Quintiles, the world’s largest pharmaceutical services company, is combining with healthcare information giant IMS Health Holdings in an all-stock deal valued at $23 billion.
The two publicly traded companies combined have more than 50,000 employees and generated $7.2 billion in revenue last year.
The deal is being billed as a merger of equals, and the combined company – Quintiles IMS Holdings – plans to maintain dual headquarters in Durham and Danbury, Conn. The merger, which already has been approved by the companies’ boards of directors, is expected to close in the second half of this year.
“Two strong companies made better together,” Ari Bousbib, the chairman and CEO of IMS, said during a conference call Tuesday morning after the deal was announced. “This merger is about growth.”
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Quintiles CEO Tom Pike told analysts that the merger will create “a smarter CRO” by combining Quintiles’ expertise and IMS’s wealth of data to help drug companies get their products to market faster. He also said the deal will produce “the world’s leading healthcare intelligence company.”
Contract research organizations such as Durham-based Quintiles, which is the industry’s market leader, help pharmaceutical and biotechnology companies conduct clinical trials of experimental drugs and analyze the results.
IMS is more than 60 years old and is best-known for its vast array of healthcare data encompassing prescription and over-the-counter drugs, medical claims, electronic medical records and social media. Its customers across the healthcare spectrum use that data to gain insights into diseases, treatments and costs. IMS also provides market research and forecasts and consulting services; and it processes more than 55 billion healthcare transactions annually.
As of the end of the day Monday, Quintiles and IMS had a combined market capitalization – the total value of their outstanding stock – of $17.6 billion. Add in the two companies’ combined debt and the deal is valued at $23 billion.
While IMS has the larger market cap – $8.9 billion versus $8.3 billion – Quintiles is the larger company in terms of 2015 revenue, $4.3 billion versus $2.9 billion for IMS.
Quintiles also has more than 36,000 employees, versus 15,000-plus for IMS. Nearly 3,100 of Quintiles employees are based in North Carolina, including 2,500 in the Triangle.
Although Bousbib stressed that “this is not a cost-driven merger,” the combined company expects to realize annual savings of $100 million in three years.
“As you would expect, savings will come from rationalizing geographic overlaps, administrative costs and duplicative technology infrastructure of the combined company,” Bousbib said.
Job cuts weren’t specifically mentioned on the conference call but would be inevitable in such a cost-cutting scenario.
Bousbib will be chairman and CEO of the combined company. Quintiles CEO Tom Pike will become vice chairman.
Dennis Gillings, Quintiles’ founder, will be the lead director. The company’s board will consist of six directors named by Quintiles and six named by IMS.
“This is a transformational merger for both companies, one that has long been a vision for Quintiles founder Dr. Dennis Gillings,” Bousbib said. Gillings stepped down as executive chairman of Quintiles’ board of directors at the end of last year but remained on the board as a director.
Investors didn’t embrace the deal. Shares of Quintiles fell $1.64, or 2.4 percent, to close Tuesday at $67.46. IMS’ shares dropped 95 cents, or 3.5 percent to close at $25.92.
William Blair & Co. analyst John Kreger said in a research note that he expected investor reaction to be “muted” because neither of the shareholder groups are receiving a premium in the deal and because “integration risks are higher in a merger-of-equals.”
The two companies project that, in three years’ time, annual revenue growth will be accelerated by 1 percent to 2 percent as a result of the merger.
In merging with IMS, Quintiles gains access to IMS’s more than 15 petabytes of healthcare data. A petabyte is a thousand terabytes; a terabyde is approximately 1 billion bytes.
“While the deal is surprising to us based on its sheer magnitude, it does fit with Quintiles’ overall thesis of pushing toward more use of data,” Wells Fargo analyst Tim Evans wrote in a research note. “We view it as a signal of where the pharma services industry is heading – more use of data to optimize outcomes.”
Quintiles was an industry pioneer when it was founded in 1982 and its presence in the Triangle has helped make the region the epicenter for CROs. The Triangle is home to more CROs than any other region in the world, including three of biggest – Quintiles, INC Research and PRA Health Sciences. A fourth, PPD, is based in Wilmington and has large presence in the region.
Quintiles was publicly traded from 1994 until 2003, when Gillings – a former biostatistics professor at UNC-Chapel Hill – led a $1.7 billion leveraged buyout that took the business private. The company returned to the public markets in May 2013 when it raised nearly $950 million from investors.
IMS shareholders will receive 0.384 shares of Quintiles common stock for each IMS share that they own, giving them a 51.4 percent ownership stake in the merged company. Quintiles shareholders will own 48.6 percent.
Quintiles and IMS got to know each other better beginning in October, when they formed a strategic alliance designed to accelerate the recruitment of patients for clinical trials as well as improve trial designs.
That deal gave Quintiles access to more than one-half billion patient records – all of them anonymous – compiled by IMS, enabling Quintiles to reach out to doctors whose patients fit the needs of a particular clinical trial. Failure to recruit sufficient patients in a timely manner is the No. 1 cause of delays in clinical trials.
The alliance between the two companies was instrumental in the decision to merge. Not only did the companies’ employees work together effectively, Pike said, but there has been “very strong demand for our joint offerings” that exceeded expectations.
Quintiles also provides sales forces that promote prescription drugs for its pharmaceutical customers. Those salespeople also can be more effective armed with IMS data, Pike said.
If either company is responsible for ending the merger, they would have to pay the other a $250 million termination fee.
Both companies also released their first-quarter results Tuesday.
Quintiles’ service revenue rose 7.6 percent to $1.11 billion. Its adjusted net income totaled $108.3 million, up 18.7 percent from a year ago.
IMS revenue rose 22.5 percent to $774 million. Adjusted net income rose 3.3 percent to $140 million.