North Carolina clinical research organization PPD got an early Christmas present with the completion of its $3.9 billion acquisition by private equity firms The Carlyle Group and Hellman & Friedman.
Talks about the CRO acquisition began in earnest over the summer as the parties negotiated price. The deal reached to pay $33.25 per share cash was a nearly 30 percent premium over Wilmington, North Carolina-based PPD’s closing stock price before the sale was announced. That leaves PPD shareholders with plenty to put in their stockings.
So what’s on the Christmas wish list for CROs? There’s not a lot of time left to shop for any of these ideas by Christmas. But even if CROs don’t get them for Christmas, they would most certainly welcome one or more of these items as presents in the new year.
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A strategic partner: The biggest CROs such as, Quintiles, PPD, and Covance (NYSE:CVD) are increasingly moving toward strategic partnerships, making them a “preferred provider” of services. In these arrangements, a pharma will contract with a small number of CROs to handle the work. The deals may result in a cut in price but the CROs are guaranteed a larger share of work over an extended period of time. The arrangements take CROs away from the traditional outsourcing model as they become more involved in the drug development process. And depending on the deal, the CRO has some skin in the game for a successfully developed product. Examples of such strategic partnerships include Quintiles’ relationship with Eli Lilly (NYSE:LLY) and Pfizer‘s (NYSE:PFE) deals with Parexel and Icon (NASDAQ:ICLR).
An M&A deal: CRO M&A activity continued at a healthy clip throughout 2011. Examples included INC Research‘s $232 million acquisition of Kendle, a deal that broadens INC’s therapeutic and geographic areas. InVentiv Health broadened its global presence with the May acquisition of Pharmanet Development Group, giving it a presence in 40 total countries. Clinipace Worldwide acquired Swiss firm PFC Pharma Focus giving the Morrisville, North Carolina-based CRO sites in Europe, the Middle East and India. The dealmaking is largely about scale. CROs want to better compete with the largest CROs. Therapeutic breadth and geographic reach help them do that.
Consulting expertise: CROs are trying to be more than just outsourced pharmaceutical services. They want to add value to the process of developing a drug and bringing it through regulatory approval. Some of the CRO acquisitions in the last year reflect the effort to bring that value to pharma sponsors. InVentive Health acquired Raleigh, North Carolina consultancy Campbell Alliance. Morrisville, North Clinipace added consulting experience through its March acquisition of Regulus Pharmaceutical Consulting. INC added AVOS Life Sciences to bolster its consulting capabilities. Smaller firms that offer this expertise could find themselves targets of CROs looking to round out their offerings.
A site in Asia, China preferably: INC was the involved in another major acquisition besides the Kendle deal. In May the CRO announced a deal to acquire Australia-based CRO Trident Clinical Research, giving INC a presence in Australia and Asia. Icon boosted its China presence with the acquisition of BeijingWits Medical Consulting. Quintiles already has sites throughout Asia. But the company signaled its ambitions in China with the recent launch of new China-based CRO Kun Tuo. CROs are looking to boost their presence in emerging markets, particularly Asia, because pharmaceutical companies want to do more business there. Not only do pharmas want to develop drugs in Asia, they also see the region as a potentially lucrative market to sell drugs. That means emerging markets, particularly in Asia, will figure prominently in CRO expansion plans in the coming years.
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Private equity investment: A lot of the dealmaking in 2011 was driven by private equity dollars. INC and inVentiv both stepped up their M&A activity following acquisitions or investments from private equity firms. Now that PPD is in the hands of private equity, the CRO might be looking to make additional deals. Private equity dollars are helping the big CROs get bigger. Private equity firms are also looking for smaller CROs that could become valuable assets. Private equity has long had a presence in the CRO space but that activity increased in 2011 and should continue through 2012.
