<PAGE>
As filed with the Securities and Exchange Commission on January 6, 1997.
Registration No. 333-17001
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-1
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
PREMIER RESEARCH WORLDWIDE, LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 8734 22-3264604
(State or jurisdiction of Primary Standard Industrial
Incorporation or organization) Classification Code Number (I.R.S. Employer Identification No.)
</TABLE>
124 SOUTH 15TH STREET
PHILADELPHIA, PA 19102
(215) 972-0420
(Address, including zip code,
and telephone number, including
area code, of registrant's
principal executive offices)
JOEL MORGANROTH, M.D. President
124 SOUTH 15TH STREET
PHILADELPHIA, PA 19102
(215) 972-0420
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
JAMES H. CARLL, ESQUIRE MORRIS CHESTON, JR. , ESQUIRE
ARCHER & GREINER, P.C. BALLARD SPAHR ANDREWS & INGERSOLL
ONE CENTENNIAL SQUARE 1735 MARKET STREET, 51st FLOOR
HADDONFIELD, NJ 08033 PHILADELPHIA, PA 19103
(609) 795-2121 (215) 864-8609
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1922, check the following box.|_|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<PAGE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
===============================================================================
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Location or
Form S-1 Caption Heading in Prospectus
- -------- ------- ----------------------
<S> <C> <C>
1 Forepart of Registration Facing Page; Front Cover Page;
Statement and Outside Front
Cover Page of Prospectus...
2 Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus... Cover Pages; Additional
Information;
3 Summary Information, Risk Prospectus Summary; Risk
Factors and Ratio of Earnings to Factors;
Fixed Charges
4 Use of Proceeds... Use of Proceeds;
5 Determination of Offering Risk Factors; Underwriting
Price...
6 Dilution... Dilution;
7 Selling Security Holders... Principal and Selling
Stockholders;
8 Plan of Distribution... Front Cover Page;
Underwriting;
9 Description of Securities to be Description of Capital Stock;
Registered...
10 Interests of Named Experts and Legal Matters; Experts
Counsel...
11 Information with Respect to
Registrant...
(a) Description of Business... Business;
(b) Description of Property... Business;
(c) Legal Proceedings Not applicable;
</TABLE>
i
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Location or
Form S-1 Caption Heading in Prospectus
- -------- ------- ----------------------
<S> <C> <C>
(d) Market Price of and Risk Factors; Management;
Dividends on the Shares Eligible for Future
Registrant's Common Equity Sale; Dividend Policy;
and Related Stockholder Principal and Selling
Matters... Stockholders; Underwriting;
(e) Financial Statements... Financial Statements;
(f) Selected Financial Data... Selected Financial Data;
(g) Supplemental Financial Management's Discussion and
Information... Analysis of Financial Condition
and Results of Operations;
(h) Management's Discussion Management's Discussion and
and Analysis of Financial Analysis of Financial Condition
Condition and Results of and Results of Operations;
Operations...
(i) Disagreements with Not Applicable;
Accountants...
(j) Directors and Executive Management;
Officers...
(k) Executive Compensation... Management;
(l) Security Ownership of Principal and Selling
Certain Beneficial Owners... Stockholders;
(m) Certain Relationships and Certain Relationships
Related Transactions... and Related Transactions;
12 Disclosure of Commission Not Applicable;
Position on Indemnification for
Securities Act Liabilities...
</TABLE>
ii
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This Prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
SUBJECT TO COMPLETION, DATED JANUARY 6, 1997
LOGO 2,750,000 SHARES
PREMIER RESEARCH WORLDWIDE
COMMON STOCK
Of the 2,750,000 shares of Common Stock offered hereby, 2,000,000 shares
are being sold by Premier Research Worldwide, Ltd. (the "Company") and
750,000 shares are being sold by the Selling Stockholder. The Company will
not receive any of the proceeds from the sale of the shares by the Selling
Stockholder. See "Principal and Selling Stockholders." Prior to this
offering, there has been no public market for the Common Stock of the
Company. It currently is estimated that the initial public offering price
will be between $14.00 and $16.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company is applying for listing of the Common Stock on
the Nasdaq National Market under the symbol "PRWW."
The shares of Common Stock offered hereby involve a high degree of risk.
See "Risk Factors" beginning on page 7 of this Prospectus for a discussion of
certain factors that should be considered by prospective investors in
purchasing the shares of Common Stock offered hereby.
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.
<TABLE>
<CAPTION>
==============================================================================================
Price to Underwriting Proceeds to Proceeds to Selling
Public Discount (1) Company (2) Stockholder
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share .... $ $ $ $
- ----------------------------------------------------------------------------------------------
Total (3) .... $ $ $ $
==============================================================================================
</TABLE>
(1) The Company, the Selling Stockholder and UM Holdings, Ltd. have agreed to
indemnify the Underwriters against certain liabilities. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $600,000.
(3) The Company and the Selling Stockholder have granted the Underwriters a
30-day option to purchase up to 412,500 additional shares of Common Stock
solely to cover over-allotments, if any. If the Underwriters exercise
this option in full, the total Price to Public, Underwriting Discount,
Proceeds to Company and Proceeds to Selling Stockholder will be $ ,
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by
the Underwriters, and subject to their right to reject orders in whole or in
part. It is expected that delivery of the certificates representing such
shares will be made against payment therefor at the offices of Montgomery
Securities on or about , 1997.
MONTGOMERY SECURITIES
FURMAN SELZ
GENESIS MERCHANT GROUP
SECURITIES
, 1997
<PAGE>
------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including Notes
thereto, appearing elsewhere in this Prospectus. This Prospectus contains
certain statements of a forward-looking nature relating to future events or
the future financial performance of the Company. Such statements are only
predictions and actual events or results may differ materially from those
indicated by such forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed under "Risk
Factors." All references to the "Company" in this Prospectus refer to Premier
Research Worldwide, Ltd., a Delaware corporation, and its subsidiaries and
predecessors. Except as otherwise noted, all information in this Prospectus
(i) reflects a 2,201-for-one stock split effected on November 26, 1996, (ii)
reflects the mandatory conversion of PREMIER, Inc.'s minority interest in
Premier Research, LLC into 330,150 shares of Common Stock of the Company upon
closing of this offering, and (iii) assumes no exercise of the Underwriters'
over-allotment option.
THE COMPANY
Premier Research Worldwide, Ltd. (the "Company") is a clinical research
organization ("CRO") providing a broad range of integrated product
development services to its clients in the pharmaceutical, biotechnology and
medical device industries. The Company complements the research and
development departments of its clients by offering high quality clinical
research services on an as-needed basis, thereby providing a variable cost
alternative to certain fixed costs typically associated with internal product
development. Over the last three years, the Company has built a base of over
85 clients, including 22 of the 25 largest pharmaceutical companies in the
world (on the basis of 1995 research and development expeditures as reported
by Med Ad News). In the first nine months of 1996, the Company performed
services under 168 contracts for 57 clients. The Company's services include
centralized diagnostic testing, clinical trial management, clinical data
management, biostatistical analysis, Phase I clinical research, health care
economics and outcomes research and regulatory affairs services.
The Company and its predecessors have operated since 1977 as direct or
indirect subsidiaries or as divisions of UM Holdings, Ltd., a private holding
company that owns several companies in different industries.
Throughout its history, the Company has been an innovator in the use of
new technologies that speed product development and regulatory review. For
example, the Company created and filed the first computer-assisted new drug
application ("CANDA") with the United States Food & Drug Administration
("FDA"). The Company's technology is designed to simplify and make more
efficient the collection, transfer, analysis and preparation of clinical
trial data. The Company believes that its proprietary technology links all
facets of clinical development, produces cost advantages, facilitates
superior levels of service, improves the quality of clinical research, and
enhances the Company's global capabilities.
All of the Company's services are designed to help clients reduce their
product development time in a cost-effective manner. In 1977, the Company's
predecessor, Cardio Data Systems, began providing diagnostic testing services
used to evaluate the safety and efficacy of new drugs. Today, the Company
provides these services, which include electrocardiograms ("ECGs"), Holter
monitoring, pulmonary function testing, blood and urine sampling, and other
tests, on a centralized basis. To take advantage of the potential synergies
and cross-selling opportunities with its centralized diagnostic testing
services, the Company added clinical trial management capabilities in
September 1995 by forming with PREMIER, Inc. a limited liability company,
which is owned 65% by the Company and 35% by PREMIER, Inc. Upon the closing
of this offering, PREMIER, Inc.'s minority interest will convert into 330,150
shares of Common Stock of the Company in accordance with an agreement entered
into by the parties in 1995. Upon such conversion, the limited liability
company will be wholly-owned by the Company. Although a substantial majority
of the Company's net revenues is still derived from centralized diagnostic
testing services, the Company today has the capacity to provide the full
range of CRO services on a global basis.
3
<PAGE>
The Company believes that its affiliation with PREMIER, Inc. will improve
its ability to market and enhance its clinical research services to its
clients. PREMIER, Inc. is the largest voluntary healthcare alliance in the
United States, with 1,800 affiliated hospitals and institutions, located in
all 50 states, representing over 300,000 hospital beds. PREMIER, Inc.
negotiated, on behalf of the alliance, group purchases of approximately $6
billion of medical devices, supplies and pharmaceuticals in 1995, and expects
to negotiate group purchases of approximately $10 billion in 1996. The
Company seeks to leverage its strategic relationship with PREMIER, Inc. in
the following ways: (i) PREMIER, Inc. has agreed to introduce the Company to
all pharmaceutical and device companies that sell or propose to sell products
to the alliance; (ii) PREMIER, Inc. has agreed to include as a standard
provision in all of its future drug and device group purchasing agreements
that the pharmaceutical or device company consider using the Company's
services in its clinical trials; (iii) the Company is the exclusive CRO for
the trial management organization being developed by PREMIER, Inc. with the
assistance of the Company; and (iv) the Company has access to PREMIER, Inc.'s
databases, which should facilitate the Company's ability to identify specific
patient populations, investigators and sites and to offer pharmacoeconomic
and outcomes data to its clients.
The global pharmaceutical and biotechnology industries spent an estimated
$35 billion in 1995 on research and development, of which the Company
estimates $20 billion was spent on the types of services offered by the
Company. Of this amount, approximately $2.5 billion was outsourced to CROs.
The Company believes that the following trends will lead to increased
outsourcing of product development activities by pharmaceutical,
biotechnology and medical device companies: (i) clients in these industries
are increasingly seeking faster product development times in order to
maximize the period of patent protection and marketing exclusivity; (ii) as
these companies respond to cost containment pressures, they are looking to
develop their products as inexpensively as possible and therefore are taking
advantage of the variable cost structure of outsourcing to CROs versus the
fixed cost structure of internal development; (iii) as increasingly complex
and stringent regulatory requirements have added to the volume of data
required for regulatory filings, the demand for comprehensive capabilities to
collect, analyze and prepare clinical data for regulatory submission is
growing; (iv) as pharmaceutical and biotechnology companies are developing
more advanced therapeutics for complex chronic diseases, these companies are
looking to outsource to CROs with product development expertise in
specialized therapeutic areas; (v) biotechnology companies are developing an
increasing number of new drugs submitted for regulatory review and continue
to depend largely on outside sources for clinical research services; (vi) the
shift by pharmaceutical, biotechnology and medical device companies from
making sequential filings of registration packages to simultaneous filings in
several countries is creating growing demand for CROs with an international
presence and experience in preparing such filings; and (vii) the need for
sophisticated data management is increasing.
The Company's objective is to accelerate its clients' product development
timelines. The Company's strategies for meeting this objective include: (i)
using innovative technology to accelerate and improve product development;
(ii) providing comprehensive product development services, including
centralized diagnostic testing services; (iii) expanding its capacity for
global product development services; (iv) developing its strategic
relationship with PREMIER, Inc.; and (v) pursuing strategic acquisitions.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company ................. 2,000,000 shares
Common Stock offered by the Selling Stockholder ..... 750,000 shares
Common Stock to be outstanding after the offering ... 6,732,150 shares(1)(2)
Use of proceeds ..................................... To fund capital expenditures, geographic
expansion, possible future acquisitions,
working capital and other general corporate
purposes
Proposed Nasdaq National Market symbol .............. PRWW
</TABLE>
4
<PAGE>
- ------
(1) Excludes (i) 521,637 shares of Common Stock reserved for issuance upon
the exercise of outstanding options at an average exercise price of
$2.26, (ii) 18,804 shares of Common Stock reserved for issuance upon
exercise of outstanding options at an assumed initial public offering
price of $15.00, and (iii) 490,000 shares reserved for future grant under
the Company's 1996 Stock Option Plan. See "Management -- Stock Option
Plans" and Note 8 of Notes to Consolidated Financial Statements.
(2) Following this offering, the Company's current stockholders, executive
officers and directors will beneficially own approximately 62.2% of the
outstanding shares of Common Stock.
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future.
The representatives of the Underwriters are Montgomery Securities, Furman
Selz LLC and Genesis Merchant Group Securities.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1991(1) 1992(1) 1993(1) 1994(1) 1995
--------- --------- --------- --------- ---------
Statement of Operations Data:
Revenues ............................. $6,544 $8,083 $10,245 $12,910 $12,218
Less: Reimbursed costs ............... -- -- -- -- (154)
--------- --------- --------- --------- ---------
Net revenues ......................... 6,544 8,083 10,245 12,910 12,064
--------- --------- --------- --------- ---------
Costs and expenses:
Direct costs ....................... 1,256 1,971 2,428 3,473 4,124
Selling, general and administrative 2,928 4,017 7,278 7,245 6,375
Depreciation and amortization ...... 925 688 785 1,197 1,013
--------- --------- --------- --------- ---------
Total costs and expenses ............. 5,109 6,676 10,491 11,915 11,512
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
minority interest .................. 1,435 1,407 (246) 995 552
Minority interest in limited liability
company's (income) loss ............ -- -- -- -- 48
--------- --------- --------- --------- ---------
Income (loss) before income taxes .... 1,435 1,407 (246) 995 600
Income tax provision (benefit) (2) ... 579 562 (69) 415 259
--------- --------- --------- --------- ---------
Net income (loss) (3) ................ $ 856 $ 845 $ (177) $ 580 $ 341
========= ========= ========= ========= =========
Pro forma net income (4) ............. $ 313
=========
Pro forma net income per share (4) ... $ .07
=========
Shares used in computing pro forma net
income per share (4) ............... 4,757
=========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
----------------------------
<S> <C> <C>
1995 1996
-------- ---------
Statement of Operations Data:
Revenues ............................. $9,031 $11,754
Less: Reimbursed costs ............... (36) (147)
-------- ---------
Net revenues ......................... 8,995 11,607
-------- ---------
Costs and expenses:
Direct costs ....................... 2,795 4,615
Selling, general and administrative 4,600 5,070
Depreciation and amortization ...... 786 556
-------- ---------
Total costs and expenses ............. 8,181 10,241
-------- ---------
Income (loss) before income taxes and
minority interest .................. 814 1,366
Minority interest in limited liability
company's (income) loss ............ (21) 303
-------- ---------
Income (loss) before income taxes .... 793 1,669
Income tax provision (benefit) (2) ... 315 719
-------- ---------
Net income (loss) (3) ................ $ 478 $ 950
======== =========
Pro forma net income (4) ............. $ 770
=========
Pro forma net income per share (4) ... $ .15
=========
Shares used in computing pro forma net
income per share (4) ............... 4,998
=========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
September 30, 1996
----------------------------------
Pro As
Actual Forma(4) Adjusted(5)
-------- -------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents .................... $ 530 $ 80 $27,380
Working capital .............................. 2,055 1,605 28,905
Total assets ................................. 5,275 4,825 32,125
Minority interest in limited liability company. 29 -- --
Total stockholders' equity ................... 2,921 2,500 29,800
</TABLE>
- ------
(1) For periods prior to June 1, 1994, the Company operated as direct or
indirect subsidiaries or as divisions of UM Holdings, Ltd. ("UM").
Effective June 1, 1994, the Company was capitalized through the transfer
of the net assets and operations of the division by UM.
(2) The Company is included in the consolidated income tax returns of UM. The
historical financial statements reflect income taxes calculated on a
separate company basis. See Note 6 of Notes to Consolidated Financial
Statements.
(3) Net income (loss) for all periods presented includes various transactions
with related parties, including administrative services and a facility
lease with UM and consulting fees paid to the Company's President, who is
a stockholder. See Note 7 of Notes to Consolidated Financial Statements.
(4) Reflects (i) the conversion of PREMIER, Inc's. minority interest in
limited liability company into Common Stock of the Company upon the
closing of this offering and (ii) distributions of $450,000 paid to UM in
the fourth quarter of 1996. See Note 1 of Notes to Consolidated Financial
Statements for discussion of the calculation of pro forma net income, pro
forma net income per share and the shares used in computing pro forma net
income per share.
(5) Represents the pro forma balance sheet data as adjusted to give effect to
the sale by the Company of 2,000,000 shares of Common Stock in this
offering at an assumed initial public offering price of $15.00 per share
(after deducting the estimated underwriting discount and offering
expenses payable by the Company). See "Use of Proceeds," "Dividend
Policy," "Capitalization" and "Description of Capital Stock."
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
purchasers should consider carefully the risk factors set forth below in
evaluating an investment in the shares of the Common Stock of the Company
offered hereby.
DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS
The Company's net revenues are highly dependent on research and
development expenditures by the pharmaceutical, biotechnology and medical
device industries. The Company has benefited from the growing tendency of
pharmaceutical, medical device and biotechnology companies to outsource their
product development projects to independent CROs. Any reduction in the
outsourcing of research and development expenditures in these industries
could have a material adverse effect on the Company. The Company has in the
past derived, and may in the future derive, a significant portion of its net
revenues from a relatively limited number of major projects or clients. In
1994, two clients accounted for 17.0% and 11.5% of net revenues, in 1995
three clients accounted for 15.0%, 12.1% and 10.0% of net revenues, and in
the first nine months of 1996, three clients accounted for 15.3%, 10.5% and
10.4% of net revenues. Customer concentration in the CRO industry is not
uncommon and the Company is likely to experience such concentration in the
future. The loss of any such client could have a material adverse effect on
the Company. See "Business -- Clients."
LOSS OR DELAY OF CONTRACTS
Most of the Company's contracts are terminable without cause upon 30 to 90
days notice by the client. Clients terminate or delay contracts for various
reasons including, among others, the failure of the product being tested to
satisfy safety or efficacy requirements; unexpected or undesired clinical
results of the product; the client's decision to forego a particular study;
clients' decisions to downsize their product development portfolios;
insufficient patient enrollment or investigator recruitment; and production
problems resulting in shortages of required clinical supplies. In the nine
months ended September 30, 1996, 16 Company contracts were terminated for
which the remaining contract amounts totalled approximately $3.0 million. In
addition, the Company believes that several factors, including the potential
impact of health care reform, have caused pharmaceutical, biotechnology and
medical device companies to apply more stringent criteria to the decision to
proceed with clinical trials and may result in a greater willingness of these
companies to terminate such trials. Therefore, the Company does not believe
that its backlog as of any date is necessarily a meaningful predictor of
future results. Although the Company's contracts typically require
non-refundable, up-front payments and contain a provision for the payment of
certain fees in closing a study after early termination, the loss or delay of
a large project or contract or the loss or delay of multiple smaller
contracts could have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Backlog."
RISKS ASSOCIATED WITH UNPROVEN BUSINESS STRATEGIES
The Company did not offer clinical trial management services until
September 1995. While the Company's objective is to expand its CRO business,
diagnostic testing services continue to be the Company's largest product
offering, constituting 65.1% and 82.4% of the Company's net revenues for 1995
and the nine months ended September 30, 1996, respectively. The Company's
efforts to expand its CRO business are at an early stage, and there can be no
assurance that the Company will be able to expand this area in a profitable
manner. One of the Company's strategies is to leverage its affiliation with
PREMIER, Inc. While the Company believes that this strategic relationship
provides it with various competitive advantages, there can be no assurance
that the contemplated beneficial effects of the relationship will
materialize. The Company's prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies
expanding into a new business area or utilizing a new strategy, particularly
companies in rapidly evolving markets, and there can be no assurance that the
Company will be successful in these efforts. See "Business -- The Company's
Strategy."
7
<PAGE>
MANAGEMENT OF GROWTH
The Company expects to grow rapidly in the next few years, especially in
its clinical trial management and data management services. The Company
believes that sustained growth places a strain on operational, human and
financial resources. To manage its growth, the Company must continue to
improve its operating and administrative systems and to attract and retain
qualified management, professional, scientific and technical operating
personnel. Foreign operations also involve the additional risks of
assimilating differences in foreign business practices, hiring and retaining
qualified personnel and overcoming language barriers. Failure to manage
growth effectively could have a material adverse effect on the Company.
SIGNIFICANT UNALLOCATED NET PROCEEDS
The Company intends to use $6 million to $8 million of the net proceeds of
this offering for capital expenditures and $2 million to $4 million for
geographic expansion. The Company intends to use the remaining net proceeds
for possible future acquisitions, working capital and other general corporate
purposes. The Company has no commitments or agreements with respect to any
acquisition. The Company has no other specific uses for the proceeds of this
offering, and the exact uses of such proceeds will be subject to the
discretion of management. See "Use of Proceeds."
DEPENDENCE ON KEY PERSONNEL
The Company relies on a number of key executives including Joel
Morganroth, M.D., its President and Chief Executive Officer; Christopher
Gallen, M.D., Ph.D., President, Clinical Research Services; Glenn Cousins,
President, Diagnostic Services; and David Evans, Senior Vice President and
Chief Technical Officer. The loss of the services of any of the Company's key
executives could have a material adverse effect on the Company. There can be
no assurance the Company will be able to continue to attract and retain
qualified personnel. See "Business -- Employees" and "Management."
VARIATION IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company's quarterly operating results have been and will continue to
be subject to variation, depending on factors such as the commencement,
completion or cancellation of significant contracts, the mix of contracted
services, foreign exchange rate fluctuations, the timing of start-up expenses
for new offices and services, and the costs associated with integrating
acquisitions. The Company has experienced, and expects to experience in the
future, seasonal variations in its revenues. The Company believes that
quarterly comparisons of its financial results should not be relied upon as
an indication of future performance. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Quarterly
Results."
ACQUISITION RISKS
The Company reviews acquisition candidates in the ordinary course of its
business. Acquisitions involve numerous risks, including the expenses
incurred in connection with the acquisition, difficulties in assimilating
operations and products, the diversion of management's attention from other
business concerns and the potential loss of key employees of the acquired
company. Acquisitions of foreign companies also involve the additional risks
of assimilating differences in foreign business practices, hiring and
retaining qualified personnel and overcoming language barriers. There can be
no assurance that any future acquisitions will be successfully integrated
into the Company's operations. See "Use of Proceeds" and "Business -- The
Company's Strategy."
Due to the fact that the Company has been a subsidiary of UM, it will not
be eligible to use the pooling of interests method of accounting for
acquisitions made during the two year period following this offering, which
could make potential acquisitions less attractive to the Company.
COMPETITION; INDUSTRY CONSOLIDATION
The CRO industry is highly fragmented, with several hundred CROs ranging
in size from one person consulting firms to full-service, global product
development organizations. The Company primarily competes against other CROs,
some of which possess substantially greater capital, technical and other
resources than the Company. To a lesser extent, the Company also competes
against universities and teaching hospitals. As a result
8
<PAGE>
of competitive pressures and the potential for economies of scale, the
industry is consolidating. This trend is likely to produce increased
competition among the larger CROs for clients and acquisition candidates.
There are few barriers to entry for small, limited-service entities entering
the CRO industry and these entities also may compete with established CROs
for clients. The Company believes that major pharmaceutical, biotechnology
and medical device companies tend to develop preferred provider relationships
with full-service CROs, effectively excluding smaller CROs from the bidding
process. The Company may find reduced access to certain potential clients due
to these arrangements. In addition, the CRO industry has attracted the
attention of the investment community, which could lead to increased
competition by increasing the availability of financial resources for CROs.
Increased competition may lead to price and other forms of competition that
could adversely affect the Company. See "Business -- Competition."
DEPENDENCE ON PROPRIETARY TECHNOLOGY; ABILITY TO RESPOND TO TECHNOLOGICAL
CHANGE
The Company relies principally upon trade secret and contract law to
protect its proprietary technology, and there can be no assurance that such
measures will prove adequate. The Company's future success depends in part
upon its ability to enhance its current technology and to develop and
introduce new technology that keeps pace with technological developments and
the sophisticated needs of its clients. There can be no assurance that the
Company will successfully develop and introduce such enhancements or new
technologies. In addition, there can be no assurance that products or
technologies developed by others will not render the Company's technology
non-competitive or obsolete.
POTENTIAL LIABILITY
The Company could be held liable for errors or omissions in connection
with any of the services it performs. Clinical research services involve the
testing of new drugs and devices on human volunteers pursuant to a study
protocol that has been approved by an impartial review board with medical and
non-medical members. Such testing exposes the Company to the risk of
liability for personal injury or death to patients resulting from their
participation in the study, including, among other things, possible
unforeseen adverse side effects or improper use of a new drug or device. Many
of these patients are already seriously ill and are at risk of further
illness or death. In addition, the Company could be liable for the general
risks associated with its Phase I clinical research unit, where healthy and
at times unhealthy volunteers are housed and treated. Potential liabilities
include, but are not limited to, unforeseen adverse side effects resulting
from the use of new drugs or devices and the professional malpractice of
medical care providers. While the Company is not aware of any errors or
omissions which are likely to have a material adverse impact on its financial
condition, the Company could be materially adversely affected if it were
required to pay damages or incur defense costs in connection with a claim
that is beyond the scope of an indemnity provision or beyond the scope or
level of insurance coverage maintained by it or the client, or where the
indemnifying party does not fulfill its indemnification obligations. In
addition, there can be no assurance that such insurance will continue to be
available on terms acceptable to the Company. See "Business -- Potential
Liability and Insurance."
DEPENDENCE ON GOVERNMENT REGULATION
Human pharmaceutical products, biological products, and medical devices
are subject to rigorous regulations by the federal government, principally
the FDA, and foreign governments if products are tested or marketed abroad.
In the United States, the Federal Food, Drug, and Cosmetic Act ("FFDCA")
governs clinical trials and approval procedures, as well as the development,
manufacturing, safety, labeling, storage, record keeping and marketing of
pharmaceutical products and medical devices. Biological products are subject
to similar regulation under both the FFDCA and the Public Health Service Act.
Because the Company offers services relating to the conduct of clinical
trials and the preparation of marketing applications, the Company is
obligated to comply with applicable regulatory requirements governing these
activities, both in the United States and in foreign countries. Requirements
governing these activities vary from country to country.
A relaxation in the scope of regulatory requirements, such as the
introduction of simplified marketing applications for pharmaceuticals,
biologics, or medical devices, could decrease the business opportunities
available to the Company. In addition, the Company's failure to comply with
applicable regulations relating to the conduct
9
<PAGE>
of clinical trials or the preparation of marketing applications could lead to
a variety of sanctions. For example, regulatory violations in the United
States could result, depending on the nature of the violation and the type of
product involved, in the issuance of a Warning Letter; termination of a
clinical study; refusal of the FDA to approve clinical trial or marketing
applications or withdrawal of such applications; injunction; seizure of
investigational products; civil penalties; criminal prosecutions; or
debarment of the Company from assisting in the submission of abbreviated drug
applications for generic drugs. Such sanctions could have a material adverse
effect on the Company.
The Company's laboratory services are subject to regulation under the
Clinical Laboratory Improvement Amendments of 1988. Violations of these
requirements can lead to a variety of sanctions, including enjoining the
Company from providing laboratory services, which could have a material
adverse effect on the Company. See "Business -- Industry Trends" and
"Business -- Government Regulation."
UNCERTAINTY IN HEALTH CARE INDUSTRY AND POTENTIAL HEALTH CARE REFORM
The federal and numerous state governments have undertaken efforts to
control growing health care costs through legislation, regulation and
voluntary agreements with medical care providers and pharmaceutical,
biotechnology and medical device companies. In recent years, several
comprehensive health care reform proposals were introduced in the U.S.
Congress. The intent of the proposals was, generally, to expand health care
coverage for the uninsured and to reduce the growth of total health care
expenditures. While none of the comprehensive proposals was adopted, health
care reform may again be addressed by the U.S. Congress. Implementation of
comprehensive or incremental government health care reform, as well as
industry-wide health care cost containment pressures, may adversely affect
research and development expenditures by pharmaceutical, biotechnology and
medical device companies, which could decrease the business opportunities
available to the Company. The Company is unable to predict the likelihood of
such legislation being enacted into law or the effects such legislation or
cost containment pressures would have on the Company. See "Business --
Industry Overview."
EXCHANGE RATE FLUCTUATIONS
The Company expects net revenues derived from operations outside the
United States to grow in future years. For 1993, 1994, 1995 and the nine
months ended September 30, 1996, the Company's non-U.S. net revenues
represented 13.5%, 17.0%, 9.8% and 15.8%, respectively, of total net
revenues. Since the revenues and expenses of the Company's foreign operations
generally are denominated in foreign currencies, exchange rate fluctuations
between such foreign currencies and the United States dollar will subject the
Company to currency translation risk with respect to the reported results of
its foreign operations, as well as to risks sometimes associated with
international operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market will
develop or be sustained after the offering. The initial public offering price
will be determined through negotiations between the Company and the
Underwriters and may not be indicative of future market prices. See
"Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The market price of the
Company's Common Stock could 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. Furthermore, the stock market has experienced, and may further
experience in the future, significant price and volume fluctuations unrelated
to the operating performance of particular companies. These market
fluctuations may have a material adverse effect on the market price of the
Company's Common Stock.
THE EFFECT OF CERTAIN CHARTER PROVISIONS; PREFERRED STOCK ISSUANCE
The Company's Certificate of Incorporation requires an affirmative
super-majority (80%) stockholder vote before the Company can enter into
certain defined business combinations, except for combinations that meet
10
<PAGE>
certain specified conditions. The Certificate of Incorporation also provides
for staggered three year terms for members of the Board of Directors, the
amendment of which requires an affirmative super-majority (70%) stockholder
vote. The Company has 500,000 authorized shares of Preferred Stock, none of
which will be outstanding upon completion of the offering. Pursuant to the
Certificate of Incorporation, the Board of Directors has the authority to
issue Preferred Stock in one or more series, and to fix the rights,
preferences, privileges and restrictions, including dividend, conversion,
voting, redemption (including sinking fund provisions) and other rights,
liquidation preferences and the number of shares constituting any series and
the designation of such series, without any further vote or action by the
stockholders of the Company. These charter provisions could have the effect
of discouraging potential take-over attempts and may make attempts by
stockholders to change the management of the Company more difficult. See
"Description of Capital Stock."
DILUTION TO NEW INVESTORS
Purchasers of Common Stock in this offering will experience immediate and
substantial dilution in the net tangible book value per share of the Common
Stock of $10.59 per share. See "Dilution."
RISK OF HAZARDOUS MATERIAL CONTAMINATION
The Company's clinical activities have involved, and may continue to
involve, the controlled use of hazardous materials. Although the Company
believes that its safety procedures for handling the disposal of such
materials comply with the standards prescribed by state and federal laws and
regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for damages which, to the extent not covered
by existing insurance or indemnification, could have a material adverse
effect on the Company.
CONCENTRATION OF OWNERSHIP IN CURRENT STOCKHOLDERS, OFFICERS, AND DIRECTORS
Following this offering, the Company's current stockholders, executive
officers, and directors will beneficially own approximately 62.2% of the
outstanding shares of Common Stock. As a result, such persons will have the
ability to control the election of the Company's directors and the outcome of
corporate actions requiring stockholder approval. This concentration of
ownership could have the effect of discouraging potential take-over attempts
and may make more difficult attempts by stockholders to change the management
of the Company.
ABSENCE OF DIVIDENDS
The Company has no present plans to pay cash dividends to its stockholders
and, for the foreseeable future, intends to retain all of its earnings for
use in its business. The declaration of any future dividends by the Company
is within the discretion of its Board of Directors and will be dependent on
the earnings, financial condition and capital requirements of the Company, as
well as any other factors deemed relevant by its Board of Directors. See
"Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, of the 15,000,000 authorized shares of
Common Stock, 7,272,591 shares will be issued and outstanding or reserved for
issuance pursuant to the exercise of outstanding stock options. Upon
completion of this offering, the Company will have 6,732,150 shares of Common
Stock outstanding. The 2,750,000 shares offered hereby will be freely
tradeable without restriction under the Securities Act of 1933, as amended
(the "Securities Act"), except for any such shares held by "affiliates" of
the Company within the meaning of the Securities Act, which will be subject
to the resale limitations of Rule 144 promulgated under the Securities Act
("Rule 144"). The Company believes that the remaining outstanding shares, and
the 540,441 shares issuable upon exercise of outstanding options, may be sold
pursuant to Rule 144 or Rule 701 under the Securities Act in compliance with
the limitations thereof beginning 90 days after the offering. In accordance
with the terms of the lock-up agreements entered into with the Company, the
Company's directors, executive officers, and stockholders have agreed not to
sell the shares owned by each of them without the prior written consent of
Montgomery Securities for a period of 180 days (365 days, in the case of Dr.
Morganroth) following the first offer of shares of Common Stock pursuant to
this Prospectus. See "Shares Eligible for Future Sale."
11
<PAGE>
COMPANY HISTORY
The Company is a Delaware corporation. It and its predecessors have operated
since 1977 as direct or indirect subsidiaries or as divisions of UM Holdings,
Ltd. ("UM"), a private holding company that owns several companies in different
industries, including a manufacturer and distributor of fitness equipment, a
provider of management services to providers of executive physical examinations
and other medical services, and a regional commercial airline. The Company's
original predecessor, Cardio Data Systems, began providing Holter monitoring
analysis services to pharmaceutical companies developing new drugs. Over time,
additional diagnostic testing services were added, and this business became
separately operated as CDS Research. In 1984, UM acquired Research Data
Corporation ("RDC"), a provider of specialized data processing services designed
to aid pharmaceutical companies submitting new drugs for regulatory approval.
RDC pioneered the computer assisted new drug application ("CANDA"), filing the
first CANDA in 1985.
The CDS Research and RDC divisions were operationally combined in 1993 to
form Research Data Worldwide. In the same year, the Company opened its Phase
I clinical research unit. The Company was incorporated in Delaware in 1993
and became operational when UM contributed the Research Data Worldwide
division to the Company in June 1994.
To take advantage of the potential synergies and cross-selling
opportunities with its centralized diagnostic testing services, the Company
added clinical trial management capabilities in September 1995 by forming a
limited liability company with PREMIER, Inc., which is owned 65% by the
Company and 35% by PREMIER, Inc. PREMIER, Inc. is the nation's largest
voluntary healthcare alliance, with 1,800 affiliated hospitals and
institutions located in all 50 states representing over 300,000 hospital
beds. Upon the closing of this offering, PREMIER, Inc.'s minority interest in
the limited liability company will convert into 330,150 shares of the
Company's Common Stock, representing approximately 4.9% of the outstanding
Common Stock, pursuant to an agreement entered into by the parties in 1995.
After such conversion, the limited liability company will be wholly-owned by
the Company. Shortly after forming the limited liability company, the Company
changed its name from Research Data Worldwide, Ltd. to Premier Research
Worldwide, Ltd.
The Company's principal executive offices are located at 124 South 15th
Street, Philadelphia, Pennsylvania 19102. Its telephone number is
215-972-0420.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of
Common Stock offered by the Company pursuant to this offering are estimated
to be $27.3 million ($30.2 million if the Underwriters over-allotment option
is exercised in full) at an assumed initial public offering price of $15.00
per share and after deducting the estimated underwriting discount and
estimated offering expenses payable by the Company. The Company will not
receive any of the proceeds from the sale of Common Stock by the Selling
Stockholder.
The Company intends to use $6 million to $8 million of the net proceeds of
this offering for capital expenditures (including expansion of facilities,
acquisition of equipment and development and improvement of information
technology systems), and $2 million to $4 million to fund the costs of
geographic expansion involving new offices in California and North Carolina
and expansion of the Company's office in the United Kingdom. The remainder of
the net proceeds will be used for working capital and other general
corporate purposes, including possible future acquisitions. The Company has
no commitments or agreements with respect to any acquisition. Pending such
uses, the Company intends to invest the net proceeds from this offering in
short-term, investment-grade, interest bearing securities.
DIVIDEND POLICY
Until 1996, UM maintained a central cash management function for all of its
subsidiaries, including the Company. Settlement of cash disbursement and
collection transactions by UM on behalf of the Company have been recorded
through equity in the historical financial statements. See Consolidated
Financial Statements, including Notes thereto. The Company made net
distributions to UM for the nine months ended September 30, 1996 of $687,000 and
additional distributions of $450,000 paid to UM in the fourth quarter of 1996.
After the closing of this offering, the Company intends to retain any earnings
for future growth, does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future and will not make any further distributions to
UM.
12
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1996 (i) the actual
capitalization of the Company; (ii) the pro forma capitalization after giving
effect to (a) the conversion of PREMIER, Inc.'s minority interest in the
limited liability company into Common Stock of the Company upon the closing
of this offering and (b) distributions of $450,000 paid to UM in the fourth
quarter of 1996; and (iii) the pro forma capitalization as adjusted to give
effect to the sale of 2,000,000 shares of Common Stock offered by the Company
(at an assumed initial public offering price of $15.00 per share and after
deducting the estimated underwriting discount and estimated offering expenses
payable by the Company).
<TABLE>
<CAPTION>
September 30, 1996
---------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- ----------- -------------
(in thousands)
<S> <C> <C> <C>
Minority interest in limited liability company $ 29 $ -- $ --
-------- ----------- -------------
Stockholders' equity:
Preferred Stock, $10 par value, 500,000
shares authorized, none issued and
outstanding ........................... -- -- --
Common Stock, $.01 par value, 15,000,000
shares authorized, 4,402,000 shares
issued and outstanding (actual);
4,732,150 shares issued and outstanding
(pro forma); 6,732,150 shares issued
and outstanding (pro forma as adjusted)
(1) ................................... 44 47 67
Additional paid-in capital .............. 2,273 2,299 29,579
Retained earnings ....................... 604 154 154
-------- ----------- -------------
Total stockholders' equity ......... 2,921 2,500 29,800
-------- ----------- -------------
Total capitalization ............... $2,950 $2,500 $29,800
======== =========== =============
</TABLE>
- ------
(1) Excludes (i) 521,637 shares reserved for issuance upon the exercise of
outstanding options at a weighted average exercise price of $2.26 per
share (ii) 18,804 shares reserved for issuance upon the exercise of
outstanding options at an assumed initial public offering price of
$15.00, and (iii) 490,000 shares reserved for future grant under the
Company's 1996 Stock Option Plan. See "Management -- Stock Option Plans"
and Note 8 of Notes to Consolidated Financial Statements.
13
<PAGE>
DILUTION
At September 30, 1996, the Company's pro forma net tangible book value was
approximately $2.4 million, or $.51 per common share after giving effect to
(i) the conversion of PREMIER, Inc.'s minority interest in the limited
liability company into 330,150 shares of Common Stock of the Company upon the
closing of this offering and (ii) distributions of $450,000 paid to UM in the
fourth quarter of 1996. Pro forma net tangible book value per share is equal
to the Company's total tangible assets less total liabilities divided by the
total number of shares of Common Stock outstanding on a pro forma basis.
After giving effect to the sale of the 2,000,000 shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price of
$15.00 per share and after deducting the estimated underwriting discount and
offering expenses payable by the Company) and the application of the
estimated net proceeds therefrom, the Company's pro forma as adjusted net
tangible book value at September 30, 1996 would have been approximately $29.7
million, or $4.41 share. This represents an immediate increase in pro forma
net tangible book value of $3.90 per share to the existing stockholders and
an immediate dilution in pro forma net tangible book value of $10.59 per
share to new investors. The following table illustrates this per share
dilution:
Initial public offering price .............................. $15.00
Pro forma net tangible book value before the offering .. $ .51
Increase attributable to new investors ................. 3.90
------
Pro forma as adjusted net tangible book value after the offering 4.41
------
Dilution in pro forma net tangible book value to new
investors(1) .............................................. $10.59
======
The following table summarizes on a pro forma as adjusted basis as of
September 30,1996, the differences between the existing stockholders and new
investors purchasing shares in this offering (at an assumed initial public
offering price of $15.00 per share) with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid to the Company:
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration
------------------------ -------------------------- Average Price
Number Percent Amount Percent Per Share
----------- --------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)(3) 4,732,150 70.3% $ 2,908,000 8.8% $ .61
New investors(3) ........... 2,000,000 29.7 30,000,000 91.2 15.00
----------- --------- ------------- ---------
Total ............ 6,732,150 100.0% $32,908,000 100.0%
=========== ========= ============= =========
</TABLE>
- ------
(1) If all options to purchase Common Stock outstanding as of September 30,
1996 with exercise prices less than the assumed initial public offering
price of $15.00 per share were to be exercised, the pro forma as adjusted
net tangible book value after this offering would be $4.26 per share and
the dilution per share in pro forma net tangible book value to new
investors in this offering would be $10.74 per share.
(2) Includes 330,150 shares of Common Stock issuable upon conversion of the
minority interest in limited liability company into shares of Common
Stock of the Company upon the closing of this offering.
(3) The sale by the Selling Stockholder of 750,000 shares in this offering
will reduce the number of shares held by existing stockholders to
3,982,150, or approximately 59.2%, and will increase the number of shares
held by new investors to 2,750,000, or approximately 40.8%, of the total
number of shares of Common Stock to be outstanding after the offering.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected statement of operations data for the years ended December 31,
1993, 1994 and 1995 and the nine months ended September 30, 1996, and the
selected balance sheet data as of December 31, 1994 and 1995 and September
30, 1996, have been derived from consolidated financial statements of the
Company audited by Arthur Andersen LLP, independent public accountants,
included elsewhere in this Prospectus. The selected balance sheet data as of
December 31, 1993 have been derived from the Company's audited financial
statements not included herein. The selected statement of operations data for
the years ended December 31, 1991 and 1992 and for the nine months ended
September 30, 1995 and the selected balance sheet data as of December 31,
1991 and 1992 have been derived from the Company's unaudited internal
financial statements not included herein and reflect all adjustments that
management considers necessary for a fair and consistent presentation of the
financial position and results of operations for those periods. The results
of operations for the nine months ended September 30, 1996 are not
necessarily indicative of results to be expected for the entire year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results." The following selected financial data are
qualified by reference to, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1991(1) 1992(1) 1993(1) 1994(1) 1995
-------- -------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ............................. $6,544 $8,083 $10,245 $12,910 $12,218
Less: Reimbursed costs ............... -- -- -- -- (154)
-------- -------- --------- --------- ---------
Net revenues ......................... 6,544 8,083 10,245 12,910 12,064
-------- -------- --------- --------- ---------
Costs and expenses:
Direct costs ....................... 1,256 1,971 2,428 3,473 4,124
Selling, general and administrative 2,928 4,017 7,278 7,245 6,375
Depreciation and amortization ...... 925 688 785 1,197 1,013
-------- -------- --------- --------- ---------
Total costs and expenses ............. 5,109 6,676 10,491 11,915 11,512
-------- -------- --------- --------- ---------
Income (loss) before income taxes and
minority interest (2) .............. 1,435 1,407 (246) 995 552
Minority interest in limited liability
company's (income) loss ............ -- -- -- -- 48
-------- -------- --------- --------- ---------
Income (loss) before income taxes (2) 1,435 1,407 (246) 995 600
Income tax provision (benefit) (2) ... 579 562 (69) 415 259
-------- -------- --------- --------- ---------
Net income (loss) (3) ................ $ 856 $ 845 $ (177) $ 580 $ 341
======== ======== ========= ========= =========
Pro forma net income (4) ............. $ 313
=========
Pro forma net income per share (4) ... $ .07
=========
Shares used in computing pro forma net
income per share (4) ............... 4,757
=========
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
----------------------------
1995 1996
-------- ---------
<S> <C> <C>
Statement of Operations Data:
Revenues ............................. $9,031 $11,754
Less: Reimbursed costs ............... (36) (147)
-------- ---------
Net revenues ......................... 8,995 11,607
-------- ---------
Costs and expenses:
Direct costs ....................... 2,795 4,615
Selling, general and administrative 4,600 5,070
Depreciation and amortization ...... 786 556
-------- ---------
Total costs and expenses ............. 8,181 10,241
-------- ---------
Income (loss) before income taxes and
minority interest (2) .............. 814 1,366
Minority interest in limited liability
company's (income) loss ............ (21) 303
-------- ---------
Income (loss) before income taxes (2) 793 1,669
Income tax provision (benefit) (2) ... 315 719
-------- ---------
Net income (loss) (3) ................ $478 $ 950
======== =========
Pro forma net income (4) ............. $ 770
=========
Pro forma net income per share (4) ... $ .15
=========
Shares used in computing pro forma net
income per share (4) ............... 4,998
=========
</TABLE>
<TABLE>
<CAPTION>
As of
December 31,
------------------------------------------------
1991(1) 1992(1) 1993(1) 1994(1) 1995
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 155 $ 241 285 $ 447 $ 33
Working capital (deficit) 805 525 (260) 87 1,729
Total assets ............ 2,920 3,570 5,126 5,155 4,400
Minority interest in
limited liability
company .............. -- -- -- -- 332
Total stockholders'
equity ............... 1,850 1,856 2,248 2,175 2,658
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
As of
September 30, 1996
-----------------------------------
Actual Pro forma(4)
-------- ------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 530 $ 80
Working capital (deficit) 2,055 1,605
Total assets ............ 5,275 4,825
Minority interest in
limited liability
company .............. 29 --
Total stockholders'
equity ............... 2,921 2,500
</TABLE>
Footnotes appear on next page
15
<PAGE>
- ------
(1) For periods prior to June 1, 1994, the Company operated as direct or
indirect subsidiaries or as divisions of UM. Effective June 1, 1994, the
Company was capitalized through the transfer of the net assets and
operations of the divisions by UM.
(2) The Company is included in the consolidated income tax returns of UM. The
historical financial statements reflect income taxes calculated on a
separate company basis. See Note 6 of Notes to Consolidated Financial
Statements.
(3) Net income (loss) for all periods presented includes various transactions
with related parties, including administrative services and a facility
lease from UM and consulting fees paid to the Company's President, who is
a stockholder. See Note 7 of Notes to Consolidated Financial Statements.
(4) Reflects (i) the conversion of PREMIER, Inc.'s minority interest in
limited liability company into Common Stock of the Company upon the
closing of this offering and (ii) distributions of $450,000 paid to UM in
the fourth quarter of 1996. See Note 1 of Notes to Consolidated Financial
Statements for discussion of the calculation of pro forma net income, pro
forma net income per share and the shares used in computing pro forma net
income per share.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and related Notes contained elsewhere
in this Prospectus.
OVERVIEW
The Company is a CRO providing a broad range of integrated product
development services on a global basis to its clients in the pharmaceutical,
biotechnology and medical device industries. The Company's services include
centralized diagnostic testing, clinical trial management, clinical data
management, biostatistical analysis, Phase I clinical research, health care
economics and outcomes research and regulatory affairs services.
The Company's diagnostic service contracts are on a fee-for-service basis
and generally have terms from one month to two years. A portion of the
Company's fee typically is paid upon contract execution as a non-refundable
up-front payment, with the remaining amounts billed monthly. Clinical
research service contracts generally are fixed priced, with certain variable
components, and range in duration from a few months to two years. A portion
of the Company's fee typically is paid upon contract execution as a
non-refundable up-front payment, with the balance billed in accordance with
contract terms. The Company's contracts generally may be terminated with or
without cause on 30 to 90 days notice. Clients terminate or delay contracts
for a variety of reasons, including, among others, the failure of products
being tested to satisfy safety or efficacy requirements; unexpected or
undesired clinical results of the product; the client's decision to forego a
particular study; insufficient patient enrollment or investigator
recruitment; and production problems resulting in shortages of required
clinical supplies. In the nine months ended September 30, 1996, 16 Company
contracts were terminated for which the remaining contract amounts totalled
approximately $3.0 million. Although in the event of termination, the Company
typically is entitled to all sums owed for work performed through the notice
of termination, all costs associated with termination of the study, and the
unamortized portion of any non-refundable up-front payments, the loss or
delay of a large project or contract or the loss or delay of multiple smaller
contracts could have a material adverse effect on the Company.
Revenues from diagnostic service contracts generally are recognized on a
per procedure basis as the work is performed. Revenues from clinical research
service contracts generally are recognized on a percentage of completion
basis as work is performed. For the nine months ended September 30, 1996 and
1995, the diagnostic services revenues represented 82.4% and 65.1%,
respectively, of total net revenues. The Company regularly subcontracts with
third-party investigators in connection with clinical trials and with other
third-party providers for specialized services. These and other reimbursable
costs are paid by the Company and reimbursed by clients and, in accordance
with industry practice, are included in revenues. Since reimbursed costs may
vary significantly from contract to contract and are not meaningful for
analyzing trends in revenues, they are included in gross revenues but
excluded from net revenues. Consistent with industry practice, the Company
considers net revenues its primary measure of growth. The Company has had,
and expects to continue to have, certain clients from which at least 10% of
the Company's overall revenue is generated. The Company believes that such
concentration of business is not uncommon in the CRO industry.
In the last year, the Company has experienced significant growth through
internal expansion, reflecting an expansion of the Company's client base,
additional services offered by the Company and an increase in the number and
size of projects under management. Net revenues grew from $9.0 million for
the nine months ended September 30, 1995 to $11.6 million for the nine months
ended September 30, 1996.
The Company's backlog consists of anticipated net revenues from work under
letters of intent and contracts that have been signed but not yet completed.
At October 31, 1996, backlog was approximately $14.7 million. The Company
believes that its backlog as of any date is not necessarily a meaningful
predictor of future results because backlog can be affected by a number of
factors, including variable size and duration of contracts, some of which are
performed over several years. The Company recognizes revenue over the
duration of the contract as services are provided. No assurance can be given
that the Company will be able to fully realize all of its backlog as net
revenues. See "Business -- Backlog."
The Company conducts operations on a global basis, with offices in the
United States and the United Kingdom. For 1993, 1994, 1995 and the nine
months ended September 30, 1996, the Company's non-U.S. net revenues
represented 13.5%, 17.0%, 9.8% and 15.8%, respectively, of total net
revenues.
17
<PAGE>
Contracts between the Company's international division and its clients
generally are denominated in Pounds Sterling. Because substantially all of
the international division's expenses are paid and payments are received in
Pounds Sterling, its earnings are not materially affected by fluctuations in
the exchange rates. However, the Company's financial statements are
denominated in U.S. dollars and, accordingly, changes in the exchange rate
between foreign currencies and the dollar do affect the Company's financial
results. Cumulative adjustments from translating the international division's
financial statements have been immaterial and, therefore, have been charged
to income as incurred.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of net revenues. The trends illustrated in the following
table may not be indicative of future results.
<TABLE>
<CAPTION>
Percentage of Net Revenues
-----------------------------------------------------
Nine Months
Year Ended Ended
December 31, September 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues .................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Direct costs .................. 23.7 26.9 34.2 31.1 39.8
Selling, general and
administrative ............. 71.0 56.1 52.8 51.1 43.7
Depreciation and amortization . 7.7 9.3 8.4 8.7 4.8
-------- -------- -------- -------- --------
Income (loss) before income taxes
and minority interest ......... (2.4)% 7.7% 4.6% 9.1% 11.7%
======== ======== ======== ======== ========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Percentage Increase (Decrease)
--------------------------------------
Fiscal Fiscal Nine
1993 1994 Months
to to 1995 to
-------- -------- ---------
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Net revenues .................... 26.5% (6.2)% 28.9%
Costs and expenses:
Direct costs .................. 45.8 17.1 64.3
Selling, general and
administrative ............. -- (11.1) 10.9
Depreciation and amortization . 50.0 (16.7) (25.0)
Income (loss) before income taxes
and minority interest ......... * (44.5) 67.8
</TABLE>
- ------
* Not meaningful
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
Net revenues increased $2.6 million, or 28.9% to $11.6 million for the
nine months ended September 30, 1996, compared to the nine months ended
September 30, 1995. The increase was directly attributable to a significant
increase in the volume of diagnostic services. Diagnostic services revenues
increased $4.0 million or 71.9% for the nine months ended September 30, 1996,
compared to the same period in the prior year, and include an increase of
$0.9 million in the net revenues of the Company's U.K. subsidiary. Offsetting
the increase in diagnostic services revenues was a $1.0 million decrease in
CANDA revenues and a $0.5 million decrease in Phase I clinical trials
revenues. The decrease in CANDA revenues was due to the decrease in the level
of new contract signings caused by the Company's larger pharmaceutical
clients' ability to perform such services in-house and a reduced pressure to
file CANDAs stemming from a reduction in FDA review time. The Company
believes that the decrease in Phase I revenues primarily was caused by a
delay in the commencement of domestic Phase I trials in 1996 as a result of
certain consolidations occuring in the pharmaceutical industry. The Company
believes that these factors are unlikely to cause a continuing decrease in
CANDA and Phase I revenues, but that these business areas are likely to
experience slower growth than other sectors of its business.
Direct costs increased $1.8 million, or 64.3%, to $4.6 million for the nine
months ended September 30, 1996, compared to the nine months ended September 30,
1995. As a percentage of net revenues, direct costs increased to 39.8% in 1996,
compared to 31.1% in 1995. The increase primarily was attributable to increased
consulting fees paid to the Company's President in connection with medical
interpretations for diagnostic tests, in addition to general increases in
connection with the increase in diagnostic services. The consulting fees for
medical interpretations increased from $0.6 million in 1995 to $1.5 million in
1996. The Company and the President have entered into a new consulting agreement
that discontinued such variable fees effective January 1, 1997. See "Certain
Relationships and Related Party Transactions" and Notes 7 and 9 of Notes to
Consolidated Financial Statements.
Selling, general and administrative expenses increased $0.5 million, or
10.9% to $5.1 million for the nine months ended September 30, 1996, compared
to the nine months ended September 30, 1995. As a percentage of net revenues,
selling, general and administrative expenses decreased from 51.1% in 1995 to
43.7% in 1996. The
18
<PAGE>
dollar increase resulted from additional costs, primarily payroll, required
to build the clinical trials management business. The reduction as a
percentage of net revenues was due to the relatively fixed nature of the
expenses, the Company's focus on monitoring support costs and efficiencies
gained through increased volume.
Depreciation and amortization decreased $0.2 million, or 25.0%, to $0.6
million for the nine months ended September 30, 1996, compared to the nine
months ended September 30, 1995. As a percentage of net revenues,
depreciation and amortization decreased from 8.7% in 1995 to 4.8% in 1996.
The decrease primarily was the result of the Company's continuing transition
from more expensive mainframe computers to less expensive personal and
server-based computers.
The Company's effective income tax rate for the nine months ended
September 30, 1996 was 43.1%, compared to 39.7% for the nine months ended
September 30, 1995. The rate increase primarily was a result of a one-time
state tax benefit in 1995 in connection with a change in tax law that
reinstated the net operating loss carryforward provisions of that state,
enabling the Company to utilize a suspended carryforward from 1993.
YEAR ENDED DECEMBER 31, 1995 AND 1994
Net revenues decreased $0.8 million, or 6.2%, to $12.1 million for the
year ended December 31, 1995, compared to the year ended December 31, 1994.
The decrease primarily was attributable to a decrease in the Company's CANDA
revenues, partially offset by an increase in the Company's Phase I clinical
testing revenues. CANDA revenues decreased $1.5 million from 1994 due to a
decrease in the level of new contract signings caused by the Company's larger
pharmaceutical clients' ability to perform such services in-house. Diagnostic
services revenues were relatively flat in 1995 compared to 1994, with
domestic revenues increasing $0.9 million, and international revenues
decreasing $1.1 million. The increase in domestic diagnostic services
revenues was due to an increase in both the volume and the pricing of
diagnostic services. The decrease in international diagnostic services
revenues primarily was the result of two major project cancellations due to
unexpected clinical results. Diagnostic services revenues in 1995 include
$1.2 million of the remaining unamortized non- refundable up-front payments
on certain canceled studies, including $0.2 million at the Company's U.K.
subsidiary.
Direct costs increased $0.6 million, or 17.1%, to $4.1 million for the
year ended December 31, 1995, compared to the year ended December 31, 1994.
As a percentage of net revenues, direct costs increased to 34.2% in 1995 from
26.9% in 1994. The increase was primarily attributable to additional costs
related to the volume increase at the Phase I clinical research unit, in
addition to increased consulting fees paid to the Company's President in
connection with medical interpretations for diagnostic tests. Such consulting
fees increased from $0.5 million in 1994 to $0.8 million in 1995. See
"Certain Relationships" and Notes 7 and 9 of Notes to Consolidated Financial
Statements.
Selling, general and administrative expenses decreased $0.8 million, or
11.1%, to $6.4 million for the year ended December 31, 1995, compared to the
year ended December 31, 1994. As a percentage of net revenues, selling,
general and administrative expenses decreased to 52.8% in 1995 from 56.1% in
1994. The decrease resulted primarily from the decrease in management and
administrative expenses related to CANDA services as the Company reacted to
the reduction in its CANDA business.
Depreciation and amortization decreased $.2 million, or 16.7%, to $1.0
million for the year ended December 31, 1995, compared to the year ended
December 31, 1994. As a percentage of net revenues, depreciation and
amortization decreased to 8.4% in 1995 from 9.3% in 1994. The decrease
primarily was the result of the Company's transition from more expensive
mainframe computers to less expensive personal and server-based computers.
The Company's effective income tax rate for the year ended December 31,
1995 was 43.2%, compared to 41.7% for the year ended December 31, 1994. The
rate increase in 1995 primarily was the result of the U.K. subsidiary's loss,
partially offset by a one-time state tax benefit in connection with a change
in tax law that reinstated the net operating loss carryforward provisions of
that state, allowing the Company to utilize a suspended carryforward from
1993.
19
<PAGE>
YEAR ENDED DECEMBER 31, 1994 AND 1993
Net revenues increased $2.7 million, or 26.5%, to $12.9 million for the
year ended December 31, 1994, compared to the year ended December 31, 1993.
The increase primarily was attributable to the increased volume of both
domestic and international diagnostic services, in addition to 1994 being the
first full year of operation of the Phase I clinical research unit.
Direct costs increased $1.1 million, or 45.8%, to $3.5 million for the
year ended December 31, 1994, compared to the year ended December 31, 1993.
As a percentage of net revenues, direct costs increased to 26.9% in 1994 from
23.7% in 1993. The increase reflects the increased volume at the Phase I
clinical research unit and the increased volume of diagnostic testing
services, in addition to increased consulting fees paid to the Company's
President in connection with medical interpretations for diagnostic tests.
Such consulting fees increased from less than $0.1 million in 1993 to $0.5
million in 1994. See "Certain Relationships" and Notes 7 and 9 of Notes to
Consolidated Financial Statements.
Selling, general and administrative expenses remained relatively flat at
$7.2 million for the year ended December 31, 1994, compared to the year ended
December 31, 1993. However, as a percentage of net revenues, selling, general
and administrative expenses decreased to 56.1% in 1994 from 71.0% in 1993, as
the Company gained efficiencies through increased volume. General and
administrative payroll increased $0.7 million as the Company continued to
build infrastructure to support its growth. This increase was offset by a
$0.6 million decrease in marketing and advertising expenses related to the
Company's 1993 launch of a clinical data management product and the opening
of its new corporate headquarters and Phase I clinical research unit.
Depreciation and amortization increased $0.4 million, or 50.0%, to $1.2
million for the year ended December 31, 1994, compared to the year ended
December 31, 1993. As a percentage of net revenues, depreciation and
amortization increased to 9.3% in 1994 from 7.7% in 1993. The increase
primarily was the result of additional property and equipment purchased
during 1993 and early 1994 to support the Company's new corporate
headquarters and the general increase in business. In addition, the Company
opened its clinical research unit and clinical laboratory in 1994.
The Company's effective income tax rate for the year ended December 31,
1994 was 41.7%, compared to 28.0% for the year ended December 31, 1993. The
rate increase in 1994 was primarily the result of the Company not recording a
state tax benefit on its domestic operating loss in 1993 as state tax law did
not provide for loss carryforwards or carrybacks.
QUARTERLY RESULTS
The Company's quarterly operating results have been, and are expected to
continue to be, subject to fluctuations, depending on factors such as the
commencement, completion or cancellation of large contracts, the mix of
contract services, the progress of ongoing contracts, the timing of start-up
expenses for new offices and the introduction of new products and services.
Because a large percentage of the Company's operating costs are relatively
fixed in the short term, variations in the timing and progress of large
contracts could have a material adverse effect on quarterly results. The
Company believes that comparisons of its quarterly financial results are not
necessarily meaningful and should not be relied upon as an indication of
future performance. See "Risk Factors -- Variation in Quarterly Operating
Results; Seasonality."
20
<PAGE>
The following table presents unaudited quarterly results for the Company
for each of the eleven most recent fiscal quarters in the period ended
September 30, 1996. In the opinion of the Company, this information includes
all adjustments (consisting of normal recurring adjustments) necessary to
present fairly the financial information set forth for those periods. This
quarterly financial data should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this
Prospectus. The operating results for any quarter are not necessarily
indicative of the results of any future period.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31,
1994 1994 1994 1994
---------- ---------- ----------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Statement of
Operations Data:
Net revenues ....... $3,052 $3,590 $3,397 $2,871
---------- ---------- ----------- ----------
Costs and expenses:
Direct costs ..... 729 938 954 852
Selling, general
and
administrative 1,875 1,799 1,826 1,745
Depreciation and
amortization .. 281 313 299 304
---------- ---------- ----------- ----------
Total costs and
expenses ......... 2,885 3,050 3,079 2,901
---------- ---------- ----------- ----------
Income (loss) before
income taxes and
minority interest 167 540 318 (30)
Minority interest in
limited liability
company's (income)
loss ............. -- -- -- --
---------- ---------- ----------- ----------
Income (loss) before
income taxes ..... 167 540 318 (30)
Income tax provision
(benefit) ........ 70 225 132 (12)
---------- ---------- ----------- ----------
Net income (loss) .. $ 97 $ 315 $ 186 $ (18)
========== ========== =========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1995 1995 1995 1995 1996 1996 1996
---------- ---------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Net revenues ....... $3,243 $2,558 $3,194 $3,069 $2,890 $4,271 $4,446
---------- ---------- ----------- ---------- ---------- ---------- -----------
Costs and expenses:
Direct costs ..... 832 872 1,091 1,329 1,170 1,702 1,743
Selling, general
and
administrative 1,693 1,411 1,496 1,775 1,548 1,655 1,867
Depreciation and
amortization .. 292 266 228 227 203 188 165
---------- ---------- ----------- ---------- ---------- ---------- -----------
Total costs and
expenses ......... 2,817 2,549 2,815 3,331 2,921 3,545 3,775
---------- ---------- ----------- ---------- ---------- ---------- -----------
Income (loss) before
income taxes and
minority interest 426 9 379 (262) (31) 726 671
Minority interest in
limited liability
company's (income)
loss ............. -- -- (21) 69 101 107 95
---------- ---------- ----------- ---------- ---------- ---------- -----------
Income (loss) before
income taxes ..... 426 9 358 (193) 70 833 766
Income tax provision
(benefit) ........ 169 4 142 (56) 30 359 330
---------- ---------- ----------- ---------- ---------- ---------- -----------
Net income (loss) .. $ 257 $ 5 $ 216 $ (137) $ 40 $ 474 $ 436
========== ========== =========== ========== ========== ========== ===========
</TABLE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The CRO industry generally is not capital intensive. The Company's
principal cash needs relate to funding receivables as client payments
generally lag 45 to 75 days after the invoice date. The Company historically
has funded the increase in receivables through cash generated from
operations.
For the nine months ended September 30, 1996, the Company's operations
generated $1.3 million in cash, primarily related to the Company's net
income. The increase in accounts receivable of $0.9 million for this period
was primarily the result of the timing of cash collections and a $1.3 million
increase in revenues for the quarter ended September 30, 1996 compared to the
quarter ended September 30, 1995, and was generally offset by an increase in
accounts payable and accrued expenses and other working capital changes. At
September 30, 1996, the Company had cash and cash equivalents of $0.5 million
and working capital of $2.1 million. For the year ended December 31, 1995,
the Company's operations used $0.8 million of cash, primarily attributable to
a $1.3 million decrease in deferred revenues, as 1995 contract signings did
not include significant up-front payments, partially offset by the Company's
net income for the period and other changes in working capital accounts. For
the year ended December 31, 1994, the Company's operations generated $1.6
million in cash, primarily attributable to the Company's net income and
depreciation of $1.2 million. During 1994, the Company acquired property and
equipment for $0.8 million. At December 31, 1994, the Company had cash and
cash equivalents of $0.4 million and working capital of $0.1 million. For the
year ended December 31, 1993, the Company's operations generated $1.5 million
in cash, primarily attributable to depreciation of $0.8 million and $0.5
million increase in deferred revenues for up-front contract payments. During
1993, the Company acquired property and equipment for $2.0 million.
21
<PAGE>
The Company has a $1.0 million Revolving Credit Facility with First Union
National Bank to be used for working capital purposes at the Company's
discretion, which is collateralized by substantially all of the assets of the
Company. Borrowings under the line are limited to 60% of eligible accounts
receivable, as defined. Interest on any outstanding portion of the line is at
the bank's prime lending rate plus 0.5% (8.75% at September 30, 1996). The
line expires June 30, 1997, and is renewable annually thereafter. The Company
had no outstanding borrowings under the line as of September 30, 1996. The
line contains certain financial and operational covenants, including minimum
levels of tangible net worth and working capital and limitations on sales of
capital stock, acquisitions of other entities, loans to related parties,
dividend payments, sale leaseback transactions, types of investments and
lease payments. In November 1996, the Company received a commitment from its
bank to increase the line to $5.0 million and to change the covenants to
permit this offering. This commitment is subject to typical conditions.
The Company has no long-term debt or material long-term obligations other
than its real property leases. See "Business -- Facilities" and Note 9 of
Notes to Consolidated Financial Statements. The Company currently is
budgeting approximately $3.0 million for capital expenditures in 1997.
The Company expects existing cash and cash equivalents, cash flow from
operations, the net proceeds from this offering and borrowings under its line
of credit will be sufficient to meet its foreseeable cash needs for at least
the next two years. Although the Company presently is not a party to any
acquisition agreements or similar arrangements, there may be acquisitions or
other growth opportunities that 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 assurance
that such financings will be available on terms acceptable to the Company.
The Company historically has made distributions to UM, its principal
stockholder, including distributions of $450,000 paid to UM in the fourth
quarter of 1996. Subsequent to this offering, the Company does not anticipate
paying any cash dividends in the foreseeable future and will not make further
distributions to UM. The Company currently intends to retain future earnings
to fund the growth of its business. See "Dividend Policy."
The Company believes that the effects of inflation and changing prices
generally do not have a material adverse effect on its results of operations
or financial condition.
22
<PAGE>
BUSINESS
GENERAL
Premier Research Worldwide, Ltd. (the "Company") is a clinical research
organization ("CRO") providing a broad range of integrated product
development services to its clients in the pharmaceutical, biotechnology and
medical device industries. The Company complements the research and
development departments of its clients by offering high quality clinical
research services on an as-needed basis, thereby providing a variable cost
alternative to certain fixed costs typically associated with internal product
development. Over the last three years, the Company has built a base of over
85 clients, including 22 of the 25 largest pharmaceutical companies in the
world (on the basis of research and development expenditures as reported by
Med Ad News). In the first nine months of 1996, the Company performed
services under 168 contracts for 57 clients. The Company's services include
centralized diagnostic testing, clinical trial management, clinical data
management, biostatistical analysis, Phase I clinical research, health care
economics and outcomes research and regulatory affairs services.
Throughout its history, the Company has been an innovator in the use of
new technologies that speed product development and regulatory review. For
example, the Company created and filed the first computer-assisted new drug
application ("CANDA") with the United States Food & Drug Administration
("FDA"). The Company has designed its technology to simplify and make more
efficient the collection, transfer, analysis and preparation of clinical
trial data. The Company believes that its proprietary technology links all
facets of clinical development, produces cost advantages, facilitates
superior levels of service, improves the quality of clinical research and
enhances the Company's global capabilities.
All of the Company's services are designed to help clients reduce their
product development time in a cost- effective manner. In 1977 the Company's
predecessor, Cardio Data Systems, began providing diagnostic testing services
used to evaluate the safety and efficacy of new drugs. Today, the Company
provides these services, which include electrocardiograms ("ECGs"), Holter
monitoring, pulmonary function testing, blood and urine sampling, and other
tests, on a centralized basis. To take advantage of the potential synergies
and cross-selling opportunities with its centralized diagnostic testing
services, the Company added clinical trial management capabilities in
September 1995 by forming with PREMIER, Inc. a limited liability company,
which is owned 65% by the Company and 35% by PREMIER, Inc. Upon the closing
of this offering, PREMIER, Inc.'s minority interest in this limited liability
company will be converted into 330,150 shares of Common Stock of the Company.
Although a substantial majority of the Company's net revenues is still
derived from centralized diagnostic testing services, the Company today has
the capacity to provide the full range of CRO services on a global basis.
INDUSTRY BACKGROUND
CROs provide product development services to the pharmaceutical,
biotechnology and medical device industries, and derive substantially all of
their revenues from the research and development expenditures of these
industries. The CRO industry provides a comprehensive range of product
development services, including study design, clinical trial management, data
collection, biostatistical analysis, diagnostic testing and regulatory
services. All these clinical trials services are subject to applicable
government regulations in jurisdictions where the services are provided.
The CRO industry is highly fragmented, with participants ranging from
several hundred small, limited- service providers to a few large,
full-service CROs with global capabilities. Although there are few barriers
to entry for small, limited-service providers, the Company believes that
there are significant barriers to becoming a full-service CRO with global
capabilities. Some of these barriers include the high fixed personnel costs
required to develop broad therapeutic capabilities, the need for
sophisticated management information systems, expertise and technology to
manage complex clinical trials, the ability to access investigators and
specific patient populations in sufficient numbers and the infrastructure
necessary to serve the global needs of clients.
As a result of competitive pressures and economies of scale, the CRO
industry is consolidating. Mergers and acquisitions have resulted in the
emergence of a few large, full-service CROs with the capital, technical and
financial resources to conduct all phases of clinical trials on behalf of
pharmaceutical, biotechnology and medical device companies. The Company
believes that industry trends favor those CROs able to provide a full range
of services.
23
<PAGE>
Diagnostic testing services form a part of most new drug studies. While
most CROs sub-contract these services, the Company directly provides a full
array of centralized diagnostic testing services. The Company believes that
the ability to provide a broad range of centralized diagnostic testing
services will become an important factor in competing as a full-service CRO.
INDUSTRY TRENDS
According to R&D Directions magazine, the global pharmaceutical and
biotechnology industries spent an estimated $35 billion in 1995 on research
and development, of which the Company estimates $20 billion was spent on the
type of services offered by the Company. Of this amount, approximately $2.5
billion was outsourced to CROs. The Company believes that the following
trends will lead to increased outsourcing of drug and device development
activities by pharmaceutical, biotechnology and medical device companies:
CLIENT DEMAND FOR FASTER PRODUCT DEVELOPMENT
Pharmaceutical, biotechnology and medical device companies face increased
pressure to bring innovative, patent-protected products to market in the
shortest possible time, while following good clinical practices and adhering
to applicable government regulations. Reducing product development time
maximizes the client's potential period of marketing exclusivity and, in
turn, the potential economic returns for new products. The Company believes
that CROs able to improve the speed and quality of product development,
through appropriate clinical, technological and organizational expertise, are
able to provide more effective product development services than most
pharmaceutical, biotechnology or medical device companies could perform
internally. The Company believes that the practice of some pharmaceutical,
biotechnology or medical device companies to contract with full-service CROs,
rather than separately contracting specific phases of product development to
several different CROs, also may result in faster overall development times.
In addition, the Company believes that its clients increasingly recognize
that the use of technology to produce clinical databases designed to
facilitate regulatory review reduces product development and regulatory
review time.
COST CONTAINMENT PRESSURES
Cost containment pressures on pharmaceutical and medical device companies
arising from market acceptance of generic drugs, managed care pressures to
reduce prices, the development of large purchasing alliances and the use of
formulary restrictions has led to increased scrutiny of product development
expenses. This cost containment pressure has prompted many pharmaceutical and
medical device companies to reduce staffing levels, to centralize research
and development and to increase outsourcing to CROs. In addition, the Company
believes that the increased need to differentiate products and to generate
support for product pricing will aid the growth of pharmacoeconomic and
outcomes research, both for products under development and products already
on the market.
The pharmaceutical and medical device industries are consolidating in
response to the need for cost reductions. Once consolidated, many
pharmaceutical and medical device companies outsource to CROs in an effort to
reduce the high fixed personnel cost associated with internal drug
development. At the same time, the Company believes that pharmaceutical and
medical device companies will continue to develop new products that represent
potential sources of new business for the Company and other CROs.
INCREASINGLY COMPLEX AND STRINGENT REGULATIONS
Increasingly complex and stringent regulatory requirements have added to
the volume of data required for regulatory filings. The pharmaceutical and
biotechnology industries are increasingly outsourcing to CROs to manage the
added work loads created by these regulatory requirements. More stringent
regulatory requirements are being applied to medical devices as well. The
Company believes that this trend will increase the volume of data required
for device regulatory filings and escalate the demand for data collection and
analysis services during the device development process, creating additional
opportunities for CROs.
DEVELOPMENT OF DRUGS FOR COMPLEX DISEASES
The development of an increasing number of drugs targeted at complex
chronic diseases, such as Alzheimer's disease, and drugs that address
specific patient populations, such as stroke patients, has increased
24
<PAGE>
the need for specialized clinical trial management and patient recruitment
services. The Company believes that this increased complexity will result in
greater outsourcing by pharmaceutical, biotechnology and medical device
companies to CROs with particular expertise in certain therapeutic areas and
with the ability to access these specific populations.
BIOTECHNOLOGY INDUSTRY GROWTH
In the last decade, the United States biotechnology industry has grown
rapidly and is developing an increasing number of the new products submitted
for regulatory approval. According to the Pharmaceutical Research and
Manufacturers of America, from 1989 to 1996, the number of biotechnology
products in clinical trials rose from 80 to over 280, an annual compounded
growth rate of approximately 20%. Many biotechnology companies do not have
the necessary staff, expertise or financial resources to conduct clinical
trials on their own, and may not believe that it is in their strategic
interest to create such capabilities. The Company believes that biotechnology
companies provide growth opportunities for CROs. In addition, the
biotechnology industry is conducting more clinical trials outside the United
States, benefiting CROs with international capabilities.
GLOBALIZATION OF CLINICAL RESEARCH AND DEVELOPMENT
Pharmaceutical, biotechnology and medical device companies are
increasingly attempting to expand the market for new products by pursuing
regulatory approvals in multiple countries simultaneously, rather than
sequentially as they have in the past. Expanding the market for a product and
accelerating regulatory review times are particularly important to these
companies because of limited patent lives and the high development costs of
new products. To respond to these pressures and to gain access to the global
marketplace, pharmaceutical, biotechnology and medical device companies are
increasingly outsourcing to CROs that have full-service, international
capabilities and that are able to coordinate concurrent regulatory filings.
NEED FOR SOPHISTICATED DATA MANAGEMENT
During a clinical trial, clients often receive data from multiple sources
in a variety of incompatible formats. To make cost effective, real-time
product development decisions using this data, it is necessary to have
sophisticated data management systems that can more easily analyze the data.
As a result, both clients and government regulators seek real-time,
interactive access to clinical data.
In addition to increasing the volume of data required for filings,
regulatory agencies are also requesting data in electronic form, permitting
more direct independent analysis. For example, the FDA has issued guidelines
encouraging the use of computer-assisted filings in an effort to expedite the
review process. Additionally, the need for pharmacoeconomic and outcomes
research increases the requirements for data. The Company believes that
pharmaceutical, biotechnology and medical device companies may outsource to
CROs with sophisticated data management capabilities to reduce costs and to
access their technological expertise.
THE COMPANY'S STRATEGY
The Company's objective is to accelerate its clients' product development
timelines. The Company's strategies for achieving this objective are
described below. While the Company does not believe it practicable to
quantify or otherwise attempt to assign relative weights to the specific
strategies, the following strategies are listed in what the Company believes
to be their general order of importance.
USE INNOVATIVE TECHNOLOGY TO ACCELERATE AND IMPROVE PRODUCT DEVELOPMENT
The Company believes that its proprietary technology links all facets of
clinical development, produces cost advantages, facilitates superior levels
of service, improves the quality of clinical research and enhances the
Company's global capabilities. The Company has specifically designed its
technology for use by medical personnel rather than information technology
specialists. The Company's technology enables it to create and continually
update its clinical databases as trials progress and allows for interactive
review of data by its clients and governmental regulators. See "Technology."
PROVIDE COMPREHENSIVE PRODUCT DEVELOPMENT SERVICES
The Company believes that CROs able to offer a full range of product
development services will have a competitive advantage because a single
provider increases the speed and accuracy of clinical data collection through
compatible systems and uniform data formats. The Company provides a full
array of clinical research
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services, including, centralized diagnostic testing services, clinical trial
management, clinical data management, biostatistical analysis, Phase I
clinical research, health care economics and outcomes research and regulatory
affairs services. The Company believes that offering a full range of
centralized diagnostic services, in addition to its other clinical research
services, provides an additional competitive advantage.
EXPAND CAPACITY FOR GLOBAL PRODUCT DEVELOPMENT SERVICES
The Company believes that the ability to provide global product
development services enhances its ability to compete for large multi-national
business. The Company has an international presence in diagnostic services
and has supported trials in 32 countries out of its Philadelphia, PA and
Peterborough, U.K. offices. Using this experience and infrastructure, the
Company is expanding its clinical trial management and clinical data
management services to areas outside of the United States. As part of this
expansion strategy, the Company intends to hire additional personnel in the
clinical trial management and clinical data management areas for its
Peterborough, UK office, and during 1997 it intends to increasingly use the
UK office to support international elements of U.S. trials.
DEVELOP ITS STRATEGIC RELATIONSHIP WITH PREMIER, INC.
The Company intends to leverage its strategic relationship with PREMIER,
Inc., the largest voluntary alliance of hospitals in the United States. In
1996, PREMIER, Inc. expects to negotiate, on behalf of the alliance, group
purchases of approximately $10 billion of medical devices, supplies and
pharmaceuticals. PREMIER, Inc. actively aids the Company in marketing its
services to the numerous pharmaceutical, biotechnology and medical device
companies that sell products and services to the alliance. In addition, the
Company believes that its access to PREMIER, Inc.'s patient and physician
databases provides a competitive advantage for patient and investigator
recruitment. PREMIER, Inc. is developing a large trial management
organization, for which the Company will be the exclusive CRO. The Company
and PREMIER, Inc. also have begun working together to develop an adverse
event reporting system and a drug use information system, and the Company
plans to expand this activity to include such services to PREMIER, Inc.
members and other health systems. See "Relationship with PREMIER, Inc."
PURSUE STRATEGIC ACQUISITIONS
The Company plans to pursue strategic acquisitions of related businesses
and selected CROs. Acquisition candidates must provide opportunities for
innovation and growth and include businesses that provide complementary
services, expand the Company's geographic presence, provide new therapeutic
expertise, or have complementary client bases. While the Company is actively
seeking such strategic acquisitions, it has no commitments or agreements with
respect to any acquisition.
COMPANY SERVICES
The Company's historic business has been the provision of centralized
diagnostic testing services, which continues to account for a substantial
majority of the Company's net revenues. The Company added clinical trial
management capabilities in September 1995 when it formed with PREMIER, Inc. a
limited liability company owned 65% by the Company and 35% by PREMIER, Inc.
Upon the closing of this offering, PREMIER, Inc.'s interest in this limited
liability company will convert into 330,150 shares of the Company's Common
Stock. Today, the Company provides a full range of clinical research
services. The Company's services include centralized diagnostic testing
services, clinical trial management, clinical data management, biostatistical
services, Phase I clinical research, health care economics and outcomes
research and regulatory affairs services, both in the United States and
internationally.
CENTRALIZED DIAGNOSTIC TESTING SERVICES
Diagnostic tests are employed in clinical trials to measure the effect of
the product on certain body organs and systems, to determine the product's
safety and/or efficacy. Diagnostic testing services provided by the Company
include a variety of diagnostic tests, such as ECGs, Holter monitoring and
clinical laboratory services. These services, which the Company provides on a
centralized basis, are part of most new drug studies. In most cases, the ECG
and transtelephonic monitoring strips, Holter monitoring tapes, imaging and
pulmonary function computer disks and blood and urine samples are delivered
to the Company, which the Company then analyzes or interprets. The Company
provides a broad array of centralized diagnostic testing services, including
the following:
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12-lead Electrocardiography. The ECG provides an electronic map of the
heart's rhythm and structure, and typically is performed in most clinical
trials. ECG strips are measured by the Company's analysts utilizing a
digitizing system, and are then interpreted by a Board-certified
cardiologist.
Holter Monitoring. Holter monitoring is a 24 hour continuous ECG recording
of the heart's rhythm on a cassette tape. The Company has provided Holter
monitoring services since 1977.
Transtelephonic Monitoring (TTM). TTM measures the electrical activity of
the heart, typically for 5 to 30 seconds. This data is transmitted over
telephone lines by patients carrying a self-activated transmitting device.
This test typically is utilized in trials seeking to identify symptomatic
heart rhythm events.
Pulmonary Function Testing (PFT). PFT measures the lungs' capacity and
function by having the patient breathe into a spirometer.
Diagnostic Imaging. This service is used in all clinical imaging
modalities, including standard radiography (e.g., x-rays), contrast-enhanced
radiography (e.g., angiography, studies of the gastrointestinal tract),
computed techniques (including CT scanning and MRI), nuclear medicine
techniques and ultrasonography to determine or confirm the condition of a
patient.
Clinical Laboratory Services. The Company performs centralized reference
testing of blood and urine samples for multi-center drug trials and in
support of the Company's Phase I clinical research unit.
CLINICAL TRIAL MANAGEMENT SERVICES
The Company offers complete services for the design, performance and
management of clinical trial programs. The results of clinical trials form
the basis on which regulatory approval is granted for pharmaceutical and
biotechnology products and medical devices. The Company's multi-disciplinary
clinical research group and extensive network of consultants examine a
product's pre-clinical and clinical data to design protocols that will
evaluate the product's safety and efficacy. The Company can then manage every
aspect of clinical trials, including protocol and database design, site and
investigator recruitment, regulatory initiation, patient enrollment, study
monitoring and data collection, medical services and report writing.
The Company's clinical trial management services include the following:
Study Protocol Design. The protocol defines the medical issues the study
seeks to examine and the statistical tests that will be conducted to
determine whether the product is safe and effective or, in some
pharmacoeconomic trials, whether it is cost-effective. Detailed in the
protocol are: (i) the number and type of clinical, laboratory and outcomes
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 the patients must be tracked and (iv) the dosage and frequency of
drug administration or the program of use of the relevant device.
Site and Investigator Recruitment. The drug or device being tested is
administered to patients by physicians (investigators), at hospitals, clinics
or other locations (sites). Potential investigators are identified by a
number of means. In some cases, the sponsor has pre-selected investigators
with whom it wishes to work. The CRO generally solicits the investigator's
participation in the study. Each trial's success depends on the successful
identification and recruitment of investigators with an adequate base of
patients who meet the requirements of the study protocol. The Company has a
database of several thousand investigators, both within and outside the
PREMIER, Inc. alliance of hospitals. Access to this data allows the Company
to readily identify the sites and investigators able to provide the requisite
patient population.
Patient Enrollment. Investigators find and enroll patients suitable for
each study according to the protocol. The speed with which trials can be
completed is significantly affected by the rate at which patients are
enrolled. Inability to recruit a sufficient number of patients in a timely
manner is a recurring problem and one of the most frequent causes of clinical
trial delays, as well as a major source of cost overruns for the sponsor. The
Company believes that its affiliation with PREMIER, Inc. and the resultant
access to PREMIER, Inc.'s databases should enhance the Company's ability to
quickly and cost-effectively recruit investigators and patients for clinical
trials. The Company believes that its access to PREMIER, Inc.'s patient
databases provides a competitive advantage because it permits the Company to
identify more precisely exclusion and inclusion criteria, thereby maximizing
patient recruitment without jeopardizing patient safety.
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Regulatory Services. Each site is required to document compliance with
regulations governing the conduct of clinical trials, which must be completed
before a trial can be initiated. The PremierResearcho CTIMS (clinical trial
information management system) facilitates this process by providing
real-time tracking of the status of all relevant documents to the Company and
to the client.
Study Monitoring and Data Collection. As patients are examined and tests
are conducted in accordance with the study protocol, data are recorded on
customized case report forms ("CRFs") and laboratory reports. Traditionally,
these data are assessed at the study site by specially trained clinical
research associates, also known as CRAs or monitors. The CRAs compare the
data to the medical records at the site to reduce the possibility of fraud or
error. The CRA requires site personnel to correct errors to facilitate
efficient data entry. 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. In most CROs, these data are
manually entered by personnel who are not trained to evaluate the content of
the data.
The Company also offers its clients the PremierResearchoFax system, a
data entry system based on a combination of a commercially available
technology (DataFax(TR), Clinical DataFax Systems Inc.) and procedures and
software developed by the Company, which can accelerate the completion,
correction and review of accurate CRF data. The PremierResearcho Fax system
permits a CRF to be filled out by the investigating site, faxed to the
Company and reviewed using the Company's Navigator system within days of a
patient's visit. The data from the fax are automatically downloaded into the
Company's database by means of optical character recognition and the results are
carefully checked both by computer and by trained clinical research personnel.
Any errors are compiled and automatically faxed back to the site for correction.
This process allows a large portion of data errors to be identified and
corrected within a week of a given patient's visit, as opposed to the
traditional correction process that typically requires several weeks to several
months. The Company believes that correcting a large portion of the errors as
the trial progresses decreases the time and expense of clinical data collections
and is a significant competitive advantage.
Medical Services and Report Writing. During the course of a clinical
trial, the Company may provide medical research services, including medical
monitoring of the clinical trials and interpretation of clinical trial
results. In addition, the statistical analysis of the data collected during a
trial, together with other clinical data, are included in a final report
generated for inclusion in a regulatory document. The Company's
PremierResearchoCARD (computer-assisted research and development) technology
allows for immediate correction of data and identification of safety and
efficacy issues that may change the course of the clinical development plan
or accelerate its timeline. The Company believes that this results in
improved medical services.
CLINICAL DATA MANAGEMENT AND BIOSTATISTICAL ANALYSIS
The Company has a history of technological innovation in the provision of
services in drug trials, including creating the first computer-assisted new
drug application ("CANDA") and creating over sixty CANDAs. The Company
believes that its technological expertise provides a competitive advantage in
the provision of clinical data management and biostatistical analysis
services.
Clinical Data Management. The Company's data management professionals
assist in the design of protocols and CRFs, as well as the development of
training manuals for investigational staff to ensure that data are collected
in a systematic format. Once the study protocol has been finalized, CRFs for
recording the desired information must be developed. Different CRFs may be
used at different assessment periods during the course of a trial reflecting
the variety of data collected, and there may be as many as 100 or more CRFs
for each patient in a given study. The Company's technically trained staff
format CRFs compatible with the optical character recognition capabilities of
the Company's PremierResearcho Fax system. CRFs, when utilized with the
PremierResearcho Fax system, increase the accuracy and reduce the time and
cost of data processing during the trial. Databases are designed according to
the analytical specifications of the project and the particular needs of the
client. The Company provides clients with data listings, data review and
coding, data entry, database verification and editing and problem data
resolution. In addition, the Company offers its clients the ability to
compile the clinical data for an electronic regulatory submission, such as a
CANDA.
Biostatistical Analysis. The Company's biostatistics professionals provide
biostatistical consulting, database design, data analysis and statistical
reporting. These professionals develop and review protocols, design
appropriate analysis plans and design report formats to address the
objectives of the study protocol and the cli-
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ent's individual objectives. The Company's programming staff and
biostatisticians work together to perform appropriate analyses and produce
tables, graphs, listings and other applicable displays of trial results. In
addition, biostatisticians can assist clients in government regulatory
proceedings and in legal proceedings.
PHASE I CLINICAL RESEARCH
The Company maintains a 28-bed, monitored clinical research unit in which
it conducts Phase I clinical research studies. This unit focuses on complex
Phase I trials that require diagnostic testing such as ECG, Holter monitoring
and similar services.
HEALTH CARE ECONOMICS AND OUTCOMES RESEARCH
In response to the increased need for pharmacoeconomic and outcomes data
following product approval, the Company plans to offer a variety of health
information services using its expertise in data collection, acquisition,
monitoring, and auditing. The Company intends to design and conduct
pharmacoeconomic, technology assessment, and clinical outcomes studies for
pharmaceutical clients as well as for PREMIER, Inc. and its affiliated
hospitals and institutions. PREMIER, Inc. and the Company are developing an
adverse event reporting system and a drug use information system. The Company
plans to expand this activity to include such services to PREMIER, Inc.
members and other health systems.
REGULATORY AFFAIRS SERVICES
The Company provides comprehensive regulatory product registration
services for pharmaceutical, biotechnology and medical device products in
North America, including regulatory strategy formulation, document
preparation and intermediation with the FDA and other regulatory agencies.
The Company reviews published literature, assesses the scientific background
of a product and the competitive and regulatory environment, identifies
deficiencies and defines 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.
TECHNOLOGY
The Company's technology is designed to accelerate product development and
to improve the quality of clinical research by providing superior data
handling that facilitates analysis. Its technology is developed for clinical
research personnel, rather than information technology specialists, enabling
medical reviewers to make timely and accurate decisions during the product
development process. The Company's software is available on multiple
platforms such as Microsoft Windows, Macintosh, and DOS, which facilitates
integration with the wide variety of systems used by its clients.
The Company believes that its technology is attractive to its clients'
clinical groups, since it includes "user- friendly" tools specifically
designed for clinical research personnel. The Company believes that this
provides a competitive advantage, since this group is influential in CRO
selection.
The Company has a history of technological innovation in supporting
clinical trials, including:
o First electronic transfer of centralized diagnostic data, eliminating
manual key punching (1979).
o First multi-site remote data entry system used by the FDA, partially
replacing site monitoring (1984).
o First computer-assisted new drug application, shortening the regulatory
review process (1985). The Company has since created over 60 full data
review CANDAs, which it believes constitutes more CANDAs of this kind
than those created by all the other major CROs combined.
o First NDA Day, a one day intensive session between the FDA and the
product's sponsor using the interactive features and real-time data
query capabilities of the CANDA (1988).
o First interactive CANDA, providing for the interactive review of
clinical data by the FDA, further accelerating the regulatory review
process (1993).
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The Company's technology includes:
PremierResearchoNavigator. Navigator is the Company's proprietary, highly
interactive software system designed specifically for the review, analysis
and submission of clinical data in the new drug or device application
process. The Company's role in the first CANDA submission, the first
interactive CANDA and the first NDA Day, which are described above, are
examples of uses of the technology that has evolved into Navigator. Navigator
is designed to allow medical and regulatory personnel to interactively review
and analyze research data. It is a "user-friendly" software that permits
medical personnel to: subset data; better analyze and understand clinical
trial results, including adverse events and identification of outliers;
graphically display clinical research data; and respond more quickly to
regulatory review questions. The Company believes that use of its Navigator
system speeds both the product development and regulatory review process,
which allows the client to prioritize, change or potentially terminate
development of the product.
The Company markets the Navigator system for single clinical studies or
single laboratory datasets under the name PremierResearcho CARD
(computer-assisted research and development). Immediate review of clinical
information to detect errors in trial conduct is possible with
PremierResearcho CARD, allowing for rapid correction of data and
identification of safety and efficacy issues that may change the course of
the clinical development plan or accelerate its timeline.
The Company markets the Navigator system for electronic regulatory
submissions for pharmaceutical clients under the name PremierResearcho CANDA.
PremierResearcho CANDA allows for faster and more effective medical review
and analysis of the submission by the product's sponsor and by regulatory
authorities than conventional tools. Navigator also may be used for the
regulatory submission of biologic and medical device clinical data.
PremierResearchoEnterprise. Enterprise is a proprietary information
management system that permits efficient and timely delivery of diagnostic
and clinical trial data to the user. Enterprise integrates an entire set of
data from an individual patient in a clinical trial. This information is then
available for on-line review by project management, diagnostic services and
clinical research personnel. Enterprise also provides for flexible encoding
and transfer of the clinical information to the client, based on standardized
data specifications or the client's own specifications. The data can be
provided to the client in a variety of data and media formats, as well as
bundled with Navigator, to allow for immediate interactive review. The
Company believes that Enterprise facilitates and speeds product development
by making it easier for the client to collect, store, retrieve and utilize
the massive amounts of data traditionally collected in clinical trials.
PremierResearchoFax. The Company has developed an overall data-handling
process based on the use of a commercial technology (DataFax(TR), Clinical
DataFax Systems Inc.) supplemented by validation procedures and export
software and procedures allowing integration into the Company's proprietary
Navigator system in an overall system referred to as the PremierResearcho Fax
process. This system receives CRFs, electronically enters the information
into databases, electronically queries the site to correct data errors and
inconsistencies, and compiles the resultant database for rapid export into
the Navigator system for clinical review. The Company believes that the
PremierResearcho Fax system can accelerate the collection and correction of the
CRF, which is filled out by investigators at a site and faxed to the Company
within days of the patient visit. The data from the fax is automatically
downloaded into the Company's database by means of optical character recognition
and the results are carefully checked by both the computer and trained clinical
research personnel. Any errors are compiled and automatically faxed back to the
site for correction. This process allows a large portion of data errors to be
resolved within a week of a given patient's visit, as opposed to the traditional
correction process that typically requires several weeks to several months. The
Company believes that correcting a large portion of errors as the trial
progresses decreases the time and expense of clinical data collection.
The Company is in the early stages of developing a remote pen-based data
entry system that permits two- way interaction between the Company and the
site (PremierResearcho Pad), and an interactive voice response system for
automated telephone data entry (PremierResearcho Voice), which will augment
PremierResearcho Fax.
PremierResearcho CTIMS. The Company's proprietary project management
software, PremierResearcho CTIMS (clinical trial information management
system), manages the clinical trial process. CTIMS automates many laborious
tasks of trial management using software modules for various applications.
These modules allow for regulatory and other document tracking; investigator,
site and patient recruitment and tracking; CRA monitoring; and contract
management.
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RELATIONSHIP WITH PREMIER, INC.
In September 1995, the Company formed a limited liability company with
PREMIER, Inc., which is owned 65% by the Company, for the provision of
clinical research services. Pursuant to an agreement between the parties,
PREMIER, Inc. contributed to the limited liability company cash in the amount
of $300,000, certain other assets and certain contracts, and the Company
agreed to manage the limited liability company and to fund its working
capital requirements for a three year period. Upon the closing of this
offering, PREMIER, Inc.'s interest in the limited liability company will,
pursuant to the 1995 agreement, convert into 330,150 shares of the Company's
Common Stock. After such conversion, the limited liability company will be
wholly-owned by the Company.
PREMIER, Inc. is a voluntary healthcare alliance of 1,800 affiliated
hospitals and institutions which is the result of the merger of the Premier
Health Alliance, Inc., American Healthcare Systems, Inc. and SunHealth
Alliance, Inc. It is the largest voluntary healthcare alliance in the United
States, representing over 300,000 hospital beds located in all 50 states.
PREMIER, Inc. negotiated, on behalf of the alliance, group purchases of
approximately $6 billion of medical devices, supplies and pharmaceuticals in
1995, and expects to negotiate group purchases of approximately $10 billion
of such products in 1996.
The agreement between PREMIER, Inc. and the Company gives the Company
access to information about PREMIER, Inc.'s pharmaceutical contacts as well
as access to PREMIER, Inc.'s databases of patients and physicians for use in
connection with the Company's clinical research studies. The Company, in
turn, has agreed that PREMIER, Inc.'s affiliated hospitals will be utilized
as investigator sites for these studies; however, the Company is not
restricted from using investigator sites outside the PREMIER, Inc. alliance.
In addition to these contractual provisions, the Company seeks to leverage
its strategic relationship with PREMIER, Inc. in the following ways:
o PREMIER, Inc. has agreed to introduce the Company to pharmaceutical and
device companies that sell or propose to sell products to the alliance,
and to include a requirement in all of its drug and device purchase
agreements that such companies will consider utilizing the Company's
services in their clinical trials. For this purpose, the Company has
assigned one salesperson to work exclusively at PREMIER, Inc.'s
principal purchasing office and to participate in group purchasing
meetings.
o PREMIER, Inc., with the assistance of the Company, is developing a large
trial management organization ("TMO"), for which the Company will be the
exclusive CRO. The TMO will standardize and coordinate investigators,
clinical sites and patient recruitment and form a central institutional
review board ("IRB"). The Company believes that its involvement with
this TMO will facilitate the development of close working relationships
with a large nationwide network of investigators, producing improvements
in the quality, speed and cost of the clinical development process.
o The Company is the only CRO with access to PREMIER, Inc.'s databases.
This access permits the Company to independently estimate the available
patient population in a given area and to assess whether an individual
investigator has direct access to a suitable patient population. Knowing
whether a given investigator can supply a sufficient number of patients
meeting the inclusion and exclusion criteria of a particular protocol is
an important competitive advantage, since patient enrollment is a
critical factor in a successful trial. Additionally, the Company will
use its access to this database to generate pharmacoeconomic and
outcomes data for its clients.
o The Company and PREMIER, Inc. are collaborating on the development of an
adverse events reporting system and drug use information system. It is
expected that these systems will be used by PREMIER, Inc.'s affiliated
hospitals and subsequently may be marketed to other hospitals.
The Company believes that PREMIER, Inc. benefits from its relationship
with the Company in a variety of ways. The Company's commitment to utilize
PREMIER, Inc.'s affiliated hospitals in its studies may constitute an
incentive for hospitals to join the PREMIER, Inc. alliance, due to both the
fees received by the hospital and the prestige of being involved in clinical
research. The statistical and data management services being developed by the
Company also are expected to provide helpful information and expertise to
PREMIER, Inc. in making its purchasing decisions.
SALES AND MARKETING
The Company's marketing strategy is to focus on prospective clients whose
product development projects are complex. The Company's sales staff maintains
direct contacts and relationships with clients and prospective
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clients. Two senior salespeople with substantial experience in the marketing
of large trials have recently joined the Company. The Company believes that a
large percentage of its clients have been referred by others in the industry,
and its salespeople seek to foster such referrals.
The Company believes that its technology is attractive to the clinical
staff of its clients because of its "user-friendly" tools specifically
designed for clinical research personnel. The Company believes that this
provides it with a competitive marketing advantage, since such personnel are
influential in CRO selection.
While the Company seeks new clients, it also attempts to increase repeat
business with existing clients by meeting high quality and timely performance
standards and through proactive project management. Approximately 78% of net
revenues in the first nine months of 1996 were derived from clients for which
the Company previously has performed services. When the Company increases the
amount of business with an existing client, both benefit from the
efficiencies of using proven systems already in place for study conduct and
data delivery.
The Company intends to use its affiliation with PREMIER, Inc. to gain
access to pharmaceutical, biotechnology and medical device companies that
sell or propose to sell products to PREMIER, Inc. For this purpose, the
Company has assigned one salesperson to work exclusively at PREMIER, Inc.'s
principal purchasing office and to participate in group purchasing meetings
to directly market the Company's services.
The Company uses direct mailings of brochures and marketing materials to
existing and prospective clients and advertises in trade journals and similar
publications. The Company also attends and exhibits at selected trade shows
in the United States and Europe.
CLIENTS
Over the last three years, the Company has provided services to 22 of the
top 25 pharmaceutical companies in the world as ranked by 1995 research and
development expenditures as reported by Med Ad News. During the first nine
months of 1996, pharmaceutical companies accounted for approximately 90% of
the Company's net revenues. In the future, as the Company expands its
clinical research services, it expects that biotechnology and medical device
companies will account for a more significant percentage of its net revenues.
At September 30, 1996, the Company was providing services under 168 contracts
to 57 clients, including some of the largest United States, European and
Japanese pharmaceutical companies. In 1994, two clients represented
approximately 17.0% and 11.5% of the Company's net revenues and in 1995 three
clients accounted for approximately 15.0%, 12.1% and 10.0% of the Company's
net revenues. During the first nine months of 1996, three clients accounted
for approximately 15.3%, 10.5% and 10.4% of the Company's net revenues. The
loss of any significant client could have a material adverse effect on the
Company's net revenues. See "Risk Factors -- Dependence on Certain Industries
and Clients" and "Risk Factors -- Loss or Delay of Contracts."
BACKLOG
Backlog consists of anticipated net revenues from work under letters of
intent and contracts that have been signed but not yet completed. Once work
under a contract or letter of intent commences, revenues are generally
recognized over the life of the contract, which usually lasts for anywhere
from one month to two years. Backlog excludes anticipated net revenues from
projects for which the Company has commenced work but for which a definitive
contract or letter agreement has not been executed. Backlog at October 31,
1996 was approximately $14.7 million.
The Company believes that its backlog as of any date is not necessarily a
meaningful predictor of future results. Clinical studies under contracts
included in backlog are subject to termination or delay. Clients terminate or
delay contracts for a variety of reasons including, among others, the failure
of products being tested to satisfy safety requirements, unexpected or
undesirable clinical results of the product, the client's decision to forego
a particular study, insufficient patient enrollment or investigator
recruitment or production problems resulting in shortages of the drug. Most
of the Company's contracts are terminable without cause upon 30 to 90 days
notice by the client. The Company typically is entitled to keep any advance
payment and receive certain fees for winding down a study that is terminated
or delayed and, in some cases, a termination fee. See "Risk Factors --
Dependence on Certain Industries and Clients" and "Risk Factors -- Loss or
Delay of Contracts."
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COMPETITION
The decision of whether to outsource can place the Company in competition
with a client's in-house development group. However, once the decision is
made to outsource, the Company primarily competes against other full service
CROs and, to a lesser extent, universities and teaching hospitals. Some of
these competitors have substantially greater capital, technical and other
resources than the Company. Large CROs with which the Company competes
include ClinTrials Research, Inc., Covance, Inc., IBAH, Inc., Pharmaceutical
Product Development, Inc., PAREXEL International Corporation and Quintiles
Transnational Corporation. CROs generally compete on the basis of experience,
medical and scientific expertise in specific therapeutic areas, the quality
of clinical research, the ability to organize and manage large-scale trials
on a global basis, the ability to manage large and complex medical databases,
the ability to provide statistical and regulatory services, the ability to
recruit investigators and patients, the ability to integrate information
technology with systems to improve the efficiency of clinical research, an
international presence, financial viability and price. The Company believes
that it competes favorably in all of these areas.
The CRO industry is highly fragmented, with participants ranging from
several hundred small, limited- service providers to a few large,
full-service CROs with global operations. The trend toward CRO industry
consolidation has resulted in heightened competition among the CROs for
clients and acquisition candidates. In addition, consolidation within the
pharmaceutical industry, as well as a trend by pharmaceutical companies to
outsource to fewer CROs, has heightened competition among CROs for contracts
from that industry. The Company believes major pharmaceutical, biotechnology
and medical device companies tend to develop preferred provider relationships
with full-service CROs, effectively excluding smaller CROs from the bidding
process. The Company may find reduced access to certain potential clients due
to these arrangements.
GOVERNMENT REGULATION
Human pharmaceutical products, biological products and medical devices are
subject to rigorous regulations by the federal government, principally the
FDA, and foreign governments if products are tested or marketed abroad. In
the United States, the FFDCA governs clinical trials and approval procedures
as well as the development, manufacturing, safety, labeling, storage, record
keeping and marketing of pharmaceutical products and medical devices.
Biological products are subject to similar regulation under both the FFDCA
and the Public Health Service Act. Because the Company offers services
relating to the conduct of clinical trials and the preparation of the
marketing applications, the Company is obligated to comply with applicable
regulatory requirements governing these activities, both in the United States
and in foreign countries. Requirements governing these activities vary from
country to country.
In the United States, the Company is subject to inspection by the FDA to
evaluate compliance with applicable requirements governing the conduct of
clinical trials. If the FDA discovers that the Company has violated
applicable requirements relating to the conduct of clinical trials or the
preparation of marketing applications, discussed in more detail below, the
FDA may take enforcement action such as issuance of a Warning Letter;
termination of a clinical study; refusal to approve clinical trial or
marketing applications or withdrawal of such applications; injunction;
seizure of investigational products; civil penalties; or recommending
criminal prosecutions. Pursuant to the FDA's fraud policy, the FDA generally
will refuse to approve a pending clinical trial or marketing application, or
withdraw such application, if it discovers conduct such as submission of
fraudulent applications, making untrue statements of material facts, or
giving or promising bribes or illegal gratuities. The Company also is subject
to both mandatory and permissive debarment by FDA, which would prohibit the
Company from assisting in the submission of abbreviated new drug applications
for generic drugs. Conviction of criminal conduct relating to the development
or approval of an abbreviated drug application is a prerequisite to such
debarment. Such sanctions could have a material adverse effect on the
Company. The Company believes that it is in material compliance with all
applicable governmental regulations.
The following is a summary of the specific requirements relating to the
clinical testing and approval of drugs, biologics and devices follows.
Drug Development and Approval in the United States -- An Overview
Drug products marketed in the United States usually require approval by
the FDA before marketing. The steps required before a new prescription drug
may be marketed in the United States include (i) preclinical labo-
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<PAGE>
ratory and animal tests; (ii) the submission to the FDA of an Investigational
New Drug application ("IND"), which must be evaluated and found acceptable by
the FDA before human clinical trials may commence; (iii) adequate and
well-controlled human clinical trials to establish the safety and
effectiveness of the drug; (iv) the submission of a New Drug Application
("NDA") to the FDA; and (v) FDA approval of the NDA. The Company's services
relate to steps (ii) through (iv) of this process.
Clinical trials to evaluate the safety and effectiveness of drugs are
generally conducted in three sequential phases that may overlap. In Phase I
(typically lasting from 6 months to one year), the drug is introduced into a
small number of human subjects, usually healthy volunteers, to determine
safety (adverse effects), dosage tolerance, metabolism, distribution,
excretion and clinical pharmacology. Phase II (typically lasting from one to
two years) involves clinical trials in a limited patient population to
determine the effectiveness of the pharmaceutical for specific targeted
indications, to determine dosage tolerance and optimal dosage and to identify
possible adverse side effects and safety risks. After a compound has been
shown in Phase II trials to have an acceptable safety profile and probable
effectiveness, Phase III trials (typically lasting from 2 to 3 years) are
undertaken in an expanded patient population at multiple clinical sites to
further evaluate clinical effectiveness and safety within an expanded patient
population.
Prior to commencing each phase of a clinical trial, a drug sponsor must
submit an IND application to the FDA. The IND application must contain, among
other things, protocols for each study; a description of the composition,
manufacture, and control of the drug substance and the drug product;
information about preclinical pharmacological and toxicological studies of
the drug; and a summary of previous human experience with the investigational
drug. Unless the FDA objects, the IND will become effective 30 days following
its receipt by the FDA. If the FDA has concerns about the proposed clinical
trial, it may delay the trial and require modifications to the trial protocol
prior to permitting the trial to begin. In addition, all clinical trials of
new drugs must obtain approval of the institutional review board ("IRB") at
each institution at which the trial is conducted. The IRB reviews the study
to verify the method of experimentation and safety, and to ensure that
subjects give their informed consent to participate in the clinical trial.
When results from a Phase II or Phase III study show promise in the
treatment of a serious or immediately life-threatening disease in patients
for whom no comparable or satisfactory alternative drug or other therapy
exists, the FDA may allow the manufacturer to make the new drug available to
a larger number of patients through the regulated mechanism of a treatment
IND. Although less scientifically rigorous than a controlled clinical trial,
the treatment IND facilitates availability of promising drugs to ill patients
prior to general marketing and also allows sponsors to obtain additional data
on the drug's safety and effectiveness. In general, treatment use of an
investigational drug is conditioned upon compliance with safeguards of the
IND process such as informed consent, IRB approval, and other requirements.
Once a clinical trial with proper IRB and IND approval is commenced, the
conduct of the clinical trial is governed by extensive FDA regulations.
Clinical trial sponsors (i.e., the persons who initiate the trials but do not
actually conduct the investigations) are responsible for the selection of
qualified investigators, providing investigators with protocols and other
necessary information, monitoring the investigation, reporting changes in
study protocol to the FDA, reporting to the FDA and investigators safety
reports of serious and unexpected adverse experiences associated with use of
the drug, and maintaining records concerning the study. To the extent that
the Company performs these functions on behalf of a drug sponsor, the Company
must comply with these requirements.
Upon completion of clinical trials that demonstrate the safety and
efficacy of a new drug, a drug sponsor must submit an NDA and obtain FDA
approval of an NDA prior to marketing the drug. The NDA must include
information pertaining to the composition, manufacture, and specification of
the drug substance; a description of the preclinical studies; a description
of the human pharmacokinetic data and human bioavailability data;
descriptions of clinical investigations; a statistical evaluation of the
clinical data; and proposed labeling. Submission of an NDA does not assure
the FDA approval for marketing. The application review process generally
takes at least two to three years to complete, and the FDA may require
additional data or other studies during the course of its review.
Notwithstanding the submission of such data, the FDA ultimately may decide
that the application does not satisfy its regulatory criteria for approval.
Finally, the FDA may require additional clinical testing following NDA
approval to confirm safety and efficacy (Phase IV clinical tests). No
assurance exists that clinical studies conducted will provide sufficient
information to support the filing of an NDA.
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<PAGE>
Clinical trials may be conducted outside of the United States without an
IND. The FDA will accept data from such foreign clinical trials to support
clinical investigations in the United States and/or approval of an NDA only
if the agency determines that the trials are well-designed, well-conducted,
performed by qualified investigators, and conducted in accordance with
internationally recognized ethical principles.
Less extensive approval requirements can apply to generic drugs.
Abbreviated requirements are applicable to drugs that are, for example,
either bioequivalent to brand name "pioneer" drugs, or otherwise similar to
pioneer drugs, such that all the safety and efficacy studies previously
conducted on the pioneer product need not be repeated for approval. Changes
in approved drug products, such as in the delivery system, dosage form or
strength, can also be the subject of abbreviated application requirements.
Biological Product Development and Approval in the United States -- An
Overview
Like drugs and medical devices, biological products (i.e., those derived
from living materials of humans, plant, animals or microorganisms, such as
vaccines) are subject to extensive regulation by FDA. Biological products are
regulated primarily under the Public Health Service Act, but are also subject
to regulation under the FFDCA.
While some biological products may be approved for marketing via a new
drug application ("NDA"), most manufacturers must obtain two licenses from
FDA prior to marketing a biological product: a license for the manufacturing
establishment, and a product license. In order to obtain a product license, a
manufacturer must obtain FDA approval of a product license application
("PLA"). Similar to an NDA, a PLA must contain the following information:
nonclinical and clinical data demonstrating the product's safety, purity and
potency; a description of the manufacturing methods; data regarding the
product's stability; test results for the lots represented by the submitted
samples, and samples of the product and its labeling.
The sponsor of a clinical trial involving a biological product must file
an IND with FDA, unless the product is exempt from such requirement. Once the
IND becomes effective, the conduct of the clinical trial is governed by the
same regulatory requirements governing drug clinical trials. Thus, to the
extent that the Company performs these functions on behalf of the biological
product sponsor, the Company must comply with these requirements.
Device Development and Approval in the United States -- An Overview
The FFDCA and regulations thereunder require that, unless exempted by
regulation, all products meeting the statutory definition of "device" receive
the FDA clearance of a premarket notification (510(k) submission or FDA
approval of a premarket approval ("PMA") application prior to marketing in
the United States. Generally, devices are distinguished from drugs through
the characteristic of acting or achieving their effect through means other
than pharmacologic action.
The FDA categorizes medical devices into three regulatory classifications
(Class I, II, and III) on the basis of controls deemed reasonably necessary
to ensure their safety and effectiveness. Class I devices are subject to
general controls (e.g., labeling, premarket notification, and adherence to
good manufacturing practice regulations for medical devices), and Class II
devices are subject to general controls and special controls (e.g.,
performance standards, postmarket surveillance, patient registries and FDA
guidelines). Class III devices (generally including life-sustaining,
life-supporting, or implantable devices, or new devices that have been found
not to be substantially equivalent to a legally marketed predicate device)
are those which must receive premarket approval ("PMA") prior to marketing.
Before a new device can be introduced into the market, the manufacturer
must generally obtain marketing clearance or approval through either a 510(k)
premarket notification or a PMA. A 510(k) clearance will be granted if the
submitted information establishes that the proposed device is "substantially
equivalent" to a legally marketed "predicate" device (i.e., a Class I or II
medical device, or to a Class III medical device for which the FDA has not
called for a PMA). The 510(k) must include, among other information, proposed
labeling and advertisements; data demonstrating substantial equivalence to a
claimed predicate; and any additional information regarding the device
requested by the FDA that is necessary to make a finding as to substantial
equivalence to a predicate device. The FDA can require clinical studies to
demonstrate that a device is as safe and effective as the predicate device.
The FDA recently has been requiring a more rigorous demonstration of
substantial
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<PAGE>
equivalence than in the past. It generally takes from four to twelve months
from submission of a 510(k) to obtain 510(k) clearance, but it may take
longer. The FDA may determine that a proposed device is not substantially
equivalent to a legally marketed device, or that additional information or
data are needed before a substantial equivalence determination can be made.
If a manufacturer cannot establish that a proposed device is substantially
equivalent to a legally marketed predicate device, the manufacturer must seek
premarket approval of the proposed device from the FDA through the submission
of a PMA application. A PMA application must be supported by extensive data,
including nonclinical laboratory studies or animal testing; clinical trial
data; and a bibliography of all published reports reasonably known to the
manufacturer concerning safety or effectiveness. In addition, the PMA must
include a full description of the device and its components; the principle of
operation of the device; a full description of the methods, facilities and
controls used for manufacturing, processing, packing, storage and, where
appropriate, installation; and proposed labeling. Upon receipt of a PMA
application, the FDA makes a threshold determination as to whether the
application is sufficiently complete to permit a substantive review. If the
FDA determines that the PMA application is sufficiently complete to permit a
substantive review, the FDA will accept the application for filing.
Once the submission is accepted for filing, the FDA begins an in-depth
review of the PMA. An FDA review of a PMA application generally takes one to
two years from the date the PMA application is accepted for filing, but may
take significantly longer. The review time is often significantly extended by
the FDA asking for more information or clarification of information already
provided in the submission. During the review period, an advisory committee,
typically a panel of clinicians, will likely be convened to review and
evaluate the application and provide recommendations to the FDA as to whether
the device should be approved. The FDA is not bound by the recommendations of
the advisory panel. If the FDA's evaluation of the PMA application is
favorable, the FDA will issue either an approval letter or an approvable
letter, which usually contains a number of conditions which must be met in
order to secure final approval of the PMA. When and if those conditions have
been fulfilled to the satisfaction of the FDA, the FDA will issue a PMA
approval letter, authorizing marketing of the device for certain indications.
If the FDA's evaluation of the PMA application is not favorable, the FDA will
deny approval of the PMA application or issue a "not approvable" letter. The
FDA may also determine that additional clinical trials are necessary, in
which case PMA approval may be delayed for several years while additional
clinical trials are conducted and submitted in an amendment to the PMA.
Human clinical trials are always required to support a PMA application,
and may be required to support a 510(k) submission. If the device involved
presents a "significant risk" to the patient, the clinical trial sponsor must
obtain IRB approval for the study and must file an investigational device
exemption ("IDE") application with the FDA prior to commencing human clinical
trials. The IDE application must include reports of prior clinical and
nonclinical investigations of the device; an investigational plan; a
description of the methods, facilities, and controls used for the
manufacture, processing, packing, storage, and, where appropriate,
installation of the device; information concerning the investigators
participating in the study and the IRB's that approved the study; copies of
labeling; copies of forms to be provided to subjects to obtain informed
consent; and other relevant information requested by the FDA. As with IND
applications, the IDE will become effective 30 days following its receipt by
the FDA unless the FDA objects to the application. If the FDA has concerns
about the proposed clinical trial, it may delay the trial and require
modifications to the trial protocol prior to permitting the trial to begin.
Clinical trials involving a device that presents a "nonsignificant risk" to
the patient may begin after the sponsor has obtained approval by one or more
appropriate IRB's, but not the FDA. Such investigations are, nevertheless,
subject to informed consent requirements, monitoring by the sponsor, and
record keeping requirements.
As discussed with respect to clinical studies involving drugs, the FDA
strictly regulates the conduct of all clinical trials involving medical
devices, regardless of whether the clinical trial is conducted under an IDE.
The sponsor of a clinical study involving a device is responsible for
ensuring that proper IRB and/or FDA approval is obtained prior to commencing
the study, selecting qualified investigators and informing investigators of
all necessary information, monitoring the investigation, informing the IRB
and the FDA about significant new information pertaining to the
investigation, and maintaining accurate and current records concerning the
investigation. The sponsor must evaluate unanticipated adverse effects and
terminate the study if it presents an unreasonable risk to subjects. To the
extent that the Company performs these functions on behalf of a
investigational device sponsor, the Company must comply with these
requirements.
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The FDA will accept foreign clinical studies involving devices that are
not conducted under an IDE if the data are valid and the investigator has
conducted the studies in conformance with the "Declaration of Helsinki" or
the laws and regulations of the country in which the research is conducted,
whichever accords greater protection to human subjects. Foreign clinical data
that meets these requirements may form the sole basis for PMA approval if the
foreign data are applicable to the United States population and medical
practice, studies were performed by clinical investigators of recognized
competence, and (if necessary) the FDA validates the data through an on-site
inspection or other means.
CLIA Requirements -- An Overview
The Company's clinical laboratory services are subject to the requirements
of the Clinical Laboratory Improvement Amendments of 1988 ("CLIA"). This law
requires all laboratories to meet specified standards in the areas including
personnel qualification, administration, participation in proficiency
testing, patient test management, quality control, and quality assurance. In
addition, laboratories such as the Company's clinical laboratory must obtain
appropriate certification under CLIA. The Company has obtained such
certification for its clinical laboratory.
Under CLIA, the Company's clinical laboratory is subject to inspection by
the United States Department of Health and Human Services or a designee.
Violations of the CLIA requirements may result in sanctions including
suspension, limitation, or revocation of certification; enjoinment of
laboratory activities; civil money penalties; or criminal prosecution for
intentional violations. There can be no assurance that the regulations under,
and future administrative interpretations of, CLIA will not have an adverse
impact on the Company's services in this area.
Foreign Regulatory Requirements
The Company also is subject to foreign regulatory requirements governing
clinical trials and product approval requirements. Whether or not the FDA
approval has been obtained to conduct a clinical trial or market an
FDA-regulated product, approval by comparable regulatory authorities in
foreign countries usually must be obtained to conduct such activities in
those countries. See "Risk Factors -- Dependence on Government Regulation."
POTENTIAL LIABILITY AND INSURANCE
The Company attempts to manage its risk of liability for personal injury
or death to patients from administration of products under study through
contractual indemnification provisions with clients and through insurance
maintained by the Company and its clients. Contractual indemnification
generally does not protect the Company against certain of its own actions,
such as negligence. The terms and scope of such indemnification vary from
client to client and from trial to trial. Although most of the Company's
clients are large, well capitalized companies, the financial viability of
these indemnification provisions cannot be assured. Therefore, the Company
bears the risk that the indemnifying party may not have the financial ability
to fulfill its indemnification obligations. The Company also maintains
professional liability insurance in the amount of $1 million per claim and in
the aggregate and an umbrella policy of $3 million. 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 beyond the scope of an
indemnity provision or beyond the scope or level of insurance coverage
maintained by it or the client or where the indemnifying party does not
fulfill its indemnification obligations. See "Risk Factors -- Potential
Liability."
INTELLECTUAL PROPERTY
The Company's services have been enhanced by significant investment in
information technology. The Company's information services group is committed
to achieving operating efficiencies through technical advances. The Company
has developed certain computer software and technically derived procedures
that it seeks to protect through a combination of contract law, copyrights,
trademarks, and trade secrets. Although the Company does not believe that its
intellectual property rights are as important to its results of operations as
are such factors as technical expertise, knowledge, ability and experience of
the Company's professionals, the Company believes that its technical
capabilities provide significant benefits to its clients.
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EMPLOYEES
At September 30, 1996, the Company had 120 employees. At the U.S. location
in Philadelphia, PA, the Company had 101 employees (79 full-time, 22
part-time). At the U.K. location in Peterborough, the Company had 19
employees (18 full-time, 1 part-time). On September 30, 1996, 20 employees
held M.D., Ph.D. or other masters or post-graduate degrees. The Company
believes that its relations with its employees are good.
FACILITIES
The Company leases all of its facilities. The Company's principal offices
are located in Philadelphia, PA, where it leases approximately 35,000 square
feet under a lease expiring in 2003. This facility is owned by UM Holdings,
Ltd. See "Certain Relationships." The Company also maintains an office of
approximately 9,000 square feet in Peterborough, U.K. The Company believes
that the leases generally reflect market rates in their respective geographic
areas.
LEGAL PROCEEDINGS
The Company is involved in legal proceedings from time to time in the
ordinary course of its business. Management believes that none of these legal
proceedings will have a material adverse effect on the financial condition or
results of operations of the Company
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the names, ages and titles of the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Joel Morganroth, M.D. 51 President and Chief Executive Officer
Glenn Cousins 39 President, Diagnostic Services
Christopher C. Gallen, M.D., Ph.D. 45 President, Clinical Research Services
David A. Evans 39 Sr. Vice President and Chief Technical Officer
Fred M. Powell 35 Vice President, Finance and Administration
Carol Miller 37 Sr. Vice President, Business Development
Joan Carter 53 Chairman, Director
John J. Aglialoro 53 Director
Arthur Hull Hayes, Jr., M.D. 63 Director
Arthur W. Hicks, Jr. 38 Director
Jerry D. Lee 60 Director
Connie Woodburn 41 Director
Philip J. Whitcome, Ph.D. 48 Proposed Director
</TABLE>
Joel Morganroth, M.D., President and Chief Executive Officer. Dr.
Morganroth has served as the Chief Executive Officer of the Company since
1993 and has consulted for the Company since 1976. Dr. Morganroth was a
Professor of Medicine and Pharmacology at Hahnemann University from 1982 to
1992, and served as a Director of Cardiac Research and Development at the
Graduate Hospital of Philadelphia from 1987 until 1992. Currently, Dr.
Morganroth is an Adjunct Professor of Medicine (Pharmacology) at Jefferson
Medical College of Thomas Jefferson University and Clinical Professor of
Medicine at the University of Pennsylvania School of Medicine. Dr. Morganroth
is an internationally recognized cardiologist and clinical researcher. He has
served for ten years as a Medical Review Officer/Expert for the FDA and since
1995 has served in a similar capacity for the Health Protection Branch of
Canada.
Glenn Cousins, President, Diagnostic Services. Mr. Cousins has served in
various capacities since joining the Company in 1980. Most recently, Mr.
Cousins served as Vice President and Chief Operating Officer of the Company
from 1993 until he was appointed to his present position in 1996 as
President, Diagnostic Services.
Christopher C. Gallen, M.D., Ph.D., President, Clinical Research Services.
Dr. Gallen serves as President, Clinical Research Services of the Company,
which he joined in January 1996. Prior to joining the Company, Dr. Gallen
held various management positions with Quintiles Transnational Corporation in
San Diego, California, including Senior Director of Medical and Scientific
Services (1995-1996) and Director of Medical and Scientific Services
(1994-1995). Dr. Gallen was also associated with the Scripps Research
Institute in La Jolla, California, serving as Director, Biomagnetism
Laboratory from 1987 to 1994. Dr. Gallen served as Staff Neurologist for the
Scripps Clinic and Research Foundation (1990-1995) and Consultant
Psychiatrist for the San Diego County Department of Mental Health
(1985-1994).
David A. Evans, Senior Vice President and Chief Technical Officer. Mr.
Evans has served as Senior Vice President and Chief Technical Officer since
January 1994. Mr. Evans, who joined the Company in 1980, has also served as
Vice President (1989-1990) and Executive Vice President (1991-1993). Mr.
Evans led the Company's effort to provide CANDAs to the FDA and was the
principal designer of the first CANDA.
Fred M. Powell, C.P.A., Vice President, Finance and Administration. Mr.
Powell has served as Vice President, Finance and Administration of the
Company since 1995. Since joining the Company in 1993, Mr. Powell also has
served as Director of Finance and Administration (1993-1995) and Director of
Finance (1993). Prior to joining the Company, Mr. Powell was employed as an
Assistant Controller for Crown Textile Co. (1989-1993), and as a Senior
Manager of KPMG Peat Marwick LLP. While at KPMG Peat Marwick LLP, Mr. Powell
specialized in the pharmaceutical and service industries.
Carol Miller, Senior Vice President, Business Development. Ms. Miller
joined the Company as Senior Vice President, Business Development in November
1996. Prior to joining the Company, Ms. Miller was employed
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by ClinTrials Research, Inc., where she served as Senior Director, Business
Development (1996), Business Development Manager (1995-1996), Assistant
Director (1993-1995), Senior Manager (1993), Senior Clinical Project Manager
(1992-1993), and Clinical Project Manager (1992) . Ms. Miller also was
employed by Clinical Science Research International/Pharmco as Senior
Clinical Research Associate (1991) and Clinical Project Manager (1991-1992).
Joan Carter, Chairman, Director. Ms. Carter has served as Chairman of the
Company's Board of Directors since 1996, and as a member of the Board of
Directors of the Company or its predecessors since their founding. Ms. Carter
is a founder and since 1972 has been a director and executive officer of UM,
which is the indirect majority stockholder of the Company. She has served as
President of UM since 1986. Ms. Carter is also a member of the Board of
Directors of the Federal Reserve Bank of Philadelphia.
John J. Aglialoro, Director. Mr. Aglialoro has served on the Board of
Directors of the Company or its predecessors since their founding. Mr.
Aglialoro is a founder and since 1972 has been a director and executive
officer of UM. Mr. Aglialoro has held the position of Chairman of UM since
1982.
Arthur Hull Hayes, Jr., M.D., Director. Dr. Hayes has served on the
Company's Board of Directors since 1996. Since 1991, Dr. Hayes has served as
President and Chief Operating Officer of MediScience Associates, Inc., a
consulting firm. Dr. Hayes is an advisor to the Company and others in
healthcare product development and regulation, clinical pharmacology, and
medical and pharmacy practice, and is internationally recognized as a medical
researcher and clinician. Dr. Hayes served as Commissioner of the FDA from
1981 to 1983. He is also a member of the Board of Directors of Celgene, Inc.,
Myriad Genetics and NaPro Biopharmaceuticals, Inc.
Arthur W. Hicks, Jr., Director. Mr. Hicks has served on the Company's
Board of Directors since 1995. Mr. Hicks is UM's Vice President and Chief
Financial Officer, in which capacity he has served since 1988. He is a
certified public accountant, and prior to joining UM, was employed by Ernst &
Young, LLP, a public accounting firm.
Jerry D. Lee, Director. Mr. Lee has served on the Company's Board of
Directors since 1996. Mr. Lee was a partner in the accounting firm of Ernst &
Young LLP from 1969 until his retirement in 1995. He was managing partner of
its Philadelphia office from 1979 to 1989 and a member of the firm's
world-wide multi-national partner group from 1989 to 1995.
Connie Woodburn, Director. Ms. Woodburn has served on the Company's Board
of Directors since 1996. Ms. Woodburn is Executive Vice President of PREMIER,
Inc., the nation's largest voluntary healthcare alliance, where she has been
employed in a variety of management capacities since 1987.
Philip J. Whitcome, Ph.D., Proposed Director. Dr. Whitcome has agreed to
serve on the Company's Board of Directors. Since 1995, Dr. Whitcome has
served as Chairman of the Board of Directors of Avigen, a biotechnology
company, for which he also acted as Chief Financial Officer from March 1996
to September 1996. From 1988 to 1994, Dr. Whitcome was President and Chief
Executive Officer of Neurogen Corporation, a biopharmaceutical company. From
1981 to 1988, Dr. Whitcome was employed at Amgen Inc., a biopharmaceutical
company, serving most recently as Director of Strategic Planning. Prior to
joining Amgen, he served as Manager of Corporate Development for Medical
Products at Bristol-Myers Squibb Co. and held research and marketing
management positions with the Diagnostics Division of Abbott Laboratories.
Mr. Aglialoro and Ms. Carter are married. There are no other family
relationships among the directors or executive officers.
Members of the Board of Directors serve three year terms with staggered
expiration dates. The terms of Ms. Carter and Ms. Woodburn expire in 1997,
the terms of Mr. Aglialoro and Dr. Hayes expire in 1998, and the terms of Mr.
Hicks and Mr. Lee expire in 1999. Officers are elected by the Board of
Directors and serve at the pleasure of the Board.
EMPLOYMENT CONTRACTS
The Company has entered into employment agreements with each of the
executive officers named in the Summary Compensation Table. Under these
agreements, the employment may be terminated with or without
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cause at any time. In the event that the Company terminates an officer's
employment other than "for cause", the Company is obligated to continue
normal salary payments for up to six months (one year in the case of Dr.
Morganroth). Pursuant to the agreement, each officer has agreed not to
compete with the Company during his employment and for a period of two years
thereafter. In October 1996, Dr. Morganroth entered into a new employment
agreement that became effective January 1, 1997, and continues, unless
terminated, through December 31, 2001. Under the terms of this agreement, Dr.
Morganroth will receive an annual salary which for 1997 will equal $201,000.
A professional corporation of which Dr. Morganroth is the sole stockholder
and employee has separately agreed to provide services to the Company,
including serving as medical director and providing medical interpretation
for diagnostic tests, with an annual fee of $144,000 which commenced on January
1, 1997. See "Certain Relationships and Related Party Transactions."
BOARD COMMITTEES
The Executive Committee of the Board of Directors is composed of Ms.
Carter and Mr. Aglialoro, the Compensation and Personnel Committee is
composed of Mr. Lee and Ms. Woodburn and the Audit Committee is composed of
Mr. Hicks and Mr. Lee. The Board intends to create a Scientific Oversight
Committee composed initially of Dr. Hayes.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive a fee of $1,000 for
each directors meeting attended and $500 for each committee meeting attended.
Upon completion of this offering, non-employee directors also will receive an
annual retainer of $2,000. Each director is reimbursed for out-of-pocket
expenses incurred in connection with attending meetings and other services as
a director. At the time of their initial election to the Board, Mr. Lee, Dr.
Hayes and Ms. Woodburn were each granted options to acquire 4,402 shares of
Common Stock of the Company. These options will become first exercisable on
the earlier of the seventh anniversary of the date of grant or 180 days
following the closing of this offering, and in the latter case will remain
exercisable for five years thereafter.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
compensation paid by the Company for the year ended December 31, 1995 to the
Company's Chief Executive Officer and to each of the Company's other
executive officers whose salary and bonus exceeded $100,000 in such year:
Summary Compensation Table
<TABLE>
<CAPTION>
Long term
Annual Compensation
Compensation(1) --------------
--------------------- Number of All Other
Name and Principal Position Year Salary Bonus Options Compensation(2)
------------------------------ ------ ---------- ------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Joel Morganroth, M.D. 1995 $171,000 -- 220,100 --(3)
President and Chief Executive
Officer
David Evans 1995 119,500 -- 33,015 $6,138
Sr. Vice President and Chief
Technical Officer
Glenn Cousins 1995 115,000 -- 66,030 6,900
President, Diagnostic
Services
</TABLE>
- ------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those instances where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser
of $50,000 or 10% of the total of annual salary and bonuses for the
officer for such year.
(2) Represents the Company's 401(k) plan contributions.
(3) Excludes consulting fees of $956,000 paid to a professional corporation
owned by Dr. Morganroth. See "Certain Relationships and Related Party
Transactions."
STOCK OPTION GRANTS
The following tables contain certain information concerning the grant of
stock options under the Company's 1993 Non-Qualified Stock Option Plan during
the year ended December 31, 1995, and the number and
41
<PAGE>
value of options held at December 31, 1995 by each of the Company's executive
officers named in the Summary Compensation Table. These options will become
exercisable on the sooner of July 1, 2003 or the 90th day following the
closing of this offering. Prior to the offering, the Company has been
privately-held and there has been no public market for its securities. The
Company believes that the options were granted at prices in excess of the
then fair market value of the stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------
Potential
Realizable
Value
at Assumed
Annual Rates of
Stock Price
Number of Percent of Total Appreciation
Securities Options for
Underlying Granted to Exercise or Option Term
Options Employees in Base Price Expiration ----------------
Name Granted Fiscal Year ($/Sh) Date(1) 5%(2) 10%(2)
--------------------- ------------ ---------------- ------------- ------------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Joel Morganroth, M.D. 220,100 46.5% $2.27 2/1/02 $0 $0
David Evans 33,015(3) 7.0% 2.27 2/1/02 0 0
Glenn Cousins 66,030(3) 14.0% 2.27 2/1/02 0 0
</TABLE>
- ------
(1) Assumes that the closing of this offering occurs on February 1, 1997.
(2) Amounts represent hypothetical gains that could be achieved for the
options if exercised at the end of the option term. These gains are based
upon assumed rates of share price appreciation set by the Securities and
Exchange Commission of five percent and ten percent of the fair value of
the Common Stock on the date of grant of the options (which was
substantially less than the exercise price), compounded annually from the
date of grant to the option expiration date. The gains shown are net of
the option exercise price, but do not include deductions for taxes or
other expenses associated with the exercise. While these assumptions
result in no potential realizable value of the option, a calculation
based on the proposed initial public offering price would result in a
significant potential realizable value. Actual gains, if any, are
dependent on the performance of the Common Stock and the date on which
the option is exercised.
(3) Excludes options for 11,005 shares and 22,010 shares granted to Mr. Evans
and Mr. Cousins, respectively, during 1995 and subsequently terminated.
FISCAL 1995 YEAR END OPTION VALUES
Number of Value of Unexercised
Unexercised Options In-the-Money Options
Name at Fiscal Year End at December 31, 1995
--------------------- ------------------- --------------------
Joel Morganroth, M.D. 220,100 $0
David Evans 33,015 0
Glenn Cousins 66,030 0
STOCK OPTION PLANS
1993 Non-Qualified Stock Option Plan. The Company's 1993 Non-Qualified
Stock Option Plan (the "1993 Plan") authorizes the grant of options to
acquire up to 1,100,500 shares of the Company's Common Stock. The purpose of
the 1993 Plan was to provide an incentive for key individuals to advance the
success of the Company. The Plan is administered by a committee of not less
than two directors, the members of which are ineligible to participate in the
Plan. The Committee, in its discretion, determines who shall receive options
under the Plan.
The 1993 Plan provides for the grant of non-qualified options to acquire
the Company's Common Stock. The option price for each option which has been
granted under the 1993 Plan is $2.27 per share. Each option granted under the
1993 Plan will become exercisable on July 1, 2003 or on the 90th day
following the closing of the initial public offering ("IPO") of the Company's
Common Stock (the "IPO Date"), as defined, and will expire on the fifth
anniversary of the IPO Date. The offering pursuant to this Prospectus will
constitute an IPO, as defined in the 1993 Plan. In accordance with the terms
of lock-up agreements entered into with the Company, the holders of the
options have agreed not to sell shares of Common Stock owned by each of them
without the prior written consent of Montgomery Securities for a period of
180 days (365 days, in the case of Dr. Morganroth) following the first offer
of shares of Common Stock pursuant to this Prospectus. See "Underwriting."
Options covering 517,235 shares of the Common Stock are outstanding under
the 1993 Plan as of the date of this Prospectus. The Company does not 43
anticipate granting any additional options under the Plan prior to the
offering hereunder, and under the terms of the 1993 Plan, no further options
can be granted under the 1993 Plan after the IPO Date.
42
<PAGE>
1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the "1996
Plan") authorizes the grant of options to acquire up to 500,000 shares of the
Company's Common Stock. Such options may be incentive stock options ("ISOs")
within the meaning of the Internal Revenue Code of 1986, as amended, or
options that do not qualify as ISOs ("Non-Qualified Options").
The 1996 Plan is administered by a Committee of the Board of Directors
(the "Committee") consisting of not less than two directors of the Company.
The Committee has full power and authority to interpret the provisions, and
supervise the administration, of the 1996 Plan. It determines, subject to the
provisions of the 1996 Plan, to whom options are granted, the number of
shares of Common Stock subject to each option, whether an option shall be an
ISO or a Non-Qualified Option and the period during which each option may be
exercised. In addition, the Committee determines the exercise price of each
option, subject to the limitations provided in the 1996 Plan. The exercise
price per share of any ISO granted under the Plan may not be less than 100%
of the fair market value per share of Common Stock on the date of grant (110%
of such fair market value if the grantee owns stock representing more than
10% of the combined voting power of all classes of the Company's stock). The
aggregate fair market value (determined as of the time such option is
granted) of the Common Stock for which any employee may have ISOs which
become exercisable for the first time in any calendar year may not exceed
$100,000.
ISOs may have an exercise option period of up to 10 years (five years for
optionees who own more than 10% of the total combined voting power of all
classes of stock of the Company or its parent or any subsidiary corporation).
Non-Qualified Options will have an exercise option period as specified by the
Committee at the time of grant.
The 1996 Plan provides that upon termination of employment of the optionee
for any reason other than death or disability, the right to exercise the
option (to the extent otherwise exercisable) will terminate within three
months following cessation of employment. In the event of termination of
employment due to death or disability, the same provisions apply except that
the period of time for exercise is one year.
The options granted pursuant to the 1996 Plan are not transferable except
in the event of death. Options may be granted under the 1996 Plan to
employees and directors of the Company and to others providing services or
having a relationship with the Company. No options may be granted under the
1996 Plan after November 18, 2006.
At the present time, no options have been granted under the 1996 Plan. The
Company has agreed to grant to an employee an option for 10,000 shares
pursuant to the 1996 Plan, at the offering price hereunder. The Company has
no other current plans to grant options under the 1996 Plan.
401(K) PLAN
The Company has participated in a deferred savings program for employees
pursuant to Section 401(k) of the Internal Revenue Code of 1986 sponsored by
UM, for which the Company is charged for the profit sharing plan
contributions made with respect to its employees. During 1997, the Company
intends to adopt its own 401(k) program, which will be substantially
identical to the UM program. Under the 401(k) program, full-time employees of
the Company who have completed at least one year of employment may elect to
defer receipt of a specified portion of their compensation, with the Company
providing limited matching contributions. Subject to certain limitations
relating to non-discrimination, a participant is permitted to contribute
between 2% and 10% of his or her compensation to the program. The Company
makes matching contributions, up to 6% of compensation, equal to 25% to 100%
of the employee's contribution, based upon years of service. The amount that
may be contributed by a participant in any single year may not exceed an
amount specified by law, which for 1996 was $9,500. Vesting of Company
contributions commence upon the completion of two years of service and then
increases until full vesting occurs upon completion of five years of service.
An employee's contributions are fully vested immediately.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Personnel Committee is composed of Mr. Lee and Ms.
Woodburn, neither of whom is a current or former officer or employee of the
Company.
43
<PAGE>
Prior to the formation of the Compensation and Personnel Committee,
decisions with respect to executive compensation were determined by the Board
which, at the time of such determinations, was composed of John Aglialoro and
Joan Carter. Ms. Carter is the Chairman of the Board, and Mr. Aglialoro is a
director of the Company. They also are executive officers, directors and the
principal stockholders of UM, which prior to this offering was the principal
stockholder of the Company. See "Certain Relationships".
PRINCIPAL AND SELLING STOCKHOLDERS
Of the shares of Common Stock offered hereby, 750,000 are being sold by UM
Holdings, Ltd. through its wholly-owned subsidiary UM Equity Corp.
(collectively, "UM"). The Company will not receive any of the proceeds from
the shares of Common Stock being sold by UM. Substantially all of the capital
stock of UM is owned equally by John Aglialoro and Joan Carter.
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock of the Company by UM, the Company's
directors and executive officers, and each other person known to the Company
to own beneficially more than 5% of the Common Stock, and as adjusted to
reflect UM's sale of Common Stock in this offering.
<TABLE>
<CAPTION>
Prior to Offering After Offering
------------------------------ ---------- ------------------------------
Shares Shares Shares
Beneficially Percentage Being Beneficially Percentage
Name of Beneficial Owner Owned Owned Offered(1) Owned Owned
----------------------------------------- -------------- ------------ ---------- -------------- ------------
<S> <C> <C> <C> <C> <C>
UM Holdings, Ltd. (2) ................... 3,741,700 79.1% 750,000 2,991,700 44.4%
Joel Morganroth, M.D. (3) ............... 880,400 17.8 880,400 12.7
PREMIER, Inc. (4) ....................... 334,552 7.1 334,552 5.0
Glenn Cousins (5) ....................... 66,030 1.4 66,030 1.0
Christopher C. Gallen, M.D., Ph.D.(5) ... 44,020 * 44,020 *
David A. Evans (5) ...................... 33,015 * 33,015 *
Fred M. Powell (5) ...................... 22,010 * 22,010 *
Carol Miller ............................ -- -- -- --
Joan Carter (6) ......................... 3,741,700 79.1 2,991,700 44.4
John J. Aglialoro (6) ................... 3,741,700 79.1 2,991,700 44.4
Arthur Hull Hayes, Jr., M.D. (7) ........ 4,402 * 4,402 *
Arthur W. Hicks, Jr. (5) ................ 44,020 * 44,020 *
Jerry D. Lee (7) ........................ 4,402 * 4,402 *
Connie Woodburn (7)(8) .................. 4,402 * 4,402 *
Philip J. Whitcome, Ph.D. ................ -- -- -- --
All directors and executive officers as a group
(12 persons)(9) ........................ 4,844,401 93.7 4,094,401 57.1
</TABLE>
- ------
* Less than 1.0%
(1) Assumes no exercise of the over-allotment option.
(2) Represents shares owned by its wholly-owned subsidiary, UM Equity Corp.
UM's address is 56 Haddon Avenue, Haddonfield, NJ 08033.
(3) Includes (i) 495,225 shares owned by a trust for the benefit of Dr.
Morganroth's minor children, as to which Dr. Morganroth disclaims
beneficial ownership, and (ii) 220,100 shares issuable with respect to
options granted pursuant to the Company's 1993 Non-Qualified Stock Option
Plan, which become exercisable in full on the 90th day following the
closing of this offering. Dr. Morganroth's address is 124 S. 15th Street,
Philadelphia, PA 19102.
(4) Upon the closing of this offering, PREMIER, Inc.'s minority interest in
limited liability company controlled by the Company will automatically be
converted into 330,150 shares of Common Stock of the Company. The
interest in limited liability company is, and the shares of Common Stock
into which the interest will be converted will be, held by a trust for
the benefit of the owners of Premier Health Alliance Inc. at the time of
the merger which resulted in the formation of PREMIER, Inc. The trustee
for this trust is a wholly-owned subsidiary of PREMIER, Inc. Includes
options granted to Connie Woodburn, a director of the Company and an
executive officer of PREMIER, Inc., which in accordance with her
employment arrangement are held for the benefit of PREMIER, Inc. PREMIER,
Inc.'s address is 3 Westbrook Corporate Center, Westchester, Illinois
60154.
(5) Represents shares issuable with respect to options granted pursuant to
the Company's 1993 Non-Qualified Stock Option Plan, which become
exercisable in full on the 90th day following the closing of this
offering.
(6) Represents shares owned by UM, of which Mr. Aglialoro and Ms. Carter are
the principal stockholders and act as executive officers and directors.
(7) Represents shares issuable upon exercise of stock options that become
exercisable in full 180 days following the closing of this offering.
(8) Represents shares issuable under a stock option which, due to Ms.
Woodburn's employment relationship with PREMIER, Inc., are held for the
benefit of such company. Excludes shares owned by PREMIER, Inc., for
which Ms. Woodburn is an executive officer.
(9) Includes 442,401 shares issuable upon exercise of stock options.
44
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company or its predecessors have been direct or indirect subsidiaries
or divisions of UM since 1977. Upon closing of the offering, UM will
indirectly own approximately 44.4% of the Company's Common Stock (40.1% if
the Underwriters' over-allotment option is exercised in full). John Aglialoro
and Joan Carter, who are married, are executive officers, directors and the
principal stockholders of UM; Ms. Carter is the Chairman and Mr. Aglialoro is
a director of the Company.
UM has had the following arrangements with the Company:
The Company's principal executive and operations facility is owned by UM
and leased to the Company. The current annual rent under this lease is
$349,200. The Company believes that the terms of this lease are as favorable
to the Company as would have been obtained through arms-length negotiations
with an unrelated party. See "Business -- Facilities."
UM has historically provided various administrative services to the
Company, including accounting, human resources and computer services, for
which it was charged $160,000 in 1995. In 1996, UM decentralized most of
these functions, and now provides primarily 401(k) administrative services.
For the nine months ended September 30, 1996, UM charged the Company $43,000.
The Company also has participated in UM's deferred savings program for
employees pursuant to Section 401(k) of the Internal Revenue Code. The
Company was charged $59,000 and $65,000 for 1995 and the nine months ended
September 30, 1996, respectively, for profit sharing plan contributions made
pursuant to this program on behalf of its employees. During 1997, the Company
expects to adopt its own Section 401(k) program, which will be substantively
identical to the UM program. Until April 1996, the Company participated in
UM's centralized cash management program. Pursuant to this program, the
Company's cash receipts were remitted to, and cash disbursements were funded
by, UM, with UM retaining any excess cash.
The Company performed blood and urine analysis services for a subsidiary
of UM. The Company charged market fees for these services of $115,000 and
$7,000 for 1995 and the nine months ended September 30, 1996, respectively.
The Company utilized a different UM subsidiary for subcontracted diagnostic
services, for which it incurred market fees of $94,000 and $122,000 for 1995
and the nine months ended September 30, 1996, respectively. The Company does
not anticipate using these subcontracted services in the future. The Company
sold fixed assets to UM at their carrying values of $66,000 and $29,000 for
1995 and the nine months ended September 30, 1996, respectively.
The Company is, and until the closing of the offering hereunder will
continue to be, included in the consolidated income tax filings of UM. The
Company, UM and other subsidiaries of UM have entered into a tax sharing
agreement pursuant to which the Company will pay to UM amounts equal to the
income taxes which the Company would otherwise have paid had it filed
separate income tax returns.
Certain of the Company's diagnostic testing and clinical research
contracts require that specified medical professional services be provided by
Dr. Morganroth, the Company's President and Chief Executive Officer. The
Company has retained Joel Morganroth, M.D., PC, a professional corporation
owned by Dr. Morganroth, to provide these and other services, which include
serving as Medical Director to the Company, acting as principal investigator
for various studies, and providing medical interpretation for diagnostic
tests from time to time as required. These arrangements resulted in payments
to the professional corporation during 1995 and the nine month period ended
September 30, 1996 of $956,000 and $1,621,000, respectively. Effective
January 1, 1997, the professional corporation will receive a fixed annual fee
of $144,000, for these services.
In January 1996, UM sold 660,300 shares of the Company's outstanding
Common Stock to Dr. Morganroth and, in connection therewith, loaned Dr.
Morganroth $750,000. This collateralized loan, which bears interest at 5.5%
per annum, is payable on December 31, 1997.
During 1995, the Company and PREMIER, Inc. formed a limited liability
company, owned 65% by the Company and 35% by PREMIER, Inc. Upon the closing
of this offering, PREMIER, Inc.'s interest in the limited liability company
will convert into 330,150 shares of the Company's Common Stock. Connie
Woodburn, a director of the Company, serves as Executive Vice President of
PREMIER, Inc.
The Company believes that the terms of all of the above transactions are
as favorable to the Company as would have been obtained through arms-length
negotiations with an unrelated party.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 15,000,000 shares of
Common Stock, $.01 par value, and 500,000 shares of Preferred Stock, $10 par
value.
COMMON STOCK
As of November 15, 1996, there were 4,732,150 shares of Common Stock
outstanding. The holders of shares of Common Stock are entitled to one vote
per share held on all matters submitted to a vote of stockholders of the
Company and do not have cumulative voting rights. Accordingly, holders of a
majority of the shares of the Common Stock entitled to vote in any election
of directors may elect all of the directors standing for election, and after
the offering the current stockholders and directors and officers of the
Company will be able to elect all of the directors. In addition, holders of
the Common Stock are entitled to receive ratably such dividends, if any, as
may be declared from time to time by the Board of Directors out of funds
legally available therefor. In the event of the dissolution, liquidation or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of all liabilities of the
Company. Dividend and liquidation rights attributable to the Common Stock
would be subject to any preferential rights associated with any outstanding
Preferred Stock. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. All outstanding shares of Common Stock are,
and the shares of Common Stock offered by the Company in this offering will
be, when issued, fully paid and nonassessable.
PREFERRED STOCK
Presently, there are no shares of Preferred Stock outstanding. The Board
of Directors has the authority to issue Preferred Stock in one or more
series, and to fix the rights, preferences, privileges and restrictions,
including dividend, conversion, voting, redemption (including sinking fund
provisions), and other rights, liquidation preferences and the number of
shares constituting any series and the designations of such series, without
any further vote or action by the shareholders of the Company. The rights and
preferences of the Preferred Stock may be senior to the rights and
preferences of the Common Stock. Because the terms of the Preferred Stock may
be fixed by the Board of Directors of the Company without stockholder action,
the Preferred Stock could be issued quickly with terms calculated to defeat a
proposed takeover of the Company, or to make the removal of the management of
the Company more difficult. Under certain circumstances, this could have the
effect of decreasing the market price of the Common Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date
of the transaction in which the person became an interested stockholder,
unless the business combination is approved in a prescribed manner. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years did own, 15% or
more of the corporation's voting stock.
The Certificate of Incorporation of the Company requires an affirmative
super-majority (80%) stockholder vote before the Company can enter into
certain defined business combinations, except for combinations that meet
several specified conditions, and an affirmative super-majority (70%)
stockholder vote to amend the provision of the Certificate of Incorporation
pertaining to a staggered Board of Directors. These provisions, as well as
the provisions of the Certificate of Incorporation described above relating
to the staggered terms of the Board of Directors and the ability of the Board
of Directors to issue shares of Preferred Stock, could discourage potential
take-over attempts and may make more difficult attempts by stockholders to
change the management of the Company.
The Company's Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such
46
<PAGE>
as the breach of a director's duty of loyalty or acts or omissions which
involve intentional misconduct or a knowing violation of law. The General
Corporation Law of Delaware also authorizes the Company to indemnify its
directors and officers. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve
as directors.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is First Union
National Bank.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 6,732,150 shares
of Common Stock outstanding. Of the shares outstanding upon completion of
this offering, the 2,750,000 shares sold in this offering will be freely
tradeable without restriction or registration under the Act, except for
shares purchased by "affiliates" of the Company as that term is defined in
Rule 144 under the Act.
The remaining 3,982,150 shares of Common Stock outstanding, and the
540,441 shares issuable upon exercise of outstanding stock options, will be
"restricted securities" (the "Restricted Shares") within the meaning of Rule
144 under the Act, and may not be sold in the absence of registration under
the Act unless an exemption from registration is available, including an
exemption contained in Rule 144 or Rule 701 under the Act.
In general, Rule 144, as currently in effect, provides that any person (or
persons whose shares are aggregated) who has beneficially owned shares for at
least two years, including persons who may be deemed "affiliates" of the
Company (as defined under the Act), is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of
(i) the average weekly trading volume in the Common Stock during the four
calendar weeks preceding the date on which notice of such sale is filed with
the Securities and Exchange Commission (the "Commission"), or (ii) 1% of the
shares of Common Stock then outstanding. In addition, sales under Rule 144
are subject to certain other restrictions regarding the manner of sale,
required notice and availability of current public information concerning the
Company. A person who is not deemed an "affiliate" of the Company, has not
been an affiliate for at least three months prior to the sale and who has
beneficially owned shares for at least three years after the later of the
date the shares were acquired from the Company or the date they were
purchased from an affiliate of the Company, is entitled to sell such shares
under Rule 144(k) immediately without regard to the volume limitations and
current public information requirements described above. Affiliates,
including members of the Board of Directors and executive officers, continue
to be subject to such limitations.
Shares issuable on the exercise of outstanding options may be eligible for
sale in the public market pursuant to Rule 701 under the Act. In general,
Rule 701 permits resale of shares issued pursuant to certain compensatory
benefit plans and contracts commencing ninety days after the issuer becomes
subject to the reporting requirements of the Exchange Act, in reliance upon
Rule 144, but without compliance with certain restrictions of Rule 144,
including the holding period requirements.
The Company, the Selling Stockholder (which prior to this offering is the
principal stockholder of the Company), all optionees (who will have the right
to acquire a total of 540,441 shares of Common Stock pursuant to stock
options exercisable 90 or 180 days following the closing of the offering
hereunder), and each other stockholder, executive officer and director of the
Company have agreed with the Representatives of the Underwriters that,
subject to certain exceptions, they will not offer, sell, contract to sell,
grant any option to purchase, or otherwise dispose of any shares of Common
Stock, or any securities convertible or exercisable or exchangeable for
shares of Common Stock, beneficially owned by them for a period of 180 days
(365 days, in the case of Dr. Morganroth) following the first offer of shares
of Common Stock pursuant to this Prospectus without the prior written consent
of the Underwriters' Representatives.
Prior to this offering, there has been no market for the Common Stock of
the Company and no prediction can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock of the Company in the public market could
adversely effect prevailing market prices.
47
<PAGE>
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities, Furman
Selz LLC and Genesis Merchant Group Securities (the "Representatives"), have
severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from the Company and the Selling
Stockholder the number of shares of Common Stock indicated below opposite
their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent, and that the Underwriters are
committed to purchase all of the shares if they purchase any of the shares.
Number of
Underwriters Shares
- ------------ -----------
Montgomery Securities .....................................
Furman Selz LLC ...........................................
Genesis Merchant Group Securities...........................
-----------
Total ................................................... 2,750,000
===========
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on
the cover page of this Prospectus. The Underwriters may allow to selected
dealers a concession of not more than $ per share; and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $ per
share to certain other dealers. After the offering, the offering price and
other selling terms may be changed by the Representatives. The Common Stock
is offered subject to receipt and acceptance by the Underwriters, and to
certain other conditions, including the right to reject orders in whole or in
part.
The Company and the Selling Stockholder have granted an option to the
Underwriters, exercisable during the 30-day period after the date shares of
Common Stock are first offered for sale pursuant to this Prospectus, to
purchase up to a maximum of 412,500 additional shares of Common Stock to
cover over-allotments, if any, at the same price per share as the initial
shares to be purchased by the Underwriters. To the extent that the
Underwriters exercise this option, the Underwriters will be committed,
subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with the offering.
The Underwriting Agreement provides that the Company, the Selling
Stockholder and UM Holdings, Ltd. will indemnify the Underwriters against
certain liabilities, including civil liabilities under the Securities Act, or
will contribute to payments the Underwriters may be required to make in
respect thereof.
The Company and its directors, executive officers, and stockholders have
agreed that for a period of 180 days (365 days, in the case of Dr.
Morganroth) following the first offering of shares pursuant to this
Prospectus, they will not, directly or indirectly, offer, sell, contract to
sell, grant any option to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock or securities convertible into or
exchangeable for, or any rights to purchase or acquire, Common Stock without
the prior written consent of Montgomery Securities. Montgomery Securities
may, in its sole discretion and at any time without prior notice, release all
or any portion of the shares of Common Stock subject to the lock-up
agreements.
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts
over which they exercise discretionary authority in excess of 5% of the
offering.
Prior to the offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price will be
determined by negotiations between the Company and the Representatives. Among
the factors to be considered in such negotiations are the history of, and the
prospects for, the Company and the industry in which it competes, an
assessment of the Company's management, the Company's past and present
operations, its past and present earnings and the trend of such earnings, the
prospects for future earnings of the Company, the present state of the
Company's development, the general condition of the securities markets at the
time of the offering and the market price of and demand for publicly-traded
common stocks of comparable companies in recent periods.
48
<PAGE>
The Company is applying for listing of the Common Stock on the Nasdaq
National Market under the symbol "PRWW."
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for the
Company and the Selling Stockholder by Archer & Greiner, A Professional
Corporation, Haddonfield, New Jersey. James H. Carll, who is a member of the
firm of Archer and Greiner, is a director of UM Holdings, Ltd. and UM Equity
Corp. Certain legal matters will be passed upon for the Underwriters by
Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania.
EXPERTS
The audited Consolidated Financial Statements of the Company included in
this Prospectus and elsewhere in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-1 under
the Securities Act of 1933, as amended, for the registration of the
securities offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules filed therewith, as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus concerning the contents
of any contract or other document are not necessarily complete, and in each
instance reference is made to such contract or other document filed with the
Commission as an exhibit to the Registration Statement, or otherwise, each
such statement being qualified in all respects, by such reference to such
exhibit. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, and financial statements and notes filed as a
part thereof.
As a result of this offering, the Company will be subject to the information
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). So long as the Company is subject to periodic reporting requirements of
the Exchange Act, it will continue to furnish the reports and other information
required thereby to the Securities and Exchange Commission. The Company will
furnish to its shareholders annual reports containing audited financial
statements and will make available copies of quarterly reports for the first
three quarters of each fiscal year containing unaudited interim financial
information.
49
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
--------
Report of Independent Public Accountants ..................... F-2
Consolidated Balance Sheets .................................. F-3
Consolidated Statements of Operations ........................ F-4
Consolidated Statements of Stockholders' Equity .............. F-5
Consolidated Statements of Cash Flows ........................ F-6
Notes to Consolidated Financial Statements ................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Premier Research Worldwide, Ltd.:
We have audited the accompanying consolidated balance sheets of Premier
Research Worldwide, Ltd. (an indirect subsidiary of UM Holdings, Ltd., see
Note 1) and subsidiaries as of December 31, 1994 and 1995 and September 30,
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three year period ended
December 31, 1995, and for the nine months ended September 30, 1996. 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 Premier Research Worldwide,
Ltd. and subsidiaries, as of December 31, 1994 and 1995 and September 30,
1996, and the results of their operations and their cash flows for each of
the years in the three year period ended December 31, 1995, and for the nine
months ended September 30, 1996, in conformity with generally accepted
accounting principles.
Philadelphia, Pa.,
November 20, 1996 (except for the
stock split discussed in Note 11,
as to which the date is November 26, 1996) ARTHUR ANDERSEN LLP
F-2
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30, 1996
------------------------------ -----------------------------
1994 1995 Actual Pro Forma
------------- ------------- ------------- ------------
(unaudited)
(See Note 1)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................... $ 447,000 $ 33,000 $ 530,000 $ 80,000
Accounts receivable, net .................... 2,326,000 2,586,000 3,450,000 3,450,000
Prepaid expenses and other .................. 146,000 414,000 295,000 295,000
Deferred income taxes ....................... 148,000 106,000 105,000 105,000
------------- ------------- ------------- ------------
Total current assets ..................... 3,067,000 3,139,000 4,380,000 3,930,000
Property and equipment, net ................... 1,893,000 1,049,000 675,000 675,000
Goodwill, net ................................. 190,000 142,000 106,000 106,000
Deferred income taxes ......................... 5,000 70,000 114,000 114,000
------------- ------------- ------------- ------------
$5,155,000 $4,400,000 $5,275,000 $4,825,000
============= ============= ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................ $ 294,000 $ 475,000 $ 605,000 $ 605,000
Accrued expenses ............................ 892,000 526,000 640,000 $ 640,000
Accrued income taxes ........................ 170,000 46,000 315,000 315,000
Payable to UM Holdings, Ltd. for income taxes -- -- 447,000 447,000
Deferred revenues ........................... 1,624,000 363,000 318,000 318,000
------------- ------------- ------------- ------------
Total current liabilities ................ 2,980,000 1,410,000 2,325,000 2,325,000
------------- ------------- ------------- ------------
Minority interest in limited liability company -- 332,000 29,000 29,000
------------- ------------- ------------- ------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock- $10 par value, 500,000
shares
authorized, none issued and outstanding .. -- -- -- --
Common stock-$.01 par value, 15,000,000
shares
authorized, 4,402,000 shares issued and
outstanding .............................. 44,000 44,000 44,000 44,000
Additional paid-in capital .................. 2,131,000 2,273,000 2,273,000 2,273,000
Retained earnings ........................... -- 341,000 604,000 154,000
------------- ------------- ------------- ------------
Total stockholders' equity ............... 2,175,000 2,658,000 2,921,000 2,471,000
------------- ------------- ------------- ------------
$5,155,000 $4,400,000 $5,275,000 $4,825,000
============= ============= ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------------------- -------------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- ------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues ...................... $10,245,000 $12,910,000 $12,218,000 $9,031,000 $11,754,000
Less-Reimbursed costs ......... -- -- (154,000) (36,000) (147,000)
-------------- -------------- -------------- ------------- --------------
Net revenues .................. 10,245,000 12,910,000 12,064,000 8,995,000 11,607,000
-------------- -------------- -------------- ------------- --------------
Costs and expenses:
Direct costs ................ 2,428,000 3,473,000 4,124,000 2,795,000 4,615,000
Selling, general and
administrative ........... 7,278,000 7,245,000 6,375,000 4,600,000 5,070,000
Depreciation and amortization 785,000 1,197,000 1,013,000 786,000 556,000
-------------- -------------- -------------- ------------- --------------
Total costs and expenses ...... 10,491,000 11,915,000 11,512,000 8,181,000 10,241,000
-------------- -------------- -------------- ------------- --------------
Income (loss) before income
taxes and minority interest . (246,000) 995,000 552,000 814,000 1,366,000
Minority interest in limited
liability company's (income)
loss ........................ -- -- 48,000 (21,000) 303,000
-------------- -------------- -------------- ------------- --------------
Income (loss) before income
taxes ....................... (246,000) 995,000 600,000 793,000 1,669,000
Income tax provision (benefit) (69,000) 415,000 259,000 315,000 719,000
-------------- -------------- -------------- ------------- --------------
Net income (loss) ............. $ (177,000) $ 580,000 $ 341,000 $ 478,000 $ 950,000
============== ============== ============== ============= ==============
Pro forma net income per share
(Note 1) (unaudited):
Pro forma net income before
income taxes ............. $ 552,000 $ 1,366,000
Pro forma income tax
provision ................ 239,000 596,000
-------------- --------------
Pro forma net income ........ $ 313,000 $ 770,000
============== ==============
Pro forma net income per
share .................... $ .07 $ .15
============== ==============
Shares used in computing pro
forma net income per share 4,757,000 4,998,000
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Division
Stock Capital Earnings Equity Total
--------- ------------- ----------- ------------- -------------
$ $ $
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 ...... -- -- -- $ 1,856,000 $1,856,000
Net loss .................... -- -- -- (177,000) (177,000)
Deemed distribution for net
operating loss utilization -- -- -- (217,000) (217,000)
Net contributions from UM
Holdings, Ltd. ........... -- -- -- 786,000 786,000
--------- ------------- ----------- ------------- -------------
Balance, December 31, 1993 .... -- -- -- 2,248,000 2,248,000
Net income ................. -- -- 300,000 280,000 580,000
Contribution of division
equity by UM Holdings,
Ltd. ..................... 44,000 2,484,000 -- (2,528,000) --
Net distributions to UM
Holdings, Ltd. ........... -- (353,000) (300,000) -- (653,000)
--------- ------------- ----------- ------------- -------------
Balance, December 31, 1994 .... 44,000 2,131,000 -- -- 2,175,000
Net income .................. -- -- 341,000 -- 341,000
Net contributions from UM
Holdings, Ltd. ........... -- 142,000 -- -- 142,000
--------- ------------- ----------- ------------- -------------
Balance, December 31, 1995 .... 44,000 2,273,000 341,000 -- 2,658,000
Net income .................. -- -- 950,000 -- 950,000
Net distributions to UM
Holdings, Ltd. ........... -- -- (687,000) -- (687,000)
--------- ------------- ----------- ------------- -------------
Balance, September 30, 1996 ... $44,000 $2,273,000 $ 604,000 $ -- $2,921,000
========= ============= =========== ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------- ----------- ------------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss) .................................. $ (177,000) $ 580,000 $ 341,000 $ 478,000 $ 950,000
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation and amortization ................. 785,000 1,197,000 1,013,000 786,000 556,000
Provision for losses on accounts receivable ... 109,000 79,000 57,000 -- --
Minority stockholder contribution of services . -- -- 30,000 -- --
Minority interest in limited liability company's
(loss) income .............................. -- -- (48,000) 21,000 (303,000)
Deferred income taxes ......................... 67,000 (95,000) (23,000) (8,000) (43,000)
Loss (gain) on sales of property and equipment . -- 55,000 (37,000) (6,000) (2,000)
Changes in assets and liabilities-
Accounts receivable ........................ (488,000) (285,000) (317,000) (236,000) (864,000)
Prepaid expenses and other ................. 8,000 1,000 (268,000) (137,000) 119,000
Accounts payable ........................... 337,000 (251,000) 181,000 118,000 130,000
Accrued expenses ........................... 217,000 171,000 (366,000) (292,000) 114,000
Accrued income taxes ....................... 77,000 89,000 (124,000) (125,000) 269,000
Payable to UM Holdings, Ltd. for income taxes -- -- -- -- 447,000
Deferred revenues .......................... 524,000 101,000 (1,261,000) (890,000) (45,000)
------------- ----------- ------------- ----------- -----------
Net cash provided by (used in) operating
activities ............................ 1,459,000 1,642,000 (822,000) (291,000) 1,328,000
------------- ----------- ------------- ----------- -----------
Investing activities:
Purchases of property and equipment ................ (1,984,000) (828,000) (205,000) (98,000) (178,000)
Proceeds from sales of property and equipment ...... -- 1,000 171,000 109,000 34,000
------------- ----------- ------------- ----------- -----------
Net cash provided by (used in) investing
activities ............................ (1,984,000) (827,000) (34,000) 11,000 (144,000)
------------- ----------- ------------- ----------- -----------
Financing activities:
Net contributions from (distributions to)
UM Holdings, Ltd. ............................... 569,000 (653,000) 142,000 76,000 (687,000)
Minority interest contribution ..................... -- -- 300,000 300,000 --
------------- ----------- ------------- ----------- -----------
Net cash provided by (used in) financing
activities ............................ 569,000 (653,000) 442,000 376,000 (687,000)
------------- ----------- ------------- ----------- -----------
Net increase (decrease) in cash and cash equivalents . 44,000 162,000 (414,000) 96,000 497,000
Cash and cash equivalents, beginning of period ....... 241,000 285,000 447,000 447,000 33,000
------------- ----------- ------------- ----------- -----------
Cash and cash equivalents, end of period ............. $ 285,000 $ 447,000 $ 33,000 $ 543,000 $ 530,000
============= =========== ============= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Premier Research Worldwide, Ltd. (the "Company"), a Delaware corporation,
is a clinical research organization providing services to the worldwide
pharmaceutical, biotechnology and medical device industries. The Company's
services include centralized diagnostic testing, clinical trials management,
clinical data management, biostatistical analysis, Phase I clinical research,
health care economics and outcomes research and regulatory affairs services.
The Company has an operating subsidiary in the United Kingdom (U.K.), is a
65% majority owner of a limited liability company in the United States,
Premier Research LLC (see Note 5) and is an indirect subsidiary of UM
Holdings, Ltd. ("UM").
For periods prior to June 1, 1994, the Company's business operated as
direct or indirect subsidiaries or as divisions of UM. Effective June 1,
1994, the net assets and operations of the division were transferred to the
Company by UM. The transfer was recorded as a capital contribution of the
carrying value of the division's net assets.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company, its subsidiaries and Premier Research LLC. All significant
intercompany accounts and transactions have been eliminated.
INTERIM FINANCIAL DATA
Interim financial information for the nine months ended September 30,
1995, is unaudited. In the opinion of the Company, this financial information
includes all adjustments, consisting of normal recurring adjustments,
necessary to fairly present the financial information set forth.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported assets and liabilities and contingency
disclosures at the date of the financial statements and the reported
operations during the reporting period. Actual results could differ from
those estimates.
REVENUES
Revenues are recorded when services are rendered. Revenues under certain
clinical research service contracts are recognized under the
percentage-of-completion method and include a proportion of the revenues
expected to be realized on the contract in the ratio of costs incurred to
estimated total costs. Such contracts are generally completed within 12 to 18
months. A provision for the loss on a contract is made when current estimates
indicate a total contract loss. The Company often receives non-refundable
deposits from its customers that are recorded as deferred revenues in the
accompanying balance sheets. For the year ended December 31, 1995 and for the
nine months ended September 30, 1995, the Company recognized revenues of
$1,313,000 and $938,000, respectively, for such deposits related to customer
project cancellations. The Company also recognizes rental revenue on
equipment in connection with its diagnostic services.
CASH AND CASH EQUIVALENTS
Until 1996, UM maintained a centralized cash management function for its
subsidiaries, including the Company. Settlement of all cash disbursement and
collection transactions by UM on behalf of the Company are recorded through
equity. In 1996, UM decentralized its cash management function for its
subsidiaries and, therefore, the Company now maintains its own bank accounts.
The Company has always maintained a bank account in the U.K.
F-7
<PAGE>
Cash and cash equivalents include highly liquid investments purchased with
an original maturity of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets
ranging from three to five years. Leasehold improvements are amortized over
the lease term. Repair and maintenance costs are expensed as incurred.
Improvements and betterments are capitalized. Gains or losses on the
disposition of property and equipment are charged to operations. Depreciation
expense was $777,000, $1,149,000, $965,000, $750,000 and $520,000 for the
years ended December 31, 1993, 1994 and 1995 and for the nine months ended
September 30, 1995 and 1996, respectively.
GOODWILL
Goodwill is amortized using the straight-line method over five years and
is net of accumulated amortization of $125,000, $173,000, and $209,000 as of
December 31, 1994 and 1995 and September 30, 1996, respectively. The related
amortization expense was $8,000, $48,000, $48,000, $36,000 and $36,000 for
the years ended December 31, 1993, 1994 and 1995 and for the nine months
ended September 30, 1995 and 1996, respectively.
The Company continually evaluates whether later events and circumstances
have occurred that indicate the remaining estimated useful life may warrant
revision or that the remaining goodwill balance may not be recoverable. If
factors indicate that goodwill should be evaluated for possible impairment,
the Company would use an estimate of the related undiscounted operating
income over the remaining life in measuring whether goodwill is recoverable.
ACCRUED EXPENSES
Included in accrued expenses at December 31, 1994 and 1995 and at
September 30, 1996 is accrued payroll of $267,000, $98,000 and $217,000,
respectively.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense
for the years ended December 31, 1993, 1994 and 1995 and for the nine months
ended September 30, 1995 and 1996 was $657,000, $65,000, $118,000, $45,000
and $81,000, respectively.
INCOME TAXES
Income taxes are calculated using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Accordingly, deferred tax assets and liabilities are recognized
currently for the future tax consequences attributable to differences between
the financial statement carrying amounts of assets and liabilities and their
respective tax bases. The Company is included in the consolidated federal tax
return of UM and files separate state, local and foreign income tax returns.
The accompanying financial statements reflect income tax expense calculated
on a separate-company basis.
SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid approximately $71,000, $95,000, and $65,000 for income
taxes in the years ended December 31, 1994 and 1995 and in the nine months
ended September 30, 1996, respectively (see Note 6).
The minority owner of Premier Research LLC (see Note 5) contributed
$50,000 of fixed assets in 1995.
F-8
<PAGE>
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade accounts receivable from companies
operating in the pharmaceutical industry. For the years ended December 31, 1993,
1994 and 1995 and for the nine months ended September 30, 1996, two, two, three,
and three clients accounted for 29%, 29%, 37% and 36% of the Company's net
revenues, respectively. No other single client accounted for greater than 10% of
net revenues during these periods. Receivables from these clients were $544,000,
$889,000 and $1,724,000 at December 31, 1994 and 1995 and at September 30, 1996.
Due to the contract nature of the Company's business and the relative size of
such contracts in comparison to the Company, it is not unusual for a significant
customer in one year to be insignificant in the next year. The loss of any such
client could have a material adverse effect on the Company's operations. In
addition, the Company maintains reserves for potential credit losses and such
losses, in the aggregate, have not historically exceeded management
expectations.
TRANSLATION OF FOREIGN FINANCIAL STATEMENTS
Assets and liabilities of the Company's U.K. subsidiary are translated at
the exchange rate as of the end of each reporting period. The income
statement is translated at the average exchange rate for the period.
Cumulative adjustments from translating the U.K. financial statements are
immaterial and, therefore, have been charged to income as incurred.
PRO FORMA BALANCE SHEET
The Company's pro forma balance sheet reflects the distributions of
$450,000 to be paid to UM in the fourth quarter of 1996.
PRO FORMA NET INCOME PER SHARE
The Company's historical stockholders' equity and net income does not
reflect the conversion of the minority interest in Premier Research LLC (see
Note 5), into Common Stock of the Company upon the closing of the Company's
proposed initial public offering (see Note 11). Accordingly, historical net
income per share is not considered meaningful and has not been presented.
Pro forma net income includes the minority interest in the limited
liability company's income or loss. The shares used in computing pro forma
net income per share include the effect of the minority interest conversion
as if the conversion occurred on January 1, 1995. In addition, pursuant to
SEC Staff Accounting Bulletin No. 83, all options granted during the twelve
months preceding the initial filing of the Company's anticipated public
offering have been included in the shares used in computing pro forma net
income per share, using the treasury stock method (at an assumed initial
public offering price of $15.00 per share), for all periods presented. The
shares used in computing pro forma net income per share also include the
dilutive effect of common stock equivalents outstanding during the periods,
consisting of common stock options, using the treasury stock method.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS No.
121). SFAS No. 121 established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill. The Company
adopted SFAS No. 121 effective January 1, 1996. The adoption did not have an
effect on the Company's financial condition or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (SFAS No. 123). SFAS No. 123 established financial accounting
and reporting standards for stock-based employee compensation plans. This
statement also applies to transactions in which an entity issues its equity
instruments to acquire goods or services from non- employees. The Company is
required to adopt SFAS No. 123 for its December 31, 1996 financial
statements. The Company has elected to adopt the disclosure requirement of
this statement.
F-9
<PAGE>
2. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
December 31,
------------------------------ September 30,
1994 1995 1996
------------- ------------- ---------------
<S> <C> <C> <C>
Billed .................... $2,084,000 $1,851,000 $3,419,000
Unbilled .................. 357,000 875,000 171,000
Allowance for doubtful
accounts ................ (115,000) (140,000) (140,000)
------------- ------------- ---------------
$2,326,000 $2,586,000 $3,450,000
============= ============= ===============
</TABLE>
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
December 31,
------------------------------ September 30,
1994 1995 1996
------------- ------------- ---------------
<S> <C> <C> <C>
Computer and other
equipment ............... $ 5,617,000 $ 5,517,000 $ 5,627,000
Furniture and fixtures .... 586,000 583,000 587,000
Leasehold improvements .... 126,000 129,000 129,000
------------- ------------- ---------------
6,329,000 6,229,000 6,343,000
Less -- Accumulated
depreciation ............ (4,436,000) (5,180,000) (5,668,000)
------------- ------------- ---------------
$ 1,893,000 $ 1,049,000 $ 675,000
============= ============= ===============
</TABLE>
4. LINE OF CREDIT:
The Company has a line of credit with a bank, through June 1997, that
provides for borrowings up to $1 million at an interest rate of prime plus
.5%. Borrowings are limited to 60% of eligible accounts receivable, as
defined, and are secured by substantially all of the Company's assets. The
line of credit agreement includes certain covenants, the most restrictive of
which limit future indebtedness, dividends and equity issuances. To date, the
Company has not borrowed any amounts under its line of credit.
5. PREMIER RESEARCH LLC:
In September 1995, the Company and PREMIER, Inc. entered into the
Agreement and Plan of Organization of a limited liability company, Premier
Research LLC (Premier LLC). Under the terms of the agreement, PREMIER, Inc.
contributed $300,000 in cash, $50,000 in property, $30,000 in services and
the business operations of its Contract Research Organization Division for a
35% interest in Premier LLC. The Company contributed $100 in cash, agreed to
manage Premier LLC and agreed to fund Premier LLC's working capital needs for
three years in exchange for a 65% interest in Premier LLC. Under the terms of
the agreement, if the Company completes a public stock offering, as defined
(see Note 11), PREMIER, Inc.'s ownership interest in Premier LLC will
automatically convert into the number of shares of Common Stock equal to 7.5%
of the outstanding Common Stock of the Company prior to the offering.
6. INCOME TAXES:
The Company is included in the consolidated federal income tax return of
UM. UM and the Company have entered into a tax-sharing agreement pursuant to
which the Company will pay to UM amounts equal to the taxes that the Company
would have paid had it filed a separate federal income tax return. The
agreement does not provide for UM to pay the Company for tax losses.
Therefore, any benefit related to tax losses has been recorded as a deemed
distribution to UM in the accompanying financial statements. In addition,
taxes payable to UM under the tax-sharing agreement for years prior to 1996
have been forgiven by UM and, accordingly, have been recorded as
contributions from UM.
F-10
<PAGE>
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------------ --------------------------
1993 1994 1995 1995 1996
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current provision
(benefit):
Federal ...... $(218,000) $250,000 $ 359,000 $356,000 $447,000
State and
local ..... -- 97,000 46,000 46,000 213,000
Foreign ...... 82,000 163,000 (123,000) (79,000) 102,000
------------- ----------- ----------- ----------- -----------
(136,000) 510,000 282,000 323,000 762,000
------------- ----------- ----------- ----------- -----------
Deferred provision
(benefit):
Federal ...... (2,000) (68,000) (21,000) (9,000) (33,000)
State and
local ..... (1,000) (27,000) (2,000) 1,000 (10,000)
Foreign ...... 70,000 -- -- -- --
------------- ----------- ----------- ----------- -----------
67,000 (95,000) (23,000) (8,000) (43,000)
------------- ----------- ----------- ----------- -----------
$ (69,000) $415,000 $ 259,000 $315,000 $719,000
============= =========== =========== =========== ===========
</TABLE>
Foreign income (loss) before income taxes was $460,000, $494,000, $(372,000),
$(239,000) and $309,000 for the years ended December 31, 1993, 1994 and 1995 and
for the nine months ended September 30, 1995 and 1996, respectively.
The reconciliation between income taxes at the statutory federal rate and the
amount recorded in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Tax at statutory federal rate ........ $(84,000) $338,000 $204,000 $270,000 $567,000
State and local taxes, net of federal -- 46,000 29,000 31,000 134,000
Amortization of goodwill ............. 3,000 16,000 16,000 12,000 12,000
Other ................................ 12,000 15,000 10,000 2,000 6,000
------------ ----------- ----------- ----------- -----------
$(69,000) $415,000 $259,000 $315,000 $719,000
============ =========== =========== =========== ===========
</TABLE>
The components of the Company's deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
-------------------------- ---------------
1994 1995 1996
----------- ----------- ---------------
<S> <C> <C> <C>
Allowance for doubtful accounts $ 48,000 $ 57,000 $ 57,000
Depreciation ................... 5,000 70,000 114,000
Reserves and accruals .......... 100,000 49,000 48,000
----------- ----------- ---------------
$153,000 $176,000 $219,000
=========== =========== ===============
</TABLE>
7. RELATED PARTY TRANSACTIONS:
TRANSACTIONS WITH UM
UM provided various administrative services to the Company including
accounting, human resources and certain computer services prior to 1996. UM
has historically charged the Company for these services through corporate
allocations based primarily on actual costs incurred. These expenses were
$150,000, $165,000, $160,000 and $120,000, for the years ended December 31,
1993, 1994 and 1995, and the nine months ended September 30, 1995,
respectively. In 1996, UM decentralized most of these functions, and now
provides primar- ily 401(k) administrative services. For the nine months
ended September 30, 1996, UM's charges were $43,000.
F-11
<PAGE>
The Company is included in UM's consolidated income tax filings (see Note
6), leases its primary operating facility from UM (see Note 9) and
participates in UM's 401(k) profit sharing plan. The Company was charged
$506,000, $709,000 $488,000, $366,000, and $294,000 for rent under the
facility lease and $48,000, $53,000, $59,000, $46,000, and $65,000 for profit
sharing plan contributions for the years ended December 31, 1993, 1994 and
1995 and the nine months ended September 30, 1995 and 1996, respectively. The
Company believes that all amounts charged by UM were reasonable.
Included in net revenues for the year ended December 31, 1995 and for the
nine months ended September 30, 1995 and 1996 is $115,000, $60,000 and
$7,000, respectively, charged to a UM subsidiary, for laboratory testing
services. Included in direct costs for the years ended December 31, 1993,
1994 and 1995 and for the nine months ended September 30, 1995 and 1996 is
$59,000, $312,000, $94,000, $68,000 and $122,000, respectively, charged by a
UM subsidiary for certain subcontracted diagnostic testing services. In the
years ended December 31, 1994 and 1995 and during the nine months ended
September 30, 1996, the Company sold fixed assets to UM and certain of its
subsidiaries at their carrying values of $8,000, $66,000 and $29,000,
respectively.
Transactions with the Company's President
The Company's President, who is a stockholder, is a cardiologist who
provides medical services to the Company as an independent contractor in
addition to his role as President of the Company (see Note 9). Fees incurred
under this consulting arrangement approximated $185,000, $680,000, $956,000,
$731,000, and $1,621,000 for the year ended December 31, 1993, 1994 and 1995,
and for the nine months ended September 30, 1995 and 1996, respectively, of
which $144,000 per year represents fees for his role as the Company's Medical
Director, as defined. Accordingly, the Medical Director fees are included in
selling, general and administrative expenses and the incremental fees, which
primarily relate to medical interpretations for diagnostic tests, are
included in direct costs in the accompanying statements of operations.
The Company and the Company's President have entered into new employment
and consulting agreements effective January 1, 1997 (see Note 9).
In January 1996, the President and UM entered into an agreement whereby
the President purchased 660,300 shares of the Company's Common Stock from UM
for $750,000. The President also has an outstanding option to purchase
220,100 shares of Common Stock (see Note 8).
8. STOCK OPTION PLANS:
In August 1993, the Company established a nonqualified stock option plan
covering certain key employees. The options cover the purchase of Common
Stock of the Company at exercise prices initially set above current fair
value as determined by the Board of Directors. Options granted under the plan
are exercisable on July 1, 2003 or earlier if there is a sale of the Company
or a public offering of the Company's Common Stock, as defined.
Information with respect to outstanding options under the plan is as
follows:
Outstanding Option Price
Shares Per Share
------------- --------------
Balance, August 15, 1993 ... -- $ --
Granted .................. 440,200 4.54
Canceled ................. -- --
------------- --------------
Balance, December 31, 1993 . 440,200 4.54
Granted .................. -- --
Canceled ................. -- --
------------- --------------
Balance, December 31, 1994 . 440,200 4.54
Granted .................. 506,230 2.27
Canceled ................. (473,215) 4.54
------------- --------------
Balance, December 31, 1995 . 473,215 2.27
Granted .................. 44,020 2.27
Canceled ................. -- --
------------- --------------
Balance, September 30, 1996 517,235 $ 2.27
============= ==============
F-12
<PAGE>
As of September 30, 1996, no options were exercisable and there were
583,265 additional options available for future grants under the plan. The
Company does not anticipate granting any additional options under the plan
prior to the Company's initial public offering (see Note 11) and under terms
of the plan, no further options can be granted under the plan after the
closing of the initial public offering.
In 1996, the Company adopted a new stock option plan (the "1996 Plan")
that authorizes the grant of both incentive and non-qualified options to
acquire up to 500,000 shares of the Company's Common Stock. The Company's
Board of Directors determines the exercise price of the options under the
1996 Plan. The exercise price of incentive stock options may not be below
fair value on the grant date. Incentive stock options under the 1996 Plan
expire 10 years from the grant date and are exercisable in accordance with
vesting provisions set by the Board. No options are outstanding under the
1996 Plan, however, the Company has agreed to grant an employee an option for
10,000 shares at an assumed initial public offering price of $15.00 per share
(see Note 11).
In January 1996 the Company granted a director an option for 4,402 shares
of Common Stock at an exercise price of $1.14 per share. In addition, in 1996
the Company granted two other directors options for 8,804 shares of Common
Stock at the initial public offering price (see Note 11).
9. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases office space and equipment under operating leases,
including its primary operating facility, which it leases from UM under a
lease agreement executed in June 1996 that runs through September 2003 (see
Note 7). In 1995, the Company entered into an agreement to sublet office
space that was previously vacated. Accordingly, the Company reduced its
reserve for the vacated lease payments by approximately $175,000 by recording
a reduction to rent expense in 1995. The reserve for the vacated lease
payments was approximately $246,000, $90,000 and $43,000 at December 31, 1994
and 1995 and September 30, 1996, respectively, and is included in accrued
expenses in the accompanying balance sheets. Future minimum lease payments as
of September 30, 1996, without consideration of sublease income, are as
follows:
Related Party Other Total
--------------- ------------- -------------
1997 ............... $ 349,000 $ 272,000 $ 621,000
1998 ............... 349,000 152,000 501,000
1999 ............... 349,000 140,000 489,000
2000 ............... 349,000 129,000 478,000
2001 ............... 349,000 129,000 478,000
2002 and thereafter 601,000 971,000 1,572,000
--------------- ------------- -------------
$2,346,000 $1,793,000 $4,139,000
=============== ============= =============
Future minimum payments due the Company under the sublease agreement total
$63,000 in 1997.
AGREEMENTS WITH THE COMPANY'S PRESIDENT
The Company has entered into new employment and consulting agreements with
its President (see Note 7). The employment agreement was executed in November
1996, and becomes effective January 1, 1997, and continues through December
31, 2001. Either the Company or the President may terminate the agreement at
any time, with or without cause. However, if the Company terminates the
agreement without cause, the Company must continue to pay the President's
salary for a one year period subsequent to the termination.
The consulting agreement was executed in October 1996, and relates to the
President's capacity as a medical doctor and cardiologist and, among other
things, requires the President to serve as Medical Director and/or principal
investigator for the Company in addition to providing medical interpretations
of diagnostic tests from time to time, as required. Compensation under the
consulting agreement is $144,000 per year. The consulting agreement commences
on January 1, 1997 for a one year period and will continue thereafter from
year to year unless terminated, as defined. The new consulting agreement
replaced a prior agreement whereby the President received additional
compensation for medical interpretations of diagnostic tests (see Note 7).
F-13
<PAGE>
CONTINGENCIES
The Company believes it has adequate insurance coverage against possible
liabilities that may be incurred in connection with the conduct of its
business primarily as it relates to the testing of new drugs or medical
devices. While the Company believes it operates safely and prudently, in
addition to managing liability risks through contractual indemnification, 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 beyond the
scope of an indemnity provision or insurance coverage, or if an indemnity is
not upheld or if the claim exceeds the insurance policy limits.
10. GEOGRAPHIC INFORMATION:
The Company's operations involve a single industry segment providing
clinical research and development services. Financial information by
geographic area is as follows:
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months
------------------------------------------------- Ended
1993 1994 1995 Sept. 30,1996
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net revenues:
North America ........ $ 8,862,000 $10,712,000 $10,881,000 $ 9,769,000
Europe ............... 1,383,000 2,198,000 1,183,000 1,838,000
-------------- -------------- -------------- ---------------
$10,245,000 $12,910,000 $12,064,000 $11,607,000
============== ============== ============== ===============
Operating income (loss):
North America ........ $ (706,000) $ 501,000 $ 924,000 $ 1,057,000
Europe ............... 460,000 494,000 (372,000) 309,000
-------------- -------------- -------------- ---------------
$ (246,000) $ 995,000 $ 552,000 $ 1,366,000
============== ============== ============== ===============
Identifiable assets:
North America ........ $ 4,205,000 $ 4,095,000 $ 4,006,000 $ 4,070,000
Europe ............... 921,000 1,060,000 394,000 1,205,000
-------------- -------------- -------------- ---------------
$ 5,126,000 $ 5,155,000 $ 4,400,000 $ 5,275,000
============== ============== ============== ===============
</TABLE>
11. RECAPITALIZATION:
The Company is contemplating an initial public offering of 2,750,000
shares of its Common Stock, of which 750,000 will be sold by UM (see Note 7).
In connection therewith, on October 24, 1996, the Company's Board of
Directors approved an increase in the number of authorized shares of Common
Stock to 15,000,000 shares and authorized 500,000 shares of Preferred Stock.
In addition, on November 26, 1996, the Company effected a 2,201-for-one split
of its Common Stock. The increase in authorized shares and the stock split
have been retroactively reflected in the accompanying consolidated financial
statements.
F-14
<PAGE>
==============================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having
been authorized by the Company or by any of the Underwriters. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the shares of Common Stock to which it relates or an
offer to, or a solicitation of, any person in any jurisdiction in which such
an offer of solicitation would be unlawful. 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 time subsequent to the date hereof.
-----------------
TABLE OF CONTENTS
-----------------
Page
--------
Prospectus Summary ........................ 3
Risk Factors .............................. 7
Company History ........................... 12
Use of Proceeds ........................... 12
Dividend Policy ........................... 12
Capitalization ............................ 13
Dilution .................................. 14
Selected Consolidated Financial Data ...... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 17
Business .................................. 23
Management ................................ 39
Principal and Selling Stockholders ........ 44
Certain Relationships and Related Party
Transactions ............................. 45
Description of Capital Stock .............. 46
Shares Eligible for Future Sale ........... 47
Underwriting .............................. 48
Legal Matters ............................. 49
Experts ................................... 49
Additional Information .................... 49
Index to Financial Statements ............. F-1
Until ------, 1997 (25 days after the date of this Prospectus) all dealers
effecting transactions in the Common Stock, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in
addition to the obligations of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
===============================================================================
<PAGE>
===============================================================================
2,750,000 SHARES
LOGO
PREMIER RESEARCH
WORLDWIDE
COMMON STOCK
----------
PROSPECTUS
----------
MONTGOMERY SECURITIES
FURMAN SELZ
GENESIS MERCHANT GROUP
SECURITIES
, 1997
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following is an estimate of the expenses to be incurred in
connection with the issuance and distribution of the securities being
registered, other than the underwriting discounts, commissions, and other
compensation:
SEC registration fee............................... $ 15,333.00
---------
NASD filing fee.................................... $ 5,560.00
---------
Printing and engraving............................. $ *
---------
Transfer agent's fees and expenses................. $ *
---------
Attorneys' fees and expenses....................... $ *
---------
Blue sky fees...................................... $ *
---------
Accountants' fees and expenses..................... $ *
---------
Miscellaneous...................................... $ *
---------
TOTAL................. $ *
---------
- --------------
*To be supplied by Amendment.
The above expenses will be paid by the Company, except that
registration and filing fees will be paid by the Company and the Selling
Stockholder pro rata according to the number of shares of Common Stock sold by
each.
Item 14. Indemnification of Directors and Officers.
Under Section 145 of the Delaware General Corporation Law, the Company
must indemnify each of its directors and officers against his expenses (that is,
reasonable costs, disbursements and counsel fees) in connection with any
proceeding involving such person by reason of his having been an officer,
director, employee or agent of the Company, or who is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, to the
extent he is successful on the merits. Moreover, under such statutory provision
the Company has the corporate power to indemnify its officers and directors
against expenses and (in the case of proceedings other than those by or in the
right of the Company) liabilities incurred in such a proceeding, provided (i)
the officer or director has acted in good faith and in a manner reasonably
believed to be in, or not opposed to, the best interests of the Company and (ii)
with respect to any criminal proceeding, he had no reasonable cause to believe
his conduct was unlawful. In the case of a proceeding by or in the right of the
Company, however, such indemnification is not permitted if the individual is
adjudged to be liable to the Company, unless a court determines that he is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
II-1
<PAGE>
The determination of whether indemnification is proper under the
circumstances, unless made by a court, is determined by a majority of the
disinterested members of the Board of Directors or committee thereof, by
independent legal counsel if a quorum of the disinterested members of the Board
of Directors or committee thereof is not available or if the disinterested
members of the Board of Directors or a committee thereof so direct, or by the
stockholders.
The Company's Bylaws require the Company to indemnify each director and
officer if Section 145 of the Delaware General Corporation Law permits the
Company to do so.
The Company intends to obtain a directors' and officers' liability
insurance policy, which will afford officers and directors insurance coverage
for losses arising from claims based on breaches of duty, negligence, error and
other wrongful acts.
Item 15. Recent Sales of Unregistered Securities.
In January 1996, the Company's principal stockholder, UM Holdings,
Ltd., sold to Joel Morganroth, M.D., the Company's President and Chief Executive
Officer, 300 shares of Common Stock for a purchase price of $750,000 which was
satisfied by the delivery of Dr. Morganroth's promissory note in such amount.
There were no underwriting discounts or commissions paid in connection with this
transaction. UM Holdings, Ltd. relied upon the availability of Section 4(2) of
the Securities Act of 1933, as amended, in that the sale did not involve a
public offering.
In November, 1996, the Company issued 4,400,000 shares of its Common
Stock to its stockholders, as a stock split effectuated by means of a stock
dividend. The issuance of such shares was exempt from the registration
requirements of the Act because there was no "sale" of such securities.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
Number Description
------ -----------
1.1 Form of Agreement Among Underwriters, together with forms of
Underwriting Agreement and Selected Dealer Agreement.***
3.1 Restated Certificate of Incorporation.**
3.2 By-Laws.**
5.1 Opinion of Archer & Greiner, A Professional Corporation.*
10.1 Employment Agreement with Joel Morganroth, M.D.**
10.2 Management Consulting Agreement with Joel Morganroth,
M.D., P.C.**
10.3 Stock option agreement - Jerry Lee**
10.4 Stock option agreement - Arthur Hayes**
10.5 Stock option agreement - Connie Woodburn**
10.6 Amended and Restated 1993 Stock Option Plan.**
10.7 1996 Stock Option Plan.**
II-2
<PAGE>
10.8 Lease of Philadelphia Facilities, with amendment thereto.**
10.9 Agreement and Plan of Organization entered into with Premier
Health Alliance, Inc.**
10.10 Tax Sharing Agreement with UM Holdings, Ltd**
10.11 Teaming Agreement with Pharmaco LSR International**
10.12 Revolving Credit Agreement with First Union National Bank**
10.13 Promissory Note to First Union National Bank**
10.14 Restated Directors Stock Option Agreement to PREMIER, Inc.
on behalf of Connie Woodburn.*
10.15 Restated Stock Option Agreement to Jerry Lee.*
10.16 Restated Stock Option Agreement to Arthur Hays.*
10.17 Tax Indemnity Agreement with UM Holdings, Ltd.*
11.1 Statement re: Computation of Per Share Earnings*
21.1 Subsidiaries**
23.1 Consent of Archer & Greiner, A Professional Corporation - See
Exhibit 5.1
23.2 Consent of Arthur Andersen, LLP*
24.1 Power of Attorney of Directors and Officers - See Signature
Page to Registration Statement filed on November 27, 1996.
99.1 Consent of Proposed Director Philip J. Whitcome*
- ----------
* Filed with this Amendment.
** Filed with Registration Statement on November 27, 1996.
*** To be supplied by Amendment.
(b) Financial Statement Schedule.
Number Description
------ -----------
II Valuation and Qualifying Accounts.
Item 17. Undertakings.
The Company hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel, the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The Company hereby undertakes that, for determining any liability under
the Securities Act, it will treat the information omitted from the form of
Prospectus filed as a part of this Registration Statement in reliance upon Rule
430(A) and contained in a form of Prospectus filed by the Company under Rule
424(b)(1), or (4) or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission declared it effective.
II-3
<PAGE>
The Company hereby undertakes that, for determining any liability under
the Securities Act, it will treat each post-effective Amendment that contains a
form of Prospectus as a new Registration Statement for the securities offered in
the Registration Statement, and the offering of the securities at that time as
the initial bona fide offering of those securities.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Philadelphia, Commonwealth of Pennsylvania, on January , 1997.
PREMIER RESEARCH WORLDWIDE, LTD.
By: /s/ Joel Morganroth, M.D.
-----------------------------------
JOEL MORGANROTH, M.D., President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature to this
Registration Statement appears below hereby appoints Joel Morganroth, Fred M.
Powell, Arthur W. Hicks, Jr., and James H. Carll, and each of them, any one of
whom may act without the joinder of the others, as his attorney-in-fact to sign
in his behalf individually and in the capacity stated below and to file all
amendments and post-effective amendments to this Registration Statement, and any
and all instruments or documents filed as part of or in connection with this
Registration Statement or the amendments thereto, and any of such
attorneys-in-fact may make such changes and additions to this Registration
Statement as such attorney-in-fact may deem necessary or appropriate.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President and
/s/ Joel Morganroth, M.D. Chief Executive Officer January , 1997
- ------------------------------ (Principal executive officer)
Joel Morganroth, M.D.
/s/ Fred M. Powell Vice President, Finance/ January , 1997
- ------------------------------ Administration
Fred M. Powell (Principal financial
and accounting officer)
/s/ Joan Carter Chairman, Director January , 1997
- ------------------------------
Joan Carter
/s/ John Aglialoro Director January , 1997
- ------------------------------
John Aglialoro
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
* Director January , 1997
- ------------------------------
Arthur Hull Hayes, Jr., M.D.
/s/ Arthur W. Hicks, Jr. Director January , 1997
- ------------------------------
Arthur W. Hicks, Jr.
* Director January , 1997
- ------------------------------
Jerry D. Lee
* Director January , 1997
- ------------------------------
Connie Woodburn
*By: /s/ Joan Carter
--------------------------
Joan Carter,
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
- ------- ------------- -----
1.1 Form of Agreement Among Underwriters, together with forms of
Underwriting Agreement and Selected Dealer Agreement.***
3.1 Restated Certificate of Incorporation.**
3.2 By-Laws.**
5.1 Opinion of Archer & Greiner, A Professional Corporation.*
10.1 Employment Agreement with Joel Morganroth, M.D.**
10.2 Management Consulting Agreement with Joel Morganroth, M.D., P.C.**
10.3 Stock option agreement - Jerry Lee**
10.4 Stock option agreement - Arthur Hayes**
10.5 Stock option agreement - Connie Woodburn**
10.6 Amended and Restated 1993 Stock Option Plan.**
10.7 1996 Stock Option Plan.**
10.8 Lease of Philadelphia Facilities, with amendment thereto.**
10.9 Agreement and Plan of Organization entered into with Premier
Health Alliance, Inc.**
10.10 Tax Sharing Agreement with UM Holdings, Ltd**
10.11 Teaming Agreement with Pharmaco LSR International**
10.12 Revolving Credit Agreement with First Union National Bank**
10.13 Promissory Note to First Union National Bank**
10.14 Restated Directors Stock Option Agreement to PREMIER, Inc. on
behalf of Connie Woodburn.*
10.15 Restated Stock Option Agreement to Jerry Lee.*
10.16 Restated Stock Option Agreement to Arthur Hays.*
10.17 Tax Indemnity Agreement with UM Holdings, Ltd.*
11.1 Statement re: Computation of Per Share Earnings*
21.1 Subsidiaries**
23.1 Consent of Archer & Greiner, A Professional Corporation - See
Exhibit 5.1
23.2 Consent of Arthur Andersen, LLP*
24.1 Power of Attorney of Directors and Officers - See Signature
Page to Registration Statement filed on November 27, 1996.
99.1 Consent of Proposed Director Philip J. Whitcome*
- --------
* Filed with this Amendment.
** Filed with Registration Statement on November 27, 1996.
*** To be supplied by Amendment.
<PAGE>
Exhibit 5.1
ARCHER & GREINER
A Professional Corporation
COUNSELORS AT LAW
ONE CENTENNIAL SQUARE
P.O. Box 3000
HADDONFIELD, NEW JERSEY 08033-0968
January 6, 1997
Premier Research Worldwide, Ltd.
124 S. 15th Street
Philadelphia, Pennsylvania 19102-3010
Attn: Joel Morganroth, M.D., President
Dear Sirs:
We have examined the corporate records and proceedings of Premier Research
Worldwide, Ltd., a Delaware corporation (the "Company"), with respect to the
legal sufficiency of all corporate proceedings of the Company taken in
connection with the creation, form, validity, full payment and non-assessability
when issued of the 2,750,000 shares of Common Stock, par value $.01 per share
(the "Common Stock") covered by the Registration Statement on Form S-1, File No.
333-17001 (the "Registration Statement"), in connection with which Registration
Statement this opinion is rendered.
Based upon such examination, we are of the opinion that when the
Registration Statement shall have been declared effective by order of the United
States Securities and Exchange Commission, and the Common Stock shall have been
issued and sold upon the terms and conditions set forth in the Registration
Statement, such Common Stock will be validly authorized and legally issued,
fully paid and non-assessable.
We hereby consent (1) to be named in the Registration Statement, and in
the Prospectus which constitutes a part thereof, as the attorneys who will pass
upon legal matters in connection with the sale of the Common Stock, and (2) the
filing of this opinion as Exhibit 5.1 to the Registration Statement.
Very truly yours,
/s/ James H. Carll
JAMES H. CARLL
JHC:mms
<PAGE>
Exhibit 10.14
DIRECTOR STOCK
OPTION AGREEMENT
PREMIER RESEARCH WORLDWIDE, LTD.
Dated as of April 23, 1996 and restated as of November 30, 1996, and
delivered by Premier Research Worldwide, Ltd., a Delaware corporation (the
"Company"), to PREMIER, Inc (the "Optionee"), on behalf of Connie Woodburn
("Woodburn"), an officer of Optionee and a member of the Board of Directors of
the Company.
1. Grant. Subject to the terms and provisions hereinafter set forth,
the Company hereby confirms the grant to the Optionee of an option (the
"Option") to purchase an aggregate of 4,402 shares of the common stock, $.01 par
value (the "Common Stock"), of the Company, subject to adjustment as provided
herein, at a price determined in the manner set forth herein. The option
exercise price will equal the Price to the Public of a share of the Common Stock
in the IPO (as defined herein), unless the IPO does not occur prior to December
31, 1997, in which case the option price shall equal the fair market value of
the Common Stock on the date of grant of this Option (April 23, 1996), as
reasonably determined by the Board of Directors.
2. Expiration of Option. The Option shall expire on April 23, 2003,
unless earlier terminated as follows:
(a) Termination of Directorship. If Woodburn shall cease to be a
member of the Board of Directors of the Company for any reason, the Option shall
terminate three months following such event.
<PAGE>
(b) IPO. The Option shall terminate at the end of the five year
period following the closing of the first sale by the Company of shares of its
Common Stock in a registered public offering (an "IPO").
(c) Sale. The Option shall terminate one month following a Sale of
the Company. For purposes herein, the term "Sale" refers to any sale of
substantially all of the assets of the Company, other than in the ordinary
course of business, or a sale or transfer of capital stock of the Company (other
than the sale of stock in the IPO) resulting in a change in the ownership of a
majority of the voting capital stock of the Company, or a merger or
consolidation having the effect of such a sale of capital stock.
3. Events Upon Which Option Becomes Exercisable. The Option shall be
exercisable, for the period indicated, solely upon the first to occur of the
following events, in each case subject to prior termination pursuant to
paragraph 2 above:
(a) During the five year period commencing with the 180th day
following the closing of the IPO.
(b) During the one-month period preceding April 23, 2003.
(c) During the one-month period commencing with a Sale of the
Company.
4. Manner of Exercise. During the period, if any, that the Option is
exercisable, the Optionee may exercise the Option with respect to all or any
part of the shares then subject to the Option, by giving the Company written
notice of such exercise, which notice shall be in such form as may from time to
time be specified by the Committee. Such notice shall specify the number of
shares as to which the Option is so exercised and shall be accompanied by full
payment for all the shares being purchased. The option price shall be payable in
cash, by check
<PAGE>
or by tendering to the Company shares of Common Stock having an aggregate fair
market value, determined as of the date of payment by the Board of Directors of
the Company (the "Board"), equal to the option price.
5. Non-Transferability. During the lifetime of the Optionee, the Option
shall be exercisable only by him and shall not be assignable or transferable by
him, and no other person shall acquire any rights therein, the Option being
transferable by the Optionee only by will or the laws of dissent and
distribution.
6. Adjustment in the Event of Recapitalization. In the event of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation, rights offering or any other change in the
corporate structure or shares of the Company, the Board shall make such
adjustment as it may deem equitably required, in the number and kind of shares
covered by the Option and in the option price.
7. Notices. Any notice to the Company provided for in this Stock Option
Agreement shall be addressed to it in care of its Secretary, at its principal
executive offices, and any notice to the Optionee shall be addressed to him at
his address at the time as it is shown on the records of the Company, or to such
other address as either may designate to the other in writing. Any such notice
shall be in writing and shall be deemed to be fully given if delivered by hand
or sent by telegram or by registered or certified mail, postage prepaid,
addressed as stated above.
8. Miscellaneous. All references herein shall include the singular and
the plural and the masculine, feminine and the neuter, as applicable. This Stock
Option Agreement replaces and supersedes all agreements and understandings
between the Company, Woodburn and the Optionee with respect to the subject
matter hereof. This Stock Option Agreement is subject to modification or
amendment solely upon a written agreement signed by the Company and the
<PAGE>
Optionee. The validity, construction, interpretation and effect of this Stock
Option Agreement shall be exclusively governed by and determined in accordance
with the laws of the Commonwealth of Pennsylvania.
PREMIER RESEARCH WORLDWIDE, LTD.
By /s/ Joan Carter
_________________________________
The Optionee named herein hereby acknowledges receipt of this Stock
Option Agreement and confirms that this Stock Option Agreement supersedes all
agreements and understandings between the parties with respect to the subject
matter hereof.
PREMIER, INC.
BY /s/ Connie Woodburn
--------------------------------
<PAGE>
Exhibit 10.15
DIRECTOR STOCK
OPTION AGREEMENT
PREMIER RESEARCH WORLDWIDE, LTD.
Dated as of January 23, 1996 and restated as of November 30, 1996, and
delivered by Premier Research Worldwide, Ltd., a Delaware corporation (the
"Company"), to Jerry Lee, a member of the Board of Directors of the Company (the
"Optionee").
1. Grant. Subject to the terms and provisions hereinafter set forth,
the Company hereby confirms the grant to the Optionee of an option (the
"Option") to purchase an aggregate of 4,402 shares of the common stock, $.01 par
value (the "Common Stock"), of the Company, subject to adjustment as provided
herein, at a price of $1.14 per share.
2. Expiration of Option. The Option shall expire on January 23, 2003,
unless earlier terminated as follows:
(a) Termination of Directorship. If Optionee shall cease to be a
member of the Board of Directors of the Company for any reason, the Option shall
terminate three months following such event.
(b) IPO. The Option shall terminate at the end of the five year
period following the closing of the first sale by the Company of shares of its
Common Stock in a registered public offering (an "IPO").
(c) Sale. The Option shall terminate one month following a Sale of
the Company. For purposes herein, the term "Sale" refers to any sale of
substantially all of the assets of the Company, other than in the ordinary
course of business, or a sale or transfer of capital stock of the Company (other
than the sale of stock in the IPO) resulting in a change in the
1
<PAGE>
ownership of a majority of the voting capital stock of the Company, or a merger
or consolidation having the effect of such a sale of capital stock.
3. Events Upon Which Option Becomes Exercisable. The Option shall be
exercisable, for the period indicated, solely upon the first to occur of the
following events, in each case subject to prior termination pursuant to
paragraph 2 above:
(a) During the five year period commencing with the 180th day
following the closing of the IPO.
(b) During the one-month period preceding January 23, 2003.
(c) During the one-month period commencing with a Sale of the
Company.
4. Manner of Exercise. During the period, if any, that the Option is
exercisable, the Optionee may exercise the Option with respect to all or any
part of the shares then subject to the Option, by giving the Company written
notice of such exercise, which notice shall be in such form as may from time to
time be specified by the Committee. Such notice shall specify the number of
shares as to which the Option is so exercised and shall be accompanied by full
payment for all the shares being purchased. The option price shall be payable in
cash, by check or by tendering to the Company shares of Common Stock having an
aggregate fair market value, determined as of the date of payment by the Board
of Directors of the Company (the "Board"), equal to the option price.
5. Non-Transferability. During the lifetime of the Optionee, the Option
shall be exercisable only by him and shall not be assignable or transferable by
him, and no other person shall acquire any rights therein, the Option being
transferable by the Optionee only by will or the laws of dissent and
distribution.
2
<PAGE>
6. Adjustment in the Event of Recapitalization. In the event of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation, rights offering or any other change in the
corporate structure or shares of the Company, the Board shall make such
adjustment as it may deem equitably required, in the number and kind of shares
covered by the Option and in the option price.
7. Notices. Any notice to the Company provided for in this Stock Option
Agreement shall be addressed to it in care of its Secretary, at its principal
executive offices, and any notice to the Optionee shall be addressed to him at
his address at the time as it is shown on the records of the Company, or to such
other address as either may designate to the other in writing. Any such notice
shall be in writing and shall be deemed to be fully given if delivered by hand
or sent by telegram or by registered or certified mail, postage prepaid,
addressed as stated above.
8. Miscellaneous. This Stock Option Agreement replaces and supersedes
all agreements and understandings between the Company and the Optionee with
respect to the subject matter hereof. This Stock Option Agreement is subject to
modification or amendment solely upon a written agreement signed by the Company
and the Optionee. The validity, construction, interpretation and effect of this
Stock Option Agreement shall be exclusively governed by and determined in
accordance with the laws of the Commonwealth of Pennsylvania.
PREMIER RESEARCH WORLDWIDE, LTD.
By /s/ Joan Carter
_____________________________
3
<PAGE>
The Optionee named herein hereby acknowledges receipt of this Stock
Option Agreement and confirms that this Stock Option Agreement supersedes all
agreements and understandings between the parties with respect to the subject
matter hereof.
/s/ Jerry Lee
________________________________
Jerry Lee, Optionee
4
<PAGE>
Exhibit 10.16
DIRECTOR STOCK
OPTION AGREEMENT
PREMIER RESEARCH WORLDWIDE, LTD.
Dated as of July 25, 1996 and restated as of November 30, 1996, and
delivered by Premier Research Worldwide, Ltd., a Delaware corporation (the
"Company"), to Arthur Hayes, Jr., M.D., a member of the Board of Directors of
the Company. (the "Optionee").
1. Grant. Subject to the terms and provisions hereinafter set forth,
the Company hereby confirms the grant to the Optionee of an option (the
"Option") to purchase an aggregate of 4,402 shares of the common stock, $.01 par
value (the "Common Stock"), of the Company, subject to adjustment as provided
herein, at a price determined in the manner set forth herein. The option
exercise price will equal the Price to the Public of a share of the Common Stock
in the IPO (as defined herein), unless the IPO does not occur prior to December
31, 1997, in which case the option price shall equal the fair market value of
the Common Stock on the date of grant of this Option (July 25, 1996), as
reasonably determined by the Board of Directors.
2. Expiration of Option. The Option shall expire on July 25, 2003,
unless earlier terminated as follows:
(a) Termination of Directorship. If Optionee shall cease to be
a member of the Board of Directors of the Company for any reason, the Option
shall terminate three months following such event.
<PAGE>
(b) IPO. The Option shall terminate at the end of the five
year period following the closing of the first sale by the Company of shares of
its Common Stock in a registered public offering (an "IPO").
(c) Sale. The Option shall terminate one month following a
Sale of the Company. For purposes herein, the term "Sale" refers to any sale of
substantially all of the assets of the Company, other than in the ordinary
course of business, or a sale or transfer of capital stock of the Company (other
than the sale of stock in the IPO) resulting in a change in the ownership of a
majority of the voting capital stock of the Company, or a merger or
consolidation having the effect of such a sale of capital stock.
3. Events Upon Which Option Becomes Exercisable. The Option shall
be exercisable, for the period indicated, solely upon the first to occur of the
following events, in each case subject to prior termination pursuant to
paragraph 2 above:
(a) During the five year period commencing with the 180th day
following the closing of the IPO.
(b) During the one-month period preceding July 25, 2003.
(c) During the one-month period commencing with a Sale of the
Company.
4. Manner of Exercise. During the period, if any, that the Option is
exercisable, the Optionee may exercise the Option with respect to all or any
part of the shares then subject to the Option, by giving the Company written
notice of such exercise, which notice shall be in such form as may from time to
time be specified by the Committee. Such notice shall specify the number of
shares as to which the Option is so exercised and shall be accompanied by full
payment for all the shares being purchased. The option price shall be payable in
cash, by check or by tendering to the Company shares of Common Stock having an
aggregate fair market value,
<PAGE>
determined as of the date of payment by the Board of Directors of the Company
(the "Board"), equal to the option price.
5. Non-Transferability. During the lifetime of the Optionee, the Option
shall be exercisable only by him and shall not be assignable or transferable by
him, and no other person shall acquire any rights therein, the Option being
transferable by the Optionee only by will or the laws of dissent and
distribution.
6. Adjustment in the Event of Recapitalization. In the event of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation, rights offering or any other change in the
corporate structure or shares of the Company, the Board shall make such
adjustment as it may deem equitably required, in the number and kind of shares
covered by the Option and in the option price.
7. Notices. Any notice to the Company provided for in this Stock Option
Agreement shall be addressed to it in care of its Secretary, at its principal
executive offices, and any notice to the Optionee shall be addressed to him at
his address at the time as it is shown on the records of the Company, or to such
other address as either may designate to the other in writing. Any such notice
shall be in writing and shall be deemed to be fully given if delivered by hand
or sent by telegram or by registered or certified mail, postage prepaid,
addressed as stated above.
8. Miscellaneous. All references herein shall include the singular and
the plural and the masculine, feminine and the neuter, as applicable. This Stock
Option Agreement replaces and supersedes all agreements and understandings
between the Company, and the Optionee with respect to the subject matter hereof.
This Stock Option Agreement is subject to modification or amendment solely upon
a written agreement signed by the Company and the Optionee. The validity,
construction, interpretation and effect of this Stock Option Agreement shall be
<PAGE>
exclusively governed by and determined in accordance with the laws of the
Commonwealth of Pennsylvania.
PREMIER RESEARCH WORLDWIDE, LTD.
By /s/ Joan Carter
------------------------------
The Optionee named herein hereby acknowledges receipt of this Stock
Option Agreement and confirms that this Stock Option Agreement supersedes all
agreements and understandings between the parties with respect to the subject
matter hereof.
/s/ Arthur Hayes, Jr.
-----------------------------------
ARTHUR HAYES, JR., M.D., Optionee
<PAGE>
Exhibit 10.17
INDEMNITY AGREEMENT
Agreement, dated as of December 1, 1996, between UM HOLDINGS, LTD., a
Delaware corporation ("UM"), and PREMIER RESEARCH WORLDWIDE, LTD., a Delaware
corporation ("Premier Research").
WHEREAS, UM files a consolidated federal income tax return for an
affiliated group (the "Group") consisting of itself and each of its subsidiaries
80% or more of whose outstanding capital stock is directly or indirectly owned
by it;
WHEREAS, for years to and including the year ended December 31, 1995,
UM owned more than 80% of the outstanding capital stock of Premier Research, and
accordingly for all such years filed consolidated federal income tax returns
which included Premier Research (herein, the "Consolidated Returns");
WHEREAS, the parties desire to set forth herein the respective
responsibilities of UM and Premier Research in the event of a subsequent
adjustment to the Consolidated Returns;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. UM hereby agrees to indemnify and hold harmless Premier Research
from and against all loss, cost, liability, damages and expenses (including
reasonable attorney's fees) resulting from or relating to any adjustment or
proposed adjustment after the date hereof to the Consolidated Returns (whether
by audit or otherwise), to the extent pertaining to the income, expense, gain,
loss, credit or any other tax item of any member of the Group other than Premier
Research and its subsidiaries.
2. Premier Research hereby agrees to indemnify and hold harmless UM
from and against all loss, cost, liability, damages and expenses (including
reasonable attorney's fees) resulting from or relating to any adjustment or
proposed adjustment after the date hereof to the Consolidated Returns (whether
by audit or otherwise), to the extent pertaining to the income, expense, gain,
loss, credit or any other tax item of Premier Research or any of its
subsidiaries.
3. This Agreement shall be binding upon and inure to the benefit of
Premier Research and UM and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
UM HOLDINGS, LTD.
By: s/s Arthur W. Hicks, Jr.
___________________________
PREMIER RESEARCH WORLDWIDE, LTD.
By: s/s Fred M. Powell
___________________________
<PAGE>
EXHIBIT 11
PREMIER RESEARCH WORLDWIDE
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
Year ended Nine months ended
December 31, 1995 September 30, 1996
----------------- ------------------
Common shares outstanding 4,731,720 4,731,720
Net effect of dilutive stock
options based upon the
treasury stock method 24,851 265,754
--------- ---------
4,756,571 4,997,474
========= =========
Pro forma net income $ 313,000 $ 770,000
========== ==========
Pro forma per share amount $ 0.07 $ 0.15
========== ==========
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
January 6, 1996
<PAGE>
CONSENT OF PROPOSED DIRECTOR
I hereby consent to being named in the Prospectus constituting part of
the Registration Statement on Form S-1 of Premier Research Worldwide, Ltd. as a
proposed member of the Board of Directors of Premier Research Worldwide, Ltd.
and as having agreed to serve in such capacity.
Dated: January 3, 1997
/s/ Philip Whitcome
------------------------
Philip Whitcome
