The biopharma rally of the past year is a wonder to behold.
Driven by healthcare demographics, exciting new science, fantastic
earnings growth, and big-cap M&A, the trends appear poised to
continue strong for several more years.
And while the "science" of getting new drug therapies through the
FDA gauntlet is full of landmines for investors, there are some
essential "infrastructure" companies which don't have any FDA risk
because they simply serve the scientists and get paid either way.
Quintiles Transnational Holdings
(Q) is a 32-year old health sciences company that went public again
last May. They are the largest pharmaceutical outsourcing company
in the world, with annual revenues of $5 billion. The company is a
leader in both outsourced drug development and commercialization
services, operating in 100 countries.
Quintiles has helped develop or commercialize all of the top 50
best selling drugs. That means their clients include big pharma
names like Johnson & Johnson (JNJ), Pfizer (PFE), and Merck
(MRK) as well as biotech giants Amgen (AMGN), Gilead (GILD), and
Biogen Idec (BIIB).
With thousands of health professionals, including over 800 MDs,
complete data-based risk analytics, and local presence around the
globe, the company's promise to these demanding customers is...
"Our unique combination of people, processes and technology will
help you achieve more predictable outcomes every step of the way."
To provide professional information, sales, and R&D services to
the pharmaceutical and healthcare industries, Quintiles has two
primary business segments: Product Development (PD) and Integrated
Healthcare Services (IHS). Here's how they help scientists and
healthcare entrepreneurs navigate their way to market...
Clinical monitoring services
Strategic planning and design services
Consulting services & contract sales
Market entry/market exit
Integrated channel management
Brand and scientific communication
Medical education services
Much of this complete solution set for healthcare and
pharmaceutical companies is provided in multi-year contracts since
drug R&D, information management, and marketing are such long
campaigns in the commercial health sciences and require such
constant and accurate interface with regulators.
While Quintiles doesn't have the explosive growth of a biotech
company on the path to launching a blockbuster drug, the company
has recorded double-digit revenue growth, on average, for the past
On February 13, Q reported better-than-expected fourth-quarter
results and gave 2014 guidance that pleased investors. Q4 results
impressed with revenue above expectations, led by strength in
Product Development, and also beating on the bottom line.
More importantly, the company issued above-consensus top-line
guidance of $4.09-4.15B (7.4% - 9% growth) and adjusted 2014 EPS of
$2.33-$2.46, with solid book-to-bill metrics across both Product
Development and Integrated Healthcare Services. Analysts responded
by boosting their EPS estimates for this year and next.
One of the stand-outs in the quarter was the strong new business
growth for both segments at 1.24 times for PD and 1.46 times for
IHS. Given the company's size, analysts were impressed by its
ability to consistently book more than $1 billion of new business
and deepen its relationships with clients.
Analysts On Board
Before and after their quarterly report, Wall Street firms were out
in force praising the company and raising EPS estimates that caused
the stock's Zacks Rank to increase from the #2 Buy rating to a #1
Strong Buy on February 15. Here's a sampling of analyst moves...
Goldman Sachs: Upgraded to "Buy" on January 21, price target raised
from $50 to $58.
Citi: Initiated coverage of Q with a "Buy" rating on February 18.
Baird: Reiterated "Outperform" rating on Feb 13, raised PT from $50
JPM: Reiterate "Overweight" rating and increased their PT from $52
William Blair: Reiterate "Outperform," note "attractive" valuation
relative to peers.
Wells Fargo: Reiterate "Outperform" and raise valuation range to
In my screening for growth stocks, I look at SEC filings from
misattribution investors to find out "who is buying what." After Q
came through my initial fundamental and technical screens, I looked
up the big holders to see who's been buying and selling.
The stand out owners are the private equity firms who still hold
majority stakes since the IPO: Bain Capital and TPG Group. But the
big fundamental buyer last quarter was Wellington Management who
more than doubled their stake to 6,737,305 shares, or just under a
An Enormous Market
Baird analysts noted in their Feb 13 report, "Clients don't have to
choose Q, but the tools and testing done are highly scripted in
law, regulation and practice. Given average 10-15 year lifecycles
for development, ever-expanding testing requirements, and the
glacial pace of change, we think Q's solution set will be viable
for decades to come."
Considering the breadth of Q's global client base and combined
product R&D and services offering, they estimate the total
addressable market opportunity to be around $68B. And with the
expanding breadth and furious pace of new science turning into
potential pharmaceutical treatments, the new business opportunities
for Quintiles should continue to grow within that pie of very
Disclosure: I own shares of Quintiles for Zacks Follow The Money
Kevin Cook is a Senior Stock Strategist for Zacks where he runs
Follow The Money
AMGEN INC (AMGN): Free Stock Analysis Report
BIOGEN IDEC INC (BIIB): Free Stock Analysis
GILEAD SCIENCES (GILD): Free Stock Analysis
JOHNSON & JOHNS (JNJ): Free Stock Analysis
QUINTILES TRANS (Q): Free Stock Analysis Report
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