**UNITED
STATES**
 **SECURITIES
AND EXCHANGE COMMISSION**
 **Washington,
D.C. 20549**
 
 Form
10-Q
 
 **[X]
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities**
 Exchange
Act of 1934
 
 For the
quarterly period ended March 31, 2005
 
 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
52-2181734
 (State or
other jurisdiction (IRS Employer
 of
incorporation or organization) Identification No.)
 
 200
Cottontail Lane
 Vantage
Court North
 Somerset,
New Jersey 08873
 (Address
of principal executive office and zip code)
 
 (800)
416-0555
 (Registrant's
telephone number, including area code)
 
 Indicate
by check mark whether 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 whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).  Yes [X] No
[_]
 
 
 Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
 
 Common
Stock, par value $0.001, 26,728,664 shares outstanding as of April 28,
2005.
  
  **VENTIV
HEALTH, INC.**
 **INDEX
TO QUARTERLY REPORT ON**
 **FORM
10-Q**
 
 **Page****PART
      I. FINANCIAL INFORMATION**ITEM
      1. Financial StatementsCondensed
      Consolidated Balance Sheets as of March 31, 2005and
      December 31, 2004 (unaudited)
    1Condensed
      Consolidated Statements of Operations for the three-monthsended
      March 31, 2005 and 2004 (unaudited)
    2Condensed
      Consolidated Statements of Cash Flows for the three-monthsended
      March 31, 2005 and 2004 (unaudited)
    3Notes
      to Condensed Consolidated Financial Statements
    4ITEM
      2. Management's Discussion and Analysis of Financial Condition
      andResults
      of Operations
    11ITEM
      3. Quantitative and Qualitative Disclosures About Market
    Risk
    19ITEM
      4. Controls and Procedures
    19**PART
      II. OTHER INFORMATION**ITEM
      1. Legal Proceedings
    20ITEM
      6. Exhibits and Reports on Form 8-K
    20**SIGNATURES**
    21**EXHIBITS**
    22
  
 
  **PART
I.  FINANCIAL INFORMATION**
 
 **ITEM
1.**  ***Financial
Statements***
 
 **VENTIV
HEALTH, INC.**
 **CONDENSED
CONSOLIDATED BALANCE SHEETS**
 **(in
thousands, except share amounts)**
 **(unaudited)**
 
 **March
      31,**
    
    **December
      31,****2005**
    
    **2004****ASSETS**Current
      assets:Cash
      and equivalents
    
    $
    44,401
    
    $
    50,809Restricted
      cash
    
    
    4,219
    
    
    2,488Accounts
      receivable, net of allowances for doubtful accounts of $1,478 and
      $1,980 at March 31, 2005 and
      December
      31, 2004, respectively
    
    
    59,825
    
    
    56,534Unbilled
      services
    
    
    46,858
    
    
    36,130Prepaid
      expenses and other current assets
    
    
    3,537
    
    
    2,755Current
      deferred tax assets
    
    
    8,706
    
    
    8,226Total
      current assets
    
    
    167,546
    
    
    156,942Property
      and equipment, net
    
    
    38,929
    
    
    40,226Goodwill
    
    
    64,830
    
    
    64,823Other
      intangibles, net
    
    
    21,069
    
    
    21,370Deferred
      tax assets
    
    
    3,269
    
    
    3,583Deposits
      and other assets
    
    
    2,146
    
    
    508Total
      assets
    
    $
    297,789
    
    $
    287,452**LIABILITIES
      AND STOCKHOLDERS' EQUITY**Current
      liabilities:Current
      portion of capital lease obligations
    
    $
    11,853
    
    $
    12,004Accrued
      payroll, accounts payable and accrued expenses
    
    
    49,119
    
    
    56,076Current
      income tax liabilities
    
    
    8,199
    
    
    12,113Client
      advances and unearned revenue
    
    
    6,626
    
    
    9,184Total
      current liabilities
    
    
    75,797
    
    
    89,377Capital
      lease obligations, net of current portion
    
    
    23,685
    
    
    24,898Other
      non-current liabilities
    
    
    3,487
    
    
    733Total
      liabilities
    
    
    102,969
    
    
    115,008Commitments
      and contingenciesStockholders'
      equity:Preferred
      stock, $.001 par value, 10,000,000 shares authorized, none
      issuedand
      outstanding at March 31, 2005 and December 31, 2004,
      respectively
    
    
    --
    
    
    --Common
      stock, $.001 par value, 50,000,000 shares authorized; 26,685,963
      and25,705,012
      shares issued and outstanding at March 31, 2005 andDecember
      31, 2004, respectively
    
    
    27
    
    
    26Additional
      paid-in-capital
    
    
    206,437
    
    
    193,061Deferred
      compensation
    
    
    (692
    )
    
    (420
    )Accumulated
      other comprehensive earnings
    
    
    300
    
    
    320Accumulated
      deficit
    
    
    (11,252
    )
    
    (20,543
    )Total
      stockholders' equity
    
    
    194,820
    
    
    172,444Total
      liabilities and stockholders' equity
    
    $
    297,789
    
    $
    287,452
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
 
  1
 ****
 **VENTIV
HEALTH, INC.**
 
 **CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(in
thousands, except per share amounts)**
 **(unaudited)**
 
 **For
      the Three-Months****Ended
      March 31,****2005**
    
    **2004**Revenues
    
    $120,859
    
    $70,661Operating
      expenses:Cost
      of services
    
    93,712
    
    56,311Selling,
      general and administrative expenses
    
    
    14,401
    
    
    6,271Total
      operating expenses
    
    
    108,113
    
    
    62,582Operating
      earnings
    
    
    12,746
    
    
    8,079Interest
      expense
    
    
    (388
    )
    
    (181
    )Interest
      income
    
    
    253
    
    
    83Earnings
      from continuing operations before income taxes
    
    
    12,611
    
    
    7,981Income
      tax provision
    
    
    3,419
    
    
    3,033Earnings
      from continuing operations
    
    
    9,192
    
    
    4,948Earnings
      from discontinued operations:Gains
      on disposals of discontinued operations, net of taxes
    
    
    99
    
    
    155Net
      earnings from discontinued operations
    
    
    99
    
    
    155Net
      earnings
    
    $
    9,291
    
    $
    5,103Earnings
      per share (see Note 5):Continuing
      operations:Basic
    
    $
    0.35
    
    $
    0.22Diluted
    
    $
    0.33
    
    $
    0.20Discontinued
      operations:Basic
    
    $
    0.01
    
    $
    --Diluted
    
    $
    0.01
    
    $
    0.01Net
      earnings:Basic
    
    $
    0.36
    
    $
    0.22Diluted
    
    $
    0.34
    
    $
    0.21Weighted
      average common shares outstanding:Basic
    
    
    26,102
    
    
    22,906Diluted
    
    
    27,678
    
    
    24,405
  The
accompanying notes are an integral part of these condensed consolidated
financial statements
 
 2
  
 **VENTIV
HEALTH, INC.**
 
 **CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(in
thousands)**
 **(unaudited)**
 
 **For
      the Three-Months Ended March 31,****2005**
    
    **2004**Cash
      flows from operating activities:Net
      earnings
    
    $9,291
    
    $5,103Adjustments
      to reconcile net earnings to net cash provided by operating
      activities:Earnings
      from discontinued operations
    
    
    (99
    )
    
    (155
    )Depreciation
    
    
    5,274
    
    
    3,593Amortization
    
    
    301
    
    
    5Cash
      value of life insurance policies
    
    
    (14
    )
    
    --Deferred
      taxes
    
    
    (166
    )
    
    --Stock
      compensation expense
    
    
    94
    
    
    13Tax
      benefit from stock option exercises
    
    
    7,177
    
    
    --Changesin
      assets and liabilities, net of effects from discontinued
      operations:Restricted
      cash
    
    
    (781
    )
    
    (7
    )Accounts
      receivable, net
    
    
    (3,291
    )
    
    2,908Unbilled
      services
    
    
    (10,728
    )
    
    (1,088
    )Prepaid
      expenses and other current assets
    
    
    (782
    )
    
    (1,291
    )Accrued
      payroll, accounts payable and accrued expenses
    
    
    (3,381
    )
    
    (1,338
    )Current
      income tax liabilities
    
    
    (3,914
    )
    
    3,005Client
      advances and unearned revenue
    
    
    (2,558
    )
    
    (390
    )Other
    
    
    1,870
    
    
    (395
    )Net
      cash (used in) provided by operating activities
    
    
    (1,707
    )
    
    9,963Cash
      flows from investing activities:Investment
      in cash value of life insurance policies
    
    
    (740
    )
    
    --Cash
      paid for acquisitions, net of cash acquired
    
    
    (903
    )
    
    --Proceeds
      from disposals of discontinued operations
    
    
    --
    
    
    41Proceeds
      from rebates on car leases
    
    
    603
    
    
    --Purchases
      of property and equipment
    
    
    (2,126
    )
    
    (1,537
    )Net
      cash used in investing activities
    
    
    (3,166
    )
    
    (1,496
    )Cash
      flows from financing activities:Collateralization
      of obligations under standby letter of credit
    
    
    (950
    )
    
    (1,200
    )Repayments
      of capital lease obligations
    
    
    (3,818
    )
    
    (1,534
    )Proceeds
      from exercise of stock options
    
    
    3,154
    
    
    777Net
      cash used in financing activities
    
    
    (1,614
    )
    
    (1,957
    )Net
      cash provided by discontinued operations
    
    
    99
    
    
    114Effect
      of exchange rate changes
    
    
    (20
    )
    
    28Net
      (decrease) increase in cash and equivalents
    
    
    (6,408
    )
    
    6,652Cash
      and equivalents, beginning of period
    
    
    50,809
    
    
    54,970Cash
      and equivalents, end of period
    
    $
    44,401
    
    $
    61,622Supplemental
      disclosures of cash flow information:Cash
      paid for interest
    
    $
    323
    
    $
    179Cash
      paid for income taxes
    
    $
    327
    
    $
    154Supplemental
      disclosure of non-cash activities:Vehicles
      acquired through capital lease agreements
    
    $
    2,328
    
    $
    2,384Stock
      issuance related to 2004 earnout for Smith Hanley acquisition
    
    $
    2,680
    
    $
    --
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements
 
 3
 ****
 **VENTIV
HEALTH, INC.**
 **NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  **1.**  **Organization,
Business and Basis of Presentation:**
 
 Ventiv Health
Inc. (together with its subsidiaries “Ventiv ” or the “Company”) 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. 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;
 
 Over almost
three decades, our businesses have provided excellence in customized solutions
and helped our clients achieve their business objectives.
  We currently
serve our clients primarily through two business units, which correspond to our
reporting segments for 2005:
 
 ·
    Ventiv
      Commercial Services,
      which consists of our outsourced sales and marketing teams, planning and
      analytics services, compliance and patient assistance businesses,
      marketing support services, professional development and training, and
      recruitment of sales representatives in the commercial services area;
      and
 ·
    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.
 
 In 2004, we
managed three operating segments, which included Ventiv Commercial Services,
Ventiv Clinical Services and Ventiv Analytic Services. As a result of the fourth
quarter acquisitions in the clinical services arena and the commonality of the
nature of the commercial services we provide, our planning and analytics
services business unit which was operated as a separate reporting segment
(Ventiv Analytic Services) during 2004, is now included as part of Ventiv
Commercial Services for operating and segment reporting purposes.
  The
accompanying unaudited condensed consolidated financial statements present the
consolidated financial position, consolidated results of operations and
consolidated cash flows of the Company and its subsidiaries (the "condensed
consolidated financial statements"). These condensed consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (“SEC”) related to interim financial
statements. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP") have been
omitted. The Company believes that the disclosures made herein are adequate such
that the information presented is not misleading. These condensed consolidated
financial statements reflect all adjustments (consisting of only normal
recurring adjustments) that, in the opinion of management, are necessary to
fairly present the Company's consolidated financial position as of March 31,
2005 and December 31, 2004, the consolidated results of operations of the
Company for the three-months ended March 31, 2005 and 2004 and the consolidated
cash flows for the three-months ended March 31, 2005 and 2004. Operating results
for the three-months ended March 31, 2005 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2005.
  These
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and accompanying notes included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2004,
as filed with the Securities and Exchange Commission on March 31, 2005.
 
 4
 ********
**VENTIV
HEALTH, INC.******
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
 ****
 **2.**  **Recently
Issued Accounting Standards:**
 
 In March
2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) that provides
additional guidance in applying the provisions of SFAS No. 123 (revised 2004), *Share-Based
Payment* (SFAS No.
123R). SFAS No. 123R requires that compensation cost relating to share-based
payment transactions be recognized in the financial statements based on the fair
value of the equity or liability instruments issued. SFAS 123R covers a wide
range of share-based compensation arrangements, including share options,
restricted share plans, performance-based awards, share appreciation rights and
employee share purchase plans. SAB 107 describes the SEC staff's expectations in
determining the assumptions that underlie fair value estimates and discusses the
interaction of SFAS No. 123R with certain existing SEC guidance. The provisions
of SAB 107 will be applied upon adoption of SFAS 123R. In April 2005, the SEC
adopted a new rule that allows companies to implement SFAS No. 123R at the
beginning of their next fiscal year, instead of the next reporting period that
begins after June 15, 2005, or Dec. 15, 2005 for small business issuers. As
such, the Company is required to adopt SFAS No. 123R in our first quarter
of 2006, beginning January 1, 2006.
 
 **3.**  **Acquisitions:**
 
 In June 2004,
Ventiv acquired the net assets of Franklin Group, Inc. and Lincoln Ltd., Inc.
(together, “Franklin”), privately-held companies based in Somerville, New
Jersey. Franklin specializes primarily in conducting patient assistance programs
and pharmaceutical compliance services. Ventiv paid approximately $11.3 million
in cash and stock (taking into account post-closing adjustments and direct
acquisition costs) to acquire approximately $2.7 million of net assets. Ventiv
is obligated to make certain earn-out payments, which may be material,
contingent on Franklin’s performance measurements during 2004 through 2006. The
amount due with respect to Franklin for 2004 was approximately $1.9 million,
$1.7 million of which was accrued for at December 31, 2004; the portion adjusted
in 2005 was subject to review mechanisms set forth in the acquisition agreement,
which were not finalized until the end of the first quarter of 2005. Franklin’s
financial results are reported in the Ventiv Commercial Services segment.
  In October
2004, the Company acquired the net assets of Smith Hanley. Smith Hanley
specializes primarily in providing late-stage clinical staffing and recruiting
services to the U.S. pharmaceutical industry. The Company acquired Smith Hanley
to significantly expand our service portfolio in the clinical services and
recruitment areas, expand our market position in the pharmaceutical services and
achieve cross-selling opportunities by leveraging our existing sales force and
relationships. The Company acquired approximately $9.5 million of net assets for
consideration of approximately $52.8 million in cash and stock (taking into
account post-closing adjustments and direct acquisition costs) and will be
obligated to make certain earn-out payments, which may be material, contingent
on Smith Hanley’s performance measurements in 2004 through 2006. The amount due
with respect to Smith Hanley for 2004 was approximately $6.7 million, $6.8
million of which was accrued for at December 31, 2004; the portion adjusted in
2005 was subject to review mechanisms set forth in the acquisition agreement,
which were not finalized until the end of the first quarter. The results of
Smith Hanley have been reflected in Ventiv Clinical Services segment.
 
 In November
2004, Ventiv acquired the net assets of HHI. HHI, a privately-held company based
in Baltimore, Maryland, is a leading specialized statistical analysis and data
management provider to the U.S. pharmaceutical industry. HHI complements
Ventiv's Smith Hanley business. The closing consideration for the transaction
was approximately $6.2 million in cash and stock (taking into account
post-closing adjustments and direct acquisition costs) for approximately $0.8
million of net assets. Ventiv will be obligated to make certain earn-out
payments, which may be material, contingent on HHI’s performance measurements in
2005 and 2006. The results of HHI have been reflected in Ventiv Clinical
Services segment.
 
 **4.**  **Employee
Stock Compensation:**
 
 In December
2002, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment of FASB Statement No.
123,” to provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of SFAS No. 123
“Accounting for Stock-Based Compensation” (“SFAS No. 123”) to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. We adopted the disclosure requirements of SFAS No. 148
as of December 31, 2002. We account for stock-based employee compensation
arrangements in accordance with provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and comply
with the disclosure provisions of SFAS No. 123, as amended. Under APB Opinion
No. 25, compensation expense is based on the difference, if any, on the date of
grant, between the quoted market price of our stock and the exercise
price.
  ****
 5
 ******
**VENTIV
HEALTH, INC.****
 **NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)**
  The following
table illustrates the effect on net earnings and net earnings per share if the
Company had applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation arrangements:
 
 **Three-Months
      Ended March 31,****2005**
    
    **2004****(in
      thousands, except per share data)**Net
      earnings attributable to common shareholders, as reported
    
    $
    9,291
    
    $
    5,103Less:
      stock-based employee compensation expense determinedunder
      the fair value method, net of related income tax
    
    
    (2,000
    )
    
    (323
    )Pro
      forma net earnings
    
    $
    7,291
    
    $
    4,780As
      reported: Basic
    
    $
    0.36
    
    $
    0.22As
      reported: Diluted
    
    $
    0.34
    
    $
    0.21Pro
      forma: Basic
    
    $
    0.28
    
    $
    0.21Pro
      forma: Diluted
    
    $
    0.26
    
    $
    0.20
 
 The per share
weighted-average fair value of stock options granted during the three-months
ended March 31, 2005 and 2004 were $14.36 and $7.16 per share, respectively, on
the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions:
  **Three-months
      ended March 31,****2005**
    **2004**Expected
      dividend yield
    0%
    0%Risk-free
      interest rate
    4.17%
    2.79%Expected
      volatility
    84%
    91%Expected
      life of options
    4
      yrs
    4
      yrs
 
 In
December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS No. 123R"), which replaces SFAS No. 123,
"Accounting for Stock-Based Compensation" and supercedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their fair
values, beginning with the first interim or annual period after June 15,
2005, with early adoption encouraged. In addition, SFAS No. 123R will cause
unrecognized expense (based on the amounts in our pro forma footnote disclosure)
related to options vesting after the date of initial adoption to be recognized
as a charge to results of operations over the remaining vesting period.
 
 In April
2005, the Securities and Exchange Commission adopted a new rule that allows
companies to implement SFAS No. 123R at the beginning of their next fiscal year,
instead of the next reporting period that begins after June 15, 2005, or Dec.
15, 2005 for small business issuers. As such, the Company is required to adopt
SFAS No. 123R in our first quarter of 2006, beginning January 1, 2006.
Under SFAS No. 123R, the Company must determine the appropriate fair value
model to be used for valuing share-based payments, the amortization method for
compensation cost and the transition method to be used at the date of adoption.
The transition alternatives include prospective and retroactive adoption
methods. Under the retroactive methods, prior periods may be restated either as
of the beginning of the year of adoption or for all periods presented. The
prospective method requires that compensation expense be recorded for all
unvested stock options and share awards at the beginning of the first quarter of
adoption of SFAS No. 123R, while the retroactive methods would record
compensation expense for all unvested stock options and share awards beginning
with the first period restated. The Company is evaluating the requirements of
SFAS No. 123R and the Company expects that the adoption of SFAS
No. 123R will have a material impact on the Company’s consolidated results
of operations and earnings per share. The Company has not determined the method
of adoption or the effect of adopting SFAS No. 123R.
 
 **5.**  **Earnings
Per Share (“EPS”):**
 
 Basic net
earnings per share excludes dilution for potentially dilutive securities and is
computed by dividing net income or loss attributable to common shareholders by
the weighted average number of common shares outstanding during the
period.  Diluted net income per share reflects the potential dilution that
could occur if securities or other instruments to issue common stock were
exercised or converted into common stock. Potentially dilutive securities are
excluded from the computation of diluted net income per share when their
inclusion would be antidilutive.
 
 6
 ******
**VENTIV
HEALTH, INC.****
 **NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)**
 
 A summary
of the computation of basic and diluted earnings per share from continuing
operations is as follows:
 
 **Three-Months
      Ended March 31,****2005**
    
    **2004****(in
      thousands, except per share data)****Basic
      EPS from Continuing Operations Computation**Earnings
      from continuing operations
    
    $9,192
    
    $4,948Weighted
      average number of common shares outstanding
    
    26,102
    
    22,906Basic
      EPS from continuing operations
    
    $0.35
    
    $0.22**Diluted
      EPS from Continuing Operations Computation**Earnings
      from continuing operations
    
    $
    9,192
    
    $
    4,948Adjustments
    
    
    --
    
    
    --Adjusted
      earnings from continuing operations
    
    $
    9,192
    
    $
    4,948Weighted
      average number of common shares outstanding
    
    
    26,102
    
    
    22,906Stock
      options(1)
    
    
    1,568
    
    
    1,497Restricted
      stock awards
    
    
    8
    
    
    2Total
      diluted common shares outstanding
    
    
    27,678
    
    
    24,405Diluted
      EPS from continuing operations
    
    $
    0.33
    
    $
    0.20
 
 (1) For the
three-months ended March 31, 2005 and March 31, 2004, 48,922 shares and 17,971
shares, respectively, were excluded from the calculation of diluted EPS because
the grant prices exceeded the market prices during those periods.
 
 **6.**  **Significant
Clients:**
 
 During the
three-months ended March 31, 2005, two clients accounted for approximately 15%
and 11%, individually, of the Company's total revenues. For the three-months
ended March 31, 2004, three clients accounted for approximately 26%, 20% and
16%, individually, of the Company's total revenues.
 
 The Company
had two clients at March 31, 2005 that accounted for 24% and 17%, individually,
of billed account receivables. At December 31, 2004, the Company had one client
that accounted for 18% of billed account receivables. The Company had three
clients at March 31, 2005 that accounted for 24%, 12% and 12%, individually, of
unbilled receivables. At December 31, 2004, the Company had three clients, which
comprised 29%, 19% and 14% of unbilled receivables, individually.
 
 **7.
Restricted Cash:**
 
 In January
2005, Ventiv pledged additional cash as collateral of approximately $1.0
million, for a total of approximately $2.0 million, on an existing outstanding
standby letter of credit to support the insurance policy relating to a fleet
leasing arrangement for the Ventiv Commercial Services segment, opened in
January 2004. The beneficiary has not drawn on this letter of credit. As this
cash has been pledged as collateral, approximately $2.0 million and $1.0 million
has been restricted from use for general purposes and classified accordingly in
the Condensed Consolidated Balance Sheet as of March 31, 2005 and December 31,
2004, respectively.
 
 In March
2003, the Company pledged approximately $0.8 million of cash as collateral on an
outstanding standby letter of credit, issued in support of the insurance policy
relating to another fleet leasing arrangement for the Ventiv Commercial Services
segment. The beneficiary has not drawn on this letter of credit. As this cash
has been pledged as collateral, it is restricted from use for general purposes
and has been classified accordingly in the Condensed Consolidated Balance Sheets
as of March 31, 2005 and December 31, 2004.
 
 The Company
often receives cash advances from its clients as funding for specific projects
and engagements. These funds are deposited into segregated bank accounts and
used solely for purposes relating to the designated projects. Although these
funds are not held subject to formal escrow agreements, the Company considers
these funds to be restricted and has classified these balances accordingly. Cash
held in such segregated bank accounts totaled approximately $1.4 million and
$0.7 million held in escrow on behalf of clients and was included in restricted
cash in the Condensed Consolidated Balance Sheets as of March 31, 2005 and
December 31, 2004, respectively.
 ********
 7
 ****
**VENTIV
HEALTH, INC.**
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
 ****
 **8** .  **Goodwill
and Other Intangible Assets:**
 
 Goodwill
consists of the following:
 
 **March
      31,**
    **December
      31,**(in
      thousands)
    **2005**
    **2004**Ventiv
      Commercial Services
    $28,501
    $28,314
    (1)Ventiv
      Clinical Services
    36,329
    36,509
    (1)Total
    $64,830
    $64,823
 
 (1)
    The
      changes in goodwill arose from the finalization of certain contingency
      consideration relating to certain 2004 acquisitions (see Note 3 for
      further details).
 
 
 Other
intangible assets consist of the following:
 
 **March
      31, 2005**
    
    **December
      31, 2004**(in
      thousands)
    ****
    **Accumulated**
    ****
    
    ****
    **Accumulated**
    ******Gross**
    **Amortization**
    **Net**
    
    **Gross**
    **Amortization**
    **Net**Customer
      relationships
    $7,567
    $(563)
    $7,004
    
    $7,567
    $(282)
    $7,285Noncompete
      agreement
    240
    (20)
    220
    
    240
    (5)
    235Other
    260
    (175)
    85
    
    260
    (170)
    90Total
      definite-life intangibles
    8,067
    (758)
    7,309
    
    8,067
    (457)
    7,610Tradename
    13,760
    --
    13,760
    
    13,760
    --
    13,760Total
      other intangibles
    $21,827
    $(758)
    $21,069
    
    $21,827
    $(457)
    $21,370
 
 The 2004
business combinations discussed in footnote 3 above resulted in approximately
$44.2 million of goodwill (all of which is expected to be deductible for tax
purposes) and the following gross intangible assets:
 
 **Intangible
      asset**
    
    **Amount**
      **(in
      thousands)**
    ****
      **Weighted
      average amortization period**Tradename
    
    $13,760
    IndefiniteCustomer
      relationships
    
    7,567
    7.8
      yearsNoncompete
      agreement
    
    240
    4.0
      yearsTotal
    
    $21,567
 
 Amortization
expense, based on intangibles subject to amortization held at March 31, 2005, is
expected to be $0.9 for the last three quarters of 2005, $1.2 million annually
from 2006 through 2007, $1.1 million in 2008 and $0.7 million in
2009.
 
 **9.**  **Comprehensive
Earnings:**
 
 Comprehensive
income reports the effect on net income of transactions that are related to
equity of the Company, but that have not been transacted directly with the
Company's shareholders. This statement only modifies disclosures, including
financial statement disclosures, and does not result in other changes to the
reported results of operations or financial position of the Company.
 
 **Three-Months
      Ended March 31,****2005**
    
    **2004****(unaudited)**
      **(in
      thousands)**Net
      earnings
    
    $9,291
    
    $5,103Other
      comprehensive earnings, net of tax:Foreign
      currency translation adjustments
    
    
    (20)
    
    
    28Comprehensive
      earnings
    
    $
    9,271
    
    $
    5,131
 
 8
 ********
**VENTIV
HEALTH, INC.******
 ****NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)****
  **10.**  **Capital
Lease Obligations:**
 
 During 2001,
the Company entered into a master lease agreement to provide a fleet of
automobiles for sales representatives of its Ventiv Commercial Services
operating segment. Based on the terms of the agreement, management concluded
that the leases were capital in nature based on the criteria established by SFAS
No. 13, "Accounting for Leases". The Company capitalized leased vehicles and
recorded the related lease obligations totaling approximately $2.9 million
(including rebates totaling $0.6 million) and $2.4 million during the
three-month periods ended March 31, 2005 and 2004, respectively. The Company
also incurred net disposals of $1.1 million and $0.9 million during the
three-months ended March 31, 2005 and 2004, respectively.
  **(Amounts
      in thousands)**
    
    **Amounts
      Due In****Contractual
      Obligations**
    Total
      Obligation
    Less
      than 1 Year
    1 -
      3 years
    3
      -5 years
    More
      than 5 yearsCapital
      lease obligations (a)
    $35,538
    $11,853
    $20,409
    $3,276
    $--Operating
      leases (b)
    26,823
    6,925
    12,140
    4,798
    2,960Total
      obligations
    $62,361
    $18,778
    $32,549
    $8,074
    $2,960
  (a)
    These
      future commitments do not include interest and management fees, which are
      not recorded on the Consolidated Balance Sheet as of March 31, 2005 but
      will be recorded as incurred.
 (b)
    Operating
      leases include facility lease obligations in which the lease agreement may
      expire during the five-year period, but are expected to continue on a
      monthly basis beyond the lease term.
 
 **11.**  **Deferred
Compensation:**
 
 On November
22, 2004, Ventiv adopted the Ventiv Health, Inc. Deferred Compensation Plan (the
"Plan"), which was approved by Ventiv’s Board of Directors. The Plan provides
eligible management and other highly compensated employees with the opportunity
to defer, on a pre-tax basis, their salary, bonus, and other specified cash
compensation and to receive the deferred amounts, together with a deemed
investment return (positive or negative), either at a pre-determined time in the
future or upon termination of employment with the Company or an affiliated
employer participating in the Plan. The compensation deferrals were initiated in
2005. The deferred compensation liability of approximately $0.9 million was
included in other liabilities in the Company’s Condensed Consolidated Balance
Sheet as of March 31, 2005.
  To assist in
the funding of the Plan obligation, the Company participates in a
corporate-owned life insurance (COLI) program in a rabbi trust whereby it
purchases life insurance policies covering the lives of certain employees, with
the Company named as beneficiary. Rabbi trusts are grantor trusts generally set
up to fund compensation for a select group of management or highly paid
executives. The cash value of the life insurance policy at March 31, 2005 was
approximately $0.8 million and is currently classified in Other assets
(long-term) on the Company’s Condensed Consolidated Balance Sheet as of March
31, 2005.
  9
 ********
**VENTIV
HEALTH, INC.******
 ****NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)****
  **12.**   **Additional
Paid-In-Capital:**
 
 
 (in
      thousands)
    
    **Additional
      Paid in Capital**Balance
      at December 31, 2004
    
    $193,061Exercise
      of stock options
    
    3,153Issuance
      of restricted shares
    
    
    319Compensation
      expense
    
    
    47Tax
      benefit from exercise of employee
      stock
      options and vesting of restricted stock
    
    
    7,177Issuance
      of shares in connection with earnouts for Smith Hanley acquisition
    
    
    2,680Balance
      at March 31, 2005
    
    $
    206,437
 
 **13.**  **Discontinued
Operations:**
 
 For the
three-months ended March 31, 2005 and 2004, earnings from discontinued
operations, net of taxes, were earnings of $0.1 million and of $0.2 million,
respectively. The 2005 and 2004 gains on disposals of discontinued operations of
$0.1 million and $0.2 million, respectively, mainly consisted of contingency
payments due from our previously divested Hungary and Germany-based units.
 
 **14.**  **Segment
Information:**
 
 In 2004, the
Company managed three operating segments: Ventiv Commercial Services, Planning
and Analytics and Ventiv Clinical Services, and our non-operating reportable
segment, “Other”. As a result of the fourth quarter acquisitions in the clinical
services arena and the commonality of the nature of the commercial services we
provide, our planning and analytics services business unit which was operated as
a separate reporting segment (Ventiv Analytic Services) during 2004, is now
included as part of Ventiv Commercial Services for operating and segment
reporting purposes. The Company identified the Ventiv Commercial Services and
Ventiv Clinical Services segments as the two primary operating segments based on
the way management makes operating decisions and assesses performance.
 
 Ventiv's 2005 reportable
segments are:
 ·
    Ventiv
      Commercial Services, which includes our outsourced sales and marketing
      teams, planning and analytics services, compliance and patient assistance
      businesses, marketing support services, professional development and
      training, and sales representative recruitment in the commercial services
      area;
 ·
    Ventiv
      Clinical Services, which provides recruitment, clinical staffing and data
      collection and management; and
 ·
    Other,
      which encompasses the activities of the corporate management group.
 
 For the
three-months ended March 31, 2005 (in thousands):
 **Ventiv
      Commercial**
      **Services**
    
    **Ventiv
      Clinical Services**
    
    **Other**
    
    **Total**Revenues*
    
    $96,157
    
    $24,702
    
    $--
    
    $120,859Depreciation
      and amortization
    
    5,244
    
    310
    
    21
    
    5,575Interest
      expense
    
    
    288
    
    
    --
    
    
    100
    
    
    388Interest
      income
    
    
    25
    
    
    6
    
    
    222
    
    
    253Earnings
      (losses) from continuing
      operations,
      before income taxes
    
    
    12,443
    
    
    1,954
    
    
    (1,786)
    
    
    12,611
 * Revenues
are disclosed net of intercompany eliminations .
 
 10
 ******
**VENTIV
HEALTH, INC.****
 **NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)**
  For the
three-months ended March 31, 2004 (in thousands):
 
 **Ventiv
      Commercial**
      **Services**
    
    **Ventiv
      Clinical Services**
    
    **Other**
    
    **Total**Revenues
      *
    
    $70,661
    
    $--
    
    $--
    
    $70,661Depreciation
      and amortization
    
    
    3,583
    
    
    --
    
    
    15
    
    
    3,598Interest
      expense
    
    
    113
    
    
    --
    
    
    68
    
    
    181Interest
      income
    
    
    3
    
    
    --
    
    
    80
    
    
    83Earnings
      (losses) from continuing
      operations,
      before income taxes
    
    $
    9,465
    
    $
    --
    
    $
    (1,484)
    
    $
    7,981
 *
Revenues are disclosed net of intercompany eliminations.
 
 
 **March
      31, 2005**
    
    **December
      31, 2004****(in
      thousands)**Total
      Assets:Ventiv
      Commercial Services
    
    $
    206,241
    
    $
    201,613Ventiv
      Clinical Services
    
    
    77,684
    
    
    73,970Other*
    
    
    13,864
    
    
    11,869Total
      assets
    
    $
    297,789
    
    $
    287,452
 * Shown
net of intercompany adjustments.
 
 The
Company's continuing operations are exclusively in the United States.


11
   **ITEM
2.**  ***Management's
Discussion and Analysis of Financial Condition and Results of Operations***
 
 All
statements included or incorporated by reference in this Quarterly Report on
Form 10-Q (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 industry, uncertainty related to the continued growth of
pharmaceutical outsourcing, 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," 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 forward-looking statements speak only as of the date of this
Report and are based upon the information available to us at this time. Such
information is subject to change, and we will not necessarily inform you of such
changes. These statements are not guarantees of future performance and are
subject to risks, uncertainties and assumptions that are difficult to predict.
We undertake no obligation to revise or update publicly any forward-looking
statements for any reason.
  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.
 
 This
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the condensed consolidated
financial statements, accompanying notes and other financial information
included in the Annual Report on Form 10-K for the years ended December 31,
2004, 2003 and 2002.
 
 *Overview*
 
 Ventiv Health
Inc. (together with its subsidiaries “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. 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;
 
 Over almost
three decades, our businesses have provided excellence in customized solutions
and helped our clients achieve their business objectives.
  We currently
serve our clients primarily through two business units, which correspond to our
reporting segments for 2005:
 
 ·
    Ventiv
      Commercial Services,
      which consists of our outsourced sales and marketing teams, planning and
      analytics services, compliance and patient assistance businesses,
      marketing support services, professional development and training, and
      recruitment of sales representatives in the commercial services area;
      and
 ·
    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.
 
 
 12
 In 2004, we managed
three operating segments, which included Ventiv Commercial Services, Ventiv
Clinical Services and Ventiv Analytic Services. As a result of the fourth
quarter acquisitions in the clinical services arena and the commonality of the
nature of the commercial services we provide, our planning and analytics
services business unit which was operated as a separate reporting segment
(Ventiv Analytic Services) during 2004, is now included as part of Ventiv
Commercial Services for operating and segment reporting purposes.
 
 *Recent
Business Developments*
 **
 *Ventiv
Pharma Teams Contracts*
 
 Ventiv Pharma
Teams contracts often involve the deployment of large numbers of sales
representative and may have appreciable impacts on revenues and earnings. The
following are brief summaries of the most significant Ventiv Pharma Teams
contracting events during 2004 and 2005:
  During the
first quarter of 2004, we won several new contracts amounting to an additional
365 sales representatives. These contracts mainly comprise of small to
mid-size clients looking to enter new markets or looking to build
infrastructure. Among the notable contracts were Synthon Pharmaceuticals, Ltd.
and ISTA Pharmaceuticals, Inc.
  During the
second quarter of 2004, we won two additional contracts, each adding 200 sales
representatives during the second half of the year, one with an existing client
and another for a new client, Yamanouchi Pharmaceutical Company, Ltd., in which
deployment occurred during the fourth quarter of 2004.
  In July 2004,
we entered into an agreement with Sanofi-Aventis (“Aventis”) to provide a
national sales force including recruiting, training and operational support.
Under the terms of the agreement, we provided approximately 452 sales
representatives and 50 district managers during the second half of the
year.
 
 During the
third quarter of 2004, we won two significant new contracts totaling over 400
sales representatives with large, global pharmaceutical firms, including one
contract with Bristol-Myers Squibb (“BMS”). To accommodate these and other new
contracts, we agreed to an early wind-down of our contracts with Bayer
Pharmaceuticals Corporation (“Bayer”) in order to redeploy its sales
representatives from these older contracts to recently announced new multi-year
contracts.
 
 During the
first quarter of 2005, we won several new contracts amounting to an additional 245
representatives . These
contracts are mainly comprised of small to
mid-size clients looking to enter new markets or looking to build
infrastructure, including Bayer Diagnostics, NPS and Connetics, and will deploy
during the first half of 2005.
 
 In June 2004,
Watson Pharmaceuticals, Inc. (“Watson”) elected to exercise its option to not
continue its sales force contract for a second year, effective on or about
August 1, 2004. This action was related to Watson’s strategic decision to
refocus its broader business priorities, and was not a reflection on the
performance of the Ventiv sales team. The contract originated in March 2003 to
provide for approximately 385 sales representatives.
  *Acquisitions*
 
 In June 2004,
Ventiv acquired the net assets of Franklin Group, Inc. and Lincoln Ltd., Inc.
(together, “Franklin”), privately-held companies based in Somerville, New
Jersey. Franklin specializes primarily in conducting patient assistance programs
and pharmaceutical compliance services. Ventiv paid approximately $11.3 million
in cash and stock (taking into account post-closing adjustments and direct
acquisition costs) to acquire approximately $2.7 million of net assets. Ventiv
is obligated to make certain earn-out payments, which may be material,
contingent on Franklin’s performance measurements during 2004 through 2006. The
amount due with respect to Franklin for 2004 was approximately $1.9 million,
$1.7 million which was accrued for at December 31, 2004; the portion adjusted in
2005 was subject to review mechanisms set forth in the acquisition agreement,
which were not finalized until the end of the first quarter. Franklin’s
financial results are reported in the Ventiv Commercial Services segment.
  In October
2004, the Company acquired the net assets of Smith Hanley. Smith Hanley
specializes primarily in providing late-stage clinical staffing and recruiting
services to the U.S. pharmaceutical industry. The Company acquired Smith Hanley
to significantly expand our service portfolio in the clinical services and
recruitment areas, expand our market position in the pharmaceutical services and
achieve cross-selling opportunities by leveraging our existing sales force and
relationships. The Company acquired approximately $9.5 million of net assets for
consideration of approximately $52.8 million in cash and stock (taking into
account post-closing adjustments and direct acquisition costs) and will be
obligated to make certain earn-out payments, which may be material, contingent
on Smith Hanley’s performance measurements in 2004 through 2006. The amount due
with respect to Smith Hanley for 2004 was approximately $6.7 million, $6.8
million which was accrued for at December 31, 2004; the portion adjusted in 2005
was subject to review mechanisms set forth in the acquisition agreement, which
were not finalized until the end of the first quarter. The results of Smith
Hanley have been reflected in Ventiv Clinical Services segment.
 
 13
 In November
2004, Ventiv acquired the net assets of HHI. HHI, a privately-held company based
in Baltimore, Maryland, is a leading specialized statistical analysis and data
management provider to the U.S. pharmaceutical industry. HHI complements
Ventiv's Smith Hanley business. The closing consideration for the transaction
was approximately $6.2 million in cash and stock (taking into account
post-closing adjustments and direct acquisition costs) for approximately $0.8
million of net assets. Ventiv will be obligated to make certain earn-out
payments, which may be material, contingent on HHI’s performance measurements in
2005 and 2006. The results of HHI have been reflected in Ventiv Clinical
Services segment.
  *Divesting
Transactions*
 
 During 2002
and 2003, we divested our Communications and European Contract Sales businesses.
We have been receiving payments subsequent to some of these divestitures based
on the subsequent earnings of the divested unit. The following table summarizes
the additional contingent consideration we received subsequent to these
divestitures:
 
 
 **Operation**
    **Consideration
      at Closing**
    **Additional
      Consideration**Alpharetta,
      Georgia-based business unit
    $0.9
      million in cash
    Up
      to $0.5 million in contingent payments based on results of divested unit
      (all received as of March 31, 2005)Ventiv
      Health Germany
    EUR
      6.2 million ($6.1 million) in cash
    Up
      to EUR 5.0 million payable from future earnings of the business ($1.8
      million received through March 31, 2005)Hungary-based
      contract sales business
    $0.3
      million in cash
    Up
      to $0.3 million(all
      received as of March 31, 2005)
  
 14
  **Results
of Operations**
 
 The following
sets forth, for the periods indicated, certain components (in thousands, except
per share amounts) of Ventiv's condensed consolidated statements of earnings,
including such data as a percentage of revenues.
 ****
 **Three-Months
Ended March 31, 2005 Compared to Three-Months Ended March 31, 2004**
 
 **Results
of Operations**
 
 The following
sets forth, for the periods indicated, certain components of our operating
earnings, including such data stated as percentage of revenues:
 
 ****
    
    **For
      the Three-Months Ended March 31,****2005**
    **2004****(in
      thousands, except for per share data)**Revenues:
    
    
    
    Percentage*
    
    
    
    
    
    Percentage*Ventiv
      Commercial Services
    
    $
    96,157
    
    79.6%
    $
    70,661
    
    
    100.0
    %Ventiv
      Clinical Services
    
    
    24,702
    
    20.4%
    
    --
    
    
    --Other
    
    
    --
    
    --
    
    --
    
    
    --Total
      revenues
    
    
    120,859
    
    100.0%
    $
    70,661
    
    
    100.0
    %Cost
      of services:Ventiv
      Commercial Services
    
    
    77,586
    
    80.7%
    
    56,311
    
    
    79.7
    %Ventiv
      Clinical Services
    
    
    16,126
    
    65.3%
    
    --
    
    
    --Other
    
    
    --
    
    --
    
    --
    
    
    --Total
      cost of services
    
    
    93,712
    
    77.5%
    
    56,311
    
    
    79.7
    %Selling,
      general and administrative expenses
    
    
    14,401
    
    11.9%
    
    6,271
    
    
    8.9
    %Total
      operating earnings
    
    $
    12,746
    
    10.5%
    $
    8,079
    
    
    11.4
    %Interest
      expense
    
    
    (388
    )
    (0.3)%
    
    (181
    )
    
    (0.2
    )%Interest
      income
    
    
    253
    
    0.2%
    
    83
    
    
    0.1
    %Earnings
      from continuing operations before income taxes
    
    
    12,611
    
    10.4%
    
    7,981
    
    
    11.3
    %Income
      tax provision
    
    
    (3,419
    )
    (2.8)%
    
    (3,033
    )
    
    (4.3
    )%Earnings
      from continuing operations
    
    
    9,192
    
    7.6%
    
    4,948
    
    
    7.0
    %Earnings
      from discontinued operations:Losses from discontinued
      operations, net of taxes
    
    
    --
    
    --
    
    --
    
    
    --Gains
      on disposals of discontinued operations, net of taxes
    
    
    99
    
    0.1%
    
    155
    
    
    0.2
    %Tax
      benefit arising from the disposal of a discontinued
    operation
    
    
    --
    
    --
    
    --
    
    
    --Earnings
      from discontinued operations
    
    
    99
    
    0.1%
    
    155
    
    
    0.2
    %Net
      earnings
    
    $
    9,291
    
    7.7%
    $
    5,103
    
    
    7.2
    %Earnings
      per share:Continuing
      operations:Basic
    
    $
    0.35
    
    
    $
    0.22Diluted
    
    $
    0.33
    
    
    $
    0.20Discontinued
      operations:Basic
    
    $
    0.01
    
    
    $
    --Diluted
    
    $
    0.01
    
    
    $
    0.01Net
      earnings:Basic
    
    $
    0.36
    
    
    $
    0.22Diluted
    
    $
    0.34
    
    
    $
    0.21
 
 *  Cost of
services is expressed as a percentage of segment revenue. All other line items
are displayed as a percentage of total revenues.
  ******
 15
 ***Revenues*** :
Revenues increased by approximately $50.2 million, or 71.0%, to $120.9 million
in the three-month period ended March 31, 2005, from $70.7 million in the
three-months ended March 31, 2004.
 
 Revenues in
our Ventiv Commercial Services business were $96.2 million, an increase of $25.5
million or 36.1% from the $70.7 million in the same period in 2004, and
accounted for 79.6% of total Ventiv revenues for the three-months ended March
31, 2005. This increase resulted primarily from new contracts won in 2004,
ranging from small to mid-size clients looking to enter new markets or build
infrastructure, to large, global pharmaceutical companies with existing
infrastructure, and included contracts
amounting to an additional 765 sales representatives during the first half of
2004; a new contract with Aventis for approximately 452 sales representatives
during the third quarter of 2004; and two additional contracts with
large, global pharmaceutical firms  totaling
over 400 sales representatives during the fourth quarter of 2004, one of which
was BMS. The increases from these significant contract wins (described above)
were offset by decreases attributable to Watson’s election to terminate its
sales force contract effective August 1, 2004, and the redeployment of Bayer
representatives from older contracts to recently announced new multi-year
contracts with other clients, as discussed previously. In addition, Ventiv
Commercial Services recorded $0.3 million in incentive fees during the first
quarter of 2005 versus $0.9 million during the first quarter of 2004. Incentive
fees are recorded when the Company is reasonably assured that payment will be
received. Finally, Ventiv acquired Franklin on June 9, 2004, resulting in
approximately $5.9 million of revenue during the first quarter of
2005.
 
 The newly
acquired companies comprising Ventiv Clinical Services have contributed
approximately $24.7 million in additional revenues for the first quarter of
2005. Ventiv Clinical Services’ clientele consists of a wide range of
pharmaceutical, biotechnology and medical device companies.
 ******
 ***Costs of
Services*** : Costs
of services increased by approximately $37.4 million or 66.4%, to $93.7 million
this fiscal quarter from $56.3 million in the three-month period ended March 31,
2004. Costs of services decreased as a percentage of revenues to 77.5% from
79.7% in the three-month periods ended March 31, 2005 and 2004, respectively.
 
 Costs of
services at the Ventiv Commercial Services business increased by approximately
$21.3 million, or 37.8%, to $77.6 million in the first quarter of 2005 from
$56.3 million in the first quarter of 2004. This variance is higher than the
increase in revenue between the related periods. Costs of services were 80.7% of
Ventiv Commercial Services revenue in the first quarter of 2005, compared to
79.7% in the first quarter of 2004. The increase of costs of services as a
percentage of revenue in 2005 as compared to 2004 was attributable to selected
new contracts with slightly lower margins in our sales teams business and lower
margins on a reduced revenue base in our planning and analytic services
business. In addition, as discussed above, the Company recorded lower incentive
fees during the first quarter of 2005 versus the first quarter of 2004 without
any significant related costs.
 
 The Clinical
Services segment contributed approximately $16.1 million to cost of sales. Costs
of services represented approximately 65.3% of Ventiv Clinical Services revenues
during this period.
 ******
 ***Selling,
General and Administrative Expenses (“SG&A”)*** :
SG&A expenses increased by approximately $8.1 million, or 129.6%, to $14.4
million from $6.3 million in the three-month periods ended March 31, 2005 and
2004, respectively. This increase was primarily due to increased compensation
levels in 2005 versus 2004, SG&A expenses incurred at the newly acquired
Franklin and Smith Hanley divisions, and increases in professional fees related
to compliance with the internal control standards of Section 404 of the
Sarbanes-Oxley Act of 2002.
 
 SG&A
expenses at Ventiv Commercial Services increased by approximately $1.1 million,
or 22.8%, to $5.9 million in the quarter ended March 31, 2005 from $4.8 million
incurred in the quarter ended March 31, 2004. This increase was due to increased
compensation levels in 2005 versus 2004, increased rent expense due to Ventiv
Commercial Services occupying additional space, which it previously subleased to
a third party, and expenses related to Franklin that were not included in the
first quarter ended March 31, 2004 since the acquisition did not occur until
June 2004.
 
 SG&A
expenses at our newly acquired Ventiv Clinical Services businesses were
approximately $6.6 million in the first quarter of 2005. Since the acquisitions
occurred during the fourth quarter of 2004, there is no related SG&A for the
three-months ended March 31, 2004.
 
 Other
SG&A was approximately $1.9 million for the three-months ended March 31,
2005, an increase of approximately $0.4 million or 27.7% from $1.5 million for
the three-months ended March 31, 2004. The increase was mainly related to
increases in professional fees primarily related to our compliance with the
internal control standards of Section 404 of the Sarbanes-Oxley Act of 2002. The
2004 acquisitions will result in increased accounting fees for the 2005 audit of
the Company’s financial statements and internal controls since the acquired
entities were not included in management’s 2004 assessment of internal controls
over financial reporting. In addition, the Company plans to hire additional
staff in internal audit to assist us in 2005 with the current year
assessment.
 ******
 16
 ***Provision for
Income Taxes*** : In
March 2005, Ventiv recorded a tax benefit of approximately $1.6 million
primarily related to prior period tax contingencies, which are no longer
required. The aggregate effect of this benefit reduced Ventiv’s first quarter
2005 effective tax rate from 39.8% to approximately 27.1%. Ventiv recorded a
provision for income taxes on continuing operations using an estimated effective
tax rate of 38.0% for the three-month period ended March 31, 2004. Our current
effective tax rate is based on current projections for earnings in the tax
jurisdictions in which Ventiv does 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.
  During the
three-month period ended March 31, 2005, a tax benefit related to the exercise
of stock options in the amount of $7.2 million was credited directly to
“Additional paid-in-capital” in the condensed consolidated balance sheet and
statement of stockholders’ equity.
  ***Discontinued
Operations*** : For the
three-months ended March 31, 2005 and 2004, earnings from discontinued
operations, net of taxes, were earnings of $0.1 million and $0.2 million,
respectively. The gains on disposals of discontinued operations mainly consisted
of contingency payments due from our previously divested Germany-based units, as
more fully described in Recent Business Developments.
  ***Net Earnings
and Earnings Per Share (“EPS”)*** *:* Ventiv’s
net earnings increased by approximately $4.2 million to a earnings of $9.3
million, from net earnings of $5.1 million in the three-months ended March 31,
2005 and 2004, respectively. Diluted earnings per share increased to earnings of
$0.34 per share for the three-month period ended March 31, 2005 from earnings of
$0.21 per share for the three-month period ended March 31, 2004.  Operating
results were higher due to increased revenues from certain contracts and
additional revenues from the 2004 acquisitions.
 
 ***Liquidity
and Capital Resources***
  At March 31,
2005, Ventiv had $44.4 million of unrestricted cash and equivalents, a decrease
of $6.4 million from December 31, 2004. For the three-months ended March 31,
2004 compared to March 31, 2005, cash provided by operations decreased by $11.7
million from a source of $10.0 million to a use of $1.7 million. Cash used in
investing activities increased from $1.5 million to $3.2 million in the
three-months ended March 31, 2005, when compared to the same period in 2004.
Cash used in financing activities decreased by $0.4 million from $2.0 million to
$1.6 million over the same comparative periods.
 
 Cash used in
operations was $1.7 million during the three-months ended March 31, 2005, while
cash provided by operations was $10.0 million in the three-months ended March
31, 2004. This decrease was, in large part, due to the billing and collection of
certain payments due under various contracts. The accounts receivable and
unbilled services balances increased by approximately $14.0 million during the
first quarter of 2005, versus a decrease of approximately $1.8 during the first
quarter of 2004. This is mainly due to timing and not necessarily any collection
issues. This decreased cash flow is offset by a $7.2 million increase in tax
benefits from the exercises of stock options during the first quarter of 2005.
 
 Cash used in
investing activities was $3.2 million for the three-months ended March 31, 2005
compared to $1.5 million used during the same period in 2004. In 2005, the
Company entered into a Deferred Compensation Plan for certain key employees and
funded the liability with a corporate-owned life insurance (COLI) program in a
rabbi trust whereby it purchases life insurance policies covering the lives of
certain employees, with the Company named as beneficiary. During the first
quarter, the Company invested approximately $0.7 million in the COLI program. In
addition, the Company paid approximately $0.9 million during the first quarter
of 2005 in matters relating to 2004 acquisitions. Investing
activities also included capital expenditures of approximately $2.1 million and
$1.5 million for the three-months ended March 31, 2005 and March 31, 2004,
respectively. These
expenditures mainly relate to computer equipment purchased as a result of the
increased business from several new contracts.
  Cash used in
financing activities was $1.6 million and $2.0 million for the three-months
ended March 31, 2005 and 2004, respectively. The Company has existing letters of
credit for insurance on its automobile fleet in its Ventiv Commercial Services
business unit. These letters of credit have been fully cash collateralized by
the Company in both the first quarters of 2004 and 2005. During the three-months
ended March 31, 2005, the Company received $3.2 million of proceeds from the
exercise of stock options, versus $0.8 million in the three-months ended March
31, 2004. Finally, the Company made capital lease payments of $3.8 million and
$1.5 million for the same periods in 2005 and 2004, respectively, under the
fleet lease agreement in its Ventiv Commercial Services business unit.
 
 17
 On March 29,
2002, we entered into an asset-based lending agreement with Foothill Capital
Corporation, a wholly-owned subsidiary of Wells Fargo and Company, providing for
a maximum borrowing amount of $50 million. This agreement expired on March 31,
2005. Ventiv did not have any amounts outstanding under the credit facility
during the first quarter of 2005. We will seek to enter into a replacement
credit facility and anticipate initiating discussions with lenders over the next
several months. We do not believe that the absence of a credit facility during
the intervening period will materially impact our liquidity.
 
 A summary
of our contractual obligations and commercial commitments as of March 31, 2005
are as follows:
 
 **(Amounts
      in thousands)**
    
    **Amounts
      Due In****Contractual
      Obligations**
    Total
      Obligation
    Less
      than 1 Year
    1 -
      3 years
    3
      -5 years
    More
      than 5 yearsCapital
      lease obligations (a)
    $35,538
    $11,853
    $20,409
    $3,276
    $--Operating
      leases (b)
    26,823
    6,925
    12,140
    4,798
    2,960Total
      obligations
    $62,361
    $18,778
    $32,549
    $8,074
    $2,960
 
 (a)
    These
      future commitments do not include interest and management fees, which are
      not recorded on the Consolidated Balance Sheet as of March 31, 2005 but
      will be recorded as incurred.
 (b)
    Operating
      leases include facility lease obligations in which the lease agreement may
      expire during the five-year period, but are expected to continue on a
      monthly basis beyond the lease term.
 
 We believe
that our cash and equivalents, cash to be provided by operations and available
credit under our credit facility will be sufficient to fund our current
operating requirements over the next 12 months and for the foreseeable future.
 
 We plan to
focus on internal growth in the near term as the primary means of our expansion,
although we consider acquisition and investment opportunities from time to time
as they arise. Cash provided by operations may not be sufficient to fund all
internal growth initiatives that we may wish to pursue or to fund investment and
acquisition activities. If we pursue significant internal growth initiatives or
if we wish to acquire additional businesses in transactions that include cash
payments as part of the purchase price, we may pursue additional debt or equity
sources to finance such transactions and activities, depending on market
conditions. We cannot assure you that we will be successful in raising the cash
required to complete all acquisition, investment or business opportunities which
we may wish to pursue.
 
 **Critical
Accounting Policies**
 
 The Company’s
critical accounting policies are set forth in its Annual Report on Form 10-K for
the year ended December 31, 2004. There has been no change, update or revision
to the Company’s critical accounting policies subsequent to the filing of the
Company’s Form 10-K for the year ended December 31, 2004.
 
 **Business
Considerations**
 
 Our business,
financial condition and results of operations may be materially affected by the
matters discussed under the caption “Business Considerations” within Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, of the Company’s Form 10-K for the year ended December 31, 2004.
  18
  **ITEM
3.** ***Quantitative
and Qualitative Disclosures About Market Risk*** ****
 
 We are
exposed to market risk from changes in market interest rates. We are subject to
interest rate risk on our debt for changes in the LIBOR and base lending rates.
We do not currently engage in hedging or other market risk management
strategies.
 
 ****
 **Foreign
Currency Exchange Rate Exposure**
  The Company
is not currently affected by foreign currency exchange rate exposure, except for
any fluctuations in the foreign bank accounts remaining from the divestiture of
the Company’s European business units.
 
 **ITEM
4.** ***Controls
and Procedures***
 
 Based on
their evaluation as of March 31, 2005, our Chief Executive Officer and Chief
Financial Officer, have concluded that our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended) were sufficiently effective to ensure that the
information required to be disclosed by us in this quarterly report on
Form 10-Q was recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and instructions for Form 10-Q.
 
 Our
management also evaluated, with the participation of our Chief Executive Officer
and Chief Financial Officer, any change in our Disclosure Controls and
determined that there were no changes in our Disclosure Controls during the
quarter ended March 31, 2005 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act.
 
 There were no
changes in our internal controls over financial reporting during the quarter
ended March 31, 2005 that have materially affected, or are reasonably likely to
materially affect our internal controls over financial reporting.
  19
  **PART
II.**  **OTHER
INFORMATION**
 
 **ITEM
1.**  ***Legal
Proceedings*** ****
 
 The Company
is subject to lawsuits, investigations and claims arising out of the conduct of
its 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 the Company. 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 the financial position or results of operations of the
Company if disposed of unfavorably.
 
 **ITEM
6.**  ***Exhibits
and Reports on Form 8-K***
 
 (a) *Exhibits*
 
 3.2e
    
    Amendment
      to By-Laws of Ventiv Health, Inc., adopted June 16,
200410.5.2
    
    Base
      Salary Increase - Eran Broshy10.9.2
    
    Base
      Salary Increase - John R. Emery10.11.2
    
    Base
      Salary Increase - Terrell G. Herring10.14
    
    Asset
      Purchase Agreement dated as of November 19, 2004 among HHI, L.L.C., a
      Maryland limited liability company Ventiv Health, Inc. and the other
      parties thereto
      
      *The
      following schedules and exhibits to Exhibit 10.14 have been omitted and
      will be furnished supplementally to the Commission upon
      request:*
      **
      *Exhibit
      A - Parent Guaranty*
      *Exhibit
      B - Escrow Agreement*
      *Exhibit
      C - Bill of Sale*
      *Exhibit
      D - Opinion of Seller’s Counsel*
      *Exhibit
      E - Opinion of Purchaser’s Counsel*
      *Exhibits
      1 and 2 - Forms of Employment Agreement*
      *Schedule
      I - Included Contracts*
      *Schedule
      II - Earnout Targets*
      *Seller
      Disclosure Schedule*31.1
    
    Certification
      by the Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange
      Act31.2
    
    Certification
      by the Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange
      Act32.1
    
    Chief
      Executive Officer’s Certification of Financial Statements Pursuant to 18
      U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2
    
    Chief
      Financial Officer’s Certification of Financial Statements Pursuant to 18
      U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
 (b) *Reports
on Form 8-K*
  Current
Report on Form 8-K, filed as of April 15, 2005, Item 1.01, regarding the
Company’s amendment to 2004 cash bonus plan and long term awards to executive
officers on April 11, 2005 and cash compensation to non-management directors on
February 9, 2005.
  Current
Report on Form 8-K, filed as of March 8, 2005, Item 2.02 and Item 9.01,
regarding the Company’s release of financial information for the fourth quarter
and full year ended December 31, 2004 on March 8, 2005.
  Current
Report on Form 8-K, filed as of February 11, 2005, Item 5.02 and Item 9.01,
regarding the Company’s announcement of new Board members on February 9,
2005.
  20
  **SIGNATURES**
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 **VENTIV
HEALTH, INC.**
 
 DATE:
      May 10, 2005
    
    By:
    
    /S/    JOHNR.
      EMERY**John
      R. Emery**
      **Chief
      Financial Officer**
  21