Last week’s decline in QuintilesIMS shares after the company created by the merger of Quintiles and IMS Health announced that former Quintiles CEO Tom Pike was retiring could be a sign investors are wary of the short-term impact of integrating the two businesses.
Quintiles shares fell nearly 10 percent over a two-day span following the surprise announcement of Pike’s departure, but rebounded somewhat Friday and were on the rise again on Monday. Shares were trading at $75.31 Monday, up $1.28 for the day but still down 7 percent from where the shares were trading prior to the disclosure of Pike’s retirement. Pike’s last day on the job was Friday.
“Our view has been that the CRO business can be sensitive to disruption from large mergers,” Wells Fargo Securities analyst Tim Evans wrote last week in a research note. “While the Q/IMS merger is admittedly one-of-a-kind, we think the early departure of Mr. Pike will likely heighten investor focus on the potential disruption risks.”
CROs, or contract research organizations, help pharmaceutical and biotechnology companies conduct clinical trials of experimental drugs and analyze the results. Quintiles was the world’s largest CRO at the time of the merger; IMS was a healthcare information company best-known for its vast array of healthcare data encompassing prescription and over-the-counter drugs, medical claims, electronic medical records and social media.
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Evans also noted, however, that “the early transition lends credibility to acceleration of cost synergies, which is a bullish point for the merger.”
QuintilesIMS said last month that it expects the merger completed in October will enable it to realize annual cost savings of $200 million by the end of 2019, up from $100 million when the deal between Durham-based Quintiles and IMS of Danbury, Conn. was originally unveiled. The combined company has dual headquarters in both cities.
Pike, who had led Durham-based Quintiles since 2012, became vice chairman and president of the combined company’s Research & Development Solutions business unit. IMS CEO Ari Bousbib became chief executive and chairman of the combined company – a position that IMS had insisted upon if the merger was to go through, according to regulatory filings.
Pike was replaced as president of the research and development solutions unit by W. Richard Staub III, 54. Staub came to Quintiles in 2013 when the company paid $146.5 million to acquire Morrisville-based Novella Clinical, where he was CEO.
In June Quintiles' board of directors, worried about losing Pike after the merger was completed, agreed to pay him $9.5 million in cash plus stock valued at $7 million if he remained with the combined business through the end of 2017.
Although Pike forfeited those inducements, he didn’t leave empty-handed.
According to a filing with the Securities and Exchange Commission, Pike will receive an amount equal to two times his base salary on Dec. 2. In June, Pike’s annual salary was $1.2 million.
Pike also will receive his 2016 cash bonus, the projected cost of the continuation of his health coverage for him and eligible dependents and a $1 million cash payment. In addition, his 60,524 shares of unvested restricted stock will vest immediately. However, Pike will forfeit the 86,356 unvested shares he received in connection to the closing of the merger.
The company noted that Pike’s retirement was “a personal decision and was not due to any disagreement with the company on any matter relating to the company’s operations, policies or practices.”
Quintiles also said the transition in management “had always been anticipated and is part of a planned succession,” but was “accelerated by rapid implementation of the company’s strategic and operational changes.”
But analyst Eric Coldwell of Robert W. Baird & Co. has “a more cynical view.”
“Richard Staub may prove a capable successor, but we believe that Pike’s early transition may suggest continued legacy Quintiles performance, integration and BD (business development) challenges” following the company’s mixed third-quarter results, Coldwell wrote in a research note.