Among clinical research organizations, INC Research is not the biggest, but by at least one measure, it stands out as the best.
INC received the best service quality scores in the annual CRO quality benchmarking study conducted by Industry Standard Research, a Cary, North Carolina firm that focuses on CRO research. While INC may claim those high marks as its own, it actually owes those scores to the major CRO industry trend of 2011 — mergers and acquisitions.
Before acquiring Kendle last year, INC was a mid-sized CRO whose size and pharmaceutical outsourcing service offerings fell well short of the largest CROs such as Quintiles and Parexel. Raleigh, North Carolina-based INC’s service quality measures did not even score in ISR’s 2011 report, its size insufficient to factor in the study. Kevin Olson, CEO of ISR, said it was the Kendle acquisition that put INC within shouting distance of the top CROs.
Kendle had been knocking on the door of the top group of CROs until encountering some business struggles in recent years. But Olson notes that Kendle’s service quality rankings remained consistently high and it was the combination of INC and Kendle that gave the combined company the scale and the scores to figure into the current service quality rankings.
ISR’s study is possibly the most comprehensive measure of what pharmaceutical companies think about CROs. The research firm surveyed 127 high-ranking respondents representing 72 different pharma and biotech companies. That’s down from previous years, when the survey received 200 or more responses. But the lower number reflects a new twist on this year’s study: the breakdown of responses into clinical trial phases. Not all respondents could comment on all phases of clinical work. Data representing the breakdown by clinical trial phase will be released separately.
CRO merger and acquisition activity in 2011 means the group of top CROs has expanded into what Olson now calls The Big 7: Quintiles, Parexel, Covance (NYSE:CVD), PPD, Icon (NASDAQ:ICLR), INC Research and inVentiv Health. INC and inVentiv are the new entrants to the top group and the rise of both companies shares common factors. Both are backed by active private equity investors. And both companies completed several acquisitions in 2011 to expand their service offerings and geographic footprints.
CROs are getting bigger by acquisition in order to compete against the largest CROs. Olson acknowledges that Quintiles and Parexel win a fair share of business because of their size and broad scope. But bigger is not always better. ISR does not have pricing data but Olson said the perception persists that the largest CROs are the most expensive. Also, previous ISR surveys showed that small and mid-size CROs have equaled and even outscored their larger counterparts in service quality. But Olson said the larger CROs have taken notice and responded. As a group, larger CROs saw their 2011 service quality scores improve and they’re performing better than they were four years ago.
Not all of the survey measures reflect positively on CROs. ISR also measured up-front contingency planning — the backup plans to handle changes that come up in clinical trials. It’s a quality measure that’s only emerged in the last 10 years, part of the evolution of the industry from providing outsourced staff for clinical trials to now offering a range of services for the pharma industry at various stages of clinical development and drug commercialization.
“Ten years ago they wanted more hands and feet, now they want more brains,” Olson said. “CROs are a little slower to catch up to that.”
But pharmas still plan to do more outsourcing as part of their efforts to cuts costs. ISR’s report shows that pharma and biotech companies project that they’ll increase their 2012 outsourcing by 7 percent over last year. Pharma companies are also expected to pursue more strategic partnerships with CROs, deals that secure a CRO for a broad scope of services for a long period of time. It’s here that effects of the recent wave of CRO M&A activity will be most evident. The CROs with broad service offerings over a global geographic footprint will be the ones best positioned to vie for these pharma contracts.