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EXHIBIT 99.1
RISK FACTORS
In addition to the other information contained or incorporated by
reference in this report, the following factors should be considered carefully
in evaluating the Company and its business. See also "Forward Looking
Statements."
DEPENDENCE ON CERTAIN INDUSTRIES AND CUSTOMERS
Quintiles' revenues are highly dependent upon the research and
development and sales and marketing expenditures of the pharmaceutical and
biotechnology industries. Quintiles has benefited to date from the growing
tendency of pharmaceutical and biotechnology companies to engage independent
outside organizations to conduct large clinical research and sales and marketing
projects. Quintiles' operations could be materially and adversely affected by a
general economic decline in these industries or by any reduction in the
outsourcing of development or sales and marketing expenditures. Quintiles has in
the past derived, and may in the future derive, a significant portion of its net
revenue from a relatively limited number of major projects or customers. In
1997, 10 customers accounted for approximately 46% of Quintiles' consolidated
net revenue. As pharmaceutical companies continue to outsource large projects
and studies to fewer full-service global providers, the concentration of
business could increase. Quintiles is likely to continue to experience such
concentration in future years. The loss of a major project or any such customer
could materially and adversely affect Quintiles.
MANAGEMENT OF GROWTH
Quintiles has experienced rapid growth over the past 10 years.
Quintiles believes that its sustained growth places a strain on operational,
human and financial resources. In order to manage its growth, Quintiles must
continue to improve its operating and administrative systems and to attract and
retain qualified management, professional, scientific and technical personnel.
Foreign operations may involve the additional risks of assimilating differences
in foreign business practices, hiring and retaining qualified personnel, and
overcoming language barriers. Quintiles has a transnational organizational
structure, comprised of four service groups performing complementary functions,
with a holding company performing management functions. While this transnational
structure has successfully supported Quintiles' growth to date, Quintiles
recently has completed a number of acquisitions, and there can be no assurance
that this structure will continue to be effective. Failure to manage growth
effectively could have a material adverse effect on Quintiles.
ACQUISITION RISKS
Acquisitions involve numerous risks, including difficulties and
expenses incurred in connection with the acquisition and the assimilation of the
operations and services of the acquired companies, the diversion of management's
attention from other business concerns and the potential loss of key employees
of the acquired companies. Acquisitions of foreign companies also may involve
the additional risks of assimilating differences in foreign business practices
and overcoming language barriers. Since January 1, 1998, Quintiles has completed
several acquisitions, both within the United States and internationally. There
can be no assurance that Quintiles' past and any future acquisitions will be
successfully integrated into its operations. Quintiles reviews many acquisition
candidates in the ordinary course of business, and Quintiles continually is
evaluating new acquisition opportunities. Quintiles expects to continue to
evaluate and compete for suitable acquisition candidates. There can be no
assurance that Quintiles will successfully complete future acquisitions or that
acquisitions, if completed, will contribute favorably to Quintiles' operations
and future financial condition. Although Quintiles performs due diligence
investigations on each company or business it seeks to acquire, there may be
liabilities that Quintiles fails or is unable to discover for which Quintiles,
as a successor owner, may be liable. Quintiles generally seeks to minimize its
exposure to such liabilities by obtaining indemnification from each seller,
which may be supported by deferring payment of a portion of the purchase price.
However, there is no assurance that such indemnifications, even if obtainable,
enforceable and collectible (as to which there also is no assurance), will be
sufficient in amount, scope or duration to offset fully the potential
liabilities arising from the acquisitions.
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RISKS RELATING TO CONTRACT SALES SERVICES
Outsourced contract sales services is a relatively new industry in some
countries in which Quintiles does business. Quintiles believes that the contract
sales industry emerged in the 1980s because of regulatory cost containment
pressure on pharmaceutical companies. As a result, large pharmaceutical
companies began to outsource their sales and marketing activities incident to
product launch. There is a relatively low level of market penetration for
outsourced sales and marketing services in many countries, including the United
States. As such, companies in this industry are subject to all of the risks
inherent in a new or emerging industry, including an inability to attract and
retain customers, changes in the regulatory regime, an absence of an established
earnings history, the availability of adequately trained sales representatives
and additional and unforeseen costs and expenses.
COMPETITION; INDUSTRY CONSOLIDATION
The market for Quintiles' contract research services is highly
competitive, and Quintiles competes against traditional contract research
organizations, the in-house research and development departments of
pharmaceutical companies, as well as universities and teaching hospitals. In
sales and marketing services, Quintiles competes against the in-house sales and
marketing departments of pharmaceutical companies and other contract sales
organizations in each country in which it operates. Quintiles also competes
against consulting firms offering healthcare consulting services and medical
communications services, including boutique firms specializing in the healthcare
industry and the healthcare departments of large firms. Expansion by these
competitors into other areas in which Quintiles operates could affect Quintiles'
competitive position. Increased competition may lead to price and other forms of
competition that may affect Quintiles' margins. Consolidation within the
pharmaceutical industry, as well as a trend by pharmaceutical companies to limit
outsourcing to fewer organizations, has heightened the competition for contract
research and contract sales services. As a result, consolidation also has
occurred among the providers of contract research and contract sales services.
If these consolidation trends continue, they may result in greater competition
among the larger contract research and contract sales providers for customers
and acquisition candidates.
LOSS OR DELAY OF LARGE CONTRACTS; VARIABILITY OF BACKLOG; FIXED PRICE NATURE OF
CONTRACTS
Most of Quintiles' contracts are terminable upon 15-90 days' notice by
the customer. Although the contracts typically provide for payment of certain
fees for winding down the project and, in some cases, a termination fee, the
loss or delay of a large contract or the loss or delay of multiple contracts
could adversely affect Quintiles' future net revenue and profitability. In
addition, Quintiles reports backlog based on anticipated net revenue from
uncompleted projects which have been authorized by the customer. Backlog may be
affected by a number of factors, including the variable size and duration of
projects, many of which are performed over several years, the loss or delay of
projects, or a change in the scope of work during the course of a project. There
can be no assurance that backlog will be indicative of future results.
Furthermore, since most of Quintiles' contracts for the provision of its
services are fixed price, fixed price with variable components or
fee-for-service subject to a cap, Quintiles bears the risk of cost overruns.
Underpricing of contracts or significant cost overruns could have a material
adverse effect on Quintiles.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer processors and software
not processing date values correctly. This issue could result in a system
failure or data corruption of the Company or its customers or suppliers which
could cause disruptions of operations, including, among other things, a
temporary inability to process transactions or engage in similar business
activities or to receive information or services from suppliers.
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The Company's computing infrastructure is based upon industry standard
systems. The Company is not dependent on large legacy systems and does not use
mainframes. Many of the specially developed systems the Company uses have been
developed within the past few years and will process date values appropriately.
The Company has appointed a Year 2000 Project Team to conduct an
assessment of the Company's operations worldwide from an internal, supplier and
customer perspective. The assessment, which is currently in progress, addresses
all of the Company's computer systems, applications and any other systems that
the Company believes may be vulnerable to the Year 2000 Issue and which
significantly affect operations. This assessment includes an evaluation of
external services on which the Company is dependent, although the Company cannot
control whether or the manner in which such services will be provided. As part
of the assessment, the Company is preparing detailed plans to address Year 2000
Issues. The Company is utilizing both internal and external resources to
implement the plans. The Company currently anticipates addressing all business
critical systems during 1998 and will address follow-up issues and all remaining
systems during 1999. The Company's assessment of Year 2000 Issues is ongoing and
there can be no assurance that Year 2000 Issues or the costs of addressing them
will not have a material impact on the Company's financial statements, business
or operations.
DEPENDENCE ON PERSONNEL
Quintiles relies on a number of key executives, including Dennis B.
Gillings, Ph.D., its Chairman of the Board of Directors and Chief Executive
Officer. Quintiles maintains key man life insurance on Dr. Gillings in the
amount of $3 million. The loss of the services of any key executive could have a
material adverse effect on Quintiles. In addition, Quintiles' performance
depends on its ability to attract and retain qualified management and
professional, scientific and technical operating staff, as well as its ability
to recruit qualified representatives for its contract sales services. There can
be no assurance that Quintiles will be able to continue to attract and retain
qualified personnel.
POTENTIAL LIABILITY
In connection with its provision of contract research services,
Quintiles contracts with physicians to serve as investigators in conducting
clinical trials to test new drugs on human volunteers. Such testing creates risk
of liability for personal injury to or death of volunteers, particularly to
volunteers with life-threatening illnesses, resulting from adverse reactions to
the drugs administered. Although Quintiles does not believe it is legally
accountable for the medical care rendered by third party investigators, it is
possible that Quintiles could be held liable for the claims and expenses arising
from any professional malpractice of the investigators with whom it contracts or
in the event of personal injury to or death of persons participating in clinical
trials. In addition, as a result of its Phase I clinical trial facilities,
Quintiles could be liable for the general risks associated with a Phase I
facility including, but not limited to, adverse events resulting from the
administration of drugs to clinical trial participants or the professional
malpractice of Phase I medical care providers. Quintiles also could be held
liable for errors or omissions in connection with the services it performs
through each of its service groups. Quintiles believes that its risks are
reduced by contractual indemnification provisions with customers and
investigators, insurance maintained by customers and investigators and by
Quintiles, various regulatory requirements, including the use of institutional
review boards and the procurement of each volunteer's informed consent to
participate in the study. The contractual indemnifications generally do not
fully protect Quintiles against certain of its own actions such as negligence.
The contractual arrangements are subject to negotiation with customers and the
terms and scope of such indemnification vary from customer to customer and from
trial to trial. The financial performance of any of these indemnities is not
secured. Therefore, Quintiles bears the risk that the indemnifying party may not
have the financial ability to fulfill its indemnification obligations. Quintiles
maintains professional liability insurance that covers worldwide territories in
which Quintiles currently does business and includes drug safety issues as well
as data processing errors and omissions. There can be no assurance that
Quintiles will be able to maintain such insurance coverage on terms acceptable
to Quintiles or that such insurance will cover all losses. Quintiles could be
materially and adversely affected if it were required to pay damages or bear the
costs of defending any claim outside the scope of or in excess of a contractual
indemnification provision or beyond the level of insurance coverage or in the
event that an indemnifying party does not fulfill its indemnification
obligations.
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DEPENDENCE ON GOVERNMENT REGULATION
Quintiles' contract research business has benefited from the extensive
governmental regulation of the drug development process, particularly in the
United States. In Europe, the general trend has been towards establishing common
standards for clinical testing of new drugs, leading to changes in the various
requirements currently imposed by each country. Quintiles believes that the
level of regulation is generally less burdensome outside the United States. From
time to time legislation is introduced in the U.S. Congress to substantially
modify regulations administered by the Food and Drug Administration ("FDA")
governing the drug approval process. Changes in regulation in the United States
or elsewhere, including mandatory substitution of generic drugs for patented
drugs, relaxation in the scope of regulatory requirements or the introduction of
simplified drug approval procedures, could decrease the business opportunities
available to Quintiles. In addition, the failure on the part of Quintiles to
comply with applicable regulations could result in the termination of ongoing
clinical research or sales and marketing projects or the disqualification of
data for submission to regulatory authorities, either of which could have a
material adverse effect on Quintiles.
UNCERTAINTY IN HEALTHCARE INDUSTRY AND POSSIBLE HEALTHCARE REFORM
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the pharmaceutical, biotechnology and
medical device industries. Numerous governments have undertaken efforts to
control growing healthcare costs through legislation, regulation and voluntary
agreements with medical care providers and pharmaceutical companies.
Implementation of government healthcare reform may adversely affect research and
development expenditures by pharmaceutical, biotechnology and medical device
companies, which could decrease the business opportunities available to
Quintiles. Management is unable to predict the likelihood of healthcare reform
legislation being enacted or the effects such legislation would have on
Quintiles.
EXCHANGE RATE FLUCTUATIONS
Approximately 50.0%, 57.0%, and 60.1% of Quintiles' net revenue for the
years ended December 31, 1997, 1996, and 1995, respectively, were derived from
Quintiles' operations outside the United States. Quintiles' operations and
financial results could be significantly affected by factors associated with
international operations such as changes in foreign currency exchange rates and
uncertainties relative to regional economic circumstances, as well as by other
risks sometimes associated with international operations. Since the revenue and
expenses of Quintiles' foreign operations are generally denominated in local
currencies, exchange rate fluctuations between such local currencies and the
U.S. dollar will subject Quintiles to currency translation risk with respect to
the reported results of its foreign operations. Also, Quintiles may be subject
to foreign currency transaction risks when Quintiles' service contracts are
denominated in a currency other than the currency in which Quintiles incurs
expenses related to such contracts. Quintiles limits its foreign currency
transaction risks through exchange rate fluctuation provisions stated in its
contracts with customers, or Quintiles may hedge its transaction risk with
foreign currency exchange contracts or options. There can be no assurance that
Quintiles will not experience fluctuations in financial results from Quintiles'
operations outside the United States, and there can be no assurance Quintiles
will be able to contractually or otherwise favorably reduce its currency
transaction risk associated with its service contracts.
VARIATION IN QUARTERLY OPERATING RESULTS
Quintiles' results of operations have been and can be expected to be
subject to quarterly fluctuations. Quarterly results can fluctuate as a result
of a number of factors, including the timing of start-up expenses for new
offices, acquisitions, the completion or commencement of significant contracts,
changes in the mix of services offered and foreign exchange fluctuations.
Quintiles believes that quarterly comparisons of its financial results should
not be relied upon as an indication of future performance.
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VOLATILITY OF STOCK PRICE
The market price of Quintiles' Common Stock has been and may continue
to be subject to wide fluctuations in response to variations in operating
results from quarter to quarter, changes in earnings estimates by analysts,
market conditions in the industry and general economic conditions.
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