So what’s really going on at Quintiles, the world’s largest life science services firm that soon may go public again?

On Friday, the RTP-based global conglomerate disclosed plans to drop its status as a privately held firm through a stock offering of an estimated $600 million.

Finance expert Bob Broda, who leads RTPO-based Visage Solutions which is focused on compliance issues with an emphasis on Sarbanes-Oxley, reviewed the Quintiles filing at the request of WRAL Tech Wire and offers his views on where Quintiles stands plus where it seems to be headed.

Broda’s analysis:

I’m not necessarily an analyst so I’ll stay away from the $$$$ projections, there are people who do that as a full time basis and their “guess” will definitely be more accurate than mine,

I did spend a few hours looking through the document which had some interesting info.

In 2012, they hired Thomas Pike as CEO and have compensated him well, as a matter of fact, all senior executives received substantial stock options in 2012, plus there are over 1m shares in reserve for additional incentives. In 2012 they issued $567.9m dividends to the stock holders, but they state “Since we have no current plans to pay regular cash dividends on our common stock following this offering, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.”

As you would expect, they compensate their executives well. They all have exceptional benefit and termination plans. Quintiles paid a rather substantial fee for use of Dr. Gilling’s plane, in 2012 they paid over $4m for a little over 300 hours of flight time, maybe that will change when they become public.

Although the new investors will be hoping to see the company grow, a substantial amount raised will used to pay down debt or to benefit the existing shareholders who you would expect to benefit the most from the IPO. The largest shareholders are:

  • Dennis B. Gillings, CBE, Ph.D. and affiliates, 27,681,669; 23.7 %
  • Bain Capital and related funds, 26,481,659; 22.9 %
  • TPG Funds,  26,481,658; 22.9 %
  • Affiliates of 3i,   17,497,087; 15.1 %
  • Temasek Life Sciences Private Limited, 11,271,069; 9.7 %

There are currently over 115 million shares outstanding with an adjusted with a current diluted share price of $17.10, so raising $600 million should not reduce the percentage of holding substantially. As a matter of fact, they state “Our current investors will retain significant influence over us and key decisions about our business following the offering that could limit other shareholders’ ability to influence the outcome of matters submitted to shareholders for a vote”. So unless a group invests substantially, don’t expect any shake-up at the board because of the IPO.

The people who invest in Quintiles will be doing so purely on the share price growing, as long as the executives are motivated the same way (and it appears that they are), chances are good that will happen.

In 2012, Quintiles service revenues was $3.7 billion, net income was $177.5 million(5%), non-GAAP adjusted net income was $208.9 million(6%), and non-GAAP adjusted EBITDA was $543.7 million(15%). They state that In addition, 2012 net new business was $4.5 billion but that was more that the total service revenues so expect an adjustment on those numbers. They ended the year with $8.7 billion in backlog (2+ years of revenue) but they also don’t expect the turnover rate (to revenue) to be as good as 2012 was.

Most people may know their basic services provided in CRO activity, but they may not realize they have developed a planning and design platform with Eli Lilly and Company, and are jointly developing software solutions with Allscripts Healthcare Solutions, Inc., to enable improvements to the drug development process and demonstrate the value of biopharmaceutical products in the real world. They have obtained or applied for more than 60 patents in connection with the development of their proprietary technology, systems and processes. They currently have access to EHR [electronic health records] data representing more than 40 million patient lives to help in Research and Development activities. This may drive share price higher than you may expect for the typical services company.

So although, the executives have positioned the themselves and the current investors well, and this may or not be an exit strategy for Dr Gillings, they have written the prospectus with growth in mind and lowering the overall debt by a few hundred million would make them more flexible for growth.



About the author: Bob is the founder and Managing Partner of Visage Solutions, LLC. Bob has assembled a team of experienced executives, managers and consultants whose focus is on achieving effective and efficient regulatory compliance.

Bob has spoken at several national events on the subject of Sarbanes-Oxley and provided executive level consultation on Sarbanes-Oxley compliance projects. Bob’s expertise is in the areas of implementation of business processes and systems, Compliance Strategy and Management, Risk Assessments, and development of remedial and sustainability strategies.

Besides executive level consulting, Bob has led a variety of projects including Risk Assessments, IT Security Assessment, Compliance Strategy, SAS70s, Q/A between two of the Big Four, Software selection and implementation, international training.

Prior to forming Visage, Bob was Vice President and General Manager at an international conglomerate, holding profit and loss responsibility for a software and services business unit. In the three years that Bob was at Invensys, he was instrumental in turning the business unit around and improving customer satisfaction metrics.

Bob earned a B.S. in Information Systems from Kings College and an Executive MBA from Southern Methodist University.