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PPD reportedly considering a sale as results season nears

By Nick Taylor+

18-Jul-2011

CRO financial results season begins this week amid reports PPD could be sold, with other service providers and private equity viewed as potential bidders.

A report in the Wall Street Journal over the weekend quoted anonymous sources who said PPD is considering a sale. Private equity firms and larger contract research organisations (CRO) were both suggested as potential bidders for PPD.

 

Market share estimates by Jefferies & Company put PPD as the third largest CRO, behind Covance and Quintiles. The size of PPD limits the number of CROs that could acquire it, and analysts have doubted the likelihood of CRO mega-mergers, but the WSJ claims it is a possibility.

 

Eric Coldwell, equity analyst at RW Baird, said: “Management will not comment, though sale exploration would not surprise us given the multitude of transactions in the space and PPD’s currently discounted valuation.”

 

Acquisition by a private equity firm would fit with recent activity, which has seen a number of mid-tier CROs taken over by investors. However, as a leading CRO with a market capitalisation of $3.2bn (€2.3bn), PPD is significantly larger than other firms recently bought by private equity.

 

Privately owned, mid-tier CRO PRA International has more in common with recently bought companies and, according to the WSJ, is also up for sale. PRA was bought by private equity firm Genstar for $700m in 2007 and could be sold again if a bid of more than $1bn is received.

 

In May Outsourcing-Pharma reported that 10s of CROs were up for sale and, with many investors looking to buy, the private equity acquisition spree would continue. Since then INC has bought Kendle, inVentiv has acquired PharmaNet, and Medpace has been taken over by private equity.

 

Results season

 

This week the remaining public CROs begin reporting their financial results. PPD files its forms next week for what is expected to be the last quarter before revenues ramp up. Strategic deal wins will play a role in the ramp up but PPD has also suffered some losses in this area.

 

PPD’s prior inflexibility does continue to haunt it in strategic provider competition currently. In addition to incumbency losses at Bristol-Myers and Takeda, PPD was also a rare full-service provider doing work for Pfizer”, said David Windley, equity analyst at Jefferies & Company.

 

Icon is in line to do some of the work Pfizer is outsourcing and will update on the deal’s progress in its financial results later this week. Revenues from the deal will have considerable impact on how Icon performs over the coming 18 months.

 

Our bias is positive as focus shifts to 2012 which should benefit from Pfizer partnership contribution, continued central lab recovery, and a continually improving market backdrop”, said Coldwell.

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