INC Research ($INCR) is the latest among Big Pharma's biggest contractors to pull off an IPO, raising $150 million and joining its largest rivals on Wall Street.
The company priced 8.1 million shares at $18.50 each, right in the middle of its expected range, and INC plans to spend its proceeds on redeeming all its outstanding notes and pay the related fees and expenses. The CRO, headquartered in Raleigh, NC, specializes in handling all manners of clinical trials for its partners in pharma and biotech, employing roughly 5,400 people in 50 countries and growing its revenues more than 10% each year.
INC's trip to the public markets follows a well-established pattern in the CRO world: Private equity firms have raced to gobble up the industry's largest contractors, executing bolt-on deals to enhance their value and then cashing out with IPOs. Quintiles ($Q), the world's largest CRO, set the template with its $947 million offering last year, followed by Catalent ($CTLT), which raised nearly $1 billion in July. PRA Health Sciences, a CRO conglomerate owned by private equity magnate KKR, is angling to raise $400 million in an IPO expected to price this month.
Investor interest in the world's biggest CROs is driven by drugmakers' increasing reliance on outside researchers. The outsourcing industry is on pace to grow about 8% a year, according to Industry Standard Research, reaching $32 billion by 2018. ISR estimates that about 31% of all clinical development spending is outsourced to CROs, a number the firm expects to reach 43% in the next 5 years.
And the industry's allure isn't limited to bankers. LabCorp ($LH), a major player in medical testing, has signed up to pay about $6 billion in cash and stock for Covance ($CVD), another of the world's biggest CROs. LabCorp's margins have been continuously battered by declining reimbursement and global pricing issues, and the company sees the growing demand for drug development services as a salve for disappointing revenues.
For its part, INC believes it has a bright future as a public company. The CRO expects the market for Phase II-IV services to grow at 8% to 9% per year through 2018, giving it an addressable market north of $56 billion a year. Last year, the company grew its service revenue by 13% to $652.4 million while posting a net loss of $27.6 million, which bested the prior year's $42 million figure.
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