Faced with a recent slowdown in much of the contract research organization (CRO) industry, Ricerca Biosciences LLC has tweaked its focus to solidify its future.
The Concord Township, Ohio-based company has shaken up its client base to include more pharmaceutical firms and is growing its Asian operations to take advantage of an increasingly lucrative market.
With the recent economic downturn — plus continued consolidation and declining R&D budgets among big pharmaceutical players — it’s been a tough slog for much of the CRO industry. To weather the hard times, several CROs have cut staff and close facilities recently.
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The preclinical side of the CRO industry, which is the space in which Ricerca operates, has taken a beating during the last two years, Ricerca CEO Ian Lennox said. That’s because it comes long before a drug developer’s “near-term victory,” represented by revenues, profits and smiles on the faces of Wall Street investors, he said.
A research note from Morningstar Inc. analyst Lauren Migliore confirms Lennox’s assessment of tough times for preclinical CROs.
“Toxicology has suffered for some time now as macroeconomic challenges have caused drug makers to scrutinize expenses and focus resources on late-stage candidates that offer quicker revenue potential,” Migliore wrote.
Lennox estimated preclinical business across the industry to be down as much as 25 percent from its peak in early 2008, and he projected that it may be another year or two before the sub-sector sees much growth in the traditional markets of the United States and Europe. (Preclinical can be roughly defined as the developmental phase between intellectual property and submission of the Investigational New Drug Application.)
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The industry tumult prompted Lennox to sit down late last year with Ricerca’s top investors to map out a strategy to keep the company competitive in the shifting market. Thanks in large part to Ricerca’s $35 million acquisition of MDS Pharma’s discovery and preclinical business in March, the Ohio CRO is well on its way.
In the past, Ricerca had focused squarely on small- and medium-sized biotech companies in North America. Lennox said such firms represented both 80 percent of its client and geographic bases just a year or two ago. But today that’s changed.
Now, the company’s client-industry mix breaks down like this: 50 to 55 percent small and medium biotechs; 30 percent “global” pharmaceutical firms; and about 15 percent large biotech and specialty pharmaceutical companies, Lennox said.
In terms of geography, Ricerca’s clients divide up to roughly 60 percent in North America, 25 percent in Europe and 15 percent in Asia. The Asian number could continue to climb because Ricerca’s Taiwan location, which was acquired in the MDS deal, gives it good access to the Chinese market.
The recent industry troubles have brought on a good time for talent shopping, and Ricerca has taken advantage of it. In recent months, the company has announced several key hires, including a senior director of drug safety and a senior director of drug metabolics and pharmacokinetics.
Ricerca employs about 750 people, with a third of them in Ohio. Thanks to the MDS deal, the company has more than doubled its headcount within the last year.
Despite Ricerca’s recent growth and slightly shifted focus, Lennox said his outlook remains “cautious.” The preclinical CRO market could stay relatively flat for another two years, he warned.
“The industry is very cautious to invest and hire without getting some kind of assurance about the future,” he said. “The environment is still uncertain.”