From today's Raleigh Newspaper:
For Personal Use Only:
Gillings tries to reassure employees
Memo addresses Quintiles' stock price
By DAVID RANII, Staff Writer
DURHAM -- Dennis Gillings, the founder and chief executive of
mammoth Quintiles Transnational, is reassuring employees that the company
is "well positioned for the future" despite its flagging stock price.
In an e-mail memorandum sent to the pharmaceutical services company's
employees on Monday, Gillings accentuated the positive -- the company's
strong financial performance, both recently and historically. His bottom-line
message: Wall Street doesn't fully understand the company's latest strategy,
and when it does, the stock will rebound.
Quintiles stock closed Thursday at $35.125, down 18.8 cents. Its stock
was trading at $56 in mid-December.
That Gillings felt compelled to send such a memo may be a symptom of
his impatience with a stock decline that he -- as well as many analysts --
believes is unwarranted.
"I think the leadership is frustrated because they feel they are doing the
right things, operationally and financially, and they're not being understood,"
said Bernard Lirola, an analyst with Needham & Co.
The missive also can be viewed as a signal that Wall Street's indifference
has been unnerving to Quintiles' work force of more than 19,000 employees
worldwide. Quintiles has a reputation locally for being generous in including
stock in its employees' compensation packages.
"Over the past few months," Gillings began his memo, "I have been asked
by a number of employees about the recent drop in the Quintiles
Transnational stock price.
"While I don't have a definitive answer to explain the drop, I would like to
reassure you about our positive outlook and the opportunity, I believe, we
have within our group."
Quintiles spokeswoman Pat Grebe declined to comment on Gillings'
memo.
Quintiles, based in Durham, is the world's largest pharmaceutical services
company and posted $1.19 billion in revenue last year. Its two mainstay
businesses are to help pharmaceutical companies test and evaluate
experimental drugs and to hire out drug salespeople. The company has 1,300
workers in the Triangle.
On Thursday, Quintiles was added to the Standard & Poor's 500, a
well-known index of some of the nation's largest companies.
Quintiles' stock has suffered since mid-December, when the company
paid $1.7 billion in stock for Envoy Corp., a health-care claims processing
company. Quintiles says it will be able to leverage the data Envoy compiles
from physicians, pharmacies and managed-care companies to benefit its other
businesses. For example, it can arm its salespeople with information that can
help them fashion a better sales pitch or target their pitch to the most
receptive physicians.
But investors have fretted that Quintiles may have overpaid for Envoy and
may have problems transforming that data into revenue. "As a result," Gillings
wrote, "many appear to be taking a 'wait and see' approach to us at the
moment."
Also hurting Quintiles is the fact that the industry has fallen out of favor
with investors.
"There is a lot of turmoil within the sector because, for nine months now,
the sector has been taking it on the chin," said Charles Duncan, an analyst
with Tucker Anthony Cleary Gull in Denver.
Some of Quintiles' competitors have been hurting because they failed to
meet analysts' expectations for earnings, but that hasn't been the case with
Quintiles.
"Quintiles has never missed," Duncan said. "Except for the perceived risk
of the acquisition of Envoy, it would still be a $50 stock."
Gillings' memo cited a number of pluses in Quintiles' favor, including:
It generated $1.005 billion in new business over the first six months of this
year, up 47 percent from a year ago.
The company's backlog of work -- contracts it has landed but hasn't
completed -- stood at $2.018 billion at the end of June.
Quintiles is "positioned to perform exceedingly well over the next five
years," Gillings contended.
He also stated: "Over the longer term, the stock market will typically
reward companies that consistently show high growth performance. So while
we do not have control over our stock price, we can control revenues and
earnings that ultimately drive the stock price."
Gillings isn't alone in his optimism. Many analysts, including Duncan and
Lirola, rate Quintiles stock a buy or a strong buy.
John Kreger, an analyst with William Blair & Co. in Chicago, said: "We
like the company. We believe in their strategy. But given the market
skepticism, there needs to be some evidence that it's working before the stock
turns around." |
