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JUNE 25, 2007
IMS Health: Where The Best Medicine Is Data Drugmakers have come to rely on the company's inside track on the prescriptions doctors write
So it's hardly a surprise, in today's data-obsessed world, that IMS is an irresistible magnet for health-care investors. And recent events suggest it is likely to remain so. The company dodged a bullet in May when a federal judge overturned a New Hampshire law that seemed written specifically to limit its core business. The law, passed a year ago, restricted the collection of data on an individual doctor's prescribing patterns—the kind of information a pharma company loves to buy, so it can figure out just who its best and worst prescribers are, and deploy sales reps accordingly. IMS sued to block the New Hampshire law, and when a federal judge struck it down on May 1 as an infringement on freedom of speech, IMS stock hit a nine-year high of 31.60. The shares have stayed at that level ever since, a sign investors think the steady upward march of IMS's earnings over the past three years will continue unabated. It's true that several other states are considering restrictions on prescription data gathering, and Vermont just passed a law making it a little tougher to collect such information on individual physicians. Nevertheless, industry analysts say the New Hampshire decision makes it unlikely any state will be able to mount serious opposition to IMS's business practices. "The value of what they do just keeps going up," says John Kreger, who follows IMS for investment advisers William Blair & Co. "Anytime there is a discussion about health-care reform, there is a recognition that we need more data, not less, to make smarter decisions." DETAILS IN A HURRY That is the firm belief of IMS Chief Executive David R. Carlucci, who says his company's prospects are not tied to the fortunes of the drug and biotech businesses that are its primary customers. Whether the pharma industry is doing well or poorly, the companies need the data. "They are always looking to become more efficient with their marketing and sales efforts," says Carlucci. "We can help them precisely focus their strategies." IMS, in business for 53 years, gathers information on 850 million prescription sales transactions every month in 100 countries. There are no rivals with similar global reach, so it's rare that a news story on any particular drug will fail to cite IMS data. Even its ticker symbol is "RX." IMS numbers give its customers a snapshot of the market, practically in real time. Within days of the recent New England Journal of Medicine report that GlaxoSmithKline (GSK ) PLC's diabetes drug Avandia may increase the risk of heart attacks, Wall Street analysts were citing IMS data showing the drug's sales dropping off. Carlucci joined IMS as chief operating officer in 2002, took over as CEO in January, 2005, and has presided over nine straight quarters of double-digit revenue growth. Revenues for 2006 grew 12%, to $1.96 billion, while earnings rose 11%, to $315.5 million. IMS also has a fast-growing pharmaceutical consulting business, having acquired seven market research companies in the past 2 1/2 years. But its biggest opportunities are overseas, Carlucci says, particularly in emerging markets in Asia. Three years ago, new markets such as China, India, Brazil, and Russia contributed 13% to the pharmaceutical industry's total revenues. By 2006 that had grown to 27%. Robert W. Baird & Co. analyst Eric Coldwell says IMS presents one of the lowest risks of any of the corporations he follows. "I am incredibly confident in this company and this management," he says. "My only concern is that I have no concerns."  By Catherine Arnst
BW MALL
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