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Filed Pursuant to Rule 424(b)(1)
Registration No. 333-06293
PROSPECTUS
2,617,334 SHARES
(LOGO) CLINTRIALS RESEARCH INC.
COMMON STOCK
The shares of Common Stock offered hereby (the "Offering") are being
offered by ClinTrials Research Inc. (the "Company" or "ClinTrials"). The
Company's Common Stock is traded on The Nasdaq Stock Market's National Market
(the "Nasdaq National Market") under the symbol "CCRO." On July 24, 1996, the
last reported sale price of the Common Stock on the Nasdaq National Market was
$33.00 per share. See "Price Range of Common Stock and Dividend Policy."
SEE "RISK FACTORS" APPEARING ON PAGES 7 THROUGH 10 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share......................... $30.00 $1.44 $28.56
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Total(3).......................... $78,520,020 $3,768,961 $74,751,059
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(1) The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $700,000 payable by the Company.
(3) The Company has granted the Underwriters a 30 day over-allotment option to
purchase up to 372,666 additional shares of Common Stock on the same terms
and conditions as set forth above. If all such shares are purchased by the
Underwriters, the total Price to Public will be $89,700,000, the total
Underwriting Discount will be $4,305,600, and the total Proceeds to Company
will be $85,394,400. See "Underwriting."
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The shares of Common Stock are offered subject to receipt and acceptance by
the several Underwriters, to prior sale and to the Underwriters' right to reject
any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that certificates for the shares of Common Stock
will be available for delivery on or about July 29, 1996.
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J.C. BRADFORD & CO.
PIPER JAFFRAY INC.
SMITH BARNEY INC.
July 24, 1996
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(LOGO) ClinTrials Research Inc.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Chicago Regional Office, Citicorp Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661; and New York Regional Office, Seven
World Trade Center, Suite 1300, New York, New York 10007. Copies of such
material may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission. The Common Stock is listed on the
Nasdaq National Market and reports, proxy material and other information
concerning the Company may be inspected at the offices of the Nasdaq Operations,
1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, reference is hereby made to the
Registration Statement, including the exhibits and schedules thereto. The
Registration Statement, together with its exhibits and schedules thereto, may be
inspected, without charge, at the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549, and also at the regional offices of the
Commission listed above. Copies of such materials may be obtained from the
Commission upon the payment of prescribed fees.
Statements contained in the Prospectus as to any contracts, agreements or
other documents filed as an exhibit to or incorporated by reference in the
Registration Statement are qualified in all respects to the copy of such
contract, agreement or other document filed as an exhibit to or incorporated by
reference in the Registration Statement for a full statement of the provisions
thereof.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6a UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. SEE "UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere or incorporated by reference in this Prospectus. Except as
otherwise indicated, all information in this Prospectus assumes no exercise of
the Underwriters' over-allotment option. All references in this Prospectus to
the "Company" or "ClinTrials" refer to ClinTrials Research Inc., a Delaware
corporation, and its subsidiaries.
THE COMPANY
ClinTrials is a leading contract research organization ("CRO") providing a
full range of services to the pharmaceutical, biotechnology and medical device
industries. The Company designs, monitors and manages clinical trials, provides
clinical data management and biostatistical services, and offers product
registration services throughout the United States and Europe. The Company has a
client base of 100 pharmaceutical and biotechnology companies, including the ten
largest pharmaceutical companies in the world, and in 1995 the Company performed
services for 69 clients. The Company's net service revenue increased 34.9% to
$57.8 million in 1995 from $42.9 million in 1994, and increased 49.9% to $17.7
million in the quarter ended March 31, 1996 from $11.8 million in the quarter
ended March 31, 1995. The Company has entered into an agreement to acquire
Bio-Research Laboratories Ltd., a leading preclinical CRO located in Montreal,
Quebec. See "-- Pending Bio-Research Acquisition."
The Company believes worldwide research and development expenditures by the
pharmaceutical and biotechnology industries reached $30 billion in 1994,
approximately $10 billion of which was spent on clinical trials, with
approximately $2 billion being outsourced to CROs. Research and development
expenditures in 1994 for the largest 50 pharmaceutical companies in the world
(as measured by such expenditures) increased approximately 8% from the previous
year. The Company believes that certain industry trends will continue to
increase the need for pharmaceutical and biotechnology companies to outsource
the design and management of their clinical trials. These trends include: (i)
the desire of many pharmaceutical companies to respond to cost containment
pressures and reduce the high fixed costs associated with peak-load staffing for
drug development by relying on a combination of internal resources and CROs;
(ii) the attempt by pharmaceutical and biotechnology companies to globalize
clinical research and development to maximize profits from a given drug by
pursuing regulatory approvals in multiple countries simultaneously by
outsourcing to CROs with global capabilities; (iii) the efforts by
pharmaceutical and biotechnology companies to confront the increasingly complex
and stringent regulatory requirements in many jurisdictions by taking advantage
of the data management expertise, technological capabilities and global presence
of CROs; (iv) the escalation of worldwide research and development expenditures
for new drugs, including amounts spent on services of the type provided by CROs,
resulting from pressures to develop new drugs for the treatment of chronic
disorders and life-threatening diseases; (v) the desire by pharmaceutical
companies to reduce the time required to develop and bring a new drug to the
market by outsourcing preclinical and clinical trials to CROs that provide a
full range of services; (vi) the efforts by pharmaceutical companies to reserve
their internal resources for the development of new drugs by using CROs to
manage and conduct preclinical and clinical trials; and (vii) the maturation of
the biotechnology industry and the resulting increase in the demand for
expertise and services provided by outside sources, including CROs.
The Company's strategy for capitalizing on the expected growth in the CRO
industry includes (i) providing comprehensive preclinical and clinical research
services, (ii) pursuing strategic alliances with selected clients, (iii)
expanding its international presence, (iv) developing capabilities in emerging
clinical areas and testing procedures, (v) continuing to invest in information
systems technology, (vi) broadening the Company's therapeutic expertise, and
(vii) increasing its client base and adding new contracts with existing clients.
The Company currently has strategic alliances with Baxter Healthcare
Corporation, Sandoz Pharmaceuticals Corporation and SmithKline Beecham
Corporation. In addition, the Company plans to make strategic acquisitions of
selected CROs or related businesses that provide one or more of the following:
complementary services, expanded geographic presence, therapeutic expertise or
complementary client bases.
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The Company has offices in Nashville, Tennessee; Research Triangle Park,
North Carolina; Lexington, Kentucky; Maidenhead, England; Brussels, Belgium;
Melbourne, Australia; Jerusalem, Israel; and Santiago, Chile.
PENDING BIO-RESEARCH ACQUISITION
On May 24, 1996, ClinTrials announced a definitive agreement to acquire
Bio-Research Laboratories Ltd. of Montreal, Quebec ("Bio-Research") for
approximately $65 million in cash and the assumption of certain liabilities (the
"Acquisition"). The Company will use a portion of the proceeds of the Offering
to fund the Acquisition and related costs. Founded in 1965, Bio-Research is a
leading preclinical CRO, providing services to clients in the pharmaceutical,
biotechnology, chemical and medical device industries. Bio-Research designs and
conducts preclinical trials, based principally upon animal models, that produce
the data required to assess and evaluate efficacy in and potential risks to
humans. Bio-Research's service revenue increased 7.3% to $26.3 million in 1995
from $24.5 million in 1994, and decreased 14.9% to $6.3 million in the quarter
ended March 31, 1996 from $7.4 million in the quarter ended March 31, 1995.
Bio-Research has an extensive client base including many large
pharmaceutical companies and leading biotechnology companies. In 1995, it
provided services to approximately 120 different clients, including eight of the
ten largest pharmaceutical companies in the world. Bio-Research offers
preclinical research study services, which are performed on a product for up to
a three year period in order to prepare an Investigational New Drug Application
("IND") for filing with the Food and Drug Administration (the "FDA") and similar
reports for filing with other governmental agencies. Such reports must be
approved by the appropriate governmental agency before the product can be tested
on humans. Bio-Research has particular expertise in the areas of osteoporosis
evaluation, infusion, pharmacology and biomaterials testing, bio-marker assays,
inhalation toxicology, reproductive toxicology and neurotoxicology, immunology,
metabolism and general toxicology.
Bio-Research owns buildings that comprise approximately 204,000 square feet
of laboratory facility and office space in Senneville, Quebec, a suburb of
Montreal. The facilities include highly-specialized study rooms and
laboratories, together with sophisticated analytical equipment and security
systems. Approximately 133,500 square feet are allocated for preclinical
facilities, which consist of 72 standard study rooms, twelve large mass air
displacement study rooms, twelve inhalation treatment rooms, a behavioral
testing room and a surgical suite with adjacent physiological monitoring
facilities capable of accommodating four simultaneous surgical procedures. The
Company believes that the high cost of such facilities and equipment provides a
significant barrier to entry into the field of preclinical research.
Management believes that the Acquisition will assist the Company in
achieving its objective of becoming a vertically integrated international CRO in
the following ways:
- The Company will be one of what it believes to be only three large CROs
able to offer clients the full range of preclinical and Phase I through
Phase IV clinical trials.
- Bio-Research will increase both the number and the geographic scope of
the clients served by the Company, enabling the Company to cross-sell its
services and enhance its relationships with existing clients.
- Bio-Research will add a number of additional areas of therapeutic
expertise to complement the Company's areas of proficiency.
- Bio-Research's management team, with its international reputation and
broad experience, will be an important asset for the Company.
It is anticipated that the Acquisition will close substantially
simultaneously with the closing of the Offering. See "Bio-Research Acquisition"
and "Risk Factors -- No Assurance of Successful Integration of Bio-Research or
Other Acquisitions."
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RECENT DEVELOPMENTS
On July 18, 1996, ClinTrials announced its operating results for the second
quarter of 1996. Net service revenue increased 43.8% to $19.4 million from $13.5
million in the same period of 1995. Consolidated income before income taxes
increased 51.1% to $2.1 million compared to $1.4 million in the same period of
1995. Net income increased 56.2% to $1.3 million in the second quarter of 1996
compared to $817,000 in the same period of 1995. Earnings per share increased to
$0.14 in the 1996 period compared to $0.09 in the second quarter of 1995.
THE OFFERING
Common Stock offered................ 2,617,334 shares
Common Stock to be outstanding after
the Offering.................... 11,522,468 shares(1)
Use of proceeds..................... To fund the Acquisition and for general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol....... CCRO
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(1) Excludes 582,049 shares of Common Stock reserved for issuance upon exercise
of options granted pursuant to the Company's stock option plans.
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth certain summary financial information for
the Company and its subsidiaries as of and for each of the three fiscal years in
the period ended December 31, 1995, and as of and for the three months ended
March 31, 1995 and 1996, respectively. The unaudited pro forma summary financial
information set forth below has been prepared on a consolidated basis based upon
the historical financial statements of the Company and Bio-Research. The pro
forma statements of income data give effect to the Acquisition as if it had
occurred on January 1 of the respective period. The pro forma balance sheet data
as of March 31, 1996 gives effect to the Acquisition as if it had occurred on
March 31, 1996. The pro forma financial information is provided as additional
information only and is not necessarily indicative of actual results that would
have been achieved had the Acquisition been consummated at the beginning of the
periods presented or of future results. In particular, the Company does not
believe that the pro forma results of operations for the year ended December 31,
1995 are indicative of future results. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Pending Bio-Research
Acquisition -- Bio-Research's Results of Operations -- Quarter Ended March 31,
1996 Compared to Quarter Ended March 31, 1995." The following should be read in
conjunction with the related historical financial statements of the Company and
Bio-Research and the Unaudited Pro Forma Condensed Combined Financial Statements
incorporated by reference or included in this Prospectus.
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
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PRO FORMA PRO FORMA
1993 1994 1995 1995 1995 1996 1996
------- ------- ------- --------- ------- ------- ---------
STATEMENTS OF INCOME DATA:
Service revenue................... $49,939 $67,763 $86,217 $112,559 $18,030 $26,397 $32,721
Less subcontractor costs(1)....... 14,655 24,889 28,371 28,371 6,247 8,727 8,727
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Net service revenue............... 35,284 42,874 57,846 84,188 11,783 17,670 23,994
Operating costs and expenses:
Direct costs.................... 21,121 25,324 34,850 49,258 6,890 10,526 14,184
Selling, general and
administrative expenses....... 10,239 12,111 15,209 23,233 3,345 4,750 6,704
Depreciation and amortization... 1,691 1,937 2,287 4,819 527 700 1,366
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Income from operations............ 2,233 3,502 5,500 6,878 1,021 1,694 1,740
Net income........................ $ 1,041(2) $ 2,153 $ 3,601 $ 6,368 (3) $ 721 $ 1,113 $ 1,411(3)
Net income per common and common
equivalent share................ $ 0.15(2) $ 0.24 $ 0.40 $ 0.56 (3) $ 0.08 $ 0.12 $ 0.12(3)
Number of shares and common stock
equivalents used in computing
per share amounts............... 6,919 9,000 9,088 11,404 (4) 9,043 9,185 11,501(4)
MARCH 31, 1996
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AS PRO FORMA
ACTUAL ADJUSTED(5) AS ADJUSTED
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BALANCE SHEET DATA:
Cash, cash equivalents and held-to-maturity securities................. $16,831 $ 90,882 $ 31,430
Working capital........................................................ 17,443 91,494 36,327
Total assets........................................................... 61,652 135,703 141,084
Long-term debt......................................................... -- -- --
Stockholders' equity................................................... 32,108 106,159 106,159
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(1) Subcontractor costs consist primarily of costs for third-party physicians
that are passed through to the Company's clients. Amounts vary from contract
to contract. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) Includes the $0.04 per share cumulative effect of accounting change
resulting from the adoption of FASB Statement No. 109, "Accounting for
Income Taxes" effective as of January 1, 1993.
(3) Interest income from the net cash proceeds from the Offering received in
excess of the cash used to acquire Bio-Research is not reflected in the pro
forma columns. If interest income had been earned on the excess proceeds,
pro forma income would have been $6,740,000, or $0.58 per share, for the
year ended December 31, 1995, and $1,504,000, or $0.13 per share, for the
three months ended March 31, 1996. See Unaudited Pro Forma Condensed
Combined Statements of Income and Notes thereto.
(4) The weighted average common shares outstanding in the pro forma columns
include the 2,316,000 shares of Common Stock offered hereby that will be
used to fund the $65 million cost of the Acquisition. The calculation of
these shares is based on the offering price of $30.00 per share, net of
offering costs.
(5) Adjusted to reflect the sale by the Company of the 2,617,334 shares of
Common Stock offered hereby and the proposed application of the estimated
net proceeds therefrom. See "Use of Proceeds."
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RISK FACTORS
Investors should carefully consider the following matters in connection
with an investment in the Common Stock in addition to the other information
contained or incorporated by reference in this Prospectus. Information contained
or incorporated by reference in this Prospectus may contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which can be identified by the use of forward-looking terminology such
as "may," "will," "expect," "anticipate," "estimate" or "continue" or the
negative thereof or other variations thereon or comparable terminology. The
following matters constitute cautionary statements identifying important factors
with respect to any such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
reflected in any such forward-looking statements.
NO ASSURANCE OF SUCCESSFUL INTEGRATION OF BIO-RESEARCH OR OTHER ACQUISITIONS
The Acquisition, if completed, will change the business of the Company to
include preclinical trial services, increase the number of Company employees and
increase the Company's net service revenue. There can be no assurance that
Bio-Research, once acquired, will be integrated successfully into the Company's
operations or that it will not have a material adverse effect upon the Company's
results of operations, financial condition or business prospects. ClinTrials
currently has no experience in preclinical trials; therefore, the success of the
Company's integration of Bio-Research may depend on the retention of current
Bio-Research management. Although the Company intends to retain such employees,
there can be no assurance that such individuals will remain with the Company.
In addition, Bio-Research benefits significantly from certain Canadian
research and development tax credits. Any future reduction in the availability
or amount of these tax credits will have an adverse effect upon the Company's
profitability. See "Management Discussion and Analysis of Financial Condition
and Results of Operations -- Overview."
A significant component of the Company's historical growth has come through
acquisitions of other CROs, and the Company's growth strategy includes possible
additional acquisitions. Any other acquisitions which the Company may pursue
will also involve risks, including the possible inability to integrate the
operations and services of the acquired business, the expenses incurred in
connection with the acquisition, the diversion of management's attention from
other business concerns and the potential loss of key employees of the acquired
business. Acquisitions of foreign companies also may involve the additional
risks of, among others, integration of foreign business practices and overcoming
language barriers. There can be no assurance that any such acquisitions will not
have a material adverse effect upon the Company's results of operations,
financial condition or business prospects.
FLUCTUATION IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have fluctuated as a result of
factors such as delays experienced in implementing or completing particular
clinical trials, termination of clinical trials and the costs associated with
integrating acquired operations. Since a high percentage of the Company's
operating costs are relatively fixed while revenue recognition is subject to
fluctuation, minor variations in the timing of contracts or the progress of
trials may cause significant variations in quarterly operating results. Results
of one quarter are not necessarily indicative of results for the next quarter.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS
The Company provides services primarily to the pharmaceutical and
biotechnology industries. Accordingly, the Company's net service revenue is
substantially dependent on these industries' expenditures on research and
development. Although these expenditures are large, the number of potential CRO
clients is relatively limited and it is not uncommon for a CRO to derive over
10% of its revenue from a single client. The Company has in the past derived and
may in the future derive a significant portion of its net service revenue from a
relatively limited number of clients. The loss of any such client could
materially adversely affect the
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Company's results of operations. In the first quarter of 1996, two clients
accounted for 25% and 16% of the Company's net service revenue, respectively. In
addition, two clients accounted for 25% and 18% of such revenue in 1995 and two
clients accounted for 21% and 13% of such revenue in 1994. No other client
accounted for more than 10% of the Company's net service revenue during such
periods. The Company's operations could be materially and adversely affected by,
among other factors, any economic downturn in the pharmaceutical or
biotechnology industries, any decrease in their research and development
expenditures, or a change in the governmental regulations pursuant to which
these industries operate. Furthermore, management believes that the Company has
benefitted to date from the increasing tendency of pharmaceutical and
biotechnology companies to outsource the performance and analysis of large
clinical research projects to independent parties. Should this tendency be
reduced or halted entirely, the Company's operations would be materially and
adversely affected. See "Business -- Industry Trends" and "-- Clients and
Marketing."
LOSS OF CLINICAL RESEARCH CONTRACTS
Clients of the Company generally have the right to terminate a contract at
any time during a clinical trial, potentially causing periods of excess capacity
and reductions in net service revenue and net income. Trials may be terminated
for various reasons, including unexpected or undesired results, inadequate
patient enrollment or investigator recruitment, production problems resulting in
shortages of the drug, adverse patient reactions to the drug or the client's
decision to de-emphasize a particular trial. The termination of any one trial
would typically not have a material adverse impact on the Company. The loss of a
large trial or the simultaneous loss of multiple trials, however, could result
in unplanned periods of excess capacity and adversely affect the Company's
backlog, future revenue and profitability. In most instances, if a contract is
terminated, the Company is entitled to receive revenue earned to date as well as
a termination fee. However, because the Company's contracts are predominantly
fixed price contracts, the Company bears the risk of cost overruns. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
COMPETITION
The Company competes primarily against the in-house research departments of
pharmaceutical companies, other CROs, universities and teaching hospitals. The
CRO industry is highly fragmented, with approximately 20 full-service CROs and
many small, limited-service CROs. In recent years, several large, full-service
competitors have emerged, some of which have substantially greater capital and
other resources, are better known and have more experienced personnel than the
Company. The recent trend toward industry consolidation is likely to result in
heightened competition among the larger CROs. Increased competition may lead to
price and other forms of competition that may adversely affect the Company's
results of operations. Although the financial costs of entry into the industry
are relatively low, the larger CROs are increasingly required to have
substantial amounts of working capital in order to sustain internal growth and
international expansion, and to meet credit-worthiness standards of their larger
clients. See "Business -- Competition."
MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL
In addition to growth resulting from the acquisition of Bio-Research, the
Company has experienced growth that has placed, and is likely to continue to
place, a significant demand on its management resources. The Company's
successful implementation of its growth strategy depends upon its ability to
attract and retain qualified management and professional, scientific and
technical operating personnel including such personnel in its foreign
operations. The growth of the Company's foreign operations may involve
additional demands on management such as assimilating differences in foreign
business practices and overcoming language barriers. The loss of the services of
any of the Company's key executives or the failure to manage growth effectively
could have a material adverse effect on the Company. There can be no assurance
that the Company will be able to attract and retain sufficient numbers of
qualified personnel.
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HEALTH CARE INDUSTRY REFORM
The health care industry is subject to changing political, economic and
regulatory influences that may affect the pharmaceutical and biotechnology
industries. In recent years, several comprehensive health care reform proposals
were introduced in the United States Congress. The intent of the proposals was,
generally, to expand health care coverage for the uninsured and reduce the
growth of total health care expenditures. While none of the proposals were
adopted, health care reform may again be addressed by the United States
Congress. In addition, foreign governments may also undertake health care
reforms in their respective countries. Implementation of government health care
reform may adversely affect research and development expenditures by
pharmaceutical and biotechnology companies, which could decrease the business
opportunities available to the Company. The Company is unable to predict the
likelihood of such or similar legislation being enacted into law or the effect
such legislation would have on the Company.
GOVERNMENTAL REGULATION
The Company's business has resulted from the extensive regulatory framework
imposed by various governments on the drug development process. The services
provided by the Company are ultimately subject to regulation by the FDA in the
United States and comparable agencies in other countries, although the level of
applicable regulation in other countries is generally less comprehensive than in
the United States. The Company is obligated to comply with FDA regulations
governing such activities as selecting qualified investigators, obtaining
required forms from investigators, verifying that patient informed consent is
obtained, monitoring the validity and accuracy of data, verifying drug/device
accountability and instructing investigators to maintain records and reports.
The Company must also maintain records for each study for specified periods for
inspection by the study sponsor and the FDA during audits. Any failure to comply
adequately with Federal regulations and guidelines could have a material adverse
effect on the Company. In the European Community (the "EC"), the general trend
has been toward coordination of common standards for clinical testing of new
drugs, leading to changes in the various requirements imposed by each country.
Changes in regulation, including, without limitation, a relaxation in regulatory
requirements or the introduction of simplified drug approval procedures, could
materially and adversely affect the demand for the services offered by the
Company.
POTENTIAL LIABILITY FROM OPERATIONS
Clinical trials involve the testing of approved and experimental drugs on
human subjects. Such testing creates a significant risk of liability for
personal injury or death to participants that have an adverse reaction to the
trial drug. Although the Company's employees and agents do not have direct
contact with the participants in any clinical trial, the Company does select and
contract on behalf of its clients with physicians who render professional
services, including the administration of the drugs being tested, to persons
participating in clinical trials. As a result, the Company may be subject to
claims in the event of personal injury or death of persons participating in
clinical trials and arising from professional malpractice of such physicians.
Although the Company is generally indemnified by its clients, in order for such
indemnification to be valid, the Company and its employees and agents must act
within the bounds of specific procedural requirements governing the conduct of
each clinical trial. Since the Company's indemnification provisions are
negotiated agreements and such provisions necessarily depend upon the financial
viability of the indemnifying party, no assurance can be given that these
indemnities will be available to the Company in each or any instance of
liability. In addition, preclinical and clinical trials involve the compilation
and interpretation of a significant amount of statistical data, which may
subject the Company to claims of statistical errors. Bio-Research is currently a
party to such a claim. See "Business -- Litigation" and Note 11 of Notes to the
Bio-Research Laboratories Ltd. Financial Statements.
EXCHANGE RATE FLUCTUATIONS
Approximately 4.3%, 9.9%, 11.6% and 12.6% of the Company's net service
revenue for 1993, 1994, 1995, and the first quarter of 1996, respectively, were
derived from the Company's operations outside of the United States. Following
the Acquisition, these percentages will increase and on a pro forma basis were
approximately
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39.3% in 1995 and 35.6% in the first quarter of 1996. Since the revenues and
expenses of the Company's foreign operations are generally denominated in local
currencies, exchange rate fluctuations between local currencies and the United
States dollar will subject the Company to currency translation risk with respect
to the results of its foreign operations. The cash receipts of Bio-Research are
not all denominated in Canadian dollars. Therefore, following the Acquisition,
the Company will be subject to transaction risk to the extent it is unable to
shift to its clients the effects of currency exchange rate fluctuations.
Although Bio-Research currently hedges against exchange rate fluctuations to
some extent, such fluctuations could have a material adverse effect on the
Company's results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
CONTROL BY CERTAIN STOCKHOLDERS
The Company's four largest stockholders, each of whom is a director, will
beneficially own approximately 34.0% of the outstanding shares and, together
with other affiliates of the Company, will beneficially own approximately 35.5%
of the outstanding shares, upon completion of the Offering. As a result, such
persons, if they were to act in concert, would have the ability to exert
significant influence over the election of the Company's directors and thus the
business policies and affairs of the Company. This concentration of ownership
may also have the effect of delaying or preventing a change in control of the
Company and could likewise bring about the sale or merger of the Company under
terms favorable or unfavorable to all other stockholders. See "Principal
Stockholders."
VOLATILITY OF MARKET PRICE
From time to time after the Offering, there may be significant volatility
in the market price for the Common Stock. The Company believes that the current
market price of the Common Stock reflects expectations that the Company will be
able to continue to experience significant growth either internally or through
acquisitions. If the Company is unable to operate at a pace that reflects the
expectations of the market, investors could sell shares of the Common Stock
resulting in a decrease in the market price of the Common Stock. In addition to
quarterly operating results of the Company, changes in earnings estimated by
analysts, general conditions in the economy, the financial markets or the health
care, pharmaceutical, biotechnology or CRO industries, implementation of
proposed health care reforms or other developments affecting the Company could
cause the market price of the Common Stock to fluctuate substantially. In
addition, in recent years the stock market has experienced extreme price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to their
operating performance.
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BIO-RESEARCH ACQUISITION
On May 24, 1996, the Company, Bio-Research and the shareholders of
Bio-Research entered into a definitive Asset Purchase Agreement (the "Purchase
Agreement"). Pursuant to the Purchase Agreement, the Company will purchase the
assets of Bio-Research for $65 million in cash, subject to adjustment based on a
comparison of Bio-Research's net working capital (as defined in the Purchase
Agreement) at the closing with such amount at December 31, 1995. The Company
will assume essentially all liabilities of Bio-Research. It is anticipated that
the closing of the Acquisition and the closing of the Offering will occur
substantially simultaneously.
The closing of the Acquisition is subject to certain contingencies common
to acquisitions of this type, including the continued truthfulness of the
representations and warranties, the lack of any court or governmental agency
prohibition against the transaction and the receipt of any necessary
governmental approvals. In addition, ClinTrials' obligation to close is subject
to the execution and delivery of an employment agreement between ClinTrials and
Bio-Research's president, Michael F. Ankcorn, and the existence of certain
levels of shareholders' equity, cash and backlog for Bio-Research. Neither the
obtaining of financing nor the successful completion of the Offering is a
condition to the closing of the Acquisition.
Bio-Research and its shareholders, in proportion to their ownership, have
agreed to indemnify ClinTrials against any and all claims, losses, costs and
expenses resulting from (i) any breach of any of the covenants, obligations,
representations or warranties contained in the Purchase Agreement or any
document delivered pursuant thereto, (ii) any liability of Bio-Research not
expressly assumed by ClinTrials under the Purchase Agreement, and (iii) any
claim not previously disclosed to ClinTrials which is brought or asserted by any
third party against ClinTrials arising out of the ownership, licensing,
operation, action, inaction or conduct of Bio-Research or any of Bio-Research's
assets or any of Bio-Research's employees, agents or independent contractors,
relating to all periods of time prior to the closing of the Acquisition. The
Purchase Agreement provides that no recovery shall be available until the loss
exceeds $500,000, except in the case of fraud. The Purchase Agreement also
limits the maximum indemnification to the purchase price. The Purchase Agreement
limits the time period in which claims may be made to two years after the
closing of the Acquisition; provided that claims related to tax matters or fraud
may be made at any time before 60 days after the expiration of the statute of
limitations applicable to the underlying claim.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be $74.1 million ($84.7 million if the Underwriters'
over-allotment option is exercised in full) after deducting the underwriting
discount and estimated offering expenses. Of the net proceeds, approximately $65
million will be used to fund the purchase price of the Acquisition and related
costs. The Company intends to use the remaining net proceeds of the Offering for
working capital and other general corporate purposes. The Company has
experienced an increasing demand for working capital in order to meet the
credit-worthiness standards set by its larger clients. Other than the
Acquisition, no binding agreements or firm commitments currently exist to make
any acquisition.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is listed on the Nasdaq National Market under
the symbol "CCRO." The following table sets forth, for the periods indicated,
the high and low sale prices for the Common Stock as reported by the Nasdaq
National Market:
1994 HIGH LOW
--------------------------------------------------------------------- ------ ------
First Quarter........................................................ $13.75 $11.25
Second Quarter....................................................... 11.88 5.50
Third Quarter........................................................ 8.63 6.50
Fourth Quarter....................................................... 10.50 7.63
1995
First Quarter........................................................ $13.00 $ 9.00
Second Quarter....................................................... 13.50 10.38
Third Quarter........................................................ 20.25 13.00
Fourth Quarter....................................................... 21.13 17.00
1996
First Quarter........................................................ $35.63 $19.50
Second Quarter....................................................... 50.50 34.00
Third Quarter (through July 24, 1996)................................ 49.13 32.00
On July 24, 1996, the last reported sale price for the Common Stock on the
Nasdaq National Market was $33.00 per share. At July 24, 1996, there were
approximately 189 holders of record of the Common Stock.
The Company has never declared or paid a cash dividend on its Common Stock
and does not anticipate paying any cash dividends in the foreseeable future. In
addition, the Company's credit facility prohibits the payment of dividends so
long as there is indebtedness outstanding thereunder.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996, (i) on an actual basis, (ii) on an as adjusted basis to reflect
the sale of 2,617,334 shares of Common Stock offered by the Company hereby, and
(iii) on a pro forma as adjusted basis to give effect to the sale of 2,617,334
shares of Common Stock offered by the Company hereby and to reflect the
Acquisition. See "Use of Proceeds" and the Unaudited Pro Forma Condensed
Combined Financial Statements.
MARCH 31, 1996
---------------------------------------
PRO FORMA
ACTUAL AS ADJUSTED AS ADJUSTED
------- ----------- -----------
(IN THOUSANDS)
Long term debt............................................. $ -- $ -- $ --
------- ----------- -----------
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; no shares issued or outstanding........... -- -- --
Common stock, $0.01 par value; 30,000,000 shares
authorized; 8,842,427 shares issued and outstanding
and 11,459,761 shares issued and outstanding, as
adjusted(1)........................................... 88 114 114
Additional paid-in capital............................... 40,180 114,205 114,205
Retained earnings (deficit).............................. (8,229) (8,229) (8,229)
Cumulative foreign currency translation adjustments...... 69 69 69
------- ----------- -----------
Total stockholders' equity....................... 32,108 106,159 106,159
------- ----------- -----------
Total capitalization........................ $32,108 $ 106,159 $ 106,159
======= ========= =========
- ---------------
(1) Excludes 652,652 shares of Common Stock reserved for issuance upon exercise
of options granted pursuant to the Company's stock option plans.
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SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data for the three years ended December
31, 1995, are derived from the audited consolidated financial statements of the
Company, which have been audited by Ernst & Young LLP, independent auditors. The
financial data for the three-month periods ended March 31, 1996 and 1995 are
derived from unaudited financial statements. The unaudited financial statements
include all adjustments, consisting of normal recurring accruals, which the
Company considers necessary for a fair presentation of the financial position
and the results of operations for these periods. Operating results for the three
months ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1996.
The following selected pro forma financial information is derived from the
unaudited pro forma condensed combined financial statements included elsewhere
in this Prospectus and is based upon the consolidated financial statements of
each of the Company and Bio-Research, adjusted to give effect to the
Acquisition. The selected pro forma statements of income for the year ended
December 31, 1995 and the three months ended March 31, 1996 give effect to the
Acquisition as if it had occurred on January 1, 1995. The pro forma balance
sheet data as of March 31, 1996 gives effect to the Acquisition as if it had
occurred on March 31, 1996.
All information contained in the following tables should be read in
conjunction with "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Unaudited Pro Forma
Condensed Combined Financial Statements of the Company and the consolidated
financial statements and related notes of the Company and Bio-Research
incorporated by reference or included herein.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995 1995 1996 1996
------- ------- ------- --------- ------- ------- ---------
STATEMENTS OF INCOME DATA:
Revenue:
Service revenue..................................... $49,939 $67,763 $86,217 $112,559 $18,030 $26,397 $32,721
Less subcontractor costs (1)........................ 14,655 24,889 28,371 28,371 6,247 8,727 8,727
------- ------- ------- --------- ------- ------- ---------
Net service revenue................................... 35,284 42,874 57,846 84,188 11,783 17,670 23,994
Operating costs and expenses:
Direct costs........................................ 21,121 25,324 34,850 49,258 6,890 10,526 14,184
Selling, general and administrative expenses........ 10,239 12,111 15,209 23,233 3,345 4,750 6,704
Depreciation and amortization....................... 1,691 1,937 2,287 4,819 527 700 1,366
------- ------- ------- --------- ------- ------- ---------
Income from operations................................ 2,233 3,502 5,500 6,878 1,021 1,694 1,740
Other income (expense)................................ (255) 497 665 1,028 203 201 277
------- ------- ------- --------- ------- ------- ---------
Income before income taxes and cumulative effect of
accounting change................................... 1,978 3,999 6,165 7,906 1,224 1,895 2,017
Provision for income taxes............................ 1,180 1,846 2,564 1,538 503 782 606
------- ------- ------- --------- ------- ------- ---------
Income before cumulative effect of accounting
change.............................................. 798 2,153 3,601 6,368 721 1,113 1,411
Cumulative effect as of January 1, 1993 of change in
method of accounting for income taxes............... 243 -- -- -- -- -- --
------- ------- ------- --------- ------- ------- ---------
Net income............................................ $ 1,041 $ 2,153 $ 3,601 $ 6,368 (2) $ 721 $ 1,113 $ 1,411(2)
======= ======= ======= ======== ======= ======= ========
Earnings per common and common equivalent share before
cumulative effect of accounting change.............. $ 0.11 $ 0.24 $ 0.40 $ 0.56 (2) $ 0.08 $ 0.12 $ 0.12(2)
======= ======= ======= ======== ======= ======= ========
Net income per share.................................. $ 0.15 $ 0.24 $ 0.40 $ 0.56 $ 0.08 $ 0.12 $ 0.12
======= ======= ======= ======== ======= ======= ========
Number of shares and common stock equivalents used in
computing per common and common equivalent share.... 6,919 9,000 9,088 11,404 (3) 9,043 9,185 11,501(3)
AS OF MARCH 31,
AS OF DECEMBER 31, -------------------
--------------------------- PRO FORMA
1993 1994 1995 1996 1996
------- ------- ------- ------- ---------
BALANCE SHEET DATA:
Cash, cash equivalents, and held-to-maturity securities..................... $22,130 $21,045 $17,031 $16,831 $ 31,430
Working capital............................................................. 12,088 14,044 16,867 17,443 36,327
Total assets................................................................ 47,318 49,680 58,626 61,652 141,084
Long-term debt.............................................................. -- -- -- -- --
Stockholders' equity........................................................ 24,409 26,717 30,951 32,108 106,159
- ---------------
(1) Subcontractor costs consist primarily of costs for third-party physicians
that are passed through to the Company's clients. Amounts vary from contract
to contract. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) Interest income from the net cash proceeds from the Offering received in
excess of the cash used to acquire Bio-Research is not reflected in the pro
forma columns. If interest income had been earned on the excess proceeds,
pro forma income would have been $6,740,000, or $0.58 per share, for the
year ended December 31, 1995, and $1,504,000, or $0.13 per share, for the
three months ended March 31, 1996. See the Unaudited Pro Forma Condensed
Combined Statements of Income and Notes thereto.
(3) The weighted average common shares outstanding in the pro forma columns
include the 2,316,000 shares of Common Stock offered hereby that will be
used to fund the $65 million cost of the Acquisition. The calculation of
these shares is based on the offering price of $30.00 per share, net of
offering costs.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion includes certain forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties, including without limitation, those discussed in "Risk Factors."
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Prospectus will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
The Company is a full-service clinical research organization serving the
pharmaceutical, biotechnology and medical device industries. The Company
designs, monitors and manages clinical trials, provides clinical data management
and biostatistical services and offers product registration services throughout
the United States and Europe. The Company generates substantially all of its
revenue from the clinical testing of new pharmaceutical and biotechnology
products.
The Company's contracts are typically fixed priced, multi-year contracts
that require a portion of the contract amount to be paid at or near the time the
trial is initiated. The Company generally bills its clients upon the completion
of negotiated performance requirements and, to a lesser extent, on a date
certain basis. The Company's contracts generally may be terminated with or
without cause. In the event of termination, the Company is typically entitled to
all sums owed for work performed through the notice of termination and all costs
associated with termination of the study. In addition, most of the Company's
contracts provide for an early termination fee, the amount of which usually
declines as the trial progresses. Termination or delay in the performance of a
contract occurs for various reasons, including, but not limited to, unexpected
or undesired results, inadequate patient enrollment or investigator recruitment,
production problems resulting in shortages of the drug, adverse patient
reactions to the drug, or the client's decision to de-emphasize a particular
trial.
Revenue for contracts is recognized on a percentage of completion basis as
work is performed. Revenue is affected by the mix of trials conducted and the
degree to which labor is utilized. The Company routinely subcontracts with
third-party investigators in connection with multi-site clinical trials and with
other third party service providers for laboratory analysis and other
specialized services. These costs are passed through to clients and, in
accordance with industry practice, are included in service revenue.
Subcontractor services may vary significantly from contract to contract;
therefore, changes in service revenue may not be indicative of trends in revenue
growth. Accordingly, the Company views net service revenue, which consists of
service revenue less subcontractor costs, as its primary measure of revenue
growth. The Company has had, and will continue to have, certain clients from
which at least 10% of the Company's overall revenue is generated over multiple
contracts. Such concentrations of business are not uncommon within the CRO
industry.
The Company's quarterly operating results may fluctuate as a result of
factors such as delays experienced in implementing or completing particular
clinical trials and termination of clinical trials, the costs associated with
integrating acquired operations, as well as the costs associated with opening
new offices. Since a high percentage of the Company's operating costs are
relatively fixed while revenue is subject to fluctuation, minor variations in
the timing of contracts or the progress of clinical trials (both delays and
accelerations) may cause significant variations in quarterly operating results.
Results of one quarter are not necessarily indicative of results for the next
quarter.
The Company's core business in the United States has experienced
significant growth, reflecting both an expansion of the Company's client base
and an increase in the number and size of projects under management. Prior to
1992, the Company's European operations primarily performed services required by
contracts generated by United States operations. In late 1992, the Company began
expanding its European operations, which contributed significantly to operating
losses for 1993 and 1994 in Europe. European operations broke even in 1995, and
are expected to become profitable in 1996. Recently, the Company expanded its
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international operations by opening offices in Australia, Israel and Chile. This
was done partially in response to client requests for the Company to provide
services in these areas. The Company plans to continue to develop these and
other operations abroad. This will require additional investments in marketing
and infrastructure and may include the establishment of other new offices. As a
result, the Company expects its new offices to incur losses at least through
1996.
Contracts between the Company's United Kingdom subsidiary and its clients
are generally denominated in pounds sterling. Payments received for services
rendered on such contracts, as well as payments made for the subsidiaries'
expenses, are in pounds sterling. Therefore, the subsidiary recognizes revenue
and expense in pounds sterling and its earnings are not materially affected by
fluctuations in exchange rates. Due to the Company's expansion abroad as
discussed previously, it is possible the Company's subsidiaries will enter into
contracts which are denominated in currencies other than the local currency of
the subsidiary. Because substantially all of the subsidiaries' expenses are paid
in the local currency of that subsidiary, fluctuations in exchange rates may
affect the subsidiaries' earnings.
The Company's consolidated financial statements are denominated in U.S.
dollars and, accordingly, changes in the exchange rates between the Company's
subsidiaries' local currency and the U.S. dollar will affect the translation of
such subsidiaries' financial results into U.S. dollars for purposes of reporting
the Company's consolidated financial results. Translation adjustments are
reported as a separate section of stockholders' equity. To date, such
adjustments have not been material to the Company's financial statements.
Following the Acquisition, a greater percentage of the Company's net
service revenue will be derived from operations outside the United States. The
cash receipts of Bio-Research are not all denominated in Canadian dollars;
therefore, following the Acquisition, the Company will be subject to transaction
risk to the extent it is unable to shift to its clients the effects of currency
exchange rate fluctuations. Although Bio-Research currently hedges against
exchange rate fluctuations to some extent through the purchase of forward
currency exchange contracts on a monthly basis, such fluctuations could have a
material adverse effect on the Company's results of operations.
Following the Acquisition, the Company, through Bio-Research, will benefit
from both Canadian and Quebec research and development tax credits. At the
Canadian level, investment tax credits ("ITCs") are generated at the rate of 20%
of qualifying current and capital expenditures net of the amount of contractual
payments made to Bio-Research by certain customers that may claim ITCs directly.
Bio-Research is able to use these ITCs to reduce up to 100% of Canadian taxes
otherwise payable. Unused ITCs may be carried forward for ten years to offset
future Canadian taxes otherwise payable over this period. Although ClinTrials
cannot purchase any unused ITCs, following the Acquisition it expects to
generate new ITCs from the continued operations of Bio-Research. In addition to
ITCs, a Quebec refundable tax credit is available at the rate of 20% of total
qualifying salaries paid by Bio-Research for scientific research and
experimental development conducted by Bio-Research in Quebec net of the amount
of contractual payments made by customers that may claim Quebec refundable tax
credits directly under the Taxation Act (Quebec). The Quebec tax credit may be
used to reduce Quebec provincial taxes and may generate refunds should this
credit exceed the provincial tax liability. As a result of these tax credits,
Bio-Research had an effective tax rate of negative 38% in 1995.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1996 Compared to Quarter Ended March 31, 1995
Net service revenue increased 49.9% to $17.7 million in the first quarter
of 1996 from $11.8 million in the same period of 1995. This increase resulted
primarily from an increase in the number of contracts under management and in
the size of such contracts. The backlog at March 31, 1996 was $98.8 million,
representing 217 contracts from 58 clients, as compared to $71.8 million at
March 31, 1995, representing 147 contracts from 44 clients.
Direct costs increased 52.7% to $10.5 million in the first quarter of 1996
from $6.9 million in the same period of 1995, and increased as a percentage of
net service revenue to 59.6% from 58.5%. Direct costs, as a
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percentage of net revenue, may fluctuate from one period to the next based on
the mix of contracts in the backlog as of any given date. In addition, direct
costs may fluctuate due to changes in labor utilization resulting from the
growth the Company has experienced.
Selling, general and administrative costs increased 42.0% to $4.7 million
in the first quarter of 1996 from $3.3 million in the same period of 1995, and
declined as a percentage of net service revenue to 26.9% from 28.4%. Selling,
general and administrative costs are relatively fixed in the near term and
generally will increase at a lower rate than net revenue. The two largest
components of selling, general and administrative costs are labor (executive,
business development, finance and administration) and rent. Labor costs
increased 33.6% to $1.6 million in the first quarter of 1996 from $1.2 million
in the same period of 1995, but decreased as a percentage of net service revenue
to 9.3% from 10.5%. Rent expense increased 32.3% to $815,000 in the first
quarter of 1996 from $616,000 in the same period of 1995, but decreased as a
percentage of net service revenue to 4.6% from 5.2%.
Depreciation and amortization expense increased 32.8% to $700,000 in the
first quarter of 1996 compared to $527,000 in the same period of 1995.
Interest income, net of interest expense, decreased to $201,000 in the
first quarter of 1996 from $203,000 in the same period of 1995.
Consolidated income before income taxes increased $671,000 to $1.9 million
in the first quarter of 1996 which included a six thousand dollar loss from
foreign operations compared to consolidated income before income taxes of $1.2
million in the same period of 1995 which included a $34,000 loss from foreign
operations. The provision for income taxes was $782,000 in the first quarter of
1996 as compared to $503,000 in the same period of 1995 resulting in effective
tax rates of 41.3% for 1996 and 41.1% for 1995. The significant items that
create the difference between the Company's federal statutory and effective tax
rates are foreign net operating losses unrecognized for U.S. tax purposes,
nondeductible amortization of goodwill, timing differences created by
depreciation, state and local income taxes, tax-exempt interest income and
certain other accrued expenses. The Company will not be able to record a tax
asset for losses incurred in its foreign operations until such time, if any,
that it has three years of profits in the applicable jurisdiction. However, the
Company will be able to recognize a tax benefit for losses incurred in its
foreign operations as the subsidiary generates taxable income to the extent of
the cumulative losses.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net service revenue increased 34.9% to $57.8 million in 1995 from $42.9
million in 1994. This increase resulted primarily from an increase in the number
of contracts under management and in the size of such contracts. The backlog at
December 31, 1995 was $90.2 million, representing 152 contracts from 43 clients,
as compared to $71.1 million at December 31, 1994, representing 137 contracts
from 45 clients.
Direct costs increased 37.6% to $34.9 million in 1995 from $25.3 million in
1994, and increased as a percentage of net service revenue to 60.2% from 59.1%.
Direct costs, as a percentage of net revenue, may fluctuate from one period to
the next based on the mix of contracts in the backlog as of any given date. In
addition, direct costs may fluctuate due to changes in labor utilization
resulting from the growth the Company has experienced.
Selling, general and administrative expenses increased 25.6% to $15.2
million in 1995 from $12.1 million in 1994, but declined as a percentage of net
service revenue to 26.3% from 28.2%. Selling, general and administrative costs
are relatively fixed in the near term and generally will increase at a lower
rate than net revenue. The two largest components of selling, general and
administrative costs are labor (executive, business development, finance and
administration) and rent. Labor costs increased 15.3% to $5.3 million in 1995
from $4.6 million in 1994, but decreased as a percentage of net service revenue
to 9.2% from 10.8%. Rent expense increased 22.7% to $2.7 million in 1995 from
$2.2 million in 1994, but decreased as a percentage of net service revenue to
4.6% from 5.0%. Additional office space was leased during the year for new
employees hired to support the increase in level of operations.
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Depreciation and amortization expense increased 18.1% to $2.3 million in
1995 compared to $1.9 million in 1994.
Interest income, net of interest expense, increased 33.8% to $665,000 in
1995 from $497,000 in 1994.
Consolidated income before income taxes increased $2.2 million to $6.2
million in 1995 which included $59,000 income from foreign operations compared
to consolidated income before income taxes of $4.0 million in 1994 which
included a $443,000 loss from foreign operations. The provision for income taxes
was $2.6 million in 1995 as compared to $1.8 million in 1994 resulting in
effective tax rates of 42% and 46%, respectively. The decrease in the effective
tax rate in 1995 is due primarily to decreased operating losses in Europe. The
significant items which create the difference between the Company's federal
statutory and effective tax rates are foreign net operating losses unrecognized
for U.S. tax purposes, non-deductible amortization of goodwill, timing
differences created by depreciation, state and local income taxes, tax-exempt
interest income and certain other accrued expenses. The Company will not be able
to record a tax asset for losses incurred in its foreign operations until such
time, if any, that it has three years of profits in the applicable jurisdiction.
However, the Company will be able to recognize a tax benefit for losses incurred
in its foreign operations as the subsidiary generates taxable income to the
extent of the cumulative losses.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Net service revenue increased 21.5% to $42.9 million in 1994 from $35.3
million in 1993. This increase resulted primarily from an increase in the number
of clients and a corresponding increase in the number of contracts under
management and in the size of such contracts. The backlog at December 31, 1994,
was $71.1 million, representing 137 contracts from 45 clients, as compared to
$47.3 million at December 31, 1993, representing 94 contracts from 36 clients.
Direct costs increased 19.9% to $25.3 million in 1994 from $21.1 million in
1993, but declined as a percentage of net service revenue to 59.1% from 59.9%.
The improvement in direct costs as a percentage of net revenue resulted from a
larger number of contracts under management, increased profitability on
contracts under management, and a significant improvement in labor utilization.
Selling, general and administrative costs increased 18.3% to $12.1 million
in 1994 from $10.2 million in 1993, but declined as a percentage of net service
revenue to 28.2% from 29.0%. Labor costs increased 20.6% to $4.6 million in 1994
from $3.8 million in 1993, but decreased as a percentage of net service revenue
to 10.8% from 10.9%. Rent expense increased 29.8% to $2.2 million in 1994 from
$1.7 million in 1993, and increased as a percentage of net service revenue to
5.0% from 4.7%. Additional office space was leased during the year for new
employees hired to support the increase in level of operations.
Depreciation and amortization expense increased to $1.9 million in 1994
compared to $1.7 million in 1993.
Interest income increased 170.1% to $597,000 in 1994 from $221,000 in 1993
as a result of a larger average cash balance and higher interest rates during
1994.
Interest expense decreased 79.0% to $100,000 in 1994 from $476,000 in 1993.
The Company repaid virtually all of the outstanding principal on its Credit
Facility (as defined below in "Liquidity and Capital Resources") at the end of
1993 using a portion of the proceeds from its November 1993 initial public
offering. Interest expense in 1994 primarily consisted of a commitment fee
(3/8%) paid on the unused portion of its Credit Facility.
Consolidated income before income taxes totaled $4.0 million in 1994, which
included a $443,000 loss from foreign operations, compared to consolidated
income before income taxes of $2.0 million in 1993, which included a loss of
$808,000 from foreign operations. The provision for income taxes was $1.8
million in 1994 as compared to $1.2 million in 1993 resulting in effective tax
rates of 46% and 60%, respectively. The significant items which create the
difference between the Company's federal statutory and effective tax rates are
foreign net operating losses unrecognized for U.S. tax purposes, non-deductible
amortization of goodwill, timing differences created by depreciation, state and
local income taxes and certain other accrued expenses. The
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Company will not be able to record a tax asset for losses incurred in its
foreign operations until such time, if any, that it has three years of profits
in the applicable jurisdiction. However, the Company will be able to recognize a
tax benefit for losses incurred in its foreign operations as the subsidiary
generates taxable income to the extent of the cumulative losses.
LIQUIDITY AND CAPITAL RESOURCES
The CRO industry is generally not capital intensive. The Company's primary
cash needs on both a short-term and long-term basis are the payment of salaries,
office rent and the travel expenditures of its employees. The Company has
historically financed these expenditures, as well as acquisitions, with cash
flow from operations, issuances of equity securities and borrowings under its
Credit Facility as defined below. The Company utilizes its working capital to
finance these expenditures pending receipt of its receivables. Contract payments
by the Company's clients vary according to the terms of each contract. Capital
expenditures have primarily been made for computer system additions and upgrades
and computer equipment for new employees. Capital expenditures were $2.0 million
in 1994 and $3.8 million in 1995 and are anticipated to be approximately $8 to
$10 million in 1996, which includes anticipated capital expenditures by
Bio-Research.
The Company's contracts usually require a portion of the contract amount to
be paid at or near the time the trial is initiated. Payments are generally made
upon the completion of negotiated performance requirements and, to a lesser
extent, on a date certain basis throughout the life of the contract. The Company
has experienced a trend, which it expects will continue, in which clients place
less emphasis on prepayments and greater emphasis on negotiated performance
requirements. This is likely to increase days sales outstanding in accounts
receivable. However, the Company does not expect this trend to have a
significant impact on its ability to maintain its overall working capital. Cash
receipts do not correspond to costs incurred and revenue recognition (which is
based on cost-to-cost type of percentage of completion accounting). Therefore,
the Company's cash flow is influenced by the interaction of changes in
receivables and advance billings. The Company typically receives a low volume of
large-dollar cash receipts. Historically, the Company has received significant
cash receipts from its clients in the fourth quarter. As a result, the number of
days revenue outstanding in accounts receivable will fluctuate due to the timing
and size of cash receipts, particularly in the fourth quarter. The number of
days revenue outstanding in accounts receivable was 77 days at March 31, 1996
and 76 days at March 31, 1995. The number of days revenue outstanding in
accounts receivable net of advanced billings was 6 days at March 31, 1996 and 21
days at March 31, 1995.
During the three months ended March 31, 1996, net cash provided by
operating activities totalled $1.0 million primarily due to net income, net of
non-cash expenses, of $1.8 million, an increase in advanced billings of $1.2
million, and a decrease in advance payments to investigators of $1.1 million
which were partially offset by an increase in accounts receivable of $3.2
million.
Cash used in investing activities of $1.3 million during the three months
ended March 31, 1996 consisted principally of capital expenditures. Cash
provided by financing activities of $80,000 for the same period resulted
principally from the issuance of common stock.
The Company had cash, cash equivalents and held-to-maturity securities of
$16.8 million at March 31, 1996 as compared to $18.7 million at March 31, 1995.
The Company's Credit Facility consists of a $10.0 million line of credit to
be used for working capital and acquisition purposes at the Company's discretion
(the "Credit Facility"). Interest on any outstanding portion of the Credit
Facility is at the bank's prime lending rate (8.25% at March 31, 1996) or LIBOR
plus 200 basis points at the Company's option. The Company pays a fee of 0.25%
(annualized) of the unused portion of the available borrowings. The fee is
payable quarterly. The Company had no principal borrowings outstanding under the
Credit Facility as of March 31, 1996. The Credit Facility is collateralized by
the Company's assets and by a pledge of the capital stock of its subsidiaries.
The Credit Facility contains certain financial and operational covenants
including minimum levels for stockholders' equity, working capital, and fixed
charge coverage ratios. The Credit Facility also limits the amount of capital
expenditures, sale of any shares of capital stock, incurrence of indebtedness or
liens, investments and guarantees, and prohibits the declaration or payment of
dividends.
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The Company expects to continue expanding its operations through internal
growth and strategic acquisitions. The Company expects the Acquisition and other
such activities will be funded from the proceeds of the Offering, existing cash,
cash equivalents, held-to-maturity securities, cash flow from operations, and
available borrowings under its Credit Facility. The Company estimates that such
sources of cash will be sufficient to fund the Company's current operations,
including expansions of its foreign operations, at least through 1997. Although
the Company has no present acquisition agreements or arrangements other than the
Acquisition, there may be acquisition or other growth opportunities which
require additional external financing, and the Company may from time to time
seek to obtain additional funds from public or private issuances of equity or
debt securities. There can be no assurances that such financings will be
available on terms acceptable to the Company.
PENDING BIO-RESEARCH ACQUISITION
Bio-Research Selected Historical Financial Statements. The following
selected financial data for the three years ended December 31, 1995 are derived
from the audited financial statements of Bio-Research, which have been audited
by Ernst & Young LLP, independent auditors. The financial data for the three-
month periods ended March 31, 1996 and 1995 are derived from unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which Bio-Research considers necessary
for a fair presentation of the financial position and the results of operations
for these periods. Operating results for the three months ended March 31, 1996
are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1996. The data should be read in conjunction
with the financial statements of Bio-Research, related notes, and other
financial information included herein and the discussion of the results of
operations following such data.
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
STATEMENTS OF INCOME DATA:
Service revenue................................ $22,418 $24,504 $26,342 $ 7,379 $ 6,324
Operating costs and expenses:
Direct costs................................. 12,942 13,184 14,408 3,536 3,658
Selling, general and administrative
expenses.................................. 7,176 7,804 8,024 2,135 1,954
Depreciation................................. 1,141 1,347 1,573 437 426
------- ------- ------- ------- -------
Income from operations......................... 1,159 2,169 2,337 1,271 286
Other income................................... 132 180 363 106 76
------- ------- ------- ------- -------
Income before income taxes..................... 1,291 2,349 2,700 1,377 362
Provision for income taxes..................... (1,117) (1,100) (1,026) (202) (176)
------- ------- ------- ------- -------
Net income..................................... $ 2,408 $ 3,449 $ 3,726 $ 1,579 $ 538
======= ======= ======= ======= =======
AS OF DECEMBER 31, AS OF MARCH 31,
--------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 4,120 $ 4,172 $ 5,699 $ 5,234 $ 5,548
Working capital................................ 7,682 8,663 9,171 10,676 9,833
Total assets................................... 28,933 31,425 33,081 31,649 32,014
Long-term debt................................. -- -- -- -- --
Stockholders' equity........................... 23,128 25,207 26,143 26,840 26,633
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Bio-Research's Results of Operations
Founded in 1965, Bio-Research is a leading preclinical CRO providing
services to clients in the pharmaceutical, biotechnology, chemical and medical
device industries. Bio-Research designs and conducts preclinical trials, based
principally on animal models, that produce the data required to assess and
evaluate efficacy in and potential risks to humans.
Service revenue is generated from preclinical studies, which may be
short-term projects designed to assess acute toxicity, mid-term projects
designed to assess the feasibility of testing a compound on humans or long-term
projects designed to determine the possible effects of prolonged administration
in humans.
Mid-term and long-term projects typically generate higher service revenue
and operating margins than short-term projects as a result of their more
technical nature, increased demand for laboratory services and higher level of
labor and facility utilization. Long-term projects generally produce slightly
lower margins than mid-term projects, but have the advantage of a more
consistent revenue stream over a longer period of time, thereby allowing for
more effective planning and resource utilization.
Quarter Ended March 31, 1996 Compared to Quarter Ended March 31, 1995
Service revenue decreased 14.3% to $6.3 million in the first quarter of
1996 from $7.4 million in the same period of 1995. During the 1995 period,
Bio-Research conducted an atypically high number of mid-term projects, resulting
in higher than normal service revenue and operating margins. Bio-Research
performed services for 76 clients representing 200 contracts during the first
quarter of 1996, and for 79 clients representing 206 contracts during the first
quarter of 1995. Backlog was $20.6 million at March 31, 1996 and $14.5 million
at March 31, 1995.
Direct costs increased 3.5% to $3.7 million in the first quarter of 1996
from $3.5 million in the same period of 1995, and increased as a percentage of
service revenue to 57.8% from 47.9%. This increase in direct costs as a
percentage of service revenue is a result of the atypically high number of
mid-term projects in Bio-Research's study mix in the 1995 period. Mid-term
projects require a wider range of services, including clinical laboratory
services, resulting in high levels of labor and facility utilization, and thus,
lower direct costs as a percentage of service revenue.
Selling, general and administrative costs decreased 8.5% to $2.0 million in
the first quarter of 1996 from $2.1 million in the same period of 1995, but
increased as a percentage of service revenue to 30.9% from 28.9%. Selling,
general and administrative expenses are relatively fixed in the near term and
will generally increase at a lower rate than service revenue. The two largest
components of selling, general and administrative expenses are labor and
facility operation and maintenance. Labor costs decreased to $826,000 in the
first quarter of 1996 from $862,000 in the first quarter of 1995, and increased
as a percentage of revenue to 13.1% from 11.7%. Facility costs decreased to
$360,000 in the first quarter of 1996 from $391,000 in the first quarter of
1995, and increased as a percentage of service revenue to 5.7% from 5.3%.
Income before income taxes decreased $1.0 million to $362,000 in the first
quarter of 1996 compared to the same period in 1995. The provision for income
taxes, net of various research and development related tax credits, was a
benefit of $176,000 in the first quarter of 1996 and a benefit of $202,000 in
the first quarter of 1995, resulting in effective tax rates of negative 48.6%
and negative 14.7%, respectively. The amount of these tax credits are dependent
on several factors and will not necessarily vary directly with the profitability
of Bio-Research.
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Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Service revenue increased by 7.5% to $26.3 million in 1995 from $24.5
million in 1994, primarily due to an increase in the number of contracts under
management. In 1995, Bio-Research performed services for 121 clients
representing 420 contracts as compared to 113 clients representing 391 contracts
in 1994. The backlog at December 31, 1995 was $18.0 million and $18.2 million at
December 31, 1994.
Direct costs increased 9.3% to $14.4 million in 1995 from $13.2 million in
1994, and increased as a percentage of service revenue to 54.7% from 53.8%.
Direct costs, as a percentage of net revenue, may fluctuate based on the mix of
projects which can impact labor and facility utilization.
Selling, general and administrative cost increased 2.8% to $8.0 million in
1995 from $7.8 million in 1994 representing a decrease as a percentage of
service revenue to 30.5% from 31.8%. Labor costs increased 12.3% to $3.3 million
in 1995 from $2.9 million in 1994, and increased as a percentage of service
revenue to 12.6% from 12.1%. Facility costs remained level at $1.5 million and
decreased as a percentage of service revenue to 5.4% from 6.0%.
Income before income taxes increased $351,000 to $2.7 million in 1995 from
$2.3 million in 1994. The provision for income taxes, net of research and
development related tax credits, was a benefit of $1.0 million in 1995 and $1.1
million in 1994 resulting in effective tax rates of negative 38.0% and negative
46.8%, respectively. The amount of these tax credits is dependent on several
factors and will not necessarily vary directly with the profitability of
Bio-Research.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Service revenue increased 9.3% to $24.5 million in 1994 from $22.4 million
in 1993. Bio-Research performed services for 113 clients representing 391
contracts during 1994 as compared to 99 clients representing 422 contracts in
1993. The backlog was $18.2 million at December 31, 1994 and $12.0 million at
December 31, 1993.
Direct costs increased 1.9% to $13.2 million in 1994 from $12.9 million in
1993 but decreased as a percentage of service revenue to 53.8% from 57.7%.
Direct costs, as a percentage of net revenue, may fluctuate based on study mix
which can impact labor and facility utilization.
Selling, general and administrative expenses increased 8.8% to $7.8 million
in 1994 from $7.2 million in 1993 but decreased slightly as a percentage of
service revenue to 31.8% from 32.0%. The increase in 1994 was due primarily to
increased investment in business development activities.
Income before income taxes increased $1.0 million to $2.3 million from $1.3
million in 1993. The provision for income taxes, net of research and development
related tax credits, was a benefit of $1.1 million in both 1994 and 1993,
resulting in effective tax rates of negative 46.8% and negative 86.5%,
respectively. The amount of these tax credits is dependent on several factors
and will not necessarily vary directly with the profitability of Bio-Research.
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BUSINESS
GENERAL
The Company is a leading CRO providing a full range of services to the
pharmaceutical, biotechnology and medical device industries. The Company
designs, monitors and manages clinical trials, provides clinical data management
and biostatistical services, and offers product registration services throughout
the United States and Europe. The Company generates substantially all of its
revenue from the clinical testing of new pharmaceutical and biotechnology
products. At March 31, 1996, the Company had contracts in backlog to perform
clinical research services in 26 countries worldwide. In 1995, the Company
performed services for 69 clients. Currently, ClinTrials has a client base of
100 pharmaceutical and biotechnology companies, including the ten largest
pharmaceutical companies in the world.
In recent years pharmaceutical companies have begun to outsource clinical
trials management to CROs, which has resulted in significant growth in the CRO
industry. The Company believes that certain industry trends will continue to
increase the need for pharmaceutical and biotechnology companies to outsource
the management of their clinical trials. These trends include: (i) the desire of
many pharmaceutical companies to respond to cost containment pressures and
reduce the high fixed costs associated with peak-load staffing for drug
development by relying on a combination of internal resources and CROs; (ii) the
attempt by pharmaceutical and biotechnology companies to globalize clinical
research and development to maximize profits from a given drug by pursuing
regulatory approvals in multiple countries simultaneously by outsourcing to CROs
with global capabilities; (iii) the efforts by pharmaceutical and biotechnology
companies to confront the increasingly complex and strict regulatory
requirements in many jurisdictions by taking advantage of the data management
expertise, technological capabilities and global presence of CROs; (iv) the
escalation of worldwide research and development expenditures for new drugs,
including amounts spent on services of the type provided by CROs, resulting from
pressures to develop new drugs for the treatment of chronic disorders and life
threatening diseases; (v) the desire by pharmaceutical companies to reduce the
time required to develop and bring a new drug to the market by outsourcing
preclinical and clinical trials to CROs that provide a full range of services;
(vi) the efforts by pharmaceutical companies to reserve their internal resources
for the development of new drugs by using CROs to manage and conduct preclinical
and clinical trials; and (vii) the growth of the biotechnology industry and the
resulting increase in the demand for expertise and services provided by outside
sources, including CROs.
The Company has offices in Nashville, Tennessee; Research Triangle Park,
North Carolina; Lexington, Kentucky; Maidenhead, England; Brussels, Belgium;
Melbourne, Australia; Jerusalem, Israel; and Santiago, Chile. Upon closing the
Acquisition, the Company will have laboratory facilities and office space in
Senneville, a suburb of Montreal, Quebec.
INDUSTRY BACKGROUND
New pharmaceutical and biotechnology products must undergo extensive
testing and regulatory review to determine their safety and effectiveness.
Companies seeking approval for these products are responsible for performing and
analyzing the results of preclinical and multi-phase clinical trials.
Preclinical trials typically last for up to three years and involve animal
testing. Clinical trials typically last eight to twelve years and involve
hundreds or thousands of human subjects. Preclinical and clinical trials were
historically performed almost exclusively by in-house personnel at the major
pharmaceutical companies. In recent years, pharmaceutical companies have begun
to outsource clinical trials management to CROs, which has resulted in
significant growth in the CRO industry. The Company believes worldwide research
and development expenditures by the pharmaceutical and biotechnology industries
reached $30 billion in 1994, approximately $10 billion of which was spent on
clinical trials, with approximately $2 billion being outsourced to CROs. The
Company believes that an additional $1 billion of preclinical trial work was
outsourced to CROs in 1994.
The CRO industry is still characterized by high fragmentation, with 600 to
700 companies worldwide. While historically the CRO industry has had low
barriers to entry, the number of entrants has decreased as pharmaceutical and
biotechnology sponsors require that entrants have a wide range of specialized
skills. The
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Company believes that pharmaceutical and biotechnology companies are seeking
CROs that are able to provide a full range of services for a particular trial,
including the design, placement, performance and management of preclinical or
clinical trial programs. The Company believes that there are no more than 20
CROs capable of providing a full range of services, and even fewer able to
provide full service on an international basis. The Company performs Phase I,
II, III and IV services, and following the acquisition of Bio-Research will
perform preclinical services. The Company believes that there are only two other
CROs that currently provide the full range of services for preclinical and Phase
I through Phase IV trials. Management believes that consolidation in the CRO
industry is likely to continue as companies pursue various strategies to align
their capabilities with the continuing growth and demand for services.
INDUSTRY TRENDS
The contract research industry derives substantially all of its revenue
from the research and development ("R&D") expenditures of pharmaceutical,
biotechnology and medical device companies. The Company believes that certain
industry trends have led pharmaceutical and biotechnology companies to increase
the use of CROs for preclinical and clinical trials. These trends include the
following:
Increasing Cost Containment Pressures. The increasing pressure to control
rising health care costs, and the penetration of managed health care and health
care reform have caused the following changes in the pharmaceutical industry:
- Managed Care Organizations. Managed care organizations have become major
participants in the delivery of pharmaceuticals. These organizations limit
the selection of drugs from which affiliated physicians may prescribe,
thus increasing the competition among pharmaceutical companies to develop
more effective products in a shorter time frame.
- Consolidation. As pharmaceutical companies seek to create economies of
scale, there have been several large mergers within the pharmaceutical
industry, and as a result of these mergers, the pharmaceutical industry
has experienced large scale employee lay-offs and other cutbacks.
- Other Factors. Factors such as competition from generic drugs following
patent expiration, more stringent regulatory requirements and the
increasing complexity of clinical trials have resulted in increasing
market pressure on profit margins.
In response to these cost containment pressures, a number of United States
pharmaceutical companies have publicly committed to hold net effective price
increases generally in line with inflation. In the area of clinical development,
many pharmaceutical and biotechnology companies are seeking to reduce the high
fixed costs associated with peak-load staffing by reducing internal clinical
staff and relying on a combination of internal resources and external resources
such as CROs, thereby shifting fixed costs to variable costs.
Globalization of Clinical Research and Development. Due to the increasing
cost of new drug development, many projects that are not expected to achieve
sufficient annual worldwide revenue are abandoned. Pharmaceutical companies are
increasingly attempting to maximize returns from a given drug by pursuing
regulatory approvals in multiple countries simultaneously rather than
sequentially. A pharmaceutical company seeking approval in a country in which it
lacks experience or internal resources will frequently turn to a CRO for
assistance in interacting with regulators or in organizing and conducting
clinical trials. The Company believes that the globalization of clinical
research and development activities has increased the demand for CRO services.
Increasingly Complex and Stringent Regulation; Need for Technological
Capabilities. Increasingly complex and stringent regulatory requirements
throughout the world have increased the volume of data required for regulatory
filings and escalated the demand for data collection and analysis during the
drug development process. In addition, over the last ten years the average
number of clinical trials per new drug application has approximately doubled,
and the average number of patients participating in those trials has increased
approximately 25%. In recent years, the FDA and corresponding regulatory
agencies of Canada, Japan and the EC have commenced discussions to develop
common standards for preclinical and clinical
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studies and the format and content of applications for new drug approvals.
Further, the FDA encourages the use of computer-assisted filings in an effort to
expedite the approval process. As regulatory requirements have become more
complex, the pharmaceutical and biotechnology industries are increasingly
outsourcing to CROs to take advantage of their data management expertise,
technological capabilities and global presence.
Escalating Research and Development Expenditures. Research and development
expenditures in 1994 for the top 50 pharmaceutical companies in the world (as
measured by such expenditures) increased approximately 11.8% from the previous
year. Such expenditures have resulted from an increased emphasis on developing
effective products for the treatment of chronic disorders and life threatening
acute conditions such as infectious diseases. The cost of developing therapies
for chronic disorders, such as arthritis, Alzheimer's disease and osteoporosis
is higher because the treatments must be studied for a longer period to
demonstrate their effectiveness in curbing the chronic disorder and to determine
any possible long-term side effects.
Reducing Drug Development Time Requirements. Pharmaceutical and
biotechnology companies face increased pressure to bring new drugs to market in
the shortest possible time, thereby reducing costs, maintaining market share and
accelerating realization of revenue. Currently, successful development of a new
drug takes approximately eight to twelve years, a significant portion of a
drug's seventeen-year period for protection under United States patent laws.
Certain clients of the Company have expressed a desire to reduce this time to
approximately five to seven years. Pharmaceutical and biotechnology companies
are attempting to increase the speed of new product development, and thereby
maximize the period of marketing exclusivity and economic returns for their
products, by outsourcing development activities to CROs. The Company believes
that CROs are often able to perform the needed services with a higher level of
expertise or specialization, and more quickly, than a pharmaceutical or
biotechnology company could perform such services internally. In addition, some
pharmaceutical and biotechnology companies are beginning to contract with large
full-service CROs to conduct preclinical and all phases of clinical trials for
new product programs lasting several years, rather than separately contracting
specific phases of drug development to several different CROs. The Company
believes this approach may result in shorter overall development times. In
anticipation of this trend, the Company seeks through the Bio-Research
acquisition to establish itself as a firm capable of taking a pharmaceutical
from its initial testing through its licensing for commercialization.
New Drug Development Pressures. The Company believes that R&D expenditures
have increased as a result of the constant pressure to develop and patent
products, and to respond to the demand for products for an aging population and
for the treatment of chronic disorders and life-threatening conditions. In
response to this pressure, pharmaceutical and biotechnology companies are
outsourcing preclinical and clinical trials in order to use their own resources
to develop additional drugs.
Growth of Biotechnology Industry. The biotechnology industry and the
number of drugs produced by it which require FDA approval have grown
substantially over the past decade. Many biotechnology companies have chosen not
to expend resources to develop sufficient staff or expertise to conduct clinical
trials in-house, but rather have utilized providers such as CROs to perform
these services.
As the use of CROs increases, so do the demands placed upon CROs like
ClinTrials that provide a broad range of services in multiple countries for
larger clients. For example, larger CROs generally remain competitive by
sustaining internal growth and by opening offices in additional countries in
order to have a presence near either a client or a large test site.
Increasingly, large clients require CROs to meet certain credit-worthiness
standards. As a result of these factors, CROs such as ClinTrials have
experienced an increasing demand for working capital and strong balance sheets
in order to maintain their competitive standing within the industry.
BUSINESS STRATEGY
The Company believes it is well positioned to take advantage of the
accelerating outsourcing trend as a result of its demonstrated ability to
provide a broad range of professional, cost-effective clinical research and
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development services worldwide. The Company's strategy for capitalizing on the
expected growth in the CRO industry includes the following key components:
Provide Comprehensive Preclinical and Clinical Research Services. The
Company offers a broad range of clinical research services and believes
that its knowledge and experience in all stages of clinical research
enhance its credibility with prospective clients. While the Company has in
the past provided services primarily in Phase II, III and IV trials,
Bio-Research has provided services primarily in preclinical trials. The
combined capabilities of ClinTrials and Bio-Research will allow the Company
to provide a broad range of preclinical and clinical services on a turnkey
basis, which the Company believes can be especially important to clients
without significant relevant regulatory expertise, such as biotechnology
companies and international pharmaceutical companies seeking to enter new
geographic markets. To meet the needs of specific clients, the Company
offers its services separately or as an integrated package. This allows a
client to use the Company to design a protocol, conduct a trial, analyze
the results of one or more trials, prepare and submit a new drug
application or computer-assisted filing to the FDA, or for any combination
of these services. This approach enables the Company to respond to clients'
requirements with flexibility and also allows it to establish a
relationship with a new client with a particular service that may in turn
lead to larger, more comprehensive projects. In addition, the Company
believes that obtaining preclinical capabilities through the acquisition of
Bio-Research will increase the prospect of being awarded contracts for
later stage testing after satisfactory completion of the preclinical tests.
Pursue Strategic Alliances. In these arrangements, the client agrees
to provide the Company with a minimum level of revenue and is guaranteed
adequate staffing over a multi-year period. The Company believes this type
of arrangement results in more predictable pricing to the client and more
efficient management of the Company's resources, and potentially increases
the amount of work outsourced to the Company by the strategic partner. In
the past three years, the Company has entered into strategic alliances with
Baxter Healthcare Corporation, Sandoz Pharmaceuticals Corporation and
SmithKline Beecham Corporation. In addition, upon the acquisition of
Bio-Research, the Company expects to become party to certain of
Bio-Research's "preferred provider" relationships, which, in contrast to
strategic alliances, are noncontractual, informal relationships in which
the client makes the Company among its first choices of testing service
providers.
Expand International Presence. The Company provides clinical research
and development services to major United States and European pharmaceutical
and biotechnology companies. The Company conducts multi-national clinical
trials designed to pursue concurrent regulatory approvals in multiple
countries. The Company believes that this experience is a competitive
advantage, as pharmaceutical and biotechnology companies increasingly are
pursuing regulatory approvals simultaneously in multiple countries. The
Company has recently increased and strengthened its European management
team and increased its office space in Maidenhead, England to provide more
comprehensive services to its United States clients doing business abroad
and to better market its services to existing and potential European
clients. During 1995, the Company expanded its geographic reach by opening
trials management offices in Australia, Israel and Chile, and now delivers
services in 26 countries. In addition, Bio-Research has offices in Canada,
and provides services to clients in Asia.
Develop Capabilities in Emerging Areas. The Company attempts to
establish study protocols and expertise in a therapeutic area prior to the
formal announcement of a new product by a pharmaceutical or biotechnology
company. Manufacturers prefer to outsource to CROs that already have
knowledge and have developed testing models in the relevant area and that
can therefore more quickly begin the new drug application process. The
Company learns of promising research and potential new products by
attending conferences, reading scientific literature and by networking with
industry experts, academics, manufacturers' representatives and others.
Invest in Information Systems Technology. The Company maintains a
commitment to investment in technology with a focus on management
information systems. The Company has invested heavily in improving its
standard operating procedures, in continuous reengineering of the workflow
processes and in the infrastructure required to support the creation,
maintenance and statistical analysis of highly
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sophisticated databases. In particular, the Company has: (i) extended its
wide area communications network to include all Company locations, enabling
multi-national project teams to coordinate their activities on global,
multi-site programs; (ii) supplemented its existing suite of clinical
database tools with the implementation of industry-standard data management
software; (iii) implemented new project tracking systems internationally as
well as reengineered processes to reduce project set-up time; (iv)
completed major investments in computer hardware, including processors and
disk storage systems, which tripled its capacity to process study data; and
(v) increased its management, biostatistics and information systems team to
more than 300 employees, one of the largest such groups in the industry.
The Company intends to continue to improve its management information
systems with significant capital expenditures anticipated in 1996 and 1997.
Broaden Therapeutic Expertise. Prior working knowledge in specific
therapeutic areas is a highly valued criterion by which many decisions to
work with a CRO are made. ClinTrials has experience in a broad range of
therapeutic areas and is continuing to expand its abilities and experience
in more therapeutic areas. ClinTrials has demonstrated depth and high
quality performance in the following areas: anti-viral infectious diseases,
cardiology, central nervous system, gastroenterology, endocrinology,
respiratory and urology. The Company is a leader in the investigation of
blood substitutes and protease inhibitors and in the conducting of
megatrials, trials involving more than 1,000 participants. The Company will
further broaden its therapeutic expertise with the acquisition of
Bio-Research, a leader in the areas of osteoporosis evaluation,
cardiovascular pharmacology, biomaterials testing, bio-marker assays and
infusion delivery.
Increase Client Base and Number of Contracts. ClinTrial's strategy is
to seek contracts with new clients and new contracts with existing clients
in different therapeutic areas. The Bio-Research acquisition will increase
the Company's client base and will present the Company with the opportunity
to cross-sell the services and related expertise of Bio-Research to the
Company's existing clients, and the Company's clinical services and related
expertise to Bio-Research's existing clients.
Pursue Selected Acquisitions. The Company plans to pursue strategic
acquisitions of selected CROs or related businesses that provide one or
more of the following: complementary services, expanded geographic
presence, new therapeutic expertise or complementary client bases. The
Bio-Research Acquisition exemplifies this aspect of the Company's strategy.
Bio-Research provides an additional client base, including several clients
in Asia and Europe, and provides new expertise in several therapeutic areas
as well as the ability to perform preclinical services.
SERVICES
The Company's current services and related products include clinical trials
management services, clinical data management and biostatistical services, and
product registration services. After acquiring Bio-Research, the Company will
also perform, manage and design preclinical trials and offer related services.
Clinical Trials Management Services. The Company offers complete services
for the design, placement, performance and management of clinical trial
programs, a critical element in obtaining regulatory approval for drugs and
medical devices. The Company has performed services in connection with trials in
many therapeutic areas. The Company's multi-disciplinary clinical trials group
has the ability to examine a product's existing preclinical and clinical data
for the purposes of designing protocols for clinical trials in order to
ascertain evidence of the product's safety and efficacy.
The Company manages every aspect of trials in Phases I through IV,
including design of operations manuals, identification and recruitment of trial
investigators, initiation of sites, monitoring for strict adherence to GCP, site
visits to ensure compliance with protocol procedures and proper collection of
data, interpretation of trial results and report preparation. Substantially all
of the Company's current projects involve Phase II, III or IV clinical trials,
which, in most cases, are significantly larger and more complex than Phase I
trials. In addition, the acquisition of Bio-Research will immediately allow the
Company to provide preclinical and lab analysis services to its clients.
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A recent development in the CRO industry is the emergence of trials
involving tests on over 1,000 patients over a period of several years at
multiple sites. These trials have resulted from the drug companies' emphasis on
treating and curing chronic disorders and the resulting need to thoroughly test
large numbers of patients for long-term side effects of new drugs. The Company
is experienced in managing such trials and actively markets its abilities in
this area.
Clinical trials are monitored for strict adherence to good clinical
practice. Efficient data collection, form design, detailed operations manuals
and site visits by the Company's clinical research associates ("CRA") are
employed to assist clinical investigators and their staffs in following
established protocols and accurately recording the findings of the trials.
The Company assists clients with one or more of the following steps of
clinical trials:
- Study Protocol. The protocol defines the medical issues the study seeks
to examine and the statistical tests that will be conducted. Accordingly,
the protocol defines: (i) the type and frequency of laboratory and
clinical measures that are to be tracked and analyzed; (ii) the number of
patients required to produce a statistically valid result; (iii) the
period of time over which they must be tracked; and (iv) the dosage and
frequency of drug administration.
- Case Report Forms. Once the study protocol has been finalized, special
forms for recording the desired information must be developed. These forms
are called case report forms ("CRFs"). The CRF may change at different
stages of a trial. The CRF for one patient in a given study may consist of
as many as 100 pages or more.
- Site and Investigator Recruitment. The drug is administered to patients
by investigators at hospitals, clinics or other locations, referred to as
sites. Potential investigators may be identified by the drug sponsor or
the CRO, which then solicits the investigators' participation in the
study. Generally, the investigators contract directly with the Company.
The trial's success depends on the successful identification and
recruitment of investigators with proper expertise and an adequate base of
patients who satisfy the requirements of the study protocol.
- Patient Enrollment. The investigators find and enroll patients suitable
for the study according to the study protocol. Prospective patients are
required to review information about the drug and its possible side
effects and sign an informed consent to record their knowledge and
acceptance of potential side effects. Patients also undergo a medical
examination to determine whether they meet the requirements of the study
protocol. Patients then receive the drug and are examined by the
investigator as specified by the study protocol.
- Study Monitoring and Data Collection. As patients are examined and tests
are conducted in accordance with the study protocol, data are recorded on
CRFs and laboratory reports. The data are collected from study sites by
specially trained CRAs. CRAs visit sites regularly to ensure that the CRFs
are completed correctly and that all data specified in the protocol are
collected. CRFs are reviewed for consistency and accuracy before their
data are entered into an electronic database.
- Medical Affairs. Throughout the course of a clinical trial, the Company
may provide various medical research and services including medical
monitoring of clinical trials, interpretation of clinical trial results
and preparation of clinical study reports.
- Report Writing. The results of statistical analysis of data collected
during the trial together with other clinical data are included in a final
report generated for inclusion in a regulatory document.
Clinical Data Management and Biostatistical Services. The Company's data
management professionals assist in the design of protocols and CRFs, as well as
training manuals and training sessions for investigational staff, to ensure that
data are collected in an organized and consistent format. Databases are designed
according to the analytical specifications of the project and the particular
needs of the client. Prior to data entry, the Company's personnel screen the
data to detect errors, omissions and other deficiencies in completed CRFs. The
Company provides clients with data abstraction, data review and coding, data
entry, database verification and editing, and problem data resolution.
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The Company's biostatistics professionals provide biostatistical
consulting, database design, data analysis and statistical reporting. The
Company's biostatisticians provide clients with assistance in all phases of drug
development. These professionals develop and review protocols, design
appropriate analysis plans and design report formats to address the objectives
of the study protocol as well as the client's individual objectives. Working
with the programming staff, biostatisticians perform appropriate analyses and
produce tables, graphs, listings and other applicable displays of results
according to the analysis plan. Frequently, biostatisticians assist clients
before panel hearings at the FDA.
The Company believes that its data management and biostatistical services
capabilities can be utilized by a client more effectively when packaged as part
of its total clinical trials management services and used to monitor Phases I
through IV rather than just one phase. This packaging permits a faster and less
costly clinical trial process, as the data are collected and analyzed more
rapidly and the decision to move to the next phase can be made more quickly.
Although the Company believes that many pharmaceutical companies treat each
phase as a distinct trial, the Company is emphasizing its turnkey approach in
its marketing efforts. Currently, a significant portion of its services are
utilized by clients to process data that have previously been collected either
by the client itself or by another CRO as part of a distinct phase in the drug
development process. Several of the Company's clients from time to time request
that the Company develop the ability to monitor the entire drug testing process,
beginning with the preclinical phase. The acquisition of Bio-Research will allow
the Company to conduct preclinical testing and is a significant step in gaining
the ability to provide the entire range of services.
Product Registration Services. The Company provides comprehensive product
registration services throughout Europe and the Untied States. The Company
provides regulatory strategy formulation, document preparation, Good
Manufacturing Practice consultation and acts as liaison with the FDA and other
regulatory agencies. Although these services have not generated material revenue
to date, the Company offers these services in order to provide the full range of
services necessary to remain competitive in the CRO industry.
The Company works closely with clients to devise regulatory strategies and
comprehensive product development programs. The Company's regulatory affairs
experts review existing published literature, assess the scientific background
of a product, assess the competitive and regulatory environment, identify
deficiencies and define the steps necessary to obtain registration in the most
expeditious manner. Through this service, the Company helps its clients
determine the feasibility of developing a particular product or product line.
The Company's regulatory affairs professionals have experience in the
analysis, preparation and submission of FDA regulatory documents covering a wide
range of products, including drugs and over-the-counter products. The Company
also has experience with preparing regulatory documentation for submission to
European regulatory authorities.
PRECLINICAL TRIALS
After the Acquisition, the Company will design and conduct preclinical
research programs, based principally upon animal models, that generate the data
required to establish safe starting dosages and the efficacy of a product in
humans, and to determine organ toxicity and other potential risks of human
usage. Preclinical trial reports are submitted to regulatory authorities in
support of an application to initiate clinical testing. The Company will also
offer analytical laboratory services including assessment of product
concentration in suspensions, solutions, animal feed and plasma radiometric
determination in metabolite profiling of biological tissues, and radiopurity
assessment of dose solution.
CLIENTS AND MARKETING
The Company has served many of the leading pharmaceutical companies in the
United States and the EC. The Company's clients include the ten largest
pharmaceutical companies in the world. The Company's clients also include
companies in the biotechnology and medical device industries. For the year ended
December 31, 1995, the Company recognized revenue from contracts with 69
clients, and Bio-Research recognized revenue from contracts with approximately
120 clients. In 1995, the Company derived approximately 40% of its net service
revenue from clients who are also clients of Bio-Research. Therefore, the Bio-
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Research acquisition will provide the Company the opportunity to cross-sell both
its services and Bio-Research's services to a significant number of new clients.
During 1995, approximately 88% of the Company's net service revenue was
derived from pharmaceutical companies, 10% from biotechnology companies and 2%
from medical device companies. In 1995, pharmaceutical companies, biotechnology
companies and chemical companies contributed 54%, 35% and 7% of Bio-Research's
net service revenue, respectively.
The Company has had, and will continue to have, certain clients from which
at least 10% of the Company's overall revenue is generated over multiple
contracts. Such concentrations of business are not uncommon within the CRO
industry. During 1995, the Company generated approximately 25% of its net
service revenue from Sandoz Pharmaceuticals Corporation and approximately 18%
from SmithKline Beecham Corporation. The Company's contracts are entered into
with numerous therapeutic areas or divisions within each client and frequently
involve different decision makers. Thus, there is a reduced likelihood that the
Company would simultaneously lose all contracts with any single client.
Accordingly, while the complete loss of a significant client could have a
material adverse effect on the Company, the termination of any one contract
would typically not have a material adverse effect.
Marketing activities are conducted by the Company's business development
personnel based in each of the Company's locations. In response to the highly
technical nature of the Company's business, most business development personnel
have scientific backgrounds. Additionally, the Company runs an extensive
advertising program in trade journals and publications and, from time to time,
employs direct mailings of information to existing and potential clients. The
Company also attends and exhibits at selected trade shows in the United States
and Europe. The Company is in the process of expanding its business development
group in order to serve additional clients.
POTENTIAL LIABILITY AND INSURANCE
The Company monitors the testing of new drugs on human volunteers pursuant
to study protocols in clinical trials. Clinical research involves a risk of
liability for personal injury or death to patients from adverse reactions to the
study drug, many of whom are seriously ill and are at great risk of further
illness or death as a result of factors other than their participation in a
trial. Additionally, although the Company's employees do not have direct contact
with the participants in a clinical trial, the Company, on behalf of its
clients, contracts with physicians who render professional services, including
the administration of the substance being tested, to such persons. As a result,
the Company could be held liable for bodily injury, death, pain and suffering,
loss of consortium, and other personal injury claims and medical expenses
arising from any professional malpractice of such physicians. The Company
maintains insurance to cover malpractice liability of physicians who are
employees or consultants of the Company. To date, the Company has not received
any claims resulting from either the testing of new drugs or professional
malpractice.
The Company believes that the risk of liability to patients in clinical
trials is mitigated by various regulatory requirements, including the role of
institutional review boards ("IRBs") and the need to obtain each patient's
informed consent. The FDA requires each human clinical trial to be reviewed and
approved by the IRB at each study site. An IRB is an independent committee that
includes both medical and non-medical personnel and is obligated to protect the
interests of patients enrolled in the trial. After the trial begins, the IRB
monitors the protocol and the measures designed to protect patients, such as the
requirement to obtain informed consent.
To reduce its potential liability, the Company seeks to obtain indemnity
provisions in its contracts with clients and, in some cases, with investigators
contracted by the Company on behalf of its clients. These indemnities generally
do not, however, protect the Company against certain of its own actions such as
those involving negligence or misconduct, or in some cases against the actions
or inactions of investigators. Moreover, these indemnities are contractual
arrangements that are subject to negotiation with individual clients, and the
terms and scope of such indemnities vary from client to client and from trial to
trial. The Company also, in some circumstances, indemnifies and holds harmless
its clients and investigators against liabilities incurred by such parties due
to the actions or inactions of the Company. Finally, since the financial
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31
performance of these indemnities is not secured, the Company bears the risk that
an indemnifying party may not have the financial ability to fulfill its
indemnification obligations. The Company could be materially and adversely
affected if it were required to pay damages or incur defense costs in connection
with a claim that is outside the scope of an indemnity or where the indemnity,
although applicable, is not performed in accordance with its terms.
The Company currently maintains an errors and omissions professional
liabilities insurance policy in amounts it believes to be sufficient. There can
be no assurance that this insurance coverage will be adequate, or that insurance
coverage will continue to be available on terms acceptable to the Company.
BACKLOG
The Company previously has reported backlog as consisting of anticipated
net revenue from letters of intent and signed contracts that have not been
completed. Under this method, at December 31, 1995, backlog was approximately
$90.2 million, as compared to approximately $71.1 million at December 31, 1994.
Because it has become more common for clients to authorize projects and the
Company to commence providing services before a contract is signed, the Company
believes reported backlog should consist of anticipated net revenue from
uncompleted projects which have been authorized by the client, through a written
contract or otherwise. Using the modified method of reporting backlog, at March
31, 1996, backlog was approximately $98.8 million, as compared to approximately
$71.8 million at March 31, 1995. The modification discussed would not have a
material effect on backlog as of any prior reporting period.
Bio-Research calculates its backlog using the same method as ClinTrials. At
December 31, 1994, and 1995, Bio-Research had backlog of approximately $18.2
million and $18.0 million, respectively. At March 31, 1995, and 1996,
Bio-Research had backlog of approximately $14.5 million and $20.6 million,
respectively.
The Company believes that backlog is not a consistent indicator of future
results because backlog can be affected by a number of factors, including the
variable size and duration of projects, many of which are performed over several
years. Additionally, projects may be terminated by the client or delayed by
regulatory authorities for many reasons, including unexpected test results.
Moreover, the scope of a project can change during the course of a study.
COMPETITION
The Company and Bio-Research compete primarily against in-house research
departments of pharmaceutical companies, other CROs, universities and teaching
hospitals. The CRO industry is highly fragmented, with approximately 20
full-service CROs and many small, limited-service providers. In recent years,
several large, full-service competitors have emerged, some of which have
substantially greater capital and other resources, are better known and have
more experienced personnel than the Company. The Company's competitors include
Corning Pharmaceutical Services, a subsidiary of Corning, Inc.; Pharmaco, a
subsidiary of Applied Bioscience International, Inc.; Parexel International
Corp.; and Quintiles Transnational Corp. The recent trend toward industry
consolidation is likely to result in heightened competition among the larger
CROs. Although the financial costs of entry into the industry are relatively
low, the larger CROs are increasingly required to have substantial amounts of
working capital in order to sustain internal growth and international expansion,
and to meet the credit-worthiness standards of their larger clients. The Company
believes that clients choose a CRO based on several factors, the most important
of which is the quality of the work performed for existing clients. Other
important factors include references from existing clients, trials management
experience in and scientific knowledge of specific therapeutic areas, the price
for the services performed, the ability to organize and manage large-scale
trials on a global basis, the ability to manage large and complex medical data
bases, and the ability to hire and retain qualified investigators. The Company
believes that it competes favorably in these areas.
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EMPLOYEES
At March 31, 1996, the Company had 938 employees, of which 48 held Ph.D. or
M.D. degrees, and 106 others held masters degrees. Approximately 86% of the
Company's employees are located in the United States. The Company believes that
its relations with its employees are good.
The Company's performance depends on its ability to attract and retain a
qualified management, professional, scientific and technical staff. Competition
from both the Company's clients and competitors for skilled personnel is high.
While the Company has not experienced any significant problems in attracting or
retaining qualified staff to date, there can be no assurance the Company will be
able to avoid these problems in the future.
LITIGATION
The Company is from time to time subject to claims and suits arising in the
ordinary course of business. In the opinion of management, there are currently
no proceedings to which the Company is a party that will have a material adverse
effect upon its operations or financial condition.
In 1991, a Bio-Research customer commenced legal action against
Bio-Research claiming damages in the amount of $5.2 million, plus interest and
costs, resulting from statistical errors in carrying out two clinical research
studies. Bio-Research has reserved $220,000 against this action in its financial
statements. ClinTrials has agreed to assume liability for this legal action in
connection with the Acquisition but does not believe that the outcome of this
litigation will have a material adverse impact upon its results of operations or
financial condition.
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MANAGEMENT
The following table sets forth certain information concerning the executive
officers and directors of the Company:
NAME AGE POSITION
--------------------------------------- --- ---------------------------------------
William C. O'Neil, Jr.................. 62 Chairman of the Board, President and
Chief Executive Officer
Paul J. Ottaviano...................... 49 Executive Vice President -- Worldwide
Operations
Albert J. Siemens...................... 52 Executive Vice President
John W. Robbins........................ 46 Chief Financial Officer and Secretary
Barbara A. Cannon...................... 44 Executive Vice President
Joseph J. Colatuno..................... 44 Vice President and General Manager --
North America
Thomas G. Cigarran..................... 54 Director
Irwin B. Eskind, M.D................... 71 Director
Richard J. Eskind...................... 65 Director
Edward G. Nelson....................... 65 Director
Herbert J. Schulman, M.D............... 72 Director
William C. O'Neil, Jr. founded the Company in September 1989 and has been
the Chairman of the Board, President and Chief Executive Officer of the Company
since its organization. He served as President and Chief Executive Officer of
International Clinical Laboratories, Inc., a clinical laboratory testing
company, from 1977 until it was acquired in 1988 by SmithKline Beckman
Corporation. From January 1989 to May 1989, he served as President and Chief
Executive Officer of Biotherapeutics, Inc. (now known as Response Oncology,
Inc.) a cancer services company. Mr. O'Neil serves as a director of each of
ATRIX Laboratories, Inc., a drug delivery company; Sigma Aldrich Chemical
Company, a manufacturer of research chemicals; American Healthcorp, Inc., a
specialty health care service company; Advocat Inc., a long-term care company;
and Central Parking Corporation, a parking services company.
Paul J. Ottaviano was promoted to Executive Vice President -- Worldwide
Operations in December 1995 after serving as Executive Vice President -- U.S.
Operations since July 1992. From May 1989 until joining the Company in July
1992, he was President and Chief Executive Officer of National
Psychopharmacology Laboratories, Inc., a specialty laboratory company. Mr.
Ottaviano was Chief Operating Officer of Med Inc. (later ImageAmerica, Inc.), a
medical imaging company, from April 1988 through May 1989. From July 1987 until
April 1988, Mr. Ottaviano was the Vice President -- Operations and President-ICL
East of International Clinical Laboratories, Inc. From January 1987 until July
1987, Mr. Ottaviano served as a Division President of International Clinical
Laboratories, Inc.
Albert J. Siemens, Ph.D. has served as Executive Vice President within the
Business Development group of the Company since 1992 with additional
responsibilities for international development. Dr. Siemens served as President
of Clinical Research International, Inc., from 1986 through 1992. From 1983 to
1986 he was Vice President of Clinical Research for Family Health International,
a non-profit research foundation. Prior to that time, Dr. Siemens was associate
director of Clinical Research of Pfizer Laboratories, Inc.
John W. Robbins has served as Chief Financial Officer, Vice President and
Secretary of the Company since November 1990. From June 1988 to October 1990, he
was Chief Financial Officer for the southeast region of McCaw Cellular
Communications, Inc., a cellular communications company. From October 1987 to
June 1988 he served as assistant to the Chief Financial Officer and as the
National Director of Accounts Receivable for International Clinical
Laboratories, Inc. Mr. Robbins is a Certified Public Accountant.
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Barbara A. Cannon has served as Executive Vice President within the
Business Development group of the Company since January 1993. From August 1990
to December 1992, Ms. Cannon served as Chief Operating Officer of the Company's
Nashville operations. From March 1990 until August 1990, Ms. Cannon was a
consultant to various pharmaceutical companies. From June 1987 until February
1990, she served as Vice President of the Institute of Clinical Pharmacology, a
CRO headquartered in Dublin, Ireland. Ms. Cannon was Director of Market Strategy
for Hospital Corporation of America from March 1986 through May 1987.
Joseph J. Colatuno joined the Company in January 1994 as General
Manager -- North America. Mr. Colatuno is responsible for day-to-day operations
and management of the various functional groups in North America involved in the
clinical development of pharmaceutical and biotechnology products. Prior to
joining ClinTrials, Mr. Colatuno spent 20 years with the Upjohn Company.
Thomas G. Cigarran has served as a director of the Company since February
1992. From September 1981 through August 1988, Mr. Cigarran served as President
and Chief Operating Officer of American Healthcorp, Inc. In September 1988, Mr.
Cigarran became the Chairman, President and Chief Executive Officer of American
Healthcorp, Inc.
Irwin B. Eskind, M.D. has been a director of the Company since February
1992. Dr. Eskind was engaged in the private practice of internal medicine from
1954 until 1996. Dr. Eskind is the brother of Richard J. Eskind, also a director
of the Company.
Richard J. Eskind has served as a director of the Company since February
1992. Mr. Eskind has served since October 1986 as Vice President-Investments of
A.G. Edwards & Sons, Inc., a broker-dealer firm. Mr. Eskind is the brother of
Irwin B. Eskind, M.D., also a director of the Company.
Edward G. Nelson has been a director of the Company since November 1990.
Mr. Nelson formed Nelson Capital Corp., a merchant banking firm, in 1984, and
has served as the President and Chairman of the Board of such firm since its
organization. Mr. Nelson serves as a director of Osborn Communications Company,
an owner and operator of radio and television stations; Berlitz International,
Inc., a language services company; Central Parking Corporation, a parking
services company; and Advocat Inc., a long-term care company.
Herbert J. Schulman, M.D. has been a director of the Company since February
1992. Dr. Schulman retired from the private practice of internal medicine in
1988.
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PRINCIPAL STOCKHOLDERS
The following table sets forth as of June 10, 1996, information with
respect to the beneficial ownership of the Company's outstanding Common Stock by
(i) each director of the Company, (ii) each of the Chief Executive Officer and
the four most highly compensated executive officers of the Company, (iii) all
directors and all executive officers of the Company as a group, and (iv) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the Company's outstanding Common Stock. Except as otherwise indicated, the
persons or entities listed below have sole voting and investment power with
respect to all shares of Common Stock owned by them, except to the extent such
power may be shared with a spouse.
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
---------------------- ----------------------
NAME AND ADDRESS NUMBER PERCENT(1) NUMBER PERCENT(1)
- ---------------------------------------------------- --------- ---------- --------- ----------
Irwin B. Eskind, M.D.**............................. 1,142,672 12.8% 1,142,672 9.9%
541 Jackson Blvd.
Nashville, TN
Richard J. Eskind**................................. 1,139,755 12.8 1,139,755 9.9
6000 Dunham Springs Road
Nashville, TN
Herbert J. Schulman, M.D.**......................... 903,830 10.2 903,830 7.8
109 Westhampton Place
Nashville, TN
William C. O'Neil, Jr.(2)**......................... 821,311 9.0 821,311 7.0
One Burton Hills Blvd.
Suite 210
Nashville, TN
Thomas G. Cigarran**................................ 77,643 * 77,643 *
Edward G. Nelson(3)**............................... 52,474 * 52,474 *
Albert J. Siemens(4)................................ 33,699 * 33,699 *
Paul J. Ottaviano(5)................................ 17,499 * 17,499 *
Barbara A. Cannon................................... -- * -- *
John W. Robbins(6).................................. 7,500 * 7,500 *
All directors and executive officers as a group
(eleven persons)(7)............................... 4,200,383 45.6% 4,200,383 35.5%
- ---------------
* Less than 1%
** Director
(1) Based on 8,905,134 shares of Common Stock outstanding prior to the Offering
and 11,522,468 outstanding after the Offering, plus, as to each individual
and group listed, the number of shares of Common Stock deemed to be owned
by such holder pursuant to Rule 13d-3 under the Exchange Act, which
includes shares subject to stock options held by such holder that are
exercisable within 60 days of June 10, 1996.
(2) Includes 56,311 shares owned by Mr. O'Neil's wife. Mr. O'Neil disclaims
beneficial ownership of these shares. Also includes 250,000 shares issuable
upon the exercise of vested options.
(3) Includes 2,000 shares owned by Mr. Nelson's wife. Mr. Nelson disclaims
beneficial ownership of such shares. Also includes 43,976 shares held by
Nelson Capital Corp. and certain of its affiliates, beneficial ownership of
which Mr. Nelson disclaims. Mr. Nelson is the principal stockholder and
president of Nelson Capital Corp.
(4) Includes 26,250 shares issuable upon the exercise of vested options.
(5) Includes 17,499 shares issuable upon the exercise of vested options.
(6) Includes 7,500 shares issuable upon the exercise of vested options.
(7) Includes 305,249 shares issuable upon the exercise of vested options.
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UNDERWRITING
Pursuant to the Underwriting Agreement and subject to the terms and
conditions thereof, the Underwriters named below, acting through J.C. Bradford &
Co., Piper Jaffray Inc. and Smith Barney Inc., as representatives of the several
underwriters (the "Representatives"), have agreed, severally, to purchase from
the Company, the number of shares of Common Stock set forth below opposite their
respective names.
NUMBER OF
NAME OF UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- ---------
J.C. Bradford & Co. .............................................................. 872,446
Piper Jaffray Inc. ............................................................... 872,444
Smith Barney Inc. ................................................................ 872,444
---------
Total................................................................... 2,617,334
========
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions therein set forth, to purchase all shares of Common Stock
offered hereby if any of such shares are purchased.
The Company has been advised that the Underwriters propose initially to
offer the shares of Common Stock to the public at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $0.80 per share. The Underwriters may allow
and such dealers may reallow a concession not in excess of $0.10 per share to
certain other dealers. After the initial public offering, the public offering
price and such concessions may be changed by the Underwriters.
The offering of the shares of Common Stock is made for delivery when, as
and if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days from the date of this Prospectus, to purchase up to an
aggregate of 372,666 additional shares of Common Stock to cover over-allotments.
To the extent the Underwriters exercise this option, each of the Underwriters
will have a firm commitment to purchase approximately the same percentage
thereof which the number of shares of Common Stock to be purchased by it shown
in the table above bears to the total and the Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of shares of Common Stock offered hereby. If purchased,
the Underwriters will sell such additional shares on the same terms as those on
which the shares are being offered.
In connection with the Offering, certain Underwriters may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market
immediately prior to the commencement of sales in the Offering in accordance
with Rule 10b-6A under the Exchange Act. Passive market making consists of
displaying bids on the Nasdaq National Market limited by the bid prices of
independent market makers and purchases limited by such prices and effected in
response to order flow. Net purchases by a passive market maker on each day are
limited to a specified percentage of the passive market makers' average daily
trading volume in the Common Stock during a specified period and must be
discontinued when such limit is reached. Passive market making may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.
The offering of the shares of Common Stock is being made in accordance with
Rule 2720 of the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD"), Distribution of Securities of NASD Members and
Affiliates -- Conflicts of Interest. A.G. Edwards & Sons, Inc., an NASD Member
("A.G. Edwards"), is deemed to be an affiliate of the Company as a result of the
relationship of Richard J. Eskind as a shareholder and director of the Company
and a Vice President -- Investments of A.G. Edwards.
The Company, its executive officers and directors have agreed that they
will not, without the prior written consent of the Representatives, issue, sell,
transfer, assign or otherwise dispose of any shares of the Common Stock or
options, warrants, or rights to acquire Common Stock owned by them prior to the
expiration of 120 days from the date of this Prospectus.
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The Underwriting Agreement provides that the Company will indemnify the
Underwriters and controlling persons, if any, against certain liabilities,
including liabilities under the Securities Act, or will contribute to payments
which the Underwriters or any such controlling persons may be required to make
in respect thereof.
LEGAL MATTERS
The validity of the shares of the Common Stock offered hereby will be
passed upon for the Company by Harwell Howard Hyne Gabbert & Manner, P.C.,
Nashville, Tennessee. Certain legal matters relating to the sale of Common Stock
will be passed upon for the Underwriters by Bass, Berry & Sims PLC, Nashville,
Tennessee.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in the Company's Annual Report (Form 10-K) for the year ended December
31, 1995, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The financial statements of Bio-Research at December 31, 1995 and 1994, and
for each of the three years in the period ended December 31, 1995, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated and made a part of this Prospectus
by reference, except as superseded or modified herein.
(1) The Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 1995, as amended by Form 10-K/A dated June 14, 1996.
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.
(3) The Company's Current Report on Form 8-K dated June 19, 1996.
(4) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed on September 29, 1993.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the termination of the Offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the documents
which have been incorporated by reference herein, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference
therein). Requests for such copies should be directed to the Company's principal
executive offices, Attention: John W. Robbins, Chief Financial Officer,
ClinTrials Research Inc., One Burton Hills Boulevard, Suite 210, Nashville,
Tennessee 37215, telephone number (615) 665-9665.
37
38
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
BIO-RESEARCH LABORATORIES LTD. FINANCIAL STATEMENTS
Report of Independent Auditors........................................................ F-2
Balance Sheets as of December 31, 1994 and 1995; and March 31, 1996
(unaudited)......................................................................... F-3
Statements of Income for the years ended December 31, 1993, 1994 and 1995; and for the
three months ended March 31, 1995 and 1996 (unaudited).............................. F-4
Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and
1995; and for the three months ended March 31, 1995 and 1996 (unaudited)............ F-5
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995; and for
the three months ended March 31, 1995 and 1996 (unaudited).......................... F-6
Notes to Financial Statements......................................................... F-7
CLINTRIALS RESEARCH INC. UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 1996............. F-14
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet......................... F-15
Unaudited Pro Forma Condensed Combined Statements of Income for the three months ended
March 31, 1996 and year ended December 31, 1995..................................... F-16
Notes to Unaudited Pro Forma Condensed Combined Statements of Income.................. F-18
F-1
39
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
ClinTrials Research Inc.
We have audited the accompanying balance sheets of Bio-Research
Laboratories Ltd. as of December 31, 1995 and 1994, and the related statements
of income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bio-Research Laboratories
Ltd. at December 31, 1995 and 1994, and the results of operations and cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Nashville, Tennessee
February 6, 1996,
except for Note 12, as to which the date is
May 24, 1996
F-2
40
BIO-RESEARCH LABORATORIES LTD.
BALANCE SHEETS
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN THOUSANDS)
DECEMBER 31, MARCH 31,
------------------ 1996
1994 1995 ------------
------- ------- (UNAUDITED --
NOTE 13)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,172 $ 5,699 $ 5,548
Accounts receivable....................................... 7,553 8,598 6,913
Tax credits receivable.................................... 2,536 1,136 1,331
Other current assets...................................... 620 676 1,422
------- ------- ------------
Total current assets.............................. 14,881 16,109 15,214
Property and equipment:
Land...................................................... 303 312 312
Buildings................................................. 13,407 13,918 14,154
Equipment................................................. 12,734 13,742 13,973
------- ------- ------------
26,444 27,972 28,439
Less accumulated depreciation............................. 10,049 11,238 11,639
------- ------- ------------
16,395 16,734 16,800
Other assets................................................ 149 238 --
------- ------- ------------
Total assets...................................... $31,425 $33,081 $ 32,014
======= ======= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,728 $ 3,365 $ 2,543
Advance billings.......................................... 1,887 2,940 2,189
Other current liabilities................................. 603 633 649
------- ------- ------------
Total current liabilities......................... 6,218 6,938 5,381
Stockholders' equity:
Common Stock, no par value -- unlimited shares authorized;
issued and outstanding 11,466,280 shares in 1994, 1995
and 1996, respectively................................. 3,128 3,128 3,128
Additional paid-in capital................................ 39 39 39
Retained earnings......................................... 24,225 24,403 24,941
Cumulative foreign currency translation adjustments....... (2,185) (1,427) (1,475)
------- ------- ------------
Total stockholders' equity........................ 25,207 26,143 26,633
------- ------- ------------
Total liabilities and stockholders' equity........ $31,425 $33,081 $ 32,014
======= ======= ==========
See accompanying notes.
F-3
41
BIO-RESEARCH LABORATORIES LTD.
STATEMENTS OF INCOME
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN THOUSANDS)
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ---------------
1993 1994 1995 1995 1996
------- ------- ------- ------ ------
(UNAUDITED --
NOTE 13)
Service revenue.................................. $22,418 $24,504 $26,342 $7,379 $6,324
Operating costs and expenses:
Direct costs................................... 12,942 13,184 14,408 3,536 3,658
Selling, general and administrative expenses... 7,176 7,804 8,024 2,135 1,954
Depreciation................................... 1,141 1,347 1,573 437 426
------- ------- ------- ------ ------
Income from operations........................... 1,159 2,169 2,337 1,271 286
Other income (expense):
Interest income................................ 110 139 325 100 75
Other income................................... 69 72 48 8 2
Interest expense............................... (47) (31) (10) (2) (1)
------- ------- ------- ------ ------
132 180 363 106 76
------- ------- ------- ------ ------
Income before income taxes....................... 1,291 2,349 2,700 1,377 362
Provision for income taxes....................... (1,117) (1,100) (1,026) (202) (176)
------- ------- ------- ------ ------
Net income....................................... $ 2,408 $ 3,449 $ 3,726 $1,579 $ 538
======= ======= ======= ====== ======
See accompanying notes.
F-4
42
BIO-RESEARCH LABORATORIES LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN THOUSANDS)
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
------------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS TOTAL
---------- ------ ---------- -------- ----------- -------
Balance at January 1, 1993........... 11,466,280 $3,128 $ 39 $ 18,368 $(1,266) $20,269
Foreign currency translation
adjustments..................... -- -- -- 451 451
Net income......................... -- -- -- 2,408 -- 2,408
---------- ------ --- -------- ----------- -------
Balance at December 31, 1993......... 11,466,280 3,128 39 20,776 (815) 23,128
Foreign currency translation
adjustments..................... -- -- -- (1,370) (1,370)
Net income......................... -- -- -- 3,449 -- 3,449
---------- ------ --- -------- ----------- -------
Balance at December 31, 1994......... 11,466,280 3,128 39 24,225 (2,185) 25,207
Foreign currency translation
adjustments..................... -- -- -- 758 758
Payment of dividend................ -- -- -- (3,548) -- (3,548)
Net income......................... -- -- -- 3,726 -- 3,726
---------- ------ --- -------- ----------- -------
Balance at December 31, 1995
(Unaudited -- Note 13)............. 11,466,280 3,128 39 24,403 (1,427) 26,143
Foreign currency translation
adjustments..................... -- -- -- -- (48) (48)
Net income......................... -- -- -- 538 -- 538
---------- ------ --- -------- ----------- -------
Balance at March 31, 1996
(Unaudited -- Note 13)............. 11,466,280 $3,128 $ 39 $ 24,941 $(1,475) $26,633
========= ====== ======= ======= ========= =======
See accompanying notes.
F-5
43
BIO-RESEARCH LABORATORIES LTD.
STATEMENTS OF CASH FLOWS
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN THOUSANDS)
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- ------
(UNAUDITED --
NOTE 13)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................ $ 2,408 $ 3,449 $ 3,726 $ 1,579 $ 538
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................... 1,141 1,347 1,573 437 426
Changes in operating assets and liabilities:
Accounts receivable.......................... (1,544) (230) (1,045) (6) 1,685
Advance billings............................. 1,140 (163) 1,053 (814) (751)
Accounts payable............................. 884 886 (363) (750) (822)
Taxes receivable............................. 425 (1,202) 1,400 809 (195)
Other current assets......................... (6) 11 (56) (298) (746)
Other current liabilities.................... 71 (310) 30 155 16
Other assets................................. -- (149) (89) 149 238
------- ------- ------- ------- ------
Net cash provided by operating
activities............................ 4,519 3,639 6,229 1,261 389
CASH FLOWS FROM INVESTING ACTIVITY
Purchases of property and equipment, net.......... (1,831) (2,217) (1,912) (253) (492)
CASH FLOWS FROM FINANCING ACTIVITY
Payment of dividend............................... $ -- $ -- $(3,548) $ -- $ --
Effect of exchange rate changes on cash........... 451 (1,370) 758 54 (48)
------- ------- ------- ------- ------
Increase (decrease) in cash and cash
equivalents..................................... 3,139 52 1,527 1,062 (151)
Cash and cash equivalents at beginning of
period.......................................... 981 4,120 4,172 4,172 5,699
------- ------- ------- ------- ------
Cash and cash equivalents at end of period........ $ 4,120 $ 4,172 $ 5,699 $ 5,234 $5,548
======= ======= ======= ======= ======
Supplemental cash flow information:
Interest paid................................... $ 47 $ 31 $ 10 $ 2 $ 1
======= ======= ======= ======= ======
Income tax payments (refunds)................... $(1,930) $ 280 $(2,480) $(1,182) $ --
======= ======= ======= ======= ======
See accompanying notes.
F-6
44
BIO-RESEARCH LABORATORIES LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION
Bio-Research Laboratories Ltd. ("Bio-Research"), located in Montreal,
Quebec, Canada, is an independent contract research laboratory providing
preclinical research services to clients in the pharmaceutical, biotechnology,
chemical and medical device industries, primarily serving the United States, the
Far East, Europe and Canada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
TRANSLATION OF FINANCIAL STATEMENTS INTO U.S. DOLLARS
The functional currency of Bio-Research is Canadian dollars. Assets and
liabilities amounts of Bio-Research are translated into U.S. dollars at the
year-end rate of exchange, and the income statements amounts are translated at
the average rates of exchange for the period. Gains or losses from translating
financial statements are accumulated in a separate component of stockholders'
equity.
Bio-Research enters into forward exchange contracts with banks to hedge
foreign currency transactions, and not to engage in currency speculation. Gains
and losses on forward exchange contracts to hedge future transactions are
deferred and accounted for as part of the cost of these transactions.
CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows, cash and cash equivalents
include demand deposits and money market accounts held with a financial
institution. Bio-Research considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
REVENUE RECOGNITION
Revenue from contracts is recorded as costs are incurred and includes
estimated earned fees or profits calculated on the basis of the relationship
between costs incurred and total estimated costs (cost-to-cost type of
percentage-of-completion method of accounting). Certain contracts contain
provisions for price redetermination for cost overruns. Such redetermined
amounts are included in service revenue when realization is assured and the
amounts can reasonably be determined. Estimated amounts representing contract
change orders, claims or funding limitations are included in service revenue
only when realization is probable. In the period in which it is determined that
a loss will result from the performance of a contract, the entire amount of the
estimated ultimate loss is charged against income. Other changes in estimates of
service revenue, costs and profits are recognized using the cumulative catch-up
method of accounting. This method recognizes in the current period the
cumulative effect of the changes on current and prior periods. Hence, the effect
of the changes on future periods of contract performance is recognized as if the
revised estimates had been the original estimates.
UNBILLED RECEIVABLES AND ADVANCE BILLINGS
Unbilled receivables arise from those contracts under which billings can
only be rendered upon the achievement of certain negotiated performance
requirements or on a date-certain basis. Advance billings represent contractual
prebillings for services not yet rendered.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost.
Depreciation is provided on the straight-line method over the estimated
useful lives of the respective properties, which approximate three to forty
years.
F-7
45
BIO-RESEARCH LABORATORIES LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NEWLY ISSUED ACCOUNTING STANDARDS
Bio-Research has considered the impact of newly issued financial accounting
pronouncements, principally Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and does not believe that adoption of this and any other newly
issued pronouncements would have a significant impact on Bio-Research's
financial statements.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (in thousands):
DECEMBER 31,
---------------
1994 1995
------ ------
Trade:
Billed............................................................. $4,618 $5,491
Unbilled........................................................... 2,969 2,657
Reserve for doubtful accounts...................................... (814) (73)
------ ------
6,773 8,075
Other................................................................ 780 523
------ ------
$7,553 $8,598
====== ======
4. UNBILLED RECEIVABLES AND ADVANCE BILLINGS
Unbilled receivables and advance billings on contracts were as follows (in
thousands):
DECEMBER 31,
-------------------
1994 1995
-------- --------
Gross revenue recognized on uncompleted projects................. $ 17,691 $ 19,580
Less billings to date............................................ (16,609) (19,863)
-------- --------
$ 1,082 $ (283)
======== ========
Included in accompanying balance sheets under the following
captions:
Accounts receivable............................................ $ 2,969 $ 2,657
Advance billings............................................... (1,887) (2,940)
-------- --------
$ 1,082 $ (283)
======== ========
5. LONG-TERM DEBT
Bio-Research has a credit facility in the amount of up to the lesser of
$3.7 million or the sum of 75% of trade accounts receivable and 25% of unbilled
receivables. On December 31, 1994 and 1995, there were no amounts outstanding on
the above credit facility.
Interest on any outstanding portion of the credit facility is at the bank's
prime lending rate (8.5% at December 31, 1995). The credit facility is
collateralized by all accounts receivable of Bio-Research.
At December 31, 1994 and 1995, Bio-Research was in compliance with all
covenants of the credit facility.
F-8
46
BIO-RESEARCH LABORATORIES LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. OPERATING LEASES
Bio-Research leases various equipment items under operating leases.
Minimum rental commitments payable in future years under operating leases
having an initial or remaining noncancelable term of one year or more are as
follows (in thousands):
1996.......................................................................... $201
1997.......................................................................... 198
1998.......................................................................... 183
1999.......................................................................... 161
2000.......................................................................... 161
----
Total minimum rentals............................................... $903
====
Total rent expense for all operating leases was approximately $210,000,
$211,000 and $182,000 for the years ended December 31, 1993, 1994 and 1995,
respectively.
7. INCOME TAXES
Significant components of Bio-Research's deferred tax liabilities and
assets as of December 31, 1994 and 1995 are as follows (in thousands):
DECEMBER 31,
-----------------
1994 1995
------- -------
Deferred tax assets:
Research and development credit carryforward..................... $10,592 $10,036
Undeducted research and development expenditures................. 1,854 2,328
Other.............................................................. 399 327
------- -------
Total deferred tax assets................................ 12,845 12,691
Valuation allowance for deferred tax assets........................ (6,868) (6,758)
------- -------
Net deferred tax assets............................................ 5,977 5,933
Deferred tax liability:
Depreciation and amortization.................................... (5,487) (5,778)
Other............................................................ (490) (155)
------- -------
Net deferred tax assets.................................. $ -- $ --
======= =======
At December 31, 1995, Bio-Research had unrealized research and development
tax credits, net of income tax effect, of $10,036. These credits expire in years
1997 through 2005. For financial reporting purposes, a valuation allowance of
$6,758 has been recognized to offset the deferred tax assets related to those
carryforwards. The net deferred tax asset reflects a decrease in the valuation
allowance of approximately $110.
Significant components of the provision for income taxes attributable to
income before income taxes, extraordinary item and cumulative effect of
accounting change are as follows (in thousands):
DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
Current:
Federal................................................. $ 314 $ 73 $ --
Provincial.............................................. (1,431) (1,173) (1,026)
Deferred.................................................. -- -- --
------- ------- -------
Provision for income taxes................................ $(1,117) $(1,100) $(1,026)
======= ======= =======
F-9
47
BIO-RESEARCH LABORATORIES LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Bio-Research's effective tax rate differed from the federal statutory rate
in Canada as set forth below (in thousands):
DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
Federal statutory rate.................................... $ 372 $ 677 $ 785
Provincial income taxes................................... 151 322 246
Federal Research & Development Tax Credit, net of taxes... (419) (1,203) (987)
Quebec Research & Development Tax Credit, net of taxes.... (1,075) (970) (917)
Other..................................................... (146) 74 (153)
------- ------- -------
$(1,117) $(1,100) $(1,026)
======= ======= =======
8. STOCK OPTION PLAN
During 1992, Bio-Research adopted a stock option plan for certain key
employees and outside directors to purchase common shares. The options issued
under this plan vest over a period of five years for key employees and over a
period of three years for outside directors.
The 1992 Stock Option Plan provides for the grant of options to purchase up
to 802,640 shares of Common Stock to directors, officers and other key persons.
Information with respect to the 1992 Stock Option Plan is as follows:
1993 1994 1995
-------------- -------------- --------------
Options outstanding at January 1.......... 599,820 634,820 664,820
Granted................................. 35,000 30,000 55,500
Exercised............................... -- -- --
Canceled................................ -- -- --
-------------- -------------- --------------
Outstanding at December 31................ 634,820 664,820 720,320
============ ============ ============
Option price range at December 31......... $2.04 to $2.97 $2.04 to $2.97 $2.04 to $5.23
============ ============ ============
Options exercisable at December 31........ 153,455 281,669 448,674
============ ============ ============
At December 31, 1993, 1994 and 1995, there were 167,820, 137,820 and 82,320
shares, respectively, available for grant.
9. EMPLOYEE BENEFITS
Bio-Research sponsors various noncontributory defined benefit plans
covering substantially all employees, including plans covering executive
administrative employees and all executive administrative employees who are
covered by a special top-hat pension agreement. Pension plan benefits are based
primarily on participants' compensation and years of service. Total pension
expense for 1993, 1994 and 1995 was approximately $278,000, $281,000 and
$167,000, respectively, and consists of the following (in thousands):
1993 1994 1995
----- ----- -----
Service cost on benefits earned during the year................ $ 253 $ 246 $ 197
Interest cost on projected benefit obligation.................. 244 266 246
Actual return on plan assets................................... (217) (228) (261)
Net amortization and deferral.................................. (2) (3) (15)
----- ----- -----
$ 278 $ 281 $ 167
===== ===== =====
F-10
48
BIO-RESEARCH LABORATORIES LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The actuarial present value of benefit obligations and funded status for
Bio-Research's defined benefit plans were as follows (in thousands):
1994 1995
------ ------
Projected benefit obligation......................................... $3,425 $3,627
Plan assets at fair value............................................ 3,119 3,799
------ ------
Projected benefit obligation (in excess) less than plan assets....... (306) 172
Unrecognized net loss (gain)......................................... 54 (389)
Unrecognized net transition obligation............................... (302) (277)
Unrecognized prior service cost...................................... 305 287
------ ------
Net pension liability................................................ $ (249) $ (207)
====== ======
Assumptions used in developing the projected benefit obligation as of
December 31 were as follows:
1993 1994 1995
---- ---- ----
Discount rate..................................................... 8.0 % 8.0 % 8.0 %
Rate of increase in compensation.................................. 6.5 % 6.5 % 5.0 %
Rate of return on plan assets..................................... 8.0 % 8.0 % 8.0 %
10. MAJOR CLIENTS
For the year ended December 31, 1993, one client accounted for 12% of
Bio-Research's service revenue. No single client accounted for more than 10% of
Bio-Research's service revenue for the year ended 1994 or 1995.
11. COMMITMENTS AND CONTINGENCIES
During 1995, Bio-Research entered into foreign exchange contracts to
deliver United States currency for the purpose of hedging its United States
currency cash flow. These contracts call for the delivery of $750,000 United
States Dollars per month for the period January 1996 through January 1997 at
exchange rates averaging $1.3821 Canadian Dollar per United States Dollar.
During 1993, Bio-Research undertook a project to upgrade its computer
systems, which it expects to implement in phases through 1997 at a cost of
approximately $4.8 million. Approximately $2.6 million of this amount was
incurred as of December 31, 1995.
In 1991, a customer commenced legal action against Bio-Research claiming
damages in the amount of $5.2 million, plus interest and costs, resulting from
statistical errors in carrying out two clinical research studies. An amount of
$220,000 has been provided for in the accounts with respect to this claim. Based
on applicable insurance coverage and an indemnification agreement from a former
stockholder in favor of Bio-Research in respect of any liability in excess of
the amount provided for, management is of the opinion that the outcome of this
matter will not have any further impact upon the financial position of
Bio-Research.
Also, in the ordinary course of business, Bio-Research is involved in
certain claims and litigation. Management is of the opinion, based on
information presently available to it, that the eventual outcome of these
matters will not have a material adverse effect upon the financial position of
Bio-Research.
12. SUBSEQUENT EVENT
On May 24, 1996, Bio-Research announced the signing of a definitive
agreement to sell the assets of Bio-Research to ClinTrials Research Inc., a
Nashville, Tennessee based clinical research organization, for approximately $65
million plus the assumption of certain liabilities.
F-11
49
BIO-RESEARCH LABORATORIES LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. UNAUDITED INTERIM FINANCIAL INFORMATION
The balance sheet as of March 31, 1996, the related statements of income
and cash flows for the three months ended March 31, 1995 and 1996, and the
statement of stockholders' equity for the three months ended March 31, 1996
(interim financial statements) have been prepared by Bio-Research and are
unaudited. The interim financial statements include all adjustments consisting
of only normal recurring adjustments necessary for a fair statement of the
results of the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial statements. The
interim financial statements should be read in conjunction with Bio-Research's
December 31, 1995 audited financial statements appearing herein. The results for
the three months ended March 31, 1996 may not be indicative of operating results
for the full year.
F-12
50
CLINTRIALS RESEARCH INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined statements of income for the
year ended December 31, 1995 and for the three months ended March 31, 1996 gives
effect to the Acquisition as if it had occurred on January 1, 1995. The
unaudited pro forma condensed combined balance sheet as of March 31, 1996, gives
effect to the Acquisition as if it had occurred on March 31, 1996.
The unaudited pro forma condensed combined financial statements give effect
only to the reclassifications and adjustments set forth in the accompanying
Notes to unaudited pro forma condensed combined financial statements. The pro
forma financial information is provided as additional information only and is
not necessarily indicative of actual results that would have been achieved had
the Acquisition been consummated at the beginning of the periods presented or of
future results.
These statements have been prepared from the consolidated financial
statements of the Company and the financial statements of Bio-Research and
should be read in conjunction with such statements and the related Notes. The
financial statements of Bio-Research are included elsewhere herein. The
consolidated financial statements of the Company are incorporated herein by
reference. See "Incorporation of Certain Documents By Reference."
F-13
51
CLINTRIALS RESEARCH INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
MARCH 31, 1996
-------------------------------------------------------------------------------------
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
AS REPORTED AS REPORTED TO REFLECT TO REFLECT COMBINED
CLINTRIALS BIO-RESEARCH ACQUISITION SUBTOTAL OFFERING PRO FORMA
----------- ------------ ----------- -------- ----------- ---------
Assets
Current assets:
Cash and cash
equivalents............. $16,831 $ 5,548 $ -- $ 22,379 $ 74,051(2) $ 31,430
(65,000)(2)
Accounts receivable....... 25,407 6,913 32,320 32,320
Other current assets...... 4,515 2,753 7,268 7,268
----------- ------------ ----------- -------- ----------- ---------
Total current assets........ 46,753 15,214 61,967 9,051 71,018
Property and equipment.... 13,387 28,439 41,826 41,826
Less accumulated
depreciation and
amortization............ 5,491 11,639 17,130 17,130
----------- ------------ ----------- -------- ----------- ---------
7,896 16,800 24,696 24,696
Excess of purchase price
over net assets
acquired.................. 6,965 38,367(1) 45,332 45,332
Other assets................ 38 38 38
----------- ------------ ----------- -------- ----------- ---------
$61,652 $ 32,014 $ 38,367 $132,033 $ 9,051 $141,084
=========== ============ =========== ========= =========== =========
Liabilities and
Stockholders' Equity
Current liabilities:
Accounts payable and
accrued expenses........ $ 8,143 $ 3,192 $ -- $ 11,335 $ -- $ 11,335
Advance billings.......... 21,167 2,189 23,356 23,356
Payable to stockholders of
Bio-Research............ 65,000(1) 65,000 (65,000)(2) --
----------- ------------ ----------- -------- ----------- ---------
Total current liabilities... 29,310 5,381 65,000 99,691 (65,000) 34,691
Deferred income taxes....... 234 234 234
Stockholders' equity:
Common stock.............. 88 3,128 (3,128)(1) 88 26(2) 114
Additional paid-in
capital................. 40,180 39 (39)(1) 40,180 74,025(2) 114,205
Retained earnings......... (8,229) 24,941 (24,941)(1) (8,229) (8,229 )
Cumulative foreign
currency translation
adjustments............. 69 (1,475) 1,475(1) 69 69
----------- ------------ ----------- -------- ----------- ---------
Total stockholders'
equity.................... 32,108 26,633 (26,633) 32,108 74,051 106,159
----------- ------------ ----------- -------- ----------- ---------
$61,652 $ 32,014 $ 38,367 $132,033 $ 9,051 $141,084
=========== ============ =========== ========= =========== =========
See notes to unaudited pro forma condensed combined balance sheet.
F-14
52
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
(1) To record the purchase of the net assets (including the recording of excess
of purchase price over net assets acquired) and eliminate the stockholders'
equity of Bio-Research. No estimate of any purchase accounting adjustments
to record property and equipment at fair value has been made at this time.
ClinTrials expects to obtain and record a valuation of Bio-Research's
property and equipment within six months following the Acquisition. It is
not expected that the reclassification between excess of purchase price
over net assets acquired and property and equipment will be significant to
the combined balance sheet. The pro forma adjustments reflect a temporary
payable to the stockholders of Bio-Research to effect the purchase of
Bio-Research. The temporary payable would be satisfied from the proceeds of
the offering referred to in pro forma adjustment (2).
(2) To record the net proceeds from the completion of the offering of 2,617,334
shares of ClinTrials Common Stock at an assumed price of $30.00 per share.
Gross proceeds of $78.5 million, less estimated issuance costs of $4.4
million, provides net proceeds of $74.1 million. A portion of the net
proceeds would be utilized to retire the temporary payable to the
stockholders of Bio-Research referred to in pro forma adjustment (1).
F-15
53
CLINTRIALS RESEARCH INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE)
AS REPORTED AS REPORTED PRO FORMA COMBINED PRO
CLINTRIALS BIO-RESEARCH ADJUSTMENTS FORMA(1)
----------- ------------ ----------- ------------
Net service revenue........................ $17,670 $6,324 $ -- $ 23,994
Operating costs:
Direct costs............................. 10,526 3,658 14,184
Selling, general and administrative
costs................................. 4,750 1,954 6,704
Depreciation and amortization............ 700 426 240(2) 1,366
----------- ------------ ----------- ------------
Income from operations..................... 1,694 286 (240) 1,740
Other income (expense):
Interest income.......................... 215 77 --(3) 292
Interest expense......................... (14) (1) (15)
----------- ------------ ----------- ------------
Income before income taxes................. 1,895 362 (240) 2,017
Provision for income taxes................. (782) 176 --(4) (606)
----------- ------------ ----------- ------------
Net income................................. $ 1,113 $ 538 $ (240) $ 1,411
========= ========= ========= ==========
Weighted average common shares............. 9,185 2,316(5) 11,501
========= ========= ==========
Earnings per common and common equivalent
share.................................... $ 0.12 $ 0.12
========= ==========
See notes to unaudited pro forma condensed combined statement of income.
F-16
54
CLINTRIALS RESEARCH INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE)
AS REPORTED AS REPORTED PRO FORMA COMBINED
CLINTRIALS BIO-RESEARCH ADJUSTMENTS PRO FORMA(1)
----------- ------------ ----------- ------------
Net service revenue............................. $57,846 $ 26,342 $ -- $ 84,188
Operating costs:
Direct costs.................................. 34,850 14,408 49,258
Selling, general and administrative costs..... 15,209 8,024 23,233
Depreciation and amortization................. 2,287 1,573 959(2) 4,819
----------- ------------ ----------- ------------
Income from operations.......................... 5,500 2,337 (959) 6,878
Other income (expense):
Interest income............................... 744 373 --(3) 1,117
Interest expense.............................. (79) (10) (89)
----------- ------------ ----------- ------------
Income before income taxes...................... 6,165 2,700 (959) 7,906
Provision for income taxes...................... (2,564) 1,026 --(4) (1,538)
----------- ------------ ----------- ------------
Net income...................................... $ 3,601 $ 3,726 $ (959) $ 6,368
========= ========= ========= ==========
Weighted average common shares.................. 9,088 2,316(5) 11,404
========= ========= ==========
Earnings per common and common equivalent
share......................................... $ 0.40 $ 0.56
========= ==========
See notes to unaudited pro forma condensed combined statement of income.
F-17
55
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENTS OF INCOME
(1) The pro forma condensed combined statements of income do not give effect to
any overhead reductions or cost savings, if any, which may be realized
after the consummation of the Acquisition.
(2) To adjust amortization expense. The excess of purchase price over net assets
acquired related to the Acquisition will be amortized over 40 years using
the straight line method. The amounts for the year ended December 31, 1995
and the three months ended March 31, 1996 were $959 and $240, respectively.
No estimate of any purchase accounting adjustments to record property and
equipment at fair value has been made at this time. ClinTrials expects to
obtain and record a valuation of Bio-Research's property and equipment
within six months following the Acquisition. It is not expected that any
reclassification between excess of purchase price over net assets acquired
and property and equipment would significantly affect amortization expense.
(3) Interest income as a result of the cash proceeds received in excess of the
cash used to acquire Bio-Research and for costs of the Offering is not
reflected in the pro forma condensed combined statements of income. The
Company is presently earning a 4.11% yield on tax exempt investments. The
following table summarizes the total effect on the pro forma condensed
combined statements of income as if the interest had been earned on the
excess cash.
YEAR ENDED THREE MONTHS
DECEMBER 31, 1995 ENDED MARCH 31, 1996
----------------- --------------------
Excess cash invested.................................. $ 9,051 $ 9,051
============= ================
Pro forma income, as stated........................... 6,368 1,411
Estimated tax exempt interest income.................. 372 93
----------------- ----------
Pro forma income with excess cash invested............ $ 6,740 $ 1,504
============= ================
Pro forma weighted average shares outstanding for
entire offering..................................... 11,705 11,802
============= ================
Pro forma earnings per share after consideration of
investment of excess funds.......................... $ 0.58 $ 0.13
============= ================
(4) The pro forma amortization adjustment (Note 2) does not affect the income
tax provision as such tax benefit of the amortization adjustment would
merely increase the federal and Quebec research and development tax credits
to be carried forward to future periods. The pro forma condensed combined
statements of income do not provide for deferred United States taxes on the
income earned by Bio-Research in Canada as ClinTrials intends to
permanently reinvest any earnings outside the United States.
(5) The weighted average common shares outstanding in the pro forma columns
include the 2,316,000 shares of Common Stock offered hereby that will be
used to fund the $65 million cost of the Acquisition. The calculation of
these shares is based on an offering price of $30.00 per share, net of
offering costs.
F-18
56
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF
THE COMMON STOCK OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO WHOM IT IS UNLAWFUL TO
MAKE SUCH SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
PAGE
----
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 7
Bio-Research Acquisition.............. 11
Use of Proceeds....................... 12
Price Range of Common Stock and
Dividend Policy..................... 12
Capitalization........................ 13
Selected Consolidated Financial
Data................................ 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 23
Management............................ 33
Principal Stockholders................ 35
Underwriting.......................... 36
Legal Matters......................... 37
Experts............................... 37
Incorporation of Certain Information
by Reference........................ 37
Index to Financial Statements......... F-1
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2,617,334 SHARES
(LOGO) CLINTRIALS RESEARCH INC.
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
J.C. BRADFORD & CO.
PIPER JAFFRAY INC.
SMITH BARNEY INC.
July 24, 1996
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