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CRO consolidation craze continues as inVentiv scoops up PharmaNet, propelling it into top tier

Monday, May 23, 2011

The Pac Man game continues, with mid-tier CROs being acquired or buying one another on an almost weekly basis.

The latest target in the consolidation craze is Princeton, N.J.-based PharmaNet Development Group. Last week, inVentiv Health—which is in aggressive acquisition mode—announced it would buy the 27-year-old CRO. Terms were not disclosed.

This is Somerset, N.J.-based inVentiv’s second big CRO buy in five months, and the most significant, said John Kreger, a financial analyst with William Blair who focuses on the clinical research outsourcing space.

“This is very much in keeping with the trend of the mid-sized CROs making their chess moves to try to evolve into the top tier and position themselves for the next phase of this industry’s growth,” said Kreger. “This is by far inVentiv’s biggest move in that direction.”

In January, inVentiv announced it would acquire CRO i3 from UnitedHealth Group subsidiary Ingenix, along with Campbell Alliance, a management consulting firm in the clinical research space.

Those acquisitions rendered inVentiv’s clinical segment worth $400 million annually. With PharmaNet soon to be under its umbrella, inVentiv Health CEO Paul Meister said the clinical segment of the company will now bring in approximately $900 million per year in revenue. Overall, inVentiv Health will become a $1.5 billion company. This propels it into the top tier of CROs that includes, among others, ICON, Parexel and Quintiles. Meister said inVentiv had been in talks with PharmaNet for two or three months before taking the plunge.

“PharmaNet is a great fit with i3,” he said. “There is very little overlap. One of the inevitable concerns with consolidation is client disruption. But given the absence of overlap here and the fact that both these units are busy and growing, clients shouldn’t see any disruption.”

i3, said Meister, is very focused on phases II and III, while PharmaNet’s attentions have been spread among all phases. In fact, PharmaNet’s 200 phase I beds would become inVentiv’s first. Meister also said the two CROs don’t have much overlap in therapeutic areas either; PharmaNet has focused on rheumatology and the neuroscience of pain, while i3 has focused on the respiratory field. “It’s a nice meshing,” he said.

PharmaNet’s 2,300 employees will bring inVentiv’s workforce up to 13,000 in three divisions: clinical, commercial and consulting. About 6,000 are focused on clinical research. Both CROs operate in about 40 countries.

Meister said massive layoffs are not expected. “There may be minor, back-office overlap, but nothing will happen in the near term,” he said.

Though PharmaNet’s financials are not public, Kreger said the CRO is viewed as a healthy company with a good reputation. PharmaNet launched in 1984 as an early-stage clinical trials and lab services company. In 2000, it went public, trading on the Nasdaq exchange and rapidly acquiring later-stage holdings. In 2009, private equity investment JLL Partners acquired PharmaNet, taking it private again.

Meister said the rapid consolidation now being seen in the outsourcing market is a logical refection of what’s happening with clients. “Pharmaceutical companies are consolidating, which has a natural rhythm in driving consolidation among service providers,” he said. “This is a natural maturation of the business.”

Jeffrey McMullen, long-time president and CEO of PharmaNet, will lead inVentiv’s CRO businesses. Meister is co-founder and CEO of Liberty Lane Partners, a private equity company that’s part of the investment group that acquired inVentiv in August 2010. Previously, he served as chairman of Thermo Fisher Scientific.

Whether or not there will be a name change for PharmaNet is still being sorted out. “We’ll keep both brands for now and evaluate where to go from there,” said Meister. “With our overarching mantra of ‘no disruption for clients,’ there’s no reason to change names if it makes them worry that their product won’t be handled with the continuity they’ve come to expect from these companies.”

Prior to the i3 deal, inVentiv primarily provided staffing, sales and communications to pharmaceutical companies.

The acquisition of i3 isn’t expected to close until June, said Meister. Has it already attracted major clients to inVentiv? “The unequivocal answer is yes,” he said. “We have been in discussions with some of the biggest companies about some of the biggest opportunities.”

“We have every intention of being an industry leader,” said Meister. “We’ll continue looking at additional moves and whether or not it makes sense to make them. But you will see a lot more from us both in organic growth and growth through acquisitions.”

–Suz Redfearn

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