Private Equity Changes CRO Landscape With PPD Buyout (PPDI, CRL, CVD, PRXL)

October 3, 2011 · Filed Under Financial, M&A, R&D, Research · 3 Comments 

The world of contract research organizations is changing.  The unexpected news hit the wire this Monday that Pharmaceutical Product Development, Inc. (NASDAQ: PPDI) is being acquired.  This was no gobble-up acquisition where a larger public company preyed on a smaller company.  This was a private equity transaction.

PPD has entered into a definitive merger agreement to be acquired in a $3.9 billion cash buyout by affiliates of The Carlyle Group and Hellman & Friedman.  The terms of the deal call for the assumption of liabilities and for the common holders to receive $33.25 per share in cash.  Before today, the trading range had effectively been $25 to $32 but the stock closed at $25.66 on Friday and that implies a near-30% premium.

PPD has also been north of $40 in the last 5-year period.  That being said, the board of directors has unanimously approved the deal and is recommending that shareholders vote for the transaction.

The attraction here is the CRO business, which aims to help pharmaceutical and biotech companies develop new drugs at lower costs and with less inside oversight.

As you would expect, the deal is subject to approvals and to regulatory reviews, but the transaction is not subject to any financing conditions. The funds combined between Hellman & Friedman and Carlyle were listed as nearly $22 billion and it was also noted that external debt financing is being provided by Credit Suisse, JP Morgan, Goldman Sachs and UBS.

PPD does have a “Go Shop” provision as the terms allow the company to go solicit acquisition proposals from third parties for a period of 30 calendar days from the date of the merger agreement.  PPD can also respond to unsolicited proposals that the board “determines are reasonably likely to result in a superior proposal.”  Carlyle and Hellman & Friedman were given a “right to match” term and the current merger is expected to close in the fourth quarter of 2011.

PPD has offices in 44 countries and more than 11,000 professionals worldwide.

Charles River Laboratories International Inc. (NYSE: CRL) is up 1.5% at $29.05 and its 52-week range is $27.76 to $42.84.

Covance Inc. (NYSE: CVD) is up 1.3% at $46.07 and the 52-week trading range is $43.00 to $63.86.

Paraxel International Corp. (NASDAQ: PRXL) is up 3% at $19.45 and its 52-week range is $15.26 to $27.91.

JON C. OGG

Are Contract Research Organizations The Next Bubble? (CRL, CVD, PRXL, PPDI, PDG)

November 6, 2008 · Filed Under General, R&D · Comments Off 

Contract research organizations, or CRO’s, were one great growth story.  They were in the sweet spot of the drug and biotech sectors and generated massive growth for investors.  The CRO companies were also set to be serious winners as biotech and drug companies pursued cost-cutting strategies which drove business straight to the CRO’s.  But there is a reason all of the prior sentences are in the past tense.

Today we saw more evidence that CRO’s are not only not immune to the current economy, they are now under fire.  Charles River Laboratories International Inc. (NYSE: CRL) dropped the ball that it was cutting its guidance for 2008.  The trends we saw in early August appear to coming to a crashing halt.

Last night the CRO gave earnings with a 4% rise to $0.63 EPS.  Outside of charges, it earned $0.76 EPS.  Its revenues also grew by 9% to $342.2 million.  Thomson Reuters was expecting estimates of $0.75 EPS on $347.8 million in revenues.

But guidance is what destroyed the stock.  It took a prior earnings range of $2.94 to $3.00 EPS down to a new lower range of $2.83 to $2.87 EPS.  The company noted that its clients continue to invest in drug discovery and development, but noted that clients are facing a range of unprecedented challenges from drugs losing patent protection to the availability of funding for small biotech companies.  It also cited drug commpanies cutting jobs, cuttiung costs, shifting to later-stage drug development programs, and either outright putting projects off or pushing out current projects to 2009.

Charles River shares and shareholders are paying a major price for this today, as this stock is down 21% at $26.60.  This is also a new 52-week low as the prior range had been $30.80 to $69.19.

More and more drug companies have been farming out an increasing amount of their research to firms like Charles River Labs and Covance Inc. (NYSE: CVD).  Those shares are down over 8% at $50.21 in sympathy with Charles River, and its 52-week trading range is $41.65 to $99.08.

Paraxel International Corp. (NASDAQ: PRXL) is also down over 9% at $9.22, although its 52-wee ktrading range is $6.84 to $36.16.

Pharmaceutical Product Development Inc. (NASDAQ: PPDI) is down over 6% at $26.97, and its shares have traded in a range of $24.65 to $49.39 over the last year.

PharmaNet Development Group, Inc. (NASDAQ: PDGI) is one of the few up on the day, but that is just marginally.  This stock has also been torn apart and trades down more than 95% from its former highs as it has been losing money.

On election day, we noticed that there were many winners in drug and biotech stocks but the CRO stocks were performing horribly.

We would also like to note that this means also may put on additional job pressures even in the CRO sector.  We noted that the drug and biotech cutbacks would allow the CRO’s to hire many more qualified workers at lower rates, but now the firms may have to focus on costs to hire rather than than quality at a cost.

This could be a very sad trend if this continues.  The belief is that this is a temporary event as credit is hard to get and as venture funding may be down.  But what if it isn’t?   We have been wondering what laid off bank tellers, mortgage brokers, real estate employees, and stock brokers will do after the next wave of layoffs hits Wall Street and Main Street.  But what exactly do laid off workers the medical and clinical research sectors go do as their next career?  Whatever it is, it is likely for much lower pay.

Jon C. Ogg
November 6, 2008

Bio-Pharma R&D Jobs At Risk, CRO's Licking Their Chops

September 30, 2008 · Filed Under R&D · Comments Off 

There have been two very interesting news bits today in research and development in drug and bio-health companies.  The ramifications are also rather scary if you have been monitoring this segment over the last few years as one of the few havens in high-pay medical and bio-health jobs.

  • Today the WSJ reported that GlaxoSmithkline (NYSE: GSK) informed employees that the drug giant may cut 850 jobs in R&D, or about 6% of that segment as part of its ongoing cost cutting measures.
  • Pfizer (NYSE: PFE) is also cutting R&D. It is abandoning its early-stage work in heart disease, and is dropping research projects in obesity and bone density, but seeks for partners to carry on the work. The company is targeting 15-20 regulatory submissions in the period 2010-2012.

In the very recent past we have noted how Eli Lilly & CO. (NYSE: LLY) signed an agreement with contract research organization Covance Inc. (NYSE: CVD) in a transformation of Lilly’s current R&D model.

This may be bad for new-hire wages in the R&D arena in the biohealth sector.  This all may bode well for all of the medical and bio-health contract research organization (CRO’s).  Here are some stocks with CRO as their main operations or with significant exposure:

  • Charles River Laboratories International Inc. (NYSE: CRL)
  • Covance Inc. (NYSE: CVD)
  • Parexel International Corp. (NASDAQ: PRXL)
  • Pharmaceutical Product Development Inc. (NASDAQ: PPDI)
  • PharmaNet Development Group Inc. (NASDAQ: PDGI)

Between this wave of cutting R&D personnel and the flood of biotech mergers, it looks as though things are changing wildly in R&D.

Jon C. Ogg
September 30, 2008

Bio-Pharma R&D Jobs At Risk, CRO's Licking Their Chops

September 30, 2008 · Filed Under R&D · Comments Off 

There have been two very interesting news bits today in research and development in drug and bio-health companies.  The ramifications are also rather scary if you have been monitoring this segment over the last few years as one of the few havens in high-pay medical and bio-health jobs.

  • Today the WSJ reported that GlaxoSmithkline (NYSE: GSK) informed employees that the drug giant may cut 850 jobs in R&D, or about 6% of that segment as part of its ongoing cost cutting measures.
  • Pfizer (NYSE: PFE) is also cutting R&D. It is abandoning its early-stage work in heart disease, and is dropping research projects in obesity and bone density, but seeks for partners to carry on the work. The company is targeting 15-20 regulatory submissions in the period 2010-2012.

In the very recent past we have noted how Eli Lilly & CO. (NYSE: LLY) signed an agreement with contract research organization Covance Inc. (NYSE: CVD) in a transformation of Lilly’s current R&D model.

This may be bad for new-hire wages in the R&D arena in the biohealth sector.  This all may bode well for all of the medical and bio-health contract research organization (CRO’s).  Here are some stocks with CRO as their main operations or with significant exposure:

  • Charles River Laboratories International Inc. (NYSE: CRL)
  • Covance Inc. (NYSE: CVD)
  • Parexel International Corp. (NASDAQ: PRXL)
  • Pharmaceutical Product Development Inc. (NASDAQ: PPDI)
  • PharmaNet Development Group Inc. (NASDAQ: PDGI)

Between this wave of cutting R&D personnel and the flood of biotech mergers, it looks as though things are changing wildly in R&D.

Jon C. Ogg
September 30, 2008

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