Medpace powering biotech innovation

The biopharma market is large and growing, benefiting from multiple durable growth drivers including improved diagnosis of medical conditions, longer human life spans and prevalence of age-related diseases. Penetration of medical treatments is rapidly growing whilst the biotech companies responsible for making drug discoveries face increasingly complex regulations and testing requirements prior to commercialisation. Contract Research Organisations (CROs) are companies that offer biotechs outsourced expertise in successfully navigating and completing clinical trials.

Earlier in the year, Fairlight invested in Medpace, a US-based CRO, focused on developing and operating clinical trials primarily for small biotech clients. While at first glance the business of clinical testing may sound complex, Medpace meets Fairlight’s quality criteria. The company holds a dominant position in an attractive and structurally growing niche market and delivered strong financial outcomes to shareholders for many years.

Biotech funding across the sector has suffered from macro uncertainty and generally been normalising following several boom years during the COVID pandemic. This has slowed  Medpace’s growth in recent quarters to a rate that is below the company’s 17% p.a.long-term average. We believe the long-term growth prospects of the business remain intact.

A specialist, niche leader

Medpace has built significant knowhow and scale advantages over the past 30 years by establishing a network of 40 global offices and conducting thousands of trials across multiple therapeutic areas. Medpace is now uniquely positioned as a full-service, global CRO, managing all aspects of a clinical trial, and in particular, for small to medium sized biotechs. Trials are complicated endeavors and can span multiple years while costing billions of dollars. Typically, smaller biotech businesses are under-resourced and the outcome of a single trial can be the difference between having a successful business or shutting down operations. Clearly, it makes sense to outsource this mission critical work to a specialist like Medpace.

Growing and fragmented market

Medpace’s core customer base of small and highly innovative organisations, is growing faster than the broader market, at a high single-digit to low double-digit percent growth rate on average. These smaller companies are responsible for generating the lion’s share of drug discovery, a share that has been steadily growing for decades. While large CRO competitors have high customer concentration across large pharma companies, approximately 80% of Medpace revenue is exposed to these small biotechs, a segment containing thousands of companies. Medpace has only a 5% market share and therefore a long runway to grow alongside its existing clients and gain market share.

Superior execution

When pitching for new business, Medpace consistently delivers an industry leading win rate. Medpace’s employee retention is higher than the industry average as most staff are hired directly out of college and then trained by senior management throughout their careers. Longevity of the workforce is an important source of competitive advantage as teams who have a long history of working together tend to be more efficient and experience a higher success rate when conducting clinical trials. This track record can then be used to provide evidence that Medpace is the best CRO to partner with.

Medpace has also been managing risk better than peers. While smaller and early-stage biotech clients may signal higher risk, Medpace is renowned for conducting a more rigorous due diligence process than its peers before accepting a potential client. The company recently “fired” clients they believed to have deteriorating financial health, yet some of the same clients were later accepted by competing CROs. Stricter financial hurdles and a fast payment cycle have resulted in a history of zero bad debts while Medpace itself also has no financial debt.

Strong financials

Medpace has a history of delivering consistently positive organic revenue growth, even during the Global Financial Crisis of 2008 (see Figure 1). Organisational scale, higher productivity and low employee turnover have contributed to industry leading EBIT margins above 20%.

Medpace has low capital requirements, consistently converting 100% of profits into free cash flow, which it has historically returned to shareholders via buybacks. Notably, the company has opportunistically repurchased 7% of its shares over the first 6 months of 2025.

Figure 1.

The Fairlight View

Medpace has a superior track record of strong double-digit earnings growth, a differentiated business model and exposure to end markets with long-term structural growth tailwinds. Over the past year, Medpace’s revenue growth has been impacted by a challenged biotech funding environment and investors have been nervous about potential regulatory and political impacts. Fairlight’s long-term investment horizon allowed us to take advantage of what we believe to be temporary cyclical concerns, purchasing Medpace on a substantial discount to our valuation.