Dendrite International, Inc. Business Information, Profile, and History

Company Perspectives:

Dendrite International, Inc. provides leading-edge solutions & services to the global pharmaceutical industry, including the world's top 20 pharmaceutical companies, with clients in more than 50 countries. Our tools, support skills, and knowledge facilitate more than one million contacts every day between our clients and their customers--prescribers of prescription medicines. Our vision is to be the global leader in developing and delivering solutions that drive promotional and sales effectiveness for our pharmaceutical and other life sciences clients.

History of Dendrite International, Inc.

Dendrite International, Inc., and its subsidiaries are leading providers of a broad array of services and software worldwide that focus on managing and analyzing sales efforts for the pharmaceutical and other life sciences industries. The company's solutions cover the pharmaceutical commercialization process and fit into five primary categories, including clinical development, brand marketing, customer management, sales effectiveness, and compliance management. Dendrite's sales technology and applications enable sales forces to access product information and physician databases, assess competitors, and catalog client and prospect data. With its integrated sales and marketing software, Dendrite allows pharmaceutical companies to tie their sales and marketing strategies together for improved productivity.

Origins

Dendrite International was founded in 1986 by John Baiyle in Sydney, Australia, with $3 million from the sale of a former business he owned and with the help of a partner, an Australian chemical company. Baiyle began the firm by designing the pharmaceutical industry's first management and marketing software for company sales forces. In 1987, Baiyle expanded the business to New Zealand and moved the company's headquarters to Warren, New Jersey, against the opposition of his corporate partner. As a result, Baiyle began searching for funds to buy out his partner. After a year of considering his options, Baiyle secured venture capital, closing on a deal with lead investor, Edison Venture Fund, for between $7 million and $10 million. The other two investors in Dendrite included a venture fund operated by John Hancock Mutual Life Insurance Company in Boston and Brinson Partners, Inc., of Chicago. With venture capital behind him, Baiyle expanded operations in Japan in 1988 and began opening offices in Europe in the United Kingdom, Belgium, France, Italy, Spain, and Germany. In 1989, Dendrite won its first major U.S. contract with Pfizer, which selected the company's software for its 450-member sales force.

Aggressive Growth in the Early and Mid-1990s

Already by 1993, President and Chief Executive Officer John Baiyle saw Dendrite developing into a $100 million company in the near future and planned a public offering of common stock over the long term. His plans also called for a growth strategy through acquisitions. In June 1995, Dendrite followed through on plans for going public, offering 2.6 million shares in its initial public offering. The company intended to use the proceeds for working capital, including research and development. By 1996, Baiyle's plans for aggressive growth were well underway with Dendrite operating out of eleven offices around the world, providing software and support services that were designed to manage, coordinate, and control large sales forces for the health care and consumer packaged goods industries. Dendrite's client companies included such well known firms as Bristol-Myers Squibb, Johnson & Johnson, Eli Lilly, Hoechst Marion Roussel, L'Oreal, Pfizer, and Rhone-Poulenc Rorer. The company also had offices in Japan, introducing in 1996 a state-of-the-art Windows-based system specifically designed for the Japanese market. With this growing client base, Baiyle boasted that Dendrite had more users of its software and service than its two largest competitors combined.

A Global Reach in the Late 1990s

In May 1996, Dendrite acquired SRCI, the leading provider of custom-designed sales force management systems in France for the over-the-counter drug and cosmetic and consumer packaged goods industries. Dendrite saw SRCI as a springboard for rapidly expanding worldwide into consumer packaged goods. With this aim in mind, Dendrite set up a new consumer business division, which would focus initially on markets in the United States and United Kingdom. The company translated a new system developed by SRCI into English, marketing it under the name ForceOne. Following the SRCI acquisition, by the beginning of 1997 Dendrite's consumer business division had won contracts with several French firms, including Kriter Brut de Brut, Lindt, Martini Bacardi, Moet & Chandon, Panzani, Segafredo, Urgo, Vania, and Varta.

In 1998, with revenue growth increasing at a robust 27.6 percent per annum over several years, Dendrite surpassed the $100 million revenue milestone. The company also made the strategic decision to move beyond its traditional market, which comprised fifty of the largest pharmaceutical companies, by extending its global reach. Although Dendrite already operated offices in countries throughout the world, it launched a more aggressive global strategy with the aim of becoming the only company to offer a complete matrix of solutions in each separate segment of the pharmaceutical industry worldwide. In pursuit of this strategy, Dendrite formed its new SalesPlus Americas division to provide software and services for mid-range pharmaceutical companies in the United States, a market it had not served before. In addition, Dendrite accelerated its global reach by signing new agreements with such major firms as Takeda Chemical Industries and Kissei Pharmaceuticals in Japan; Kronenbourg, Evian, and William Pitters in Europe; Pfizer Australia; and Rayovac in the United States. With its new global strategy underway, Dendrite purchased Belgium-based Associated Business Computing in October 1998. By the end of 1998, Dendrite's sales management software tools and services were being used by over 150 corporations in 17 countries, earning revenue of $131 million.

In May 1999, Dendrite announced agreement to buy CorNet International Ltd. for $40 million with the aim of getting one of CorNet's largest worldwide accounts--Bristol-Myers Squibb Co. Like Dendrite, CorNet produced software that helped companies manage their sales and marketing teams. Aside from Bristol-Myers Squibb, Dendrite would assume CorNet's other accounts, including Lifescan and McNeil Consumer Healthcare divisions of Johnson & Johnson, the Wyeth-Ayerst division of American Home Products, and Campbell Soup Company. With a continuing emphasis on its global reach strategy, in July 1999 Dendrite acquired Marketing Management International (MMI), a provider of palmtop software and paper-based solutions and consulting services to subsidiaries of major pharmaceutical companies operating in emerging markets, including Latin America, Eastern Europe, and Southeast Asia. Before the acquisition, Dendrite served as the exclusive distributor of MMI's products in Brazil and the United States. The transaction was structured as an asset purchase for a cost of approximately $10.5 million.

In September 1999, Dendrite's board of directors approved a three-for-two split to be effected as a stock dividend. Under the arrangement, shareholders of record at the close of business of September 23, 1999, would receive one additional share of company common stock for every two shares held on that date. With 1998 sales up 31 percent to $112 million and with a doubling of its stock price and a growing client base that included many of the worlds' leading multinational pharmaceutical firms, Dendrite's stock split represented a robust confidence in its future prospects. The company's business strategy of offering layers of service around its software proved enormously successful in attracting numerous customers around the world. The software enabled pharmaceutical companies to monitor prescription trends against a region's demographics, and use the data to find out which physicians to contact and when. The software also allowed drug firms to track prescription patterns of competitors.

In January 2000, Dendrite acquired Analytika, Inc., a privately-held leader in the emerging sector of marketing automation systems for the pharmaceutical industry. The transaction, valued at $9 million including assumption of debt, was anticipated to be a major link in Dendrite's strategy to combine the emerging, highly analytical field of marketing automation with sales force management. Analytika further enhanced Dendrite's global presence after the acquisitions of CorNet International and MMI. The company also formed a new Clinical Trials and Analytiks division to market its growing software and service offerings.

By the end of 1999, with 150 customers in 57 countries, Dendrite reported another record year for revenue, operating profit, operating margin, and earnings per share. Year end revenue increased 32 percent to $172.7 million with net income rising 56 percent to $22.4 million. Commenting on the 1999 financial results, Chairman and CEO John Baiyle remarked that Dendrite's business remained solid with the company also being selected by Aventis France to be the provider of their next generation SFE solution for Europe's largest sales force. Dendrite also had numerous successes in the mid and emerging markets and in Japan. In the various markets, revenue in the United States reached 78 percent of the total, with Europe accounting for 14 percent, Asia for 6 percent, and Latin America for 1 percent.

The Company Enters the 21st Century

In February 2000, Dendrite announced a mandatory stock ownership plan, requiring its top fifteen executives and five outside directors to own at least 15,000 shares within three to five years. The ownership requirement was intended to serve stockholder interest and provide performance incentives for top management. The company also froze cash salaries for executives and eliminated across-the-board raises in favor of earning cash or stock bonuses based on specific performance measures, including revenue and earnings per share. Dendrite aimed to raise the performance level of its executives at a time when the firm was becoming better positioned with the consolidation of drug companies. By August 2000, Dendrite had about a $1 billion market capitalization and was generating over 20 percent operating margins with a large cash flow and a liquid balance sheet.

In September 2000, Dendrite offered new software that for the first time could enable pharmaceutical sales representatives to access information concerning therapy and prescription patterns. With this capacity, drug sales representatives could considerably refine their product marketing to physicians and others in the evolving pharmaceutical industry. In October, Dendrite also announced it would build a new $30 million office complex in Chesapeake, Virginia, to be completed in April 2001. The new office would accommodate 335 employees, including data center operators, project managers, and call-center workers with an average pay of $40,000.

In November 2000, a judge upheld the privacy rights of two people who anonymously posted critical comments of Dendrite on a Yahoo message board. Dendrite filed suit in May in the first case in New Jersey and one of the first in the nation, asking the courts to decide whether a company had the right to learn the identities of pseudonymous on-line critics so that it could purse civil actions against them. The case caught the attention of national privacy rights groups, which argued for protecting anonymity and free expression on the internet. Yahoo's past practice was to divulge names of its members without notifying them when confronted with a subpoena, a policy it changed in April 2000 in favor of protecting member's privacy rights. Critics of Dendrite's case saw it as representing a troubling trend among companies to use lawsuits to silence opinions they find objectionable. In its complaint, Dendrite alleged that four anonymous posters publicized messages that included confidential information and were defamatory in nature. The company also charged that some of the messages were from employees or former employees who violated contracts prohibiting them from making disparaging remarks. The court ruled, however, that there was insufficient evidence that the posters made defamatory comments or did anything unlawful. The court concluded the posters were engaged in a free exchange of views under the protection of anonymity and that to strip away that protection would silence free discussion inherent in the First Amendment.

In December 2000, Dendrite signed its largest ever on-going service agreement in the Japanese market. The agreement provided that Dendrite supply Pfizer Japan K.K. with a comprehensive array of services concerning the implementation and support of its sales force productivity software tools. Dendrite considered the agreement as a milestone in its strategic plan to expand service offerings in both the Japanese and global pharmaceutical markets. Key to the deal was Dendrite's j-forceWeb software tool, which provided sales representatives, field management, and head office personnel with a single, centralized location from which to access product information, analyze sales information, record activity data, and access physician and institution databases. With this and numerous other worldwide marketing agreements, Dendrite reported increased revenues of 28 percent for the year 2000.

Restructuring in the Early 2000s

In October 2001, Dendrite announced the appointment of Paul Zaffaroni as the company's new president and CEO. Zaffaroni, a 20-year IBM veteran, joined Dendrite with an ambitious agenda to grow the company's revenues by more than 20 percent over six years. With this aim in mind, Zaffaroni planned to sharpen the company's commitment to pharmaceutical specialization, expand beyond sales force automation to analytically driven CRM solutions, intensify efforts in clinical trials, and extend relationship with flagship clients while pursuing new partnerships with major pharmaceutical companies. At the same time when Dendrite was appointing a new president and CEO, the company opened a new representative office in Shanghai, China, to provide sales technology and service in that country's growing pharmaceutical industry. With the Chinese pharmaceutical market anticipated to grow between 7 and 10 percent over five years, Dendrite looked forward to providing its services in a market that offered major new opportunities.

Despite its success, Dendrite could not escape the effects of the economic downturn starting in the spring of 2000. As a result, in 2001 Dendrite cut its workforce by about 7 percent as its stock collapsed 75 percent from a high of $35 in early 2000. To boost its share price, Dendrite initiated a stock repurchase program in July 2002 of up to $20 million of its outstanding common stock over a two-year period. With the aim of continued growth, Dendrite also acquired Software Associates International, a provider of consultancy services and specialty software products to the pharmaceutical industry, and Parma Vision, a distributor of data for pharmaceutical representatives in Europe.

In April 2003, Dendrite entered a bidding war with Cegedim S.A. for the assets of Synavant Inc., a global leader in pharmaceutical customer relationship management and integrated marketing services for the biopharmaceutical industry. As part of its acquisitions strategy, Dendrite filed suit in a Delaware court to invalidate a Synavant-Cegedim merger agreement. Dendrite offered to purchase all of the outstanding shares of Synavant at a cash price of $2.50 per share, a 9 percent premium over Cegedim's offer of $2.30 contained in their merger agreement. In response and in accordance with the merger agreement with Cegedim, Synavant's board of directors authorized the company to enter into negotiations with Dendrite. In May 2003, Synavant approved Dendrite's new offer of $2.83 a share, resulting in the termination of the Cegedim merger agreement. Cegedim responded by proposing $3.15 a share, leading Dendrite to up its offer to $3.22, which sealed the acquisition. The merger created the most comprehensive information, software and services company dedicated to the global pharmaceutical industry. The transaction enhanced Dendrite's ability to provide market-leading solutions to the sales, marketing, and clinical operations of pharmaceutical and other life sciences companies.

When Dendrite posted second-quarter 2003 adjusted earnings at 17 cents a share, four cents ahead of estimates by investor analysts, the company's shares rose over 12 percent to hit a 52-week high of $15.29. To accommodate this strong growth, Dendrite relocated its global headquarters from Morristown, New Jersey, to a larger, more modern campus in Bedminster, New Jersey, in 2004. In January 2004, Dendrite through its Japanese subsidiary also completed the purchase of Uto Brain, a provider of pharmaceutical data analysis and a publishing and consulting firm. The agreement together with the signing of new Japanese customers represented Dendrite's strong business momentum in the Japanese market. At the same time, Dendrite continued to expand its European operations, signing new contracts with new and existing customers in Turkey, Greece, and Italy. With an eye on Eastern Europe, Dendrite concluded the acquisition of Medical Data Management (MDM), a privately held group of companies primarily located in Warsaw, Poland. With 2003 sales of $7.5 million, MDM was the leading provider of physician databases, market research, and sales force support services to pharmaceutical companies in Poland, Hungary, Russia, and Ukraine. The transaction was valued at $8 million, comprising $5 million in cash and $3 million in stock.

In July 2004, Dendrite also acquired Schwarzeck-Verlag GmbH, a provider of physician databases, direct marketing services, and sample fulfillment services to pharmaceutical companies in Germany. The acquisition, which further accelerated Dendrites expansion in Europe, created one of the most diversified German-based suppliers of pharmaceutical services, data, and technology to drug manufacturers in one of the world's leading pharmaceutical markets. By the end of 2004 with the pharmaceutical industry continuing to evolve under new market conditions, Dendrite International appeared well-positioned to take advantage of new opportunities in the global marketplace. With a strategy encompassing innovative software development, acquisitions, and strategic alliances, the company had grown into the world's leading provider of sales force technology and other software tools and services for the pharmaceutical industry. As a result, Dendrite could look to the future with the optimism based on its past successes.

Principal Subsidiaries: Dendrite Andes (Ecuador); Dendrite Australia Pty. Ltd.; Dendrite Belgium S.A.; Dendrite Brasil Ltda. (Brazil); Dendrite Canada Company; Dendrite Columbia Ltda.; Dendrite France S.A.; Dendrite Hungary Software Services, Inc.; Dendrite Interactive Marketing LLC; Dendrite International Services Company; Dendrite Italia, S.R.I. (Italy); Dendrite Japan Corporation; Dendrite Mexico; Dendrite Netherlands, B.V.; Dendrite New Zealand Ltd.; Dendrite Portugal; Dendrite Software India Private Ltd.; Dendrite U.K. Ltd.(United Kingdom); Info-Med Gesellschaft fur Marketing mbH (Germany); Informed Management Ltd. (United Kingdom); Permail Pty. Ltd. (Australia); Pharma Vision BV (Netherlands); Pharma Vision Marketing Services S.A. (Belgium); PMS Pty. Ltd. (Australia); SAI Acquisition LLC; Synavant Australia Pty. Ltd.; Synavant Belgium SA/NV; Synavant Canada Ltd.; Synavant Data GmbH (Austria); Synavant de Brazil Ltda.; Synavant de Mexico S.A.; Synavant Deutschland (Germany); Synavant France S.A.; Synavant Hellas S.A. (Greece); Synavant Italia S.r.L. (Italy); Synavant Nederland B.V.; Synavant Netherlands Finance B.V.; Synavant Singapore (Pte.) Ltd.; Synavant Spain S.A.; Synavant Turkey, Inc.; Synavant UK Holding Ltd. (United Kingdom); Synavant UK, Ltd. (United Kingdom); Uto Brain Co., Ltd. (Japan).

Principal Competitors: Cegedim S.A.; First Consulting Group Inc.; Siebel Systems Inc.; Oracle Corporation; StayinFront Inc.

Chronology

• Key Dates:
• 1986: Company is founded in Sydney, Australia, by John Baiyle.
• 1987: Dendrite relocates headquarters to New Jersey.
• 1988: Dendrite establishes operations in Japan and Europe.
• 1989: Dendrite secures first major U.S. contract with Pfizer.
• 1995: Company goes public offering 2.6 million common shares.
• 1996: Dendrite acquires SRCI of France.
• 1998: Company surpasses $100 million revenue mark.
• 2000: Company loses Internet privacy case.
• 2001: Company appoints Paul Zaffaroni as new president and chief executive officer; company opens branch office in Shanghai, China.
• 2003: Dendrite outbids rival to acquire Synavant.
• 2004: Dendrite relocates international headquarters to Bedminster, New Jersey.