IMS Health (RX)

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IMS Health (NYSE: RX) sells data on drug prescriptions and sales to pharmaceutical and other healthcare companies. IMS' data is the only data of its kind available at the resolution of individual doctors and facilities such as hospitals and offices - which means it can be cut and sliced to match the phamaceutical company's sales districts, and used both for targeting and for paying sales force commissions. A pharmaceutical complany might use IMS' data to identify which doctors write prescriptions for a competing product - and then set these doctors as high-priority targets for the company's own sales reps. If the company's sales reps are successful at converting these doctors to use the company's product, their bonus is based off of the increased number of prescriptions for the company's own product which the doctors wrote, as reported by the IMS data.

IMS compiles data from over 30,000 different providers to track 90% of prescription and OTC drug sales in the U.S. and 75% of drug sales in over 100 other countries. As a condition of selling its data, IMS requires its clients to disclose their own sales data back to IMS - an important source of data and one reason why IMS' network has been hard for competitors to replicate.

From 2004-2007, the company's revenue grew by 12.3% per year, driven by a 4 fold increase in the company's consulting services which were launched in 2003. The company's major potential headwind is the efforts by state and federal governments to restrict the commercial use of patient data.

[edit] Business Financials

[edit] Main Products

• Sales Force Effectiveness Offerings (46% of revenue) include sales territory reports to measure the sales of a client’s own products compared to competitors in a geographic region; prescription tracking reports that monitor prescription levels and movement through retail channels; and other sales and account management accounting services.^[1]

• Portfolio Optimization Offering (29% of revenue): provide a number of prescription, sales and treatment metrics used by pharmaceutical clients in making informed product pipeline selection and development decisions. Metrics measuerd include sales of pharmaceuticals to pharmacies, use of therapeutics in hospitals, prescription of drugs by physicians. .^[2]

• Launch, Brand Management and Other Offerings (25% of revenue) include marketing consulting services that analyze product promotional, pricing and penetration strategies for clients. The company also provides consulting assistance for developing products in managed care, OTC and personal care/nutrition markets.^[3]

In 2007, Sales Force Effectiveness Offerings represented 46% of IMS Health’s worldwide revenues while, Portfolio Optimization and Launch, Brand Management accounted for 29% and 25% of the remaining revenues, respectively.^[4]

[edit] Financial Results

In FY2007, the company’s overall revenues grew by 11.9% from $1.96 billion in 2006 to $2.19 billion in 2007. In the past year, IMS posted solid gains of 13% in Portfolio Optimization offerings and 17.7% in Launch, Brand and Other offerings.^[5] Due to industry wide scale down of pharmaceutical companies’ sales personnel during the past year, IMS made more modest gains of 8.3% in its largest revenue category, Sales Force Effectiveness Offerings. Overall, the company’s consulting services grew over 34% in the past fiscal year.

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[edit] Acquisitions

IMS Health actively pursues a growth through acquisitions strategy to expand its products, services and geographic reach. During fiscal year 2007, the company completed seven acquisitions of smaller data research and consulting firms, including ValueMedics Research, LLC (U.S.), MERG Forschungsgruppe Medizinische Okonomie, GmbH (Germany), Datasurf Co. (Japan), Aremis Consultants Holding SA (France), Brynlake Limited (U.K.), MIHS Holdings, Inc (U.S.) and GCE Servicos Tecnologicos Ltda. (Brazil) at a cost of $89,000,000.^[11] IMS estimates approximately one-third of its consulting and services revenue growth for 2007 was attributable to acquisitions completed during the year.

[edit] Trends/Forces

[edit] Dependence on Pharmaceutical and Healthcare Industries

As a vendor of market information and consulting services to pharmaceutical companies, IMS Health is largely dependent on the state and welfare of the healthcare industry. Changes in pharmaceutical business environments such as government imposed price controls, increased FDA restrictions, declining sales are exogenous factors that can have dramatic effects on the demand for IMS Health’s products and services. For example, in 2007, various pharmaceutical giants such as Pfizer and Merck announced large scale reductions in their sales force (in excess of 10,000 jobs) as a means to cut costs in response to declining product pipelines and future revenue streams from patent expirations of key blockbuster drugs.^[12] This restructuring activity in pharmaceutical companies (i.e. reductions in pharmaceutical sales force) has had a dramatic negative impact on the revenue growth of the company’s main line of Sales Force Effectiveness Offerings products and services.^[13]

[edit] Growing Patient Privacy and Legal Concerns

A growing wave of privacy concerns over commercial use of prescribing information has spurred legislative changes that can affect the certain business operations of IMS Health. A New Hampshire state law was passed originally aimed at prohibiting commercial use of physician prescription information and stopping inappropriate marketing to physicians. Although the law was overturned in April 2007, it has set a precedent for other states that can in the future limit IMS’ highly coveted abilities to collect data at the physician level. ^[14]

[edit] Increased Payor Pressure

Rising health-care costs in past years have pushed payers (i.e. health insurance companies, government insurance programs, etc.) and patients to demand substantial proof of value, safety and efficacy before purchasing or reimbursing pharmaceutical products. This can increase demand of IMS data by pharmaceutical companies as evidence to demonstrate their product’s benefits in order to adequate secure market share for its therapeutics.

[edit] Rising Incidence of Cancer and Diabetes

IMS Health originally launched the Oncology Analyzer in 2000 and updates it annually by adding available data from new countries to its growing list of geographic coverage. The line of specialized products and services is designed to collect longitudinal patient information regarding the diagnosis and treatment in the critical area of Oncology and Diabetes across the major pharmaceutical markets. As the U.S. population ages and falls prey to chronic diseases such as cancer and diabetes, IMS is well positioned to capitalize as pharma companies demand therapy, treatment, and prescription information linked to such diseases.^[15]

[edit] Competition and Market Share

While no competitor provides the geographical reach or breadth of IMS Health’s services, the company with other information services companies as well as the in-house market research and analysis capabilities of its pharmaceutical clients. In general, competition has arisen on a country-by-country basis. IMS competes with Taylor Nelson and Cegedim in various European countries, in addition to competition from smaller niche competitors in local European markets. In the U.S., some lines of IMS products, such as the sales territory and prescription tracking reports, compete with the offerings of various companies, like Wolters Kluwer. Other companies in America, such as Verispan LLC, compete with IMS for its market of research services. Finally, the company’s broad range of management and strategic consulting services compete with various consulting firms around the world.^[16]

[edit] References

1. ↑ RX 2007 10-K, Pg.4
2. ↑ RX 2007 10-K, Pg.5
3. ↑ RX 2007 10-K, Pg.6
4. ↑ RX 2007 10-K, Pg.3
5. ↑ RX 2007 10-K, Pg.22
6. ↑ RX 2007 10-K, Item 8, Pg.56
7. ↑ RX 2007 10-K, Item 3, Pg.24
8. ↑ RX 2007 10-K, Pg.3
9. ↑ RX 2007 10-K, Item 8, Pg.56
10. ↑ RX 2007 10-K, Item 5, Pg.29
11. ↑ RX 2007 10-K, Pg.72
12. ↑ Pharma Sales Force Job Cuts, New York times
13. ↑ RX 2007 10-K, Pg.14
14. ↑ Boston Globe, N.H. Prescription Information Law
15. ↑ RX 2007 10-K, Pg.6
16. ↑ RX 2007 10-K, Pg.8
17. ↑ TNS 2007 Annual Report Financials
18. ↑ WKL 2007 Annual Report Financials
19. ↑ CGM 2007 Annual Report Financials