues to aggressively outsource work, particularly in Safety Assessment. Despite their strong balance sheets, there's been hesitancy to book work due to budget considerations. Overall, they haven't seen a fundamental difference in activity between pharma and biotech.

Discovery Business Performance
Q: How did the Discovery segment perform relative to expectations?
A: Management noted that the Discovery segment has been the most affected by the economic environment and remains slow. It is a relatively small part of their portfolio, and while they expect it to recover as funding improves, it will not be the first area to rebound.