Business

Here’s why Wall Street analysts would like to see QuintilesIMS sell its contract sales business

Wall Street analysts are upbeat about a published report that pharmaceutical services giant QuintilesIMS is contemplating selling its contract sales business, a move they would consider a plus for shareholders.

Reuters, citing unidentified sources familiar with the matter, reported that QuintilesIMS, which has dual headquarters in Durham and Danbury, Conn., has hired investment bank Goldman Sach to explore a sale of its contract sales business. That business is headed by Scott Evangelista, who is based in Durham and is president of integrated engagement services, which is what QuintilesIMS calls its contract sales business, which hires out sales forces to pharmaceutical and biotechnology companies.

QuintilesIMS spokeswoman Melissa Schwarting wrote in an email that the company doesn’t comment on rumor or speculation.

The integrated engagement services division generates about $800 million in annual revenue. Reuters reported that the business could be valued as high as $1 billion.

“The contract sales unit has historically been a low margin business that has struggled to grow in recent years and has weighed on (the company’s) financial results,” Jefferies & Co. analyst David Windley wrote in a research note.

Based on the company’s guidance for this year’s financial results, Windley anticipates that the business’s revenue will decline about 5.5 percent this year on the heels of a 5.8 percent decline in 2016. He called the unit QuintilesIMS’s “slowest growing and lowest margin business.”

“In our view, a sale would be much easier and more efficient than injecting additional capital into a low margin and deteriorating business unit, provided a buyer is found,” Windley stated.

Analyst Tim Evans of Wells Fargo Securities pronounced the possibility of a deal as “a clear positive as it would alleviate a volatile and underperforming business from Quintiles P&L (profit and loss) and would allow greater focus on the core strategic rationale of the deal.” The deal he referred to was last year’s merger of Durham-based Quintiles, a contract research organization that helps pharma companies conduct clinical trials of experimental drugs and analyze the results, and IMS Health, which is best-known for its vast array of health care data encompassing prescription and over-the-counter drugs.

The combined company has more than 50,000 employees worldwide, including about 2,500 in the Triangle.

Most CROs don’t have a contract sales business, with one major exception being inVentiv Health, a Boston-based company that Raleigh’s INC Research agreed to acquire last month in a deal valued at $4.6 billion.

Windley noted that inVentiv’s commercial business goes well beyond contract sales to include services such as advertising and branding “and provides clients with strategic solutions.” As a result, he said, inVentiv’s commercial business has significantly higher margins.

QuintilesIMS shares were trading at $90.14, up 36 cents, Thursday. Its shares have risen 19 percent this year.

David Ranii: 919-829-4877, @dranii

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