Medpace is something of an oddity in this era of medium-sized CROs doing everything in their power to get bigger in the hopes of landing huge strategic partnership contracts with big pharma.

The privately held, Cincinnati, Ohio-based CRO—which late last month sold an approximately 80% stake to investment firm CCMP Capital Advisors—is planning to grow bigger with its new access to cash, yet it has no interest in the huge partnership contracts that have the rest of the industry buzzing.

That’s because inherent in those deals are deep price cuts that big pharma can demand of CROs once they take them on as partners, said August Troendle, co-founder, president and CEO of Medpace. And, he said, why expose yourself to that if you don’t have to?

“Frankly, we don’t have to sit down at the table and talk about the 15% to 18% price reduction that a preferred provider has to do,” said Troendle. “I’d rather be getting the work that’s the exception to their preferred provider lists than to be on the preferred provider lists.”

And that’s what Medpace so far has received. The very healthy CRO does have some large pharma clients, but most aren’t in the top 20, said Troendle, almost proudly. The lion’s share of Medpace’s business comes from mid-sized pharma companies and biotechs.

“I think it’s a great time to be independent in the marketplace,” said Troendle. “I think quality, in the end, will differentiate you; I don’t think size alone will get you the business you want.”

“All these companies line up to get revenue from large pharma, and it’s very compelling to them, but they pay a significant price. Look at INC and Kendle and PharmaNet—all of them will be left at the lower end of the majors and have tremendous difficulty getting on those lists, and at great price concessions, while having to integrate acquisitions,” he explained. “We’re not integrating anything. We have good, quality, stable operations. We’re just adding some new shareholders.”

About 19% of Medpace will now be owned by the company’s leadership team, with CCMP owning the rest.

According to John Kreger, a financial analyst with William Blair who has been scrutinizing the clinical research outsourcing space for two decades, Medpace is a very solid, very respectable middle-tier CRO. Added Neal McCarthy, managing director of investment banking firm Fairmount Partners, Medpace has done well by committing to certain therapeutic areas (cardiovascular and metabolic initially and, more recently, central nervous system and anti-infective/anti-viral/vaccine) and then carefully building infrastructure and staff to better outfit those areas.

“They don’t take on any work unless they have the expertise,” said McCarthy, who is on Medpace’s board. McCarthy introduced Medpace executives to CCMP and acted as Medpace’s advisor for the investment.

Terms of the deal were not disclosed, but analysts have speculated the 80% stake cost CCMP just over $500 million.

Troendle said Medpace had planned to launch an initial public offering in 2009, but when the market went sour in late 2008, that was no longer possible. The investment from CCMP gives 18-year-old Medpace a significant tax break—taking the company from a 35% tax rate to 6% for the first year—and the ability to keep growing organically, with a few small acquisitions, which was the company’s strategy all along.

Medpace will still look to go public, but not for about three years, said Troendle. Both CCMP and Medpace agree on that time frame; it’s one of the reasons the two moved forward with the investment. But until then no changes are planned, he said.

Medpace was spawned when Troendle and his former National Institutes of Health colleague Evan Stein—then working together on lipid development at the University of Cincinnati after their NIH tenure—weren’t pleased with the quality of CROs in the market. In 1992, they launched Medical Research Services, a lab and CRO. Five years later, Troendle bought the CRO portion of the business, renaming it Medpace in 2000. Medical Research Services’ lab, led by Stein, was sold to PPD in 1997.

About 700 of Medpace’s 1,000 employees work in its Cincinnati headquarters and its offices in Minneapolis. The rest work in Medpace’s 17 international offices in South Africa, Australia, China, India, Belgium, Czech Republic, Germany, Poland, Russia, Holland, Switzerland, U.K., Brazil, Mexico and Israel. About 60% of Medpace’s clinical trial volume takes place overseas. Its largest overseas office is in Munich.

CCMP specializes in upper-middle market buyouts and growth equity investments of $100 million to $500 million in the U.S. and Europe. Its main areas of focus are consumer, industrial, energy and healthcare. CCMP doesn’t have stakes in any other CROs, but it owns a portion of pharma company Warner Chilcott.

Kreger said investment firms like CCMP are hot on CROs these days. “Their view is that they can buy these assets at a point where they’re still a bit out of favor with the broader market, like the rest of pharma is, but they’re able to look forward to a few years from now, when these companies will most likely come back into favor.”

--Suz Redfearn