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Based in Durham, NC, Quintiles Transnational Holdings (Q) scheduled a $750 million IPO with a market capitalization of $4.9 billion at a price range mid-point of $38 for Friday, May 10, 2013.

9 other IPOs were scheduled for the week of May 6th. The full IPO calendar is here.

  • S-1 filed April 26, 2013
  • Manager, Joint Managers: Morgan; Barclays; J.P. Morgan
  • Co Managers: Citi; Goldman; Wells Fargo; BofA Merrill Lynch; Deutsche; Baird; William Blair Jefferies; Guggenheim Securities; Piper Jaffray; Raymond James; RBC Capital; UBS

SUMMARY
Q is the world's largest provider of biopharmaceutical development services and commercial outsourcing services.

It's the biggest company in the sector, but it's a low gross margin service business, with 25% gross margins.

Q has a balance sheet that's weakened by paying out lots of dividends, resulting in a negative net worth of $879 million. But in Q's case it doesn't matter because business is not capital intensive.

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

  

yr ended Dec 2012

Cap (MM)

Sales

Earnings

BkValue

  

Quintiles Transnational Holdings

$4,925

1.01

27.7

-5.49

  

Price/TanBv: -3.3 %
% offered in IPO: 15%

Glossary

VALUATION
At the mid-point of the price range Q is priced at 28 times earnings and one times sales.

CONCLUSION

Q is a major, heavily branded worldwide company with significant barriers to competition. The IPO will probably be priced to increase from the IPO price. Buy Q on the IPO.

BUSINESS
Q is the world's largest provider of biopharmaceutical development services and commercial outsourcing services.

Q is positioned at the intersection of business services and healthcare and generated $3.7 billion of service revenues in 2012, conduct business in approximately 100 countries and have approximately 27,000 employees.

Since Q's founding over 30 years ago, it has grown to become a leader in the development and commercialization of new pharmaceutical therapies.

Q's Product Development segment is the world's largest contract research organization, or CRO, as ranked by 2011 reported service revenues, and is focused primarily on Phase II-IV clinical trials and associated laboratory and analytical activities.

Q's Integrated Healthcare Services segment includes one of the leading global commercial pharmaceutical sales and service organizations. Integrated Healthcare Services provides a broad array of services, including commercial services, such as providing contract pharmaceutical sales forces in key geographic markets, as well as a growing number of healthcare business services for the broader healthcare sector, such as outcome-based and payer and provider services.

Product Development contributed 74% and Integrated Healthcare Services contributed 26% to 2012 service revenues.

MARKET TRENDS

  • Trends in R&D Spending: Q estimates that R&D spending was approximately $135 billion in 2012 and will grow to approximately $139 billion in 2015, with development accounting for approximately 68% of total expenditures.

In 2012, there were approximately 4,028 drugs in the Phase I-III pipeline, an increase of 18% since 2008, and there were 39 NME approvals by the United States Food and Drug Administration, or FDA, which was 1.3 times the number of NME approvals in 2011 and nearly 1.9 times the number of approvals in 2010.

  • Growth in Outsourcing: Q estimates that clinical development spending outsourced to CROs in Phases I-IV in 2011 was approximately $16 billion and will grow to approximately $22 billion by 2015.

Q expects outsourced clinical development to CROs to grow 5%-8% annually during this period. Of this annual growth, Q believes that up to 2% will be derived from increased R&D expenditures, with the remainder coming from increased outsourcing penetration.

  • Increasing Number of Phase II-IV Clinical Trials.

STRENGTHS
Based on reported 2012 consolidated service revenues, Q is nearly 1.7 times the size of the closest CRO competitor, and Q believes that is has the largest share of the outsourced global clinical and commercialization markets.

Based on competitors' 2012 reported service revenues, Q believes it is the market leader in the United States, Japan and Europe, the three largest biopharmaceutical markets in the world.

In 2012, Q had revenues of nearly $800 million in the Asia-Pacific region, where Q has had a presence since 1993.

HISTORY
Q was founded in 1982 by Dennis B. Gillings, CBE, Ph.D., who was a biostatistics professor at the University of North Carolina at Chapel Hill.

Dr. Gillings and his cofounder pioneered the use of sophisticated statistical algorithms to improve the quality of data used to determine the efficacy of various drug therapies.

Q expanded internationally into Europe in 1987 and into Asia in 1993. In 1994, Q had grown to over $90 million in revenues and completed an initial public offering through Quintiles Transnational.

As a public company, Q grew both organically and through acquisitions, adding a variety of new capabilities.

In September 2003, Q completed a going private transaction, with Quintiles Transnational becoming owned by a group of investors that included Dr. Gillings.

In January 2008, Quintiles Transnational engaged in what Q refers to as the Major Shareholder Reorganization, which resulted in ownership by:

• Dr. Gillings (and his affiliates);

• funds advised by Bain Capital Partners, LLC, together with their affiliates, Bain Capital;

• affiliates of TPG Global, LLC, or the TPG Funds (we refer to TPG Global, LLC as "TPG Global" and, together with its affiliates, "TPG");

• affiliates of 3i Corporation, or 3i;

• an affiliate of Temasek Holdings (Private) Limited, or Temasek;

• certain other shareholders who participated in the going private transaction; and

• various members of our management.

DIVIDEND POLICY
"Following completion of the offering, our Board does not currently intend to pay dividends on our common stock. However, we expect to reevaluate our dividend policy on a regular basis."

Dividends paid the last three years:

In 2012, Q had net income attributable to shareholders of $177.5 million and paid aggregate dividends to shareholders of $567.9 million.

In October 2012, the Board declared a cash dividend of $2.09 per share (or $241.7 million in the aggregate) to shareholders of record as of October 24, 2012.

In February 2012, the Board declared a cash dividend of $2.82 per share (or $326.1 million in the aggregate) to shareholders of record as of February 29, 2012.

In 2011, Qe had net income attributable to shareholders of $241.8 million and paid aggregate dividends to shareholders of $288.3 million, comprised of a June 2011 cash dividend of $2.48 per share.

In 2010, Q had net income attributable to shareholders of $160.6 million and paid aggregate dividends to shareholders of $67.5 million, comprised of a November 2010 cash dividend of $0.58 per share.

5% SHAREHOLDERS PRE-IPO
Dennis B. Gillings, CBE, Ph.D. and affiliates, 23.5%

Bain Capital and related funds, 23%

TPG Funds, 23%

Affiliates of 3i, 15%

Temasek Life Sciences Private Limited, 9.7%

USE OF PROCEEDS
Shareholders intend to sell 5.9 million shares.
Q intends to sell 13.8 million shares to net $490 million. Proceeds are allocated as follows:

$356 million to repay debt

$25 million to terminate management agreement with Dr. Gillings (the founder) and the Sponsors.

Balance for general corporate purposes.

Disclaimer: This Q IPO report is based on a reading and analysis of Q's S-1A filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Quintiles Transnational Holdings