In a move that sent shockwaves through the life sciences industry last week, Quintiles Transnational Holdings and IMS Health Holdings announced an all-stock merger of equals—a transaction that ranks as the largest CRO merger in history. The combined equity market capitalization of the two companies is more than $17.6 billion, and the enterprise value is more than $23 billion.
“The surprising thing is that this is an enormous deal for this space,” said Tim Evans, senior analyst at Wells Fargo Securities Equity Research. “The strategic significance remains to be seen, but the big picture here is that data is going to matter a lot more in terms of how clinical trials are conducted.”
A major impetus for the merger is Quintiles’ interest in harnessing the potential of IMS Health’s prodigious data assets. “More than 85% of the patients we recruit are actually recruited in places where IMS Health has data,” said Tom Pike, Quintiles chief executive officer. “You can imagine that when we develop intellectual property together… how powerful that is going to be to fundamentally transform clinical development.”
IMS Health boasts more than 15 petabytes of healthcare data spanning sales, prescription and promotional information, social media sources and more than 500 million patient-anonymous records. Ari Bousbib, chairman and CEO of IMS Health, said, “We are the only global provider of this type of data. With the changing profile of therapies in the pipeline leaning toward more complex specialty diseases, it’s harder to identify patients, to design the trial and to execute the trial. We believe that by having data at their fingertips in addition to advanced analytics, we can significantly improve that process and really change the game.”
Wells Fargo’s Evans said, “CROs are trying to make the clinical process faster and more streamlined, particularly when it comes to patient recruitment. That’s the bottleneck in the clinical trial process. When LabCorp acquired Covance, part of their rationale was having access to LabCorp’s data.”
The LabCorp-Covance merger was announced in November 2014 and was closed in February 2015.
“We are still studying the transaction, but the rationale stated by IMS and Quintiles is precisely the one we articulated when we made our industry-changing acquisition of Covance, and further validates LabCorp’s strategic approach,” said David P. King, chairman and CEO of LabCorp, in response to the announcement of the Quintiles-IMS merger. “Nearly 18 months ago, we created the world’s leading healthcare diagnostics company, providing comprehensive clinical laboratory and end-to-end drug development services.”
Pike said that one of the potential payoffs of teaming up with IMS Health is the potential of its vast data assets to boost patient recruitment speed, a major factor in their projections for the financial impact of the merger. The two companies anticipate combined annual revenue growth rate increases of 100 to 200 basis points by the end of year three after the merger as well as annual run-rate cost savings of $100 million. A significant part of the equation is revenue acceleration based on patient recruiting.
“We’re already working together in the domain to try to identify scarce patients,” added Pike, noting that the companies have been collaborating since last September. The companies’ joint capabilities squarely target recruitment, a part of the clinical trial process that he said can account for more than 45% of delays.
“Once you start a trial, revenue is really based on patient recruitment speed,” Pike said. “Imagine the difference [in speed] when you can understand the patient density around a site and select, in a fact-based way, sites based on patient density, and you can inculcate that into your day-to-day business.”
Working synergistically as Quintiles IMS Holding, the company leaders say their overarching strategy is to improve clinical trial design, recruitment and execution; create a real-world evidence solutions platform by combining a leading portfolio of data assets with late-phase observational research expertise; and provide differentiation and optimization in commercial analytics and outsourcing services.
“This combination addresses life science companies’ most pressing needs: to transform the clinical development of innovative medicines, demonstrate the value of these medicines in the real world and drive commercial success,” said Pike.
The merger is “not about cross selling,” said Bousib. “This is about using data and technology to enable an improved path to clinical solutions. … It’s about finding new uses for extraordinary data assets.”
Pike said, “We’re choosing to do this in a moment where both companies are strong. This is actually not a short-term transaction for us. This is really a medium/long-term strategy to create a fundamentally different partner for the life sciences and ultimately the healthcare industries overall.”
Although the announcement of the merger stunned the industry, signs were apparent. Following the LabCorp-Covance merger last year, CROs are focusing on data assets as a method for improving the fundamental base of clinical trials—patient recruitment. With a rising value of data assets, the real question is when the next merger will appear.
This article was reprinted from Volume 20, Issue 18, of CWWeekly, a leading clinical research industry newsletter providing expanded analysis on breaking news, study leads, trial results and more. Subscribe »