INC Research’s June acquisition of Trident Clinical Research didn’t generate the same headlines among clinical research organizations as the company’s $232 million Kendle purchase. But it’s just as illustrative of what’s driving M&A trends among top clinical research organizations.
Australia-based Trident has experience and expertise running clinical trials in Australia and Asia. With Trident in INC’s fold, the Raleigh, North Carolina CRO builds on its global abilities by adding another region where it can run clinical trials. And that’s only part of the story. CEO Jim Ogle recently told Outsourcing Pharma that the company is also looking ahead to where drug development is going and what its customers want to do beyond those trials.
“The most important thing is that our customers are looking at developing drugs in areas where they ultimately hope to sell them,” Ogle said. “There are emerging populations, in Asia in particular, where there are large number of potential users of the drugs that are being developed.”
Consolidation among clinical research organizations has been ongoing for many years. The pace has picked up in 2011 and pharmas are driving it. Big pharma has been looking for ways to slash costs, feeding the outsourcing movement that has led to the CRO industry’s growth. But pharmas still want to be global players selling their drugs in even more markets. Corey Ackerman, senior partner at Cornerstone Search Group, a New Jersey executive search and recruitment firm for the pharma industry, said that pharmas are turning to CROs to give them geographic reach as well as expertise.
Meanwhile, clinical research organizations are trying to acquire the pieces and services that they think pharmas want them to offer. For example, a specialized CRO able to find patients for hard-to-recruit-for trials could be an attractive target, said Asher Rubin, partner and co-leader of the life sciences practice at law firm Hogan Lovells. By finding the pieces a CRO does not have, a CRO make itself more attractive to clients and more competitive against rivals. The quickest way to achieve these goals is through M&A. “It’s easier to buy it than to build it,” Rubin said.
Private equity has become particularly active in the CRO space, which they see as a better investment than pharma, said John Herndon, a lecturer in accounting and finance at California State University, East Bay and a veteran of several life science firms. A pharma company can spend $800 million over a decade developing a compound only to see it fail in clinical trials and end up with nothing. As a service business, contract research makes money from day one.
“A CRO, you’re going to get paid whether the drug gets approved or not,” Herndon said.
Some private equity firms have acquired the smaller, specialized CROs seen as the attractive acquisition targets of larger CROs. Others are investing in larger CROs. Backed by private equity dollars, CROs are making strategic acquisitions of their own.
InVentiv Health was acquired last year by private equity firm Thomas H. Lee Partners. Last winter, inVentiv acquired CRO i3 Research as well as Campbell Alliance, a Raleigh consulting firm. INC, whose backers include private equity firm Avista Capital Partners, bolstered its consulting capabilities with the January acquisition of consulting firm AVOS Life Sciences. These acquisitions are also driven by pharmaceutical companies, Ackerman said. Pharmas wants to get more resources from fewer vendors. To attract pharmas and keep them from looking at other firms, Ackerman says CROs are trying to become “one-stop shops.”
CRO consolidation is expected to continue and several large companies are reportedly in play. PPD (NYSE:PPD) is a rumored acquisition target with private equity seen as an acquirer. PRA International, owned by private equity firm Genstar, is being shopped. Either company would give an acquirer immediate global scale. Scale matters, Herndon said, because it makes CROs attractive to the big pharma companies who can offer the biggest contracts.
That, top clinical research organizations and private equity firms hope, is where the money will be made.