Quintiles Sees Gain From Drugmaker Cost Shift After IPODrew Armstrong and Lee Spears
Quintiles Transnational Holdings Inc., the contract pharmaceutical company that had its initial public offering today, sees an opportunity in the move by drugmakers to smaller sales forces and more focused research-and-development spending.
As drug companies cut the size of their field force, Quintiles will provide them the flexibility to help sell new medicines with lower fixed costs, Chief Executive Officer Tom Pike said.
“While the pharmaceutical firms have been downsizing their sales forces, many of them are introducing new products over the next several years,” Pike said in a telephone interview. “Many of them don’t want to take the risk of adding headcount with somewhat uncertain sales targets.”
Quintiles is the biggest provider of testing services to drugmakers. It jumped in trading today after raising $947.4 million, 20 percent more than sought, in a U.S. initial public offering.
The shares rose 5.3 percent to $42.11 at 4 p.m. in New York. Quintiles and its owners sold 23.7 million shares yesterday for $40 each, after offering 19.7 million for $36 to $40 apiece, regulatory filings show. The stock sold is equivalent to an 18 percent stake.
The company has two main business units that are divided into helping drugmakers test and develop their products, and then helping market them to health-care providers like doctors and hospitals once they’re approved.
Drugmakers, including AbbVie Inc. and Pfizer Inc., are turning away from primary care medicines that require large clinical trials and huge standing sales forces. Pike said that the industry shift wouldn’t harm their business, though it would change it.
“Our belief is that those trials are actually more complicated,” he said. “So, in terms of the business moving forward, you may be trading a very large trial in terms of size for one that may be smaller but probably has more procedures and more science in it.”
Pike said the company is focused on getting the operating margin higher in the sales marketing side of the business. The company last year reported an operating margin of 8.5 percent, down 2.2 percentage points from 2010. The drug development side has a margin of 17.5 percent, while the sales side is lower, Pike said.
“The two businesses, what we generally see, on the product development side -- stable, and on the integrated health care side -- opportunities for improvement,” Pike said. “We’re always trying to figure out ways we can lower our costs. At the same time, we’re trying to balance bringing high-value services for them. We think this combination of being cost-effective in some services and bringing high-value services is really what our customers need.”
Quintiles and owners including TPG Capital and Bain Capital LLC completed the sale amid a surge in demand for stocks, as the Standard & Poor’s 500 Index posted a fifth-straight record yesterday. The Durham, North Carolina company joins private-equity-backed companies such as Taylor Morrison Home Corp. and SeaWorld Entertainment Inc. that have taken advantage of the rising market to accomplish some of this year’s biggest IPOs.
The offering price values Quintiles at $6.6 billion including debt, data compiled by Bloomberg show. That compares to an enterprise value of about $3.8 billion for Quintiles at the time of its 2008 buyout, a person familiar with the terms said in September.
The offering was enlarged to allow Quintiles’s owners to sell more stock, while the company itself sold fewer shares than planned, filings show. Existing owners including TPG, Bain, London-based 3i Group Plc and Singapore state-owned asset manager Temasek Pte sold 10.6 million of the shares in the IPO, 78 percent more than they had originally filed to sell, while Quintiles sold 13.1 million shares, or about 5 percent less than planned, according to filings.
TPG and Bain, which led the 2008 purchase of Quintiles, reduced their stakes to 19 percent each, according to filings. Executive Chairman Dennis B. Gillings, who founded the company more than three decades ago, also sold stock in the IPO, reducing his ownership to 19 percent from 24 percent.
Quintiles generated $4.87 billion of revenue in 2012, 12 percent more than in the previous year, and conducted business in about 100 countries, filings show. Net income last year fell 27 percent to $176.6 million.
The stock is listed on the New York Stock Exchange under the symbol Q. The offering was led by Morgan Stanley, Barclays Plc and JPMorgan Chase & Co.