The Emergence of the Few: M&A in the CRO Industry

As the size, complexity, duration, cost, and globalization of clinical trials has grown over the last several decades, pharmaceutical and biotech companies have increasingly moved to outsource clinical activities to contract research organizations (CROs) to achieve a wide range of objectives. From achieving scale to accessing deep domain expertise in a given therapeutic area, CROs enable the flexibility that sponsors rely upon to deliver on increasingly demanding clinical research objectives and timelines. Large CROs are particularly well-suited to offer a one-stop shop of service offerings, in an attempt to expand both specialized capabilities and geographical reach to service the large Phase III global studies that have become commonplace. As a result, demand for CRO-conducted clinical trials is on the rise. In 2014, the global drug discovery outsourcing market was USD 14.9 billion and is expected to reach USD 25 billion by 2018, while the market for CRO-conducted clinical trials in 2014 was USD 23.1 billion and is expected to increase to USD 35.8 billion by 2020[1]^,[2].

In response to intense competition and the need to offer a comprehensive portfolio of service offerings, the CRO industry has been undergoing significant consolidation in recent years. As such, a number of noteworthy mergers and acquisitions (M&As) have occurred recently:

• ICON acquired the Mapi Group, a health outcomes consultancy that specializes in late-phase research. The deal makes ICON the world’s second largest provider of late phase services.[3]

• InVentiv Health and INC Research, merged to form the world’s second largest CRO with net revenues estimated at $3.2 billion.[4]

• Quintiles merged with IMS Health to improve trial execution using real-world data, creating a company with market cap close to $18 billion.[5]

• Quintiles also recently acquired DrugDev[6], a technology company that has built an integrated suite of products to improve study startup activities, investigator payments and clinical operations.

• PPD, a global CRO, acquired Acurian to gain analytics-driven feasibility capabilities[7], and recently acquired Evidera to expand their ability to conduct real-world-research.[8]

• LabCorp acquired Covance for innovative risk-based patient monitoring tools to drive greater R&D productivity[9] and recently announced a pending acquisition of the CRO Chiltern.[10]

• SynteractHCR was acquired by Amulet Capital Partners.[11]

• Parexel to be acquired by Pamplona Capital.[12]

• PRA Health Sciences acquired Symphony Health Solutions in order to integrate healthcare data analytics with their clinical research services.[13]

In 2016 alone, $24 billion was spent on CRO M&As.[7] Additionally, according to a 2017 report by Industry Standard Research (ISR), 60% of the market share in clinical trials is controlled by the top 9 CROs.[14] With all the M&A activity happening in the CRO industry, does this trend have benefits that extend beyond just CROs into the pharmaceutical industry as a whole?

Benefits of CRO Consolidation for Sponsors

Sponsors of large, global Phase III clinical trials want a competitive CRO market with plenty of quality CROs with global reach to choose from. These sponsors are also looking to form strategic partnerships and preferred provider arrangements with just a few large CROs, as this is far easier to manage.[15]

From a CRO perspective, winning one large $200-300 million Phase III study can be a huge benefit for the bottom line. As a result, there is pressure within the CRO industry for mergers as a way to quickly expand reach into places like the Middle East, North Africa, and parts of Asia other than China and India, in order to be attractive to large sponsors. Additionally, mergers can provide a quick way for CROs to expand their offerings beyond clinical services in order to attract business from all aspects of the drug development lifecycle.

This M&A trend in the CRO industry provides a number of benefits for sponsors:

• Increased Scalability and Geographic Presence-As CROs expand their global reach through M&As, sponsors gain access to on-demand scalability for their clinical trials.

• Access to Additional Therapeutic Expertise and Service Capabilities-Many CRO mergers are driven by the desire to add additional therapeutic expertise and service capabilities to their offerings.[4] As CROs expand their offerings, sponsors gain the ability to access more services from a single partner.

• Technology improvements-The right technologies, especially for site identification, selection, and startup activities, can make a big impact in shortening clinical timelines and the overall success of a clinical trial. By providing economies of scale, CRO M&As can allow CROs to invest in technologies that significantly improve operational efficiencies and data integrity in clinical trials.

• Cost Savings-CRO M&As allow sponsors to have access to “one-stop shopping” with their CRO partners. Sponsors save money through the operational efficiencies that needing fewer partners to run their global trials provides. Additionally, cost savings in the operations of the CRO itself due to economies of scale generated by being a larger enterprise be passed on to sponsors.

Drawbacks of CRO Consolidation

While the CRO consolidation phenomenon is overall a positive trend for the pharmaceutical industry, there are some drawbacks to consider:

• Less Business for CRO Service Providers-Those companies that provide services to CROs (e.g., labs, patient recruitment companies, EDC and IRT vendors, etc.) will lose business as their client's merge.

• Disruptions to Clinical Trials-There really is never a good time to accomplish a merger. The last thing any sponsor wants to hear is that the CRO that is running their trial was just bought out or is undergoing a merger. Inevitably, in-progress clinical trials will be affected by CROs mergers-labs will likely be shut down in the middle of running the trial, requiring transfer of all data, samples, and knowledge to a different site.

• Less CROs for Sponsors to Choose From-Presently, there are still plenty of CROs for sponsors to consider when looking for a clinical trial partner. However, if this consolidation trend continues, we may eventually reach a tipping point where there are significantly fewer options available.

While CRO consolidation may create some disruption in the short term, having less CROs available for sponsors may ultimately provide some benefit. With less options available, pharmaceutical companies and CROs may be forced to create more long-lasting, win-win partnerships. Collaborative partnerships will inevitably lead to more operational efficiencies in the drug development process, ultimately reducing the time required to get effective therapies to patients in need.

Conclusion

Mergers in international enterprises are difficult to accomplish due to a myriad of issues (e.g., cultural differences, IT, tax considerations, etc.) That said, CRO mergers have the potential to be significantly beneficial to both sponsors and CROs, as well as the clinical trials industry as a whole. A fact that will continue to fuel the consolidation trend, with mergers of large CROs and smaller “boutique” CROs that have a specific therapeutic focus accounting for much of the activity. As aptly noted by Henry Levy in the Journal of Commercial Biotechnology, “What has been outsourcing on demand with many external service providers and redundant internal functions will become an integrated model of outsourcing with a limited number of strategic partners and long-term relationships[16].”

But CRO consolidation comes with its share of new challenges for the industry. While the Tufts CSDD research indicates that technology adoption in the CRO industry is higher than with sponsors, CRO merger activity may actually hinder efforts to adopt new technologies due to organizational bureaucracy and enterprise integration challenges. Additionally, as CROs grow in size, their ability to maintain shorter cycle times as indicated in the Tufts CSDD research may be challenged due to lack of organizational agility. In the end, these are familiar operational challenges also faced by sponsor companies involved in M&A activities. When implemented effectively, CRO mergers can add significant value to the pharmaceutical product development lifecycle, and ultimately provide benefits to sponsors, CROs, and the patients who rely on their life-saving medicines.  

Craig Morgan, Head of Marketing for goBalto

[1] “Changing R&D models in research-based pharmaceutical companies.”  J Transl Med. 2016; 14: 105.  Published online 2016 Apr 27. Available at:  https://www.ncbi.nlm.nih.gov/pubmed/27118048.    

[2] PharmSource: Market Intelligence http://www.pharmsource.com/market/how-big-is-the-market-for/

[3] “ICON acquires Mapi Group,” BusinessWire, July 27, 2017. Available at: http://www.businesswire.com/news/home/20170727005556/en/ICON-Acquires-Mapi-Group

[4] “InVentiv Health, INC Research merger creates top 3 CRO,” BioPharmaDIVE, May 11, 2017. Jacob Bell. Available at: http://www.biopharmadive.com/news/inventiv-health-inc-merger-cro-manufacturing/442550/

[5] “Quintiles and IMS Health to Combine in ‘Merger of Equals’,” New York Times, May 3, 2016. Chad Bray. Available at: https://www.nytimes.com/2016/05/04/business/dealbook/quintiles-and-ims-health-to-combine-in-merger-of-equals.html

[6] “On Site: QuintilesIMS to Buy DrugDev,” Journal of Clinical Research Best Practices, Vol. 13, No. 7, July 2017. Available at: http://www.firstclinical.com/journal/2017/1707_OnSite81.pdf

[7] “PPD Acquires Acurian,” CenterWatch, August 27, 2013. Available at: https://www.centerwatch.com/news-online/2013/08/27/ppd-acquires-acurian/

[8] “Evidera to Join PPD, Creating the Global Leader in Real-World Research,” August 9^th, 2016. Available at: http://www.ppdi.com/News-And-Events/News/2016/Evidera-to-Join-PPD

[9] “LabCorp Completes Acquisition of Covance,” BusinessWire, February 19^th, 2015.  Available at: http://www.businesswire.com/news/home/20150219005757/en/LabCorp-Completes-Acquisition-Covance

[10] “LabCorp just signed a billion-dollar deal for a healthcare company you've probably never heard of,” Business Insider, July 31^st, 2017. Lydia Ramsey.  Available at: http://www.businessinsider.com/labcorp-acquires-chiltern-ma-in-contract-research-organizations-2017-7

[11] “Amulet Capital Partners, LP Announces Acquisition of SynteractHCR,” Business Wire, May 25, 2016. Available at: http://www.businesswire.com/news/home/20160525006356/en/Amulet-Capital-Partners-LP-Announces-Acquisition-SynteractHCR

[12] "PAREXEL International Enters Definitive Agreement to be Acquired by Pamplona Capital Management for $88.10 Per Share in Cash" Available at: https://www.parexel.com/company/news-events/press-releases/2017/parexel-international-enters-definitive-agreement-be-acquired-pamplona-capital-management-8810-share-cash

[13] “PRA Health Sciences to acquire Symphony Health Solutions,” CenterWatch, August 10^th, 2017. Available at: https://www.centerwatch.com/news-online/2017/08/10/pra-health-sciences-acquire-symphony-health-solutions/

[14] ISR Reports "2017 Edition of the CRO Market Size Projections: 2016-2021". Available at: https://www.isrreports.com/reports/2017-edition-of-the-cro-market-size-projections-2016-2021/

[15] “Merck Serono and Quintiles Announce Innovative Clinical Development Partnership,” BusinessWire, May 15^th, 2013. Available at: http://www.businesswire.com/news/home/20130515005861/en/Merck-Serono-Quintiles-Announce-Innovative-Clinical-Development

[16] Levy H. Integrated outsourcing transforms and increases R&D productivity. J Commer Biotechnol. 2013;19:49–54. doi: 10.5912/jcb635. Available at:  http://commercialbiotechnology.com/index.php/jcb/article/view/635.