Clinical Outsourcing
The CRO turns transaction trendsetter
Consolidation is not the sole preserve of the biopharmaceutical industry – one of its key service
providers, the CRO, has a healthy appetite for deals too. Key drivers behind transactions include the
need for enhanced service capabilities, stronger global footprints and nascent interest from the private
equity sphere, explain Andrew Jones and Leo Gribben
L
ike their pharmaceutical and biotech development activity accounts for a large growth) and in the public markets have
customers, companies in the CRO percentage of total annual costs and there is a outperformed adjacent industry groups.
sector are experiencing rapid and large and mature base of service providers. The While the CRO industry in many respects
signif_i cant change. This change is customer scale of outsourcing activity and divestment
may be described as mature, the structure of
driven, growth-oriented and is the driving of assets occurring in the drug development
the sector remains fragmented in terms of
force behind ongoing corporate alliances and space was recently highlighted by Lilly’s
service offering, geography and capability and
transactions across the sector. Analysis of outsourcing deals with Covance, Quintiles
customer needs are ever changing. As a result,
recent transaction and alliance activity reveals Transnational and i3 Research announced in
CROs are forming alliances and joint ventures
that expanding geographic coverage and August 2008.
and undertaking acquisitions to increase their
adding to service capabilities remain the two Under the agreements Lilly is to outsource
geographic coverage and expand the scope of
key objectives behind deals. clinical trials monitoring to Quintiles (which
services and capability.
Most major pharma companies are seeking will monitor data in the US and Puerto
quest for geographic expansion
to remove around $1-2 billion of annual Rico), and data management services to i3
Much of the transaction activity within the
costs over the coming years and reviewing Research. Under the terms of its agreement
CRO sector is occurring among the
their capital allocation model. They no longer with Covance, the CRO will provide drug
smaller and mid-market CROs for which
desire to own the entire pharmaceutical development services including non-GLP
acquisition presents a route to rapid
value chain, are seeking greater f_l exibility in toxicology, in vivo pharmacology, quality
geographic expansion.
f_i xed cost infrastructure and focusing on core control laboratory and imaging services and
Regulation and the increasingly global nature
competencies. Outsourcing processes and a committed level of clinical pharmacology,
of the pharmaceutical marketplace mean that
divesting assets to third-parties is a central central laboratory, GLP toxicology studies, and
demand for international multicentre trials is
plank of their strategy to achieve these goals. clinical Phase II-IV services. As part of the deal,
growing. To meet this demand and to compete,
At the same time, a ground swell of biotech Lilly is also to divest to Covance a 450-acre
CROs need to be able to offer sponsors the
and small-to-mid-tier pharma companies, often early drug development campus based in
ability to conduct trials in multiple geographies
with limited resources and/or operating virtual Indiana for $50 million. In total, the 10-year
either directly though their own infrastructure
business models are relying on providers contract is worth $1.6 billion.
or virtually through an alliance partner.
of outsourced services to support them in As a consequence of the uplift in demand As less traditional geographies grow in
bringing products to market. for outsourced services, collectively, CROs signif_i cance as locations for clinical trials,
Clinical trials in particular present a have enjoyed high growth rates (in many cases acquisition-led strategies have been adopted
signif_i cant outsourcing opportunity as double digit to high-teens quarter on quarter by many western CROs to establish and/
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