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PPD's Proposed IPO Comes Amid Growing CRO Market, Industry Expert Says

By Christina Haley O'Neal, posted Dec 5, 2019
The contract research organization sector is growing, and the market is doing well, which may be one of the reasons why Wilmington-headquartered PPD might be trying to go public again.

That’s according to Andrew Schafer, a founder and president of Industry Standard Research, which recently released its industry report, “2019 Edition of the CRO Market Size Projections: 2018-2023.”

Raleigh-based Industry Standard Research is a small- to mid-sized market research firm that focuses on the clinical development and manufacturing space within the pharmaceutical industry, he said. 

“We estimated the 2019 CRO market size to be at $40.8 billion, and we expect over the next three years that the CRO market will grow at about an annual 7.5%,” Schafer said.

“You have some big firms in there," he said, referring to the sector. "Probably one of the reasons for the timing is that the CRO market does continue to grow, and Wall Street likes to see growth. And so, for PPD from an industry standpoint, it’s a decent time to go public."

Pharmaceutical Product Development LLC announced in November that its parent company, PPD Inc. had submitted a draft registration statement with the Securities and Exchange Commission about the proposed initial public offering of the parent company's common stock. 

"The number of shares to be offered and the price range for the proposed offering have not yet been determined. PPD, Inc. expects to use the proceeds of the offering for general corporate purposes, which may include the repayment of indebtedness," stated PPD in its Nov. 12 release. "The initial public offering is expected to commence after the SEC completes its review process, subject to market and other conditions."

PPD officials said in an email Thursday that securities laws restrict further comment at this time.

PPD, which was founded in 1985 by Fred Eshelman as a one-person firm, held its initial public stock offering in 1996. And in 2006 the firm's board approved a two-for-one split of its common stock, according to PPD. The company was later acquired by affiliates of The Carlyle Group and Hellman & Friedman in 2011 for $3.9 billion, which made PPD a private firm again.

In 2017, PPD announced a deal to recapitalize and add two new investors. The deal at the time was valued at more than $9 billion.

A subsidiary of the Abu Dhabi Investment Authority and an affiliate of GIC, Singapore’s sovereign wealth fund became direct investors in PPD. Private equity firms The Carlyle Group and Hellman & Friedman were said to maintain joint ownership of PPD, with Hellman & Friedman holding the majority ownership.

Today the company has about 22,000 employees across 46 countries and employs about 1,500 people locally.

Other companies in the CRO space have done the public to private or private to public dance in the past, Schafer said. 

“Quintiles, now IQVIA, did this years ago. Parexel is another one of the large CROs, and right now they are private. The industry would fully expect them to come back on the public market at some point, just as Quintiles did and as PPD is planning to do," he said.

Quintiles, now Durham-based IQVIA, went public in the 1990s and then back to private in the early 2000s. Its second IPO took place in 2013.

“That’s certainly a precedent, and they have done very well out in the public market. So it’s been a very successful republic launch for them," Schafer said.

But why would a company make the switch? In a lot of cases in the CRO industry, it's been a way for the founders to help the value of their company, Schafer said.

“The reason to take it private would be is that they didn’t think that the public market was valuing their company high enough. So that’s one possible reason," he said. "Another possible reason is to do it for an infusion of cash so that you can make some maybe strategic investments that you might be unable to, or get handstruck a little bit, when you’re a public company and have to produce quarterly earnings and under that kind of scrutiny."

For PPD specifically, Schafer said the market might be just right. 

“They have to feel pretty good, and they should, about the industry," he said. "The CRO industry is doing very well. It’s very healthy. So it’s a good time for them to re-enter. And I’m guessing that their financial situation is solid. Otherwise, they probably wouldn’t be doing it at this time either.

“And the reason to do it is the investors -- the private equity [firms] that had invested in PPD to turn private -- they need to get their money out too. And so, that’s one of the vehicles," Schafer added. "You can either go private or you can sell your interest to other private equity firms, and I guess PPD has chosen the public market exit as a way to recapitalize to allow those firms to get some or all of their investment back.”

PPD is already impacting the market as one of the largest contract research organizations and among the pioneer companies in this space, he said. 

Should the IPO go through, it would give the investment community greater visibility into the CRO market, because PPD would have to release quarterly financials, Schafer said.
 
“I really think the big thing," he said, " is just going to be the Wall Street analysts and investors and all those will have a clearer view of what’s happening in the industry because PPD is such a big player.”
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