Tuesday’s merger of Quintiles with IMS Health Services might trigger other CRO deals affecting the Triangle, says Chapel Hill-based analyst Andrew Schafer of Industry Standard Research.
Also, Wall Street is giving the Q deal the thumbs down as shares tumble 8 percent although not everyone is down on the deal.
What’s going on? Schafer explains.
First, the impact of the Quintiles-IMS merger announced early Tuesday:
“With Quintiles and IMS getting hitched and the rumored talks between LabCorp/Covance and INC Research and companies like inVentiv and Medpace (and likely PPD in the near future) filing to go public, the landscape of the CRO industry is rapidly changing,” Schafer tells WRAL TechWire.
Rumors surfaced two weeks ago that LabCorp might be interested in acquiring Raleigh-based INC.Last year, LabCorp acquired Covance in a multi-billion-dollar deal.
What’s driving the deals?
“We are seeing the largest CROs saying ‘I am big enough, I need to add complementary services’ and the smaller [venture capital/private equity] backed CROs trying to monetize their value,” he added.
The Triangle is a major hub for the CRO industry, so the impact of future deals could be widely felt.
PPD, which is based in Wilmington, has a major operation in the Triangle.
PRA Health Services is based in Raleigh, and Parexel has a large office in Durham.
“We would not be surprised to see several mergers of mid-size CROs in an attempt to quickly gain scale, Schafer said.
“What remains to be seen are any upcoming moves from the larger CROs such as PPD, PAREXEL, PRA and ICON.”
Why negative on Quintiles-IMS deal?
WTW also asked Schafer why Wall Street reacted negatively to the Q-IMS deal also soon as it was announced with Q shares dropping sharply.
“IMS is also down [some] 8 percent,” he pointed out.
While Quintiles and IMS predicted the deal would produce $100 million a year in savings annually within three years, Schafer said that’s not enough for the Street.
“On the surface, this is a merger of two companies that currently don’t have a great deal of overlapping services,” he explained.
“Wall Street typically like to see ‘synergies’ or ‘cost savings,’ and I think this merger will take a bit of time to create value.”
However, Schafer said there is potential for the deal.
“That said, pharmaceutical companies are coming under more pressure to provide value-based evidence to support their commercialization efforts,” he noted.
“It is no longer assumed that just because the FDA, or other regulatory bodies, approve a product that the healthcare ecosystem will pay for it.
“This value-based evidence analysis is moving earlier into the clinical development process and that is just one example of where this merger could create value for pharma.”
Bloomberg columnist praises deal
Not everyone is condemning the deal, see potential.
“Don’t let Quintiles’s tumbling stock price fool you. The drug-development company’s merger with IMS Health is a smart move.,” wrote Bloomberg columnist Brooke Sutherland.
“The two health-care firms are combining in an all-stock transaction to create a business with an enterprise value in excess of $23 billion. IMS is really more of big data company, whereas Quintiles manages clinical trials for drugmakers. And while the two are functionally different, that’s in a way what makes them a perfect match. The anonymous information that IMS mines from physicians, labs and pharmacies can help Quintiles better recruit patients for trials and get a clearer read on how people are using drugs, what the potential market is for new medicines and how drug promotions are received.”
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