The first time that pharmaceutical services giant Quintiles was a publicly traded company, its stock suffered because Wall Street was perplexed by a series of unorthodox fee arrangements the business negotiated with customers.
That shouldnt be an issue if the Durham-based company, which went private in a leveraged buyout in 2003, moves forward with its plans for a new initial public offering of common stock. The reason: Quintiles spun off BioPharma, the business unit at the heart of those unconventional contracts, to its shareholders in December 2009.
Under Quintiles, BioPharmas modus operandi was investing in pharmaceutical and biotechnology companies that also were its customers and, rather than accepting straight fee-for-services contracts, negotiated royalty payments tied to future sales of customers drugs. Wall Street analysts were at a loss over how to value these deals, which hurt the companys stock price and frustrated founder and then-CEO Dennis Gillings.
Now, nearly a decade later, Quintiles is seeking to go public again but BioPharma is no longer part of the company. But it hasnt sworn off the BioPharma business model altogether.
We may enter into arrangements with our customers in which we take on some of the risk of the potential success or failure of the customers businesses or drugs, including making strategic investments in our customers, providing financing to customers or acquiring an interest in the revenues from customers drugs, Quintiles states in its filing.
Quintiles plans to raise $600 million from the public via an IPO, according to its Securities and Exchange Commission filing. The filing doesnt disclose how big an ownership stake the company intends to sell to raise that money, which would shed light on what Quintiles and its blue-chip financial advisors believe the company is worth. Companies typically disclose such information as they get closer to going public.
Quintiles spokesman Phil Bridges declined to comment, citing securities regulations that limit what companies can say once theyve officially initiated the process of going public.
Quintiles is best-known as a contract research organization, or CRO, that helps pharmaceutical and biotechnology companies test experimental drugs. The financial information Quintiles disclosed in its filing shows that the company has roughly doubled in size, in terms of revenue, since it went private, including healthy growth in recent years. In 2012 the companys annual revenue rose 12.1 percent to $3.7 billion, on top of a 7.6 percent advance in 2011.
Net income, however, declined 26.6 percent to $177.5 million in 2012, due to increased costs, including costs associated with businesses acquired in late 2011 and last year.
Although Quintiles overall employment has been expanding, the company has made selective job cuts in order to cut costs, according to its SEC filing. A 2012 restructuring eliminated 280 jobs, primarily in Europe, to achieve annual cost savings of between $15 million and $25 million. Also, 290 jobs, primarily in North America and Europe, were eliminated in 2011. The company has more than 27,000 employees worldwide, including more than 2,000 in the Triangle.
The SEC filing also provides a window into how Gillings and the other private shareholders have wrung cash out of the business. Gillings, who founded the company in 1982, currently is the largest shareholder with a 23.7 percent ownership stake. Four private equity firms Bain Capital, TPG Capital, Temasek and 3i Corp. own another 70.6 percent.
Despite its significant debt, which totaled $2.4 billion as of Dec. 31, Quintiles has paid about $1.5 billion in dividends to its shareholders since 2008, including $568 million last year.
Investors who are considering buying IPO shares shouldnt look forward to those kinds of dividends, however, or any dividends at all. Although we have previously declared dividends to our shareholders, we do not anticipate paying any regular cash dividends on our common stock following this offering, Quintiles states in its filing.
In addition, among the perks received by Gillings is reimbursement when he uses his private plane for business travel at the rate of $13,502 per hour. Reimbursements totaled $4.3 million in 2012 and $5.1 million in 2011. Overall, Gillings compensation package last year, which doesnt include the aircraft reimbursement, totaled $6.4 million.
Companies looking to go public are required to compile a compendium of risk factors for investors to consider.
The list compiled by Quintiles includes the fact that it will be considered a controlled company because Gillings and the private equity firms would own a majority of the companys stock after an IPO.
As a controlled company, Quintiles will be exempt from some certain corporate governance requirements designed to protect shareholders. For example, a majority of the companys board of directors wont be required to be so-called independent directors, nor will the compensation committee have to consist solely of independent directors.
Following this offering, we intend to utilize these exemptions, Quintiles states in its filing. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements.
Among the people now on Quintiles board of directors is Gillings second wife, Mireille Gillings, who joined this month. Mireille Gillings is the founder and CEO of HUYA Bioscience International, a San Diego company focused on accelerating the development of drugs that originate in China. Dennis Gillings married her after divorcing his first wife, Joan Gillings, following a nasty courtroom battle.