We are one of a small group of organizations with the capability and expertise to conduct clinical trials on a global basis. We believe that this capability to provide our services globally in most major and developing pharmaceutical markets enhances our ability to compete for new business from large multinational pharmaceutical, biotechnology and medical device companies. We have expanded geographically in the past and intend to continue expanding in regions that have the potential to increase our client base or increase our investigator and patient populations. We expect that revenues earned in emerging markets will continue to account for an increasing portion of our total revenues. However, emerging market operations may present several risks, including civil disturbances, health concerns, cultural differences such as employment, regulatory and business practices, compliance with economic sanctions laws and regulations, volatility in gross domestic product, economic and governmental instability, the potential for nationalization of private assets and the imposition of exchange controls. In addition, operating globally means the Company faces the challenges associated with coordinating its services across different countries, time zones and cultures.
We operate in many different jurisdictions and we could be adversely affected by violations of the Foreign Corrupt Practices Act of 1977 (FCPA), UK Bribery Act of 2010 and similar worldwide anti-corruption laws.laws in other jurisdictions.
Current and proposed laws and regulations regarding the protection of personal data could result in increased risks of liability or increased costcosts to us or could limit our service offerings.
The confidentiality, collection, use and disclosure of personal data, including clinical trial patient-specific information, areis subject to governmental regulation generally in the country that the personal data werewas collected or used. For example, United States federal regulations under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and as amended in 2014 by the Health Information Technology for Economic and Clinical Health (“HITECH”) Act, require individuals’ written authorization, in addition to any required informed consent, before Protected Health Information may be used for research. Such regulations specify standards for de-identifications and for limited data sets. We are both directly and indirectly affected by the privacy provisions surrounding individual authorizations because many investigators with whom we are involved in clinical trials are directly subject to them as a HIPAA “covered entity” and because we obtain identifiable health information from third parties that are subject to such regulations. As there are some instances where we are a HIPAA “business associate” of a “covered entity,”entity”, we can also be directly liable for mishandling protected health information. Under HIPAA’s enforcement scheme, we can be subject to up to $1.5 million in annual civil penalties for each HIPAA violation.
In the European Union, or EU, personal data includes any information that relates to an identified or identifiable natural person with health information carrying additional obligations, including obtaining the explicit consent from the individual for collection, use or disclosure of the information. In addition, we are subject to EU rules with respect to cross-border transfers of such data out of the EU. The United States, the EU and its member states and other countries where we have operations, such as Japan, South Korea, Malaysia, the Philippines, Russia and Singapore, continue to issue new privacy and data protection rules and regulations that relate to personal data and health information. Failure to comply with certain certification/registration and annual re-certification/registration provisions associated with these data protection and privacy regulations and rules in various jurisdictions, or to resolve any serious privacy complaints, could subject us to regulatory sanctions, criminal prosecution or civil liability. Federal, state and foreign governments are contemplating or have proposed or adopted additional legislation governing the collection, possession, use or dissemination of personal data, such as personal health information and personal financial data as well as security breach notification rules for loss or theft of such data. Additional legislation or regulation of this type might, among other things, require us to implement new security measures and processes or bring within the legislation or regulation de-identified health or other personal data, each of which may require substantial expenditures or limit our ability to offer some of our services. Additionally, if we violate applicable laws, regulations or duties relating to the use, privacy or security of personal data, we could be subject to civil liability or criminal prosecution, be forced to alter our business practices andor suffer reputational harm. The European data protection framework is being revised as a generally applicable regulation which contains new provisions specifically directed at the processing of health information, sanctions of up to 4% of worldwide gross revenue and extra-territoriality measures intended to bring non-EU companies under the proposed regulation. The new regulation comes into force in May 2018.
The failure to comply with our government contracts or applicable laws and regulations could result in, among other things, fines or other liabilities, and changes in procurement regulations could adversely impact our business, results of operations or cash flows.
Revenues from our government customers are derived from sales to federal, state and local governmental departments and agencies through various contracts. Sales to public segment customers are highly regulated. Noncompliance with contract provisions, government procurement regulations or other applicable laws or regulations (including but not limited to the False Claims Act) could result in civil, criminal and administrative liability, including substantial monetary fines or damages, termination of government contracts or other public segment customer contracts, and suspension, debarment or ineligibility from doing business with the government and other customers in the public segment. In addition, generally contracts in the public segment are terminable at any time for convenience of the contracting agency or upon default. The effect of any of these possible actions by any governmental department or agency could adversely affect our business, results of operations or cash flows. In addition, the adoption of new or modified procurement regulations and other requirements may increase our compliance costs and reduce our gross margins, which could have a negative effect on our business, results of operations or cash flows.
Liability claims brought against us could result in payment of substantial damages, costs and liabilities and decrease our profitability.
Customer Claims
If we breach the terms of an agreement with a clientcustomer (for example if we fail to comply with the agreement, all applicable regulations or Good Clinical Practice) this could result in claims against us for substantial damages which could have a material adverse effect on our business. As we are a “people business” in that we provide staff to provide our services in hospitals and other sites, there is a risk that our management, quality and control structures fail to quickly detect shoulda failure by one or more employees or contractors fail to comply with all applicable regulations and Good Clinical Practice and thereby exposeexposing us to the risk of claims by clients.customers.
Claims relating to Investigators
We contract with physicians who serve as investigators in conducting clinical trials to test new drugs on their patients. This testing creates the risk of liability for personal injury to or death of the patients. Although investigators are generally required by law to maintain their own liability insurance, we could be named in lawsuits and incur expenses arising from any professional malpractice or other actions brought against the investigators with whom we contract.
Indemnification from ClientsCustomers
Indemnifications provided by our clientscustomers against the risk of liability for personal injury to or death of the patients arising from thea study drug vary from clientcustomer to clientcustomer and from trial to trial and may not be sufficient in scope or amount, or the clientour customer may not have the financial ability to fulfill their indemnification obligations. Furthermore, we would be liable for our own negligence and negligence of our employees and such negligencewhich could lead to litigation from clientscustomers or action or enforcement by regulatory authorities.
Insurance
We maintain what we believe is an appropriate level of worldwide Professional Liability/Error and Omissions Insurance. We may inIn the future we may be unable to maintain or continue our current insurance coverage on the same or similar terms. If we are liable for a claim or settlement that is beyond the level of insurance coverage, we may be responsible for paying all or part of any award or settlement amount. Also, the insurance policies contain exclusions which mean that the policy will not respond or provide cover in certain circumstances.
Claims to Date
To date, we have not been subject to any liability claims that are expected to have a material effect on our business; however, there can be no assurance that we will not become subject to such claims in the future or that such claims will not have a material effect on our business.
Risks Related to Our Indebtedness
We have incurred debt, which could impair our flexibility and access to capital and adversely affect our financial position.
As of December 31, 2015,2017, we had an outstanding principal amount of indebtedness of $350 million under our $350 million Note Purchase and Guarantee Agreement or ‘Senior Notes’ that we entered into on December 15, 2015. We also have up to $100 million of additional borrowing capacity available under the Revolving Credit Facility. No amounts were drawn under the Revolving Credit Facility facility as of December 31, 2015. 2017. The Company also has a one year uncommitted short term revolving credit facility of $30 million. These facilities bear interest at LIBOR plus a margin. No amounts were drawn under these facilities at December 31, 2017.
The cost and availability of credit are subject to changes in the global or regional economic environment. If conditions in the major credit markets deteriorate our ability to obtain debt financing on favorable terms may be negatively affected.
We may incur additional debt in the future. Our debt could have significant adverse consequences, including to;to:
● | limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business purposes; |
● | limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes; |
● | require us to use all or a portion of our cash flow from operations to make debt service payments; |
● | require us to sell certain assets; |
● | restrict us from making strategic investments, including acquisitions or cause us to make non-strategic divestitures; |
● | place us at a competitive disadvantage compared to our competitors that have less debt; |
● | cause us to incur substantial fees from time to time in connection with debt amendments or refinancing; |
● | limit our flexibility to plan for, or react to, changes in our business and industry; and |
● | limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business purposes;
limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes;
require us to use all or a portion of our cash flow from operations to make debt service payments;
require us to sell certain assets;
restrict us from making strategic investments, including acquisitions or cause us to make non-strategic divestitures;
place us at a competitive disadvantage compared to our competitors that have less debt;
cause us to incur substantial fees from time to time in connection with debt amendments or refinancing;
limit our flexibility to plan for, or react to, changes in our business and industry; and
increase our vulnerability to the impact of adverse economic and industry conditions. |
Our ability to meet our debt service obligations will depend on our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. If we do not have sufficient funds to meet our debt service obligations, we may be required to refinance or restructure all or part of our existing debt, sell assets, borrow more money or sell securities, none of which we can be assured that we would be able to do in a timely manner, or at all.
In addition, a failure to comply with the covenants under our indebtedness could result in an event of default under such indebtedness. In the event of an acceleration of amounts due under our existing indebtedness as a result of an event of default, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness or to make any required accelerated payments.
In addition, we are required, under the terms of the Senior Notes, to offer to purchase all of the outstanding Senior Notes if we experience a change of control. Similar requirements exist in the Revolving Credit Facility. These provisions may delay or prevent a change in control that our stockholders may consider desirable.
Covenants in our credit agreements may restrict our business and operations and our financial condition and results of operations could be adversely affected if we do not comply with those covenants.
The Senior Notes and the Revolving Credit Facility credit agreements include certain customary covenants that limit our ability to, amongst other things, subject to certain exceptions;exceptions:
| ●
| incur or assume liens or additional debt, |
incur or assume liens or additional debt; | ●
| engage in mergers or reorganizations or |
| dispose of assets;
engage in mergers or reorganizations; or
●
| enter into certain types of transactions with affiliates. |
The Senior Notes agreement also includes certain financial covenants that require us to comply with a consolidated leverage ratio, a minimum EBITEBITDA to consolidated net interest charge ratio and a maximum amount of priority debt, each of which are defined in the Note Purchase and Guarantee Agreement. Our ability to comply with these financial covenants may be affected by events beyond our control.
These covenants may limit our operating and financial flexibility and limit our ability to respond to changes in our business or competitive activities.
In the event that we fail to pay principal or interest when due on the Senior Notes, or as a result of a material breach of any representation, warranty or covenant or any other event of default then all outstanding amounts could become immediately due and payable. If, in such a circumstance, any of the holders of the Senior Notes, accelerate the repayment of such indebtedness, there can be no assurance that we will have sufficient assets to repay our indebtedness.
Interest rate fluctuations may materially adversely affect our results of operations and financial condition in the event that the Company draws down on theeither Revolving Credit Facility or in respect of any future issuances of debt.
The interest rate in respect of the Senior Notes is fixed at 3.64% for the five year term of the agreement. The Revolving Credit Facility bearsand the $30 million uncommitted short term revolving credit facility bear interest at LIBOR plus a margin. There were no amounts drawn on either of the Revolving Credit Facility or the short term uncommitted facility at December 31, 2015.2017. The Company is therefore subject to interest rate volatility in respect of any future draw down on the Revolving Credit Facility or in respect of any future issuances of debt.
Risk Related to Our Common Stock
Volatility in the market price of our common stock could lead to losses by investors.
The market price of our common stock has experienced volatility in the past and may experience volatility in the future which could lead to losses for investors. Factors impacting volatility in the market price of our common stock include, amongst others:
● | our results of operations; |
● | issuance of new or changed securities analysts’ reports or recommendations; |
● | developments impacting the industry or our competitors and general market and economic conditions; |
● | introduction of new products or services by us or our competitors; |
● | the public's reaction to our press releases, our other public announcements and our filings with the SEC; |
● | guidance, if any, that we provide to the public, any changes in this guidance or failure to meet this guidance; |
● | changes in the credit ratings of our debt; |
● | sales, or anticipated sales, of large blocks of our stock; |
● | additions or departures of key personnel; |
● | regulatory or political developments; |
● | litigation and governmental investigations; |
● | changing economic conditions; and |
● | exchange rate fluctuations. |
issuance of new or changed securities analysts’ reports or recommendations; developments impacting the industry or our competitors and general market and economic conditions; introduction of new products or services by us or our competitors; the public's reaction to our press releases, our other public announcements and our filings with the SEC; guidance, if any, that we provide to the public, any changes in this guidance or failure to meet this guidance; changes in the credit ratings of our debt;
15sales, or anticipated sales, of large blocks of our stock;
regulatory or political developments;
litigation and governmental investigations;
changing economic conditions; and
exchange rate fluctuations.
In addition, stock markets have from time to time experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. Future fluctuations in stock markets may lead to volatility in the market price of our common stock which could lead to losses by investors.
Item 4. Information on the Company.
BusinessHistory and development
ICON public limited company (“ICON plc”) is a contractclinical research organization (“CRO”), providingfounded in 1990, which provides outsourced development services on a global basis to the pharmaceutical, biotechnology and medical device industries. We specialize in the strategic development, management and analysis of programs that support all stages of the clinical development process - from compound selection to Phase I-IV clinical studies. The Company earns revenues by providing a number of different services to its customers. These services, which are integral elements of the clinical development process, include clinical trials management, biometric activities, consulting, imaging, contract staffing, informatics and laboratory services. The Company has the expertise and capability to conduct clinical trials in most major therapeutic areas on a global basis and has the operational flexibility to provide development services on a stand-alone basis or as part of an integrated “full service” solution. The Company has expanded predominately through organic growth, together with a number of strategic acquisitions to enhance its expertise and capabilities in certain areas of the clinical development process. The Company’s mission is to accelerate the development of drugs and devices that save lives and improve the quality of life. Our vision is to be the Global CRO partner of choice in drug development by delivering best in class information, solutions and performance in clinical and outcomes research.
We believe that we are one of a select group of CROs with the expertise and capability to conduct clinical trials in most major therapeutic areas on a global basis and have the operational flexibility to provide development services on a stand-alone basis or as part of an integrated “full service” solution. At December 31, 2015,2017, we employed approximately 11,90013,250 employees in 9098 locations in 3738 countries. During the year ended December 31, 2015,2017, we derived approximately 41.3%45.0%, 48.3%43.3% and 10.4%11.7% of our net revenue in the United States, Europe and Rest of World, respectively.See Note 17 Business Segment and Geographical Information.
We began operationsOn July 27, 2017, a subsidiary of the Company, ICON Clinical Research Limited acquired Mapi Development SAS ('Mapi') and incorporatedits subsidiaries ("Mapi Group"). Mapi Group has over 40 years of experience supporting Life-Science companies as the world leading Patient-Centered Research Company in 1990commercializing novel treatments through Real-World Evidence, Strategic Regulatory Services, Pharmacovigilance, Market Access and have expanded ourLanguage Services. Mapi Group is the premier provider of Health Research and Commercialization services to Life-Science companies enabling Market Authorization, Market Access and Market Adoption of novel therapeutics. Initial cash outflows on acquisition were $144.1 million (see Note 4 of the Financial Statements at Item 19). The acquisition of Mapi Group strengthens ICON’s existing commercialization and outcomes research business predominatelyadding significant commercialization presence, analytics, real world evidence generation and strategic regulatory services.
On September 15, 2016, a subsidiary of the Company, ICON US Holdings Inc. acquired Clinical Research Management, Inc. (“ClinicalRM”) which resulted in initial net cash outflows of $52.4 million (including certain payments made on behalf of ClinicalRM totaling $9.2 million). ClinicalRM is a full-service CRO specializing in preclinical through internal growth, togetherPhase IV support of clinical research and clinical trial services for biologics, drugs and devices. The organization helps customers progress their products to market faster, with a numberwide array of strategic acquisitions,research, regulatory and sponsor services within the U.S. and around the globe. ClinicalRM provide full service and functional research solutions to enhance our capabilitiesa broad range of US government agencies and commercial customers. Their extensive expertise extends across basic and applied research, infectious diseases, vaccines development and testing and the response to bio-threats. They have worked in certain areascollaboration with government and commercial customers to respond to the threat of the clinical development process.global viral epidemics.
On December 4, 2015, Inclinix-PMG Holdings, Inc (‘PMG’Inc. (“PMG”) was acquired by ICON Clinical Research LLC a subsidiary of the Company, resulting in net cash outflows of $63.5$65.4 million (see(see Note 4 of the Financial Statements at Item 19). PMG is an integrated network of clinical research sites operating from 1412 metropolitan areas throughout the US. PMG conducts clinical trials in all major therapeutic areas with particular experience in cardiology, dermatology, endocrinology, gastroenterology, men's health, neurology, pulmonology, rheumatology, vaccine, and women's health trials. In addition to a proprietary research database of clinical trial participants, PMG also has access to over 2 million active patient lives via electronic health records through their unique partnerships with healthcarehealth care systems and community physician practices.
On February 27, 2015, a subsidiary of the Company; ICON Holdings Unlimited Company (formerly ICON Holdings), acquired 100% of the securities of MMMM/CHC Holding, LLC (‘(“MediMedia Pharma Solutions’Solutions”) from MediMedia USA, IncInc. which resulted in net cash outflows of $116.0 million. Headquartered in Yardley, Pennsylvania, MediMedia includes MediMedia Managed Markets and Complete Healthcare Communications. MediMedia Managed Markets is a leading provider of strategic payer-validated market access solutions. Complete Healthcare Communications is one of the leading medical and scientific communication agencies working with medical affairs, commercial and brand development teams within life science companies.
On May 7, 2014October 3, 2016, the Company acquired Aptiv Solutions (“Aptiv”),commenced a global biopharmaceuticalpreviously announced share buyback program of up to $400 million. During the year ended December 31, 2017, the Company redeemed a total of 1,589,227 ordinary shares under the program for a total consideration of $133.1 million. At December 31, 2017 a total of 3,018,414 ordinary shares were redeemed by the Company under this buyback program for a total consideration of $243.1 million. All ordinary shares that were redeemed under the buyback program were cancelled in accordance with the constitutional documents of the Company and medical device development services company and leader in adaptive clinical trials. Aptiv offers full-service clinical trial consulting and regulatory support for drugs, medical devices and diagnostics withthe nominal value of these shares transferred to a specific focus on strategy to increase product development efficiency and productivity. It is a market leader in the integrated design and execution of adaptive clinical trials for exploratory and late phase developmentother undenominated capital fund as well as being an industry leader in medical device and diagnostic development in key medical technology segments.required under Irish Company Law.
On May 1, 2015, the Company commenced a buyback program of up to $60 million under which the Company could acquire its outstanding ordinary shares (by way of redemption), in accordance with Irish law, the United States securities laws and the Company’s constitutional documents through open market share acquisitions. A total of 882,419 ordinary shares were redeemed by the Company under this buyback program for a total consideration of $57.9 million. On July 31, 2015 the Company commenced a further buyback program of up to $400 million under which the Company could acquire its outstanding ordinary shares (by way of redemption), in accordance with Irish law, the United States securities laws and the Company’s constitutional documents through open market share acquisitions. A total of 5,316,062 ordinary shares were redeemed by the Company under this buyback program for a total consideration of $400 million. The second share buyback program was completed in December 31, 2015. During the year ended December 31, 2015, the Company redeemed a total of 6,198,481 ordinary shares under these programs for total consideration of $457.9 million.
On September 19, 2014 the Company announced that it had completed a $40 million redemption of the Company’s ordinary shares and that it had entered into a further program under which the Company can acquire up to an additional $100 million of its outstanding ordinary shares (by way of redemption), in accordance with United States securities laws through open market share acquisitions. During the year ended December 31, 2014, 2,640,610 ordinary shares were redeemed by the Company under these programs for a total consideration of $140.0 million.
On July 27, 2015, the Company entered into a 364 day bridge facility for $350 million with two financial institutions. The facility bore interest at LIBOR plus a margin and included certain guarantees and indemnities in favor of the financial institutions. As of December 31, 2015, the full amount of this facility had been repaid.
On December 15, 2015, the Company issued through its subsidiary ICON InvestmentInvestments Five Unlimited Company (the "Issuer") Senior Notes for aggregate gross proceeds of $350 million aggregate principal amount of its 3.64% Senior Notes.through a private placement. The Senior Notes will mature on December 15, 2020. Interest payable is fixed at 3.64% and is payable semi-annually on the Senior Notes on each June 15 and December 15, commencingwhich commenced on June 15, 2016. The Senior Notes are guaranteed by ICON plc. The Senior Notes may be redeemed, at the Issuer's option, at any time prior to maturity, at par plus a make whole premium, together with accrued and unpaid interest, if any, to the redemption date. The terms of the notes are set forth in the Note Purchase and Guarantee Agreement, dated as of December 15, 2015, by and among the Issuer, ICON plc and the purchasers named therein (“Note Purchase and Guarantee Agreement”). The Issuer used the proceeds from the sale of the Senior Notes to repay the existing $350 million bridge facility. The Notes have not been, and will not be, registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
We are incorporated in Ireland and our principal executive office is located at: South County Business Park, Leopardstown, Dublin 18, Republic of Ireland. The contact telephone number of this office is 353 (1) 291 2000.+353 1 2912000.
Industry Overview
The CRO industry provides independent product development solutions and services for the pharmaceutical, biotechnology and medical device industries. Companies in these industries outsource product development services to CROs in order to manage the drug and device development process more efficiently and to bring both patent-protected and generic productsbio-similars and medical devices to market faster to maximize their profit potential.patient well-being. The CRO industry has evolved since the 1970s from a small number of companies that provided limited clinical development services to a larger number of CROs that offer a range of services that encompass the entire research and development process, including pre-clinical development, clinical trials management, clinical data management, study design, bio statisticalbiostatistical analyses, post marketingmarket surveillance, regulatory affairs, services central laboratory and market access services. CROs are required to provide services in accordance with good clinical and laboratory practices, as governed by the applicable regulatory authorities.
The CRO industry is highly fragmented, consisting of several hundred small, limited-service providers, medium sized CROs and a small number of large CROs with global operations. Although there are few barriers to entry for small, limited-service providers, we believe there are significant barriers to becoming a CRO with global capabilities and expertise. Some of these barriers include the infrastructure and experience necessary to serve the global demands of clients (sponsors), the ability to manage simultaneouslyrecruit sites and patients globally, the simultaneous management of complex clinical trials, in numerous countries, broad therapeutic expertise and the development and maintenance of the complex information technology systems required to integrate these capabilities. In recent years, the CRO industry has experienced consolidation, resulting in the emergence of a select group of CROs that have the capital, technical resources, integrated global capabilities, data and expertise to manage the development programmesprograms of pharmaceutical, biotechnology and medical device companies. We believe that large (and more recently medium sized) pharmaceutical companies, rather than utilizing many CRO service providers, are selecting a limited number of CROs with which they deal, with many forming strategic partnerships with global CROs in an effort to drive incremental development efficiencies and leverage the scientific and medical expertise that resides within the CRO. We believe that this trend will further concentrate the market share among the larger CROs with a track record of quality, speed, flexibility, responsiveness, global capabilities and access to patients and overall development experience and expertise.
New Drug Development –Ethical Pharmaceuticals and Biologics - An Overview
Before a new drug or biologic may be marketed, it must undergo extensive testing and regulatory review in order to determine that it is safe and effective. The following discussion primarily relates to the FDA approval process for such products. Similar procedures must be followed for product development with other global regulatory agencies. The stages of this development process are as follows:
Preclinical Research (approximately 1 to 3.5 years). “In vitro” (test tube) and animal studies must be conducted in accordance with applicable regulations to establish the relative toxicity of the drug over a wide range of doses and to detect any potential to cause birth defects or cancer. If results warrant continuing development of the drug or biologic, the manufacturer will file for an Investigational New Drug Application, or IND, which must be approved by the FDA before starting the proposed clinical trials.
Clinical Trials (approximately 3.5 to 6 years).
Exploratory Development
Phase I (6(approximately 6 months to 1 year) consistsconsists of basic safety and pharmacologytolerability testing in 20 to 80 human subjects, usuallymainly in healthy volunteers, and includes studies to determine howwhich may show the drug works,is having an effect on the body, if it is safe, how it is affected by other drugs, where it goes in the body, how long it remains active and how it is broken down by and eliminated from the body.
Phase II (1(approximately 1 to 2 years) includes basic efficacy (effectiveness) and dose-range testing in a limited patient population (usually) 100 to 200 patients to help determine the bestsafest and most effective dose, confirmprovide evidence that the drug works as expected,is likely to be effective, and provide additionalsome safety data. If the Phase II results are satisfactory and no clinical hold is enforced by the FDA, the sponsor may proceed to Phase III studies.
Confirmatory Development
Phase III (2 to 3 years). Efficacy(2 years or greater)consists of efficacy and safety studies in hundreds orseveral hundred to several thousands of patients at manymultiple investigational sites (hospitals and clinics)., often in multiple geographies. These studies look to definitively confirm the overall benefit of the test agent and, if successful, will be used to provide the labelling claims for the drug. These studies can be placebo-controlled trials, in which the new drug is compared with a “sugar pill”, or studies comparing the new drug with one or more drugs with established safety and efficacy profiles in the same therapeutic category.indication.
TIND (may span late Phase II, Phase III, and FDA review).approval, through submission of an investigational new drug (IND) application, is necessary for all clinical trials, regardless of the phase of development. In addition, parallel independent committee approval is also required.
Expanded Access Programs (EAPs) When results from Phase II, also called compassionate use or Phase III show special promise inpre-approval programs, refer to the treatmentregulated use of a study drug outside of a clinical trial by patients with serious conditionor life-threatening conditions who do not meet the enrollment criteria for which existing therapeutic options are limited or of minimal value,the clinical trial. In this context the FDA may allow the sponsor to make the newstudy drug or biologic available to a larger number of patients through the regulated provision offor treatment use under a Treatment Investigational New Drug, or TIND. Becausetreatment IND, because data related to safety and side effects are collected, TINDsEAPs also serve to expand the body of knowledge about the drug or biologic.
NDA or BLA Preparation and Submission. Upon completion of Phase III trials, the sponsor assembles the statistically analyzed data from all phases of development into a single large submission along with the Chemistry, Manufacturing and Controls (CMC) and preclinical data and the proposed labeling into the New Drug Application (NDA), or Biologics License Application (BLA). and submits them for assessment and approval by the relevant division of the FDA.
FDA Review and Approval of NDA or BLA (1 to 1.5 years). Data from all phases of development (including a TIND, if applicable) is scrutinized to confirm that the applicant company has complied with all applicable regulations and that the benefit to risk ratio for the drug or biologic is safe and effectivepositive for the specific use (or “indication”) under study. The FDA may refuse to accept the NDA or BLA if the applicant’s application has certain administrative or content criteria which do not meet FDA standards. The FDA may also deny approval of the drug or biologic product if applicable regulatory requirements are not satisfied.
Post-MarketingPost-Market Surveillance, and Phase IV Studies.Studies and Health Outcomes. Once approved by the FDA, federal regulationthe FDA requires the drug or biologic licencelicense holder to collect and periodically report to the FDA additional safety and efficacy(and perhaps efficacy) data on the drug or biologic for as long as the licence holdermarketslicense holder markets it (post-marketing surveillance)(post-market surveillance, including pharmacovigilance). If the product is marketed outside the U.S., these reports must include data from all countries in which the drug is sold. Additional studies (Phase IV) may be undertaken after initial approval to find new uses for the drug, to test new dosage formulations, or to confirm selected non-clinical benefits, e.g., increased cost-effectiveness or improved quality of life. Additionally, FDA and other regulatory agencies are requiring licencelicense holders of drugs or biologics to prepare risk management plans which are aimed at assessing areas of product risk and actively managing such risks should they occur.throughout the product lifecycle.
Key Trends Affecting the CRO Industry
CROs derive substantially all of their revenue from the research and development expenditures of pharmaceutical, biotechnology and medical device companies. Based on investment analyst research and our internal estimates, we estimate that development expenditures outsourced by pharmaceutical and biotechnology companies worldwide in 20152017 was approximately $30$32 billion. We believe that the following trends create further growth opportunities for global CROs, although there is no assurance that growth will materialize.
Continued Innovation and Development of Enabling Technologies
Innovation Driving New Drug Development Activity.
New technologies together with improved understanding of disease pathology (driven by scientific advances such as the mapping of the human genome) have increased the number of new drug candidates being investigated in early development anddevelopment. This has greatly broadened the number of biological mechanisms being targeted by such candidates. Thiswhich increasingly include rare/orphan diseases that currently have no effective treatments.
These developments should lead to increased activity in both Preclinical and Phase I development and in turn lead to more treatments in Phase II-III clinical trials. As the number of trials that need to be performed increases, we believe that drug developers will increasingly rely on CROs to manage these trials in order to continue to focus on drug discovery.
New Technology Enabling More Efficient Development.
Technology innovation is playing an increasing important role in helping to support more efficient drug development. The larger CROs have been at the forefront of this innovation developing technology solutions that support the integration of trial data across multiple systems; data repositories that enable sponsors to get real time clinical insights on their drugs performance and tools that support better trial designs including adaptive trial software, such as ICON’s AddPlan software, which has been used by the FDA and other global regulatory bodies to assess adaptive trial submissions.
The emergence of M-health technologies that build on the global prevalence of mobile and digital technologies are also beginning to have an influence on drug development. It is now possible to capture health data using mobile devices and wearables. This will enable sponsors to gather new clinical and “real-world” patient insights and will also be used to enhance patient engagement and adherence throughout the development process. As these devices mature it may also be possible to complete more remote monitoring of patients in their home environment which may drive further efficiencies in the trial process.
Social media is also becoming an important platform for life sciences companies to strengthen patient engagement programs and collaborate with other stakeholders in the health care system. Many sufferers of specific diseases are forming patient groups and actively collaborating using social media. These groups represent an important potential source of patients for new clinical studies but can also provide valuable insights into effectiveness and safety of new treatments.
As the influence of technology on drug development grows, it broadens the potential number of partners that CROs will work with in the future.
Expanded use of new patient data sources.
Pharmaceutical companies are looking to access a variety of new health care data sources containing medical and prescribing records to help improve development programs and to get better evidence of the value their treatments are bringing to patients once they are launched in the market. The larger global CROs have significant data management experience which can be leveraged to support these efforts and have invested in analytics capabilities to help deliver better insights for customers during the product lifecycle. Global CROs are also forging collaborations to access specific data sets that can provide further patient insights to support better matching of patients to the clinical trial process.
Improving Productivity and Operating Efficiencies
Continuing focus on Productivity Withinwithin Research and Development Programs.
Pharmaceutical and biotechnology companies continue to seek ways to improve the productivity of their development efforts and increasingly see the use of CROs as a strategic component of these efforts. They are leveraging the expertise with CROs to help identify the most promising drug candidates in early development and discontinue developing those that have safety issues, limited efficacy or that will have significant reimbursement challenges. These companies are also initiating programmesprograms to drive more efficiency in their development programmes.programs. One example of this has been the efforts to achieve a more seamless transition across development phases, particularly Phase I-III. In parallel, regulatory initiatives such as the 21st Century Cures Act and the emergence of clinical trial techniques such as adaptive trial design and risk based clinical trial monitoring are enhancing development, allowing effective treatments to get to patients quicker at reduced development costs. We believe there
Cost Containment Pressures.
Over the past several years, drug companies have sought more efficient ways of conducting business due to margin pressures stemming from patent expirations, greater acceptance of generic drugs, pricing pressures caused by the impact of managed care, purchasing alliances and regulatory consideration of the economic benefit of new drugs. Consequently, drug companies are signs that the industry effortscentralizing research and development, streamlining their internal structures and outsourcing certain functions to enhance development productivityCROs, thereby converting previously fixed costs to variable costs. Larger companies (and more recently medium sized companies) are successfulactively entering strategic partnerships with the FDA approving 45 new drugs in 2015, an increase from the 41 approved in 2014 and the highesta limited number of approvals sinceCROs in an effort to drive increased efficiencies. The CRO industry and in particular large CROs with global capabilities, considerable scientific knowledge and expertise are often able to perform the mid 1990’s.needed services with greater focus and at a lower cost than the client could perform internally, although CRO companies themselves are facing increased cost containment pressures as drug companies seek to further reduce their cost base.
Global trends influencing the CRO industry
Pressure to Accelerate Time to Markets;Markets and Globalization of the Marketplace.
Reducing product development time maximizes the client’s potential period of patent exclusivity, which in turn maximizes potential economic returns. We believe that clients are increasingly using CROs that have the appropriate expertise and innovation to improve the speed of product development to assist them in improving economic returns. In addition, applying for regulatory approval in multiple markets and for multiple indications simultaneously, rather than sequentially, reduces product development time and thereby maximizes economic returns. We believe that CROs with global capabilities, considerable knowledge and experience in a broad range of therapeutic areas are key resources to support a global regulatory approval strategy. Alongside this, the increasing need to access pools of new patients is leading to the conduct of clinical trials in new “emerging regions” such as Eastern Europe, Latin America, Asia-Pacific and South America. We believe that having access to both traditional and emerging clinical research markets gives global CROs a competitive advantage.
Growth within the Biotechnology Sector.
The nature of the drugs being developed is changing. Biotechnology is enabling the development of targeted drugs with diagnostic tests to determine whether a drug will be effective given a patient’s genomic profile. An increasing proportion of research and development (“R&D”) expenditure is being spent on the development of highly technical drugs to treat very specific therapeutic areas. Much of this discovery expertise is found in biotechnology firms. We believe that it is to these organizations that the large pharmaceutical companies will look for an increasing proportion of their new drug pipelines. Whether it is through licensing agreements, joint ventures or equity investment, we believe we may see the emergence of more strategic relationships between small discovery firms and the larger pharmaceutical groups. As the majority of these biotechnology companies do not have a clinical development infrastructure, we believe that the services offered by CROs will continue to be in demand from such companies.
Cost Containment Pressures.
Over the past several years, drug companies have sought more efficient ways of conducting business due to margin pressures stemming from patent expirations, greater acceptance of generic drugs, pricing pressures caused by the impact of managed care, purchasing alliances and regulatory consideration of the economic benefit of new drugs. Consequently, drug companies are centralizing research and development, streamlining their internal structures and outsourcing certain functions to CROs, thereby converting previously fixed costs to variable costs. Larger (and more recently medium sized companies) are actively entering strategic partnerships with a limited number of CROs in an effort to drive increased efficiencies. The CRO industry and in particular large CROs with global capabilities, considerable scientific knowledge and expertise are often able to perform the needed services with greater focus and at a lower cost than the client could perform internally, although CRO companies themselves are facing increased cost containment pressures as drug companies seek to further reduce their cost base.
Increasing Number of Large Long-Term Studies.Studies and an increasing requirement to show the Economic Value of New Treatments.
We believe that to establish competitive claims and demonstrate product value, to obtain reimbursement authorization from bodies such as the National Institute for Health and Clinical Excellence in the UK, and to encourage drug prescription by physicians in some large and competitive categories, more clients need to conduct outcome studies to demonstrate, for example, that mortality rates are reduced by certain drugs. To verify such outcomes, very large patient numbers are required and they must be monitored over long time periods. We believe that as these types of studies increase there will be a commensurate increase in demand for the services of CROs who have the ability to quickly assemble large patient populations, globally if necessary, and manage this complex process throughout its duration.
The rising costs of health care in most developed countries also means there is an increasing pressure to show that new medical treatments are more cost effective and deliver better patient outcomes than existing treatments regimes. This also means that sponsors need to increasingly generate outcomes data both as part of the product approval submissions and as part of post-approval research programs. This is creating opportunities for CROs who can offer support in developing and interpreting this data.
A Focus on Long–termLong-term Product SafetySafety.
In the wake of a number of high profile recalls of previously approved drugs, regulatory authorities, such as the FDA and the European Medicines Agency, are increasingly demanding that sponsors make arrangements to track the long-term safety of their products. The clinical trial approval process can only detect major and common adverse side effects of drugs; less common but no less serious side effects may only become apparent after many years of use. As a result, there is an increase in the number of drugs given “conditional approvals” where further ‘post-approval’ studies are being mandated. In addition, prudent sponsors undertake similar studies to detect early warning signs of any potential problems with their products. Such studies may take the form of prospective long-term safety studies, simpler observational studies or registries where patients meeting specific criteria for disease or drug use are followed for long periods to detect any safety issues. CROs are well positioned to perform these studies on behalf of sponsors.
Increasing Regulatory Demands.
We believe that regulatoryRegulatory agencies are becomingrequiring more demanding with regard to the data required to support new drug approvals and are seeking more evidence that new drugs are safer and more effective than existing products. As a result, the complexity of clinical trials and the size of regulatory submissions are driving the demand for services provided by CROs.
An Increasing Requirement to Show the Economic Value of New Treatments
The rising costs of healthcare in most developed countries means there is an increasing pressure to show that new medical treatments are more cost effective and deliver better patient outcomes than existing treatments regimes. In many countries there are formal assessment processes to determine the economic value of new treatments and product reimbursement is often dependent on the outcome of such assessments. This means that sponsors need to increasingly generate outcomes data both as part of the product approval submissions and as part of post-approval research programmes. This is creating opportunities for CROs who can offer support in developing and interpreting this outcomes data.
Expanded use of new patient data sources
Pharmaceutical companies are looking to access a variety of new healthcare data sources containing medical and prescribing records to help improve development programmes and to get better evidence of the value their treatments are bringing to patients once they are launched in the market. The larger global CROs have significant data management experience which can be leveraged to support these efforts and have invested in analytics capabilities to help deliver better insights for customers during the product lifecycle. Global CROs are also forging collaborations to access specific data sets that can provide further patient insights to support better matching of patients to the clinical trial process.
New Technology Enables More Efficient Development
Technology innovation is playing an increasing important role in helping to support more efficient drug development. The larger CRO’s have been at the forefront of this innovation developing technology solutions that support the integration of trial data across multiple systems; data repositories that enable sponsors to get real time clinical insights on their drugs performance and tools that support better trial designs including adaptive trial software, such as ICON’s AddPlan software ,which is been used by the FDA and other global regulatory bodies to assess adaptive trial submissions.
The emergence of M-health technologies that build on the global prevalrence of mobile and digital technologies are also beginning have an influence on drug development. It is now possible to capture health data using mobile devices and wearables. This will enable sponsors to gather new clinical and “real-world “ patient insights and will also be used to enhance patient engagement and adherence throughout the development process. As these devices mature it may also be possible to do more remote monitoring of patients in their home environment which may drive further efficiencies in the trial process.
Social media is also becoming an important platform for life sciences companies to strengthen patient engagement programs and collaborate with other stakeholders in the health care system. Many sufferers of specific diseases are forming patient groups and actively collaborating using social media , these groups represent an important potential source of patients for new clinical studies but can also provide valuable insights into effectiveness and safety of new treatments.
As the influence of technology on drug development grows, it broadens the potential number of partners than CRO’s will work with in the future.
The ICON Strategy
ICON’s mission is to accelerate the development of drugs and devices that save lives and improve the quality of life. Our vision is to be the global CRO partner of choice in drug development by delivering best in class information, solutions and performance.
We have achieved strong growth since our foundation in 1990. The impact of the International Conference on Harmonization Good Clinical Practice, the resulting globalization of clinical research and the acceleration in the understanding of human and molecular biology which has led to many new treatment paths being explored were key catalysts of our early growth.growth.
As our market has developed, biopharmaceutical companies are tackling productivity challenges, increasing budget constraints and greater demands to demonstrate product value; all of which are placing increased pressure on their revenues and levels of profitability. However these trends have generally been positive for CROs,, as increased outsourcing has been adopted by these companies as they seek to create greater efficiencies in their development processes, convert previously fixed costs to variable, and accelerate time to market for new treatments.
One consequence of the drive to accelerate time to market will be increased emphasis on making existing drug development phases more seamless, through the use of techniques such as adaptive trialstrial designs to filter the most promising compounds and test these in parallel in several therapeutic indications. indications or with other drug combinations.
Regulatory and reimbursement pressures too will increase the emphasis on late stage (post marketing) surveillance, while increasing requirements to demonstrate the economic value of new compounds, throughtreatments. As a result, outcomes and comparative effectiveness research will most likely be required in order to secure on-going product reimbursement. Furthermore, we believe advances in molecular biology and genetics will drive further growth in innovation in the long term which in turn should create further growth opportunities for both developmentbiopharma companies and their outsource providers.development partners.
We expect the increased adoption of outsourcing will be a core strategy of clients in the near term as they respond to the increased pressures on their revenues and profitability. Larger clients were the first to form strategic partnerships with global CROs in an effort to reduce the number of outsource partners with whom they engage and to reduce inefficiencies in their current drug development models. More recently we have seen the increasing adoption of this partner model with mid-tier pharmaceutical and biotechnology firms as they also seek to drive development efficiencies. As outsourcing penetration increases, we believe clients will seek a greater level of integration of service offerings from CROs, although some will continue to purchase services on a stand-alone basis. Creating greater connectivity and “seamlessness” between our services and the sharing of “real-time” clinical, operational and “real world” data with clients will therefore become increasingly important for CROs. ICON will seek to benefit from this increased outsourcing by clients to grow our business by increasing market share with our existing client base and adding new clients within the Phase I-IV outsourced development services market; the aim being to ensure we will be considered for all major Phase I–IVI-IV projects.
Our core strategiesstrategy to achieve these objectives will be as follows:is focused on the following areas:
Build ScalePartnerships, Customers and Markets
To meet the evolving needs of our clients weWe continue to enhancefocus on expanding and deepening our capabilities through both organic service development and targeted acquisitions. During 2015 we established a dedicated global group focused on development services in the growing medical device market. Wepartnerships with existing customers while also continued to enhance our scientific and therapeutic expertise to support our customers in the overall formation of their development strategies fordeveloping new products. Some examples of the enhancements made during 2015 include the development of CNS Rating Scale Analytics leveraging our ICONIK platform. This is enabling a data-driven approach to rating surveillance that increases the consistency of both Clinicial and Patient Reported Outcomes in CNS studies. We have also grown our global network of investigative sites that have the capabilities and expertise to conduct biosimilar trials and we further strengthened our relationships with specialized Oncology sites whilst also extending our internal oncology expertise within our consulting and project management groups.
Strategic client relationships will increasingly manifest themselves in many different forms. Many of these relationships will require newinnovative forms of collaboration across ICON service areas and departments and will therefore require increased flexibility to offer services on both a standalone functional basis and as part of a fully integrated service model.solution. To support this objective, we continue to enhance our capabilities and expertise, evolve our collaboration and delivery models, and invest in technology that will enable closer data integration across our service areas and enhance our project and programmeprogram management capabilities.
We will also continue to buildenhance our positionscapabilities through both organic service development and targeted acquisitions to meet the evolving needs of our existing and new clients. In mid-2017 we acquired the Mapi Group, a leading Patient-Centered Health Outcomes Research and Commercialization company. This acquisition strengthened ICON’s existing Commercialisation and Outcomes Research business adding significant commercialization presence, analytics, real world evidence generation and strategic regulatory expertise. The combined organization will be a leader for real world evidence, post approval research, language services, consultancy services supporting clinical outcomes assessments, pricing and market access and scientific communications.
We continue to target growth in emerging markets and have expandedunder-penetrated CRO market segments outsourcing penetration within Medical Device companies has lagged that of bio-pharma firms but is beginning to accelerate. EU Regulatory reform enacted in 2017 will be a further catalyst to growth in this segment as it included stricter requirements to perform clinical evaluations & post-marketing surveillance. ICON is well positioned in this market having acquired strong device development capabilities in the acquisition of Aptiv Solutions in 2014. We continue to expand our presence in regions such as Asia-Pacific, in particular in China and Japan, as is evident frombuilding on our acquisition of Niphix, the Japanese subsidiary of Aptiv Solutions, in 2014 and BeijingWits Medical Limited, a leading Chinese CRO, in 2012. In 2015, we also added scale and capabilities to our commercialization and outcomes service offering in the US through the acquisition of Medimedia on February 27, 2015 and PMG on December 4, 2015.2012.
Operational Excellence and Quality
We continue to enhance our operating processes and delivery models to gain competitive advantage.
Our proprietary ICONIK platform, which integrates clinical data across multiple systems, is helping us drive better project execution and identifyenables ICON to offer innovative Risk Based Monitoring solutions which can deliver significant operational efficiencies. efficiencies for our customers.
Our ADDPLAN software offers industry leading statistical design, simulation and analysis software for adaptive clinical trials and helps our customers identify the most promising drug candidates earlier in the development process and in parallel test these across several therapeutic indications.indications and with other drug combinations.
Finding and engaging suitable patients to conduct clinical trials is one of the biggest issues facing drug development today. Less than 1% of the US population participates in clinical trials and the performance of investigative sites that do take part in research is uneven, hard to predict and many trials do not meet the initial recruitment goals. The current market challenge in patient enrolmentenrollment creates an opportunity for ICON to differentiate its service offering and we are working to reduce patient recruitment times through enhanced site and investigator selection based on key performance metrics and through use of our proprietary Firecrest technology which is used to train and support sites during the development process. In 2015 we also acquiredOur acquisition of PMG a firm that provides site management operations to bio-pharma and medical device companies from 12 geographic locations in the United States. We believe PMG willresearch further enhanceenhanced our ability to enroll patients onto the clinical studies we perform. Alongside our PMG network we have developed strategic alliances with investigator site groups and healthcare systems in all major global research markets.
Quality project execution underpins all we do and we have an ongoing focus on developing our people and processes to continue to enhance our service delivery. We are also deploying supporting technologies which we believe will enable faster and deeper insights into the quality of trial data.
We are focused on operational excellence across our support functions and have created a global business support infrastructure across functions such as Finance, Information Technology, Facilities and Human Resources. This is enabling us to enhance the service levels across these support areas whilst driving down the costs of this service provision.
Talent, Leadership Development and TalentCulture
Core to allAt the core of our strategy is our people. Within ICON we have highly qualified and experienced teams, around 75%the majority of whom have third level educational qualificationsqualifications. The need to develop and retain this expertise and talent within the organisationorganization is fundamental in enabling us to be the global CRO partner of choice for our customers. We have invested in creating an innovative learning environment delivered through the ICON University which isICON’s training and development group, who have formed an industry leading collaboration with University College Dublin . TheDublin. This enables ICON University provides customisedto provide customized management and development programs for global employees. These programmesprograms are focused on advanced leadership development for those employees involved in people management roles and specific technical training in competencies that are core to our business, such as project and programmeprogram management and clinical research associate development. We continue to invest to refine and develop these programmes.
Within the ICON Universityour training program we have also created a Clinical Research Academy and a unique new Graduate Certificate in Clinical Trial Management which is enhancing the quality of graduate training in clinical research and increasing the pool of talent available to ICON that can support our customers’ drug development programmes.programs.
Our learning and development programmesprograms are complemented by advanced people development practices which incorporate rigorous, analytics based screening in the hiring process, global career frameworks, performance management processes aligned to our strategy, and talent review and succession planning processes.
Our leadership and talent programmesprograms contribute to the enhanced retention of our employees, better project deliverables for our customers and the enhanced financial performance of the business.
Enhance Capabilities & Expertise
To meet the evolving needs of our clients we continue to enhance our capabilities through both organic service development and targeted acquisitions. During 2017, we continued to enhance our scientific and therapeutic expertise to support our customers in specific areas including Oncology, Orphan and Rare Diseases and Biosimilars.
We have continued to invest in building our capabilities in the gathering, analysis and application of real world patient data within both the clinical trial and post-trial observational study environments. Alongside expanding internal capabilities we continue to develop innovative partnerships with providers of real world data including EHR4CR and Trinetx. During 2017 we also unveiled the world’s first global patient outcomes benchmarking platform through our collaboration with the ICHOM consortium.
We continued our strategy of making targeted acquisitions that can enhance our capabilities and differentiate our services. In July 2017 we acquired the Mapi Group, a leading Patient-Centered Health Outcomes Research and Commercialization company. This acquisition also enabled ICON to have direct access to Mapi Research Trust, an industry leading library of Clinical Outcomes Assessments (COAs), with exclusive distribution of over 300 families of validated questionnaires, including licensing of COA services used by commercial, academic and regulatory research organizations. The acquisition of Mapi extends the breadth and depth of ICON’s late phase capabilities, creating an industry leading provider of post-approval research, spanning evidence generation, strategic regulatory services, scientific communications and commercial strategy. Our customers will also benefit from ICON’s access to the industry’s broadest set of COA tools and instruments as well as new and enhanced real world data sets.
We continue to enhance our capabilities through collaborations with industry and academic leaders in the area of data analytics, particularly with a focus on the challenge of finding suitable patients to participate in Clinical Research. We have established a Chair of Business Analytics with University College Dublin and are learning from their expertise in management of large datasets. Additionally through our pilot with IBM Watson, we are leveraging IBM Watson’s cognitive computing power to help automate the process of identifying patients who meet the criteria for a clinical trial, and to analyze protocols to assess trial feasibility and identify optimal trial sites.
Applied Innovation
Developing innovativeICON is focused on applying innovation that can help our customers improve their development outcomes. We are focusing this innovation in three critical areas; improving clinical trial design and execution; faster and more predictable patient recruitment; and evolving clinical trials to be more patient centric which includes data collection and analysis directly from patient’s digital devices. Our approach to developing solutions to help clients improve the costs and efficiencies associatedthese challenges incorporates partnering with drug development will be another key strategybest in achieving our objectives.class technology providers but is also supported by a suite of differentiated ICON proprietary technologies.
These solutions are enabled by differentiated ICON technologies. Our ICONIK platform is a web-based information platform that enablesfacilitates the management, reporting, analysis and visualization of all data relating to drug development, and supports our risk based monitoring solution. This solution allows monitoring resources to be directed at specific sites based on real-time data analysis which can significantly reduce monitoring costs for clients.
Firecrest; ICON’s proprietary comprehensive site performance management system, is a web-based solution which enables accurate study information, including protocol information, training manuals and case report forms, to be rolled out quickly and simultaneously to investigative sites. It allows site behavior to be tracked to ensure training is understood, procedures are being followed and that timelines and study parameters are met. It can significantly reduce the number of data queries originated from investigator sites.
Our ADDPLAN software offers an industrya leading statistical design, simulation and analysis software for adaptive clinical trials and helps our customers identify the most promising drug candidates earlier. ADDPLAN is used by FDA, EMA and Japan’s PMDA, as well as over fifty top pharmaceutical and medical device companies and academic researchers. researchers(see (see Information Systems on page 28 for further information).
Enhance Capabilities
To meetAlongside the evolving needsapplication of our clientsthese technology solutions we continue to enhance our capabilities through both organic service development and targeted acquisitions. During 2015 we established a dedicated global groupare also focused on development services ininnovation through the growing medical device market. We also continued to enhance our scientificredesign and therapeutic expertise to support our customers inwhere appropriate the overall formationautomation of their development strategies for new products.
We continued our strategy of making targeted acquisitions in 2015 and acquired PMG to enhance our patient enrollment capabilities. We also acquired Medimedia to enhance the capabilities of our Commercialization and Outcomes group. This segment of our market is one of the fastest growing. Through organic development and targeted acquisition strategy we believe we have a created a differentiated service offering that can help support our clients to be able to generate the evidence of results that regulators and payers increasingly require.
We have also enhanced our capabilities though collaborations with industry and academic leaders in the area of data analytics. We have established a Chair of Business Analytics with University College Dublin and are learning from their expertise in management of large datasets. Additionally though a pilot with IBM’s Watson we are leveraging Watson’s cognitive computing power to help automate the process of identifying patients who meet the criteria for acurrent clinical trial and to analyze protocols to assess trial feasibility and identify optimal trial sites.processes.
Services
ICON is a global provider of drug development solutions and services to the pharmaceutical, biotechnology and medical device industries. These solutions span the Clinical Development lifecycle from compound selection to Phase I-III clinical studies and also include post approval outcomesoutcome research and market access consulting solutions.
We offer a broad range of specialized services to assist pharmaceutical, biotechnology and medical device companies to bring new drugs and devices to market faster. Our Clinical Research business specializes inservices span the planning, management, executionentire lifecycle of product development and analysis of Phase I – IV clinicalcan be adapted to suit local trials and post approval studies, ranging from small studies to complex, multinational projects. We also conduct various laboratory tests on the patient's blood, urine and other bodily fluids at appropriate intervals during the trial.or large global programs. Specific clinical development services offered to biopharmaceutical and medical device companies include:
o | Product Development Planning |
o | Strategic Consulting |
o | Study Protocol Preparation |
o | Clinical Pharmacology |
o | Pharmacokinetic and Pharmacodynamic analysis |
o | Clinical Research Centers |
o | Investigator Recruitment |
o | Study Monitoring and Data Collection |
o | Case Report Form ("CRF") Preparation |
o | Statistical Analysis |
o | Patient Safety Monitoring |
o | Risk-based Monitoring |
o | Clinical Data Management |
o | Strategic Analysis and Data Operations |
o | Regulatory Consulting |
o | Medical Reporting and Pharmacovigilance |
o | Interactive Response Technologies |
o | Electronic Endpoint Adjudication |
o | Medical Imaging |
o | Adaptive trial design and execution |
o | Medical Device Trials |
o | Functional and Strategic Resourcing |
Product Development Planning;o | Sample analyses |
o | Safety testing |
o | Microbiology |
o | Custom flow cytometry |
o | Electronic transmission of test results |
o | Biomarker development |
o | Bioanalysis |
o | Immunoassay development |
o | Electronic Patient Reported Outcomes |
o | Patient Registries |
o | Outcomes Research |
o | Health Economics |
o | Market Access and commercialization services |
o | Price Consulting |
o | Healthcare and scientific communications |
Strategic Consulting;
26Study Protocol Preparation;
Clinical Pharmacology;
Pharmacokinetic and Pharmacodynamic Analysis;
Clinical Research Centers;
Investigator Sites;
Patient Recruitment;
Study Monitoring and Data Collection;
Case Report Form ("CRF") Preparation;
Statistical Analysis;
Patient Safety Monitoring;
Risk-based Monitoring;
Clinical Data Management;
Strategic Analysis and Data Operations;
Regulatory Consulting;
Medical Reporting and Pharmacovigilance;
Interactive Response Technologies;
Electronic Endpoint Adjudication;
Medical Imaging;
Adaptive Trial Design and Execution;
Medical Device Trials;
Biosimilar Trials;
Research Trials for US Government Agencies;
Functional Services;
Strategic Resourcing;
Sample Analyses;
Safety Testing;
Microbiology;
Custom flow Cytometry;
Electronic Transmission of Test Results;
Biomarker Development;
Bioanalysis;
Immunoassay Development;
Electronic Patient Reported Outcomes;
Patient Registries;
Outcomes Research;
Health Economics;
Market Access and Commercialization Services;
Drug Pricing Consulting; and
Health Care and Scientific Communications.
Sales and Marketing
Our marketing strategy is focused on building a differentiated brand position for ICON and supporting our business development efforts to develop and build relationships with pharmaceutical, biotechnology and medical device companies. Our marketing activities are coordinated centrally to ensure a consistent and differentiated market positioning for ICON and to ensure all marketing efforts align to the overall strategic objectives of the business. Our business development teams are located throughout the Americas, Europe and Asia Pacific regions. Business development activities are carried out by account executives with assigned territories and global account directors supporting our large accounts. Specialized business development teams focus on growing the various business segments of ICON. Collectively, our business development team, senior executives and project team leaders share responsibility for the maintenance of key client relationships. Our aim is to develop deeper relationships within our client base in order to gain repeat business and give us opportunities to penetrate into other therapeutic indications and adjacent service lines where applicable.
Competition
The CRO industry is fragmented, consisting of many small, niche service providers, somea declining number of medium-sized providers and a smaller number of large CROs, including ICON, that are differentiated by the scale of their global operations, and breadth of service portfolios.portfolios and supporting technology infrastructure. The need to conduct complex research and access patients on a global basis is driving market share to these global CROs and whenCROs. When competing for large development opportunities,programmes, ICON competes primarily with Quintiles Transnational Corporation, PAREXEL International Corporation, LabCorp andIQVIA, PAREXELInternational, Pharmaceutical Product Development Inc.('PPD'), the Covance Drug Development business of LabCorp., PRA Health Sciences and Syneos Health, the recently merged inVentiv and INC Research business. In some other market segments, for example biotech and mid-tier pharma, ICON may also compete against mid-tier CROs including PRA and INC Research.Medpace.
CROs generally compete on the basis of previous product experience, the ability to recruit patients on a global basis, the depth of therapeutic and scientific expertise, the strength of project teams, price and increasingly on the ability to apply new innovation that can drive significant time and cost savings throughout the development process. An evolving area of competition is the need to provide services that can help generate the evidence of the economic value of new treatments that payers and regulators require. This requires access to new data sources which includes information to support the identification of suitable investigator sites and patient populations as well as data on the impact ofvalue delivered by new products afterfollowing marketing approval.
We believe that we compete favorably in all these areas.
Customers
During the year ended December 31, 20152017 revenue was earned from over 700825 clients. The increased use of strategic partnership arrangements in recent years has resulted in a greater proportion of our net revenues being derived from a relatively limited number of customers. During the year ended December 31, 2015 49%2017 40% of our net revenues were derived from our top five customers, with one customer contributing more than 10% of our net revenues during the period (31%(18%). No other customer contributed more than 10% of our net revenues during this period. During the year ended December 31, 2014 53%2016 45% of our net revenues were derived from our top five customers, with one customer contributing more than 10% of our net revenues during the period (31%(26%). No other customer contributed more than 10% of our net revenues during this period. During the year ended December 31, 2013 53%2015 49% of our net revenues were derived from our top five customers, with two customersone customer individually contributing more than 10% of our net revenues during the period (26% and 10% respectively)(31%). No other customer contributed more than 10% of our net revenues during this period. The loss of, or a significant decrease in business from one or more of these key customers could have a material adverse impact on our results of operations.
Backlog
Our backlog consists of potential net revenue yet to be earned from projects awarded by clients. At December 31, 20152017 we had a backlog of approximately $3.9$4.9 billion, compared with approximately $3.6$4.2 billion at December 31, 2014.2016. We believe that our backlog as of any date is not necessarily a meaningful predictor of future results due to the potential for cancellation or delay of the projects included in the backlog, and no assurances can be given on the extent to which we will be able to realize this backlog as net revenue.
Information Systems
Having access to accurate and timely information is critical in the management, delivery and quality of all aspects of drug development. To enable this ICON has developed an Informatics strategy built around ICONIK, a web-based information platform that enables the management, reporting, analysis and visualization of all data relating to drug development. ICONIK collects, manages and standardizes study data from multiple sources, including Electronic Data Capture (EDC), patient diaries, central laboratories and imaging, to provide a single view of study information. ICONIK enables ICON to deliver new services such as ICONIK monitoring which uses near-real time clinical data to drive monitoring visit schedules thereby reducing overall cost and time to market.
In addition to managing clinical data, ICONIK collects operational data, such as project management, clinical trials management system (CTMS) and metric information to drive trial efficiency and transparency. Investigator data, such as payments, site details and performance, can also be incorporated. ICONIK can be accessed via a portal that allows clients access to study related information via a secure web based environment.
OurFirecrest, our site management and training technology, Firecrest, is another important component of our Informatics strategy. Firecrest provides an on-line web-based portal to access visit by visit study guides which drive site performance and quality.
ICON also utilizes a range of enterprise applications that enable the delivery of our business services in a global environment. The focus is to provide ease of access and capture of study information for our staff and clients globally. Our current information systems are built on open standards and leading commercial business applications from vendors including Microsoft, Oracle, EMC,Dell, SAS and Medidata. IT expenditure is authorized by strict IT governance policies requiring senior level approval of all strategic IT expenditure based on defined, measurable business benefits.
In Clinical Operations, we have deployed a suite of software applications that assist in the management and tracking of our clinical trial activities. These software applications are both internally developed and commercially available applications from external vendors. These include a clinical trial management application that tracks all relevant data in a trial and automates all management and reporting processes. In our Data Management function, we have deployed leading clinical data management solutions including EDC and Clinical Data Warehouse solutions from external vendors. This allows us to guarantee the integrity of client data and provide consolidated information across client studies. In our clinical trials management area Firecrest Clinical provides a comprehensive site performance management system that improves compliance, consistency and execution of activities at investigative sites. The web-based solution enables accurate study information, including protocol information, training manuals and case report forms, to be rolled out quickly and simultaneously to sites. Site behaviour can then be tracked to ensure training is understood, procedures are being followed, timelines are met and study parameters are maintained. As well as meeting day to day operational requirements, these systems are feeder systems into the ICONIK platform.
We have also developed an interactive response technology (IXR) system which provides features such as centralized patient randomization, drug inventory management, patient diary collection and provides our clients with a fully flexible data retrieval solution which can be utilized via telephone, internet browser or a mobile device. In our central laboratory business, we utilize a comprehensive suite of software, including a laboratory information management system (LIMS), a kit/kit / sample management system and a web interface system to allow clients to review results online.
All of the Company’s global finance operations utilize Oracle’s eBusiness suite to serve the organization’s financial and project accounting requirements. Workday is used to fulfil our HR people management requirements.
The Company’s strategy of using technology to enhance our global processes can be seen from our deployment of platforms like ICONIK, QualityDocs our global SOP Document Management system, and our Web-based training delivery solution, iLearn.iLearn, workflow and automation platforms such as ServiceNow, Sailpoint for identity management and governance and Pega for pharmacovigilance.
Our IT systems are operated from two Data Centre hubs in Dublin, Ireland and Philadelphia, Pennsylvania. These hubs reside within purpose built Data Centre facility locations. Other offices are linked to these hubs through a network managed by Verizon, a tier one global telecommunications provider. This network provides global connectivity for our applications and allows collaboration and communication using tools like Microsoft Lync,Cisco Jabber, WebEx, Sharepoint, and eRooms.Box. Mobile staff can also access all systems via secure remote access facilities. A global corporate intranet portal provides access to all authorized data and applications for our internal staff as well as providing an internal platform for company widecompanywide communication. IT systems are protected with robust information security controls which are independently audited twice annually as part of maintaining ICON’s ISO27001:2013 certification.
Following the acquisition of Aptiv Solutions we have now integrated, and continue to enhance, three new technology platforms into the ICON offerings. These comprise of ADDPLAN for simulation and design of exploratory/pilot and confirmatory/ pivotal adaptive clinical trials (ADDPLAN® DF (Dose Finder), ADDPLAN® Base, ADDPLAN® MC (Multiple Comparison) and ADDPLAN® PE (Population Enrichment)), AptivAdvantage which is an integrated platform comprising EDC, randomization and drug supply management specifically created for execution of adaptive clinical trials and used to deliver risk-based monitoring and Aptiv Insite which is a novel approach to risk-based monitoring, using Verification by Statistical Sampling (VSS) to manage data quality and site related risks.
Contractual Arrangements
We are generally awarded projects based upon our responses to requests for proposals received from companies in the pharmaceutical, biotechnology and medical device industries, or work orders executed under our strategic partnership agreements.
Our revenues on contracts are recognized on a proportional performance method. Depending on the contractual terms revenue is either recognized on the percentage of completion method based on the relationship between hours incurred and the total estimated hours of the trial or on the unit of delivery method. Payment terms usually provide either for payments based on the achievement of certain identified milestones, units delivered or monthly payments, according to a contracted payment schedule over the life of the contract. Where clients request changes in the scope of a trial or in the services to be provided by us, a change order or amendment is issued which may result either in an increase or decrease in the contract value. We also contract on a "fee-for-service" or "time and materials" basis.
Contract periods may range from several weeks to several years depending on the nature of the work to be performed. In most cases, an upfront portion of the contract fee is paid at the time the study or trial is started. The balance of the contract fee is generally payable in installments over the study or trial duration and may be based on the achievement of certain performance targets or "milestones" or, based, on units delivered, or on a fixed monthly payment schedule. For instance, installment payments may be based on patient enrollment dates or delivery of the database. During the course of the study, the Company will generally incur reimbursable expenses. Reimbursable expenses are typically estimated and budgeted within the contract and are generally invoiced on a monthly basis based on actual expenses incurred. Reimbursable expenses include payments to investigators, travel and accommodation costs and various other expenses incurred over the course of the clinical trial which are fully reimbursable by the client.
As the currency in which contracts are priced can be different from the currencies in which costs relating to those contracts are incurred, we usually negotiate currency fluctuation clauses in our contracts which allow for price adjustments if changes in the relative value of those currencies exceed predetermined tolerances.
Most of our contracts are terminable immediately by the client with justifiable cause or with 30 to 90 days’ notice without cause. In the event of termination, we are usually entitled to all sums owed for work performed and expenses incurred through the notice of termination and certain costs associated with termination of the study. Termination or delay in the performance of a contract occurs for various reasons, including, but not limited to, unexpected or undesired results, production problems resulting in shortages of the drug, adverse patient reactions to the drug, the client's decision to de-emphasize a particular trial, inadequate patient enrollment or investigator recruitment.
Government Regulation
Regulation of Clinical Trials
The clinical investigation of new drugs is highly regulated by government agencies. The standard for the conduct of clinical research and development studies is Good Clinical Practice (“GCP”), which stipulates procedures designed to ensure the quality and integrity of data obtained from clinical testing and to protect the rights and safety of clinical subjects.
Regulatory authorities, including theThe FDA and other prominent regulators have promulgated regulations and guidelines that pertain to applications to initiate trials of products, the approval and conduct of studies, report and record retention, informed consent, applications for the approval of drugs and post-marketing requirements. Pursuant to these regulations and guidelines, service providers that assume the obligations of a drug sponsor are required to comply with applicable regulations and are subject to regulatory action for failure to comply with such regulations and guidelines. In the United States and Europe, the trend has been in the direction of increased regulation and enforcement by the applicable regulatory authority.
In providing our services in the United States, we are obligated to comply with FDA requirements governing such activities. These include ensuring that the study is approved by an appropriate independent review boardIndependent Review Board (“IRB”) and Ethics Committee, obtaining patient informed consents, verifying qualifications of investigators, reporting patients’ adverse reactions to drugs and maintaining thorough and accurate records. We must maintain critical documents for each study for specified periods, and such documents may be reviewed by the study sponsor and the FDA.
The services we provide outside the United States are ultimately subject to similar regulation by the relevant regulatory authority, including the Medicines and Healthcare products Regulatory Agency (“MHRA”) in the United Kingdom and the Bundesinstitut für Arzneimittel und Medizinprodukte (“BfARM”) in Germany.authority. In addition, our activities in Europe are affected by the European Medicines Agency (“EMA”), which is based in London, England.
Agency.
We must retain records for each study for specified periods for inspection by the client and by the applicable regulatory authority during audits. If we fail to comply adequately with applicable regulations and guidelines, it could result in a material adverse effect. In addition, our failure to comply with applicable regulations and guidelines, depending on the extent of the failure, could result in fines, debarment, termination or suspension of ongoing research, the disqualification of data or litigation by clients, any of which could also result in a material adverse effect.
Potential Liability and Insurance
The nature of our business exposes us to potential liability including, but not limited to, potential liability for (i) breach of contract or negligence claims by our customers; (ii) non-compliance with regulatory or legal obligations including, but not limited to, anti-bribery and anti-corruption laws; (iii) third party (such as patients) claims in respect of our performance of services.
In addition, although we do not believe we are legally responsible for acts of third party investigators (physicians running trials), we could be subject to claims arising as a result of the actions of these investigators.
We try to reduce this potential liability by:
1. Seeking contractual indemnification from customers in relation to certain activities. However, the terms and scope of indemnification varies from customer to customer and project to project and the performance of these indemnities is not secured. As a result, we bear the risk that indemnification may not be relevant or sufficient or that the indemnifying party may not have the financial ability to fulfill its indemnification obligations. Furthermore this indemnification does not protect us against our own acts or omissions such as our negligence or where our performance does not reach the required contractual, industry or regulatory standard.
2. Maintaining worldwide professional liability insurance. While we believe our insurance coverage is adequate, there is no guarantee that we will continue to be able to maintain such insurance coverage on terms acceptable to us, if at all, or that the relevant policy will respond and provide cover when we want it to.
We could be materially adversely affected if ICON is required to pay damages or bear the costs of defending or settling any claim outside the scope of or in excess of a contractual indemnification provision, an indemnifying party does not fulfill its indemnification obligations, the claim is in excess of level of our insurance coverage or the relevant circumstances are not covered by our insurance policies.
Description of Property
Our principal executive offices are located in South County Business Park, Leopardstown, Dublin, Republic of Ireland, where we own an office facility of approximately 15,000 square meters. We lease all other properties under operating leases.
We maintain fourthirty-eight offices in Pennsylvania,North America; thirty-four in the United States, three in Canada and one in Mexico. We maintain thirty-five offices in Europe; six of our offices in the UK, four each in Germany and France, three in Spain, two each in Italy, Ireland, Sweden, the Netherlands and one in each of Belgium, the Czech Republic, Hungary, Israel, Latvia, Poland, Romania, Switzerland, Turkey and the Ukraine. We have seventeen offices in Asia; three offices each in China, India and Japan, two in New York StateSingapore, one in each of Hong Kong, Philippines, Russia, South Korea, Taiwan and Wilmington, two offices in San Antonio, San Francisco and Winston-Salem andThailand. We have one office in Australia and one in New Zealand. We have five offices in South America; one in each of the following U.S. locations: Boston, Chicago, Durham, Gaithersburg, Houston, Los Angeles, Marlborough, Nashville, San Diego, Champaign, Cary, Charlotte, Hickory, Raleigh, Rocky Mount, Salisbury, Charleston, BristolArgentina, Brazil, Chile, Colombia and Knoxville.
Our European operationsPeru. We maintain two offices in Amsterdam and one office in each of the following locations: Abingdon, Allschwil, Ankara, Barcelona, Bucharest, Budapest, Cologne, Edinburgh, Frankfurt, Munich, Kiev, Limerick, London, Madrid, Marlow, Milan, Moscow, Paris, Prague, Riga, Southampton, Stockholm, Strasbourg, Tel Aviv and Warsaw.South Africa.
We also maintain two offices in Tokyo and Singapore and one office in each of the following locations: Auckland, Bangalore, Bangkok, Beijing, Bogota, Buenos Aires, Chennai, Hong Kong, Johannesburg, Lima, Manila, Mexico City, Montreal, Osaka, Santiago, Sao Paolo, Seoul, Shanghai, Sydney, Taipei, Tianjin, Trivandrum and Vancouver.
Organizational Structure
Details of the Company’s significant operating subsidiaries or entities under the Company's control are as follows:
|
| | |
| Company | Country | Group ownership |
| | | |
| ICON Clinical Research, S.A. | Argentina | 100% |
| | | |
| ICON Clinical Research PTY Limited | Australia | 100% |
| | | |
| ICON Clinical Research Austria GmbH | Austria | 100% |
| | | |
| DOCS International Belgium N.V. | Belgium | 100% |
| | | |
| ICON Pesquisas Clínicas LTDA. | Brazil | 100% |
| | | |
| ICON Clinical Research EOOD | Bulgaria | 100% |
| | | |
| ICON Clinical Research (Canada) Inc. | Canada | 100% |
| | |
| Mapi Life Sciences Canada Inc. | Canada | 100% |
| | | |
| Oxford Outcomes LTD. | Canada | 100% |
| | | |
| ICON Chile Limitada | Chile | 100% |
| | | |
| ICON Clinical Research (Beijing No.2) Co., Ltd | China | 100% |
| | | |
| ICON Clinical Research (Beijing) Co., Ltd | China | 100% |
| | | |
| Ispitivanja ICON d.o.o (ICON Research Ltd.) | Croatia | 100% |
| | | |
| ICON Clinical Research s.r.o. | Czech Republic | 100% |
| | | |
| DOCS International Nordic Countries A/S | Denmark | 100% |
| | | |
|
| | |
| Company | Country | Group ownership |
| DOCS International Finland Oy | Finland | 100% |
| | |
Aptiv Solutions | France
| 100% |
| | | |
| DOCS International France S.A.S. | France | 100% |
| | | |
| ICON Clinical Research S.A.R.L. | France | 100% |
| | |
| Mapi Développement SAS | France | 100% |
| | |
| Mapi Research Trust | France | 100% |
| | |
| Mapi SAS | France | 100% |
| | | |
| DOCS International Germany GmbH | Germany | 100% |
| | | |
| ICON Clinical Research GmbH | Germany | 100% |
| | | |
| ICON Clinical Research Hong Kong Limited | Hong Kong | 100% |
| | | |
ICON Klinikai Kutató Korlátolt Felelősségű Társaság (ICON Clinical Research Limited Liability Company) | Hungary | 100% |
| | | |
| ICON Clinical Research India Private Limited | India | 100% |
| | | |
| ICON Clinical Research Israel Limited | Israel | 100% |
| | | |
| DOCS Italia S.R.L. | Italy | 100% |
| | | |
| ICON Japan K.K. | Japan | 100% |
| | |
Niphix G.K. | Japan
| 100% |
| | | |
| ICON Investments Limited | Jersey | 100% |
| | | |
| ICON Clinical Research Korea Yuhan Hoesa (ICON Clinical Research Korea Ltd.) | Korea | 100% |
| | | |
| ICON CRO Malaysia SDN. BHD. | Malaysia | 100% |
| | | |
| ICON Clinical Research México, S.A. de C.V. | Mexico | 100% |
| | | |
| DOCS Insourcing B.V. | Netherlands | 100% |
| | | |
| DOCS International B.V. | Netherlands | 100% |
| | |
| ICON Contracting Solutions Holdings B.V. | Netherlands | 100% |
| | |
| Mapi B.V. | Netherlands | 100% |
| | |
| Mapi Life Sciences NL B.V. | Netherlands | 100% |
| | | |
| ICON Clinical Research (New Zealand) Limited | New Zealand | 100% |
| | | |
ICON Clinical Research Peru Perú
S.A. | Peru | 100% |
| | | |
|
| | |
| Company | Country | Group ownership |
| ICON Clinical Research Services Philippines, Inc. | Philippines | 100% |
| | | |
| DOCS International Poland Sp. z o.o. | Poland | 100% |
| | | |
| ICON Clinical Research Sp. z o.o. | Poland | 100% |
| | | |
| DOCS Resourcing Limited | Republic of Ireland | 100% |
| | | |
| ICON Clinical International Unlimited Company | Republic of Ireland | 100% |
| | | |
| ICON Clinical Research Limited | Republic of Ireland | 100% |
| | | |
| ICON Clinical Research Property Development (Ireland) Limited | Republic of Ireland | 100% |
| | | |
| ICON Holdings Unlimited Company | Republic of Ireland | 100% |
| | | |
| ICON Holdings Clinical Research International Limited | Republic of Ireland | 100% |
| | | |
| ICON Investments Five Unlimited Company | Republic of Ireland | 100% |
| | | |
| ICON Investments Four Unlimited Company | Republic of Ireland | 100% |
| | | |
| ICON Clinical Research S.R.L. | Romania | 100% |
| | | |
| ICON Clinical Research (Rus) LLC | Russia | 100% |
| | | |
| ICON Clinical Research d.o.o. Beograd | Serbia | 100% |
| | | |
| ICON Clinical Research (Pte) Limited | Singapore | 100% |
| | | |
| ICON Clinical Research Slovakia, s.r.o. | Slovakia | 100% |
| | | |
| ICON Clinical Research España, S.L. | Spain | 100% |
| | |
| Mapi Life Sciences Spain, S.L. | Spain | 100% |
| | | |
| DOCS International Sweden AB | Sweden | 100% |
| | |
| Mapi Sweden A.B. | Sweden | 100% |
| | | |
| DOCS International Switzerland GmbH | Switzerland | 100% |
| | | |
| ICON Clinical Research (Switzerland) GmbH | Switzerland | 100% |
| | | |
| ICON Clinical Research Taiwan Limited | Taiwan | 100% |
| | | |
| ICON Clinical Research (Thailand) Limited | Thailand | 100% |
| | | |
| ICON Ankara Klinik Arastirma Dis Ticaret Anonim Sirketi | Turkey | 100% |
| | | |
| DOCS Ukraine LLC | Ukraine | 100% |
| | | |
| ICON Clinical Research LLC | Ukraine | 100% |
| | |
Aptiv Solutions (UK) Ltd | United Kingdom
| 100% |
| Company | Country | Group ownership |
| | | |
| DOCS International UK Limited | United Kingdom | 100% |
| | | |
| ICON Clinical Research (U.K.) Limited | United Kingdom | 100% |
| | | |
| ICON Development Solutions Limited | United Kingdom | 100% |
| | |
| Mapi Life Sciences UK Limited | United Kingdom | 100% |
| | | |
| Addplan, Inc. | USA | 100% |
| | | |
Beacon Bioscience, IncInc. | USA | 100% |
| | | |
| C4 MedSolutions, LLC | USA | 100% |
| | |
| Clinical Research Management, Inc. | USA | 100% |
| | | |
| CHC Group, LLC | USA | 100% |
| | |
| Complete Healthcare Communications, LLC | USA | 100% |
| | | |
| Complete Publication Solutions, LLC | USA | 100% |
| | | |
| DOCS Global, Inc. | USA | 100% |
| | | |
| Global Pharmaceutical Strategies Group, LLC | USA | 100% |
| | | |
| ICON Clinical Research LLC | USA | 100% |
| | | |
| ICON Early Phase Services, LLC | USA | 100% |
| | | |
| ICON Laboratory Services, Inc. | USA | 100% |
| | | |
| ICON US Holdings Inc. | USA | 100% |
| | |
Inclinix, Inc. | USA
| 100% |
| | |
Inclinix-PMG Holdings, Inc. | USA
| 100% |
| | | |
| Managed Care Strategic Solutions, L.L.C. | USA | 100% |
| | |
| Mapi USA, Inc. | USA | 100% |
| | | |
| MMMM Consulting, LLC | USA | 100% |
| | | |
| MMMM Group, LLC | USA | 100% |
| | | |
| PMG Research of Bristol, LLC | USA | 100% |
| | | |
| PMG Research of Charleston, LLC | USA | 100% |
| | | |
| PMG Research of Charlotte, LLC | USA | 100% |
| | | |
| PMG Research of Christie Clinic, LLC | USA | 100% |
| | | |
| PMG Research of Hickory, LLC | USA | 100% |
| | | |
|
| | |
| Company | Country | Group ownership |
| PMG Research of Raleigh, LLC | USA | 100% |
| | | |
| PMG Research of Rocky Mount, LLC | USA | 100% |
| | | |
| PMG Research of Salisbury, LLC | USA | 100% |
| | | |
| PMG Research of Wilmington, LLC | USA | 100% |
| | | |
| PMG Research of Winston-Salem, LLC | USA | 100% |
| | | |
| PMG Research, Inc. | USA | 100% |
| | | |
| Pricespective, LLC | USA | 100% |
| | | |
| PubsHub LLC | USA | 100% |
Item 4A. Unresolved Staff CommentsComments.
Not applicable.
Item 5. Operating and Financial Review and ProspectsProspects.
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements, accompanying notes and other financial information, appearing in Item 18. The Consolidated Financial Statements have been prepared in accordance with U.S. GAAP.
Overview
We are a CRO, providing outsourced development services on a global basis to the pharmaceutical, biotechnology and medical device industries. We specialize in the strategic development, management and analysis of programs that support all stages of the clinical development process - from compound selection to Phase I-IV clinical studies. Our vision is to be the Global CRO partner of choice in drug development by delivering best in class information, solutions and performance in clinical and outcomes research.
We believe that we are one of a select group of CROs with the expertise and capability to conduct clinical trials in most major therapeutic areas on a global basis and have the operational flexibility to provide development services on a stand-alone basis or as part of an integrated “full service” solution. At December 31, 2015,2017, we employed approximately 11,90013,250 employees, in 9098 locations in 3738 countries. During the year ended December 31, 20152017 we derived approximately 41.3%45.0%, 48.3%43.3% and 10.4%11.7% of our net revenue in the United States, Europe and Rest of World, respectively.
Revenue consists primarily of fees earned under contracts with third-party clients. In most cases, a portion of the contract fee is paid at the time the study or trial is started, with the balance of the contract fee generally payable in installments over the study or trial duration, based on the achievementdelivery of certain performance targets or "milestones".milestones. Revenue from contracts is recognized on a proportional performance method based on the relationship between time incurred and the total estimated duration of the trial or on a fee-for-service basis according to the particular circumstances of the contract. As is customary in the CRO industry, we contract with third party investigators in connection with clinical trials. All investigatorInvestigator fees and certain other costs, where reimbursed by clients are, in accordance with industry practice, deducted from gross revenue to arrive at net revenue. As these costs vary from contract to contract, weWe view net revenue as our primary measure of revenue growth.
As the nature of our business involves the management of projects, havingthe majority of which have a typical duration of one to four years, the commencement or completion of projects in a fiscal year can have a material impact on revenues earned with the relevant clients in such years. In addition, as we typically work with some, but not all divisions of a client, fluctuations in the number and status of available projects within such divisions can also have a material impact on revenues earned from such clients from year to year.
Termination or delay in the performance of an individual contract may occur for various reasons, including, but not limited to, unexpected or undesired results, production problems resulting in shortages of the drug, adverse patient reactions to the drug, the client’s decision to de-emphasize a particular trial or inadequate patient enrolmentenrollment or investigator recruitment. In the event of termination the Company is usually entitled to all sums owed for work performed through the notice of termination and certain costs associated with the termination of the study. In addition, contracts generally contain provisions for renegotiation in the event of changes in the scope, nature, duration, or volume of services of the contract.
Our backlog consists of potential net revenue yet to be earned from projects awarded by clients. At December 31, 20152017 we had a backlog of approximately $3.9$4.9 billion, compared with approximately $3.6$4.2 billion at December 31, 2014.2016. We believe that our backlog as of any date is not necessarily a meaningful predictor of future results, due to the potential for cancellation or delay of the projects included in the backlog, and no assurances can be given on the extent to which we will be able to realize this backlog as net revenue.
Although we are domiciled in Ireland, we report our results in U.S. dollars. As a consequence the results of our non-U.S. based operations, when translated into U.S. dollars, could be materially affected by fluctuations in exchange rates between the U.S. dollar and the currencies of those operations.
In addition to translation exposures, we are also subject to transaction exposures because the currency in which contracts are priced can be different from the currencies in which costs relating to those contracts are incurred. Our operations in the United States are not materially exposed to such currency differences as the majority of our revenues and costs are in U.S. dollars. However, outside the United States the multinational nature of our activities means that contracts are usually priced in a single currency, most often U.S. dollars or euro, while costs arise in a number of currencies, depending, among other things, on which of our offices provide staff for the contract and the location of investigator sites. Although many such contracts benefit from some degree of natural hedging, due to the matching of contract revenues and costs in the same currency, where costs are incurred in currencies other than those in which contracts are priced, fluctuations in the relative value of those currencies could have a material effect on our results of operations. We regularly review our currency exposures and usually negotiate currency fluctuation clauses in our contracts which allow for price negotiation if changes in the relative value of those currencies exceed predetermined tolerances.
As we conduct operations on a global basis, our effective tax rate has depended and will depend on the geographic distribution of our revenue and earnings among locations with varying tax rates. Our results therefore may be affected by changes in the tax rates of the various jurisdictions. In particular, as the geographic mix of our results of operations among various tax jurisdictions changes, our effective tax rate may vary significantly from period to period.
Operating Results
The following table sets forth for the periods indicated certain financial data as a percentage of net revenue and the percentage change in these items compared to the prior comparable period. The trends illustrated in the following table may not be indicative of future results.
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| | Percentage of Net Revenue | Percentage Increase/(Decrease) |
| Net revenue | 100 | % | 100 | % | 5.5 | % | 5.8 | % |
| Costs and expenses: | | | | |
| Direct costs | 58.4 | % | 57.7 | % | 6.9 | % | 5.8 | % |
| Selling, general and administrative | 18.4 | % | 19.5 | % | (0.6 | )% | (0.3 | )% |
| Depreciation | 2.5 | % | 2.5 | % | 3.1 | % | 4.8 | % |
| Amortization | 1.0 | % | 1.1 | % | 2.3 | % | (0.1 | )% |
| Income from operations (excluding restructuring and other items) | 19.7 | % | 19.2 | % | 8.2 | % | 13.6 | % |
| Restructuring and other items | 0.5 | % | 0.5 | % | (5.0 | )% | 100 | % |
| Income from operations (including restructuring and other items ) | 19.2 | % | 18.7 | % | 8.5 | % | 10.7 | % |
| | | Year Ended December 31, | |
| | | 2015 | | | 2014 | | | 2015 | | | 2014 | |
| | | Percentage of Net Revenue | | | Percentage Increase/(Decrease) | |
Net revenue | | | 100 | % | | | 100 | % | | | 4.8 | % | | | 12.5 | % |
Costs and expenses: | | | | | | | | | | | | | | | | |
| Direct costs | | | 57.7 | % | | | 60.1 | % | | | 0.6 | % | | | 6.8 | % |
| | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 20.7 | % | | | 22.4 | % | | | (2.9 | %) | | | 7.2 | % |
| | | | | | | | | | | | | | | | |
| Depreciation | | | 2.6 | % | | | 2.8 | % | | | (4.7 | %) | | | 8.3 | % |
Amortization | | | 1.1 | % | | | 0.7 | % | | | 68.9 | % | | | 37.2 | % |
| Income from operations (excluding restructuring and other items) | | | 17.9 | % | | | 14.0 | % | | | 33.3 | % | | | 62.2 | % |
Restructuring and other items | | | - | | | | 0.6 | % | | | (100 | %) | | | (2.6 | )% |
| Income from operations (including restructuring and other items ) | | | 17.9 | % | | | 13.4 | % | | | 39.1 | % | | | 67.0 | % |
Year ended December 31, 20152017 compared to year ended December 31, 20142016
Net revenue for the year increased by $71.7$91.9 million, or 4.8%5.5%, from $1,503.3$1,666.5 million for the year ended December 31, 20142016 to $1,575.0$1,758.4 million for the year ended December 31, 2015.2017. Net revenue increased by 10%4.8% in constant currency, and by 5% in constant dollar organic.currency. The primary driver of the increase in net revenues during the year-ended December 31, 2015 werecan be explained by both continued organic growth and the additional net revenues from the acquisition of MediMedia Pharma SolutionsMapi on July 27, 2017 and PMG which were acquired on February 27, 2015 and December 4, 2015 respectively and from athe full year contribution fromimpact of the acquisition of Aptiv Solutions, which wasClinical Research Management acquired on May 7, 2014. September 15, 2016.
Net revenues derived from our top 5five customers was $774.8were $709.1 million in 2015,2017 compared to $792.7$744.2 million in 20142016, or 49%40% and 53%45% respectively. The largest of these customers related to a Strategic Partnershipstrategic partnership with a large global pharmaceutical company, signed in May 2011. In both 2014 and 2015, netcompany. Net revenue from this customer contributed 31%26% of net revenue for the year.year ended December 31, 2016, compared to 18% of net revenue for the year ended December 31, 2017. The addition of new customer accounts, particularly large and mid-tier pharma customers and biotech customers have resulted in a reduction in this concentration of revenues from our top 5five customers.
Net revenue in Ireland increased by $69.2$13.7 million during 2015,in 2017, from $360.4$410.6 million for the year ended December 31, 20142016 to $429.6$424.3 million for the year ended December 31, 2015.2017. Net revenue in Ireland during the year ended December 31, 20152017 increased by 19.2%3.3% compared to an overall increase in Group revenuesrevenue of 4.8%5.5%. The higher proportional increase in netNet revenue in Ireland during 2015 wasis principally a function of our global transfer pricing model. In previous years significant upfront investment in personnelSee Note 17 Business Segment and related costs was required to support the increase of activities under our strategic relationship partnerships.Geographical Information for further details.
Net revenue for Rest of Europe decreasedincreased by $42.1$23.9 million or 11.3%7.6%, from $372.6$313.2 million for the year ended December 31, 20142016 to $330.5$337.1 million for the year ended December 31, 2015.2017, principally reflecting the acquisition of Mapi in July 2017. Net revenue for other regions (i.e. those outside of Europe andin the U.S) decreasedU.S. increased by $0.6$27.7 million or 0.3%3.6%, from $164.5$763.8 million for the year ended December 31, 20142016 to $163.9$791.5 million for the year ended December 31, 2015.2017. Net revenues in both of these regionsthe U.S. were positively impacted by both continued organic growth and by the continued strengtheningacquisition of Mapi on July 27, 2017 and the full year impact of the U.S. dollar during the period resulting in a decrease in their reported value when translated to U.S dollars.acquisition of Clinical Research Management on September 15, 2016. Net revenue in the U.S.our Rest of World (‘Other’) region increased by $45.1$26.6 million or 7.4%14.9%, from $605.8$178.9 million for the year ended December 31, 20142016 to $650.9$205.5 million for the year ended December 31, 2015. The increase2017. Net revenues in net revenuenon-U.S. dollar operations in the U.S arose primarily from a full year contribution from the acquisition of Aptiv Solutionsthis region were impacted by foreign currency translation and the additional net revenue from MediMedia Pharma Solutions, acquired on February 27, 2015 and from PMG, acquired on December 4, 2015.movement in local rates to the U.S. dollar over the comparative year.
Direct costs for the year increased by $5.8$66.0 million, or 0.6%6.9%, from $903.2$961.3 million for the year ended December 31, 20142016 to $909.0$1,027.3 million for the year ended December 31, 2015.2017. Direct costs consist primarily of compensation, associated fringe benefits and share based compensation expense for project-related employees and other direct project driven costs. The increase in direct costs during the period arose fromdue to an increase in headcount and a corresponding increase in personnel related expenditure of approximately 1,300 over the comparative period, including the impact$56.6 million combined with an increase in other direct project related costs of additional headcount$11.7 million. These were offset by decreases in laboratory costs of $0.7 million and othertravel related costs from the acquisition of MediMedia Pharma Solutions and PMG, and inclusion of a full year’s costs for Aptiv Solutions. In addition, the continued strengthening of the U.S dollar resulted in a decrease in the reported value of direct costs for operations outside of the United States when translated to U.S. dollars.$1.7 million. As a percentage of net revenue, direct costs have decreasedincreased from 60.1%57.7% of revenue for the year ended December 31, 20142016 to 57.7%58.4% of net revenue for the year ended December 31, 2015.2017.
Selling, general and administrative expenses for the year decreased by $9.7$2.0 million, or 2.9%0.6%, from $336.5$325.7 million for the year ended December 31, 20142016 to $326.8$323.7 million for the year ended December 31, 2015.2017. Selling, general and administrative expenses comprise primarily of compensation, related fringe benefits and share based compensation expense for non-project-related employees, recruitment expenditure, professional service costs, advertising costs and all costs related to facilities and information systems. A primary driverAs a percentage of the decrease innet revenue, selling, general and administrative expenses during the period has been the continued strengthening of the U.S. dollar resulting in a reduction in the reported value of selling, general and administrative expenses during the period for regions outside of the United States. This reduction was offset by increased costsdecreased from the acquisition of MediMedia Pharma Solutions and PMG, and the inclusion of a full years costs for Aptiv Solutions. In addition, we recognized a foreign exchange gain of $6.0 million in the year-ended December 31, 2014, compared to a gain of $3.6 million during the year-ended December 31, 2015, which reduced selling, general and administrative expenses from 22.4% of revenue to 20.7%19.5% of net revenue for the year ended December 31, 2015.2016 to 18.4% of net revenue for the year ended December 31, 2017. Personnel related costs increased by $0.7 million in the year, facilities related costs decreased by $0.5 million and general overhead costs net of foreign exchange costs decreased by $2.1 million. During the year ended December 31, 2017, a credit of $6.0 million was recorded being the reduction in the assessment of the fair value of contingent consideration liability relating to the acquisition of ClinicalRM (see Note 4 of the Financial Statements at Item 19). Once-off professional costs of $3.5 million related to a proposed transaction were also recorded.
Total shareShare based compensation expense recognized during the years ended December 31, 20152017 and December 31, 2014 amounted to $33.32016 was $30.6 million and $22.7$40.3 million respectively.
Depreciation expense for the period decreasedyear increased by $2.0$1.3 million, or 4.7%3.1%, from $42.2$42.1 million for the year ended December 31, 20142016 to $40.2$43.4 million for the year ended December 31, 2015.2017. The depreciation charge reflects investments in facilities, information systems and equipment supporting the Company’s continued growth. As a percentage of net revenue, the depreciation expense decreased from 2.8%remained unchanged at 2.5% of net revenues for the year ended December 31, 2014 to 2.6% for2016 and the year ended December 31, 2015.2017. Amortization expense for the year increased by $7.2$0.4 million, or 70%2.3%, from $10.3 million for the year ended December 31, 2014 to $17.5 million for the year ended December 31, 2015. Amortization2016 to $17.9 million for the year ended December 31, 2017. The amortization expense represents the amortization of intangible assets acquired on business combinations. The increase in the amortization expense for the period relates toyear includes amortization of intangibles acquired in the MediMedia Pharma SolutionsMapi acquisition on July 27, 2017 and PMG acquisitions andthe impact of a full year charge in respectyear’s amortization for ClinicalRM acquired on September 15, 2016. These increases were offset by the cessation of the Aptiv acquisition.amortization on other assets. As a percentage of net revenue, the amortization expense increaseddecreased from 0.7%1.1% of net revenue for the year ended December 31, 2016 to 1.0% of net revenues for the year ended December 2014 to 1.1% for31, 2017.
During the year ended December 31, 2015.
No2017 the Company implemented a restructuring plan to improve operating efficiencies resulting in recognition of a restructuring charge of $7.8 million during 2017. The restructuring plan includes the cost was recognized duringof resource rationalizations in certain areas of the business to improve utilization. During the year ended December 31, 2015. A2016 the Company implemented a restructuring plan to improve operating efficiencies resulting in recognition of a restructuring charge of $8.8$8.2 million was recognized during 2016. The restructuring plan includes the year ended December 31, 2014. Following the closurecost of resource rationalizations in certain areas of the Company’s European Phase 1 services, the Company recognizedbusiness to improve utilization (resulting in a charge duringof $6.2 million), and office consolidation (resulting in the year ended December 31, 2014 in relation to its Manchester, United Kingdom facility; $5.6 million in relation to asset impairments and $3.2 million in relation torecognition of an onerous lease charge associated with this facility. obligation of $2.0 million). See Note 14 to the Audited Consolidated Financial Statements.
As a result of the above, income from operations increased by $79.2$26.6 million, or 39.1%8.5%, from $202.4$311.7 million for the year ended December 31, 2014 ($211.1 million, or 33.3% excluding restructuring charges)2016 to $281.5$338.3 million for the year ended December 31, 2015.2017 ($26.2 million, or 8.2% excluding restructuring charges). As a percentage of net revenue, income from operations increased from 13.4%18.7% (19.2% excluding restructuring charges) of net revenues for year ended December 31, 2014 (14.0%2016 to 19.2% (19.7% excluding restructuring charges) to 17.9% of net revenues for year ended December 31, 2015.2017.
Income from operations in Ireland increased by 37%7.4% from $138.2$216.1 million for year ended December 31, 2014 ($138.2218.3 million excluding the impact of restructuring and other charges), for the year ended December 31, 2016, to $189.0$232.0 million ($240.1 million excluding the impact of restructuring and other charges) for year ended December 31, 2015.2017. Income from operations in Ireland and other geographic regions are impacted by the Company’s global transfer pricing model. PreviousContinued strategic investment in personnel and related infrastructure together with enhancedon-going enhancement of operating processes and the successful leveragingleverage of our support costs in 2015,2017 has resultedcontinued to result in a decrease of the proportion of the Group’s net revenue being used to support other Group entities and a corresponding increase in income from operations in Ireland in 2015.during 2017.
In the Rest of Europe region, income from operations increaseddecreased by $23.8$7.7 million, from $14.4$34.2 million for the year ended December 31, 20142016 to $38.2$26.5 million for the year ended December 31, 2015.2017. Excluding restructuring charges recorded income from operations in the Rest of Europe increaseddecreased by $14.9$10.1 million, from $23.3$36.5 million for the year ended December 31, 20142016 to $38.2$26.4 million for the year ended December 31, 2015.2017. As a percentage of net revenues income from operations increasedin the Rest of Europe region decreased from 3.9% (6.2%10.9% (11.7% excluding restructuring charges) for the year ended December 31, 20142016 to 11.5%7.9% (7.8% excluding restructuring charges) for the year ended December 31, 2015.2017. Income from operations in Europe and in Ireland in the three month period and year ended December 31, 2016 reflected the impact of a one-off intergroup transaction. This transaction resulted in an increase in income from operations in Europe and a decrease in income from operations in Ireland in that period.
In the U.S. region, income from operations increased by $6.3$17.0 million or 16.1%41.2%, from $39.1$41.3 million for the year ended December 31, 20142016 to $45.3$58.3 million for the year ended December 31, 2015.2017. Excluding restructuring charges recorded income from operations in the U.S. increased by $6.2$13.6 million, from $39.1$44.6 million for the year ended December 31, 20142016 to $45.3$58.2 million for the year ended December 31, 2015.2017. As a percentage of net revenues income from operations in the U.S. region increased from 6.5%5.4% (5.8% excluding restructuring charges) for the year ended December 31, 20142016 to 6.9%7.4% (7.3% excluding restructuring charges) for the year ended December 31, 2015.2017, principally reflecting a credit of $6.0 million recorded on revaluation of the contingent consideration related to the acquisition of ClinicalRM, the income contribution since acquisition of ClincalRM, and the impact of refinements to the consideration earned by US subsidiaries under the Group’s global transfer pricing model. These increases were offset in part by increased amortization charges.
In other regions, income from operations decreasedincreased by $1.6$1.5 million, from $10.6$20.0 million for the year ended December 31, 20142016 to $9.0$21.5 million for the year ended December 31, 2015.2017. Excluding restructuring charges recorded income from operations in other regions decreasedincreased by $1.6$1.1 million, from $10.6$20.4 million for the year ended December 31, 20142016 to $9.0$21.5 million for the year ended December 31, 2015.2017. As a percentage of net revenues, income from operations in the other regions decreased from 6.5%11.2% (11.4% excluding restructuring charges) for the year ended December 31, 20142016 to 5.5%10.4% (10.4% excluding restructuring charges) for the year ended December 31, 2015. The decrease in operating income as a percentage of net revenues is due to the distribution in revenues amongst different locations within the regions.2017.
Interest expense increaseddecreased from $0.8$13.0 million for the year ended December 31, 20142016 to $4.0$12.6 million for the year ended December 31, 2015 reflecting2017. This decrease primarily reflects the drawdown of $53.0 million under the Senior Notes issuedfive year committed multi-currency Revolving Credit Facility in the year ended December 2015 and31, 2016. This facility bears interest at LIBOR plus a margin. No amounts were drawn down during the bridge facility of $350 million in place from September 2015.year ended December 31, 2017. Interest income for the year ended December 31, 20152017 increased from $1.2$1.5 million for the year ended December 31, 20142016 to $1.3$2.3 million for the year ended December 31, 2015.2017.
Provision for income taxes for the period increased from $30.2$38.0 million ($30.239.0 million excluding the impact of restructuring charges) for the year ended December 31, 20142016 to $39.3$46.6 million ($39.347.5 million excluding the impact of restructuring charges) for the year ended December 31, 2015.2017. The Company’s effective tax rate for the year ended December 31, 20152017 was 14.1% (14.1%14.2% (12.0% excluding the impact of restructuring charges)charges and non-recurring items including US tax reform) compared with 14.9% (14.3%12.7% (12.7% excluding the impact of restructuring charges) for the year ended December 31, 2014.2016. The Company’s effective tax rate is principally a function of the distribution of pre-tax profits in the territories in which it operates.
Year ended December 31, 20142016 compared to year ended December 31, 20132015
Net revenue for the year increased by $167.2$91.5 million, or 12.5%5.8%, from $1,336.1$1,575.0 million for the year ended December 31, 20132015 to $1,503.3$1,666.5 million for the year ended December 31, 2014. In total, the Company had five strategic relationships2016. Net revenue increased by 6.4% in placeconstant currency, and by 3.2% in 2014 and 2013. In 2013, net revenue earned from these five customers equated to $670.7 million and in 2014 net revenue earned increased to $771.2 million, accounting for $100.5 million of theconstant dollar organic. The increase in net revenuerevenues can be explained by both continued organic growth and the additional net revenues from the acquisition of ClinicalRM on September 15, 2016 and the full year impact of the acquisition of MediMedia Pharma Solutions and PMG on February 27, 2015 and December 4, 2015 respectively.
Net revenues from our top five customers were $744.2 million in 2014.2016 compared to $774.8 million in 2015, or 45% and 49% respectively. The largest of these customers related to a Strategic Partnershipstrategic partnership with a large global pharmaceutical company, signed in May 2011. Given the size of this new partnership it was always envisaged that it would take 18 to 24 months for the model to be fully implemented and that the Company would see significant incremental revenue growth beyond this period. In 2013 and 2014, netcompany. Net revenue from this customer directly contributed 26% and 31%, respectively, of the Company’s net revenue for the year. The majorityyear ended December 31, 2015, compared to 26% of the residual increase in net revenue for the year ended December 31, 2016. The addition of new customer accounts, particularly mid-tier pharma customers and biotech customers have resulted in 2014 relates to revenue arising as a resultreduction in this concentration of the 2014 acquisition of Aptiv Solutions and the full year impact of the 2013 acquisition of the clinical trials services division of Cross Country Healthcare Inc.revenues from our top five customers.
Net revenue in Ireland increaseddecreased by $87.7$19.0 million during 2014,in 2016, from $272.7$429.6 million for the year ended December 31, 20132015 to $360.4$410.6 million for the year ended December 31, 2014.2016. Net revenue in Ireland during the year ended December 31, 2014 increased2016 decreased by 32.2%4.4% compared to an overall increase in Group revenuesrevenue of 12.5%5.8%. The higher proportional increase in netNet revenue in Ireland during 2014 wasis principally a function of our global transfer pricing model. In previous years significant upfront investment in personnelSee Note 17 Business Segment and related costs was required to support the increase of activities under our strategic relationship partnerships. With the operating models and infrastructure associated with these partnerships now largely in place, the level of 2014 investment required by the Irish entity to support other Group entities has reduced, resulting in a greater portion of residual revenue being earned by the Irish entity.Geographical Information for further details.
Net revenue for Rest of Europe increaseddecreased by $39.1$17.3 million or 11.7%5.2%, from $333.5$330.5 million for the year ended December 31, 20132015 to $372.6$313.2 million for the year ended December 31, 2014.2016. Net revenue in the U.S. increased by $23.6$112.9 million or 4.0%17.3%, from $582.2$650.9 million for the year ended December 31, 20132015 to $605.8$763.8 million for the year ended December 31, 2014.2016. Net revenues in the U.S. were positively impacted by both continued organic growth and by the acquisition of ClinicalRM on September 15, 2016 and the full year impact of the acquisition of MediMedia Pharma Solutions and PMG on February 27, 2015 and December 4, 2015 respectively. Net revenue for other regions (i.e. those outsidein our Rest of Europe and the U.S)World (‘Other’) region increased by $16.9$15.0 million or 11.5%9.1%, from $147.6$163.9 million for the year ended December 31, 20132015 to $164.5$178.9 million for the year ended December 31, 2014. The increase in net revenue in the Rest of Europe and other regions during 2014 was in line with overall increases in Group net revenues. The percentage increase in net2016. Net revenues in non-U.S. dollar operations in this region were impacted by foreign currency translation and the movement in local rates to the U.S. region was lower thandollar over the overall increases in group net revenues during thecomparative year. This lower proportional increase in net revenues was predominately due to a generally stable cost base during 2014 as a result of prior period investments, resulting in sufficient personnel and related infrastructure to support our Strategic Partnership relationships and other customers.
Direct costs for the year increased by $57.8$52.3 million, or 6.8%5.8%, from $845.4$909.0 million for the year ended December 31, 20132015 to $903.2$961.3 million for the year ended December 31, 2014.2016. Direct costs consist primarily of compensation, associated fringe benefits and share based compensation expense for project-related employees and other direct project driven costs. The increase in direct costs during the period arose fromdue to an increase in headcount and a corresponding increase in personnel related expenditure of $52.4$59.5 million andcombined with an increase in laboratory costs of $4.8 million. These were offset by a decrease in other direct project related costs of $12.4$8.2 million offset byand a decrease in laboratorytravel related costs of $7.0$3.8 million. As a percentage of net revenue, direct costs, at 57.7%, have decreased from 63.3%remained unchanged for both the year ended December 31, 2013 to 60.1% for2015 and the year ended December 31, 2014.2016.
Selling, general and administrative expenses for the year increaseddecreased by $22.5$1.1 million, or 7.2%0.3%, from $313.9$326.8 million for the year ended December 31, 20132015 to $336.5$325.7 million for the year ended December 31, 2014.2016. Selling, general and administrative expenses comprise primarily of compensation, related fringe benefits and share based compensation expense for non-project-related employees, recruitment expenditure, professional service costs, advertising costs and all costs related to facilities and information systems. The increasemovement in selling, general and administration expense for the periodexpenses arose primarily from an increase in personnel related expenditure including bonuses of $15.0$8.3 million, an increasea decrease in facilities and related costs of $9.7$2.9 million and an increasea decrease in other general overhead costs of $2.5 million. The increase in selling, general and administrative expenses are inclusivenet of expenses in relation to Aptiv since acquisition. In addition, during the year ended December 31, 2014, we recognized a foreign exchange gainmovements of $6.0 million, which reduced selling, general and administrative expenses from 22.8% of revenue to 22.4% of revenue for the year ended December 31, 2014.$6.5 million. As a percentage of net revenue, selling, general and administrative expenses decreased from 23.5%20.7% of revenue for the year ended December 31, 20132015 to 22.4%19.5% of net revenue for the year ended December 31, 2014.2016.
Total shareShare based compensation expense recognized during the years ended December 31, 20142016 and December 31, 2013 amounted to $22.72015 was $40.3 million and $14.2$33.3 million respectively.
Depreciation expense for the period increased by $3.2$1.9 million, or 8.3%4.8%, from $39.0$40.2 million for the year ended December 31, 20132015 to $42.2$42.1 million for the year ended December 31, 2014.2016. The increase in depreciation expenses principally arises from continued investmentcharge reflects investments in facilities, information systems and equipment to supportsupporting the Company’s continued growth. As a percentage of net revenue, depreciation expense decreased from 2.9%2.6% of net revenues for the year ended December 31, 20132015 to 2.8%2.5% for the year ended December 31, 2014.2016. Amortization expense for the year increased by $2.8 million, or 37.2%, from $7.5remained unchanged at $17.5 million for the year ended December 31, 2013 to $10.3 million for2015 and the year ended December 31, 2014. Amortization2016. The amortization expense represents the amortization of intangible assets acquired on business combinations. The increase in the amortization expense for the period relates toyear includes the Aptivacquisition of ClinicalRM on September 15, 2016 and the impact of a full year’s amortization for MediMedia Pharma Solutions acquisition.and PMG which were acquired on February 27, 2015 and December 4, 2015 respectively. These increases were offset by the cessation of amortization on other assets. As a percentage of net revenue, the amortization expense increased from 0.6%remained unchanged at 1.1% of net revenues for the year ended December 2013 to 0.7% for31, 2015 and the year ended December 31, 2014.2016.
ADuring the year ended December 31, 2016 the Company implemented a restructuring plan to improve operating efficiencies resulting in recognition of a restructuring charge of $8.8$8.2 million during 2016. The restructuring plan includes the cost of resource rationalizations in certain areas of the business to improve utilization (resulting in a charge of $6.2 million), and office consolidation (resulting in the recognition of an onerous lease obligation of $2.0 million). No restructuring cost was recognized during the year ended December 31, 2014. Following the closure of the Company’s European Phase 1 services in 2013, the Company recognized a charge during the year ended December 31, 2014 in relation to its Manchester, United Kingdom facility; $5.6 million in relation to asset impairments and $3.2 million in relation to an onerous lease charge associated with this facility. 2015. See Note 14 to the Audited Consolidated Financial Statements.
As a result of the above, income from operations increased by $81.2$30.2 million, or 67.0%10.7%, from $121.2$281.5 million for the year ended December 31, 2013 ($130.2 million excluding restructuring charges)2015 to $202.4$311.7 million for the year ended December 31, 20142016 ($211.138.3 million, or 62.2%13.6% excluding restructuring charges). As a percentage of net revenue, income from operations increased from 9.1% of net revenues for the year ended December 31, 2013 (9.7% excluding restructuring charges) to 13.4%17.9% of net revenues for year ended December 31, 2014 (14.0%2015 to 18.7% (19.2% excluding restructuring charges). of net revenues for year ended December 31, 2016.
Income from operations in Ireland increased by 14.3% from $81.8$189.0 million for the year ended December 31, 20132015, to $216.1 million ($82.9218.3 million excluding the impact of restructuring and other charges), to $138.2 million for year ended December 31, 2014 ($138.2 million excluding the impact of restructuring and other charges).2016. Income from operations in Ireland and other geographic regions are impacted by the Company’s global transfer pricing model. PreviousContinued strategic investment in personnel and related infrastructure together with enhancedon-going enhancement of operating processes and the successful leveragingleverage of our support costs in 2014,2016 has resultedcontinued to result in a decrease of the proportion of the Group��sGroup’s net revenue being used to support other Group entities and a corresponding increase in income from operations in Ireland in 2014.
In the Rest of Europe region, income from operations increaseddecreased by $11.7$4.0 million, from $2.8$38.2 million for the year ended December 31, 20132015 to $14.4$34.2 million for the year ended December 31, 2014.2016. Excluding restructuring charges recorded, income from operations in the Rest of Europe increaseddecreased by $17.0$1.7 million, from $6.3$38.2 million for the year ended December 31, 20132015 to $23.3$36.5 million for the year ended December 31, 2014.2016. As a percentage of net revenues income from operations increaseddecreased from 0.8% (1.9%11.5% for the year ended December 31, 2015 to 10.9% (11.7% excluding restructuring charges) for the year ended December 31, 2013 to 3.9% (6.2% excluding restructuring charges) for the year ended December 31, 2014. During 2013, the Company undertook a commercial review of its Early Phase business, the result of which was the decision to close the Company’s Phase 1 European service offering in the United Kingdom. Consequently, this entity stopped providing services to ICON Ireland, and in line with the Company’s transfer pricing policy, the entity was removed from the global transfer pricing model. Subsequent third party expenses incurred by this entity were not reimbursed under the cost plus model. With the closure of this facility in 2013 the same level of operational costs were not incurred in 2014, thereby contributing to higher income from operations in the current year.2016.
In the U.S. region, income from operations increaseddecreased by $9.6$4.0 million or 32.5%8.8%, from $29.5$45.3 million for the year ended December 31, 20132015 to $39.1$41.3 million for the year ended December 31, 2014.2016. Excluding restructuring charges recorded income from operations in the U.S. increaseddecreased by $5.5$0.7 million, from $33.6$45.3 million for the year ended December 31, 20132015 to $39.1$44.6 million for the year ended December 31, 2014.2016. As a percentage of net revenues income from operations in the U.S. region increaseddecreased from 5.1%7.0% for the year ended December 31, 2015 to 5.4% (5.8% excluding restructuring charges) for the year ended December 31, 20132016. Net income in the U.S. was also impacted by the increased amortization expense following the recognition of intangible assets on the acquisition of ClinicalRM and PMG. See Note 4 and Note 5 to 6.4% (6.4% excluding restructuring charges) for the year ended December 31, 2014. The increase in operating income as a percentage of net revenues arose predominately from the closure of the Company’s Phase I facility in Omaha, Nebraska during 2013 and the consolidation of US Phase I capabilities into the Company’s expanded Phase I facility in San Antonio, Texas.Audited Consolidated Financial Statements.
In other regions, income from operations increased by $3.6$11.0 million, from $7.1$9.0 million for the year ended December 31, 20132015 to $10.6$20.0 million for the year ended December 31, 2014.2016. Excluding restructuring charges recorded income from operations in other regions increased by $3.1$11.4 million, from $7.5$9.0 million for the year ended December 31, 20132015 to $10.6$20.4 million for the year ended December 31, 2014.2016. As a percentage of net revenues, income from operations in the other regions increased from 4.8% (5.1%5.5% for the year ended December 31, 2015 to 11.2% (11.4% excluding restructuring charges) for the year ended December 31, 2013 to 6.5% (6.5% excluding restructuring charges)2016.
Interest expense increased from $4.0 million for the year ended December 31, 2014.2015 to $13.0 million for the year ended December 31, 2016. This increase primarily reflects the drawdown of the Senior Notes of $350 million issued in December 2015 resulting in a full year’s interest expense in 2016. The increaseinterest rate in operating income as a percentagerespect of net revenuesthe Senior Notes is duefixed at 3.64% over the five year term of the facility. The cash proceeds ($4.6 million), representing the realized gain on an interest rate hedge, were received on maturity in November 2015. The realized gain is being amortized to the distribution in revenues amongst different locations withinincome statement over the regions.
period of the Senior Notes. Interest expense decreasedincome increased from $1.3 million for the year ended December 31, 20132015 to $0.8$1.5 million for the year ended December 31, 2014. Interest income for the year ended December 31, 2014 increased from $1.0 million for the year ended December 31, 2013 to $1.2 million for the year ended December 31, 2014.2016.
Provision for income taxes for the period increaseddecreased from $18.1$39.3 million for the year ended December 31, 2013 ($19.9 million excluding the impact of restructuring charges)2015 to $30.2$38.0 million ($30.239.0 million excluding the impact of restructuring charges) for the year ended December 31, 2014.2016. The Company’s effective tax rate for the year ended December 31, 20142016 was 14.9% (14.3%12.7% (12.7% excluding the impact of restructuring charges) compared with 14.9% (15.3% excluding the impact of restructuring charges)14.1% for the year ended December 31, 2013.2015. The Company’s effective tax rate is principally a function of the distribution of pre-tax profits in the territories in which it operates.
Liquidity and Capital Resources
The CRO industry is generally not capital intensive. The Group’s principal operating cash needs are payment of salaries, office rents, travel expenditures and payments to investigators. Investing activities primarily reflect capital expenditures for facilities and information systems enhancements, the purchase and sale of short term investments and acquisitions.
Our clinical research and development contracts are generally fixed price with some variable components and range in duration from a few weeks to several years. Revenue from contracts is generally recognized as income on the basis of the relationship between time incurred and the total estimated contract duration or on a fee-for-service basis. The cash flow from contracts typically consists of a small down payment at the time the contract is entered into, with the balance paid in installments over the contract'scontract duration in, some cases on the achievement of certain milestones. Accordingly,Therefore, cash receipts do not correspond to costs incurred and revenue recognized on contracts.
Cash and cash equivalents and net borrowings
41 |
| | | | | | | | | | |
| | Balance December 31, 2016 | Drawn down/ (repaid) | Net cash inflow/ (outflow) |
| Other non-cash adjustments |
| Effect of exchange rates |
| Balance December 31, 2017 |
|
| $ in thousands |
| Cash and cash equivalents | 192,541 | 0 | 85,991 |
| 0 |
| 4,327 |
| 282,859 |
|
| Private placement notes | (348,511) | - | |
| (377 | ) | - |
| (348,888 | ) |
| | (155,970) | 0 | 85,991 |
| (377 | ) | 4,327 |
| (66,029 | ) |
The Company’s cash and short term investment balances at December 31, 20152017 amounted to $189.9$360.5 million compared with cash and short term investment balances of $216.0$260.6 million at December 31, 2014.2016. The Company’s cash and short term investment balances at December 31, 20152017 comprised cash and cash equivalents $103.9$282.9 million and short-term investments $86.0$77.6 million. The Company’s cash and short term investment balances at December 31, 20142016 comprised cash and cash equivalents $118.9$192.5 million and short-term investments $97.1$68.0 million.
On July 27, 2017, a subsidiary of the Company, ICON Clinical Research Limited, acquired Mapi Development SAS ('Mapi'). Mapi is a leading patient-centered health outcomes research and commercialization company. Cash outflows on acquisition were $144.1 million.
On September 15, 2016, a subsidiary of the Company, ICON US Holdings Inc. acquired Clinical Research Management, Inc. (“ClinicalRM”) which resulted in net cash outflows of $52.4 million (including certain payments made on behalf of ClinicalRM totaling $9.2 million).
On February 27, 2015, a subsidiary of the Company;Company, ICON Holdings Unlimited Company (formerly ICON Holdings), acquired 100% of the securities of MediMedia Pharma Solutions which resulted in net cash outflows of $116.0 million. On December 4, 2015, PMG was acquired by ICON Clinical Research LLC a subsidiary of the Company, resulting in net cash outflows of $63.5$65.4 million (see(see Note 4 of the Financial Statements at Item 19).
On December 15, 2015, ICON Investments Five Unlimited Company issued Senior Notes for aggregate gross proceeds of $350.0 million in a private placement. The Senior Notes will mature on December 15, 2020. Interest payable is fixed at 3.64%, and is payable semi-annually on the Senior Notes on each June 15 and December 15, commencingwhich commenced on June 15, 2016. The Senior Notes are guaranteed by ICON plc. In October 2015, the Company entered into an interest rate hedge in respect of the planned issuance of the Senior Notes in December 2015. The interest rate hedge matured in November 2015 when the interest rate on the Senior Notes was fixed. The interest rate hedge was effective in accordance with Financial Accounting Standards Board (“FASB”) ASC 815, “Derivatives and Hedging”. The cash proceeds, representing the realized gain on the interest rate hedge, were received on maturity in November 2015.
On July 27, 2015 the Company entered into a 364 day bridge facility for $350.0 million with two financial institutions. The facility bore interest at LIBOR plus a margin and included certain guarantees and indemnities in favor of the two financial institutions. The bridge facility was repaid in full in December 2015.
On June 30, 2014 the Company entered into a five year committed multi-currency Revolving Credit Facility for $100.0 million with Citibank, JP Morgan, Santander and Barclays Bank (“Revolving Credit Facility”). Each bank subject to the agreement has committed $25$25.0 million to the facility, with equal terms and conditions in place with all institutions. In December 2015 the Revolving Credit Facility was amended to remove certain guarantees, theguarantees. The facility is guaranteed by ICON plc. The facility bears interest at LIBOR plus a margin, Nomargin. There were no amounts were drawn down under the Revolving Credit Facility during the year ended December 31, 2017 ($53.0 million was drawn down during 2016 and fully repaid at December 31, 2015, amounts available to the Group under the facility amounted to $100.0 million at December 31, 2015.2016).
Net cash provided by operating activities was $279.5$383.1 million for the year ended December 31, 20152017 compared with net cash provided by operating activities of $169.9$259.2 million for the year ended December 31, 2014.2016. The most significant influence on our operatingpositive cash flow isimpact of the increase in revenues and underlying profitability of the Company also reflects in part a decrease in revenue outstanding which comprises of accounts receivable and unbilled revenue, less payments on account. The dollar value of these balances and the related number of daysdays’ revenue outstanding (i.e. revenue outstanding as a percentage of revenue for the period, multiplied by the number of days in the period) can vary over a study or trial duration. Contract fees are generally payable in installments based on the achievement of certain performance targets or “milestones” (e.g. target patient enrollment rates, clinical testing sites initiated or case report forms completed), such milestones being specific to the terms of each individual contract, while revenues on contracts are recognized as contractual obligations are performed. DaysDays’ revenue outstanding can vary therefore due to, amongst others, the scheduling of contractual milestones over a study or trial duration, the achievement of a particular milestone during the period or the timing of cash receipts from customers. A decrease in the number of daysdays’ revenue outstanding during a period will result in cash inflows to the Company while an increase in days revenue outstanding will lead to cash outflows. The number of daysdays’ revenue outstanding at December 31, 20152017 was 4149 days compared to 4050 days at December 31, 2014.2016.
Net cash used in investing activities was $204.8$177.8 million for the year ended December 31, 20152017 compared to net cash used in investing activities of $112.3$74.8 million for the year ended December 31, 2014.2016. Net cash used in the year ended December 31, 20152017 arose principally from cash paid for acquisitions of $166.3$144.1 million (excluding cash acquired with subsidiary undertaking of $19.6 million - see note 4 Business Combinations for further details), capital expenditures of $49.7$44.7 million and the purchase of short-term investments of $14.2$41.7 million offset by the sale of short-term investments of $33.1 million.
During the year ended December 31, 2015 the Company completed the acquisition of MediMedia Pharma Solutions and PMG which resulted in net cash outflows of $116.0 million and $63.5 million respectively. (See note 4 Goodwill for further information relating to the acquisition).
Capital expenditure for the year ended December 31, 20152017 amounted to $49.7$44.7 million, and comprised mainly of expenditure on global infrastructure and information technology systems to support the Company’s growth. During the year ended December 31, 20142017 the Company receivedincurred a net $41.2cash outflow of $8.6 million in respect of the purchase and sale of short-term investments. This compares to receipt of a net $11.0$18.8 million during the year ended December 31, 2015.2016.
Net cash outflow from financing activities amounted to $81.4$119.3 million compared with net cash outflow from financing activities of $116.4$93.7 million for the year ended December 31, 2014. 2016. Cash outflows in respect of financing activities includes consideration paid by the Company for share buybacks pursuant to the Company’s share repurchase program totalling $133.1 million in the year-ended December 31, 2017 (Cashsee Note 12 Share Capital for further information). During the year ended December 31, 2017, these outflows were offset by cash receipt of $13.9 million from the exercise of stock options. During the year ended December 31, 2016, cash outflows in respect of financing includes cash payments in respect of the Company’s share repurchase programmeprogram totaling $457.9 million in the year-ended December 31, 2015 and payments of $140.0 million in respect of the share repurchase programme in the year-ended December 31, 2014 (see Note 12 Share Capital for further information).$110.0 million. These outflows were offset by cash receipts of $23.0$10.2 million from the exercise of stock options and $6.4 million recognized in relation to the tax benefit from the exercise of these share options. Net cash used in financing activities duringIn addition, there was $53.0 million drawn down and subsequently repaid under the five year endedcommitted multi-currency Revolving Credit Facility. In 2016, there was also $20.0 million drawn down and subsequently repaid by the Company under a one year uncommitted short term revolving credit facility (of $30.0 million). The facility bears interest at LIBOR plus a margin. No amounts were drawn under this facility at December 31, 2015 also reflects the issuance of the Senior Notes in December 2015, drawdown of the bridge facility in July 2015, and repayment of the bridge facility in December 2015.2016.
As a result of these cash flows, cash and cash equivalents decreasedincreased by $15.0$90.3 million for the year ended December 31, 20152017 compared to a decrease of $63.6an increased by $88.6 million for the year ended December 31, 2014.2016.
Contractual obligations table
The following table represents our contractual obligations and commercial commitments as of December 31, 2015:2017:
|
| | | | | | | | | | | | | | | |
| | Payments due by period |
| | Total |
| Less than 1 year |
| 1 to 3 years |
| 3 to 5 years |
| More than 5 years |
|
| | (U.S.$ in millions) |
| Operating lease obligations | 166.2 |
| 38.1 |
| 58.9 |
| 32.5 |
| 36.7 |
|
| Senior Notes | 350.0 |
| — |
| 350.0 |
| — |
| — |
|
| Interest on Senior Notes | 38.2 |
| 12.7 |
| 25.5 |
| — |
| — |
|
| Current and Non-current tax liabilities | 16.4 |
| 3.9 |
| 3.6 |
| 7.7 |
| 1.2 |
|
| Total (U.S.$ in millions) | $ | 570.8 |
| $ | 54.7 |
| $ | 438.0 |
| $ | 40.2 |
| $ | 37.9 |
|
| | | Payments due by period | |
| | | | | | Less than 1 | | | 1 to 3 | | | 3 to 5 | | | More than | |
| | | Total | | | year | | | years | | | years | | | 5 years | |
| | | (U.S.$ in millions) | |
| Operating lease obligations | | | 157.6 | | | | 36.9 | | | | 47.3 | | | | 27.5 | | | | 45.9 | |
| Senior Notes | | | 350.0 | | | | - | | | | - | | | | 350.0 | | | | - | |
| Interest on Senior Notes | | | 63.7 | | | | 12.7 | | | | 25.5 | | | | 25.5 | | | | - | |
| Current and Non-current tax liabilities | | | 17.1 | | | | 3.8 | | | | 3.0 | | | | 10.3 | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Total (U.S.$ in millions) | | $ | 588.4 | | | $ | 53.4 | | | $ | 75.8 | | | $ | 413.3 | | | $ | 45.9 | |
We expect to spend approximately $41.4$50 million in the next twelve months on further investments in information technology, the expansion of existing facilities and the addition of new offices. We believe that we will be able to fund our additional foreseeable cash needs for the next twelve months from cash flow from operations, existing cash balances and funds available under negotiated facilities. In the future, we may consider acquiring businesses to enhance our service offerings and global presence. Any such acquisitions could require additional external financing and we may from time to time seek to obtain funds from public or private issues of equity or debt securities. There can be no assurance that such financing will be available on terms acceptable to us.
Critical Accounting Policies
The preparation of consolidated financial statements in accordance with generally accepted accounting principles in the United States requires management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period.
We base our estimates and judgments on historical experience and on the other factors that we believe are reasonable under current circumstances. Actual results may differ from these estimates if these assumptions prove to be incorrect or if conditions develop other than as assumed for the purposes of such estimates. The following is a discussion of the accounting policies used by us, which we believe are critical in that they require estimates and judgments by management.
Goodwill
We review our goodwill for impairment annually, or more frequently if facts or circumstances warrant such a review. We evaluate goodwill for impairment by firstly comparing the fair value of each reporting segment to its carrying value. Fair value is determined using the market approach, by assessing the market value of each reporting unit. If the carrying amount exceeds the fair value then a second step is completed which involves the fair value of the reporting unit being allocated to each asset and liability with the excess being implied goodwill. If the implied goodwill is lower than its carrying amount, goodwill is impaired and written down to its implied fair value.
Significant estimates and judgments are required in allocating the fair value of the reporting unit to each asset and liability. If we were to use different estimates or judgments a material impairment charge to the statement of operations could arise. We believe that we have used reasonable estimates and judgments in assessing the carrying value of our goodwill.
Revenue Recognition
Significant management judgments and estimates must be made and used in connection with the recognition of revenue in any accounting period. Material differences in the amount of revenue in any given period may result if these judgments or estimates prove to be incorrect or if management’s estimates change on the basis of development of the business or market conditions. To date there have been no material differences arising from these judgments and estimates.
We earn revenues by providing a number of different services to our clients. These services include clinical trials management, biometric activities, consulting, imaging, contract staffing, informatics and laboratory services. Revenue for services, as rendered, are recognized only after persuasive evidence of an arrangement exists, the sales price is fixed or determinable and collectability is reasonably assured.
Clinical trials management revenue is recognized on a proportional performance method. Depending on the contractual terms, revenue is either recognized on the percentage of completion method, based on the relationship between hours incurred and the total estimated hours of the trial, or on the unit of delivery method. Contract costs equate to the product of labor hours incurred and compensation rates. For the percentage of completion method, the input (effort expended) method has been used to measure progress towards completion as there is a direct relationship between input and productivity. Contract revenue is the product of the aggregated labor hours required to complete the specified contract tasks at the agreed contract rates. Where revenue is recognized on the unit of delivery method, the basis applied is the number of units completed as a percentage of the total number of contractual units.
We recognize biometric revenues on a fee-for-service basis as each unit of data is prepared. Imaging revenue is recognized on a fee-for-service basis recognizing revenue for each image completed. Consulting revenue is recognized on a fee-for-service basis recognizing revenue as each hour of the related service is performed. Contract staffing revenue is recognized on a fee-for-service basis, over the time the related service is performed, or in the case of permanent placement, once the candidate has been placed with the client. Informatics revenue is recognized on a fee-for-service basis. Informatics contracts are treated as multiple element arrangements, with contractual elements comprising licencelicense fee revenue, support fee revenue and revenue from software services, each of which can be sold separately. Sales prices for contractual elements are determined by reference to objective and reliable evidence of their sales price. LicenceLicense and support fee revenues are recognized rateably over the period of the related agreement. Revenue from software services is recognized using the percentage of completion method based on the relationship between hours incurred and the total estimated hours required to perform the service.
Laboratory service revenue is recognized on a fee-for-service basis. The Company accounts for laboratory service contracts as multiple element arrangements, with contractual elements comprising laboratory kits and laboratory testing, each of which can be sold separately. Sales prices for contractual elements are determined by reference to objective and reliable evidence of their sales price. Revenues for contractual elements are recognisedrecognized on the basis of the number of deliverable units completed in the period.
We invoice our customers upon achievement of specified contractual milestones. This mechanism, which allows us to receive payment from our customers throughout the duration of the contract, may not be reflective of revenue earned. We recognize revenues over the period from the awarding of the customer’s contract to study completion and acceptance. This requires us to estimate total expected revenue, time inputs, contract costs, profitability and expected duration of the clinical trial. The Company regularly reviews the estimate of total contract time to ensure such estimates remain appropriate taking into account actual contract stage of completion, remaining time to complete and any identified changes to the contract scope. Remaining time to complete depends on the specific contract tasks and the complexity of the contract and can include geographical site selection and initiation, patient enrolment, patient testing and level of results analysis required. While we may routinely adjust time estimates, estimates and assumptions historically have been accurate in all material respects in the aggregate.respects.
If we do not accurately estimate the resources required or the scope of the work to be performed, or do not manage our projects properly within the planned cost or satisfy our obligations under the contracts, this would impact on the fair presentation of our future results.
Taxation
Given the global nature of our business and the multiple taxing jurisdictions in which we operate, the determination of the Company’s provision for income taxes requires significant judgments and estimates, the ultimate tax outcome of which may not be certain. Although we believe our estimates are reasonable, the final outcome of these matters may be different than those reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision and results in the period during which such determination is made.
Deferred tax assets and liabilities are determined using enacted tax rates for the effects of net operating losses and temporary differences between the book and tax bases of assets and liabilities. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. While management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment, there can be no assurance that these deferred tax assets may be realizable.
In addition, we are also subject to audits in the multiple taxing jurisdictions in which we operate. These audits can involve complex issues which may require an extended period of time for resolution. Management believe that adequate provisions for income taxes have been made in the financial statements.
Impact of New Accounting Pronouncements
Impact of new accounting pronouncements adopted during fiscal year-ended December 31, 2017
In January 2015,Accounting Standards Update (‘ASU’) 2016-09 'Improvements to Employee Share-Based Payment Accounting' was issued in March 2016 which simplifies various aspects related to the FASB issued ASU 2015-01, which eliminatesaccounting and presentation of share-based payments. The amendments require entities to record all tax effects related to share-based payments at settlement or expiration through the concept of extraordinary itemsincome statement and the windfall tax benefit to be recorded when it arises, subject to normal valuation allowance considerations. All tax-related cash flows resulting from U.S. GAAP as part of its simplification initiative. The ASU does not affect disclosure guidance for events or transactions that are unusual in nature or infrequent in their occurrence. The ASU is effective for fiscal years and, interim periods within those fiscal years, beginning after December 15, 2015. The ASU allows prospective or retrospective application. Early adoption is permitted if applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU 2015-01 to have a material impact on the financial statements.
In February 2015, the FASB issued ASU 2015-02, which changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity (VIE), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. It also eliminates the VIE consolidation model based on majority exposure to variability that applied to certain investment companies and similar entities. The new guidance excludes money market funds thatshare-based payments are required to comply with Rule 2a-7be reported as operating activities in the statement of cash flows. The effective date of the Investment Company Act of 1940 and similar entities from the U.S. GAAP consolidation requirements. The new consolidation guidance is effectivestandard for public business entities for annual and interim periods in fiscal years beginning after December 15, 2015. The Company does not expect the adoption of ASU 2015-02 to have a material impact on the financial statements.
In April 2015, the FASB issued ASU 2015-03, which intends to simplify the presentation of debt issuance costs. This ASUcompanies is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Subsequent to the issuance of ASU 2015-03, the SEC staff made an announcement regarding the presentation of debt issuance costs associated with line-of-credit arrangements, which was codified by the FASB in ASU 2015-15. The SEC staff guidance is effective upon adoption of ASU 2015-03. The Company does not expect the adoption of ASU 2015-03 to have a material impact on the financial statements.
In April 2015, the FASB issued ASU 2015-04, which permits an entity with a fiscal year-end that does not fall on a month-end to measure defined benefit plan obligations and assets as of the month-end that is closest to the entity’s fiscal year-end, and apply that methodology consistently from year to year. The ASU also requires an entity to adjust the measurement of defined benefit plan obligations and assets to reflect contributions or significant events that occur between the month-end date used to measure defined benefit plan obligations and assets and the entity’s fiscal year-end. This ASU is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015,2016, and interim periods within those fiscal years. The Company does not expecthas applied the adoptionmodified retrospective approach, as required by the amendment to the standard, in determining the cumulative increase in retained earnings at January 1, 2017. This resulted in the recognition of ASU 2015-03 to have a material impact on the financial statements.
In April 2015, the FASB issued ASU 2015-05, which provides explicit guidance to help companies evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the license consistent with its accounting for other software licenses. If the arrangement does not include a software license, the customer should account for the arrangementpreviously unrecognized excess tax benefits, as a service contract. This ASU is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015.credit to retained earnings, of $6.7 million. The Company does not expecthas adopted the adoption of ASU 2015-05 to have a material impact on the financial statements.cash flow presentation prospectively.
In April 2015, the FASB issued ASU 2015-06, which requires a master limited partnership (MLP) to allocate earnings (losses) of a transferred business entirely to the general partner when computing earnings per unit (EPU) for periods before the dropdown transaction occurred. The EPU that the limited partners previously reported would not change as a result of the dropdown transaction. The ASU also requires an MLP to disclose the effects of the dropdown transaction on EPU for the periods before and after the dropdown transaction occurred. The Company does not expect the adoption of ASU 2015-06 to have a significant impact on the financial statements.
In July 2015, the FASB issued ASU 2015-11, which, for entities that do not measure inventory using the last-in, first-out (LIFO) or retail inventory method, changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. This ASU is effective for public business entities in fiscal years beginning after December 15, 2017.2016. The adoption of ASU 2015-11 did not impact on the financial statements.
In January 2017, the FASB issued ASU 2017-03 'Accounting changes and error corrections and Investments - Equity method and joint ventures: Amendments to SEC paragraphs pursuant to staff announcements at the September 22, 2016 and November 17, 2016 EITF meetings (SEC update) which incorporates into the FASB Accounting Standards Codification recent SEC guidance about disclosing, under SEC SAB Top 11.M, the effect on financial statements of adopting the revenue, leases, and credit losses standards. The Company has adopted the ASU in its December 31, 2017 financial statements. See the sections following.
In October 2016, the FASB issued ASU 2016-17, 'Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control', which requires a single decision maker or service provider, in evaluating whether it is the primary beneficiary, to consider on a proportionate basis indirect interests held through related parties under common control. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2016. The adoption of ASU 2016-17 did not have an impact on the financial statements.
Financial statement effects of tax reform
H.R.1 was enacted on December 22, 2017. The effective date of the law for most provisions is January 1, 2018 however the effects are required to be recognized in December 2017 financial statements. In response, the SEC staff issued SAB 118, which allows registrants to record provisional amounts during a 'measurement period'. See Note 13 Income Taxes for assessment of impact of H.R.1 on the December 31, 2017 financial statements.
Impact of new accounting pronouncements which will be adopted during fiscal year-ended December 31, 2018
ASC 606 'Revenue from Contracts with Customers'
In May 2014, the FASB issued ASU 2014-09, 'Revenue from Contracts with Customers' (“ASU 2014-09”), which provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. To achieve the core principle of the new standard, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Early adoption is permitted for annual periods beginning after December 16, 2016. Subsequent to issuing ASU 2014-09, the FASB issued the following amendments concerning clarification of ASU 2014-09. In March 2016, the FASB issued ASU 2016-08, 'Revenue from Contracts with Customers (Topic 606),Principal versus Agent Considerations (Reporting Revenue Gross versus Net)' (“ASU 2016-08”), which further clarifies the implementation guidance on principal versus agent considerations. The new guidance requires either a retrospective or a modified retrospective approach to adoption. In April 2016, the FASB issued ASU 2016-10, 'Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing' (“ASU 2016-10”), which clarifies the identification of performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. In May 2016, the FASB issued ASU 2016-12, 'Revenue from Contracts with Customers (Topic 606):Narrow-Scope Improvements and Practical Expedients' (“ASU 2016-12”), which provides clarification on assessing the collectability criterion, presentation of sales taxes, measurement date for non-cash consideration and completed contracts at transition.
The updated standard is effective for ICON in the first quarter of the year ending December 31, 2018. ICON has elected to adopt the updated standard using the cumulative effect transition method. Under this transition method, ICON will apply the new standard as of the date of initial application (i.e. January 1, 2018), without restatement of comparative period amounts. ICON will record the cumulative effect of initially applying the new standard (to revenue and cost) as an adjustment to the opening balance of equity at the date of initial application. While we continue to assess all potential impacts of the new standard, we believe the most significant impact relates to our assessment of measurement of performance and percentage of completion in respect of our clinical trials service revenue. ICON will apply the requirements of the new standard to those contracts not completed at the date of initial application. The adoption of the new standard is expected to result in a cumulative reduction in shareholder's equity at January 1, 2018 (date of initial application) of an amount in the range of $40 million to $80 million reflecting cumulative adjustments to life to date revenue and associated costs. The full impact of adoption of the new standard, including the indirect impact (taxation and cost deferral adjustments) will be finalized in the first quarter of 2018 and is therefore subject to change.
Under current GAAP, the revenue attributable to performance is determined based on both input and output methods of measurement based on the relationship between hours incurred and the total estimated hours of the trial, or on the unit of delivery method. We have evaluated the application of the requirements of ASC 606 to ‘recognize revenue when or as the entity satisfies a performance obligation’ to its business. We have concluded that under the revised standard, clinical trial service is a single performance obligation satisfied over time i.e. the full service obligation in respect of a clinical trial (including services provided by investigators and other parties) is considered a single performance obligation in respect of the clinical services revenue stream. Promises offered to the customer are not distinct within the context of the contract.
We have also concluded that ICON is the contract principal in respect of both direct services and in the use of third parties (principally investigator services) that support the clinical research project. The transaction price is determined by reference to the contract or change order value (total service revenue and pass-through) adjusted to reflect historical experience to determine a realizable contract value. Revenue will be recognized as the single performance obligation is satisfied. The progress towards completion for clinical service contracts will be measured on an input measure of progress toward completion based on total project costs (inclusive of third party costs) at each reporting period.
The revised standard includes additional disclosure requirements related to revenue. Our results for the first quarter of the year ended December 31, 2018, being the quarter ended March 31, 2018, will include expanded disclosure in respect of (i) disaggregated revenue disclosures from contracts with customers (ii) separate disclosure of contract assets and liabilities (iii) disclosure of retrospective revenue and (iv) disclosure of the remaining performance obligations by product/service (or backlog).
Due to the complexity of certain of our contracts, the actual revenue recognition treatment required under the new standard for these arrangements may be dependent on contract-specific terms and vary in some instances.
In May 2017, the FASB issued ASU 2017-10 'Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services' which clarifies that the customer in a service concession arrangement is always the grantor.
This ASU is effective at the same time as ASU 2014-09, 'Revenue from Contracts with Customers' (Topic 606) (the new revenue standard).
If an entity had early adopted the new revenue standard before this ASU was issued (May 16, 2017), the entity may adopt this ASU on its effective date with certain specific transition provisions.
If an entity early adopts the new revenue standard after this ASU was issued, the entity must adopt this ASU at the same time as the new revenue standard with certain specific transition provisions.
An entity may elect to early adopt this ASU before the adoption of the new revenue standard with certain specific transition provisions.
The adoption of the ASU is not expected to have a significant impact on the financial statements.
In January 2017, the FASB issued ASU 2015-14 amends2017-01 'Business combinations - Clarifying the effective datesdefinition of a business' to provide a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This ASU 2014-09, Revenue from Contracts with Customers. The requirements areis effective for public business entities for annual periods and interim periods withinin fiscal years beginning after December 15, 2017. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.The ASU may be early adopted. The adoption of ASU 2015-142017-01 is not expected to have a significant impact on the financial statements.
In September 2015,March 2017, the FASB issued ASU 2015-16,2017-07 'Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost' which eliminatesrequires companies to present the requirement for an acquirer to retrospectively adjustservice cost component of net benefit cost in the financial statements for measurement-period adjustments that occursame line items in periods after a business combinationwhich they report compensation cost. Companies will present all other components of net benefit cost outside operating income, if this subtotal is consummated. Thepresented. This ASU is effective for public business entities for annual periods, includingand interim periods within those annual periods,in fiscal years beginning after December 15, 2015.2017. The adoption of ASU 2015-142017-07 is not expected to have a significant impact on the financial statements.
In November 2015, the FASB issued ASU 2015-17, which requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. The ASU 2015-17 has been early adopted in the financial statements presented. The impact is described in Note 13 to the financial statements.
In January 2016, the FASB issued ASU 2016-01'Financial Instruments - Overall (Subtopic 825-10)', which will significantly change the income statement impact of equity investments and the recognition of changes in fair value of financial liabilities when the fair value option is elected. The ASU is effective for public business entities for interim and annual periods in fiscal years beginning after December 15, 2017. The adoption of ASU 2016-01 is not expected to have a significant impact on the financial statements.
In March 2016, the FASB issued ASU 2016-04 , 'Recognition of Breakage for Certain Prepaid Stored-Value Products', which allows entities to recognize breakage on prepaid stored-value products consistent with how breakage is recognized under the new revenue standard. The exception applies to prepaid stored-value products in physical or digital form, with stored monetary values that are redeemable for goods and services, including those that can be redeemed for cash (e.g., prepaid gift cards issued on a specific payment network and redeemable at network-accepting merchant locations, prepaid telecommunication cards, and traveler's checks). The ASU is effective for public business entities for interim and annual periods in fiscal years beginning after December 15, 2017. The adoption of ASU 2016-04 is not expected to have a significant impact on the financial statements.
In August 2016, the FASB issued ASU 2016-15, 'Classification of Certain Cash Receipts and Cash Payments', which addresses eight classification issues related to the statement of cash flows:
Debt prepayment or debt extinguishment costs;
Settlement of zero-coupon bonds;
Contingent consideration payments made after a business combination;
Proceeds from the settlement of insurance claims;
Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies;
Distributions received from equity method investees;
Beneficial interests in securitization transactions; and
Separately identifiable cash flows and application of the predominance principle.
The ASU is effective for public business entities for interim and annual periods in fiscal years beginning after December 15, 2017. The adoption of ASU 2016-15 is not expected to have a significant impact on the financial statements. Any contingent consideration payment arrangements arising on business combinations effected in the future will be reviewed for cash flow statement classification in line with ASU 2016-15.
In October 2016, the FASB issued ASU 2016-16, 'Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory', which requires entities to recognize at the transaction date the income tax consequences of intercompany asset transfers other than inventory. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. For all other entities, the ASU is effective for annual periods in fiscal years beginning after December 15, 2018, and interim periods in fiscal years beginning after December 15, 2019. The adoption of ASU 2016-16 is not expected to have a significant impact on the financial statements.
In November 2016, the FASB issued ASU 2016-18, 'Statement of Cash Flows (Topic 230): Restricted Cash', which requires companies to include cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. For all other entities, the ASU is effective for annual periods in fiscal years beginning after December 15, 2018, and interim periods in fiscal years beginning after December 15, 2019. The adoption of ASU 2016-18 is not expected to have a material impact on the financial statements.
Impact of other new accounting pronouncements which will be adopted in periods subsequent to fiscal 2018
In January 2017, the FASB issued ASU 2017-04 'Intangibles - Goodwill and Other: Simplifying the test for goodwill impairment' which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. The ASU is effective for public businesses, that are SEC filers, for annual and interim periods in fiscal years beginning after December 15, 2019. The adoption of ASU 2017-04 is not expected to have a significant impact on the financial statements.
In February 2017, the FASB issued ASU 2017-05 'Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets'. In February 2017, the FASB issued ASU 2017-05, which clarifies the guidance in Subtopic 610-20 on accounting for derecognition of a nonfinancial asset. The ASU also defines in-substance nonfinancial assets and includes guidance on partial sales of non-financial assets. The adoption of ASU 2017-05 is not expected to have an impact on the financial statements.
In July 2017, the FASB issued ASU 2017-11 'Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception' under which down round features will not cause certain equity-linked financial instruments to be accounted for as derivatives. A company that presents EPS information will reflect the effect of a down round feature of free-standing equity-linked financial instruments in EPS only if it is triggered. The ASU is effective for public business entities, for annual and interim periods in fiscal years beginning after December 15, 2018. The adoption of the ASU is not expected to have a significant impact on the financial statements.
In May 2017, the FASB issued ASU 2017-09, ASU 2017-09 'Compensation- Stock Compensation (Topic 718): Scope of Modification Accounting which clarifies what constitutes a modification of a share-based payment award'.
This ASU is effective for all entities for annual and interim periods in fiscal years beginning after December 15, 2017. The adoption of the ASU is not expected to have a significant impact on the financial statements.
In August 2017, the FASB issue ASU 2017 - 12 'Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities' which changes the recognition and presentation requirements of hedge accounting, including:
Eliminating the requirement to separately measure and report hedge ineffectiveness; and
Presenting all items that affect earnings in the same income statement line item as the hedged item.
The ASU also provides new alternatives for:
Applying hedge accounting to additional hedging strategies;
Measuring the hedged item in fair value hedges of interest rate risk;
Reducing the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing, hedge documentation and application of the critical terms match method; and
Reducing the risk of material error correction if a company applies the shortcut method inappropriately.
This ASU is effective for public business entities, for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted any time after the issuance of the ASU, including in an interim period. If adopted at other than the beginning of a fiscal year, cumulative effect adjustments are reflected as of the beginning of the fiscal year. The adoption of the ASU is not expected to have a significant impact on the financial statements.
In February 2016, the FASB issued ASU 2016-02, 'Leases', requiring lessees to recognize a right-of-use asset and a lease liability on the Consolidated Balance Sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar to the current model but updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. The updated standard is effective for us beginning in the first quarter of the year-ended December 31, 2019. See 'Note 16 - Commitments and Contingencies' for details of operating leases held during year-ended December 31, 2017. A lease liability and right-of-use asset will be recorded on the Consolidated Balance Sheet at December 31, 2019 and comparative periods will be restated to reflect the lease liabilities and right-of-use assets.
In June 2016, the FASB issued ASU 2016-13, 'Measurement of Credit Losses on Financial Instruments', which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. The ASU is effective for public business entities that are SEC filers for interim and annual periods in fiscal years beginning after December 15, 2019. The adoption of ASU 2016-13 is not expected to have a significant impact on the financial statements.
Inflation
We believe that the effects of inflation generally do not have a material adverse impact on our operations or financial conditions.
Item 6.Directors, Senior Management and Employees.
Directors and Senior Management
The following table and accompanying biographies set forth certain information concerning each of ICON plc’s Directors, officers and other key employees as of March 23, 2016.February 28, 2018.
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| | |
| Name | | Age | | Position |
Thomas Lynch (2)(3)(4)(5)
| | 59 | | Chairman of the Board, Director |
Ciaran Murray (1)(5) | 55 | 53Executive Chairman and Director |
Dr. Steve Cutler (1) (5) | 57 | Chief Executive Officer and Director |
Brendan Brennan (1)(5)
| 39 | 37 | | Chief Financial Officer |
Dr. Steve Cutler (1) | | 55 | | Chief Operating Officer, Director
|
Declan McKeon (2)(3)(4)(5)
| 66
| Lead Independent Director
|
Dr. John Climax(6) | | 63 | 65 | Director |
Dr. Ronan Lambe(6) | | 76 | 78 | Director |
Professor Dermot Kelleher (3)(6) | | 60 | 62 | Director |
Declan McKeon (3)(4)
| | 64 | | Director |
Professor William Hall (2)(3)(4)(6)
| 68
| 66 | | Director
|
Mary Pendergast (2)(6)
| 67
| 65Director
|
Professor Hugh Brady
| 58
| Director
|
Ronan Murphy (2)(3)(4)
| 60 | Director
|
| Eugene McCague | 59 | Director |
Dr. Hugh Brady Joan Garahy | | 56 | 55 | Director |
| Diarmaid Cunningham | 43 | 41 | | Chief Administrative Officer, General Counsel, Executive Vice President & Company Secretary |
| |
| (1) | Executive Officer of the Company. |
| |
| (2) | Member of Compensation and Organization Committee. |
| |
| (3) | Member of Audit Committee. |
| |
| (4) | Member of Nominating and Governance Committee. |
| |
| (5) | Member of Execution Committee. |
(6) | Member of Quality Committee. |
Ciaran MurrayThomas Lynch was appointed as the Executive Chairman of Board of the CompanyICON plc in January 2013. He hasMarch 2017, having previously served as an outside Director of the Company since August 1994. Mr. Lynch served as Chairman and Chief Executive Officer of Amarin Corporation from December 2007 to December 2009. Mr Lynch retired fromOctober 2011. In February 2018, the Board approved the appointment of Amarin in October 2010 but continues to serveMr. Murray as non-Executive Chairman of Amarin Pharmaceuticals Ireland Ltd.ICON plc with effect from May 12, 2018. Mr. Lynch served in a variety of senior roles in Elan Corporation plc from 1993 to 2004. He was a Director of IDA Ireland from 2001 to 2010 and of the Royal Opera House (Covent Garden) from 2001 to 2010. He currently serves as a Director of GW Pharmaceuticals plc, is Chairman of the Ireland East Hospital Group, Dublin Academic Medical Centre and the Queens University of Belfast Foundation. He also serves as a board member of a number of public and privately held pharmaceutical companies. Mr Lynch graduated from Queens University of Belfast with a BSc in Economics and is a fellow of the Institute of the Chartered Accountants in Ireland.
Ciaran Murray is the Chief Executive Officer of ICON plc. He joined ICON as Chief Financial Officer in 2005 and served in that capacity until his appointment as Chief Executive Officer in 2011.Officer. Mr. Murray is an executive with 3036 years of leadership experience forged from a career spent operating in global markets in high-growth entrepreneurial companies and blue-chip multi-nationals, including PricewaterhouseCoopers,PwC Ireland, Kraft Foods, Novell Inc., Northern Foods and Codec Systems. Mr. Murray has also played a leadership role in advocating for safe, ethical high-quality research through his 2014 Chairmanship of the Association of Clinical Research Organisations (ACRO). ACRO represents the CRO industry globally to key stakeholders including pharmaceutical, biotech and medical device companies, regulators, legislators and patient groups. In 2014, Mr. Murray was named as a leader in CRO Innovation by PharmaVOICE100, a listing of the most influential people in the bio pharma industry. Mr. Murray graduated with a Bachelor of Commerce degree from University College Dublin and he is a Fellow of the Institute of Chartered Accountants in Ireland. He was awarded an Honorary Degree of Doctor of Laws from University College Dublin in 2013 for his support of third level research and innovation in Ireland.
Brendan Brennan has served as Chief Financial Officer since February 2012. Mr. Brennan joined ICON in 2006 and he has served in a number of senior finance roles in the Company including the role of Senior Vice President of Corporate Finance. Prior to this he developed his corporate finance experience in Cement Roadstone Holdings, a major Irish building materials organization. Mr. Brennan qualified as a chartered accountant with PricewaterhouseCoopers and obtained a bachelors degree in Accounting and Finance from Dublin City University.
Dr. Steve Cutler was appointed Chief Executive Officer of ICON plc in March 2017, having previously been Chief Operating Officer of the Company infrom January 2014, having previously occupied the position of2014. Dr. Cutler served as Group President Clinical Research Services since November 2011. 2011 until his appointment as Chief Operating Officer. Dr. Cutler was appointed to the Board of ICON plc in November 2015. Prior to joining the Company Dr. Cutler held the position of Chief Executive Officer of Kendle, having previously served as Chief Operating Officer. Prior to Kendle, Dr. Cutler spent 14 years with Quintiles where he served as Senior Vice President, Global Project Management; Senior Vice President, Clinical, Medical and Regulatory; Senior Vice President, Project Management - Europe; and Vice President, Oncology - Europe, as well as regional leadership positions in South Africa and Australia. Prior to joining Quintiles, Dr. Cutler held positions with Sandoz (now Novartis) in Australia and Europe. HeDr. Cutler holds a B.Sc. and a Ph.D from the University of Sydney and a Masters of Business Administration from the University of Birmingham (UK).
Declan McKeon has served as an outside Director of the Company since April 2010 and served as acting Chairman from April 2016 until March 2017. He was appointed as Lead Independent Director in March 2017. Mr. McKeon was a partner in PwC Ireland from 1986 to 2007. His roles included leadership of the audit and business advisory team for PwC Ireland, membership of the PwC Europe audit and business advisory services executive and market sector leader for consumer and industrial products. Mr. McKeon is a non-executive Director of Ryanair plc. Mr. McKeon holds a Bachelor of Commerce and Masters in Business Studies from University College Dublin and is a Fellow of The Institute of Chartered Accountants in Ireland.
Brendan Brennan has served as Chief Financial Officer since February 2012. Mr. Brennan joined ICON in 2006 and he has served in a number of senior finance roles in the Company including the role of Senior Vice President of Corporate Finance. Prior to this he developed his broad financial experience in Cement Roadstone Holdings, a major Irish building materials organization. Mr. Brennan qualified as a chartered accountant with PwC Ireland and obtained a bachelor’s degree in Accounting and Finance from Dublin City University.
Dr. John Climax, one of the Company’s co-founders, served as Chairman of the Board of the Company from November 2002 to December 2009, and Chief Executive Officer from June 1990 to October 2002. From January 2010 he has held a position as an outside Director of the Company. Dr. Climax has over 25 years of experience in the contractclinical research industry. Dr. Climax is the Executive Chairman of Dignity Sciences Ltd.DS Biopharma Limited. Dr. Climax received his primary degree in pharmacy in 1977 from the University of Singapore, his masters in applied pharmacology in 1979 from the University of Wales and his Ph.D. in pharmacology from the National University of Ireland in 1982. He has authored a significant number of papers and presentations, and holds adjunct professorship at the Royal College of Surgeons of Ireland.Ireland and an honorary professorship at the National University of Singapore. He is currently Executive Chairman of DS Biopharma and CEO of Afimmune, both of which are private companies.
Dr. Ronan Lambe, one of the Company’s co-founders, served as Chairman of the Board of the Company from June 1990 to November 2002. He has served as an outside Director of the Company since January 2008. Dr. Lambe has over 30 years of experience in the contractclinical research industry. Dr. Lambe attended the National University of Ireland where he received his Bachelor of Science degree in chemistry in 1959, his masters in biochemistry in 1962 and his Ph.D. in pharmacology in 1976.
Professor Dermot Kelleherhas served as an outside Director of the Company since May 2008. Professor Kelleher is currently Dean of the Faculty of Medicine at the University of British Columbia in Vancouver. From 2012 -2015to 2015 he was Vice President (Health) and Dean of the Faculty of Medicine at Imperial College London and concurrently Dean of the Lee Kong Chian School of Medicine in Singapore from 2012-2014.2012 to 2014. From 2004 to 2012 he was Head of the School of Medicine and Vice Provost for Medical Affairs at Trinity College, Dublin, Ireland where he led the development of the Institute of Molecular Medicine and Molecular Medicine Ireland. HisProfessor Kelleher’s research interests have focused on immunology of gastrointestinal infectiousinfection, cancer and inflammatory diseases and over a distinguished thirty year career he has led significant research projects in this field. He is a Fellow of the Academy of Medical Sciences. Alongside his notable academic appointments, heProfessor Kelleher has been President of the Federation of European Academies of Medicine, has served as a visiting research scientist with a major pharmaceutical company and has been a founder of a number of biotechnology companies.
Declan McKeon has served as an outside Director of the Company since April 2010. Mr. McKeon was a partner in PricewaterhouseCoopers from 1986 to 2007. His roles included leadership of the audit and business advisory team for PricewaterhouseCoopers Ireland, membership of the PricewaterhouseCoopers Europe audit and business advisory services executive and market sector leader for consumer and industrial products. Mr. McKeon is a non-executive Director of Ryanair plc and GC Aesthetics. Mr McKeon retired from the audit committee of the Royal College of Surgeons in Ireland during 2015. Mr. McKeon holds a Bachelor of Commerce and Masters in Business Studies from University College Dublin and is a Fellow of The Institute of Chartered Accountants in Ireland.
Professor William Hall has served as an outside Director of the Company since February 2013. He is a renowned expert in infectious diseases and virology,virology. He currently serves as Distinguished Professor in Hokkaido University in Japan and is ChairProfessor Emeritus of Medical Microbiology and Director of the Centre for Research in Infectious Diseases at University College Dublin’s (UCD) School of Medicine and Medical Science. He is also a DirectorExecutive Chairman of UCD’sthe UCD National Virus Reference Laboratory and is a consultant microbiologistConsultant Microbiologist at St. Vincent’s University Hospital Dublin. Professor Hall also serves as a consultant to the Minister of Heath and Children in the Republic of Ireland, providing input on a numberrange of topics including influenza pandemic preparedness and bioterrorism. Prior to his tenure at UCD, Professor Hall was Professor and Head of the Laboratory of Medical Virology, Senior Physician and Director of the Clinical Research Centre at the Rockefeller University in New York. He previously served as an Assistant and Associate Professor of Medicine at Cornell University. Professor Hall is a boardBoard member of The Atlantic Philanthropies and is a co-founder of the Global Virus Network.
Mary Pendergasthas served as an outside Director of the Company since February 2014. SheMs. Pendergast is an expert in the regulatory aspects of drug development and is President of Pendergast Consulting, a consulting firm that advises biopharmaceutical companies, patient groups, professional and advocacy organisations, governments and academic and financial institutions. Prior to founding her own firm, Ms. Pendergast was Executive Vice President of Government Affairs at Elan Corporation plc from 1998 to 2003. Ms. Pendergast also spent more than 18 years at the US Food and Drug Administration (FDA), serving as Deputy Commissioner and Senior Advisor to the FDA Commissioner and Associate Chief Counsel for Enforcement. Ms. Pendergast is also a board member of Impax Laboratories, Inc.
Professor Hugh Bradyhas served as an outside Director of the Company since April 2014. In September 2015, Professor Brady took up the position of President and Vice-Chancellor of the University of Bristol - a member of the UK's Russell Group of elite research-intensive universities. Professor Brady is also President Emeritus of University College Dublin (UCD), where he served as President from 2004 until the end of 2013. During his tenure Professor Brady oversaw a major institution-wide transformation programmeprogram that included significant expansion of UCD’s science, engineering and biomedical research capacity through the development of the O'Brien Centre for Science, Conway Institute for Biomedical Research, UCD Clinical Research Centre, the Dublin Academic Medical Centre and the Ireland East Hospital Group. In addition, he led a major growth in UCD’s international footprint. A nephrologist by training, Professor Brady was Professor of Medicine and Therapeutics at UCD before being appointed the university’s President. Prior to that, he built a successful career as a physician and biomedical research scientist in the US - spending almost a decade at Harvard University where he was Associate Professor of Medicine, Director of the Renal Division of the Brockton/West Roxbury VA Medical Center and Consultant Physician at the Brigham and Women’s Hospital, Boston. He has an international reputation in the pathogenesis of diabetic kidney disease and renal inflammation. Professor Brady has held many national and international leadership roles, including Chairman of the Irish Health Research Board and Chairman of the Universitas 21 Network of global research universities. He is also a non-executive Director of Kerry Group plc.
Ronan Murphy has served as an outside Director of the Company since October 2016. Mr. Murphy is the former Senior Partner of PwC Ireland, Ireland's largest professional services firm. Mr. Murphy was elected Senior Partner in 2007 and was re-elected for a further four year term in 2011. Following completion of the maximum two terms, Mr. Murphy retired from the firm in 2015. Mr. Murphy was also a member of the PwC EMEA Leadership Board for a five year period from 2010 to 2015. Mr. Murphy joined PwC in 1980 and was admitted to the Partnership in 1992. As an Assurance Partner, he served clients across a number of sectors. In 1995, Mr. Murphy joined the firm’s leadership team and held a number of operational leadership roles, prior to being appointed as Partner in Charge of the Firm’s Assurance Practice in 2003, a position he held for four years prior to his appointment as Senior Partner. Mr. Murphy is presently Chairman of Greencoat Renewables PLC and a non-executive director of Davy Stockbrokers and of Liberty Insurance's operations in Ireland. Mr. Murphy currently serves as a Board Member of the UCD Michael Smurfit Business School, as a council member of the ESRI and as Chair of Business in the Community Ireland. He is also a founding Board Member of the British Irish Chamber of Commerce. Mr. Murphy completed a Bachelor of Commerce and Masters in Business Studies at University College Dublin before qualifying as a chartered accountant in 1982.
Eugene McCague was appointed as an outside Director of the Company in October 2017. Mr. McCague was a corporate partner of Arthur Cox, one of Ireland’s premier law firms, from 1988 until June 2017. During his time with Arthur Cox, Mr. McCague served as both managing partner and chairman of Arthur Cox and also advised a wide range of public and private companies on mainstream corporate work, mergers and acquisitions, corporate restructurings and corporate governance. In addition to his distinguished legal career, Mr. McCague also has extensive board experience with commercial, government and educational organizations. Mr. McCague currently serves on the board of FLY Leasing Limited, an aircraft leasing company listed on the New York Stock Exchange, and on the board of the Irish branch of AON Insurance. He also serves as chairman of the governing authority of University College Dublin. Mr. McCague’s previous board roles include the Health Service Executive, the Irish state body which administers public health service in Ireland, chairman of the governing body of Dublin Institute of Technology and chairman of the Dublin Institute of Technology Foundation. Mr. McCague was also president of the Dublin Chamber of Commerce in 2006. Mr. McCague holds a Bachelor of Civil Law degree and a diploma in European Law from University College Dublin.
Joan Garahy was appointed as an outside Director of the Company in November 2017. Ms. Garahy is the managing director of ClearView Investment & Pensions Limited, a financial advisory company. Ms. Garahy is also a non-executive director of both Kerry Group plc and Irish Residential Properties REIT plc. Ms. Garahy’s previous executive roles include founder and managing director of HBCL Investment & Pensions Ltd, director of investments at HC Financial Services Group, head of research at the Irish National Pension Reserve Fund, head of research at Hibernian Investment Managers and her equity analyst roles with Goodbody Stockbrokers and NCB Group. Ms. Garahy was also previously a non-executive director of Galway University Foundation and she is currently a member of the board of The Irish Chamber Orchestra. Ms. Garahy holds a Bachelor of Science degree from University College Galway and a Master of Science from University College Dublin.
Diarmaid Cunningham is Chief Administrative Officer, General Counsel, Executive Vice President and Company Secretary. Mr. Cunningham joined the Company as General Counsel in November 2009 and was appointed Company Secretary in October 2011. MrIn July 2016, Mr. Cunningham’s role expanded to include Chief Administrative Officer in addition to General Counsel. Mr. Cunningham spent 10 years with A&L Goodbody, one of Ireland's premier corporate law firms, prior to joining the Company. Mr. Cunningham graduated with a Bachelor of Business and Legal Studies from University College Dublin in 1997 and qualified as a lawyer with A&L Goodbody in 2001. In 2015, Mr. Cunningham completed the Stanford Executive Program at Stanford University in California. Mr. Cunningham served as Secretary to the Board of the Association of Clinical Research OrganisationsOrganizations (ACRO) in 2013 and 2014. ACRO represents the CRO industry globally to key stakeholders including pharmaceutical, biotech and medical device companies, regulators, legislators and patient groups.
Board Practices
Board of Directors
The business of the Company is managed by the Directors who may exercise all the powers of the Company which are not required by the Companies Act 2014 of Ireland or by the Articles of Association of the Company to be exercised by the Company in general meeting. A meeting of Directors at which a quorum is present may exercise all powers exercisable by the Directors. The Directors may delegate (with power to sub-delegate) to any Director holding any executive office and to any Committee consisting of one or more Directors, together with such other persons as may be appointed to such Committee by the Directors, provided that a majority of the members of each Committee appointed by the Directors shall at all times consist of Directors and that no resolution of any such Committee shall be effective unless two of the members of the Committee present at the meeting at which it was passed are Directors.
The Board comprises two executive and eight outside-Directorsten outside Directors at the date of this report. The outside-Directorsoutside Directors bring independent judgment to bear on issues of strategy, performance, resources, key appointments and standards. The Company considers all of its outside-Directorsoutside Directors to be of complementary skills, experience and knowledge and each outside-Directoroutside Director has specific skills, experience and knowledge that are valuable to the Company. The Board members between them have very strong financial, pharmaceutical, CRO, scientific, medical and other skills and knowledge which are harnessed to address the challenges facing the Group. The Board meets regularly throughout the year and all Directors have full and timely access to the information necessary for them to discharge their duties. The Directors have access to the advice and services of the Company Secretary and may seek external independent professional advice where required. The Board considers its current size (10(12 Directors) to be adequate but continues to look for suitable qualified potential candidates to join the Board.
As detailedset out below, certain other matters are delegated to Board Committees and all Board Committees report to the Board. The Company maintains what it considers an appropriate level of insurance cover in respect of legal action against its Directors. The Board, through the Nominating and Governance Committee, engages in succession planning for the Board and in so doing considers the strength and depth of the Board and the levels of knowledge, skills and experience of the Directors necessary for the Company to achieve its objectives. The Board normally meets at least four times each year. During the year ended December 31, 20152017 the Board met on five occasions.held ten board meetings. All Directors allocated sufficient time to the Company during the year ended December 31, 20152017 to effectively discharge their responsibilities to the CompanyCompany.
Directors’ retirement and re-election
The Company’s Articles of Association provide that, unless otherwise determined by the Company at a general meeting, the number of Directors shall not be more than 15 nor less than 3. At each annual general meeting, one third of the Directors who are subject to retirement by rotation, rounded down to the next whole number if it is a fractional number, shall retire from office. office. The Directors to retire shall be those who have been longest in office, but as between persons who became or were last re-appointed on the same day, those to retire shall be determined, unless otherwise agreed, by lot. Any additional Director appointed by the Company shall hold office until the next annual general meeting and will be subject to re-election at that meeting. Accordingly, at the annual general meeting of the Company to be held in 2016,2018, it is anticipated that fourfive Directors will retire by rotationin accordance with the Articles of Association and offer themselves for re-election.
Lead Independent Director
The Board of Directors adopted a Lead Independent Director Charter on February 14, 2017 which provides that in circumstances where the Chairman of the Board is not independent, the independent members of the Board of Directors shall appoint, from among their number, a Lead Independent Director. The Lead Independent Director shall generally assist in optimizing the effectiveness and independence of the Board of Directors by performing such duties as described in the charter, on behalf of the Board of Directors, including coordinating the meetings of the other non-employee and independent directors, and such other duties as determined from time to time by the Board of Directors and/or its independent members.On March 1, 2017, Mr. Ciaran Murray transitioned from his role as Chief Executive Officer to the role of Executive Chairman of the Board of Directors and Dr. Steve Cutler was appointed as Chief Executive Officer. As a part of this transition, Mr. Declan McKeon stepped down as Acting Chairman of the Board of Directors and was appointed to the position of Lead Independent Director on March 1, 2017.
Board committees
The Board has delegated some of its responsibilities to Board Committees. There are fivefour permanent Committees. These are the Audit Committee, the Compensation and Organization Committee, the Nominating and Governance Committee and the Execution Committee. The Quality Committee andwas retired by the Quality Committee.Board on April 25, 2017. Each Committee has been charged with specific responsibilities and each has written terms of reference that are reviewed periodically. Minutes of Committee meetings are available to all members of the Board. The Company Secretary is available to act as secretary to each of the Board Committees if required. Appropriate key executives are regularly invited to attend meetings of the Board committees. Each committeeThe Audit Committee, Compensation and Organization Committee and Nominating and Governance Committee each completed a self-evaluation of the performance of the committee during the year ended December 31, 20152017 and each committee was satisfied with their performance.
Audit Committee
The Audit Committee meets a minimum of four times a year. It reviews the quarterly and annual financial statements, the effectiveness of the system of internal control (including the arrangement for the Company’s employees to raise concerns in confidence about financial inappropriateness) and recommends the appointment and removal of the external auditors. It monitors the adequacy of internal accounting practices and addresses all issues raised and recommendations made by the external auditors. ItThe Audit Committee pre-approves on an annual basis, theall audit and non-audit services provided to the Company by its external auditors. Such annual pre-approval is given with respect to particular services.auditors on a quarterly basis. The Audit Committee, on a case by case basis, may approve additional services not covered by the annualquarterly pre-approval, as the need for such services arises. The Audit Committee reviews all services which are provided by the external auditors regularlyauditor to review the independence and objectivity of the external auditorsauditor, taking into consideration relevant professional and regulatory requirements so that these are not impaired by the provisions of permissible non-audit services.requirements. The Chief Financial Officer, the Head of Internal Audit, the General Counsel and the external auditors normally attend all meetings of the Audit Committee and have direct access to the Committee Chairman at all times. During 2015, theThe Audit Committee wasis currently comprised of and is still comprised of, the following four independent Directors: Declan McKeon (Chairman); Thomas Lynch;, Professor Dermot Kelleher; andKelleher, Professor William Hall.Hall, and Ronan Murphy.
Compensation and Organization Committee
The Compensation and Organization Committee is responsible for senior executive remuneration. The committee aims to ensure that remuneration packages are competitive so that individuals are appropriately rewarded relative to their responsibility, experience and value to the Company. Annual bonuses for the executive Directors and senior executive management are determined by the committee based on the achievement of the Company’s objectives. The Committee also oversees succession planning for the Company’s senior management. During 2015, theThe Compensation and Organization Committee comprised of, and is stillcurrently comprised of the following independent Directors: Ronan Murphy (Chairman), Professor William Hall, (Chairperson); Thomas Lynch;Declan McKeon, and Mary Pendergast.
Nominating and Governance Committee
The Nominating and Governance Committee reviews the membership of the Board of the Company and Board committees on an ongoing basis. As part of this it regularly evaluates the balance of skills, knowledge and experience on the Board and then, based on this evaluation, identifies and, if appropriate, recommends individuals to join the Board of the Company. The Committee uses an external search consultant as needed to assist it in identifying potential new outside Directors. Once potential suitable candidates are identified either by the external search consultants or by members of the Nominating and Governance Committee, the Committee then discusses and considers the skills, knowledge and experience of the potential candidate. The Committee will assess if the Board of the Company requires and would benefit from the potential candidate’s skills, knowledge and experience and, if it decides the potential candidate is suitable, the Committee would recommend to the Board of the Company that the potential candidate be appointed. The Board of the Company then decides whether or not to appoint the candidate. The Committee considers diversity of the Board members when making recommendations to the Board of the Company.
During 2015, the The Nominating and Governance Committee comprised of, and is still comprisedcurrently comprises of the following independent Directors: Thomas LynchProfessor William Hall (Chairman), Declan McKeon and Professor William Hall.Ronan Murphy.
Execution Committee
The primary function of the Execution Committee is to exercise the powers and authority of the Board in intervals between meetings of the Board within the limits set out in the Charter of the Execution Committee. The Execution Committee exercises business judgment to act in what the committee members reasonably believe to be in the best interest of the Company and its shareholders. All powers exercised by the Execution Committee are ratified at board meetings. This Committee convenes as often as it determines to be necessary or appropriate. During 2015, theThe Execution Committee comprised of, and is stillcurrently comprised of the following Directors and Officer: Ciaran MurraySteve Cutler (Chairman); Thomas Lynch;, Declan McKeon, and Brendan Brennan. On March 1, 2017 Steve Cutler joined the Execution Committee as Chairman. Ciaran Murray retired as a member of the Execution Committee on April 25, 2017.
Quality Committee
The purpose of the Quality Committee iswas to provide oversight of the quality strategy and initiatives in place within the Company. As partThe Quality Committee was retired by the Board on April 25, 2017. Matters that were in the remit of this the Committee is required to review the Company’s strategy in relation to quality and to review continuous improvement initiatives and activities in place within the Company. The Committee also reviews reports of audits by internal and external auditors or regulatory agencies (including the FDA and European Medicines Agency). During 2015, the Quality Committee comprised of, and is stillare dealt with by the Board or delegated to the other committees where appropriate. During 2017 up to its retirement in April, the Quality Committee was comprised of the following Directors: Professor Dermot Kelleher (Chairman);, Dr. John Climax (Vice Chairman);, Dr. Ronan Lambe;Lambe, Professor William Hall;Hall, and Mary Pendergast.
Attendance at Board and Committee meetings
Attendance at Board and committee meetings by the Directors who held office during 20152017 are set out as follows:
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| Directors’ Attendance Table | | | | | | | | | | | | | | | | | | |
| | Board | | | Audit | Compensation and Organization | | Compensation Nominating and Organization | | | Nominating and Governance | | | Execution | | | Quality | (4) |
| | | |
| Director | | Number of meetings attended / number of meetings eligible to attend as a Director | |
Thomas Lynch (1)
| | | 5/5 | | | | 3/4 | | | | 4/4 | | | | 2/2 | | | | - | | | | - | |
| Ciaran Murray | 10/10 | — | 5/5— | — | — | | - | | | | - | | | | - | | | | - | | | | - | — |
Dr. John Climax (1)Steve Cutler | 10/10 | — | 5/5— | — | — | — |
Declan McKeon (1) | - | | | | - | | | | - | | | | - | | | 9/10 | 4/4 | 3/3 | 6/6 | — | — |
Dr. John Climax (1) | 10/10 | — | - | — | — | 1/1 |
Dr. Ronan Lambe (1) | 10/10 | — | 5/5— | — | — | | - | | | | - | | | | - | | | | - | | | | 4/4 | 1/1 |
Prof. Dermot Kelleher (1) | | | 5/5 | | | 10/10 | 4/4 | — | — | — | - | | | | - | | | | - | | | | 4/4 | |
Declan McKeon (1)
| | | 5/5 | | | | 4/4 | | | | - | | | | 2/2 | | | | - | | | | - | 1/1 |
Prof. William Hall (1) | 10/10 | | 5/5 | | | | 4/3/4 | 3/3 | 6/6 | — | 4/4 | | | | 2/2 | | | | - | | | | 4/4 | 1/1 |
Mary Pendergast (1) | 10/10 | — | 5/53/3 | — | — | 1/1 |
Prof. Hugh Brady (1) | -9/10 | — | — | — | — | — |
| Ronan Murphy (1) | 9/10 | 4/4 | 3/3 | 6/6 | — | - | | | | - | | | | 4/4 | — |
Dr. Hugh Brady Eugene McCague (1)
(2) | 2/2 | — | 5/5— | — | — | | - | | | | - | | | | - | | | | - | | | | - | — |
Dr. Steve Cutler (2)
| | Joan Garahy (1) (3) | 1/1 | — | — | — | -— | | | | - | | | | - | | | | - | | | | - | — |
| |
| (1) | Independent Director as defined under NASDAQ Rule 5605(a)(2). |
| |
| (2) | Dr. Steve CutlerMr. Eugene McCague was appointed as a Director on October 3, 2017. |
| |
| (3) | Ms. Joan Garahy was appointed as a Director on November 23, 2015.16, 2017. |
| |
| (4) | The Quality Committee was retired on April 25, 2017. |
Executive Officers and Directors Remuneration
Compensation Discussion & Analysis
Remuneration policy
The Compensation and Organization Committee seeks to achieve the following goals with the Company’s executive compensation programs: to attract, motivate and retain key executives and to reward executives for value creation. The Committee seeks to foster a performance-oriented environment by ensuring that a significant portion of each executive’s cash and equity compensation is based on the achievement of performance targets that are important to the Company and its shareholders.
The Company’s executive compensation program has three main elements: base salary, a bonus plan and equity incentives in the form of share related awards granted under the Company’s equity incentive plans. All elements of key executives’ compensation are determined by the Compensation and Organization Committee based on the achievement of the Group’s and individual performance objectives.
Base salary, bonus awards and Directors’ fees were determined by the Compensation and Organization Committee in USD.USD or euro. In certain instances these awards were paid at a fixed euro rate determined by the Compensation and Organization Committee.
Outside Directors’ remuneration
Outside Directors are remunerated by way of Directors’ fees and are also eligible for participation in the share option scheme. EachDuring 2017, each Outside Director (excluding the Board Chairman) iswas paid an annual retainer of $61,800$65,000 and additional fees for Board Committee service.
During 2017, Mr. Declan McKeon served as Acting Chairman of the Board until March 2017. The agreement with the Acting Chairman of the Board Chairman is paid €463,500provided for payment of €300,000 (translated at average rate for the year: $510,000) annually and does$336,870) annually. Mr. McKeon did not receive additional payment for Board Committee service. service during the period that he served as Acting Chairman. In March 2017, Mr. McKeon was appointed Lead Independent Director and receives an additional fee of $25,000 for this role.
Outside Directors are not eligible for performance related bonuses and no pension contributions are made on their behalf. The Compensation and Organization Committee sets non-Executive remuneration.
Executive Directors’ and Key Executive Officers’ remuneration
Total cash compensation is divided into a base salary portion and a bonus incentive portion. Base salary is established based on peer group and is adjusted based on individual performance, experience and the importance of the role. The Committee targets total cash compensation with regard to Healthcare/healthcare/ biopharmaceutical companies of similar market capitalisationcapitalization and peer CRO companies, adjusted upward or downward based on individual performance and experience and level of responsibility. The Compensation and Organization Committee believes that the higher the executive’s level of responsibility within the Company, the greater the percentage of the executive’s compensation that should be tied to the Company’s performance. Target bonus incentive for executive officers range between 60%50% and 100% with actual pay outs ranging from 9030% to 220%110% of salary based on group and individual performance.
An exceptional cashA total bonus of $6.3$1.9 million was awarded to the following individuals; Mr. Ciaran Murray, Executive Chairman and former Chief Executive Officer ($3.60.3 million), Dr. Steve Cutler Chief Executive Officer and former Chief Operating Officer ($1.2 million) and Mr. Brendan Brennan Chief Financial Officer ($0.90.4 million) and Dr. Steve Cutler Chief Operating Officer ($1.8 million), to reflect their contribution to the exceptional performance of the Company during 2014. Of the $1.8 million paid to Dr. Steve Cutler in 2015 in respect of exceptional performance in 2014, $386,000 is included within the 2015 amounts in the Summary compensation table--Year ended December 31, 2015.2017. These amounts were approved by the Compensation and Organization Committee and will be paid during the year-ended December 31, 2015.2018.
A bonus of $3.2 million was awarded to Mr. Ciaran Murray Chief Executive Officer ($1.9 million), Mr. Brendan Brennan Chief Financial Officer ($0.5 million) and Dr. Steve Cutler Chief Operating Officer ($0.9 million), to reflect their contribution to the exceptional performance of the Company during 2014. These amounts were approved by the Compensation and Organization Committee and paid during the year-ended December 31, 2015.
An additional bonus of $9.5 million was awarded by the Compensation and Organization Committee to Mr. Ciaran Murray Chief Executive Officer ($5.5 million), Mr. Brendan Brennan Chief Financial Officer ($1.5 million) and Dr. Steve Cutler Chief Operating Officer ($2.5 million), to reflect their contribution to the successful turnaround in the performance of the Company during 2012 and the creation of a platform to enable the delivery of long-term sustainable returns to the Company’s shareholders. The bonus was payable in either cash or ordinary shares of the Company, at the discretion of the Committee, over the 3 year period from approval by the Compensation and Organization Committee in 2013 up to December 31, 2015. The last payments in respect of this award were made in the year ending December 31, 2015.
The Company’s executives are eligible to receive equity incentives, including stock options, restricted share units and performance share units, granted under the Company’s equity incentive plans. If executives receive equity incentive grants, they are normally approved annually at the first regularly scheduled meeting of the Committee in the fiscal year. The grant date is determined by the Committee, and grants are awarded at the closing price on the day of grant. Newly hired executives may receive sign-on grants, if approved by the Committee.grants. In addition, the Committee may, in its discretion, issue additional equity incentive awards to executives if the Committee determines such awards are necessary to ensure appropriate incentives are in place. The number of equity awards granted to each participant is determined primarily by the Committee at the start of each year based on peer groups and advice from independent compensation consultants. The Company granted equity incentive awards to executive officers in its fiscal years ended December 31, 2012, December 31, 2013, December 31, 2014 and December 31, 2015 (see Share Ownership section for further information).
All executive officers are eligible to participate in applicable pension plans. The Company’s contributions are generally a fixed percentage of their annual compensation, supplementing contributions by the executive. The Company has the discretion to make additional contributions if deemed appropriate by the Committee. The Company’s contributions are determined at the peer group median of comparable Irish companies and peer CRO companies. Contributions to this plan are recorded as an expense in the Consolidated Statement of Operations.
Third party Agreements and Arrangements 54
ICON has not identified any arrangements or agreements relating to compensation or other payments provided by a third party to ICON’s directors or director nominees in connection with their candidacy or board service as required to be disclosed pursuant to NASDAQ Rule 5250(b)(3).
Executive Compensation
Summary compensation table - Year ended December 31, 20152017
| Name & principal position | Year | | | Salary | | | Bonus* | | | Pension contribution | | | All other compensation | | | Subtotal | | | Share-based compensation | | | Director’s Fees | | | Total compensation | |
| | | | | $’000 | | | $’000 | | | $’000 | | | $’000 | | | $’000 | | | $’000 | | | $’000 | | | $’000 | |
Ciaran Murray, Chief Executive Officer | 2015 | | | 1,238 | | | 2,575 | | | 155 | | | 39 | | | 4,007 | | | 6,839 | | | - | | | 10,846 | |
| Brendan Brennan, Chief Financial Officer | 2015 | | | 486 | | | 610 | | | 61 | | | 26 | | | 1,183 | | | 1,206 | | | - | | | 2,389 | |
Dr. Steve Cutler Chief Operating Officer | 2015 | | | 766 | | | 1,622** | | | 201 | | | 50 | | | 2,639 | | | 4,298 | | | - | | | 6,937 | |
| Total | 2015 | | | 2,490 | | | 4,807 | | | 417 | | | 115 | | | 7,829 | | | 12,343 | | | - | | | 20,172 | |
|
| | | | | | | | | | | | | | | | | |
Name & principal position | Year | Salary |
| Bonus |
| Pension contribution |
| All other compensation |
| Subtotal |
| Share-based compensation |
| Director’s Fees |
| Total compensation |
|
| | | $’000 |
| $’000 |
| $’000 |
| $’000 |
| $’000 |
| $’000 |
| $’000 |
| $’000 |
|
| Ciaran Murray Executive Chairman and former Chief Executive Officer | 2017 | 1,119 |
| 339 |
| 140 |
| 35 |
| 1,633 |
| 5,903 |
| — |
| 7,536 |
|
| | | | | | | | | | |
Dr. Steve Cutler Chief Executive Officer and former Chief Operating Officer
| 2017 | 1,045 |
| 1,210 |
| 110 |
| 235 |
| 2,600 |
| 4,453 |
| 37 |
| 7,090 |
|
| | | | | | | | | | |
Brendan Brennan, Chief Financial Officer | 2017 | 525 |
| 393 |
| 66 |
| 26 |
| 1,010 |
| 1,503 |
| — |
| 2,513 |
|
| Total | 2017 | 2,689 |
| 1,942 |
| 316 |
| 296 |
| 5,243 |
| 11,859 |
| 37 |
| 17,139 |
|
* | Excludes $1.8 million, $0.5 million and $0.8 million respectively for Ciaran Murray, Brendan Brennan and Dr Steve Cutler, which were paid during 2015 under the terms of the 2012 long-term incentive plan. **Includes an amount of $386,000 payable in respect of the additional 2014 bonus plan. |
Summary compensation table - Year ended December 31, 20142016
| Name & principal position | Year | | | Salary | | | Bonus** | | | Pension contribution | | | All other compensation | | | Subtotal | | | Share-based compensation | | | Director’s Fees | | | Total compensation | |
| | | | | $’000 | | | $’000 | | | $’000 | | | $’000 | | | $’000 | | | $’000 | | | $’000 | | | $’000 | |
Ciaran Murray, Chief Executive Officer | 2014 | | | 1,184 | | | 5,427* | | | 148 | | | 47 | | | 6,806 | | | 5,415 | | | - | | | 12,221 | |
| Brendan Brennan, Chief Financial Officer | 2014 | | | 478 | | | 1,333* | | | 60 | | | 31 | | | 1,902 | | | 1,002 | | | - | | | 2,904 | |
Dr. Steve Cutler Chief Operating Officer | 2014 | | | 703 | | | 2,291* | | | 175 | | | 30 | | | 3,199 | | | 2,823 | | | - | | | 6,022 | |
| Total | 2014 | | | 2,365 | | | 9,051 | | | 383 | | | 108 | | | 11,907 | | | 9,240 | | | - | | | 21,147 | |
* | Includes $3.6 million, $0.9 million and $1.4 million respectively for Ciaran Murray, Brendan Brennan and Dr Steve Cutler, payable in respect of the additional 2014 bonus plan.
|
** | Excludes $2.0 million, $0.5 million and $0.8 million respectively for Ciaran Murray, Brendan Brennan and Dr Steve Cutler, which were paid during 2014 under the terms of the 2012 long-term incentive plan. |
|
| | | | | | | | | | | | | | | | | |
Name & principal position | Year | Salary |
| Bonus |
| Pension contribution |
| All other compensation |
| Subtotal |
| Share-based compensation |
| Director’s Fees |
| Total compensation |
|
| | | $’000 |
| $’000 |
| $’000 |
| $’000 |
| $’000 |
| $’000 |
| $’000 |
| $’000 |
|
Ciaran Murray, Chief Executive Officer | 2016 | 1,307 |
| 623 |
| 163 |
| 39 |
| 2,132 |
| 8,596 |
| — |
| 10,728 |
|
| | | | | | | | | | |
Brendan Brennan, Chief Financial Officer | 2016 | 516 |
| 191 |
| 65 |
| 26 |
| 798 |
| 1,639 |
| — |
| 2,437 |
|
| | | | | | | | | | |
Dr. Steve Cutler Chief Operating Officer | 2016 | 790 |
| 318 |
| 165 |
| 54 |
| 1,327 |
| 4,503 |
| — |
| 5,830 |
|
| Total | 2016 | 2,613 |
| 1,132 |
| 393 |
| 119 |
| 4,257 |
| 14,738 |
| — |
| 18,995 |
|
Director Compensation
Summary compensation table - Year ended December 31, 20152017
Name | Year | | Salary | | | Company pension contribution | | | All other compensation ** | | | Subtotal | | | Share-based compensation | | | Director’s fees | | | Total Compensation | |
| | | | | $’000 | | | | $’000 | | | | $’000 | | | | $’000 | | | | $’000 | | | | $’000 | | | | $’000 | |
| Thomas Lynch | 2015 | | | - | | | | - | | | | - | | | | - | | | | 75 | | | | 512 | | | | 587 | |
| Ciaran Murray | 2015 | | | 1,238 | | | | 155 | | | | 2,614 | | | | 4,007 | | | | 6,839 | | | | - | | | | 10,846 | |
| John Climax | 2015 | | | - | | | | - | | | | - | | | | - | | | | 69 | | | | 75 | | | | 144 | |
| Ronan Lambe | 2015 | | | - | | | | - | | | | - | | | | - | | | | 69 | | | | 75 | | | | 144 | |
| Dermot Kelleher | 2015 | | | - | | | | - | | | | - | | | | - | | | | 69 | | | | 96 | | | | 165 | |
| Declan McKeon | 2015 | | | - | | | | - | | | | - | | | | - | | | | 71 | | | | 121 | | | | 192 | |
| William Hall | 2015 | | | - | | | | - | | | | - | | | | - | | | | 75 | | | | 121 | | | | 196 | |
| Mary Pendergast | 2015 | | | - | | | | - | | | | - | | | | - | | | | 57 | | | | 88 | | | | 145 | |
| Hugh Brady | 2015 | | | - | | | | - | | | | - | | | | - | | | | 57 | | | | 63 | | | | 120 | |
| Dr. Steve Cutler* | 2015 | | | 766 | | | | 201 | | | | 1,672*** | | | | 2,639 | | | | 4,298 | | | | - | | | | 6,937 | |
| Total | 2015 | | | 2,004 | | | | 356 | | | | 4,286 | | | | 6,646 | | | | 11,679 | | | | 1,151 | | | | 19,476 | |
* Appointed to the Board in November 2015 ** Excludes $1.8 million and $0.8 million respectively for Ciaran Murray and Dr Steve Cutler paid during 2015 under the terms of the 2012 long-term incentive plan. ***Includes an amount of $386,000 payable in respect of the additional 2014 bonus plan. Summary compensation table - Year ended December 31, 2014 | |
Name | Year | | Salary | | | Company pension contribution | | | All other compensation | | | Subtotal | | | Share-based compensation | | | Director’s fees | | | Total Compensation | |
| | | | | $’000 | | | | $’000 | | | | $’000 | | | | $’000 | | | | $’000 | | | | $’000 | | | | $’000 | |
| Thomas Lynch | 2014 | | | - | | | | - | | | | - | | | | - | | | | 36 | | | | 601 | | | | 637 | |
| Ciaran Murray | 2014 | | | 1,184 | | | | 148 | | | | 5,474**** | | | | 6,806 | | | | 5,415 | | | | - | | | | 12,221 | |
| John Climax | 2014 | | | - | | | | - | | | | - | | | | - | | | | 30 | | | | 68 | | | | 98 | |
| Ronan Lambe | 2014 | | | - | | | | - | | | | - | | | | - | | | | 30 | | | | 68 | | | | 98 | |
| Dermot Kelleher | 2014 | | | - | | | | - | | | | - | | | | - | | | | 30 | | | | 88 | | | | 118 | |
| Declan McKeon | 2014 | | | - | | | | - | | | | - | | | | - | | | | 34 | | | | 113 | | | | 147 | |
| Cathrin Petty* | 2014 | | | - | | | | - | | | | - | | | | - | | | | 44 | | | | 3 | | | | 47 | |
| William Hall | 2014 | | | - | | | | - | | | | - | | | | - | | | | 34 | | | | 109 | | | | 143 | |
| Mary Pendergast** | 2014 | | | | | | | | | | | | | | | | | | | 16 | | | | 71 | | | | 87 | |
| Hugh Brady *** | 2014 | | | - | | | | - | | | | - | | | | - | | | | 16 | | | | 40 | | | | 56 | |
| Total | 2014 | | | 1,184 | | | | 148 | | | | 5,474 | | | | 6,806 | | | | 5,685 | | | | 1,161 | | | | 13,652 | |
* Resigned on January 24, 2014 ** Appointed February 18, 2014 ***Appointed April 29, 2014**** Includes $3.6 million payable in respect of the additional 2014 bonus plan. |
| | | | | | | | | | | | | | | |
| Name | Year | Salary |
| Company pension contribution |
| All other compensation |
| Subtotal |
| Share-based compensation |
| Director’s fees |
| Total Compensation |
|
| | | $’000 |
| $’000 |
| $’000 |
| $’000 |
| $’000 |
| $’000 |
| $’000 |
|
| Ciaran Murray * | 2017 | 1,119 |
| 140 |
| 374 |
| 1,633 |
| 5,903 |
| — |
| 7,536 |
|
| Declan McKeon** | 2017 | — |
| — |
| — |
| — |
| 137 |
| 169 |
| 306 |
|
| John Climax | 2017 | — |
| — |
| — |
| — |
| 137 |
| 69 |
| 206 |
|
| Ronan Lambe | 2017 | — |
| — |
| — |
| — |
| 137 |
| 69 |
| 206 |
|
| Dermot Kelleher | 2017 | — |
| — |
| — |
| — |
| 137 |
| 83 |
| 220 |
|
| William Hall | 2017 | — |
| — |
| — |
| — |
| 148 |
| 113 |
| 261 |
|
| Mary Pendergast | 2017 | — |
| — |
| — |
| — |
| 131 |
| 81 |
| 212 |
|
| Hugh Brady | 2017 | — |
| — |
| — |
| — |
| 131 |
| 65 |
| 196 |
|
| Steve Cutler | 2017 | 1,045 |
| 110 |
| 1,445 |
| 2,600 |
| 4,453 |
| 37 |
| 7,090 |
|
| Ronan Murphy | 2017 | — |
| — |
| — |
| — |
| 27 |
| 110 |
| 137 |
|
| Eugene McCague *** | 2017 | — |
| — |
| — |
| — |
| — |
| 16 |
| 16 |
|
| Joan Garahy **** | 2017 | — |
| — |
| — |
| — |
| — |
| 8 |
| 8 |
|
| Total | 2017 | 2,164 |
| 250 |
| 1,819 |
| 4,233 |
| 11,341 |
| 820 |
| 16,394 |
|
| |
| * | Appointed as Executive Chairman on March 1, 2017. |
| |
| ** | Appointed as Lead Independent Director on March 1, 2017. Acting Chairman until March 1, 2017. |
| |
| *** | Appointed to the Board on October 3, 2017. |
| |
| **** | Appointed to the Board on November 16, 2017. |
Summary compensation table - Year ended December 31, 2016
|
| | | | | | | | | | | | | | | |
| Name | Year | Salary |
| Company pension contribution |
| All other compensation |
| Subtotal |
| Share-based compensation |
| Director’s fees |
| Total Compensation |
|
| | | $’000 |
| $’000 |
| $’000 |
| $’000 |
| $’000 |
| $’000 |
| $’000 |
|
| Thomas Lynch* | 2016 | — |
| — |
| — |
| — |
| 634 |
| 161 |
| 795 |
|
| Declan McKeon** | 2016 | — |
| — |
| — |
| — |
| 100 |
| 285 |
| 385 |
|
| Ciaran Murray | 2016 | 1,307 |
| 163 |
| 662 |
| 2,132 |
| 8,596 |
| — |
| 10,728 |
|
| John Climax | 2016 | — |
| — |
| — |
| — |
| 100 |
| 77 |
| 177 |
|
| Ronan Lambe | 2016 | — |
| — |
| — |
| — |
| 100 |
| 77 |
| 177 |
|
| Dermot Kelleher | 2016 | — |
| — |
| — |
| — |
| 100 |
| 97 |
| 197 |
|
| William Hall | 2016 | — |
| — |
| — |
| — |
| 108 |
| 122 |
| 230 |
|
| Mary Pendergast | 2016 | — |
| — |
| — |
| — |
| 91 |
| 89 |
| 180 |
|
| Hugh Brady | 2016 | — |
| — |
| — |
| — |
| 91 |
| 64 |
| 155 |
|
| Steve Cutler | 2016 | 790 |
| 165 |
| 372 |
| 1,327 |
| 4,503 |
| — |
| 5,830 |
|
| Ronan Murphy*** | 2016 | — |
| — |
| — |
| — |
| — |
| 21 |
| 21 |
|
| Total | 2016 | 2,097 |
| 328 |
| 1,034 |
| 3,459 |
| 14,423 |
| 993 |
| 18,875 |
|
| |
| * | Retired as Chairman on March 31, 2016. Resigned from the Board on July 22, 2016. |
| |
| ** | Appointed as acting Chairman on April 1, 2016. |
| |
| *** | Appointed to the Board on October 18, 2016. |
56
Disclosure of Compensation Agreements
Employment Contracts, Termination of Employment and Change in Control Arrangements
The Company does not have any termination or change of control agreements with its named executive officers other than as set out below and in the agreements relating to their equity holdingsincentives which provide for accelerated vesting on change of control.
Directors’ and Executive Officers’ service agreements and letters of engagement
Mr. Thomas LynchCiaran Murray
Mr. Thomas LynchCiaran Murray has served as Executive Chairman of the Board of the CompanyDirectors since January 2013 and hasMarch 2017 having served as an outside Director of the Company since August 1994. The arrangements with Mr. Lynch provide for the payment to him of Director fees of €463,500 (at average exchange rate for the year: $510,000) per annum plus reasonable expenses properly incurred in carrying out his duties for the Company. He was previously granted and held at March 23, 2016 25,000 ordinary share options at exercise prices ranging from $20.28 to $68.39 per share.
Mr. Ciaran Murray
Mr. Ciaran Murray is currently Chief Executive Officer of the Company a position he has held sincefrom October 2011. He2011 until March 2017. Mr. Murray has served as an Executive Director of the Company since October 2011. He previously served as Chief Financial Officer of the Company from October 2005 until October 2011. The Chief Executive Officer service agreement with Mr. Murray was terminable on 12 months’ notice by either party. Under the terms of Chief Executive Officer agreement Mr. Murray was entitled to receive an annual salary of $1,326,125 (€1,184,627)and a bonus to be agreed by the Compensation and Organization Committee. He was also entitled to receive a pension contribution, a car allowance of €25,000 and medical insurance coverage for himself and his dependents. Mr. Murray’s notice period in respect to his Chief Executive Officer service agreement was 1 year. It was agreed his notice period would expire on February 28, 2017. Mr. Murray has entered into a new agreement with the Company in respect of his role as Executive Chairman which was effective from March 2017. Under this agreement from March 1, 2017 until October 17, 2017, Mr. Murray was entitled to receive a base salary equal to his former CEO base salary and from October 18, 2017,Mr. Murray is entitled to receive an annual salary of $338,970 (€300,000) and a bonus to be agreed by the Compensation and Organization Committee. He was previously granted and held at February 28, 2018 206,127 ordinary share options at exercise prices ranging from $32.37 to $90.03 per share, 25,061 Restricted Share Units which vest on various dates between March 2018 and March 2019 and 83,828 (up to a maximum of 167,656 based on certain performance conditions) Performance Share Units which vest between May 2018 and March 2019 subject to the fulfillment of certain performance conditions. His service agreement as Executive Chairman requires him to devote sufficient time to his duties for the Company, includes termination provisions and also includes certain post-termination clauses including non-disclosure, non-competition and non-solicitation provisions. In February 2018, the Board of ICON plc approved the appointment of Mr. Murray as non-Executive Chairman of the Board of Directors with effect from May 12, 2018. As Chief Financial Officer, Chief Executive and Executive Chairman, Mr. Murray was granted and held ordinary share options, Restricted Share Units and Performance Share Units. The vesting of the ordinary share options and Restricted Share Units which are unvested on Mr. Murray ceasing to be an ICON plc employee and his appointment as non-Executive Chairman (May 12, 2018) will accelerate and the outstanding Ordinary Share options and Restricted Share Units will vest on that date. The unvested Performance Share Units with vesting dates between May 12, 2018 and March 2019 will be forfeit on Mr. Murray ceasing to be an ICON plc employee.
Dr. Steve Cutler
Dr. Steve Cutler has served as Chief Executive Officer since March 2017 having served as Chief Operating Officer of the Company from January 2014 until March 2017. Prior to his appointment as Chief Operating Officer he served as Group President Clinical Research Services since November 2011. He has served as an Executive Director of the Company since November 2015. The Chief Executive Officer service agreement with Dr. Cutler is terminable on 12 months365 days’ notice by either party. Under the terms of this agreement Mr. MurrayDr. Cutler is entitled to receive an annual salary of $1,287,000$1,100,000 and a bonus to be agreed by the Compensation and Organization Committee. He is also entitled to receive a pension contribution, a car allowance of €25,000$12,000 and medical insurance coverage for himself and his dependents. He was previously granted and held at March 23, 2016 358,805February 28, 2018 202,147 ordinary share options at exercise prices ranging from $16.80$32.37 to $71.95$83.47 per share, 81,44529,181 Restricted Share Units which vest on various dates between May 2016March 2018 and March 20192020 and 209,76563,157 (up to a maximum of 419,530126,314 based on certain performance conditions) Performance Share Units which vest between May 20162018 and March 20192020 subject to the fulfillment of certain performance conditions. His Chief Executive Officer service agreement requires him to devote his full time and attention to his duties for the Company excepting certain outside Director positions authorized by the Board.Company. The agreement with Mr. MurrayDr. Cutler includes termination and change of control provisions and also includes certain post-termination clauses including non-disclosure, non-competition and non-solicitation provisions. Dr. Cutler has a separate agreement with the Company in respect to his role as a director of ICON plc. Under the terms of this agreement he is entitled to receive an annual fee of $44,000.
Mr. Declan McKeon
Mr. Declan McKeon has served as Lead Independent Director from March 2017 having served as Acting Chairman of the Board from April 2016 until March 2017. He has served as an outside Director of the Company since April 2010. The arrangements with Mr. McKeon provide for the payment to him of Directors fees of $135,000 per annum in respect of his position as Lead Independent Director. He was previously granted and held at February 28, 2018 33,650 ordinary share options at exercise prices ranging from $22.30 to $90.03.
Mr. Brendan Brennan
Mr. Brendan Brennanhas served as Chief Financial Officer since February 2012 having previously served as acting Chief Financial Officer since October 2011. Prior to this appointment he served in a number of senior finance roles in the Company including the role of Senior Vice President of Corporate Finance. The service agreement with Mr. Brennan is terminable on 12 monthsmonths’ notice by either party. Under the terms of this agreement Mr. Brennan is entitled to receive an annual salary of $508,518$528,664 (€467,886) and a bonus to be agreed by the Compensation and Organization Committee. He is also entitled to receive a pension contribution, a car allowance of €20,000 and medical insurance coverage for himself and his dependents. He was previously granted and held at March 23, 2016 61,952February 28, 2018 64,133 ordinary share options at exercise prices ranging from $20.28$32.37 to $71.95$83.47 per share, 16,6828,992 Restricted Share Units, which vest on various dates between May 2016March 2018 and March 2019,2020, and 40,09121,429 (up to a maximum of 80,18242,858 based on certain performance conditions) Performance Share Units which vest between May 20162018 and March 20192020 subject to the fulfillment of certain performance conditions.conditions. His service agreement requires him to devote his full time and attention to his duties for the Company excepting certain outside Director positions authorized by the Board. The agreement with Mr. Brennan includes termination and change of control provisions and also includes certain post-termination clauses including non-disclosure, non-competition and non-solicitation provisions.
Dr. Steve Cutler
Dr. Steve Cutler was appointed Chief Operating Officer of the Company in January 2014. Prior to this appointment he served as Group President Clinical Research Services since November 2011. He has served as an Executive Director of the Company since November 2015. The service agreement with Dr. Cutler is terminable on 180 days’ notice by either party. Under the terms of this agreement Dr. Cutler is entitled to receive an annual salary of $772,500 and a bonus to be agreed by the Compensation and Organization Committee. He is also entitled to receive a pension contribution, a car allowance of $12,000 and medical insurance coverage for himself and his dependents. He was previously granted and held at March 23, 2016 179,181 ordinary share options at exercise prices ranging from $17.17 to $71.95 per share, 44,239 Restricted Share Units which vest on various dates between May 2016 and March 2019 and 111,664 (up to a maximum of 223,328 based on certain performance conditions) Performance Share Units which vest between May 2016 and March 2019 subject to the fulfillment of certain performance conditions. His service agreement requires him to devote his full time and attention to his duties for the Company excepting certain outside Director positions authorized by the Company. The agreement with Dr. Cutler includes termination and change of control provisions and also includes certain post-termination clauses including non-disclosure, non-competition and non-solicitation provisions.
Dr. John Climax
Dr. John Climax, one of the Company’s co-founders, served as Chairman of the Board of the Company from November 2002 to December 2009. He also served as Chief Executive Officer of the Company from June 1990 to October 2002 and is currently an outside Director of the Company. The arrangements with Dr. Climax provide for the payment to him of Director fees of $74,300$65,000 per annum plus reasonable expenses properly incurred in carrying out his duties for the Company.annum. He was previously granted and held at March 23, 2016 78,500February 28, 2018 44,750 ordinary share options at exercise prices ranging from $15.84$20.28 to $68.39$90.03 per share.
Dr. Ronan Lambe
Dr. Ronan Lambe, one of the Company’s co-founders, served as Chairman of the Board of the Company from June 1990 to November 2002 and is currently an outside Director of the Company. The arrangements with Dr. Lambe provide for the payment to him of Director fees of $74,300$65,000 per annum plus reasonable expenses properly incurred in carrying out his duties for the Company.annum. He was previously granted and held at March 23, 2016 30,500February 28, 2018 44,750 ordinary share options at exercise prices ranging from $20.28 to $68.39$90.03 per share.
Professor Dermot Kelleher
Professor Dermot Kelleher has served as an outside Director of the Company since May 2008. The arrangements with Professor Kelleher provide for the payment to him of Director fees of $94,300$77,500 per annum. He was previously granted and held at March 23, 2016 24,400February 28, 2018 42,250 ordinary share options at an exercise price ranging from $20.28 to $68.39.$90.03.
Mr. Declan McKeon
Mr. Declan McKeon has served as an outside Director of the Company since April 2010. The arrangements with Mr. McKeon provide for the payment to him of Directors fees of $119,300 per annum. He was previously granted and held at March 23, 2016 29,500 ordinary share options at exercise prices ranging from $20.28 to $68.39.
Professor William Hall
Professor William Hall has served as an outside Director of the Company since February 2013. The arrangements with Professor Hall provide for the payment to him of Directors fees of $119,300$110,000 per annum. He was previously granted and held at March 23, 2016 27,500February 28, 2018 37,250 ordinary share options at exercise prices ranging from $32.37 to $68.39.$90.03.
Ms. Mary Pendergast
Ms. Mary Pendergast has served as an outside Director of the Company since February 2014. The arrangements with Ms. Pendergast provide for the payment to her of Directors fees of $86,800$77,500 per annum. She was previously granted and held at March 23, 2016 20,000February 28, 2018 38,250 ordinary share options at exercise prices ranging from $40.83 to $68.39.$90.03.
Dr.Professor Hugh Brady
Dr.Professor Hugh Brady has served as an outside Director of the Company since April 2014. The arrangements with Dr.Professor Brady provide for the payment to him of Directors fees of $61,800$65,000 per annum. He was previously granted and held at March 23, 2016 20,000February 28, 2018 38,250 ordinary share options at exercise prices ranging from $40.83 to $68.39.
$90.03.
58Mr. Ronan Murphy has served as an outside Director of the Company since October 2016. The arrangements with Mr. Murphy provide for the payment to him of Directors fees of $110,000 per annum. He was previously granted and held at February 28, 2018 7,693 ordinary share options at an exercise price of $90.03.
Mr. Eugene McCague has served as an outside Director of the Company since October 2017. The arrangements with Mr. McCague provide for the payment to him of Directors fees of $65,000 per annum.
Ms. Joan Garahy
Ms. Joan Garahy has served as an outside Director of the Company since November 2017. The arrangements with Ms. Garahy provide for the payment to her of Directors fees of $65,000 per annum.
Employees
At December 31, 2015,2017, December 31, 20142016 and December 31, 20132015 we employed approximately 11,900, 10,60013,250, 12,500 and 10,30011,900 people respectively. Our employees are not unionized and we believe we have a satisfactory relationship with our employees.
Share Ownership
Shares
The following table sets forth certain information as of March 23, 2016February 28, 2018 regarding beneficial ownership of our ordinary shares by all of our current Directors and executive officers. Unless otherwise indicated below, to our knowledge, all persons listed below have sole voting and investment power with respect to their ordinary shares, except to the extent authority is shared by spouses under applicable law.
| | Name of Owner or Identity of Group | | No. of Shares (1) | | | % of total Shares | | No. of Shares (1) |
| % of total Shares |
|
| Mr. Thomas Lynch | | | 4 | | | | - | | |
| Mr. Ciaran Murray | | | 53,898 | | | | 0.1 | % | 4,063 |
| 0.01 | % |
| Dr. Steve Cutler | | 26,911 |
| 0.05 | % |
| Mr. Brendan Brennan | | | 5,950 | | | | - | | — |
| — |
|
| Dr. Steve Cutler | | | 9,365 | | | | - | | |
| Dr. John Climax | | | 1,015,211 | | | | 1.84 | % | 762,211 |
| 1.41 | % |
| Dr. Ronan Lambe | | | 400 | | | | - | | 600 |
| — |
|
| Professor Dermot Kelleher | | | - | | | | - | | — |
| — |
|
| Mr. Declan McKeon | | | - | | | | - | | — |
| — |
|
| Professor William Hall | | | - | | | | - | | — |
| — |
|
| Ms. Mary Pendergast | | | - | | | | - | | — |
| — |
|
| Dr. Hugh Brady | | | - | | | | - | | |
| Professor Hugh Brady | | — |
| — |
|
| Mr. Ronan Murphy | | — |
| — |
|
| Mr. Eugene McCague | | — |
| — |
|
| Ms. Joan Garahy | | — |
| — |
|
| |
| (1) | As used in these tables, each person has the sole or shared power to vote or direct the voting of a security, or the sole or shared investment power with respect to a security (i.e. the power to dispose, or direct the disposition, of a security). A person is deemed as of any date to have "beneficial ownership" of any security if that such person has the right to acquire such security within 60 days after such date. |
Restricted Share Units and Performance Share Units
The following table sets forth certain information as of March 23, 2016February 28, 2018 regarding beneficial ownership of restricted share units (“RSU’s”RSUs”) and performance share units (“PSU’s”PSUs”) which have been issued to our current Directors and executive officers.
|
| | | | |
Name of Owner or Identity of Group | No. of RSUs (1) | Vesting Date | No. of PSUs (1) | Vesting Date |
| Mr. Ciaran Murray | 8,293 | March 4, 2018 | 42,358 | May 3, 2018 |
| 8,472 | May 3, 2018 | 41,470 | March 4, 2019 |
| 8,296 | March 4, 2019 | | |
| Dr. Steve Cutler | 5,271 | March 3, 2018 | 22,591 | May 3, 2018 |
| 4,423 | March 4, 2018 | 22,117 | March 4, 2019 |
| 4,520 | May 3, 2018 | 18,449 | March 3, 2020 |
| 5,271 | March 3, 2019 | | |
| 4,424 | March 4, 2019 | | |
| 5,272 | March 3, 2020 | | |
| Mr. Brendan Brennan | 1,190 | March 3, 2018 | 7,435 | May 3, 2018 |
| 1,965 | March 4, 2018 | 9,827 | March 4, 2019 |
| 1,489 | May 3, 2018 | 4,167 | March 3, 2020 |
| 1,190 | March 3, 2019 | | |
| 1,966 | March 4, 2019 | | |
| 1,192 | March 3, 2020 | | |
Name of Owner or
Identity of Group
| | No. of
RSU’s (1)
| | Vesting Date
| | No. of
PSU’s (1)
| | Vesting Date
|
Mr. Ciaran Murray | | | 31,149
8,471
8,294
8,471
8,294
8,472
8,294
| | May 1, 2016
May 3, 2016
March 4, 2017
May 3, 2017
March 4, 2018
May 3, 2018
March 4, 2019
| | | | | May 1, 2016
March 3, 2017
May 3, 2018
March 4, 2019
|
Mr. Brendan Brennan
| | | 6,325
1,486
1,965
1,486
1,965
1,489
1,966
| | May 1, 2016
May 3, 2016
March 4, 2017
May 3, 2017
March 4, 2018
May 3, 2018
March 4, 2019
| | | | | May 1, 2016
March 3, 2017
May 3, 2018
March 4, 2019
|
Dr. Steve Cutler
| | | 17,415
4,517
4,423
4,517
4,423
4,520
4,424
| | May 1, 2016
May 3, 2016
March 4, 2017
May 3, 2017
March 4 2018
May 3, 2018
March 4, 2019
| | | 34,831
32,125
22,591
22,117
| | May 1, 2016
March 3, 2017
May 3, 2018
March 4, 2019
|
| (1) | Of the issued PSU’s,PSUs, performance conditions will determine how many vest. If performance targets are exceeded, additional PSU’sPSUs will be issued and will vest in accordance with the terms of the relevant PSU award. The PSUs vest based on service and specified EPS targets over the period 2014 – 2017, 2015 – 2018, 2016 - 2019 and 2017 - 2020. Depending on the actual amount of EPS from 2014 to 2020, up to an additional 168,414 PSUs may also be granted. |
Share Options
The following table sets forth certain information as of March 23, 2016February 28, 2018 regarding options to acquire ordinary shares of the Company by all of our current Directors and executive officers.
Name of Owner or Identity of Group | | No. of Options (1) | | | Exercise price | | Expiration Date |
| | | | | | | | |
| Mr. Thomas Lynch | | | 400 | | | $ | 20.28 | | March 3, 2019 |
| | | | 800 | | | $ | 22.30 | | |
| | | | 3,800 | | | $ | 32.37 | | May 1, 2021 |
| | | | 10,000 10,000 | | | $ $ | 40.83 68.39 | | May 23, 2022 March 18, 2023 |
Name of Owner or
Identity of Group
| | No. of
Options (1)
| | | Exercise price | | Expiration Date |
| | | | | | | | | | |
| Mr. Ciaran Murray | | | 6,000 | | | $ | 20.28 | | March 3, 2019 |
| | | | 60,000 | | | $ | 16.80 | | October 31, 2019 |
| | | | 20,000 | | | $ | 22.30 | | April 27, 2020 |
| | | | 77,873 | | | $ | 32.37 | | May 1, 2021 |
| | | | 25,076 | | | $ | 47.03 | | March 3, 2022 |
| | | | 53,828 58,593 | | | $ $ | 48.67 68.39 | | March 17, 2022 March 18, 2023 |
| | | | 57,435 | | | $ | 71.95 | | March 4, 2024 |
| | | | | | | | | | |
| Mr. Brendan Brennan | | | 1,000 | | | $ | 20.28 | | March 3, 2019 |
| | | | 8,000 | | | $ | 20.59 | | February 22, 2020 |
| | | | 15,813 4,213 9,030 10,285 | | | $ $ $ $ | 32.37 47.03 48.67 68.39 | | May 1, 2021 March 3, 2022 March 17, 2022 March 18, 2023 |
| | | | 13,611 | | | $ | 71.95 | | March 4, 2024 |
| Dr. Steve Cutler | | 12,000 12,000 43,539 15,823 33,937 31,250 | | | $ $ $ $ $ $ | 17.17 20.59 32.37 47.03 48.67 68.39 | | November 7, 2019 February 22, 2020 May 1, 2021 March 3, 2022 March 17, 2022 March 18, 2023 |
| | | 30,632 | | | $ | 71.95 | | March 4, 2024 |
| | | | | | | | | |
| Dr. John Climax | | 50,000 | | | $ | 15.84 | | April 30, 2017 |
| | | 2,000 | | | $ | 24.46 | | March 4, 2018 |
| | | 2,000 | | | $ | 20.28 | | March 3, 2019 |
| | | 2,000 | | | $ | 22.30 | | April 27, 2020 |
| | | 2,500 10,000 10,000 | | | $ $ $ | 32.37 40.83 68.39 | | May 1, 2021 May 23, 2022 March 18, 2023 |
| | | | | | | | | |
| Dr. Ronan Lambe | | 2,000 | | | $ | 22.26 | | February 25, 2017 |
| | | 2,000 | | | $ | 24.46 | | March 4, 2018 |
| | | 2,000 | | | $ | 20.28 | | March 3, 2019 |
| | | 2,000 | | | $ | 22.30 | | April 27, 2020 |
| | | 2,500 10,000 10,000 | | | $ $ $ | 32.37 40.83 68.39 | | May 1, 2021 May 23, 2022 March 18, 2023 |
Name of Owner or
Identity of Group
| | No. of
Options (1)
| | | Exercise price | | Expiration Date |
| Professor Dermot Kelleher | | 400 | | | $ | 24.46 | | March 4, 2018 |
| | | 800 | | | $ | 20.28 | | March 3, 2019 |
| | | 1,200 | | | $ | 22.30 | | April 27, 2020 |
| | | 2,000 10,000 10,000 | | | $ $ $ | 32.37 40.83 68.39 | | May 1, 2021 May 23, 2022 March 18, 2023 |
| | | | | | | | | |
| Mr. Declan McKeon | | 3,000 | | | $ | 29.45 | | April 29, 2018 |
| | | 2,000 | | | $ | 20.28 | | March 3, 2019 |
| | | 2,000 2,500 10,000 | | | $ | 22.30 $32.37 $40.83 | | April 27, 2020 May 1, 2021 May 23, 2022 |
| | | 10,000 | | | $ | 68.39 | | March 18, 2023 |
| | | | | | | | | |
| Professor William Hall | | 7,500 | | | $ | 32.37 | | May 1, 2021 |
| | | 10,000 | | | $ | 40.83 | | May 23, 2022 |
| | | 10,000 | | | $ | 68.39 | | March 18, 2023 |
|
| | | | | | |
Name of Owner or Identity of Group | No. of Options (1) |
| Exercise price |
| Expiration Date |
| Mr. Ciaran Murray | 77,873 |
| $ | 32.37 |
| May 1, 2021 |
| 12,540 |
| $ | 47.03 |
| March 3, 2022 |
| 26,916 |
| $ | 48.67 |
| March 17, 2022 |
| 35,157 |
| $ | 68.39 |
| March 18, 2023 |
| 45,948 |
| $ | 71.95 |
| March 4, 2024 |
| 7,693 |
| $ | 90.03 |
| May 19, 2025 |
| | | | |
| Dr. Steve Cutler | 43,539 |
| $ | 32.37 |
| May 1, 2021 |
| 10,761 |
| $ | 47.03 |
| March 3, 2022 |
| 23,078 |
| $ | 48.67 |
| March 17, 2022 |
| 31,250 |
| $ | 68.39 |
| March 18, 2023 |
| 30,632 |
| $ | 71.95 |
| March 4, 2024 |
| 62,887 |
| $ | 83.47 |
| March 3, 2025 |
| | | | |
| Ms. Mary Pendergast | | | 10,000 | | | $ | 40.83 | | May 23, 2022 |
| | | | 10,000 | | | $ | 68.39 | | March 18, 2023 |
|
| | | | | | |
Name of Owner or Identity of Group | No. of Options (1) |
| Exercise price |
| Expiration Date |
| Mr. Declan McKeon | 400 |
| $ | 22.30 |
| April 27, 2020 |
| 1,000 |
| $ | 32.37 |
| May 1, 2021 |
| 6,000 |
| $ | 40.83 |
| May 23, 2022 |
| 8,000 |
| $ | 68.39 |
| March 18, 2023 |
| 10,557 |
| $ | 65.60 |
| May 20, 2024 |
| 7,693 |
| $ | 90.03 |
| May 19, 2025 |
| | | | |
| Mr. Brendan Brennan | 15,813 |
| $ | 32.37 |
| May 1, 2021 |
| 3,251 |
| $ | 47.03 |
| March 3, 2022 |
| 6,967 |
| $ | 48.67 |
| March 17, 2022 |
| 10,285 |
| $ | 68.39 |
| March 18, 2023 |
| 13,611 |
| $ | 71.95 |
| March 4, 2024 |
| 14,206 |
| $ | 83.47 |
| March 3, 2025 |
| | | | |
| Dr. John Climax | 2,000 |
| $ | 20.28 |
| March 3, 2019 |
| 2,000 |
| $ | 22.30 |
| April 27, 2020 |
| 2,500 |
| $ | 32.37 |
| May 1, 2021 |
| 10,000 |
| $ | 40.83 |
| May 23, 2022 |
| 10,000 |
| $ | 68.39 |
| March 18, 2023 |
| 10,557 |
| $ | 65.60 |
| May 20, 2024 |
| 7,693 |
| $ | 90.03 |
| May 19, 2025 |
| | | | |
| Dr. Ronan Lambe | 2,000 |
| $ | 20.28 |
| March 3, 2019 |
| 2,000 |
| $ | 22.30 |
| April 27, 2020 |
| 2,500 |
| $ | 32.37 |
| May 1, 2021 |
| 10,000 |
| $ | 40.83 |
| May 23, 2022 |
| 10,000 |
| $ | 68.39 |
| March 18, 2023 |
| 10,557 |
| $ | 65.60 |
| May 20, 2024 |
| 7,693 |
| $ | 90.03 |
| May 19, 2025 |
| | | | |
| Professor Dermot Kelleher | 800 |
| $ | 20.28 |
| March 3, 2019 |
| 1,200 |
| $ | 22.30 |
| April 27, 2020 |
| 2,000 |
| $ | 32.37 |
| May 1, 2021 |
| 10,000 |
| $ | 40.83 |
| May 23, 2022 |
| 10,000 |
| $ | 68.39 |
| March 18, 2023 |
| 10,557 |
| $ | 65.60 |
| May 20, 2024 |
| 7,693 |
| $ | 90.03 |
| May 19, 2025 |
| |
| Professor William Hall | 3,000 |
| $ | 32.37 |
| May 1, 2021 |
| 6,000 |
| $ | 40.83 |
| May 23, 2022 |
| 10,000 |
| $ | 68.39 |
| March 18, 2023 |
| 10,557 |
| $ | 65.60 |
| May 20, 2024 |
| 7,693 |
| $ | 90.03 |
| May 19, 2025 |
| | | | |
| Ms. Mary Pendergast | 10,000 |
| $ | 40.83 |
| May 23, 2022 |
| 10,000 |
| $ | 68.39 |
| March 18, 2023 |
| 10,557 |
| $ | 65.60 |
| May 20, 2024 |
| 7,693 |
| $ | 90.03 |
| May 19, 2025 |
| Dr. Hugh Brady | | | 10,000 | | | $ | 40.83 | | May 23, 2022 |
| | | | 10,000 | | | $ | 68.39 | | March 18, 2023 |
|
| | | | | | |
Name of Owner or Identity of Group | No. of Options (1) |
| Exercise price |
| Expiration Date |
| | | | |
| Professor Hugh Brady | 10,000 |
| $ | 40.83 |
| May 23, 2022 |
| 10,000 |
| $ | 68.39 |
| March 18, 2023 |
| 10,557 |
| $ | 65.60 |
| May 20, 2024 |
| 7,693 |
| $ | 90.03 |
| May 19, 2025 |
| | | | |
| Mr. Ronan Murphy | 7,693 |
| $ | 90.03 |
| May 19, 2025 |
| |
| (1) | The title of securities covered by all of the above options are non-qualified. |
(1) The titleIn February 20018, the Board approved the appointment of securities covered by allMr Murray as non-Executive Chairman of the aboveBoard of Directors with effect from May 12, 2018. Mr. Murray will cease to be an employee of the Company as of this date. Mr. Murray was granted and holds ordinary share options, Restricted Share units and Performance Share units as Chief Financial Officer, Chief Executive Officer and Executive Chairman. The vesting of the Ordinary Share Options and Restricted Share Units which are non qualified.unvested on Mr. Murray ceasing to be an ICON plc employee, and on this appointment as non-Executive Chairman (May 12, 2018) will accelerate and the outstanding Ordinary Share Options and Restricted Share Units will vest on that date. The unvested Performance Share Units with vesting dates between May 12, 2018 and March 2019 will be forfeit on Mr. Murray ceasing to be an ICON plc employee.
Equity Incentive Plans
On April 23, 2013 the Company adopted the 2013 Employees Restricted Share Unit and Performance Share Unit Plan (the “2013 RSU Plan”) pursuant to which the Compensation and Organization Committee of the Company’s Board of Directors may select any employee, or any Director holding a salaried office or employment with the Company, or a Subsidiary to receive an award under the plan. On May 11, 2015, the 2013 RSU Plan was amended and restated in order to increase the number of ordinary shares that can be issued under the RSU Plan by 2.5 million shares. Accordingly, an aggregate of 4.1 million ordinary shares have been reserved for issuance under the 2013 RSU Plan. The shares are awarded at par value and vest over a service period. Awards under the 2013 RSU Plan may be settled in cash or shares at the option of the Company.
On July 21, 2008 the Company adopted the 2008 Employees Restricted Share Unit Plan (the “2008 RSU Plan”) pursuant to which the Compensation and Organization Committee of the Company’s Board of Directors may select any employee, or any Director holding a salaried office or employment with the Company or a Subsidiary to receive an award under the plan. An aggregate of 1.0 million ordinary shares have been reserved for issuance under the 2008 RSU Plan.
On July 21, 2008 the Company adopted the Employee Share Option Plan 2008 (the “2008 Employee Plan”) pursuant to which the Compensation and Organization Committee of the Company’s Board of Directors may grant options to any employee, or any Director holding a salaried office or employment with the Company or a Subsidiary for the purchase of ordinary shares. On the same date, the Company also adopted the Consultants Share Option Plan 2008 (the “2008 Consultants Plan”), pursuant to which the Compensation and Organization Committee of the Company’s Board of Directors may grant options to any consultant, adviser or non-executive Director retained by the Company or any Subsidiary for the purchase of ordinary shares.
Each option granted underOn February 14, 2017 both the 2008 Employee Plan orand the 2008 Consultants Plan (together the “2008 Option Plans”) were amended and restated in order to increase the number of options that can be issued under the 2008 Consultants Plan from 400,000 to 1 million and to extend the date for options to be granted under the 2008 Option Plans. An aggregate of 6.0 million ordinary shares have been reserved under the 2008 Employee Plan as reduced by any shares issued or to be issued pursuant to options granted under the 2008 Consultants Plan under which a limit of 1 million shares applies. Further, the maximum number of ordinary shares with respect to which options may be granted under the 2008 Employee Option Plan, during any calendar year to any employee shall be 400,000 ordinary shares. There is no individual limit under the 2008 Consultants Plan. No options may be granted under the 2008 Option Plans after February 14, 2027.
Each option granted under the 2008 Option Plans will be an a nonqualified stock option, or NSO and not an incentive stock option as described in Section 422 of the Internal Revenue Code. Each grant of an option under the 2008 Options Plans will be evidenced by a Stock Option Agreement between the optionee and the Company. The exercise price will be specified in each Stock Option Agreement, however option prices will not be less than 100% of the fair market value of an ordinary share on the date the option is granted.
An aggregate of 6.0 million ordinary shares have been reserved under the 2008 Employee Plan as reduced by any shares issued or to be issued pursuant to options granted under the 2008 Consultants Plan, under which a limit of 400,000 shares applies. Further, the maximum number of ordinary shares with respect to which options may be granted under the 2008 Employee Option Plan, during any calendar year to any employee shall be 400,000 ordinary shares. There is no individual limit under the 2008 Consultants Plan. No options may be granted under the 2008 Option Plans after July 21, 2018.
On January 17, 2003 the Company adopted the Share Option Plan 2003 (the “2003 Share Option Plan”) pursuant to which the Compensation and Organization Committee of the Board could grant options to officers and other employees of the Company or its subsidiaries for the purchase of ordinary shares. An aggregate of 6.0 million ordinary shares were reserved under the 2003 Share Option Plan; and, in no event could the number of ordinary shares issued pursuant to options awarded under this plan exceed 10% of the outstanding shares, as defined in the 2003 Share Option Plan, at the time of the grant, unless the Board expressly determined otherwise. Further, the maximum number of ordinary shares with respect to which options could be granted under the 2003 Share Option Plan during any calendar year to any employee was 400,000 ordinary shares. The 2003 Share Option Plan expired on January 17, 2013. No new options may be granted under this plan.
Share option awards are granted with an exercise price equal to the market price of the Company’s shares at date of grant. Share options typically vest over a period of five years from date of grant and expire eight years from date of grant. The maximum contractual term of options outstanding at December 31, 20152018 is eight years.
Item 7. Major Shareholders and Related Party Transactions.
The following table sets forth certain information regarding beneficial ownership of ICON's ordinary shares as of March 23, 2016of February 28, 2018 (i) by each person that beneficially owns more than 5% of the outstanding ordinary shares, based upon information known to us and publicly available information; and (ii) by all of our current Directors, officers and other key employees as a group. Unless otherwise indicated below, to our knowledge, all persons listed below have sole voting and investment power with respect to their ordinary shares, except to the extent authority is shared by spouses under applicable law.
| Name of Owner or Identity of Group | | No. of Shares (1) | | | Percent of Class | |
| WCM Investment Management (2) | | | 4,584,348 | | | | 8.33 | % |
| EARNEST Partners, LLC (2) | | | 4,453,885 | | | | 8.09 | % |
| Neuberger Berman, LLC (2) | | | 4,113,018 | | | | 7.47 | % |
| Boston Partners (2) | | | 3,349,120 | | | | 6.08 | % |
| All Directors, officers and other key employees as a group (3) | | | 2,899,778 | | | | 5.27 | % |
|
| | | | |
| Name of Owner or Identity of Group | No. of Shares (1) |
| Percent of Class |
|
| WCM Investment Management (2) | 4,376,491 |
| 8.1 | % |
| Wellington Management Company, LLP (2) | 3,724,413 |
| 6.9 | % |
| All Directors, officers and other key employees as a group (3) | 2,030,152 |
| 3.8 | % |
| |
| (1) | As used in this table, each person has the sole or shared power to vote or direct the voting of a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose, or direct the disposition, of a security). A person is deemed as of any date to have "beneficial ownership" of any security if that such person has the right to acquire such security within 60 days after such date. |
| |
| (2) | Neither the Company nor any of its officers, Directors or affiliates holds any voting power in this entity. |
| |
| (3) | Includes 889,817795,453 ordinary shares issuable upon the exercise of stock options granted by the Company, 153,788 RSU’s69,818 RSUs awarded by the Company to directors,Directors, officers and other key employees and 770,270 PSU’s369,656 PSUs awarded by the Company to Directors, officers and other key employees. Of the issued PSU’s,PSUs, performance conditions will determine how many of them will vest and, if performance targets are exceeded, additional PSU’sPSUs will be issued and vest in accordance with the terms of the relevant PSU award.award, the figure included is the maximum amount of PSUs that may be issued. |
ICON plc, is not directly or indirectly, owned or controlled by another corporation or by any government.
Related Party Transactions
On July 19, 2012, Mr. Peter Gray retired as a Director and employee of the Company. The Company subsequently entered into an agreement with Integritum Limited, a company controlled by Mr. Gray, for the provision of consultancy services for a period of two years from August 1, 2012, at an agreed fee of €265,000 ($350,000) per annum. This arrangement expired in August, 2014.
Subsidiaries of the Company earned revenue of $221,000$743,000 (2016: $100,000) from GW Pharmaceuticals plc inDS Biopharma Limited (formerly Dignity Sciences Limited) during the normal courseyear. Dr. John Climax is Chief Executive Officer and both Dr. John Climax and Dr. Ronan Lambe are Directors and shareholders of business. There were backlog awardsDS Biopharma Limited. $220,000 was recorded as due from DS Biopharma Limited at December 31, 2015 of $88,000. Tom Lynch, Chairman of the Company is a non-executive Director of GW Pharmaceuticals plc.2017. The contract terms were agreed on an arm’s length basis.
SubsidiariesOn July 22, 2016, Mr. Thomas Lynch retired as a Director of the Company, earned revenuehaving previously resigned as Chairman of $100,000 (2014: $300,000)the Company in March 2016. A charge of €231,750 was recorded during 2017 in respect of consultancy services provided by a company controlled by Mr. Lynch. $64,000 was recorded as due to Mr. Lynch under the terms of the agreement at December 31, 2017.
During the year ended December 31, 2017, personal expenses totalling $178,000 were settled by the Company on behalf of Mr. Ciaran Murray. Payment was received in advance from Dignity Sciences Limited during the year. Dr. John Climax is a director and both Dr. John Climax and Dr. Ronan Lambe are shareholdersMr. Murray in respect of Dignity Sciences Limited.these expenses. The contract terms were agreed onCompany transferred ownership of an arm’s length basis.asset at fair value ($77,000) to Mr. Murray effective November 1, 2017. Payment was received in full in January 2018.
Financial Statements
See Item 18.
There have been no significant changes to our business that we believe could reasonably be expected to have a material adverse effect on our business, results of operations and financial condition.
Legal Proceedings
ICON is not party to any litigation or other legal proceedings that we believe could reasonably be expected to have a material adverse effect on our business, results of operations and financial condition.
Dividends
We have not paid cash dividends on our ordinary shares and do not currently intend to pay cash dividends on our ordinary shares in the foreseeable future.
Item 9. The Offer and ListingListing.
ICON’s ordinary shares are traded on the NASDAQ Global Select Market under the symbol “ICLR”. The following table sets forth the trading price for the dates indicated for ICON plc’s shares as reported by NASDAQ. ICON plc’s ADR program was terminated on January 31, 2013 and ICON plc’s ordinary shares began directly trading on NASDAQ on February 4, 2013. Prior to that date, ICON plc’s ADSs were traded on NASDAQ and ICON plc’s Depository for the ADSs was The Bank of New York Mellon.
| | | High Sales Price | | | Low Sales Price | |
| Year Ending | | During Period | | | During Period | |
| | | | | | | |
| December 31, 2011 | | $ | 26.22 | | | $ | 15.03 | |
| December 31, 2012 | | $ | 28.93 | | | $ | 16.73 | |
| December 31, 2013 | | $ | 44.23 | | | $ | 26.70 | |
| December 31, 2014 | | $ | 59.81 | | | $ | 35.33 | |
| December 31, 2015 | | $ | 84.14 | | | $ | 50.91 | |
Quarter Ending | | High Sales Price During Period | | | Low Sales Price During Period | |
| | | | | | | | | |
| Mar 31, 2014 | | $ | 50.00 | | | $ | 38.91 | |
| June 30, 2014 | | $ | 49.39 | | | $ | 35.33 | |
| Sept 30, 2014 | | $ | 57.98 | | | $ | 45.50 | |
| Dec 31, 2014 | | $ | 59.81 | | | $ | 49.75 | |
| Mar 31, 2015 | | $ | 72.40 | | | $ | 50.91 | |
| June 30, 2015 | | $ | 71.80 | | | $ | 62.36 | |
| Sept 30, 2015 | | $ | 84.14 | | | $ | 64.27 | |
| Dec 31, 2015 | | $ | 78.88 | | | $ | 63.20 | |
Month Ending | | High Sales Price During Period | | | Low Sales Price During Period | |
| July 31, 2015 | | $ | 81.90 | | | $ | 64.27 | |
| Aug 31, 2015 | | $ | 84.14 | | | $ | 71.08 | |
| Sept 30, 2015 | | $ | 82.47 | | | $ | 67.47 | |
| Oct 31, 2015 | | $ | 74.12 | | | $ | 63.20 | |
| Nov 30, 2015 | | $ | 75.01 | | | $ | 63.92 | |
| Dec 31, 2015 | | $ | 78.88 | | | $ | 71.90 | |
|
| | | | | | |
| Year Ending | High Sales Price During Period | Low Sales Price During Period |
| December 31, 2013 | $ | 44.23 |
| $ | 26.70 |
|
| December 31, 2014 | $ | 59.81 |
| $ | 35.33 |
|
| December 31, 2015 | $ | 84.14 |
| $ | 50.91 |
|
| December 31, 2016 | $ | 85.74 |
| $ | 62.31 |
|
| December 31, 2017 | $ | 124.48 |
| $ | 74.30 |
|
Quarter Ending | High Sales Price During Period | Low Sales Price During Period |
| March 31, 2016 | $ | 77.79 |
| $ | 64.08 |
|
| June 30, 2016 | $ | 77.08 |
| $ | 62.31 |
|
| Sept 30, 2016 | $ | 79.61 |
| $ | 69.05 |
|
| Dec 31, 2016 | $ | 85.74 |
| $ | 73.76 |
|
| March 31, 2017 | $ | 88.90 |
| $ | 74.30 |
|
| June 30, 2017 | $ | 100.87 |
| $ | 76.46 |
|
| Sept 30, 2017 | $ | 117.53 |
| $ | 96.03 |
|
| Dec 31, 2017 | $ | 124.48 |
| $ | 110.54 |
|
Month Ending | High Sales Price During Period | Low Sales Price During Period |
| Jul 31, 2017 | $ | 109.32 |
| $ | 96.03 |
|
| Aug 31, 2017 | $ | 114.27 |
| $ | 101.00 |
|
| Sept 30, 2017 | $ | 117.53 |
| $ | 109.78 |
|
| Oct 31, 2017 | $ | 123.53 |
| $ | 111.86 |
|
| Nov 30, 2017 | $ | 124.48 |
| $ | 110.55 |
|
| Dec 31, 2017 | $ | 117.39 |
| $ | 110.54 |
|
Item 10. Additional InformationInformation.
Memorandum and Articles of Association
We hereby incorporate by reference our Memorandum and Articles of Association, as amended, located under the heading “Memorandum and Articles of Association of the Company” in Exhibit 3.1.
The following is a summary of certain provisions of the current Articles of Association of the Company. This summary does not purport to be complete and is qualified in its entirety by reference to the complete text of the Articles of Association of the Company, which are included as an exhibit to this annual report.
Objects
The Company is incorporated under the name ICON plc, and is registered in Ireland under registered number 145835. The Company's objects, which are detailed in the Memorandum of Association of the Company, are broad and include, but are not limited to, the carrying on the business of an investment holding company.
Directors
Subject to certain exceptions, Directors may not vote on matters in which they have a material interest. Any Director who holds any executive office, serves on any committee or otherwise performs services, which, in the opinion of the Directors, are outside the scope of the ordinary duties of a Director, may be paid such extra remuneration as the Directors may determine. The Directors may exercise all the powers of the Company to borrow money. These powers may be amended by special resolution of the shareholders. The Directors are not required to retire at any particular age. One-third of the Directors retire and offer themselves for re-election at each Annual General Meeting ("AGM") of the Company. The Directors to retire by rotation are those who have been longest in office since their last appointment or reappointment. As between persons who became or were appointed Directors on the same date, those to retire are determined by agreement between them or, otherwise, by lot. All of the shareholders entitled to attend and vote at the AGM may vote on the re-election of Directors. There is no requirement for Directors to hold shares.
Rights, Preferences and Dividends Attaching to Shares
The Company has only one class of shares, Ordinary Shares with a par value of €0.06 per share. All such Ordinary Shares rank equally with respect to voting, payment of dividends and on any winding-up of the Company. Any dividend, interest or other sum payable to a shareholder that remains unclaimed for one year after having been declared may be invested by the Directors for the benefit of the Company until claimed. If the Directors so resolve, any dividend which has remained unclaimed for 12 years from the date of its declaration shall be forfeited and cease to remain owing by the Company. In the event of the Company being wound up, if the assets available for distribution among the Members shall be more than sufficient to repay the whole of the share capital paid up or credited as paid up at the commencement of the winding up, the excess shall be distributed among the Members in proportion to the capital at the commencement of the winding up paid up or credited as paid up on the said Ordinary Shares held by them respectively. An Ordinary Share shall be deemed to be a redeemable share in certain circumstances. The liability of shareholders to invest additional capital is limited to the amounts remaining unpaid on the shares held by them.
Action Necessary to Change the Rights of Shareholders
The rights attaching to shares in the Company may be varied by special resolutions passed at class meetings of that class of shareholders of the Company.
Annual and General Meetings
The AGM shall be held in such place and at such time as shall be determined by the board, but no more than 15 months shall pass between the dates of consecutive AGMs. Directors may call an Extraordinary General Meeting (“EGM”) at any time. The members, in accordance with the Articles of Association of the Company and Irish companyCompany law, may also requisition EGM’s. Notice of the AGM or an EGM passing any special resolution must be given at least 21 clear days prior to the scheduled date and, in the case of any other general meeting, not less than 14 clear days’ notice. All holders of Ordinary Shares are entitled to attend, speak at and vote at general meetings of the Company.
Limitations on the Right to Own Shares
There are no limitations on the right to own shares in the Articles of Association of the Company.
Disclosure of Share Ownership
Under Irish law, the Company can require parties to disclose their interests in shares. The Articles of Association of the Company entitle the Directors to require parties to provide details regarding their identity and the nature and extent of any interest which such parties hold in Ordinary Shares. Under Irish law, if a party acquires or disposes of Ordinary Shares so as to bring his interest above or below 3% of the total issued share capital of the Company, he must notify the Company of that. The Company would also need to be notified of the acquisition by an existing substantial (i.e. 3% plus) shareholder, of every movement of one whole percentage integer (e.g. 3.9% to 4.1% but not 4.1% to 4.9%) or more.
Other Provisions of the Articles of Association
There are no provisions in the Articles of Association of the Company:
(i) delaying or prohibiting a change in the control of the Company, but which operate only with respect to a merger, acquisition or corporate restructuring;
(ii) discriminating against any existing or prospective holder of shares as a result of such shareholder owning a substantial number of shares; or
(iii) governing changes in capital,
in each case, where such provisions are more stringent than those required by law.
Material Contracts
Not applicable.
Exchange Controls and Other Limitations Affecting Security Holders
Irish exchange control regulations ceased to apply from and after December 31, 1992. Except as indicated below, there are no restrictions on non-residents of Ireland dealing in domestic securities, which includes shares or depository receipts of Irish companies. Except as indicated below, dividends and redemption proceeds also continue to be freely transferable to non-resident holders of such securities.
The Financial Transfers Act, 1992 gives power to the Minister for Finance of Ireland to make provision for the restriction of financial transfers between Ireland and other countries and persons. Financial transfers are broadly defined, and include all transfers which would be movements of capital or payments within the meaning of the treaties governing the European Communities. The acquisition or disposal of shares issued by an Irish incorporated company and associated payments may fall within this definition. In addition, dividends or payments on redemption or purchase of shares and payments on a liquidation of an Irish incorporated company would fall within this definition.
The Financial Transfers Act, 1992 prohibits financial transfers involving a number of persons, entities and bodies, which is subject to amendment on an ongoing, regular basis and currently includes, but is not limited to: certain persons and activities in Sudan, the Republic of Guinea, Côte d’Ivoire, Libya, Iraq, the Democratic People's Republic of Korea, certain activities, persons and entities in Syria and Iran; certain persons and entities associated with the Taliban in Afghanistan; certain persons, entities and bodies in Ukraine; and certain known terrorists and terrorist groups and countries that harbor certain terrorist groups, without the prior permission of the Central Bank of Ireland.
There are no restrictions under the Company’s Articles of Association or under Irish Law that limit the right of non-residents or foreign owners to hold the Company’s ordinary shares or vote at general meetings of the Company.
Taxation
General
The following discussion is based on existing Irish tax law, Irish court decisions and the practice of the Revenue Commissioners of Ireland, and the convention between the United States and Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to income and capital gains (the "Treaty"). This discussion does not purport to deal with the tax consequences of owning the ordinary shares for all categories of investors, some of which may be subject to special rules. Prospective purchasers of ordinary shares are advised to consult their own tax advisors concerning the overall tax consequences arising in their own particular situations under Irish law. Each prospective investor should understand that future legislative, administrative and judicial changes could modify the tax consequences described below, possibly with retroactive effect.
As used herein, the term "U.S. Holder" means a beneficial owner of ordinary shares that (i) owns the ordinary shares as capital assets; (ii) is a U.S. citizen or resident, a U.S. corporation, an estate the income of which is subject to U.S. federal income taxation regardless of its source or a trust that meets the following two tests: (A) a U.S. court is able to exercise primary supervision over the administration of the trust, and (B) one or more U.S. persons have the authority to control all substantial decisions of the trust; and for the purpose of the discussion under Irish Taxation of U.S. Holders (A) is not a resident of, or ordinarily resident in, Ireland for the purposes of Irish tax; and (B) is not engaged in trade or business in Ireland through a permanent establishment.
AS USED HEREIN, REFERENCES TO THE ORDINARY SHARES SHALL INCLUDE SHARES HELD IN THE ACCOUNTS OF PARTICIPANTS THROUGH THE DEPOSITARY TRUST COMPANY (“THE DTC”).
Irish Taxation
Irish corporation tax on income
ICON is a public limited company incorporated and resident for tax purposes in Ireland by virtue of its place of central management and control being in Ireland.
Companies which are resident in the Republic of Ireland are subject to Irish corporation tax on their total profits (wherever arising and, generally, whether or not remitted to the Republic of Ireland). The question of residence, by virtue of management and control, is essentially one of fact. It is the present intention of the Company's management to continue to manage and control the Company from the Republic of Ireland, so that the Company will continue to be resident in the Republic of Ireland.
The standard rate of Irish corporation tax on trading income (with certain exceptions) is currently 12.5%.
A research and development tax credit is available in Ireland where an Irish resident company incurs qualifying expenditure on research and development activities. Qualifying expenditure incurred in a particular account period results in a tax credit of 25% of that expenditure.
Corporation tax is charged at the rate of 25% on a company's non-trading income and certain types of trading income not eligible for the lower rate of 12.5% referred to above.
Capital gains arising to an Irish resident company are liable to tax at 33%. However, a capital gains tax exemption is available in Ireland for qualifying Irish resident companies in respect of disposals of certain qualifying shareholdings.
The exemption from capital gains tax on the disposal of shares by an Irish resident company will apply where certain conditions are met. These conditions principally are:
| ●
| The company claiming the exemption must hold (directly or indirectly) at least 5% of the ordinary share capital of the company in which the interest is being disposed of, throughout a continuous period of at least 12 months, within the two year period prior to disposal |
| ●
| The shares being disposed of must be in a company, which at the date of disposal, is resident in a Member State of the European Communities or in a country with which Ireland has signed or made specific arrangements to sign a double tax agreement (together a “Relevant Territory”) |
| ●
| The shares must be in a company which is primarily a trading company or the company making the disposal together with its “5% plus subsidiaries” should be primarily a trading group |
|
●
| The shares must not derive the greater part of their value from land or mineral rights in the State. |
Irish withholding tax on dividends
Unless specifically exempted, all dividends paid by the Company, will be subject to Irish withholding tax at the standard rate of income tax in force at the time the dividend is paid, which is currently 20%.
An individual shareholder who is neither resident nor ordinarily resident for tax purposes in Ireland, but is resident in a country with which Ireland has a double tax treaty, or in a member state of the European Union, other than Ireland (together, a Relevant Territory), will be exempt from withholding tax provided he or she makes the requisite declaration.
Irish resident corporate shareholders will be exempt from withholding tax. Where the shareholding held by the recipient Company, in the company paying the dividend is not a 51% subsidiary of the recipient company,or greater a declaration must be made in order to avail of the exemption.
Non-Irish resident corporate shareholders will be exempt from withholding tax on the production of the appropriate certificates and declarations where they:
| ●
| are resident in a Relevant Territory and are not controlled (directly or indirectly) by Irish residents |
| ●
| are ultimately controlled (directly or indirectly) by residents of a Relevant Territory or |
| ●
| have the principal class of their shares,are ultimately controlled (directly or indirectly) by residents of a Relevant Territory or shares of a 75% parent, substantially and regularly traded on one or more recognized stock exchanges in a Relevant Territory (including Ireland) or Territories; or |
|
have the principal class of their shares, or shares of a 75% parent, substantially and regularly traded on one or more recognized stock exchanges in a Relevant Territory (including Ireland) or Territories; or
●
| are wholly owned by two or more companies, each of whose principal class of shares is substantially and regularly traded on one or more recognized stock exchanges in a Relevant Territory (including Ireland) or Territories. |
U.S. holders of ordinary shares should note, however, that detailed documentation requirements may need to be complied with. Special arrangements are available in the case of an interest in shares held in Irish companies through a depositary or in accounts of participants through the DTC. In certain cases the depositary or the DTC can receive and pass on a dividend from an Irish company without deducting withholding tax, provided the depositary or the DTC is a qualifying intermediary, and provided the person beneficially entitled to the distribution would meet the same conditions outlined above for the withholding tax exemption to apply and has provided the qualifying intermediary with the appropriate declarations. The depositary or the DTC shall be regarded as a qualifying intermediary provided the following conditions are met:
| ●
| the depositary or the DTC is resident in a Relevant Territory and |
| ●
| the depositary or the DTC have entered into a qualifying intermediary agreement with the Irish tax authorities and |
| the depositary or the DTC have entered into a qualifying intermediary agreement with the Irish tax authorities and
●
| the depositary or the DTC have been authorized by the Irish Revenue Commissioners as a qualifying intermediary and such authorization has not expired or been revoked. |
Irish income tax on dividends
Irish resident or ordinarily resident shareholders will generally be liable to Irish income tax on dividend income at their marginal rate of income tax. This income may also be liable to Pay Related Social Insurance (“PRSI”) of up to 4% and the Universal Social Charge (“USC”) of up to 11% (up to 15% in total).
Under certain circumstances, non-Irish resident shareholders will be subject to Irish income tax on dividend income. This liability is limited to tax at the standard rate of 20% and therefore, where withholding tax has been deducted, this will satisfy the tax liability. No PRSI or USC should apply in these circumstances.
However, a non-Irish resident shareholder will not have an Irish income tax liability on dividends from the Company if the holder is neither resident nor ordinarily resident in the Republic of Ireland and the holder isis:
| ●
| an individual resident in the U.S. or in a Relevant Territory; |
| ●
| a corporation that is ultimately controlled by persons resident in the U.S. or in a Relevant Territory; |
| ●
| a corporation whose principal class of shares (or its 75% or greater parent’s principal class of shares) is substantially and regularly traded on a recognized stock exchange in an EU countrya corporation that is ultimately controlled by persons resident in the U.S. or in a Relevant Territory; |
| ●
| a corporation resident in another EU member state or in a Relevant Territory, which is not controlled directly or indirectly by Irish residents; or |
|
a corporation whose principal class of shares (or its 75% or greater parent’s principal class of shares) is substantially and regularly traded on a recognized stock exchange in an EU country or in a Relevant Territory;
a corporation resident in another EU member state or in a Relevant Territory, which is not controlled directly or indirectly by Irish residents; or
●
| a corporation that is wholly owned by two or more corporations each of whose principal class of shares is substantially and regularly traded on a recognized stock exchange in an EU country or in a Relevant Territory. |
U.S. Holders who do not qualify for the above income tax exemption may be able to obtain treaty benefits under the double tax treaty.
Irish domicile levy
Certain non-Irish resident individuals that are domiciled in Ireland will be subject to an annual levy of €200,000 if their Irish-located property exceeds €5,000,000, their worldwide annual income exceeds €1,000,000 and their liability to Irish Income Tax in that year is less than €200,000.
Irish capital gains tax on disposal of shares
Irish resident or ordinarily resident shareholders will be liable to capital gains tax at 33% on gains arising from the disposal or part disposal of their shareholding.
A person who is not resident or ordinarily resident in Ireland, who has not been an Irish resident within the past five years and who does not carry on a trade in Ireland through a branch or agency will not be subject to Irish capital gains tax on the disposal of ordinary shares or shares held in accounts of participants through the DTC, so long as the shares do not derive the greater part of their value from Irish land or mineral rights.
There are provisions to subject a person who disposes of an interest in a company while temporarily being non-Irish resident, to Irish capital gains tax. This treatment will apply to Irish domiciled individuals:
| ●
| who cease to be Irish resident; |
| ●
| who beneficially own the relevant assets when they cease to be resident; |
| ●
| if there are not more than 5 years of assessment between the last year of Irish tax residence prior to becoming temporarily non-resident and the tax year that he/she resumes Irish tax residency; |
who beneficially own the relevant assets when they cease to be resident; | ●
| who dispose of the relevant assets during this temporary non-residence; and |
| ●
| the interest disposed of represents 5% or greater of the issued share capital of the company or is worth at least €500,000. |
if there are not more than 5 years of assessment between the last year of Irish tax residence prior to becoming temporarily non-resident and the tax year that he/she resumes Irish tax residency;
who dispose of the relevant assets during this temporary non-residence; and 70
the interest disposed of represents 5% or greater of the issued share capital of the company or is worth at least €500,000.
In these circumstances the person will be deemed, for Irish capital gains tax purposes, to have sold and immediately reacquired the interest in the company on the date of his or her departure and will be subject to tax at 33% of the taxable gain.
Irish capital acquisitions tax
Irish capital acquisitions tax (referred to as CAT) applies to gifts and inheritances. Subject to certain tax-free thresholds, gifts and inheritances are liable to tax at 33%.
Where a gift or inheritance is taken under a disposition made after December 1, 1999, it will be within the charge to CAT:
| ●
| to the extent that the property of which the gift or inheritance consists is situated in the Republic of Ireland at the date of the gift or inheritance; |
| ●
| where the person making the gift or inheritance is or was resident or ordinarily resident in the Republic of Ireland at the date of the disposition under which the gift or inheritance is taken; |
| ●
| in the case of a gift taken under a discretionary trust where the person from whom the gift is taken was resident or ordinarily resident in the Republic of Ireland at the date he made the settlement, or at the date of the gift or, if he is dead at the date of the gift, at the date of his death; or |
where the person making the gift or inheritance is or was resident or ordinarily resident in the Republic of Ireland at the date of the disposition under which the gift or inheritance is taken; |
in the case of a gift taken under a discretionary trust where the person from whom the gift is taken was resident or ordinarily resident in the Republic of Ireland at the date he made the settlement, or at the date of the gift or, if he is dead at the date of the gift, at the date of his death; or
●
| where the person receiving the gift or inheritance is resident or ordinarily resident in the Republic of Ireland at the date of the gift or inheritance. |
For these purposes a non-Irish domiciled individual will not be regarded as resident or ordinarily resident in the Republic of Ireland on a particular date unless they are resident or ordinarily resident in the Republic of Ireland on that date and have been resident for the 5 consecutive tax years immediately preceding the year of assessment in which the date falls.
The person who receives the gift or inheritance (“the beneficiary”) is primarily liable for CAT. In the case of an inheritance, where a beneficiary and personal representative of the deceased are both non-residents, a solicitor must be appointed to be responsible for paying inheritance tax. Taxable gifts or inheritances received by an individual since December 5, 1991 from donors in the same threshold class are aggregated and only the excess over a specified tax-free threshold is taxed. The tax-free threshold is dependent on the relationship between the donor and the donees and the aggregation since December 5, 1991 of all previous gifts and inheritances, within the same tax threshold.
The tax-free threshold amounts that apply are:
| ●
| €15,075€16,250 in the case of persons who are not related to one another; |
| ●
| €30,150 in the case of gifts or inheritances received from inter alia a brother or sister or from a brother or sister of a parent or from a grandparent; and |
| ●
| €280,000 in the case of gifts and inheritances received from a parent (or from a grandparent by a minor child of a deceased child) and specified inheritances received by a parent from a child for gifts or inheritances taken on or after 14 October 2015. This threshold was €225,000 prior to 14 October 2015 |
€32,500 in the case of gifts or inheritances received from inter alia a brother or sister or from a brother or sister of a parent or from a grandparent; and
€310,000 in the case of gifts and inheritances received from a parent (or from a grandparent by a minor child of a deceased child) and specified inheritances received by a parent from a child.
Gifts and inheritances passing between spouses are exempt from CAT.
A gift or inheritance of ordinary shares or ADSs will be within the charge to Irish capital acquisitions tax, notwithstanding that the person from whom or by whom the gift or inheritance is received is domiciled or resident outside Ireland.
The Estate Tax Convention between Ireland and the United States generally provides for Irish capital acquisitions tax paid on inheritances in Ireland to be credited against U.S. Federal Estate tax payable in the United States and for tax paid in the United States to be credited against tax payable in Ireland, based on priority rules set forth in the Estate Tax Convention. The Estate Tax Convention does not apply to Irish capital acquisitions tax paid on gifts.
Irish stamp duty
Irish stamp duty, which is a tax on certain documents, is payable on all transfers of ordinary shares (other than between spouses) whenever a document of transfer is executed. Where the transfer is attributable to a sale, stamp duty will be charged at a rate of 1%, rounded to the nearest Euro.euro. The stamp duty is calculated on the amount or value of the consideration (i.e. purchase price) or, if the transfer is by way of a gift (subject to certain exceptions) or for consideration less than the market value, on the market value of the shares. Where the consideration for the sale is expressed in a currency other than Euro,euro, the duty will be charged on the Euroeuro equivalent calculated at the rate of exchange prevailing on the date of the transfer.
Transfers through the DTC of book entry interests in shares are not subject to Irish stamp duty.
A transfer of ordinary shares by a shareholder to a depositary or custodian for deposit and a transfer of ordinary shares from the depositary or the custodian for the purposes of the withdrawal of the underlying ordinary shares in accordance with the terms of a deposit agreement will be stampable at the ad valorem rate if the transfer relates to a sale, a contemplated sale, a gift or any other change in the beneficial ownership of such ordinary shares. However transfers of ordinary shares into or out of the DTC are not be subject to Irish stamp duty provided that no change in beneficial ownership of the shares has occurred and provided a contract for sale in respect of the transferring shares is not in place.
The person accountable for payment of stamp duty is normally the transferee or, in the case of a transfer by way of gift, or for a consideration less than the market value, all parties to the transfer.
Transfers of ordinary shares between associated companies (broadly, companies within a 90% group relationship and subject to the satisfaction of certain conditions) are exempt from stamp duty in the Republic of Ireland. In the case of transfers of ordinary shares where no beneficial interest passes (e.g. a transfer of shares from a beneficial owner to his nominee), no stamp duty arises.
No stamp duty shall arise on the transfer of ordinary shares where the consideration for the transfer does not exceed €1,000, provided the instrument contains a statement certifying that the transaction does not form part of a larger transaction or a series of larger transactions, in respect of which the amount of the total consideration attributable to the shares would exceed €1,000.
Documents on Display
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and file reports and other information with the SEC. The SEC maintains a web sitewebsite that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov.
We “incorporate by reference” information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this report and more recent information automatically updates and supersedes more dated information contained or incorporated by reference in this report. Our SEC file number for Exchange Act reports is 333-08704.
As a foreign private issuer, we are exempt from certain rules under the Exchange Act, including prescribing the furnishing and content of proxy statements to shareholders.
We will provide without charge to each person, including any beneficial owner, on the written or oral request of such person, a copy of any or all documents referred to above which have been or may be incorporated by reference in this report (not including exhibits to such incorporated information that are not specifically incorporated by reference into such information). Requests for such copies should be directed to us at the following address: ICON plc, South County Business Park, Leopardstown, Dublin 18, Ireland, Attention: Simon HolmesErina Fox telephone number: (353)+353 1 291 2000.2912000.
Exemptions From Corporate Governance Listing Requirements Under the NASDAQ Marketplace Rules
NASDAQ may provide exemptions from certain NASDAQ corporate governance standards to a foreign private issuer if, among other reasons those standards are contrary to a law, rule or regulation of a public authority exercising jurisdiction over such issuer or contrary to generally accepted business practices in the issuer’s home country of domicile, provided, that, the foreign private issuer properly notifies NASDAQ and makes the required disclosure except to the extent that such exemptions would be contrary to United States federal securities laws.
The exemptions that the Company relies on, and the practices the Company adheres to, are as follows:
| ●
| The Company is exempt from provisions set forth in NASDAQ Rule 5620(c), which requires each issuer (other than limited partnerships) to provide for a quorum in its by-laws for any meeting of the holders of common stock, which shall in no case be less than 33.33% of the outstanding shares of the issuer’s common voting stock. The Company’s Articles of Association require that only 3 members be present, in person or by proxy, at a shareholder meeting to constitute a quorum. This quorum requirement is in accordance with Irish law and generally accepted business practices in Ireland. |
| ●
| The Company is exempt from provisions set forth in NASDAQ Rule 5635(c) which requires (other than for certain specified exceptions) shareholder approval prior to the establishment or material amendment of a stock option or purchase plan or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, Directors, employees or consultants. Irish law does not require shareholder approval with respect to equity compensation arrangements. Accordingly, the 2013 Employees Restricted Share Unit Plan wasThe Company is exempt from provisions set forth in NASDAQ Rule 5635(c) which requires (other than for certain specified exceptions) shareholder approval prior to the establishment or material amendment of a stock option or purchase plan or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, Directors, employees or consultants. Irish law does not require shareholder approval with respect to equity compensation arrangements. Accordingly, the 2013 Employees Restricted Share Unit Plan and the amendments to the Employee Share Option Plan 2008 and Consultants Share Option Plan 2008 were adopted by the Board of Directors without shareholder approval. |
| ●
| The Company is exempt from provisions set forth in NASDAQ Rule 5605(b)(2), which requires independent Directors to hold regularly scheduled meetings at which only independent Directors are present. Irish law does not require independent Directors to hold regularly scheduled meetings at which only independent Directors are present. The Company holds regularly scheduled meetings which all of the Directors may attend. |
The Company is exempt from provisions set forth in NASDAQ Rule 5605(b)(2), which requires independent Directors to hold regularly scheduled meetings at which only independent Directors are present. Irish law does not require independent Directors to hold regularly scheduled meetings at which only independent Directors are present. The Company holds regularly scheduled meetings which all of the Directors may attend and the Lead Independent Director may call meetings of the independent directors and non-employee directors of the Board, as appropriate, in accordance with the Lead Independent Director Charter
Item 11. Quantitative and Qualitative Disclosures about Market RiskRisk.
The principal market risks (i.e. risk of loss arising from adverse changes in market rates and prices) to which we are exposed include foreign currency risk and interest rate risk.
Foreign Currency Exchange Risk
We are subject to a number of foreign currency risks given the global nature of our operations. The principal foreign currency risks to which the business is subject to includes both foreign currency translation risk and foreign currency transaction risk.
Although domiciled in Ireland, we report our results in U.S. dollars. As a consequence the results of our non-U.S. based operations, when translated into U.S. dollars, could be affected by fluctuations in exchange rates between the U.S. dollar and the currencies of those operations.
We are also subject to foreign currency transaction exposures as the currency in which our contracts are priced can be different from the currencies in which costs relating to those contracts are incurred. Our operations in the United States are not materially exposed to such currency differences as the majority of revenues and costs are in U.S. dollars. However, outside the United States the multinational nature of our activities means that contracts are usuallymay be priced in a single currency, most often U.S. dollars, or Euro,euro, while costs arise in a number of currencies, depending, among other things, on which of our offices provide staff for the contract and the location of investigator sites. Although many such contracts benefit from some degree of natural hedging due to the matching of contract revenues and costs in the same currency, where costs are incurred in currencies other than those in which contracts are priced, fluctuations in the relative value of those currencies could have a material effect on our results of operations. We regularly review our foreign currency exposures and usually negotiate currency fluctuation clauses in our contracts which allow for price negotiation if certain exchange rate triggers occur.
The following significant exchange rates applied during the year:
| | | | Average Rate | | | Closing Rate | | |
| | | 2015 | | | 2014 | | | 2015 | | | 2014 | | Average Rate | Closing Rate |
| | | | | | | | | | | | | | 2017 | 2016 | 2017 | 2016 |
| Euro:USD | | | 1.1123 | | | | 1.3361 | | | | 1.0862 | | | | 1.2098 | | 1.1229 | 1.1060 | 1.2005 | 1.0517 |
| | | | | | | | | | | | | | | | | | |
| Pound Sterling:USD | | | 1.5307 | | | | 1.6548 | | | | 1.4736 | | | | 1.5577 | | 1.2883 | 1.3684 | 1.3513 | 1.2340 |
| | | | | | | | | | | | | | | | | | |
Interest Rate Risk
We are exposed to interest rate risk in respect of our cash and cash equivalents and short term investments –- available for sale. Our treasury function actively manages our available cash resources and invests significant cash balances in various financial instruments to try to ensure optimum returns for the Company’s surplus cash balances. Financial instruments are classified either as cash and cash equivalents or short term investments –available-available for sale depending upon the maturity of the related investment. Funds may be invested in the form of floating rate notes and medium term minimum “A-” rated corporate securities. We may be subject to interest rate risk in respect of interest rate changes on amounts invested. Our treasury function manages interest rate risk in respect of these balances by monitoring the composition of the Company’s investment portfolio on an ongoing basis having regard to current market interest rates and future trends.
In December 2015 we issued $350m$350 million in the private placement market, the rate on these senior notes is fixed at 3.64% for the five year term. The interest rate is further reduced by an interest rate cash flow hedge which was entered into in advance of the rate fixing date. This cash flow hedge was deemed to be fully effective in accordance with Financial Accounting Standards Board (“FASB”) ASC 815, “Derivatives and Hedging”. The realized gain related to this derivative is recorded within other comprehensive income and is amortized over the life of the Senior Notes. The effective rate on our 5 year Senior Notes is fixed at 3.37%. ICON did not have any short term borrowings in 2017 and were not exposed to changes in market interest rates as a result.
The sensitivity analysis below represents the hypothetical change in the net interest payable of a 1% movement in market interest rates.
|
| | | | | | | | | |
| | Interest for the year ended
December 31, 2017
(in thousands) |
| Interest Change 1% increase in market interest rate (in thousands) |
| Interest Change 1% decrease in market interest rate (in thousands) |
|
Interest Income | $ | 2,346 |
| $ | 5,441 |
| $ | — |
|
| Interest Expense | $ | (12,627 | ) | $ | (12,627 | )* | $ | (12,627 | )* |
| | $ | (10,281 | ) | $ | (7,186 | ) | $ | (12,627 | ) |
*No variable debt drawn down during year ended December 31, 2017.
| | | Interest for the year ended December 31, 2015 | | | Interest Change 1% increase in market interest rate | | | Interest Change 1% decrease in market interest rate | |
| | | (in thousands) | | | (in thousands) | | | (in thousands) | |
| | | | | | | | | | | | | |
| Interest Income | | $ | 1,306 | | | $ | 3,521 | | | $ | - | |
| Interest Expense | | $ | (3,992 | ) | | $ | (4,318 | ) | | $ | (3,748 | ) |
| | | $ | (2,686 | ) | | $ | (797 | ) | | $ | (3,748 | ) |
Item 12. Description of Securities Other than Equity SecuritiesSecurities.
Not applicable.
Part II
Item 13. Defaults, Dividend Arrearages and DelinquenciesDelinquencies.
None.
Item 14.Material Modifications to the Rights of Security Holders and Use of ProceedsProceeds.
None.
Item 15.Controls and ProceduresProcedures.
(a) Disclosure controls and procedures
An evaluation was carried out under the supervision and with the participation of the Company’sCompany's management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures as at December 31, 2015.2017. Based on that evaluation, the CEO and CFO have concluded that the Company’sCompany's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
(b) Management’sManagement's Annual Report on Internal Accounting Control over Financial Reporting
Reference is made to page 81 80 of this Form 20-F.
(c) Attestation Report of Independent Registered Public Accounting Firm
Reference is made to page 8382 of this Form 20-F.
(d) Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this Form 20-F that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
Item 16A. Audit Committee Financial Expert
Mr. Declan McKeon acts as the Audit Committee financial expert serving on our Audit Committee and Board of Directors. Mr. McKeon is an independent Board memberthe lead Independent Director and serves as one of our non-executive Directors.
Item 16B. Code of EthicsEthical Conduct
We adopted the code of ethics on March 22, 2011, which replaced our previousOur Global Code of Ethics. The Code of EthicsEthical Conduct applies to all ICON employees.
We amended the Code of Ethics in October 2014 to reflect the adoption of our Ethics Line Charter. The charter provides, among other things, details on the types of issues that should be reported and how and when to report such issues. There are no waivers from the provisions of the Code of EthicsEthical Conduct that are required to be disclosed.
This codeCode of Ethical Conduct is available on our website at the following address:
http://investor.iconplc.com/governance.cfm
Item 16C. Principal Accountant Fees and Services
Our principal accountants for the years ended December 31, 20152017 and December 31, 2014,2016, were KPMG.
The table below summarizes the fees for professional services rendered by KPMG for the audit of our annual financial statements for the years ended December 31, 20152017 and December 31, 20142016 and fees billed for other services rendered by KPMG.
| | | | |
| | | 12 month period ended December 31, 2015 | | | 12 month period ended December 31, 2014 | |
| | | (in thousands) | | | (in thousands) | |
| Audit fees (1) | | $ | 1,666 | | | | 53 | % | | $ | 2,149 | | | | 54 | % |
| Audit related fees (2) | | | 181 | | | | 6 | % | | | 156 | | | | 4 | % |
| Tax fees (3) | | | 1,294 | | | | 41 | % | | | 1,704 | | | | 42 | % |
Total | | $ | 3,141 | | | | 100 | % | | $ | 4,009 | | | | 100 | % |
|
| | | | | | | | | | |
| | 12 month period ended
December 31, 2017
(in thousands) | | 12 month period ended
December 31, 2016
(in thousands) | |
| Audit fees (1) | $ | 1,556 |
| 42 | % | $ | 1,437 |
| 56 | % |
| Audit related fees (2) | 1,297 |
| 35 | % | 153 |
| 6 | % |
| Tax fees (3) | 850 |
| 23 | % | 992 |
| 38 | % |
Total | $ | 3,703 |
| 100 | % | $ | 2,582 |
| 100 | % |
| (1) | Audit fees include annual audit fees for the Company and its subsidiaries. |
(2) | Audit related fees principally consisted of fees for financial due diligence services, fees for audit of the financial statements of employee benefit plans and fees for pension review. |
(2) Audit related fees principally consisted of fees for financial due diligence services, fees for audit of the financial statements, of employee benefit plans and fees for pension review. The higher level of audit related fees in 2017 compared to 2016 relates specifically to additional financial due diligence services ($1.1 million) provided in connection with a proposed significant one-time potential acquisition transaction by the company in 2017.
| (3) | Tax fees are fees for tax compliance and tax consultation services. |
The Audit Committee pre-approves on an annual basis theall audit and non-audit services provided to the Company by its auditors.
Such annual pre-approval is given with respect to particular services. The Audit Committee, on a case-by-case basis, may approve additional services not covered by the annual pre-approval, as the need for such services arises.
Not applicable.
| | | Total Number of Shares Purchased | | | Average Price Paid per Share | | | Total Number of Shares Purchased as Part of a Publicly Announced Plan | | | Total Price Paid for Shares Purchased as Part of a Publicly Announced Plan | | | Maximum Approximate Value of Shares that may yet be purchased under the Plans | |
| | | (in thousands, except per share data) | |
| | | | | | | | | | | | | | | | |
| January 1/1 - 1/31 | | | - | | | | - | | | | - | | | $ | - | | | $ | - | |
| February 2/1 – 2/28 | | | - | | | | - | | | | - | | | | - | | | | - | |
| March 3/1 – 3/31 | | | - | | | | - | | | | - | | | | - | | | | - | |
| April 4/1 – 4/30 | | | - | | | | - | | | | - | | | | - | | | | - | |
| May 5/1 – 5/31 | | | 646,829 | | | $ | 65.57 | | | | 646,829 | | | $ | 42,416 | | | $ | 415,476 | |
| June 6/1 – 6/30 | | | 235,590 | | | $ | 65.69 | | | | 235,590 | | | $ | 15,476 | | | $ | 400,000 | |
| July 7/1 – 7/31 | | | - | | | | - | | | | - | | | | - | | | $ | 400,000 | |
| August 8/1 – 8/31 | | | 1,649,027 | | | $ | 79.90 | | | | 1,649,027 | | | $ | 131,752 | | | $ | 268,248 | |
| September 9/1 – 9/30 | | | 1,255,143 | | | $ | 77.73 | | | | 1,255,143 | | | $ | 97,565 | | | $ | 170,683 | |
| October 10/1 – 10/31 | | | 968,075 | | | $ | 70.20 | | | | 968,075 | | | $ | 67,955 | | | $ | 102,728 | |
| November 11/1 – 11/30 | | | 713,955 | | | $ | 67.98 | | | | 713,955 | | | $ | 48,537 | | | $ | 54,191 | |
| December 12/1 – 12/31 | | | 729,862 | | | $ | 74.25 | | | | 729,862 | | | $ | 54,191 | | | $ | 0 | |
| | | | 6,198,481 | | | $ | 73.87 | | | | 6,198,481 | | | $ | 457,892 | | | $ | 0 | |
|
| | | | | | | | | | | | | |
| | Total Number of Shares Purchased |
| Average Price Paid per Share |
| Total Number of Shares Purchased as Part of a Publicly Announced Plan |
| Total Price Paid for Shares Purchased as Part of a Publicly Announced Plan |
| Maximum Approximate Value of Shares that may yet be purchased under the Publicly Announced Plan |
|
| | (in thousands, except per share data) |
| October 10/1/16– 10/31/16 | 474,118 |
| $ | 77.63 |
| 474,118 |
| $ | 36,804 |
| $ | 363,196 |
|
| November 11/1/16 – 11/30/16 | 756,001 |
| $ | 76.77 |
| 756,001 |
| $ | 58,039 |
| $ | 305,157 |
|
| December 12/1/16 – 12/31/16 | 199,068 |
| $ | 76.13 |
| 199,068 |
| $ | 15,157 |
| $ | 290,000 |
|
| January 1/1 /17– 1/31/17 | 152,601 |
| $ | 77.96 |
| 152,601 |
| $ | 11,897 |
| $ | 278,103 |
|
| February 2/1/17 – 2/28/17 | — |
| — |
| — |
| — |
| $ | 278,103 |
|
| March 3/1/17 – 3/31/17 | 1,121,907 |
| $ | 79.08 |
| 1,121,907 |
| $ | 88,726 |
| $ | 189,377 |
|
| April 4/1/17 – 4/30/17 | 93,628 |
| $ | 79.92 |
| 93,628 |
| $ | 7,483 |
| $ | 181,894 |
|
| May 5/1/17 – 5/31/17 | — |
| — |
| — |
| — |
| $ | 181,894 |
|
| June 6/1/17 – 6/30/17 | — |
| — |
| — |
| — |
| $ | 181,894 |
|
| July 7/1/17 – 7/31/17 | — |
| — |
| — |
| — |
| $ | 181,894 |
|
| August 8/1/17 – 8/31/17 | — |
| — |
| — |
| — |
| $ | 181,894 |
|
| September 9/1/17 – 9/30/17 | — |
| — |
| — |
| — |
| $ | 181,894 |
|
| October 10/1/17 – 10/31/17 | — |
| — |
| — |
| — |
| $ | 181,894 |
|
| November 11/1/17 – 11/30/17 | 2,376 |
| $ | 114.49 |
| 2,376 |
| $ | 272 |
| $ | 181,622 |
|
| December 12/1/17 – 12/31/17 | 218,715 |
| $ | 113.06 |
| 218,715 |
| $ | 24,728 |
| $ | 156,894 |
|
| | 3,018,414 |
| $ | 80.54 |
| 3,018,414 |
| $ | 243,106 |
| $ | 156,894 |
|
On May 1, 2015October 3, 2016 the Company commenced a previously announced share buyback program of up to $60 million under which$400 million. During the year ended December 31, 2017, the Company could acquire its outstandingredeemed a total of 1,589,227 ordinary shares (by wayunder this program for total consideration of redemption), in accordance with Irish law, the United States securities laws and the Company’s constitutional documents through open market share acquisitions. A$133.1 million. At December 31, 2017 a total of 882,4193,018,414 ordinary shares were redeemed by the Company under this buyback program for a total consideration of $57.9 million.
On July 31, 2015 the Company commenced a further buyback program of up to $400 million under which the Company could acquire its outstanding ordinary shares (by way of redemption), in accordance with Irish law, the United States securities laws and the Company’s constitutional documents through open market share acquisitions. A total of 5,316,062 ordinary shares were redeemed by the Company under this buyback program for a total consideration of $400 million. The share buyback program was completed in December 2015. During the year ended December 31, 2015, the Company redeemed a total of 6,198,481 ordinary shares for a total consideration of $457.9$243.1 million.
Under the repurchase programs, a broker purchased the Company’sCompany's shares from time to time on the open market or in privately negotiated transactions in accordance with agreed terms and limitations. The programs are designed to allow share repurchases during periods when the Company would ordinarily not be permitted to do so because it may be in possession of material non-public or price-sensitive information, applicable insider trading laws or self-imposed trading blackout periods. The Company’sCompany's instructions to the broker were irrevocable and the trading decisions in respect of the repurchase programs were made independently of and uninfluenced by the Company. The Company confirms that on entering the share repurchase plans it had no material non-public,, price-sensitive or inside information regarding the Company or its securities. Furthermore, the Company will not enter into additional plans whilst in possession of such information. The timing and actual number of shares acquired by way of the redemption will be dependent on market conditions, legal and regulatory requirements and the other terms and limitations contained in the programs. In addition, acquisitions under the programs may be suspended or discontinued in certain circumstances in accordance with the agreed terms. Therefore, there can be no assurance as to the timing or number of shares that may be acquired under the programs.
Not applicable.
Item 16G. Corporate Governance
See Item 10 “Exemptions"Exemptions from Corporate Governance Listing Requirements under the NASDAQ Marketplace Rules”Rules".
Item 16H. Mine Safety Disclosure
Not applicable.
Part III
See item 18.
Item 18. Financial StatementsStatements.
Reference is made to pages 8180 to 130133 of this Form 20-F.
Item 19. Financial Statements and Exhibits.
Financial statements of ICON plc and subsidiaries
Exhibits
Management's Report on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as at December 31, 20152017 and December 31, 20142016
Consolidated Statements of Operations for the years ended December 31, 2015,2017, December 31, 20142016 and December 31, 20132015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015,2017, December 31, 20142016 and December 31, 20132015
Consolidated Statements of Shareholders’Shareholders' Equity and Comprehensive Income for the years ended December 31, 2015,2017, December 31, 20142016 and December 31, 20132015
Consolidated Statements of Cash Flows for the years ended December 31, 2015,2017, December 31, 20142016 and December 31, 20132015
Notes to the Consolidated Financial Statements
Exhibits of ICON plc and subsidiaries
|
| | |
Exhibit Number | | Title |
| | | |
Exhibit
Number
| | Title
|
| 3.1 | | Description of the Memorandum and Articles of Association of the Company (incorporated by reference to exhibit 3.199.2 to the Form 20F6K (File No. 333-08704) filed on March 6, 2013)July 25, 2016). |
| | |
| | Section 302 certifications. |
| | | |
| | Section 906 certifications. |
| | | |
21.1 23.1*
| | List of Subsidiaries (incorporated by reference to Item 4 of Form 20-F filed herewith). |
| | |
| | Consent of KPMG, Independent Registered Public Accounting Firm |
| | | |
| 101.1* | | Interactive Data Files (XBRL – Related Documents) |
* Filed herewith
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.
The Company’sCompany's internal control over financial reporting is a process designed by, or under the supervision of, the Company’sCompany's executive and financial officers and effected by the Company’sCompany's board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.
A company’scompany's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorization of management and Directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of the inherent limitation due to, for example, the potential for human error or circumvention of control, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s Company's internal control over financial reporting as of December 31, 2015.2017. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework 2013.2013. Based upon the assessment performed, we determined that, as of December 31, 20152017 the Company’sCompany's internal control over financial reporting was effective. In addition, there have been no changes in the Company’sCompany's internal control over financial reporting during 20152017 that have materially affected, or are reasonably likely to affect materially, the Group’sGroup's internal control over financial reporting.
KPMG, whichan independent registered public accounting firm, has audited the consolidated financial statements of the CompanyICON plc and subsidiaries as of and for the year ended December 31, 2015,2017, included herein, and has also auditedissued an audit report on the effectiveness of the Company’sour internal control over financial reporting, under Auditing Standard No. 5 of the Public Company Accounting Oversight Board (United States) and their reportwhich is included aton page 83.81 and 82 of Form - 20F.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The DirectorsTo the shareholders and Shareholdersboard of directors
ICON plc:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of ICON plc and subsidiaries (“("the Company”Company") as of December 31, 20152017 and 2014 and2016, the related consolidated statements of operations, comprehensive income, shareholders’shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated2017, and the related notes (collectively, the “consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)statements”). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ICON plc and subsidiariesthe Company as of December 31, 20152017 and 20142016, and the results of theirits operations and theirits cash flows for each of the years in the three-year period ended December 31, 2015,2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), ICON plc’sthe Company’s internal control over financial reporting as of December 31, 20152017, based on criteria established in Internal Control —- Integrated Framework 2013(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 23, 2016 February 28, 2018 expressed an unqualified opinion on the effectiveness of the Company’sCompany's internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
(signed) KPMG
We have served as the Company’s auditor since 1990.
Dublin, Ireland
March 23, 2016February 28, 2018
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and Directorsdirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The accompanying notes are an integral part of these consolidated financial statements.