inVentiv Health Inc. CEO Walter Blane bought 56183 shares on 8-13-2008 at $17.74
inVentiv Health Inc. (together with its subsidiaries, â€śinVentivâ€ť, or the â€śCompanyâ€ť) is a leading provider of value-added services to the pharmaceutical, life sciences and healthcare industries. We support a broad range of clinical development, communications and commercialization activities that are critical to our customers' ability to complete the development of new drug products and medical devices and successfully commercialize them. In addition, we provide medical cost containment services to payors in our patient outcomes business. Our goal is to assist our customers in meeting their objectives by providing our services in each of our operational areas on a flexible and cost-effective basis. We provide services to over 325 client organizations, including all top 20 global pharmaceutical companies, numerous emerging and specialty biotechnology companies and payors.
Our service offerings reflect the changing needs of our clients as their products move through the late-stage development and regulatory approval processes and into product launch and then throughout the product lifecycle. We have established expertise and leadership in providing the services our clients require at each of these stages of product development and commercialization and seek to address their outsourced service needs on a comprehensive basis throughout the product life cycle.
The success of our business as a whole, and of our inVentiv Clinical, inVentiv Commercial and inVentiv Patient Outcomes segments in particular, is related significantly to the degree to which pharmaceutical companies outsource services that have traditionally been performed internally by fully integrated manufacturers. We believe that our business has been positively affected by a trend of large pharmaceutical manufacturers toward utilizing outsourcing arrangements as a means of controlling variable unit cost and increasing flexibility. We also believe that the significant percentage of New Drug Application (â€śNDAâ€ť) and New Molecular Entity (â€śNMEâ€ť) approvals attributable to small and mid-tier pharmaceutical and biotechnology companies presents an opportunity for companies providing outsourced services because these companies often prefer to employ high-quality, third party service providers (either directly or in co-promotion situations with pharmaceutical partners) to effect critical late-stage developmental and commercialization functions. We therefore target a broad spectrum of companies within the pharmaceutical industry in seeking to develop business opportunities.
Our strategy relies on both internal growth and acquisitions to meet our growth objectives. Our businesses have generated strong revenue growth for the past several years. Our internal revenue growth reflects our strong track record in winning new business, which in turn is enhanced by our pursuit of cross-servicing opportunities within and across our business segments. Furthermore, although our revenues are generally received under contracts with limited terms and that can be terminated at the clientâ€™s option on short notice, we have been successful historically in obtaining increasing amounts of repeat business from many of our clients and in expanding the scope of the services we provide to them and thereby sustaining multi-year relationships with many of our clients.
We seek out acquisitions in order to fill strategic gaps, selectively strengthen existing franchises, further strengthen and broaden our clinical, communications, commercial and/or patient outcomes capabilities, add complementary client relationships and bring on board additional management talent. We believe that our track record to-date in identifying, negotiating, closing and integrating strategic, accretive acquisitions has been successful. Acquisitions contributed significantly to our year-over-year growth for 2007.
We have organized our businesses into four operating segments: inVentiv Clinical, inVentiv Communications, inVentiv Commercial and inVentiv Patient Outcomes. Each of our operating segments is composed of multiple businesses that are referred to as "business units" throughout this report. We apply aggregation criteria consistent with definitions under the related guidance in Statement of Financial Accounting Standards (â€śSFASâ€ť) No. 131, Disclosures about Segments of an Enterprise and Related Information as well as SFAS 142, Goodwill and Other Intangible Assets, for purposes of aggregating business units. The following is a detailed description of our four operating segments:
inVentiv Clinical provides professional resourcing and services primarily to the pharmaceutical, biotech and device companies. Professional resourcing services include providing clinical research professionals in support of clientsâ€™ research efforts, including permanent placement, clinical staffing, and strategic resource teams. In addition, inVentiv Clinical provides its clinical research clients with outsourced functional services in various areas, including clinical operations, medical affairs and biometrics/data management. inVentiv Clinical consists of the Smith Hanley group of companies (which includes Smith Hanley Associates (â€śSHAâ€ť), Smith Hanley Consulting Group (â€śSHCGâ€ť) and MedFocus), HHI Clinical & Statistical Research Services (â€śHHIâ€ť), and Synergos, LLP ("Synergos"). inVentiv Clinical's service offerings include:
Clinical Staffing and Recruiting. Through SHCG and MedFocus, we meet the staffing and recruiting needs of more than 140 pharmaceutical and biotechnology clients, including 14 of the top 20 global pharmaceutical companies, for SASâ„˘ programmers, data managers, statisticians, monitors and clinical research associates, study and project managers, clinical trials coordinators, safety/regulatory staff, medical writers, scientific and laboratory staff and other clinical personnel. Our clinical staffing services provide our clients with flexibility in managing and executing clinical trials internally and allow them to avoid the expense of hiring and training a full staff internally. We draw from a database of over 30,000 candidates that is continually expanded through new recruiting techniques that include search engines, job fairs, conferences and referral bonuses.
Functional Outsourcing. We provide a variety of functional outsourcing services, including data management and statistical analysis services through HHI, through our dedicated facilities in Indiana and Pennsylvania, and monitoring and project management services through Synergos. We have performed these services for over 150 clinical trials. Our functional outsourcing services complement SHCG and MedFocusâ€™s contract staffing pool with statistically-knowledgeab le physicians and medically-knowledgeable statisticians to deliver well-organized research used in clinical trial and clinical program design, data management, data analysis, double data entry and validation, reporting and standard operating procedures writing. This bi-disciplinary expertise enables us to set up, manage and present data to help pharmaceutical clients move from the preclinical stage through the drug approval process and into post-commercialization oversight.
Executive Placement. We provide executive placement services through SHA, which is one of the most experienced and respected executive placement organizations focused primarily on statisticians and data-related functions.
inVentiv Communications provides services related to pharmaceutical advertising, branding, public relations, interactive communications and physician education. This segment includes inVentiv Communications, Inc. (formerly known as inChord Communications, Inc.), Jeffrey Simbrow Associates ("JSAI"), ignite Health and Incendia Health Studios (collectively, â€śIgniteâ€ť) (acquired in March 2007), Chamberlain Communications Group, Inc. (â€śChamberlainâ€ť) (acquired in March 2007), Addison Whitney (acquired in June 2007) and Chandler Chicco Agency (â€śCCAâ€ť) (acquired in July 2007):
Advertising and Communications Support . Advertising and communications support services are delivered to pharmaceutical industry clients through five separate agencies:
GSW Worldwide and Palio are full-service agencies that create marketing solutions through advertising, public relations, market access strategies, media and market research. GSW Worldwide has established international reach through a network of twelve international affiliate relationships.
Navicor specializes in oncology and immunology expertise.
Stonefly conducts advertising, marketing, and public relations services focused primarily on biotechnology and emerging pharmaceutical companies.
JSAI is a leading healthcare marketing and communications agency in Canada.
Angela Liedler GmbH (â€śLiedlerâ€ť), is a leading healthcare marketing and communications agency in Germany.
Public Relations . Public relations services are delivered to pharmaceutical industry clients through two separate PR agencies:
CCA is a full service public relations firm that serves the healthcare sector by building and promoting brand value, providing leadership, protecting brand value and furthering public affairs agendas. CCA operates through three US-based and two Europe-based offices, and has established broad international reach through a network of fifteen international affiliate relationships.
Chamberlain is also a full-service public relations firm dedicated to creating enduring agendas that drive understanding and meaning for clientsâ€™ healthcare brands.
Branding . Addison Whitney focuses on creating unique corporate and product brands, and specializes in building powerful branding solutions for clients through unique and disciplined processes. Addison Whitney offers a range of capabilities to create, renew and strengthen brands, including an expertise in generating names that reflect the brand's identity and meet regulatory requirements. Revenues from our Y-Brand division are recognized and recorded on a fee-for-service basis, in accordance with the terms of the contracts.
Interactive Communications . Ignite specializes in medical advertising and interactive communications targeting patients, caregivers and healthcare professionals.
Patient and Physician education . Cadent Medical Communications, Selva Communications and Center for Biomedical Continuing Education ("CBCE") provide education and communications services to build advocacy for pharmaceutical and biotech brands. CBCE is an accredited provider of continuing patient and physician education for physicians.
inVentiv Commercial provides a wide range of commercialization support services, organized principally into two subdivisions:
inVentiv Selling Solutions . inVentiv Selling Solutions encompasses the following group of companies that mainly relate to sales teams and sales support services:
inVentiv Pharma Teams: inVentiv Pharma Teams provide outsourced product commercialization programs for prescription pharmaceutical and other life sciences products. inVentiv Pharma Teams maintain and operate one of the largest pharmaceutical outsourced sales organizations in the United States, including systems, facilities, and support services necessary to recruit, train and deploy customized, full-service targeted sales forces.
Life sciences companies, particularly pharmaceutical manufacturers, have traditionally relied upon product detailing as the primary means of influencing prescription writing patterns and promoting their products. Product detailing consists of a one-on-one meeting in a physician's office where a sales representative reviews the medical profile of a product's Food and Drug Administration approved indications. In order to engage in an effective dialogue, the salesperson must be well educated and highly trained. Recruiting qualified personnel and providing client and product specific training are both core competencies of inVentiv Selling Solutions.
Recruiting: To accomplish a coordinated recruiting effort, our regionally based recruiters coordinate through a national recruitment office that locates and hires potential sales representatives. Our in-house human resources team adheres to selective hiring criteria and conducts detailed evaluations to ensure high quality of representation for our clients. inVentiv Selling Solutionsâ€™ recruiters maintain a fully automated database of qualified candidates for immediate hiring opportunities, and our website offers an online application for employment. We offer these recruitment services to clients as part of an integrated sales force recruitment, training and management program, as well as on a standalone basis. inVentiv Selling Solutions hires a mix of full-time and flex-time representatives in order to accommodate the detailing level required by clients and enhance cost efficiency.
Professional Development and Training: We have one of the largest dedicated training facilities of its type in the U.S. Topics such as sample accountability, negotiation tactics, personal writing skills, integrity selling, time and territory management, team productivity and pharma-manager leadership are covered extensively in order to prepare the representatives for their interactions with medical professionals. Our trainers have access to proprietary information about the prescription writing behavior of physicians. We provide this training both for our own and for our clients' sales forces, and training and development services are essential to maintaining and building our relationships with pharmaceutical companies. Our training efforts are further enhanced through a proprietary voice-recognition software platform enabling remote training practices. These strengths are widely recognized as distinguishing inVentiv Selling Solutions from its competitors.
Regulatory Compliance Services: Through our PRS business unit, we provide independent oversight of the Prescription Drug Marketing Act (â€śPDMAâ€ť) and Office of Inspector General compliance to clients and to internal inVentiv Pharma Teams. Our expertise in PDMA compliance issues is nationally recognized. We provide a number of processes, systems and services to help clients comply with federal and state regulations specific to sample accountability, including auditing of sample accountability compliance by field force professionals and "whole systems" sample accountability assessments. We also license software solutions for the implementation of sophisticated PDMA compliance strategies.
Non-Personal Promotion: We provide warehousing, assembly, mailing, fulfillment, teleservices and eServices through our Promotech business unit. Promotech maintains a newly expanded facility with over 62,000 square feet that includes an environmentally controlled, FDA and Drug Enforcement Agency (â€śDEAâ€ť) certified and PDMA compliant warehouse, office space and a 64-station call center.
Virtual Event Services : MedConference is a leading provider of live and on-demand virtual event services to the pharmaceutical industry. MedConferenceâ€™s flagship service, MedConferenceLiveâ„˘, creates and manages live and on-demand web events for the healthcare industry. MedConferenceâ€™s turnkey package of reliable technology and full-support services provides a flexible, easy-to-use online communication platform for pharmaceutical companies, medical education providers, professional medical associations and others who need to deliver timely information to physicians and healthcare practitioners.
Sales Force Automation/Data Analysis: Our Total Data Solutions (â€śTDSâ€ť) business unit collects and analyzes sales force level data necessary to make marketing resource allocation decisions. Sales representatives are equipped with an industry-leading palm-top and laptop sales force automation system developed for inVentiv Selling Solutions. This system enables our sales representatives to rapidly collect sales call and physician profiling information while in the field, which is compiled daily in a central data storage server. Our information processing system allows sales management teams to analyze data regularly, compare the results with targeted initiatives and historical data and make necessary adjustments to the sales strategy. TDS supports inVentiv Pharma Teamsâ€™ needs and also offers this sales force automation system on a standalone basis to clients.
inVentiv Strategy and Analytics . inVentiv Strategy and Analytics encompasses our consulting offerings focused on strategy, analytics, market research, managed care and commercialization planning:
Planning and Analytics : Health Products Research (â€śHPRâ€ť) is a leader in the development and implementation of advanced data analysis and market research technologies to support client decision making within pharmaceutical and biotechnology companies. HPR combines leading edge technology with advanced statistical techniques and empirical research to deliver strategic and tactical solutions that help pharmaceutical executives maximize their return on investment for promotional resources. HPRâ€™s range of services includes a variety of quantitative and other tools that supports HPRâ€™s clients in optimizing and continually improving the effectiveness of deployed promotional and sales force resources.
Strategic Consulting : Strategyx, acquired in June 2007, is a strategy consulting firm, focused on delivering effective and innovative approaches to participating in the emerging, managed healthcare marketplace. Strategyx specializes in three practice areas: managed markets strategy, product strategy and organization design.
Product Access and Managed Market Support : Ventiv Access Group provides the strategy and tactics to increase access to clients' products in managed markets, trade distribution channels, Medicaid, Medicare, and other State and Federal outlets.
Consulting and Contract Marketing: Creative Healthcare Solutions, LLC (â€śCHSâ€ť) is a leading provider of contract marketing services for pharmaceutical and biotech companies. CHS supports product teams by adding expertise in brand management, new product planning, market research and business development.
inVentiv Patient Outcomes
inVentiv Patient Outcomes provides services related to patient adherence, patient assistance and reimbursement, clinical educator teams and medical cost containment and disease management. This segment includes Adheris, Inc. (â€śAdherisâ€ť), The Franklin Group (â€śFranklinâ€ť), The Therapeutics Institute and AWAC (acquired in July 2007).
Patient Pharmaceutical Compliance Programs . Through Adheris, we provide a variety of patient support services with a proven history of improving medication adherence across nearly every chronic therapeutic category. By partnering with pharmacies around the country, Adherisâ€™ programs build on the pharmacist-patient relationship and trust with personalized letters from pharmacists themselves. Adheris programs comply with the patient privacy provisions of the Health Insurance Portability and Accountability Act of 1996, ("HIPAA"), and its OnSyte(TM) technology allows retail pharmacies to help patients stay on therapy while protecting their confidentiality and private medical information.
Patient Support Programs . We offer patient assistance programs and reimbursement counseling through our Franklin business unit. Franklin has established a leadership position in providing reliable and innovative patient assistance programs, reimbursement counseling, web-based programs, missions programs and proactive fulfillment. Franklin also provides a variety of additional patient support services to clients, including support in Medicare Part D education.
Clinical Nurse Educator s, On-Call Specialists, and Medical Science Liaison Programs : The Therapeutics Institute offers highly qualified clinical and scientific professionals to build advocacy, educate healthcare professionals, and sensitize markets to novel and exciting therapies
Medical Cost Containment and Consulting Solutions . AWAC is a leading provider of proprietary IT-driven cost containment and medical consulting solutions to third party administrators, ERISA self-funded plans, fully insured plans, employer groups, managing general underwriters and insurance carriers. AWAC provides unique data integration and access and analysis capabilities including real-time claims evaluation and intervention, disease management, demand management, risk assessment, wellness programs and pre-certification.
Acquisitions and Divestitures
Strategic acquisitions are one core element of our business strategy. We believe that our expertise in identifying potential acquisition targets, assessing their importance to our operational and growth objectives, performing due diligence and completing the acquisition of appropriate businesses and effectively integrating them with our existing operations is a significant competitive advantage.
Our acquisition activity adds complexity to the analysis of period-to-period financial results and makes direct comparison of those financial results difficult. Our acquisitions are accounted for using purchase accounting and the financial results of the acquired businesses are included in our consolidated financial statements from their acquisitions dates. A prior year period that ended before an acquisition was completed, however, will not include the corresponding financial results of the acquired business.
During 2002 and 2003, we divested our European Contract Sales businesses. We have been receiving payments subsequent to some of these divestitures based on the subsequent earnings of the divested unit. For the years ended December 31, 2007, 2006 and 2005, we received approximately $0.5 million, $1.4 million and $1.7 million, respectively, mostly relating to the Germany based contract sales organizations.
As part of the acquisition of inVentiv Communications, Inc. in October 2005, we added that company's United Kingdom-based operations. As part of the acquisition of CCA in July 2007, we added CCAâ€™s operations in the United Kingdom and France. These units collectively provide advertising, marketing and public relations services to clients throughout Europe. In April 2006, we acquired JSAI, a leading healthcare marketing and communications agency in Canada.
In December 2007, we increased our investment interest from 44% to 85% in Liedler, a provider of communication and marketing services for medical and pharmaceutical products, located in Germany. We accounted for Liedler as an equity investment until the acquisition date, and then included its results in our consolidated results thereafter. We also have a 15% ownership interest in Heart Reklambyra AB (â€śHeartâ€ť), an advertising agency located in Sweden, which we account for by using the equity method of accounting. Neither investment is material to the overall consolidated financial statements.
In addition to our fully-owned international operations and our minority ownership interests, we have within GSW Worldwide and within CCA an established network of over a dozen international affiliate relationships, which do not have any equity interest in the affiliate, that help support our client needs in additional international markets.
We provide our services to leading pharmaceutical life sciences and healthcare companies. For the years ended December 31, 2007 and 2006, no clients individually exceeded 10% of our total revenues, and we served over 325 unique clients in 2007 and support over 850 client brands. Approximately 51% and 48% of our revenues in 2007 and 2006, respectively, were derived from our ten largest clients, which for 2007, listed alphabetically, were as follows: Allergan, Boehringer Ingelheim, Inc., Cephalon, Inc., Eli Lilly and Company, Johnson and Johnson, Merck KGaA, Novartis Pharmaceuticals, Inc., Pfizer, sanofi-aventis Group, and Wyeth.
We consider the breadth of our client portfolio and our close relationships with leading pharmaceutical manufacturers to be an important competitive advantage, providing us with a source for recurring revenues as well as sales growth opportunities as our clients launch new products and as we develop new offerings. Our services are typically sold to several target groups within the client organization, typically their clinical, marketing and sales departments and brand teams. This provides the basis for continuous interaction and feedback, allowing us to continuously improve our services and identify new business opportunities, a process augmented by the longevity of many of our client relationships. We have developed sustained relationships with large, mid-tier and emerging pharmaceutical and biotechnology clients that provide us with recurring revenue streams and cross-selling opportunities. Our ability to perform services and add value at every part of the product life cycle enhances our ability to develop new business opportunities and form long-lasting relationships with clients.
Our relationships with a client's clinical or marketing and sales organizations also benefit from high switching costs, as retaining another sales force or advertising agency and redesigning a marketing program creates substantial additional expense and causes losses in time and productivity for our clients. In addition, successful marketing and sales outsourcers have established their reputations due to sophisticated performance evaluation capabilities, and clients are unlikely to use vendors without widely recognized expertise and a strong track record and recognized brand names.
MANAGEMENT DISCUSSION FROM LATEST 10K
We currently manage four operating segments based on the way management makes operating decisions and assesses performance:
inVentiv Clinical , which provides services related to permanent placement, clinical staffing, data collection and management and functional outsourcing.
inVentiv Communications , which provides services related to pharmaceutical advertising, branding, public relations, interactive communications and physician education.
inVentiv Commercial , which consists of our outsourced sales and marketing teams, planning and analytics services, sample accountability services, marketing support services, professional development and training, and recruitment of sales representatives in the commercial services area. This segment includes inVentiv Strategy & Analytics and inVentiv Selling Solutions .
inVentiv Patient Outcomes, which provides services related to patient adherence, patient assistance and reimbursement, clinical educator teams and medical cost containment and disease management.
Our non-operating segment "Other" encompasses the activities of the corporate management group.
Our business is heavily dependent on the willingness and propensity of our customers to seek outsourced solutions for the services we provide. We believe that our business has been positively affected by a trend of large pharmaceutical manufacturers toward utilizing outsourcing arrangements as a means of controlling variable unit cost and increasing flexibility. Although large contracts with these manufacturers remain an important component of our overall business activity, there is a potential for margin contraction and the termination of contracts resulting from downsizing and other cost control measures by large pharmaceutical manufacturers.
We believe that the increasing percentage of New Drug Application (â€śNDAâ€ť) and New Molecular Entity (â€śNMEâ€ť) approvals attributable to small and mid-tier pharmaceutical and biotechnology companies presents an opportunity for companies providing outsourced services because these companies often prefer to employ high-quality, third party service providers (either directly or in co-promotion situations with pharmaceutical partners) to effect critical late-stage developmental and commercialization functions, rather than building significant infrastructure internally. We therefore target a broad spectrum of companies within the pharmaceutical and life sciences industry in seeking to develop business opportunities.
Critical Accounting Policies
The following is a summary of our revenue recognition policy, based on the segment and services we provide:
Clinical Staffing and Recruiting - Revenues are recognized and recorded when services are rendered.
Functional Outsourcing - Revenues are recognized and recorded when milestones are achieved, in accordance with the terms of the contracts.
Executive Placement - Revenues are recognized and recorded at the time a candidate begins full-time employment. Any write-offs due to cancellations and/or billing adjustments historically have been insignificant.
Advertising and Communication support - Revenues are recognized and recorded under the proportional performance method, by relating the actual hours of work performed to date to the current estimated total hours of the respective projects. Any anticipated losses on projects are recognized when such losses are anticipated. Time and production billings are billed as incurred for actual time and expenses.
Public Relations - Revenues are recognized and recorded as time and production billings are billed as incurred for actual time and expenses.
Branding - Revenues are recognized and recorded on a fee for service basis, in accordance with the terms of the contracts; and revenues for certain contracts are recorded based on completed contract method.
Interactive Communications - Revenues are recognized and recorded under the proportional performance method based on services performed.
Patient and Physician Education - Revenues are recognized and recorded using either the completed contract method or when milestones are achieved, depending on the terms of the specific contracts.
inVentiv Pharma Teams - Revenues and associated costs are recognized and recorded under pharmaceutical detailing contracts based on the number of physician calls made or the number of sales representatives utilized. Most of our Sales and Marketing Teamsâ€™ contracts involve two phases, a â€śImplementation phase", formerly referred to as "Deployment phase" ,typically one to three months, in which we perform initial recruiting, training and preparation for deployment of the field force at the start of a new contract, and the â€śDeployment phase", formerly referred to as â€śPromotion phaseâ€ť, in which our deployed field force actively promotes specified products for clients through face-to-face interactions with physicians or other targets referred to as â€śdetailingâ€ť.
Our inVentiv Pharma Teams contracts specify a separate fee for the initial â€śImplementation phaseâ€ť of a project. We consider the implementation phase to be a separate and distinct earnings process and recognize the related revenues throughout the implementation phase , which typically spans a period of one to three months at the beginning of the first year of a contract. We generally recognize revenue during the "Deployment phase" of our inVentiv Pharma Teams contracts on a straight-line basis based on the size of the deployed field force. The accounting for the two phases is based on our analysis of Emerging Issues Task Force (â€śEITFâ€ť) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, in which we have concluded that the deployment and promotion phases are being sold separately and therefore qualify as separate units of accounting within the meaning of paragraph 9 of EITF 00-21.
Many of the product detailing contracts allow for additional periodic incentive fees to be earned once agreed upon performance benchmarks have been attained. Revenue from incentive fees is recognized and recorded when we are reasonably assured that payment will be made, and is typically based upon verification through calculation of achievement, third party data or client verification. Many contracts also stipulate penalties if agreed upon performance benchmarks have not been met. These penalties are recognized upon verification of performance shortfalls.
Non-refundable conversion fees are recognized and recorded as revenue when one of our sales professionals accepts a firm offer of permanent employment from a customer during the term of a contract.
Recruiting - Revenues are recognized based on placement of candidates.
Professional Development and Training - Revenues are generally recognized and recorded as training courses are completed.
Regulatory Compliance Services - Regulatory compliance revenues for both fixed fees services and fees for specific compliance related services are recognized and recorded when monthly services are performed.
Non-Personal Promotion - Revenues are recognized and recorded based on time incurred and fulfillment requirements in accordance with the terms of the contracts.
Virtual Event Services - Revenues are recognized based on the frequency and upon completion of live events.
Sales Force Automation/Data Analysis - A majority of revenues are recognized based on straight-line basis. For certain analytics projects, revenues are recognized upon completion.
Planning and Analytics - Revenues for HPR generally include fixed fees, which are recognized and recorded when monthly services are performed based on the proportional performance method and when payment is reasonably assured. HPRâ€™s initial contracts typically range from one month to one year. Revenues for additional services are recognized and recorded when the services are provided and payment is reasonably assured.
Strategic Consulting - For most contracts, revenues are recognized and recorded on a fee for service basis, in accordance with the terms of the contracts. Certain contracts are also recorded based on the proportional performance method.
Product Access and Managed Market Support - Consulting fee revenues are recognized and recorded when services are rendered. Other services are based on milestones.
Consulting and Contract Marketing - Revenues are recognized and recorded on a fee for service basis, in accordance with the terms of the contracts.
inVentiv Patient Outcomes
Patient Pharmaceutical Compliance Programs - Revenues are mainly recognized based on the volume of correspondence sent to patients.
Patient Support Programs - Patient assistance programs revenues depend on the number of patients served and are recognized and recorded as each service is performed.
Clinical Nurse Educator s, On-Call Specialists, and Medical Science Liaison Programs - Revenue recognition is the same as inVentiv Pharma Teams, as the two services are similar in the business arrangement and fee structure.
Medical Cost Containment and Consulting Solutions- The majority of revenues are recognized on a completed contract basis, based on an analysis of claims as a percentage of savings realized by our clients. Certain services are performed on a fee-for-services basis and recognized when the service is rendered.
General Revenue Recognition
Reimbursable costs, including those relating to travel and out-of pocket expenses, sales force bonuses tied to individual or product revenues, and other similar costs, are generally included in revenues, and an equivalent amount of reimbursable expenses is included in costs of services in the period in which such amounts have been finalized. In certain cases, based on our analysis of EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent , and related accounting literature, we may also record certain reimbursable transactions, such as the placement of media advertisements where we act as an agent, as net revenues.
We periodically analyze our contracts to determine the likelihood and amount of any potential loss on a contract resulting from lower than anticipated product, field force or other performance. In the event that current information illustrates a loss is likely to be incurred over the remaining life of the contract, we accrue that loss at the time it becomes probable. We did not have any material loss contracts in 2007, 2006 or 2005.
Customers are invoiced according to agreed upon billing terms. Contracts that are invoiced prior to performance of related services are recorded as client advances and unearned revenue and are not recognized as revenues until earned, in accordance with our revenue recognition policies. Amounts earned for revenues recognized before the agreed upon invoicing terms have been met are recorded as revenue and included in unbilled services. Upon billing, these amounts are transferred to billed accounts receivable.
Goodwill and Other Intangible Assets
Goodwill and other indefinite-life intangibles are assessed for potential impairment pursuant to the guidelines of SFAS No. 142, Goodwill and Other Intangible Assets , on an annual basis (at June 30) or when management determines that the carrying value of goodwill or an indefinite-lived intangible asset may not be recoverable based upon the existence of certain indicators of impairment. We applied aggregation criteria consistent with the definitions under SFAS 142, as well as the related guidance in SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, for purposes of aggregating business units in our goodwill impairment testing. Goodwill is tested for impairment at least annually using a two-step process that begins with an estimation of the fair value of a business unit. The first step is a screen for potential impairment, and the second step measures the amount of impairment, if any. We calculate and compare the fair value of the goodwill and indefinite-lived intangible asset to its carrying value. If the carrying value exceeds the fair value, an impairment loss will be recognized in an amount equal to the difference. If we deem the useful life to be no longer indefinite after testing for impairment in accordance with the applicable rules stated above, we amortize the intangible asset over its remaining estimated useful life, following the pattern in which the expected benefits will be consumed or otherwise used up and we continue to review for impairment on an annual basis.
We performed annual impairment tests as of June 30, 2007 and concluded that the existing goodwill and indefinite-lived intangible tradename balances were not impaired and continue to maintain this position as of December 31, 2007, based on various factors, including updated forecasts and the current condition of the Company. As of December 31, 2007, we had goodwill of approximately $383.7 million and other intangibles (net) of $281.1 million in the Consolidated Balance Sheet.
In December 2004, the Financial Accounting Standards Board ("FASB") revised SFAS No. 123 (â€śSFAS 123Râ€ť), Share-Based Payment , which establishes accounting for share-based awards exchanged for employee services and requires companies to expense the estimated fair value of these awards over the requisite employee service period. On April 14, 2005, the SEC adopted a new rule amending the effective dates for SFAS 123R. In accordance with the new rule, the Company adopted the accounting provisions of SFAS 123R as of January 1, 2006.
On January 1, 2006, the Company adopted SFAS 123R using the modified prospective application method, as permitted under SFAS 123R, which requires measurement of compensation cost of all stock-based awards at fair value on the date of grant and recognition of compensation over the service periods for awards expected to vest. Under this method, compensation cost in 2006 includes the portion vesting in the period for (1) all stock-based awards granted prior to, but not vested as of, January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation (â€śSFAS 123â€ť), and (2) all stock-based awards granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. The Company will recognize the cost of all employee stock awards on a straight-line basis over their respective vesting periods, net of estimated forfeitures. Accordingly, prior periods amounts have not been restated. Under this method, the Company is required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.
With the adoption of SFAS 123R in 2006, the Company has limited its issuance of stock options to senior executives, while granting restricted shares to employees at various levels. During the fourth quarter of 2005, prior to the adoption of SFAS 123R, management analyzed its expected volatility and expected life of stock options and concluded that the expected volatility for options granted during the fourth quarter of 2005 should be 45% and the expected life of the options granted should range between 5.5 and 6.0 years, depending on the granteeâ€™s employee status. The Company analyzed historical trends in these variables on a quarterly basis; during 2007 and 2006 the volatility remains at a range of 39-40%. For the year ended December 31, 2007 the Company elected to use the simplified method of determining the expected term as permitted by SAB 107 and the range of the expected term remained unchanged at 5.5 to 6 years. The Company continues to base the estimate of risk-free rate on the U.S. Treasury yield curve in effect at the time of grant. The Company has never paid cash dividends, does not currently intend to pay cash dividends, and has certain restrictions under its credit facility to pay dividends and thus has assumed a 0% dividend yield. These conclusions were based on several factors, including past company history, current and future trends, comparable benchmarked data and other key metrics.
As part of the requirements of SFAS 123R, the Company is required to estimate potential forfeitures of stock grants and adjust compensation cost recorded accordingly. The forfeiture rate was estimated based on historical forfeitures. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods. The forfeiture rates utilized for the years ended December 31, 2007 and 2006 were 3.91% and 3.25%, respectively.
Results of Operations
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Revenues : Revenues increased by approximately $211 million, or 28%, to $977 million during 2007, from $766 million during 2006. Net revenues increased by approximately $165 million, or 26%, to $797 million during 2007, from $632 million during 2006.
inVentiv Clinicalâ€™s revenues were $187 million during 2007, an increase of $37 million, or 25%, compared to $150 million during 2006. Revenues in inVentiv Clinical were higher in 2007 predominantly due to increased placement of temporary personnel and new business wins to provide functional outsourcing services. Also, in April 2006, the Company acquired Synergos, which complements the segment by strengthening the functional outsourcing service.
inVentiv Communicationsâ€™ revenues were $289 million during 2007, an increase of $82 million, or 39%, from 2006. inVentiv Communicationsâ€™ revenues accounted for 30% of total inVentiv revenues during 2007. Approximately $70 million of this increase relates to incremental revenue relating to the timing of the 2007 acquisitions of Ignite, Chamberlain, Addison Whitney and CCA, and the 2006 acquisition of JSAI. The remainder of this variance mainly relates to recent business wins in various advertising and communicationsâ€™ agencies.
inVentiv Commercialâ€™s revenues were $401 million during 2007, an increase of $54 million, or 15%, from 2006. Most of the variance relates to new business wins, which more than offset revenues from contracts that wound down in the ordinary course. The remaining increase predominately relates to the acquisition of Medconference, DialogCoach, and Strategyx.
inVentiv Patient Outcomesâ€™ revenues were $100 million during 2007, up $38 million from 2006. Growth in the segment was both organic as well as from the addition of AWAC. The inVentiv Patient Outcomes segment, which was formed in August 2007, more closely links our various patient-oriented business units, including Adheris, which was formerly reported in the Communicationsâ€™ segment, Franklinâ€™s patient assistance and reimbursement offerings, which was formerly reported in the Commercial segment, The Therapeutics Instituteâ€™s clinical education services which was formerly reported in the Commercial segment, and AWAC, which the Company acquired in July 2007.
Cost of Services : Cost of services increased by approximately $135 million or 25%, to $682 million for 2007 from $547 million in 2006. Cost of services decreased as a percentage of revenues from 71% in 2006 to 70% in 2007.
inVentiv Clinicalâ€™s cost of services increased by approximately $26 million, or 26%, to $127 million during 2007 from $101 million during 2006. Cost of services as a percentage of revenues slightly increased from 67% during 2006 to 68% during 2007 as we made infrastructure investments in preparation for a material functional outsourcing win with a top 20 pharmaceutical company.
inVentiv Communicationsâ€™ cost of services increased by approximately $44 million, or 33%, to $176 million during 2007 from $132 million during 2006. Cost of services as a percentage of revenues decreased from 64% in 2006 to 61% in 2007, mainly due to the addition of higher margin businesses in 2007.
inVentiv Commercialâ€™s cost of services increased by approximately $46 million, or 17%, to $318 million during 2007 from $272 million during 2006. Cost of services as a percentage of revenues slightly increased from 78% during 2006 to 79% during 2007. The increase in the cost of sales percentage was driven by the increase in limited scope sales force services, including the new on-boarding program with a top 20 pharmaceutical company.
inVentiv Patient Outcomesâ€™ cost of services increased by approximately $19 million, or 45%, to $61 million during 2007 from $42 million during 2006, mainly due to increased business at Adheris and Franklin as well as the acquisition of AWAC, as mentioned above.
Selling, General and Administrative ("SG&A") : SG&A expenses, which also encompasses the activities of the corporate management group, increased by approximately $60 million, or 43%, to $201 million in 2007 from $141 million 2006, mainly due to additional acquisitions in 2006 and 2007.
SG&A expenses at inVentiv Clinical was approximately $45 million in 2007, compared to $38 million in 2006 due to increased selling expense and commissions from additional business; additional staffing requirements; and SG&A expense from Synergos, which was acquired on April 1, 2006.
SG&A expenses at inVentiv Communications increased $22 million to $71 million in 2007. New acquisitions contributed to the majority of this increase.
SG&A expenses at inVentiv Commercial increased by approximately $16 million to $46 million during 2007 from 2006. Approximately 50% of this increase was due to recording a receivables reserve relating to two accounts, including a client that declared Chapter 11 bankruptcy subsequent to the end of the second quarter of 2007. We have previously never had a collections issue as a result of client bankruptcy, with virtually all of our clients having excellent payment histories, and do not believe the circumstances giving rise to these receivables reserves are likely to reoccur in future periods. SG&A also increased due to annual increases in equity and non-equity compensation, and SG&A from the new inVentiv Commercial divisions acquired during the fourth quarter of 2006 and second quarter of 2007.
SG&A expenses at inVentiv Patient Outcomes increased by $10 million to $22 million during 2007, mainly due to the additions of Adheris and AWAC over the last two years.
Other SG&A increased by approximately 36%, or $5 million from 2006 to 2007. This increase mainly relates to $2.1 million of additional stock compensation expense and $0.8 million of other than temporary impairment of marketable securities. See Liquidity and Capital Resources section for further discussion on other than temporary impairment of marketable securities.
Interest Expense: Interest expense almost doubled to approximately $21 million in 2007 from 2006. Approximately $6 million of the difference was due to higher interest on the additional $166 million borrowed under our amended credit agreement entered into in July 2007, as more fully explained in Liquidity and Capital Resources . In addition, as mentioned in Item 3, Quantitative and Qualitative Disclosures About Market Risk , the Company did not designate its initial hedge for hedge accounting until July 2006, which resulted in a $2.1 million net reduction to interest expense relating to the mark-to-market adjustment during the 2006 versus $1.2 million of interest expense due to the financing element embedded in the interest rate swap during 2007.
Provision for Income Taxes : In March 2007, we recognized a tax benefit of approximately $1.0 million related to federal tax benefits of state tax reserves. Including these tax benefits, our annual effective tax rate was 38.4% in 2007.
In June 2006, we recognized a tax benefit of approximately $9.1 million related to net operating losses associated with a previously-divested unit, as management determined that it is more likely than not that this deferred tax asset will be realized. Including these tax benefits, our annual effective tax rate was 28.0% in 2006.
Our current effective tax rate is based on current projections for earnings in the tax jurisdictions in which we do business and is subject to taxation. Our effective tax rate could fluctuate due to changes in earnings between operating entities and related tax jurisdictions, or due to the potential tax impact arising from previous divestitures.
In July 2006, the FASB issued FASB Interpretation No. 48 (â€śFIN 48â€ť), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 . FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the consolidated financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 applies to all tax positions related to income taxes subject to FASB Statement No. 109, Accounting for Income Taxes (â€śFASB No. 109â€ť). FIN 48 is effective for fiscal years beginning after December 15, 2006; as such, the Company has adopted FIN 48 as of January 1, 2007, as required. Differences between the amounts recognized in the consolidated financial statements prior to the adoption of FIN 48 and the amounts reported after adoption are accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. The adoption of FIN 48 did not have a material impact on the Companyâ€™s consolidated statements of operations, financial position, cash flows, and other significant matters, such as debt covenants or the Companyâ€™s normal business practices.
Net Income and Earnings Per Share ("EPS") : inVentivâ€™s net income decreased by approximately $4 million to $47 million during 2007 when compared to the same period in 2006, and diluted earnings per share decreased to $1.47 per share in 2007 from $1.70 per share during the 2006. However, excluding the impact of the increase in the uncollectible receivable reserve during the second quarter of 2007 and the distinct tax benefits in 2007 and 2006, overall EPS and net income increased over the respective periods, driven by increased wins and new acquisitions.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Three-Months Ended June 30, 2008 Compared to Three-Months Ended June 30, 2007
Results of Operations
Revenues : Revenues increased by approximately $53 million, or 23%, to $285 million during the second quarter of 2008, from $232 million during the second quarter of 2007. Net revenues increased by approximately $42 million, or 22%, to $236 million during the second quarter of 2008, from $194 million in the second quarter of 2007.
inVentiv Clinicalâ€™s revenues were $54 million during the second quarter of 2008, an increase of $7 million compared to $47 million during the second quarter of 2007. inVentiv Clinical revenues accounted for 19% of total inVentiv revenues during the second quarter of 2008. Revenues in inVentiv Clinical were higher in 2008 predominantly due to increased placement of temporary personnel and increased traction in functional outsourcing.
inVentiv Communicationsâ€™ revenues were $96 million during the second quarter of 2008, an increase of $30 million or 45% from the second quarter of 2007. inVentiv Communicationsâ€™ revenues accounted for 34% of total inVentiv revenues during the second quarter of 2008. The majority of this increase is due to the incremental revenue relating to the acquisitions of Ignite, Chamberlain, Addison Whitney and CCA in 2007, while the remainder was from organic growth in the legacy Communicationsâ€™ advertising agencies.
inVentiv Commercialâ€™s revenues were $105 million during the second quarter of 2008, an increase of 7% from the second quarter of 2007. inVentiv Commercial revenues accounted for 37% of total inVentiv revenues for the second quarter of 2008. The second quarter of 2008 benefited from several new wins, expansions and incentive fees from certain sales contracts. We continue to benefit from the industry trend towards cost efficient solutions, and are positioned as a market leader in flexible sales force solutions.
inVentiv Patient Outcomesâ€™ revenues were $30 million during the second quarter of 2008, up $8 million from the second quarter of 2007. Growth in the segment was both organic as well as from the addition of AWAC. The inVentiv Patient Outcomes segment, which was formed in August 2007, more closely links our various patient-oriented business units, including Adheris, which was formerly reported in the Communicationsâ€™ segment, Franklinâ€™s patient assistance and reimbursement offerings, which was formerly reported in the Commercial segment, and The Therapeutics Instituteâ€™s clinical education services which was formerly reported in the Commercial segment, as well as AWAC, which the Company acquired in July 2007.
Cost of Services : Cost of services increased by approximately $35 million or 21%, to $198 million during the second quarter of 2008 from $163 million in the second quarter of 2007. Cost of services as a percentage of revenues was 69% and 70% during the second quarter of 2008 and 2007, respectively.
inVentiv Clinicalâ€™s cost of services increased by approximately 16%, to $37 million during the second quarter of 2008 from $32 million during the second quarter of 2007. Cost of services as a percentage of revenues was 69% and 67% during the second quarter of 2008 and 2007, respectively.
inVentiv Communicationsâ€™ cost of services increased by 46% to $60 million during the second quarter of 2008 when compared to the second quarter of 2007. Most of this variance is due to new acquisitions as described above in Revenues . Cost of services as a percentage of the segmentâ€™s revenues decreased slightly from 63% during the second quarter of 2007 to 62% during the second quarter of 2008, mainly due to the acquisitions of higher gross margin businesses.
Cost of services at inVentiv Commercial increased by approximately $6 million, or 8%, to $82 million in the second quarter of 2008, mainly due to the increase in revenues. Cost of services was 78% of inVentiv Commercialâ€™s revenues during both the second quarter of 2008 and 2007.
inVentiv Patient Outcomes cost of services increased by approximately $5 million, or 36%, to $19 million in the second quarter of 2008 from $14 million during the second quarter of 2007, mainly due to the acquisition of AWAC, and increased organic business at Adheris and Franklin, as mentioned above.
Selling, General and Administrative Expenses (â€śSG&Aâ€ť) : SG&A expenses increased by approximately $5 million, or 9%, to $59 million during the second quarter of 2008 from $54 million during the second quarter of 2007, mainly due to increased acquisitions in 2007.
SG&A expenses at inVentiv Clinical decreased by 8% from the second quarter of 2007 to the second quarter of 2008.
SG&A expenses at inVentiv Communications increased $9 million to $25 million during the second quarter of 2008. New acquisitions constituted most of this increase.
SG&A expenses at inVentiv Commercial decreased by approximately $7 million to $11 million during the second quarter of 2008 from $18 million during the second quarter of 2007. The majority of this decrease was due to a receivables reserve recorded during the second quarter of 2007 relating to a client that declared Chapter 11 bankruptcy. Prior to the client bankruptcy in 2007, we have not historically had a collections issue as a result of client bankruptcy, with virtually all of our clients having excellent payment histories.
SG&A expenses at inVentiv Patient Outcomes increased by $1 million to $6 million during the second quarter of 2008, mainly due to the acquisition of AWAC.
Other SG&A was approximately $5 million for the second quarter of 2008, an increase of approximately $1 million from the second quarter of 2007. The increase was mainly related to annual increases in equity and non-equity compensation expense from the previous year, inclusive of changes resulting from additional corporate personnel transferring from the operating units.
Interest Expense: Interest expense increased by approximately $2.4 million, or 62%, from the second quarter of 2007 to the second quarter of 2008, mainly due to higher interest on the additional $166 million borrowed in the new Credit Agreement entered into in July 2007, as more fully explained in Liquidity and Capital Resources .
Provision for Income Taxes : The effective tax rate for the second quarter of 2008 was 40.1%, versus 38.3% during the second quarter of 2007. The rate for the second quarter of 2008 and 2007 included approximately $0.3 million of a tax benefit ($0.2 million after federal tax effect) and $0.6 million of a tax benefit ($0.4 million after federal tax effect) relating to state taxes settled, respectively. The Companyâ€™s current effective tax rate is based on current projections for earnings in the tax jurisdictions in which inVentiv does business and is subject to taxation. The Companyâ€™s effective tax rate could fluctuate due to changes in earnings between operating entities and differences in tax rates in the related tax jurisdictions.
Net Income and Earnings Per Share (â€śEPSâ€ť) : inVentivâ€™s net income increased by approximately $6 million to $13 million during the second quarter of 2008 when compared to the second quarter of 2007. Diluted earnings per share increased to $0.40 per share during the second quarter of 2008 from $0.23 per share during the second quarter of 2007. Overall EPS and net income increased between quarters because of increased business wins, new acquisitions and the impact of the increase in the uncollectible receivable reserve, which lowered EPS during the second quarter of 2007.
Let me begin by stating that we are pleased with inVentivâ€™s financial results for the second quarter and look forward to reviewing our performance and providing an update on our business. With me today on the call is Terry Herring, our COO, and Dave Bassin, our Chief Financial Officer.
Before we start, I want to take a brief moment to personally thank Eran Broshy, our previous Chief Executive Officer. While I appreciate to the opportunity to lead inVentiv, I recognize we would not be where we are without the vision and dedication of Eran whom I have come to respect and admire during the years we worked together. Iâ€™m glad that Eron will remain active bringing his 9 years of experience with the company to his new role as Executive Chairman. Thank you, Eran.
Let me start this call by saying Iâ€™m excited and proud to be inVentivâ€™s CEO for several reasons. First, I believe in this industry and Iâ€™ve been dedicated to working in it for nearly 14 years. Second, inVentiv is in a particularly good position to serve our clients with our deep expertise in services which span the life cycle. This combined with our unique ability to integrate around specific client needs helps us to win in the market place. Third, our financial model is solid with strong mid- to long-term net revenue growth, expanding profit margins, and solid returns on sales and deployed capital. Finally, Iâ€™m honored to be working with a talented team of managers who are recognized experts in this industry.
I would like to begin this morning by providing an overview of our second quarter results and then provide a longer term perspective on our business. Dave will then elaborate further on our financials.
First, let me turn to some highlights from our second quarter financial results reflecting anticipated growth in most of our service areas and our continued excellent execution. For the continuing operations during the second quarter 2008 versus the same period in 2007, total revenues increased 23% to $285 million. Adjusted EBITDA increased 21% to $36.3 million. Adjusted operating income increased 20% to $28 million. GAAP operating income increased 85% to $28 million. Adjusted operating income from continuing operations was $13.3 million, and GAAP income from continuing operations was $13.1 million. Finally, adjusted diluted earnings per share were $0.40, and GAAP diluted EPS was $0.39 for the second quarter of 2008.
We are pleased that despite ongoing challenges in the pharmaceutical industry, our performance was strong and consistent with our expectations. Our growth rate remains robust, and our execution has been seamless on a number of new business wins during the first half of the year. Pro forma organic net revenue growth for the trailing 12 months was 10%, and we continue to target long-term growth rates of low to mid teens. In addition, we continue to provide our clients with insights that drive success for their patients and their business. This is our vision, and this is our passion.
Now, Iâ€™d like to share a few non-financial highlights of the past quarter. Two critical areas to achieving to our vision are strategy and analytics group and patient outcomes, our fastest growing segment. Last week, we announced a promotion of Dan Rubin to President of inVentiv Patient Outcomes and Norm Stalsberg to President of inVentiv Strategy Analytics, part of our commercial business. Both of these men are insiders who know their clients very, very well and know our company even better. Dan was formerly president of Adheris and is one of industryâ€™s top experts in patient compliance. Norman, who formerly led CHS, has over 20 years of experience in marketing and strategic planning in the healthcare industry. The skills and perspective they bring to their new roles will be a tremendous asset to our organization.
So we have not only strengthened our leadership team with inpatient outcomes, but we have also enhanced our capabilities with the acquisition of patient marking group or PMG. PMG focuses on improving conversations between doctors and patients to ensure that patients are more educated. It also complements our existing offerings by giving inVentiv another avenue for directly reaching patients.
Now a broader perspective, because this is my first call as inVentivâ€™s CEO, I wanted to take the opportunity to step back for a moment and provide you with a broader, longer-term perspective on our business that goes beyond quarterly results.
As you know, the challenges facing the pharmaceutical industry are putting significant pressure on our clients, and these factors are expected to continue for the next several years. Yet these same challenges create new opportunities for inVentiv. Some of the trends weâ€™re tapping into include, first, smaller to midsize specialty and biopharmaceutical companies looking to commercialize their products while maintaining ownership and control. inVentiv provides both clinical marketing and sales support to allow them to do this. Second trend, major pharmaceutical companies are sticking to consolidate their partnerships with medical agents. inVentiv provides streamlined integrated support through all of its communication offerings, and finally, healthcare companies of all sizes are examining their business model to find efficiencies and enhance productivity through outsourcing. inVentiv was designed around this very idea.
Pharma companies want partners with skill, scale, and expertise that can help them increase productivity and reduce cost. inVentiv is uniquely positioned to be this partner, the partner that pharmaceutical companies turn to when they want deep experience and counsel on anything from clinical trial to staffing, to launching and commercializing a product. The truth is the reality is confronting pharmaceutical companies today provide a whole host of opportunities for inVentiv that we have never had before. We are having new conversations around new client needs that are creating new wins, new sources of revenue, and new models.
Iâ€™d like to take a minute to share how the current dynamics are creating opportunities by telling you about three specific conversations weâ€™ve had recently with clients. First, traditionally pharmaceutical companies have hired inVentiv to provide outsourced sales teams separate from their own internal teams. But recently, we worked with a large pharmaceutical company to embed our representatives within the clientâ€™s internal sales force to provide greater flexibility and reduce turnover cost. Today, we use this model with several clients and have approximately 700 to 800 sales representatives embedded at their companies, representing 15% to 25% of their total sales forces.
In addition, we have been verbally awarded new inVentiv programs for two new companies. These expanded opportunities came from new conversations. In another example, another client has shifted work to inVentiv. The client asked our for communications division to help them reduce cost and increase efficiency by eliminating an overlap in the duties of the internal team and the advertising agency. inVentiv implemented a new model that reduced the internal brand model that reduced the internal brand team by 50% and shifted many of the responsibilities to the ad agency team which has since tripled in size. We are in discussions with the client on how to apply this successful model to three other brands. This additional revenue came from a new conversation leading to new models and new wins for our organization.
We had another conversation we had another top pharmaceutical company, which has leveraged our vast client in clinical trial expertise, to put us in charge of certain clinical operations and data management. Previously, our clinical business was focusing on staffing for trials. Now, we have built an outsource data management studio of several hundred inVentiv employees on the clientâ€™s campus. inVentiv delivers exceptional quality with enhanced speed and lower cost to this client. Because of our success in this new model, the client briefly expanded the program with us, and we now have additional new opportunities as well.
In the meantime, we continue to expand and enhance the traditional services on which our company was built. I am excited because no one else can meet the needs of healthcare companies as well as we can. We are confident that the more pressure pharmaceutical companies are under to find savings deficiencies, the more they will rely on inVentiv.
Regarding the longer term, I have spoken to you about the market opportunities. Our goal is to transform inVentiv into the industry-leading network integrated solutions. We believe this will lead to $100 to $150 million opportunity for inVentiv. We have already made progress towards achieving this goal through cross selling and integrated bundling within each of our divisions. For example, for every dollar of gross margin the sales team generates, there is an incremental $0.15 to $0.25 of specialty services margin. Likewise, we have been able to demonstrate for every dollar of advertizing net revenue, there is an incremental $0.15 to $0.25 of other marketing services net revenue. I am proud to announce year to date, we have generated 44 integrated wins compared to 35 for all last year. So this is our long-term vision, but in the short-term, we are focused on 5 priorities that will put us in a position to realize this vision.
The first is to offer best in class brand in every division. The second is to collaborate across business units to offer integrated solutions. The third is to invest in our talent. Weâ€™ve got great people. Thatâ€™s why clients come to us and why we continue to attract and retain great employees. Fourth is to continue to acquire and create innovate offerings, and the fifth is to deliver our services in an efficient streamlined manner that leverages the strength of our centralized back bone.
In the future, our success will be measured by our continued organic net revenue growth in the low to mid teens. Our integrated wins and our continued high net margins will grow to the mid-teen to the high-teens on an EBITDA basis and on delivery of strong cash flow from operations eclipsing $100 million per year. The bottom line is this: inVentiv holds a powerful position in the healthcare industry. Unlike any other organization, we can influence 3 things that our clients care most about, growing their revenue, reducing their cost, and maximizing their efficiency and flexibility. As we continue to strengthen our position as an integrated network, out long-term growth outlook is exceptionally strong.
Regarding my expectations, I have big long-term expectations for this company. I am confident we can meet these expectations given our client needs and our talented team, but the reality is since I became CEO in early June, there have been some short-term challenges that change our targets for the second half of 2008. I want to be very clear what these challenges are. The first is FDA nonapprovals and related marketing budget cuts particularly impacted our communications business. One of our large scope new clients received nonapproval during the second quarter on 2 major drugs, and other clients also received FDA nonapproval, causing them to reduce their marketing budgets. Over time, we expect that some of this business will likely come back.
Second, like everyone, high gas prices are impacting our commercial business. In the short-term, we are not able to adjust our contracts with our clients to absorb the additional cost. However, we expect over time to adjust our contracts and minimize the exposure in incremental cost going forward.
Third, the tentativeness of our clients to make marketing spend decisions affected our communications division. Our clients continue to look to inVentiv for new innovative ways to reach doctors and patients. However, in the short-term, clients are cutting marketing costs before they decide on new solutions. The result is a pipeline that continues to grow but is not converting to new business as quickly as we anticipated. We believe that these items are short-lived in nature and will not impact our ability to reach our long-term objectives. We are addressing these short-term challenges including adjusting our cost base in select areas and aggressively pursuing our new business pipeline, which I am pleased to report now stands at $400 million.
In the second half of the year, we will announce several new wins that will position us well for 2009 and beyond. These wins include large-scale clients that have never used third parties before to provide services that inVentiv will deliver. We have also received verbal confirmation or letters of intent for 5 new dedicated sales teams. We will announce the details later this year. I am extremely optimistic in the long-term. I will now turn over to Dave to elaborate on our financials.
Thanks Blane. I will speak first about our second quarter results, strong cash flow, and balance sheet, our target for the second half of the year, and about the differences between our adjusted and GAAP EPS. Let me turn to our results for each segment.
Our inVentive Clinical business delivered strong second quarter with total revenues of 16% for $54.4 million versus $47 million in the comparable 2007 quarter. Adjusted operating income was $5.4 million in Q2, a 69% increase over the prior year. Our inVentiv Communications business showed continued growth in a challenging marketplace in the second quarter, with total revenue is up 45% to $95.7 million versus comparable 2007 quarter. This figure includes the results from several acquisitions completed during 2007. Adjusted operating income was $11.3 million, a 24% increase over the second quarter of 2007.
Turning to inVentiv Commercial, revenues were up 8% to $105.2 million for the second quarter versus $97.8 million in the comparable 2007 quarter, and adjusted operating income was $13.6 million versus $13.3 million for the second quarter of 2007. Total revenues for inVentiv Patient Outcomes were up 37% to $29.7 million in the second quarter, and adjusted operating income was $5.1 million, a 42% increase over prior year. Pro forma organic net revenue was 20% for the trailing 12-month period for this segment.
The company delivered another quarter of healthy cash flow with $33.4 million of cash flow from operations during the second quarter and $84.2 million over the trialing 12-month period. The companyâ€™s adjusted EBITDA, defined as adjusted operating income before depreciation and amortization, was $36.3 million during the second quarter of 2008 and $142.2 million over the trailing 12-month period.
The companyâ€™s balance sheet continues to be strong at June 30, 2008, with $104 million in cash in short and long-term marketable securities and $174 million of working capital including $251.3 million of billed and unbilled receivables. This level of receivables represents 73 days of failed outstanding versus 79 at December 31, 2007. Our debt at June 30th consisted of $326.7 million balance under our term loan facility plus $35.8 million of capital lease obligations primarily to finance our sales rep auto fleet. Our total debt to adjusted pro forma EBITDA currently stands at approximately 2.34:1.
Our second half targets for 2008 are $0.90 to $0.95 of EPS. This represents strong growth of 36% to 44% over the first half of 2008, delivering a full-year EPS similar to last year. We expect revenues to continue to grow steadily in Q3 and at a greater rate in Q4 as a result of the new wins Blane specifically mentioned. Meanwhile, we expect EPS to be relatively flat in the third quarter and in the fourth quarter to be meaningfully higher given the momentum from the new win. Taking into account our second half growth, a strong pipeline, and current market place dynamics, we expect to return to historical growth rates of low to mid teens for 2009.
Iâ€™d like to now elaborate on the differences between our adjusted and reported GAAP operating results and EPS for Q2 and second half targets, which we believe more appropriately presents the results on a comparative period to period basis. Please refer to the investor desk on our website and todayâ€™s press release which provides further details of these adjustments, but I wanted to highlight for you.
Equity-based compensation expense is included in the consolidated adjusted operating income and EPS, but is excluded from the adjusted results at the segment level. Certain receivable reserves recorded in the second quarter of 2007 and the interest rate hedges continue to be treated as adjustments, consistent with our disclosures on previous earning calls.
With regard to the impairment related to our marketable securities, as previously stated, we potentially expect to record additional nonrecurring income or charges based on future changes in CSCP evaluation. Based on the current value of the CSCP account, there was no material change in the value of the account during the second quarter of 2008. While future impairment changes may result until the fund is fully liquidated, which we now expect sometime in 2009. Nearly 48% of its assets have been liquidated to date, and our balance in the fund stands at approximately $23.2 million today.
As you know, we have put in place an unsecured credit line with Bank of America and therefore expect no liquidity impact on inVentiv from this situation.
I will now turn the presentation back to Blane.
Thanks, Dave. As CEO, I appreciate the importance of providing good visibility to our investors and strong financial performance. Each quarter, Iâ€™ll provide the financial results and explain how weâ€™re progressing towards our objectives. To wrap up, here are the takeaways.
First, we continue to make substantial progress towards achieving our long-term vision. Revenues continue to grow organically at double-digit levels, margins remain strong, and the business generates significant cash flows. Second, we continue to have conversations with clients that produce opportunities we never had before. Our pipeline stands at approximately $400 million today. Finally, inVentiv is well positioned for future success. We deliver on the three objectives for our clients, increasing revenue, reducing costs, and maximizing efficiency. No one else can do what inVentiv can. Iâ€™d like to thank you for your attention, and weâ€™ll now open up the call for your questions at this time.