inVentiv has gotten absolutely hammered, but is it cheap enough?
When I sell my stock in a company, I often keep tabs on it to see how I would have done had I continued to hold it. Doing so enables me to learn from my mistakes and hopefully my good decisions as well.
I was reviewing some of the positions that I sold over the years today and one caught my eye, InVentiv (VTIV). I sold my entire position in the company in late 2007 and early 2008 for between $28.50 and $32.50 per share. I don't remember exactly why I sold it (I suppose that I need to start writing that down), but if I recall correctly it has something to do with a newfound fear of serial acquirers and its management's inability to improve earnings despite promising the world.
Whatever the reason, I'm glad that I sold. Of course, the entire market has been crushed since then but as of today VTIV sits at just over $10/share. I certainly saved myself a lot of pain.
After going through this exercise, the question naturally that arises is inVentiv a good deal now? Its market cap has slid all the way to a little over $300 million. I'm sure that if one added up the myriad of companies that it has purchased over the years it would add up to much more than that. Having said this, the fact that the company is worth more than the sum of what it paid for its parts does not mean that it didn't over pay for them.
I came across a fascinating study this afternoon that got me thinking on this subject:
One in Eight Pharmaceutical Sales Visits Are Impossible to Achieve, Says New Report from ZS.
Waste in Sales Resources Costs Industry $2 billion
The gist of the article is that new figures indicate that doctors are becoming less willing to see drug reps than they were in the past. Reps now get turned away on approximately 13% of their attempted visits. That essentially amounts to 18 million wasted sales calls at a cost of $2 billion per year.
It's difficult to say why doctors are becoming more reluctant to see sales reps. Perhaps their offices are having a tougher time during the economic slowdown and they want to fit in as many patients as possible rather than wasting time flirting with reps. Or perhaps they are afraid that their meeting with reps will be perceived negatively at a time when some are raising concerns about how the system currently works.
At this point, I am inclined to think that VTIV is NOT a good deal even after dropping so much (it was at $45/share in 2007)...but I am unsure.
One side of me thinks that the current environment is great for the company because big pharma will be looking to cut costs and it will outsource its sales teams to VTIV.
The other side of me thinks that rather than outsourcing sales activities, pharmaceutical companies might just cut way back on sales period. The author of the aforementioned study predicts that the number of sales reps in the drug industry eventually must shrink from its current 90,000 to 75,000. Will VTIV be able to increase its share of sales reps enough to counteract this forecast contraction? I'm not so sure.
Add to this the likely healthcare reform that we will see from the new Administration that I can easily see being a negative for the company. Obama wants to cut the cost of healthcare. To me it seems like forcing companies to cut back on marketing and sales would be an easy way to wring a ton of costs out.
The whole system has always seemed sort of wasteful to me. Drug companies go out and hire a bunch of hot former college cheerleaders to push drugs on doctors that they likely are already aware of by visiting them, buying them lunch, giving them free pens, etc... Don't get me wrong, I have a number of friends who are or were pharma reps before getting laid off recently. I'm not mocking them, I'm just saying that it seems like a logical place for drug companies to cut back at a time when their margins will likely be squeezed. If this is correct, it's bad news for VTIV...even if it is a ton cheaper than it used to be.
Does anyone out there follow this company or the pharmaceutical sales industry? I'm love to hear your thoughts on the subject.
No position in VTIV