Quintiles’ proposed $300m (€225m) loan prompted Standard & Poor (S&P) to assess the company’s credit rating. In assessing Quintiles S&P gave a rare insight into financial performance at the private CRO (contract research organisation).
“We believe Quintiles will generate mid- to high-single-digit growth over the near term as it benefits from slight growth in pharmaceutical research and development and an increase in outsourcing by larger pharmaceutical companies”, S&P wrote.
Phil Bridges, director, corporate communication at Quintiles, told Outsourcing-Pharma the CRO posted "company-record new business wins" in 2011 and has a "robust cash balance". After the success Quintiles will award most of its employees with a bonus.
Growth at Quintiles, as at other big service providers, is reliant on the strategic outsourcing trend that S&P expects “will shift some market share from the smaller CROs to larger global players”. S&P said less than one-third of development is outsourced and rising penetration will support growth.
Rising costs and “capacity issues within the Phase I business” will partly offset these growth drivers and keep margins flat, S&P wrote. Some of Quintiles’ peers, such as Icon and Parexel, face similar issues as they hire to support strategic deals and contend with weaker demand for early phase trials.
Macro factors
Despite these weaknesses S&P gave Quintiles a ‘satisfactory’ business risk profile and a stable credit rating. S&P based the decision on Quintiles’ market-leading position in an industry with “solid long-term growth prospects”.
A sharp downturn in CRO industry growth prospects could prompt S&P to lower the rating. Growth at Quintiles slowed in 2009 and 2010, S&P wrote, as the industry-wide issues that hit all leading CROs hit home.
The return of demand for late-stage clinical trials helped Quintiles post double-digit growth last year, S&P wrote, and signs at other CROs that Phase I is slowly improving could offer another tailwind.
Even if the market improves S&P is unlikely to give Quintiles a higher rating. Significant debt cuts are unlikely as Quintiles has an ‘aggressive’ dividend policy, S&P wrote, and could also use credit to “fund acquisitions, given our belief that the contract services industry is in a consolidation phase”.
Bridges said: "Our leverage ratio is moderate, at a level with which we are quite comfortable. After this transaction, we believe our leverage ratio will allow Quintiles to continue investing in the growth of our business."