Kendle International Inc.

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Kendle International Inc.

COMPANY FOUNDED: 1981

IPO FUNDS 1997 ACQUISITIONS

GENERIC DRUG CAPABILITIES: 2002

COMPANY FOUNDED: 1981

Kendle International was founded in 1981 by its chairman and chief executive officer, Candace Kendle, and president and chief operating officer, Christopher C. Bergen—friends at the time but now married. Neither of Kendle’s parents had the opportunity to attend college. They were fortunate, in fact, to escape the coal mines. “My grandparents,” Kendle told PharmaVOICE in a 2005 profile, “walked out of the coal mines of Kentucky, traveling 360 miles with nine children, because they were determined to get out. This type of commitment is sewn throughout the fabric of my family tree.” She grew up in Cincinnati and graduated from high school in 1964. Interested in pursuing science and math, she initially enrolled in nursing school, where she was quickly disenchanted. She then enrolled at the University of Cincinnati in 1965, becoming only one of six women in the College of Pharmacy. After graduating with a bachelor of science in pharmacy in 1970 she stayed at the school to complete her Ph.D. two years later. She served her residency at Cincinnati Children’s Hospital Medical Center, then relocated to the University of North Carolina School of Public Health where she received an Epidemiology Fellowship and served as an instructor at the university’s School of Pharmacy. Kendle then became a professor at North Carolina, attaining the rank of associate professor by the time she left in 1979. She took over as director of the Children’s Hospital of Philadelphia, Department of Pharmacy, and also served as a professor of Pediatrics at the University of Pennsylvania, School of Medicine. By this time she was married with two young sons, and although she enjoyed the academic life she was forced to make changes after she and her husband were divorced.

“There was only one reason we started Kendle,” she explained to PharmaVOICE. “I needed some personal flexibility with regard to caring for my family.” She decided to return home to Cincinnati to start a small consulting firm, a city where she had well over 100 family members. Her parents were not able to help her finance the business, but they provided board for Kendle and the boys and helped with the childcare. A bedroom in the house became the company’s first headquarters. Kendle also had a partner in Bergen, a colleague at The Children’s Hospital where he served as an administrator. A Princeton University graduate, he also held an M.B.A. from the University of Pennsylvania’s prestigious Wharton School.

Over the next decade Kendle and Bergen grew the business together and nurtured their relationship, ultimately getting married. Kendle’s basic vision for the company, Kendle Research Associates, Inc., was to take advantage of a developing trend among drug developers to contract out research to small laboratories. What she offered was to oversee clinical drug development and the testing of new drugs on humans. The data required by the U.S. Food and Drug Administration to gain regulatory approval had to be precise, and Kendle quickly built a reputation for reliability.

Because many of the pharmaceutical firms were located on the East Coast, operating out of Cincinnati was a disadvantage, but as long as Kendle and Bergen were able to string one contract to the next they were content with their lot. All that changed in the early 1990s when the large pharmaceutical firms began outsourcing even more of their operations in an effort to cut costs. While theoretically this should have presented more opportunities for Kendle Research, it also created competition, and the new companies that were becoming involved in the CRO field were much larger and took away a major slice of the company’s business. In 1991 the company lost $1 million worth of contracts, or about half of its revenues. Kendle held off on trimming payroll for as long as possible, exhausting the company’s $1 million line of credit before starting to lay off people.

In order to remain in business, Kendle and Bergen had no choice but to sell out or grow larger. They elected to grow larger but they lacked the marketing skills necessary to do so. To gain more knowledge Kendle took a crash course at Harvard Business School and Bergen soon joined her as well. They reorganized Kendle Research with an emphasis on marketing and began to regrow the business. Sales totaled in the $2.5 million range in 1992 and 1993, and the company returned to profitability in 1993, but it was in 1994 that Kendle Research finally turned the corner. Revenues increased to $4.4 million and net income increased to $458,000 from $252,000. In addition, the company introduced TrialWare. A year later Kendle Research opened a sales office in Los Angeles and sales grew to $6.1 million. Offices were then established in Chicago, and Princeton, New Jersey, and revenues doubled to $13 million, with net income of $1.1 million.

COMPANY PERSPECTIVES

Kendle is a global clinical research organization that provides the biopharmaceutical industry with outstanding strategy as well as a full complement of quality clinical development and regulatory services to accelerate the drug development process. We live our “Real people. Real results.” statement every day as we work in partnership with companies to help speed their drugs to market, making a real difference to the quality of life of people around the world.

IPO FUNDS 1997 ACQUISITIONS

By 1997 Kendle Research was poised to transform itself from a niche contractor into a full-service company with global scope. To become involved in Europe, it acquired U-Gene Research B.V. for $15.9 million in June 1997. Based in Utrecht, Netherlands, U-Gene conducted clinical drug trials in the Netherlands, the United Kingdom, and Italy. It owned and operated a state-of-the-art 38-bed testing facility. Kendle Research also reached an agreement to acquire another independent research firm, Munich, Germany-based GMI Gesellschaft fur Angewandte Mathematik und Informatik. To pay for these transactions, Kendle Research changed its name to Kendle International Inc. and conducted an initial public offering (IPO) of stock underwritten by Lehman Brothers Inc. and J.C. Bradford & Co. Completed in August 1997 the IPO netted $49.6 million for the company. A week later the GMI acquisition was completed, using $10 million of that cash and another $2 million worth of common stock. With these new operations in the fold, Kendle International enjoyed a surge in revenues to $44.2 million, while net income improved to $1.9 million.

In February 1998 Kendle International completed its first domestic acquisition, paying $14.4 million in cash and stock for ACER/EXCEL Inc., a New Jersey-based full-service CRO. The company also brought with it a presence in the Pacific Rim through a drug development services joint venture located in Beijing, China. Kendle International also completed a secondary offering of stock in 1998, raising another $100 million. For the year, revenues increased to $89.5 million and net income totaled almost $7.2 million.

The company continued to grow in the final year of the 1990s, and built up its global operations in anticipation of winning even more contracts. It completed five acquisitions in 1999. A minority interest was taken in Digineer, Inc., a healthcare consulting and software development company. U.K.-based Research Consultants (International) Holdings Ltd., a regulatory affairs company, was added at the cost of $4.4 million in cash plus stock. In June 1999 Kendle International paid $2.7 million in cash for ESCLI S.A., a French contract research firm. The following month the company acquired Health Care Communications Inc. and its affiliate Health Care Communications Ltd. at the cost of $5.7 million in cash and stock, establishing the foundation for Kendle International’s medical communication/meeting and medical society management division. The extra workload did not materialize as expected because the pharmaceutical industry underwent a period of consolidation and volatility, which began in late 1999 and carried through 2000, resulting in a temporary shift in focus from drug development to mergers and acquisitions, and a reduction in spending on CROs. When 1999 came to an end, Kendle International recorded revenues of $117.1 million and net income of $7.7 million, but the following year the company posted a net loss of $2.1 million on revenues of $120.5 million. The meager increase in sales was especially disappointing in light of the March 2000 introduction of a suite of Internet-based products: TrialBase, TriaLine, and TrialFax.

During the difficulties of 2000, Kendle international took a hard look at its operations and polished its drug development process to better position the company when the pharmaceutical industry had completed its shakeout. The company also bolstered its presence in the Asia-Pacific region through the $2.2 million cash and stock acquisition of SYNERmedica Pty Ltd., an Australian CRO.

Business picked up in 2001 and Kendle International returned to profitability in the first quarter. By the end of the year revenues had improved to $154.3 million and net income totaled $4.2 million. The company also continued to grow externally, acquiring Rockville, Maryland-based AAC Consulting Group, a regulatory and validation services company for $10.9 million in cash plus stock. In addition, in 2001 Kendle International forged an alliance with Pharmacia Corp., becoming only one of two primary providers of clinical research services to the London-based firm, which two years later was bought by Pfizer, Inc.

GENERIC DRUG CAPABILITIES: 2002

Kendle International continued its global expansion in 2002, establishing alliances with CROs in Mexico and Bulgaria. The company also expanded its customer base to include smaller pharmaceutical and biotech firms, which lacked the resources of industry giants and could make good use of Kendle International’s expertise. Moreover, the company continued to add what it had to offer clients. In 2002, for example, Kendle International became involved in generic drug development with the acquisition of Clinical and Pharmacologic Research, Inc., a Morgantown, West Virginia-based company that laid the foundation for the Kendle Bioequivalence and Pharmacokinetics unit.

In 2003 Kendle International took a step back to reorganize its business into five specialized operating units. It also took some write-downs that resulted in a $54.8 million net loss on revenues of $165.2 million for the year. Nevertheless, the company was still able to expand into Latin America through the acquisition of a Mexican CRO, Estadisticos y Clinicos Asociados, SA.

KEY DATES

1981:: Company is founded.
1991:: Loss of contracts leads to expansion.
1997:: Company goes public as Kendle International.
2001:: AAC Consulting Group, Inc., is acquired.
2003:: Company enters Latin American market.

The reorganization effort was completed in 2004 and the company expanded its worldwide reach during the course of the year and into early 2005 by opening new offices in Romania and Bulgaria to gain a foothold in Eastern Europe. The company made further inroads in Latin America with a new office in Peru. It also took steps to open offices in New Delhi, India, and Johannesburg, South Africa. In 2004 Kendle International outpaced the marketplace by growing revenues 10 percent to $172.9 million. After two years of posting net losses, the company earned $3.6 million.

Kendle International enjoyed an even better year in 2005 as the company’s refined business model continued to bear fruit. Revenues improved 17 percent to more than $202 million, while net income almost tripled to $10.7 million. Strong growth continued in 2006, when the company posted revenues of $373.9 million. The company also bolstered its Latin America business with the acquisition of International Clinical Research and expanded its customer base with the addition of the Phase II–IV Clinical Services business of Charles River Laboratories, Inc.

Ed Dinger

PRINCIPAL SUBSIDIARIES

Kendle U.K. Inc,; Kendle GmbH (Germany); Kendle International B.V. (Netherlands); Kendle International Holdings Pty Limited (Australia); ACER/EXCEL Inc.; Kendle Canada; Kendle International, S.A. de C.V. (Mexico).