Fortune’s recent release of its 2010 list of 100 fastest-growing companies illustrates how sectors that perform in cycles, such as CROs, can either benefit or lose out when measured by a snapshot in time.

ICON Clinical was the only CRO to make it onto this year’s list. The Dublin, Ireland-based firm ranked 95th among publicly-held companies on a list that included such heavy hitters as Apple, and

To garner a spot, companies had to post a minimum of $50 million in revenue and $10 million in income for each of the four quarters that ended on or before April 30, 2009, with a compound annual growth in revenue and earnings per share of at least 15% over the three years ended April 30, 2009.

ICON posted earnings of $96.6 million on revenues of $886.9 million over those four quarters. Earnings-per-share grew at a 29% three-year annual rate with revenue growth at 25% for the same period.

“The challenge is: CROs cycle in and out of favor,” said analyst John Kreger of William Blair, who has been scrutinizing the clinical research outsourcing space for 15 years. “This business ebbs and flows according to who has which contracts when. ICON seemed to be on the good end of that in ‘07 and ‘08. They had the most momentum among their peers and were right at the top of publicly-traded companies every quarter. The others weren’t even close. Then in the last quarter of 2008, they came back down, still looking good but more in line with the pack.”

“In this industry, such a ranking seems less relevant to me than in some other industries where you’d expect movement to take place on a steady trajectory because there are big, stable, growing, consistently profitable companies,” agreed Michael Martorelli, director at investment banking firm Fairmount Partners. “This is not that kind of business—this is a lumpy business.”

“The ranking is just a statistical thing, and I guess that’s nice but it doesn’t mean much,” said Martorelli, a consultant to the CRO industry and a long-time watcher of the space. “Good things happen to bad companies and good companies get unlucky in this sector.”

During the time period examined by Fortune, more stable factors were working in ICON’s favor. Ireland, where the company is based, reduced its tax rate, and the company’s central lab operations started to improve. “Their underlying operating margins got a bit better,” said Kreger.

But what goes up in the CRO space—randomly or otherwise—must come down. “There’s a self-correcting mechanism at work in the industry,” said Kreger. “If you win a lot of business for many quarters, your best people are very busy,” and, subsequently you will start to lose business that might have come in until those people become available again.

“The business tends to be so much about this flow, and these arrangements have a finite life,” he said. “This self-correcting doesn’t allow a horse to break too far out in front of the pack.”

In fact, both Martorelli and Kreger said if the ranking had measured more current numbers—say, just the last four quarters—Parexel would have made the list instead of ICON.

ICON declined to speak with CenterWatch for this report.

—Suz Redfearn


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