UK-based clinical technology specialist ClinPhone may have a bid battle on its hands after an agreed £91 million (US$182 million) offer from Parexel International prompted rival US-based contract research organisation (CRO) Quintiles Transnational to declare an interest.

The Parexel and ClinPhone boards have reached a deal, subject to antitrust approvals and the assent of ClinPhone’s shareholders, under which Parexel will pay 135 pence per share to acquire the UK company’s entire issued and to-be-issued ordinary share capital. The proposal, which Parexel believes will satisfy demand for “a total eClinical solution”, represents a 31% premium to ClinPhone’s closing share price of 103 pence on 12 June, the last business day before the agreement was announced.

Quintiles subsequently threw its hat into the ring with a statement confirming that it had “been in discussions with the Board of ClinPhone which may or may not lead to an offer being made for ClinPhone”. If an offer were made, it would be in cash and at a premium to the price per share proposed by Parexel, the CRO said.

Strategic fit

“Quintiles believes that the operations of ClinPhone are a strategic fit with Quintiles’ clinical research capabilities,” it stated. The CRO is conducting due diligence on ClinPhone and said a further announcement would be made in due course.

The potential tug of war shows just how crucial new technologies are becoming to an increasingly global and diversified clinical research market. According to another US-based CRO, Kendle, worldwide revenues from eClinical trials are forecast to reach around $700 million by 2012, compared with just over US$200 million in 2005 and nearly $300 million in 2007.

In a CRO survey by Jefferies in March 2007, vendor relationships, electronic data capture (EDC) and functional outsourcing (in that order) were identified as the top three strategies for improving research and development productivity/efficiency in the pharmaceutical market.

Parexel already has a well-established presence in the eClinical space through its technology business, Perceptive Informatics, whose portfolio includes medical imaging analytic capabilities, a “market-leading” Clinical Trial Management System (CTMS) and Interactive Voice and Web Response (IVR) technologies as well as a number of integration and reporting technologies and services.

ClinPhone is seen as offering complementary capabilities such as an “industry-leading” EDC system acquired with US company Datalabs in October 2006, “deep” experience with electronic patient-reported outcomes (ePRO) and additional IVR technologies.

Moreover, ClinPhone has a CTMS system that targets a different market segment from Parexel’s corresponding platform, IMPACT. The ClinPhone system, TrialWorks, provides “the ideal solution for small and emerging pharmaceutical and biotech companies, and may remain as an independent product targeting this market segment”, the companies noted.

Combining the Perceptive and ClinPhone technologies will create “one of the most comprehensive eClinical suites in the market,” the companies claimed. “Specifically, ClinPhone has a strong EDC system which Perceptive expects to integrate with IMPACT. Additionally, while Perceptive’s IVR system is already integrated with IMPACT, we believe that ClinPhone’s IVR system will add additional capabilities to help complete the eClinical suite.”

Having an in-house EDC capability will enable Parexel “to standardise its clinical trial processes on a common platform, integrate this platform with Parexel’s existing technologies, and consequently bring efficiencies that Parexel believes can reduce the cost of delivery to its customers as well as accelerate trial close”, they added.

Comprehensive suite

Josef von Rickenbach, chairman and chief executive officer of Parexel, said the company had been “a leader in helping to advance the convergence of services and technology” in the clinical research market. The joint capabilities of Parexel and ClinPhone would “provide clients with a more comprehensive suite of clinical information technologies”, he commented.

“As the market embraces a total eClinical solution, we believe clients will realise even more significant process efficiencies, greater visibility across studies, improvements in data quality, and accelerated decision-making.”

Parexel has arranged a US$300 million credit facility with JPMorgan Chase Bank and Keybank National Association to fund the acquisition and related costs as well as refinancing the existing debt of ClinPhone and Parexel.

The acquisition, which is slated to close during the first quarter of Parexel’s 2009 fiscal year, or by 30 September 2008, is expected to dilute the CRO’s earnings in the financial year ending 30 June 2009. Leaving out the amortisation of intangible assets, though, the acquisition should be accretive to earnings in the same period, Parexel added.

The US company first made a move on ClinPhone in mid-February, when the latter was beginning to shake off the effects of operational difficulties and unfavourable currency fluctuations that had put a hole in its forward order book the previous summer. ClinPhone turned down a preliminary takeover offer from Parexel, saying the “indicated value materially undervalues the Company and its prospects”.

The agreed offer from Parexel is at an 86% premium to ClinPhone’s closing share price on 14 February, the last business day before Parexel made its initial advances. A “revised indicative proposal” from the US CRO was submitted in April but the ClinPhone board “considered that this proposal still did not reflect the fundamental value of the business”, the UK company noted.

Given, though, that the revised proposal “represented a significant premium to both the pre-announcement price and the then market price of a ClinPhone share”, the board resolved “to assist Parexel in better understanding the value of the business, the potential synergies that could result from a combination and the positive underlying business trends”.

After considering Parexel’s improved bid, and following “discussions with a number of other potential acquirors”, the ClinPhone board concluded that “in the context of the strategic rationale for a combination with Parexel and the uncertain economic and stock market environment, the offer from Parexel represented an opportunity for all of ClinPhone’s shareholders to receive cash for their shares at an attractive premium to the market price”.

Parexel has an irrevocable undertaking from Aberforth Partners, the largest shareholder in ClinPhone, to vote in favour of the acquisition, a decision that will secure the US company around 17.14% of ClinPhone’s issued share capital.

14% growth

In an interim management statement issued on the same day as the agreement on Parexel’s takeover offer, ClinPhone said revenues for the first quarter ended 31 May 2008 were up by 14.2% year on year to £13.4 million, while the value of its order book increased by 5.2% to £55.3 million.

Higher than expected average win values helped to push the order book up by 7.2% from the beginning of the financial year, ClinPhone pointed out. It also recently gained preferred provider status with “a top five pharmaceutical company that had previously withdrawn business due to the operational difficulties experienced last year”.