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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 2004

OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _____________to _____________

Commission file number: 0-30318

VENTIV HEALTH, INC.
(Exact Name of Registrant as Specified in its Charter)

Delaware
(State or Other Jurisdiction No. of Incorporation or Organization)
52-2181734
(I.R.S. Employer Identification No.)
 
200 Cottontail Lane Vantage Court North; Somerset, New Jersey 08873
(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (800) 416-0555

Securities registered pursuant to Section 12(g) of the Act:

Securities registered pursuant to Section 12(g) of the Act: Common Stock
(Title of Class)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

Based on the closing sale price on the Nasdaq National Market as of the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting stock held by nonaffiliates of the registrant was approximately $287,600,993. For the purposes of this calculation, shares owned by officers, directors and 10% shareholders known to the registrant have been deemed to be owned by affiliates. This determination of affiliate status is not a determination for other purposes.

As of February 28, 2005, there were 26,129,138 outstanding shares of the registrant's common stock.

DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Definitive Proxy Statement to be filed with the Commission for use in connection with the 2005 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.
 

TABLE OF CONTENTS

Item
Description
Page
PART I
1
Business
2
2
Properties
9
3
Legal Proceedings
9
4
Submission of Matters to a Vote of Securities Holders
9
 
PART II
5
Market for the Registrant’s Common Stock and Related Stockholder Matters
10
6
Selected Financial Data
11
7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
12
7A
Quantitative and Qualitative Disclosures About Market Risk
27
8
Financial Statements and Supplementary Data
28
9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
52
9A
Controls and Procedures
52
9B
Other Information
52
 
PART III
10
Directors and Executive Officers of the Registrant
53
11
Executive Compensation
53
12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
53
13
Certain Relationships and Related Transactions
53
14
Principal Accounting Fees and Services
53
 
PART IV
15
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
54
 

 

CAUTIONARY STATEMENT

All statements included or incorporated by reference in this Annual Report on Form 10-K (the “Report”), other than statements or characterizations of historical fact, are forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements concerning future revenues, operating expenses, capital requirements, growth rates, cash flows, operational performance, sources and uses of funds and acquisitions, our accounting estimates, assumptions and judgments, the competitive nature of and anticipated growth in our markets, the need for additional capital, changes in the pharmaceutical and life sciences industries, uncertainty related to the continued growth of outsourcing in those industries, changes in the competitive climate in which we operate, our ability to maintain large client contracts or enter into new contracts, uncertainties related to future incentive payments and earnings generated through revenue sharing arrangements and the emergence of future opportunities and other factors. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by us. Forward-looking statements can often be identified by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “potential,” “continue,” “assuming,” similar expressions and variations or negatives of these words. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, some of which are listed under the section “Risks Related to Our Business” in Item 7 of this Report.

The forward-looking statements contained in this Report speak only as of the date hereof and are based upon information available to us at this time. Such information is subject to change, and we will not necessarily inform you of such changes. Except as required by applicable laws or regulations, we undertake no obligation to revise or update any forward-looking statements for any reason.

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PART I

Item 1. Business.
 
Overview

Ventiv Health Inc. and subsidiaries (collectively “Ventiv”) is a diversified pharmaceutical services company spanning late-stage clinical through commercialization services, with leading market positions in outsourced sales teams, clinical staffing, compliance, patient assistance and analytical planning. We provide these services to the world's largest pharmaceutical organizations as well as to emerging and specialty pharmaceutical and life sciences organizations. Over almost three decades, our businesses have provided excellence in customized solutions and helped our clients achieve their business objectives.

We make available on our website, located at www.ventiv.com, the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the United States Securities and Exchange Commission (“SEC”): our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. All such filings are available free of charge. Information found on our website should not be considered part of this annual report on Form 10-K.

Services

We offer a broad range of integrated and stand alone services, in a context of consultative partnership that identifies strategic goals and applies targeted, tailored solutions. These programs include:

 
·  
sales and marketing teams;
 
·  
clinical staffing;
 
·  
planning and analytics;
 
·  
sample accountability and patient assistance;
 
·  
marketing support services;
 
·  
recruitment;
 
·  
professional development and training;
 
·  
data collection and management; and
 
·  
clinical support; 
 
Our organization and service offerings reflect the changing needs of our clients as their new products move through late-stage development and regulatory approval process and through commercialization. As a potential drug or device advances through the clinical trial process, a number of key professionals are needed within the clients’ clinical organization, including statisticians, data managers, statistical programmers and clinical research associates, to support the creation of the New Drug Applications (“NDA”). As the drug advances beyond clinical trials towards commercialization, our clients must plan and design a focused launch campaign to maximize product profitability upon regulatory approval of their product, decide upon the optimal promotional approach, and upon launch, support the product(s) with the appropriate product detailing and other promotional resources. In addition, there are a number of regulatory and compliance requirements that clients must adhere to. All along this lifecycle, Ventiv offers a range of services that support client needs, from late-stage clinical, through marketing and sales, and into compliance.

Ventiv's Business Units

We currently serve our clients primarily through three business units, which correspond to our reporting segments for 2004:

·  
Ventiv Commercial Services, formerly known as Ventiv Pharma Services and previous to that as Ventiv Health Sales and Marketing, which includes our outsourced sales and marketing teams, compliance and patient assistance businesses, marketing support services, professional development and training, and recruitment of sales representatives in the commercial services area;
·  
Ventiv Analytic Services, comprising Health Products Research ("HPR"), which provides planning and analytics services; and
 

 
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·  
Ventiv Clinical Services, which consists of the newly acquired businesses of Smith Hanley Associates, Smith Hanley Consulting Group and MedFocus (collectively “Smith Hanley”) and HHI Clinical & Statistical Research Services (“HHI”). This segment provides services related to recruitment, clinical staffing, and data collection and management.
 
    Our clients may choose either to work with us across our full spectrum of services or narrowly focus their service needs within one of these units. Given the nature of the services provided by each business unit in relation to marketing needs throughout a product's life cycle, ample opportunities exist for cross-selling to current clients. Many of our larger clients utilize the services of all three units.
 
Our strategic goal is to provide the pharmaceutical and life sciences industries with value-added clinical, marketing, sales and compliance services that will enable our clients to achieve accelerated development and superior product sales through higher market penetration. Our business units possess significant combined experience, as each has developed and conducted successful clinical and/or commercialization programs for hundreds of individual pharmaceutical and life science products. Our expertise spans most therapeutic categories, including the significant markets of cardiology, anti-infectives, oncology, gastroenterology, respiratory, allergy, dermatology, and neurology. Our core competencies and track record of proven success enable us to establish strong relationships with our clients' senior personnel, which greatly contributes to client retention.

During 2004 we modified our segment reporting to take into account the integration of operations from our acquisition transactions. Ventiv Commercial Services, formerly known as Ventiv Pharma Services and prior to that as Ventiv Health Sales and Marketing, includes the compliance and patient assistance operations we acquired during 2004 in the Franklin transaction described below. Ventiv Analytic Services continues to comprise HPR’s planning and analytics services business. Ventiv Clinical Services includes our newly acquired Smith Hanley and HHI businesses. See Part II - Item 8 - Notes to Consolidated Financial Statements - Note 18 Segment Information , for a further description.

The following is a detailed description of our individual business units:

Ventiv Commercial Services

Ventiv Commercial Services encompasses three offerings:

Ventiv Pharma Teams

The Ventiv Pharma Teams group within Ventiv Commercial Services is organized to plan, implement and execute outsourced product commercialization programs for prescription pharmaceutical and other life sciences products. Ventiv Commercial Services maintains and operates systems, facilities, and support services necessary to recruit, train and deploy a customized, full-service, targeted sales force. Currently, Ventiv Pharma Teams operates one of the largest pharmaceutical outsourced sales organizations in the U.S., with approximately 2,500 sales representatives as of December 31, 2004.

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 (“FDA”) approved indications. Information provided by the sales representative includes the product's role in treatment, efficacy, potential side-effects, dosage, danger of contra-indications with other drugs, cost and any other appropriate information. In addition to engaging in an educational dialogue with the medical professional, the sales representative will provide free product samples as a supplement to the sales effort. This affords the prescription writer and his or her patients first-hand exposure to the medical product and creates a sense of familiarity and comfort with the product. 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 Ventiv Commercial Services.

Providing clients with high quality sales people requires effective recruiting and training. To accomplish a coordinated recruiting effort, we maintain 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. Ventiv Commercial Services’ recruiters maintain a fully automated database of qualified candidates for immediate hiring opportunities, and our website home page 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, or on a stand alone basis. Ventiv Pharma Teams hires a mix of full-time and flex-time representatives in order to accommodate the detailing level required by clients and maximize cost efficiency.
 

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We also emphasize the training of our personnel, and believe we have made significant investments in this area. Ventiv Commercial Services' Professional Development Group has one of the largest dedicated training facilities of its type in the United States. Our goal is to ensure that sales representatives are knowledgeable and operate professionally, effectively, and efficiently.  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 contact with medical professionals. Ventiv Commercial Services' trainers are top professionals in their field and rely upon proprietary information regarding physician prescribing behavior and industry best practices. As the trainees are from both Ventiv Commercial Services' sales force and our clients' sales forces, the training and development services are essential to maintaining and building our relationships with the pharmaceutical companies. These strengths are widely recognized as differentiating factors, which distinguish Ventiv Commercial Services from its competitors and benefit the overall outsourced sales effort. Ventiv Commercial Services also offers these training services to clients as part of an integrated package or on a stand alone basis.

We are committed to providing our clients with customized cost-effective sales support. This is reflected in the variety of options clients have to choose from, including the type of sales force, the specialties of the sales force (oncology, cardiology, etc.), the methodology employed to target decision makers in the medical community and the type of analysis to be conducted based on the information the sales force collects. We work closely with our clients in all aspects of our service offering to ensure maximum impact of the product's promotional effort.

Consistent with standard practices in the pharmaceutical industry, Ventiv Commercial Services 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 Ventiv Commercial Services. 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. Ventiv Commercial Services also offers this sales force automation system on a stand alone basis to clients.

Franklin 

During 2004, we acquired the businesses of Franklin Group, Inc. and Lincoln Ltd., Inc. (together, “Franklin”). Franklin specializes primarily in conducting patient assistance programs and pharmaceutical compliance services.

Franklin expands Ventiv’s portfolio by offering Patient Assistance Programs and Reimbursement Counseling. As one of the industry pioneers in Patient Assistance Programs (“PAPs”), Franklin has firmly established a leadership position in providing reliable and innovative programs in patient assistance, institutional PAPs, reimbursement counseling, web-based programs, missions programs and proactive fulfillment.

Franklin also provides to clients and to internal Ventiv Pharma Teams independent oversight of Prescription Drug Marketing Act (“PDMA”) and Office of Inspector General compliance. Franklin’s expertise in PDMA compliance issues is nationally recognized and Franklin further strengthens that position by serving as a liaison for the pharmaceutical industry and consultant to the FDA and enjoying an ongoing working relationship with the Department of Justice. In addition, Franklin provides a number of processes, systems and services to help clients comply with federal and state regulations specific to sample accountability, including:

• PDMA Consultative Services - Franklin can perform a “Whole Systems” assessment of a client’s sample accountability system, processes, documents and third party vendors, and then provide recommendations for any necessary corrective action.

• Sample Accountability Services - Franklin offers an auditing field force of medical professionals with a pharmaceutical orientation. This experienced group understands the difference in packaging configurations, and is fully trained in PDMA compliance to provide accurate physical inventories.

• PDMA Compliance Software Solutions - Franklin licenses software solutions that define significant loss and reconciliation thresholds; allows for the on-line or CD administration of PDMA and other compliance based training and certification; and provides a state-of-the-art “proactive” sample accountability database management security solution that detects sample diversion or other aberrant behavior through established thresholds.

Promotech

Ventiv Commercial Services addresses clients’ product life-cycle marketing needs with non-personal promotional programs through its Promotech Research Associates (“Promotech”) division. Promotech provides assembly, mailing, fulfillment, pharmacy, teleservices and eServices from its newly expanded Colorado facility with over 62,000 square feet that includes an environmentally controlled, FDA and Drug Enforcement Agency (“DEA”) Certified and PDMA compliant warehouse, office space and a 64-station call center. Clients rely on us for sample and literature shipments to sales representatives; physicians and patients/consumers; field force sample reconciliation; audit and compliance management; comprehensive fulfillment including tradeshows, physician requests, and trade advertising; and fulfillment of prescription products as dictated by patient assistant programs. By utilizing its core marketing and sales resources (fulfillment, teleservices, direct mail, and incentive programs), Promotech is able to offer a combination of customized solutions to meet a client’s objective when a single service will not suffice. One such seamless client offering would be a coordinated sample delivery with sales calls on physicians as well as rebate program administration.
 

 
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Ventiv Analytic Services

Ventiv Analytic Services includes HPR, a leader in the development and implementation of advanced data analysis and 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 (“ROI”) for promotional resources. Clients rely heavily on HPR’s diversified staff of professionals with experience in pharmaceutical sales and marketing, quantitative sciences and customer support to deliver solutions that are grounded in industry expertise and coupled with technical sophistication.

HPR’s complete range of services includes:

·  
Market Segmentation: HPR’s segmentation solution suite is a critical first step designed to enhance the accuracy of the promotion response analytics and optimization processes. HPR conducts segmentation analyses across a broad array of industry customers using both proprietary and secondary data sources. This analysis enables the construction of a concise view of the multiple variables driving the marketplace.

·  
Promotion Analytics: By developing a relationship between promotion activity and effect in the marketplace, HPR offers a number of analyses to help clients assess ROI across all promotion channels and strategies. MarketVantage, a proprietary analysis tool, gives clients the unique ability to view the performance of various promotional activity for their brands - and also for competing brands. HPR’s family of Promotion Response Models (PROMSM) measure response to different promotional channels, including detailing, sampling, medical education and direct-to-consumer communications. Through a series of offerings with their Direct to Consumer ROI Modeling, HPR has emerged as the leader in Direct to Consumer ROI analysis in the pharmaceutical industry. In addition, HPR has developed a significant body of work in empirically based forecasting and independent forecast development. Recently launched PC-based simulators that allow clients to produce their own forecasts now supplement these offerings.

·  
Market Research: HPR utilizes a wide range of tools to conduct primary and secondary research, syndicated studies, market tracking and custom research audits. The HPR team has proven expertise in developing proprietary, customized market research approaches that measure attitudes and behaviors of diverse audiences. Core to HPR’s syndicated service offering is the Metropolitan Area Promotional Audit (“MPA”) — a service that studies thousands of physicians and tracks pharmaceutical promotional activity city by city. This intelligence, previously available only on a national basis, addresses the differential share of voice metrics, impact and effectiveness of rep-driven promotion efforts. Rapid Recall™ is a customized service that enables clients to capture independent customer feedback within a 72-hour window post contact. With this tool, HPR provides its clients with feedback on their performance compared to their competitors in such key areas as message delivery, message impact, and areas for change. HPR has also emerged as a leader in the identification of local peer influence networks. HPR’s Influence Mapping research is able to identify the informal network used by physicians within specific therapeutic areas to determine which local physicians are informally influencing prescribing behavior of other key physicians at the territory level. HPR has worked with clients to conduct these efforts on close to 100 brands.

·  
Strategic Planning: HPR’s strategic consulting service responds to a broad series of questions clients must address for successful brand management. HPR works with clients to develop resource solutions that optimize ROI for the future market environment. HPR’s resource allocation models determine the resource needs for single-product and portfolio promotion activity across the various promotion channels, allowing clients to determine optimal investment levels for promotion and expected portfolio return. HPR’s UniBrandSM model develops the optimal sales and marketing solution for a single brand. Known as RAMSM, HPR’s portfolio model is used by clients to determine the optimal sales force size and structure, optimum number of details across brands, return on investment across promotion channel and the future impact of marketplace events on promotion activity.

·  
Tactical Planning: HPR’s tactical planning provides pharmaceutical companies the tactics needed to successfully execute their strategic plan, uniquely integrating the optimal detailing, sampling and promotional spending levels across Ventiv’s portfolio with an execution plan at the representative level. HPR utilizes several proprietary tools to assist its client’s tactical planning and execution, including:
o  
Call Planning System (“CAPS”), which allocates the number of sales, calls, by physician, for every sales representative and the detailing priorities of each call. CAPS also supports changes in the portfolio focus on short notice, thereby enabling clients to respond quickly to internal and external developments.
o  
PharmAlign™, a proprietary territory design software system that provides sales force deployment options for a territory, district, region or nation.
o  
Field Manager and Field Manager HQ, a system used by District Managers and/or Headquarters to support analysis of rep and district manager performance at a geographic level.

When coupled together, these tools provide the capability for HPR’s clients to ensure that they are continually improving the effectiveness of deployed sales force resources.

5
Ventiv Clinical Services

The companies making up our Ventiv Clinical Services unit include Smith Hanley and HHI, leading providers of clinical staffing and data management services. We acquired these companies in two transactions during 2004. Through these acquisitions, we broadened our capabilities into the clinical arena, and established Ventiv Clinical Services. Ventiv Clinical Services has successfully met the staffing and recruiting needs of more than 65 pharmaceutical and biotechnology clients, including 14 of the top 20 global pharmaceutical companies, as well as performed data management and analytical services for over 150 clinical trials. These accomplishments are driven by four divisions:

• Smith Hanley Associates, which provides executive placement services;

• Smith Hanley Consulting Group (“SHCG”), which provides outsourced contract staffing and recruiting services for pharmaceutical clinical research trials;

• MedFocus, which provides outsourced contract staffing and recruiting services for pharmaceutical clinical research trials and is based in Chicago, Illinois; and

• HHI Clinical & Statistical Research Services (“HHI”), a clinical service provider that manages statistical analysis and data management functions.

Through its pool of experienced clinical staff and staff augmentation capabilities, SHCG and MedFocus give pharmaceutical companies and start-up biotechnology firms the flexibility to manage and execute clinical trials internally without the expense of hiring and training all of their own staff. Clients obtain qualified personnel for immediate deployment on a project and are better able to execute project management as there is no need for the recruiting, hiring, training and managing process essential with internal employees. Clients also get an opportunity to understand their work flow, and determine what the most cost-effective employee mix will be as they continue to move forward.

Currently, SHCG and MedFocus provide clients with contract services for such mission critical positions as SAS™ programmers, data managers, statisticians, monitors and clinical research associates, study & project managers, clinical trials coordinators, safety/regulatory staff, medical writers, scientific and laboratory staff and other clinical positions. They draw from a database of over 30,000 candidates, which they are continually expanding with new recruiting efforts through search engines, job fairs, conferences, and referral bonuses.

The HHI division complements SHCG and MedFocus’s contract service pool with a statistically-knowledgeable physician and medically-knowledgeable statisticians to deliver well-organized research used in clinical trial and clinical program design, data management, data analysis, double key data entry and validation, reporting and Standard Operating Procedures writing. This bi-disciplinary expertise enables HHI to set up, manage and present data to help pharmaceutical clients move from the preclinical stage through the drug approval process and post-commercialization oversight as painlessly as possible.

Smith Hanley Associates offers customized executive placement services to the pharmaceutical industry as well as clients in the financial services, consumer products, consulting and insurance industries.

Competitive Advantages

Our strategic goal is to provide the pharmaceutical and life sciences industries with value-added clinical, marketing, sales and compliance services that will enable our clients to achieve accelerated development, superior product sales through higher market penetration and appropriate regulatory compliance. Our business units possess significant combined experience, as each has developed and conducted successful clinical and/or commercialization programs for hundreds of individual pharmaceutical and life science products. Our expertise spans most therapeutic categories, including the significant markets of cardiology, anti-infectives, oncology, gastroenterological, respiratory, allergy, dermatology and neurology. Our core competencies and track record of proven success enable us to establish strong relationships with our clients' senior personnel, which greatly contributes to client retention.   

Comprehensive Service Offering: We offer a broad range of services, from strategic and tactical planning and analytics to the recruiting, training, deployment and management of sales forces and development of sales and marketing strategies. During 2004, we significantly broadened our service offerings through complementary service extensions and strategic acquisitions in the areas of compliance and clinical staffing. This development positions us to better meet the varied needs of our existing and prospective pharmaceutical and biotechnology clients. While our offerings are broad relative to some of our direct competitors, we do also face select competitors who have also assembled a relatively broad service offering.

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Leading Position Across Our Offerings: We are one of the largest providers of pharmaceutical outsourced sales services in the United States and we are also a significant provider of strategic and tactical sales and marketing planning in the U.S. We detail to a large number of physicians, nurses, pharmacists and formularies—approximately 3.6 million calls were made in 2004 alone. These targets are regularly contacted by our representatives. Given the preference by many of our clients to work with organizations possessing strong reputations and a strong track record, our large-scale presence in our markets, which is underpinned by our experience, speed, capabilities, and technology, provides significant advantages in continuing to win new business. We are also a recognized leader in clinical trials staffing, providing services to a wide range of pharmaceutical, biotechnology and medical device companies, as well as to their outsourced service providers to those sectors. Ventiv Clinical Services has emerged as a leading provider of clinical trials-related SAS programmers, statisticians, data management and monitoring personnel to the major pharmaceutical and biotechnology companies. In selecting a vendor to work with, many pharmaceutical companies prefer to work with a handful of larger, more reputable organizations, and given our long history and strong brand name in the business, large database of potential clinical staff and reputation for quality and flexibility, we have significant advantages in continuing to win new business.

Broad and Diversified Client Base: In addition to serving many of the largest pharmaceutical companies, we also serve a large number of mid-size and smaller biotech and life sciences companies. As each of these companies uses our services, our relationship is expanded and the opportunity to cross-sell products increases. Our client base of over 65 pharmaceutical and biotechnology clients is broad and diversified, and with many of these clients we have maintained long-term, non-exclusive relationships that do help us in continuing to win new business.

Proprietary Technologies and Data: We maintain and operate a number of proprietary software programs and systems for marketing development and data gathering. To conduct strategic studies, HPR employs a series of programs, which were designed in-house and utilize data, which is gathered and processed by HPR's clients and, on certain engagements, Ventiv Commercial Services to conduct proprietary market research. Also, we have made a considerable investment in technology and have developed and deployed cutting-edge sales force automation tools to increase our efficiency. Such data collection is important for the management of a sales and marketing campaign for pharmaceutical products throughout their life cycle, especially during the product launch phase.

Experienced Management Team: Our management team includes executives with substantial expertise in pharmaceutical and health care services, as well as substantial background within pharmaceutical companies themselves, including managing pharmaceutical sales forces and establishing sales and marketing strategies. The team also has extensive experience in the areas of outsourced staffing, permanent placement and executive search services. We believe our mix of senior management with pharmaceutical services experience, entrepreneurial talent and strategic perspective is unique in the industry.

Our overall focus is on offering the best combination of high-quality, flexible and cost-effective services to our clients, versus our competitors and versus other alternatives available to our clients for addressing their clinical, sales, marketing and compliance needs. We continue to enhance our capabilities, deepen our client relationships and offer more fully-integrated solutions. Because of our high level of quality service, many of our pharmaceutical clients have rewarded us with contract extensions and additional new business.

Clients

We provide our services to leading pharmaceutical, biotechnology, medical device and diagnostics companies. During 2004, approximately 70% of our revenues were derived from our ten largest clients. Our ten largest clients during 2004, listed alphabetically, were as follows: ALTANA Pharma (“ALTANA”), Bayer Corporation (“Bayer”), Bristol-Myers Squibb Company (“BMS”), Fournier Pharmaceuticals, Ltd., Johnson and Johnson (“J&J”), Noven Pharmaceuticals, Inc., Sanofi-Aventis Group, Synthon Pharmaceuticals, Ltd. (“Synthon”), Upsher-Smith Laboratories, Inc. and Watson Pharmaceuticals, Inc. (“Watson”). Two clients accounted for approximately 16% and 14%, respectively, of our total revenue for the year ended December 31, 2004. Two clients accounted for 23%, and 18%, respectively, of our revenues during 2003. No other clients accounted for more than 10% of revenue in 2004 or 2003.

We consider 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 similar target groups within the client organization, typically their clinical or their marketing and sales departments. 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 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 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.

We provide services to many of our most significant clients under contracts that our clients may cancel, typically on 30 to 120 days notice. In addition, many of the Ventiv Pharma Team contracts provide our clients with the opportunity to internalize the sales forces ("sales force conversion") under contract, with sufficient notice. Although Ventiv Pharma Teams has been successful in a number of cases in negotiating longer-term commitments and an initial non-cancelable contract period, we cannot be assured that clients will renew relationships beyond the expiration date of existing contracts.

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Competition

Our competitors include outsourced sales organizations as well as contract research organizations that also offer healthcare marketing services. Additionally, drug distribution companies have indicated a desire to enter this lucrative market by leveraging their knowledge base and effecting strategic acquisitions. Each of our operating groups faces distinct competitors in the individual markets in which the group operates.

Ventiv Commercial Services: A small number of providers comprise the market for outsourced sales teams, although the majority of sales teams are managed internally. We believe that Ventiv, Innovex (Quintiles) and Professional Detailing, Inc. combined account for the majority of the U.S. outsourced sales team market share. The rest of the industry is fragmented, with a number of small providers attempting to develop niche services. One or more of our large competitors in the outsourced sales team market could become significant competitors with regard to the other services we offer by either developing additional capabilities or acquiring smaller companies.

Ventiv Analytic Services: HPR’s largest competitor in the strategic and tactical planning marketplace is ZS Associates, which provides a range of market segmentation, promotion planning and resource allocation services comparable to HPR’s service offerings. In the market research marketplace, HPR competes against a variety of large and small companies, which provide primary and secondary market research on a contract basis.

Ventiv Clinical Services: The specialty staffing services industry is very competitive and fragmented with relatively few barriers to entry. Although several large nationwide temporary staffing companies compete with us, we are one of the only national firms that specializes exclusively in professional clinical trials research personnel. Ventiv Clinical Services’ primary competitors include ClinForce (a division of Cross Country), Managed Clinical Solutions (a division of ICON), ASG, Advanced Clinical Services and Kforce. Primary competitors in the permanent placement area include Korn Ferry, Reynolds and Reynolds, Heidrick and Struggles as wells as numerous smaller specialty permanent placement groups.

Seasonality

Although our business is subject to variability as a result of the ongoing startup and completion of contracts, periodic receipt of incentive fees and the ramp up of product revenues in certain contracts, our business is not generally subject to seasonal variation.

Employees

At December 31, 2004, we employed approximately 4,000 people in continuing operations, including approximately 2,700 sales representatives and managers. Our part-time sales force employees account for approximately four percent of our total field workforce. We believe that our relations with our employees are satisfactory.

Many aspects of our business are very labor intensive and the turnover rate of employees in our industry, and in corresponding segments of the pharmaceutical industry, is generally high, particularly with respect to sales force employees. We believe our turnover rate is comparable to that of other outsourced service organizations and internal pharmaceutical sales and marketing departments. An increase in the turnover rate among our employees would increase our recruiting and training costs and decrease our operating efficiencies and productivity. Our operations typically require specially trained persons, such as those employees in the pharmaceutical detailing business. Growth in our business will require us to recruit and train qualified personnel at an accelerated rate from time to time. The labor markets for quality personnel are competitive, and we cannot assure you that we will be able to continue to hire, train and retain a sufficient labor force of qualified persons.

Government Regulation

Several of the industries in which our clients operate are subject to varying degrees of governmental regulation, particularly the pharmaceutical and healthcare industries. Generally, compliance with these regulations is the responsibility of our clients. However, we could be subject to a variety of enforcement or private actions for our failure or the failure of our clients to comply with such regulations.

In connection with the handling and distribution of pharmaceutical products samples, we are subject to the Prescription Drug Marketing Act of 1987 and other applicable federal, state and local laws and regulations. These laws and regulations regulate the distribution of drug samples by mandating storage, handling, solicitation and record-keeping requirements for drug samples and by banning the purchase or sale of drug samples.

Some of our physician education services are subject to a variety of federal and state regulations relating to both the education of medical professionals and the marketing and sale of pharmaceuticals. In addition, certain ethical guidelines promulgated by the American Medical Association ("AMA") govern the receipt by physicians of gifts in connection with the marketing of healthcare products. These guidelines govern the honoraria and other items of value that AMA physicians may receive, directly or indirectly, from pharmaceutical companies. Any changes in such regulations or their application could have a material adverse effect on Ventiv. Failure to comply with these requirements could result in the imposition of fines, loss of licenses and other penalties and could have a material adverse effect on Ventiv.

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From time to time, state and federal legislation is proposed with regard to the use of proprietary databases of consumer and health groups. The uncertainty of the regulatory environment is increased by the fact that we generate and receive data from many sources. As a result, there are many ways government might attempt to regulate our use of this data. Any such restriction could have a material adverse effect on Ventiv.

Non-U.S. Operations

We have no operations outside the United States and do not derive any material revenues from non-U.S. sources.
 
Item 2. Properties.

As of December 31, 2004, we leased 18 facilities totaling 330,603 square feet, including our principal executive offices located in Somerset, New Jersey. Six facilities totaling 189,345 square feet are leased by the Ventiv Commercial Services segment, seven facilities totaling 53,464 square feet are leased by the Ventiv Clinical Services segment, three facilities with 29,631 square feet is leased by the Ventiv Analytic Services segment and two facilities with approximately 58,163 square feet is leased by the Other (corporate) segment. These leases expire at varying dates through 2013. Leased facilities increased during 2004 due to the completion of several business acquisitions. We believe that our facilities are adequate for our present and reasonably anticipated business requirements.
 
Item 3. Legal Proceedings.

We are subject to lawsuits, investigations and claims arising out of the conduct of our business, including those related to commercial transactions, contracts, government regulation and employment matters. Certain claims, suits and complaints have been filed or are pending against us. In the opinion of management and based on the advice of legal counsel, all matters are believed to be without merit or are of such kind, or involve such amounts, as would not have a material effect on our consolidated financial position or consolidated results of operations if disposed of unfavorably.

Item 4. Submission of Matters to a Vote of Securities Holders.

No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2004.
 
 
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PART II