Predictions that medium-sized contract research organisations (CROs) would need to consolidate or seek private equity backing to compete effectively in a marketplace tilting towards large-scale strategic alliances looked increasingly on the nose last week as privately held INC Research agreed to acquire Kendle International for around US$232 million in cash.

The announcement came just a few days after Stephen Cutler, formerly senior vice president and chief operating officer at Kendle, took over as the company’s president and chief executive officer (CEO). At the same time, Candace Kendle and Christopher Bergen, who co-founded Kendle in 1981 and subsequently married, loosened their grip on the management structure – although both remained on the Kendle board, Candace Kendle as chairman.

The merger will catapult the combined organisation into the top tier of CROs by size and scale, creating a “global CRO with significant therapeutic capability and geographic diversity” and one “well positioned to handle large-scale global trials”, the two companies said.

61% premium


Under the definitive merger agreement, INC Research will acquire all of Kendle’s outstanding shares for US$15.25 per share in cash. This represented a premium of 60.5% over Kendle’s closing share price before the deal was announced and of 51.3% over the 30-trading day average of the CRO’s closing price.  

All the same, law firms have been circling on the lookout for disgruntled shareholders who may feel Kendle was undervalued. The company’s stock jumped by as much as 58% on the merger announcement but it has performed relatively poorly over the last couple of years, as Kendle struggled with declining revenues and tried to stem the leakage with cost-cutting and restructuring programmes.

More recently, the company launched a strategic review of its loss-making Early Stage operations. Yet Kendle’s business reputation has remained sound. Just this month it was among the three top-ranked CROs in the 2011 CenterWatch Global Investigative Site Survey, with “excellent” or “good” ratings from 84% of the clinical research sites managed by the company.  

Third-quarter close

The merger was unanimously approved by the Kendle board and is expected to close in the third quarter, subject to the usual closing conditions, regulatory clearances and the approval of Kendle’s shareholders.

Kendle is INC Research’s second acquisition this year, following the announcement in January that the US-based CRO was taking over the team and research products of strategic consultants AVOS Life Sciences for an undisclosed sum.

INC paid US$50 million in June 2009 for the Phase II-IV operations of MDS Pharma Services. Last August the company came under new ownership itself when private equity firm Avista Capital Partners and Ontario Teachers’ Pension Plan agreed to acquire INC Research from an investor group led by Crosspoint Venture Partners and Adams Street Partners.

Right decision

According to Kendle, throwing in its lot with INC Research is “the right decision for our customers and shareholders”.

The two companies’ “highly complementary assets will provide the scale and scope for the combined company to deliver outstanding global teams, therapeutic expertise and operational excellence for clinical trials of all sizes,” Cutler commented.  

“Because both companies are known for conducting high-quality clinical work and share a common culture based on excellent service delivery, we will be able to maintain a customer-centric focus on each individual project.”

James Ogle, CEO of INC Research sees the merger as an opportunity to “deliver broader capabilities and reach a critical mass for the emerging drug development outsourcing and alliance partnership models”.

As a result of the merger announcement, Kendle cancelled its first-quarter earnings release scheduled for 5 May 2011.

In the fourth quarter of 2010, the CRO slipped into an operating loss of US$11.7 million, hastened by restructuring and goodwill impairment charges in its Early Stage business, as net service revenues fell by 19.4% against the final quarter of 2009.