Ladies and gentlemen, thank you for standing by. Welcome to the Quintiles IMS Third Quarter 2017 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. As a reminder, this conference is being recorded, Thursday, October 26, 2017. I would now like to turn the conference over to Andrew Markwick, Vice President, Investor Relations. Please go ahead.

Thank you, Isaac. Good morning, everyone. Thank you for joining our third quarter 2017 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer; and Michael McDonnell, Executive Vice President and Chief Financial Officer. Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call on the Events & Presentations section of our Quintiles IMS Investor Relations website at ir.quintilesims.com. Before we begin, I would like to caution the listeners that certain information discussed by management during this conference call include forward-looking statements. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed on February 16, 2017 and subsequent SEC filings. In addition, we will discuss certain non-GAAP financial measures on this call which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures are included in the press release and conference call presentation. I would also like to point out that as with other global businesses, we have been impacted by year-over-year foreign exchange fluctuations. I would now like to turn the call over to our Chairman and CEO, Ari Bousbib.

Thank you, Andrew, and good morning, everyone. Thank you for joining our third quarter 2017 earnings call. I'm pleased to report that Q3 was a strong quarter for the Quintiles IMS team. Results were in line with or better than what we had anticipated. As most of you previously noted, our plan for the year had a steeper ramp and was more backend loaded, because the quarter was stronger than we had anticipated, will have a smoother glide path to our full year targets. Let's review the call, consistent with the last three quarters we're making comparisons more meaningful by discussing results on a combined company basis as if the merger took place January 1, 2016. Third quarter revenue was $2.019 million, and it grew 4.8%. Acquisitions contributed about 1.5 points to revenue growth. R&D Solutions' growth was 7.3%. R&D Solutions' revenue was again negatively impacted by our early clinical development business, where we closed a facility in London last year. Excluding the early clinical development business, revenue growth would have been nearly 8%. Commercial solutions grew 4%. Growth in commercial solutions was negatively impacted by the sale of the legacy Quintiles Encore business. Adjusting for Encore, the commercial business would have grown 5.5%. Integrated Engagement Services revenue was slightly down versus the prior year. Combined company adjusted EBITDA was $512 million. We had a number of key wins in the quarter. Let me provide some examples. First, in our technology solutions business, you will recall that we have been accelerating investments in re-platforming our global CRM and MCM capabilities. We told you we are aiming to release our new orchestrated customer engagements or OCE SaaS offering towards the end of the year. This is still on track, and in fact, during the third quarter we had our first OCE…

Thank you, Ari, and good morning, everyone. Let's review the quarter. As in previous quarters, I'd like to call your attention to the more meaningful combined company comparisons in the center of the page. Combined company third quarter revenue was $2.019 billion, which was at the high-end of the guidance range we provided last quarter. Third quarter revenue grew 4.8% reported and 4.3% at constant currency. R&D Solutions' service revenue of $938 million, grew 7.3% at actual FX rates and 6.9% at constant currency. Growth was again impacted by a decline in our early clinical development business due to the closing of a facility in Europe during 2016. When adjusting for the early clinical development business, R&D growth was 7.8%. Commercial Solutions revenue of $887 million, grew 4% reported and 2.9% at constant currency. As Ari mentioned, the Commercial Solutions growth rate was impacted by the sale of the legacy Quintiles' Encore business. Adjusting for Encore growth in Commercial Solutions was 5.6%. Integrated Engagement Services revenue of $194 million, declined 2.3% at actual FX rates and 1.1% at constant currency. Turning now to profits, third quarter adjusted EBITDA was $512 million, GAAP net income was $84 million and GAAP diluted earnings per share was $0.38. Adjusted net income was $260 million and adjusted diluted earnings per share was $1.19 in the third quarter. Now let's take a look at year-to-date results. Again, I'd like to call your attention to the more meaningful combined company comparisons in the center of the page. Year-to-date revenue was $5.899 billion, you'll recall the deferred revenue adjustment we highlighted on the last couple of calls. For the first nine months of 2017, it negatively impacted revenue by $8 million. When adjusting for this and on a combined company basis year-to-date revenue grew 2.9% at constant…

Thank you. [Operator Instructions] And our first question comes from the line of Jack Meehan of Barclays. Please proceed with your question.

Hi, thanks, good morning. Ari, I just want to start, great momentum with Next-Gen, could you weigh in on just the general health of R&D funding? And then, how do you think about the R&D Solutions' revenues potentially accelerating in 2018, given the win?

Thanks for the question, Jack. Yeah. Look, it's a mixed bag in terms of R&D funding. As always, there are studies that are being pulled based on developments in the market, pricing and otherwise and competing trials. But as in really for the past year or two, emerging bio-pharma, we see has increasing funding. With respect to - and also, I would just add a comment that some large pharma, in the context of perhaps more rational evaluation of the portfolios and of the cost structure at the same time, are in-sourcing parts of their development. Now, Next-Gen is largely unaffected by this, because it's new and different. In fact, as I mentioned in my introductory remarks, we won a preferred provider status with a large pharma that essentially previously had - did not outsource any CRO work. And that's largely on the back of the Next-Gen capabilities. In fact, we even have clients asking us to provide the Next-Gen capability if you will in combination with their resources. And we are evaluating some of those type of hybrid joint partnership models with some of our clients. With respect to revenue accelerating, it's a little bit more than one-year cycle unfortunately. Generally, nice bookings we had this quarter. And again, it was a very strong bookings quarter. I've seen some of your notes, not you particularly, but some of your colleagues' notes and with - again, the math is not quite correct. The bookings are actually very strong this quarter. It's one of the best bookings quarter, the book-to-bill we had in a long time. And so, with acceleration of revenue, we still have to go through the cycle, we had those bad bookings last year. And so we got to cycle through that. And probably through the end of 2018, we will see the benefits of - we start seeing the benefits of the higher bookings this quarter and the previous one. Thank you.

Thank you.

Our next question comes from the line of Tim Evans of Wells Fargo. Please proceed with your question.

Thank you. Ari, if we look at the Q4 revenue that was implied in your guidance last quarter, it would have been about $2.16 billion at the midpoint. Now that guidance is $2.14 billion at the midpoint, just slightly lower admittedly, but the FX did help you out in the quarter. So I'm just curious what went the other way, what went against you relative to your expectations last quarter?

Yeah, with respect to the third quarter, the FX essentially is where we said we will expect it to be when we gave guidance, so not much has helped here. It helps year-over-year. But relative to the guidance we gave, that is - it has not changed. So it didn't help us. We actually came in higher than our guidance on every metric: revenue, EBITDA and EPS for this quarter. The implied - because we came higher, the implied - we never gave guidance for the fourth quarter, but we have the guidance for the year. So, yeah, since the guidance for third quarter was lower than what we came in at, then fourth quarter imply that you would have derived by subtraction, given our guidance for the year would have been a little higher. Because Q3 came higher, then Q3 ends up being a little bit perhaps lower than you would have expected, at the end, for the year I think we have the broad range, talking about revenue of $8 billion to $8.1 billion. And I think we have now better visibility, again, assuming if everything else is the same, FX is the same, and I think we - if you add the numbers, it's…

[a80.20 to 80.60a] [ph].

Right, it's [a80.20 to 80.60a] [ph]. If you add up the year to date numbers with the guidance, we're providing today for the fourth quarter. Again, if you - the other things that there that change, of course, relative to the original guidance is that we sold Encore. And that Encore business takes out about $25 million of the revenue. So if you go back to the guidance we gave, which we have not - we had not changed the entire year, right, which was $8 billion to $8.1 billion for the full year revenue. We are now at [a80.20 to 80.60a] [ph], but since then we took out $25 million of revenue from the Encore business. So apples to apples, if you're speaking about the midpoint, I know you guys focus on the midpoint, we actually - the number that we provided is higher, again, reflecting the strong performance this quarter and last quarter. Yeah, thank you for the question. It enables me to clarify.

Our next question comes from the line of John Kreger of William Blair. Please proceed with your question.

Hi, thanks very much. My question about acquisition contribution in the quarter, if we looked at that 4.3%, constant currency growth rate for the whole company, what would it have been on an organic basis?

Acquisitions contributed about a 1.5 to overall growth. And by the way, on the commercial side, it's about 0.5 point or really less than the growth on the commercial side was from acquisitions. The rest was in R&D. You might recall that we bought in the fourth quarter of last year a company called TKL, a small CRO that focused on dermatology. And so that's some of the acquisition driven contribution to R&D Solutions' growth. We also bought, though it was in some time in the middle of the quarter and it's not huge revenues, but nevertheless it did contribute a little bit, a company called DrugDev, which is included in our R&D Solutions business. And it's an attractive technology platform that it has, we think highly differentiated and very attractive tools for study startup, payments and clinical trial optimization. With this acquisition in the midst of the third quarter and a little bit of revenue, it's very low revenue. We paid a lot of money for it. It's actually the bulk of the spend in the quarter. But it contributed a little bit of revenue as well to R&D Solutions. Okay, I hope that helps and gives you more color.

It does and actually that's a good segue to my follow-up. Ari, I think on the last call you talked about an initiative to sort of build out a suite of clinical data technology tools. Can you just sort of update us on that, what's the plan and does that latest acquisition maybe accelerate that?

The answer is, it does accelerate that. We're building tools internally. We're also collaborating with salesforce.com. So these tools are based on a common platform. And you will hear us on more. You might recall, a much tinier business, but we did acquire a small company called Wingspan, which is for regulated content management, the tool, and very highly complementary with DrugDev, which is more in the area of study startup and payment processing. I'm really looking forward to the investor conference in a couple of weeks, because we plan to demo some of these tools and share more detail about that initiatives, I hope that you can attend.

Great. Thanks.

But also if I may, just add this - we are actually accelerating investments there and we are - that wasn't your question, I just anticipate. We are going a little faster and anticipated on our synergy ramp and on our productivity initiatives. And because of that we feel we can afford the accelerated investments. So net-net as you probably would note, we still are year-over-year even though the compares are hard to do, because we weren't merged company last year, but we have even a little bit of margin expansion year-to-date, I think, it's around 30 basis points of margin expansion. And fourth quarter, we will see maybe a little bit also margin expansion, but not as much again, because we are investing largely in the Next-Gen and in the clinical technology suite that you just referred to. Thank you.

Thank you very much.

Our next question comes from the line of George Hill of RBC. Please proceed with your question.

Did the merger with IMS to advance the sales process around real-world evidence and the trial sponsors, and we've seen a lot of other late-stage CROs try to replicate or…

I don't know, what's going on here, but we have a - is that Dave? Who is this?

George Hill from RBC.

I'm sorry. We missed the - maybe you were on mute. We missed the beginning of your question. If you don't mind repeating. And by the way, welcome back.

It's good to be back. The question was around sales process into trial sponsors around real-world evidence, where you guys have a differentiated offering, given the close of the merger and what you guys are selling now. I guess, can you talk about the competitive environment as you've seen other late-stage CROs, either through partnership or through other types of announcements? It seems like try to replicate or compete on what you're doing in that space. And just, I worry about the - is your sales message and your marketing message kind of getting through and resonating with clients? Or do you feel like there's been an emergence of noise in the space?

Well, yes, it is resonating, and yes, competitors are trying to catch-up and entering our kinds of partnerships and doing acquisitions and so on. And we think that's good, it validates our strategy and elevates the gain for everyone. We still busy, we have truly undifferentiated - truly unparalleled datasets technology platform, frankly, years of experience ahead of the curve. So I think, the message is resonating, yes, of course, there's always noise. People say, well, we also have data, we also have technology, when you peel the onion, though, you'll see the true difference. I mentioned in my remarks that we are starting to see a lot of interest prompted by regulatory actions in the 21st Century Cures Act, which increased the demand for real-world insights. This is about trying to find new indications for existing drugs, and utilizing secondary data and analytics that, frankly, we believe, we are uniquely positioned to provide, we see a lot of demand. So actually the business in the quarter grew double-digit, the real-world business. It's consistent with long-term historical growth rate that we see for real-world certainly on - in the IMS legacy business. And even the late-stage study business at Quintiles grew double-digits in the quarter. On the whole - our outlook for the business remains very strong, and we continue to see synergies on how we go to market, so very positive outlook there.

Okay. Maybe just a quick follow-up will be any follow-up on selling cycle? Are you seeing a lengthening or shortening of selling cycles relative to the competitive environment or generally steady?

No. Because, it is largely driven by clients and by the idiosyncratic aspects of the study, and as you know it's high process driven, a lot of regulatory issues, pricing, safety, et cetera. So we don't see any delays that's moving or acceleration due to competitive pressures.

Okay. I appreciate the color. Thank you.

Thank you.

Our next question comes from the line of Derik de Bruin of Bank of America Merrill Lynch. Please proceed.

Hi, this is Juan Avendano on behalf of Derik. You've been pretty diligent at this closing the Next-Gen wins every quarter and we appreciate that. Would you be willing to tell us what percentage of your revenues nowadays, that is orders that you have actually built, are currently from this next generation wins or would all of those orders are still residing the backlog, that is they haven't been burned.

Yeah, I mean, look it's - what we disclosed all the awards, so it always takes a little bit of time to get into contract. Today, about three quarters approximately of the Next-Gen awards that we've disclosed. And I said, we have approximately, since the merger $900 million worth of awards. About three quarters of that is in the disclosed backlog, which is contracted. How much of that has translated into revenue, it's a very little so far. I would say of that maybe - I think, it's the high-single-digits maybe 8%. I'd like to look more precisely, but it cannot be more than 7%, 8%.

Okay. Thank you. And then just to clarify on the M&A contribution that was about 1.5 in the quarter. Should that be about around run rate that we should expect in future quarters coming up absent of any additional M&A?

Yes. We've said that's part of our guidance, we've always said that acquisitions we present 1 to 2 points of our growth. Now, it can be lumpy. There could be a very rich quarter, where we end up closing a lot of these deals or not. So in this quarter happens to be point and a half, right in the middle of what we usually expect. You could have a quarter, where it's less than one. You could have a quarter, it's more than two. But in general, 1 to 2 points is what we anticipate. It's generally has been historically on the commercial side. Now this past quarter has been mostly on the benefit there has been on the R&D side. And as I said about 0.5 point, or actually less than a 0.5 point of the growth on the commercial side came from acquisitions. The rest was in R&D.

Thank you. And lastly, if I may regarding your capital deployment priorities. You've definitely been a lot of repurchases. But now that you've annualized the acquisition of IMS Merger, should we expect an uptick in, perhaps, bolt-on M&A?

No. We - again, we just - we're not buying to buy. We're just buying, because we're building out a strategy behind it. It's all mostly technology based companies that give us unique capabilities, so we can move to next centuries clinical trial processes, and improve - or continue to improve our suite of commercial applications. Number one and number two, when there is a whole in our offerings like in the case of the TKL acquisition on the clinical side, we bought a small CRO. And we are, of course, always looking at that. There aren't that many such opportunities, but we're looking at that. With respect to larger acquisitions, of course, we have an obligation to look at them, and we have and we'll continue to look, when they come up. But in every single case, we've moved away, while we might have wanted to do the acquisition, we moved away, because we felt there was a very large disconnect between the valuation expectation, and what we were prepared to pay. So we'll continue to be very discipline in our capital allocation, as you know, we have a great problem, which is we generate a lot of cash flow. We are very effective repatriating the overseas cash in a tax efficient manner. And we may generate from time-to-time cash from divestiture. So the combination of our operating cash flow, our tax efficient repatriations. Plus we have communicated to you before that the type of net leverage that we have today, which is anywhere between 4 and 4.5, we feel it's an appropriate capital structure for a business of our type and our cash flow profile, and risk characteristics. Given the current rate environment, again, our average cost of debt after tax is just over 2%. So it will be really uneconomic to - for us to pay down debt with our extra cash. So absent incremental CapEx internally, or absent acquisitions beyond 1% to 2%. You're going to see us continue to actively do share repurchase, which we feel is an efficient way to return cash to our shareholders, and we believe the stock is very underpriced and is a great value.

Our next question comes from the line of Dave Windley of Jefferies. Please proceed with your question.

Hi, thanks. Good morning. Are you talked early in the integration process about applicability of Next-Gen. And I think, you've started at, say, 20% of the trials that you would see, I think, maybe since then you've perhaps up to that percentage. But I wondered with the kind of time under your belt at this point, how broadly do you think the Next-Gen data and strategy is applicable to the trial universe that you see in your sales funnel?

Yeah. Thanks for the question, Dave. The - what we believe today, is that Next-Gen capabilities are applicable to 50% to 60% of the trials. And one of the reasons that we've upped that number since the merger is, because what's in the pipeline of the molecules is more and more a complex stuff, a specialty oncology diabetes, very tight area, CV or otherwise, where the patient population is very scarce. And again, this is all about accelerating patient site identification and patient enrollment. And again, I invite you to attend our investor conference in a couple of weeks, we plan to demo and go through a number of case studies, so you'll see the value. Now I should add that the reason why we don't think it's applicable to 100%, it's not, because it's not doable. It simply because it has no value for the balance of the pipeline that is you don't need to deploy those tools, it's a pretty well-known therapy area. Everyone knows where the sites of the patients are, and based on empirical data, and it's not that complicated, that's not the issue in those trials. But I think - we think that we can have - we can generate great value in 50% to 60% of the portfolio. I'd finally say that we also are applying Next-Gen tools to existing ongoing trials, where recruitment is falling behind, including in studies where we were brought in to replace an existing CRO that was underperforming. So that actually has been great, but it's been a little bit of distraction in terms of delaying, in terms of resources and so on. So we've been actually recruiting faster and more than we had anticipated in terms of the ramp on Next-Gen.

You read my mind. That's a great segue. And my follow-up question was going to be around application to existing backlog. And I'm wondering, if on a - taking your backlog in totality and thinking about the projects that are actually in flight now. Is that application of the data to existing backlog something that has influenced backlog conversion in the last couple of quarters, because it has bounced off of a bottom in the first quarter? Or would you say that it still kind of noise and I shouldn't over interpret that.

Yeah, I think, it's the latter. I mean, in theory, the answer would be yes, but there aren't enough trials to make a real dent. Yeah, it's maybe in the rounding. We have a $10 billion plus backlog. So there is a lot - this is a very large company. This is - it's always very hard to compare our company to competitors in one segment of our business or another, because it's a large company. We have a huge backlog and lots of trials at any given point in time. But it doesn't take much today, referred to our resources, even one trial. And so, that, yes, certainly, revenue conversion is accelerated when we bring in Next-Gen. Just that - we've seen that over and over again. Well, the impact it has on conversion in aggregate, it's hard to see in the numbers, yet.

Okay. One last question, quickly. I appreciate your comments on capital deployment that's very helpful. I'm wondering, if you're running into any limitations with regard to geography of cash, and how you think about tax reform and whether that matters to you and your ability to potentially repatriate cash from ex-U.S.?

Yeah, I think we got a good point, we do have, and we've run in those limitations in the past, but repatriated quite a bit of cash. Obviously, there is a tax reforms that enable us to do this in an even better manner and a faster way. And of course, we'll take advantage of that. But as you know, these days, it's hard to predict what we know would not happen in one year. So, I'll - maybe I'll give Mike an opportunity to answer this.

Yeah. So Dave, as Ari indicated, we obviously, we're watching tax reforms just like every other corporation in the U.S. And at the end of the quarter, we had a significant amount of cash on hand, about $1.1 billion, and the majority of that is overseas. And we've repatriated about a $1 billion, since the merger, and we'll continue to repatriate as tax efficiently as we can. And obviously, we're watching tax reform. And to the extent that the U.S. tax rates are decreased that can only make our repatriation efforts that much more efficient. So we're watching that, and hopefully, we'll give upside if that were to come through.

Super. I appreciate to taking my questions. Thank you.

Thanks, Dave.

Our next question comes from the line of Eric Coldwell of Baird. Please proceed.

Thanks for all the comments today. I honestly did not want to ask a question here on book-to-bill, but Ari, something you said is going to make me have to bite my tongue and do it.

Great.

And I know, you're trying to move away from the quarterly figure, but you're dealing with a bunch of guys here that have covered you a - the space for a long time, and we're kind of stuck in our middle rut.

Sure. Sure.

I think, you said, bookings were up 40% year-over-year versus the third quarter of last year. And you can tell me if that's correct or incorrect. But if it is correct, then mathematically at least based on our model and our interpretation of what was previously said, that would put a book-to-bill this quarter of around 1.25. But I actually thought the book-to-bill was a little better. So it's just such an important topic for investors that they sort of try to see the traction of Quintiles versus the peers and with Next-Gen rolling out. I'm hoping you can give us a little more color. And then finally, I'll go ahead and ask my add on, I know probably not a big impact from acquired backlog from the two deals mentioned, but maybe foreign currency had a bigger influence with the revaluation of backlog, so you could give us that number as well.

Yeah, okay, thanks for the question and I think the…

Thank you. Thank you.

Look, obviously, as we said, we previously told you that we tried to get you off this quarterly book to bill going forward. We made an exception by the way last quarter, because we feel it's appropriate once in a while to clarify the numbers and we thought we had given you enough points that that enables you then to understand what it is in any given quarter and also it was focused under the method since the merger and we thought it was appropriate to do so. Now, you're right, FX can also skew the number. And it's - I have to tell you, it's not simple math when you look at the FX implications, simply because every quarter is a different set of FX numbers. And then we also revalue the backlog at the end of the quarter, where in fact the revenue is the average FX every single day during the quarter. So the numbers are hard to interpret per se in a quarter. And the trend is more important. Now, if you do simple match on the reported numbers, okay, that you do the - you take the end-of-quarter backlog minus last-year backlog, and adjust for revenue, then the math gives you 1.35 book-to-bill in the quarter, that thus include FX. And I'll tell you now, it's what it is, but that in a sense reflects what is in the numbers. That if you assume that FX are not going to change at all going forward, then that's what you have in the backlog in terms of understanding the future of the business, that's about 1.35 for the quarter. Now, if you want to look at comparisons across quarters we believe that you should look at the different numbers we gave you in the past. And if you do that and you look at the numbers this quarter in terms of progression you probably going to calculate 1.25. Now, neither so - but the real number, to answer your question, is in between that 1.25 and 1.35, closer to the 1.25 as you suggested, for the quarter on a - if we take out all FX from every single number. So that enables you to compare the quarters in a clean manner as best as we can do. Okay, so somewhere between the 1.25 and the 1.35. So you are - yeah, it's your question, you said 1.26, the answer is, yeah, you're in the ZIP code. Now, you also asked about acquisition. I told you TKL was, yeah, the TKL acquisition was largely what affected those acquisition contribution in the quarter for the R&D Solutions business, and of course, it is in the backlog.

That's great. And I just want to - last one, can you hear me?

Okay.

Can you hear me now?

Yeah, go ahead. I'm sorry.

Okay, yeah, I just want to clarify. Last quarter was a 1.3, but a 1.37 with the FX and this quarter was 1.25 without the FX and 1.35 with, is that the right interpretation?

No, it's higher than 1.25. I'm just going to stick with - I'm telling you the exact number. It's higher than the 1.25, but it's in the range between 1.25 and 1.35.

Got it, were good enough. Thank you so much.

Thank you. Thanks for the question. Maybe one last question?

Yeah, we got time for one more question, operator.

Okay. And our last question comes from the line of Sandy Draper of SunTrust. Please proceed with your question.

[Technical Difficulty] very much for squeezing me in. As usual, lot of questions on the development side, but [Technical Difficulty] the commercial side. Ari, yeah, the business [Technical Difficulty] single digits that you've historically got some headwinds, about…

Sandy, we're struggling to hear you on our end. Can you start again?

Okay. Is this better, can you hear me?

It's kind of muffled, I don't know if you got bad reception.

I may have bad reception. I'll try and if you can't understand…

Oh, that's better. Go ahead, yeah.

Yeah, so my question is on the commercial side. You clearly - there are some pretty clear signs on the development side about business improving and accelerating. My question is you got some lassy [ph] drag on the commercial side and [Technical Difficulty] indications that that this is going to accelerate or [Technical Difficulty] longer term, that's a low best-case maybe mid-single-digit business, just any thoughts on that, Ari, would be helpful, thank you.

Okay. I'm not quite sure if I understood all your questions, because you're being cut off and we are missing one out of few words. But you asked about commercial revenue, if I understand correctly. And I just want to point out that in terms of the commercial side of your house versus the R&D development side, again, in the spirit of just clarifying, perhaps, misunderstandings, when we put the company together, we as best as we could, gave you the contours of each of the businesses. And you will recall that we aggregated some of commercial businesses, legacy Quintiles into your legacy IMS commercial businesses. But since then, few things have happened. First, there was a small clinical trials technology business at IMS. It was about $20 million of revenue in total. And we move that since then from commercial to R&D. Secondly, there was also small legacy IMS CSO business, contracted sales business in Eastern Europe, which was $5 million or so of revenue. And we move that to IES. And finally, as you know, we sold the Encore business, which removed 25 - actually more than $25 million of revenue from the second half. So our commercial business versus what it was when we merged the companies and told you what commercial looked like, that commercial business lost $50 million of revenue between the transfer of businesses out and the sale of the Encore business. So that as starters. And in terms of the growth in commercial, actually even absent these adjustments you will see that we continue to see robust growth. Your core IMS business historically has been growing at about 6% annually and that was inclusive of one to two points of acquisitions. And it's exactly been performing the same since the beginning of the merger. So no changes there at all. And as I told you, this quarter actually with acquisition contribution is relatively minor, so good organic growth which is usually in the 4% type range, historically has been maintained more or less since the merger. So that was exactly your question, but I just wanted to provide more color on commercial revenue. And I think there is one more question, maybe the last question.

Yeah, I think we got one more person in the queue. So if we can take one more, operator.

Yes, our last question comes from the line of Tycho Peterson of JP Morgan. Please proceed with your question.

Hey, thanks. Ari, I want to explore the concept of fixed price contracts. This has come up a little bit in the last couple of quarters. Just curious as to where you are on rolling out fixed price contracts and if you can give any commentary on how much of the backlog now is fixed price?

Yeah, look, I want to - it's really the few deals, okay? It's not a large percentage of the backlog. I would say, less than, let's see, the platform is $10 million. So it's a fraction, really a fraction, because we just started, okay. So it's very small. Yet, I anticipate this is going to growth though. We're not going to disclose exactly how much of our new business is fixed every time. But we have previously said that we are applying so far Next-Gen to about 20% of what we look at. And of that, a portion of this is fixed price, okay? Maybe call it a third, okay, to give you a rough estimate. So of the new stuff, about - 20% of pipeline and then we look at, that doesn't mean that we win every time. But that's what, over time as I said, we hope to apply Next-Gen to 50% to 60% of the pipe. And I'm assuming that, again, about a third of that will be fixed price. Now, our case is though, we don't want it to be fixed price. There are cases, I said before, we are hybrid. That is we sell technology capabilities and up-front work separately. And that's a fixed price and then we sell other services, data or otherwise that are not fixed price. Again, we are experimenting with these new models. But we are seeing a lot of traction, a lot of interest. It often is a clincher of the deal at the end, right, because we are willing to take more risk.

Okay, and then just for a follow-up just a quick clarification, on the investments you're calling on the Next-Gen CRO development. Is the right way to think about that being offset by the cost synergies from the integration? I'm just thinking ahead a little bit to 2018 in margins, or whether it would be kind of incremental investments that you bear around Next-Gen development that could weigh on margins a bit next year?

Right, so, Next-Gen investments are the bulk. You remember we have the salesforce.com replatforming. So, on the commercial side we also had investments. And then we have also salesforce recruitment to try to accelerate our business development activities on R&D. And the combination of all of that are the investments that we made. We are also carrying additional costs, as a result of the merger. We've been carrying additional costs throughout the year, but these are costs that we cannot adjust-out. These are - in cases where we have to maintain redundant people, redundant facilities for a while, redundant IT systems and software licenses. All of that needs to be maintained as we transition to one or the other or a new one. And so, that creates a bucket of cost and we cannot adjust that out, because it's not a one-time kind of a merger specific outside cost. It's just redundant parallel cost, when we take it out then it goes away, and it's been taken out over time. So these are all the headwinds. Despite all of that, as I pointed out before, year to date we have margin expansion. Listen, as I said, before I'd like to say we are in the business of growing revenue and expanding margins, not one or the other. There might be some quarters where you don't have margin expansion. But my goal is certainly to have margin expansion and I anticipate that 2018 will not be an exception to that despite all the investments that I just mentioned.

Okay, thank you.

Okay, I think that's about all we have time for today. So thank you for taking the time to join us. And we look forward to speaking with you again on our fourth quarter 2017 earnings call. We'll be available for the rest of the day to take any follow-up questions you might have. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.