inVentiv Health, INC Research announce merger
Monday, May 22, 2017
INC Research and inVentiv Health, two of the largest CROs in the world, recently announced their consolidation into a single, unified CRO entity. This merger of INC-inVentiv will effectively create the second largest outsourcing provider in the biopharmaceutical industry with a combined net revenue of approximately $3.2 billion. The CRO will likely become one of the top three global CROs.
According to Alistair Macdonald, chief executive officer of INC Research, the merger seeks to improve the approval and launch process of products in the biopharmaceutical space by expanding the available suite of clinical research services offered to customers.
“The combination of INC Research and inVentiv will expand our global scale and add capabilities to grow our addressable market,” Macdonald said. The combination of both CROs will also enable the newly merged company to expand its therapeutic expertise, effectively growing the merged company’s client base and generating additional revenue.
The transaction, according Macdonald, was motivated by the fact that each company wished to create specific capabilities that appeal to the market, while ensuring their customers receive the services they need for therapy approval. “Customers want us to enhance our current level of expertise and provide a better way to achieve strategic goals. This [merger] will ultimately move the company forward and drive shareholder value,” Macdonald said.
Michael Bell, CEO of inVentiv Health, explained how customers in the biopharmaceutical space have been pushing for their individual companies to obtain a greater global presence. According to Bell, mergers such as these are part of a “natural evolution,” and some form of consolidation is not a matter of if, but a matter of when.
“What we’ve created is a very strong and powerful CRO with greater clinical assets that will power our clinical trials,” Macdonald added. “This will help provide real-world evidence that will benefit our customers.”
Although the lengthy process of getting a drug to market can be frustrating for CROs and drug companies alike, Bell believes this merger may help improve clinical trial efficiency without sacrificing quality. “The process of getting a product from science to patient is extremely long. What we hope to do is integrate pieces and parts that will allow for more efficiency and will hopefully get it to market quicker,” explained Bell.
Bell also described how this move is a boon for the private equity space. “Private equity has always been infatuated with the CRO space. It has a high free cash flow … and it’s a good industry with good demographics and long-term high growth potential.”
Thomas H. Lee Partners and Advent International provided a major investment for inVentiv immediately after the CRO pulled out of a planned initial public offering (IPO) in August 2016. John Maldonado, an Advent medical doctor at the time of the 2016 funding, said private investors view the CRO industry as “one of the most attractive segments in healthcare.” Advent and Thomas H. Lee will remain as private equity owners of the consolidated company.
While improving research and expediting life-saving therapies to market may be one reason why many CROs are selling or beginning to merge, one of the largest motives involves the company’s monetary bottom line.
Alexandre Nossovskoi, analyst at iGan Partners, believes the move many CROs are taking is fueled by the desire to shift from functional partnerships to strategic, full-service partnerships across whole portfolios for pharmaceutical companies.
“Roughly half of the CRO industry is fragmented with niche specializations, and the other half is highly consolidated,” explained Nossovskoi. “The shift to strategic relationships is requiring larger players in the space to scale quickly and diversify their offerings.” The best way to do this, according to Nossovskoi, is to merge with other large entities or acquire many smaller entities.
The combination of inVentiv’s functional partnership capabilities, including communications, consulting and selling solutions, with INC Research’s therapeutic expertise may essentially drive business growth and accelerate the company into the leading global CRO for the biopharmaceutical industry.
There will likely be some cost synergies in the merger, according to Nossovskoi. The consolidation itself is projected to achieve close to $100 million in yearly run-rate operating cost savings. “And with a more diversified offering, they can compete with leaders in the space for larger strategic contracts,” Nossovskoi explained. In regard to the private equity space, mergers like these tend to be highly attractive to venture capitalists. “They significantly reduce time-to-market and are usually cheaper than building everything in-house,” said Nossovskoi.
In addition to being cost-efficient, combined CROs that offer an extensive suite of services may help relieve the burden and time constraints often faced by their clients. Nossovskoi commented, “Pharma companies, for example, want to stick to what they are good at, hence the move to more stable strategic contracts with large CROs that can handle volume and provide a level of consistency needed by the larger entities.”
The completion of the transaction between inVentiv and INC is set to occur in the second half of 2017.
This article was reprinted from Volume 21, Issue 20, of CWWeekly, a leading clinical research industry newsletter providing expanded analysis on breaking news, study leads, trial results and more. Subscribe »