2007 Year in Review: A Year of CRO Consolidation and Global Expansion
2007 saw activity intensify in regions such as Latin America, Asia and Eastern Europe. In 2006, only a handful of sponsors and CROs had toeholds in India and China. This year, a flurry of expansions took place in those areas as the entire clinical trials industry seemed to be jockeying for the potential R&D windfalls predicted.
The year 2007 produced more mergers and acquisitions than in any previous year since CenterWatch began tracking the market in the early 1990s. Consolidation was seen across nearly every sector of the clinical trials industry. The lean towards non-organic growth was fueled by the marketplace as small companies strove to become larger, emerging market sectors continued to mature and the necessity to operate globally became clear. 2007 set a record 35 contract research organization (CRO) acquisitions.
While there were no mega-deals in the outsourcing space, the industry saw smaller (CRO) acquisitions, including overseas companies and a variety of purchases of business units from players looking to specialize in other areas.
The acquisitions activity came as a continuation of a trend that started a year ago when 31 deals were made. And it came amid a stock market boom for the global CROs that are listed on public markets. At press time, PharmaNet Development Group’s shares were soaring, up 88% year-to-date. Parexel had a stellar year with its shares jumping 66%. Other global CROs had big years: ICON, up 53%; Covance, up 52%, Kendle, 50%; and PPD, 30%. Even PRA, which has struggled with restructuring in 2007, was trading up about 20%, near its 52-week high. That’s a testament to the strength of global CROs.
One of 2007’s largest acquisitions occurred at the very end of the year. In December, Philadelphia-based imaging CRO eResearch Technology (eRT) solidified its focus on cardiac safety with the acquisition of Covance’s electrocardiogram (ECG) unit. The deal was one of the largest of the year, potentially worth $50 million. The deal also includes a 10-year agreement between the companies that calls for Covance to use eRT’s electrocardiogram (ECG) services exclusively for its clients. eRT paid $35.2 million in cash for the business, plus up to $14 million in potential payments based on business generated from the marketing agreement. The newly acquired unit is expected to generate $20 million in new revenue next year for eRT. About 90% of eRT’s $86 million total revenue was derived from cardiac safety services last year. For Covance, it was a matter of shedding a non-core business segment and creating an arrangement that secures its ECG needs.
Known for its European presence, UK-based CRO Chiltern decided to boost its U.S. business with its acquisition of Clinical Trial Management Services (CTMS), a Tennessee-based CRO. This was the first acquisition for Chiltern since the CRO was purchased in July by Czura Thornton, a private investment group led by Antony Czura and Nick Thornton. The deal closed in October.
In November, Southborough, Mass.-based CRO Averion acquired Swiss-based CRO Hesperion AG from its French parent company Cerep SA. Averion paid $36.2 million for the company. To finance the acquisition, Averion issued three-year senior secure notes on the company’s current debt. The debt financing raised $24 million towards the purchase.
Clinical Analytics and Simulations: Maryland-based clinical trial design, and data management and consulting company UBC acquired BioCor LLC, a biostatistical, data services and medical writing firm based in Yardley, Pa. One of BioCor’s specialties is designing trial protocols with advanced biostatistical methods for emerging biotech companies. It will be the first business unit in UBC’s Biotechnology Solutions Group. In September, UBC continued its acquisition flurry by purchasing Caro Research, a cost modeling and economic simulations provider based in Concord, Mass. And Medford, Mass.-based i3 Innovus, the health economics and outcomes research division of i3, acquired Stockholm-based firm European Health Economics (EHE) in May.
eClinical Deals: The year’s acquisition spree wasn’t just confined to contract research companies. Clinical trial technology and software vendors sought to expand beyond the slower pace of organic growth as well. The year was a profitable one for the eClinical market and many firms seized the moment while the sector stayed healthy.
In 2007, eClinical provider Phase Forward purchased Green Mountain Logic (GML), a Montpelier, Vt.-based software company and maker of phase I software product, LabPas. The software allows for electronic management of sample processing, reporting of clinical results and real-time data capture of patient vital signs. And Phase Forward boosted its stock by 61%.
Wayne, Pa.-based Octagon Research Solutions acquired Ninaza, an electronic data capture (EDC) company based in San Mateo, Calif. Ninaza’s EDC product— Ninaza EDC System Version 4—will be incorporated into Octagon’s ViewPoint solutions suite. The web-based eClinical platform will enable clinical data management and clinical trial management capabilities.
Equity Buys: A number of CRO private equity buyouts occurred in 2007. CROs such as PRA International and Synexus Clinical Research both took advantage of the strong private equity market in 2007 with such deals.
In a move that took Reston, Va.-based CRO PRA International off the public market, the company was purchased by Genstar Capital, a private equity group based in San Francisco. The deal was valued at $790 million. During a conference call, PRA executives said that Genstar will invest in the company to accelerate plans for expanding the firm’s service offerings and “broaden its geographic footprint”.
The private equity firm Lyceum Capital recently finalized its purchase of Manchester, England-based patient recruitment firm Synexus Clinical Research for $37 million (£18.1million). The deal was first announced in October and will take Synexus shares off the public market.
Private equity firm Boston Ventures bought a majority stake in Western IRB (WIRB), a Seattle, Wash.-based independent review board (IRB). WIRB is one the largest IRBs worldwide. According to Angela Bowen, M.D., founder, president and chief executive officer at WIRB, the primary reason for seeking out a buyer was based on shoring up the business upon her retirement. Bowen founded the business nearly 40 years ago.
An Industry Spreads Out
“Global footprint” and “geographic expansion” were certainly industry buzz phrases in 2007.
For the most part, what had been driving sponsors into emerging markets hasn’t changed: the need for greater numbers of patients for increasingly complex trials and the promise of faster timelines. Each region and country has its own unique benefits and challenges, so the pace and method of global expansion differs among them.
Many companies have been scrambling to meet the demand. The year saw many new offices and facility expansions in areas where companies needed more operational coverage.
2007 saw a steady wave of movement in regions like Latin America, Asia and Eastern Europe intensify. In 2006 only a handful of sponsors and CROs had toeholds in India and China. This year saw a flurry of expansions in those areas as the entire clinical trials industry seemed to be positioning themselves for the potential R&D windfalls predicted.
Expansion into Eastern and Central Europe continued, with Romania and Bulgaria becoming part of the EU. Interest in Russia and former Soviet republics grew noticeably as well.
Latin America: Latin America proved to be a region where industry firms needed additional geographic coverage. In November, Quintiles made its first Central American acquisition with the purchase of Panama-based CRO Bio-Trials. Quintiles first entered the Latin American clinical trials market in 1995 and now has one of the largest CRO footprints in that region. Besides coordinating work through its headquarters in Argentina, Quintiles’ Latin America group operates out of five offices in São Paulo, Brazil; Santiago, Chile; Lima, Peru; Bogota, Colombia; and Mexico City, Mexico. Quintiles had been using Bio-Trials as a subcontractor for trials in Central America and got to know the company and its abilities in the last three years.
According to Alcides Cupido, M.D., vice president, clinical development services at Quintiles Latin America, the acquisition fills some geographical and logistical holes in the company’s operations. A common issue cited among CROs in 2007.
i3 expanded its global operations by picking up a Buenos Aires-based CRO. The acquisition added 100 employees to i3 Research’s total staff. The unit will be run as i3 Latin America.
Asia Pacific: According to CenterWatch estimates, global clinical trials initiated in the Asia-Pacific region increased 50% between 2005 and 2006, and the region continues to grow.
Although the Asia-Pacific region comprises countries that are markedly different from each other, those countries share important commonalities that attract big pharma and biotech to the region to conduct clinical research.
In June, Parexel opened a major clinical operations and data management office in Hyderabad, India. The office will serve as the company’s main hub in the region and will expand its presence in the budding Indian trials market. Although Parexel already operates an 86-bed phase I unit in Ahmedabad, through a joint venture with the CRO Synchron, was the company’s first late phase operations office in the region.
In October, Parexel purchased APEX Clinical Research based in Taiwan. APEX, which stands for Achievement through Passion and EXecution, was founded in 1999 by Albert Liou and offers trial services in China, Hong Kong, India, Taiwan, Singapore, Indonesia, South Korea, Malaysia, Thailand, the Philippines, New Zealand and Australia.
King of Prussia, Pa.-based CRO Omnicare Clinical Research has doubled the size of its Bangalore, India, in October, office by relocating to a 10,000-square-foot facility nearby.
In 2007, India-based Bilcare Limited, a pharmaceutical packaging and clinical technology firm, together with the Association of Clinical Research Professionals (ACRP), created the Bilcare Research Academy. It offers a one-year postgraduate diploma, accredited by ACRP, in clinical trials management to graduates of pharmacy, life sciences and medicine. The academy will also provide continuing medical education courses for current industry professionals. The company will open 25 educational centers in India and Asia by 2010, investing $4.8 million. The first centers to open in India and Singapore, followed later by Thailand, Pakistan, Bangladesh, Sri Lanka, Indonesia and China.
Since 2006, the Chinese government has made significant changes to improve its regulatory system and enlarge its pharmaceutical market.
Princeton, N.J.-based Covance established its first fully owned central lab in China in early 2007. The new facility will be the company’s fifth dedicated lab in its global network. China has restrictions on importing and exporting whole blood specimens, making the use of out-of-country testing facilities for some clinical trials impossible. Covance had thus far been using a partnering model with Huashan Hospital Center of Laboratory Medicine, Shanghai’s largest hospital.
Central and Eastern Europe (CEE): Frankfurt, Germany-based CRO Ergomed Group opened a new regional headquarters in Dubai City’s new life sciences research park, DuBiotech. The company plans to use the office as a hub for its operations in the Middle East and India.
Taking note of sponsors looking to Eastern Europe for early stage services, Omaha, Neb.-based CRO Qualia Clinical Services acquired a 60-bed, 10,000-square-foot early stage clinical facility in Kiev. The unit was purchased in August from a small CRO in the Ukraine. PRA also acquired Pharmacon, a CRO that specializes in conducting phase I studies in Eastern Europe.
This summer, Saratoga Springs, N.Y.-based CRO Criterium opened two offices in St. Petersburg, Russia, and Yavne, Israel.
Global Clinical Trials opened offices in both Kiev, Ukraine, and Bucharest, Romania. The CRO also has offices in Moscow and St. Petersburg, Russia; Sofia, Bulgaria; and Princeton, N.J. The company has 55 staff and 18 active clinical trials.
Sofia, Bulgaria-based, American-owned AbCRO opened offices in both Moscow, Russia, and Warsaw, Poland, this year. The 125 employee company, founded in 1999, also has offices in Bucharest, Romania; Zagreb, Croatia; and Belgrade, Serbia.
Cincinnati, Ohio-based Medpace made its first ever acquisition in its 15-year history when it purchased Monax, a CRO based in Prague, Czech Republic.
In September, Russian CRO Synergy Research Group (SynRG) continued the creation of a global CRO alliance, forming a partnership with Neeman Medical International, an India-based CRO. The alliance will focus on providing international sponsors with monitoring and site and data management services. Just a month before, SynRG formed a similar alliance with Costa Mesa, Calf.-based Promedica International. SynRG stated its next move is to find a partner in China.
Such international alliances and partnerships show tremendous growth in 2007. They provided a way to offer global services under one banner without the risk entailed in an acquisition or the cost of setting up in-country operations.
Conducting Smarter Trials
Imaging: Medical imaging in clinical trials has gained momentum since the U.S. Food and Drug Administration (FDA) began allowing imaging data as part of the evidence in support of a new drug application. The FDA, in an effort to increase new drug approvals, has identified imaging as an important technology for assessing new therapeutics and accelerating drug development in the future.
The process allows researchers to see the effect of a new drug more rapidly, and in more precise ways, than with traditional clinical endpoints.
The imaging sector within the clinical trials industry is growing fast and there was plenty of activity in the market during the year. Companies in the trials industry that offer imaging services such as WorldCare Clinical (WCC), a central imaging CRO, are flourishing because they can offer sponsors reductions in time and cost, bringing new products to market faster. ProScan Imaging, WCC’s parent company is one of the largest teleradiology providers in the United States. It acquired WCC in 2006.
Early this year, Boston, Mass.-based Perceptive Informatics, the technology subsidiary of CRO Parexel, strengthened its expertise in the area when it appointed George Q. Mills, M.D., an imaging expert and former FDA division director, as vice president of its Medical Imaging Consulting group. And Beacon Bioscience, a medical imaging CRO business acquired by ICON last year, recently changed its name to ICON Medical Imaging.
In March, The American College of Radiology (ACR) spun off a CRO focusing on clinical trial imaging services, called ACR Image Metrix. The company will be based in ACR’s clinical research division office in Philadelphia.
The space continues to grow and mature, and as imaging technology continues to advance, along with the expertise of companies working in this area. Going forward there is little doubt that imaging will become an integral part of the clinical trial process in the future.
Adaptive Trials: Adaptive trial design allows changes to be made to a study protocol during the trial process, based on real-time patient data. The technique can analyze smaller subsets of data, reduce the amount of patients needed for a study and help determine if failing studies should be terminated.
Although changing a study’s protocol mid-stream still may give many researchers pause, the use of adaptive design in clinical trials remained a hot trend in 2007. The year saw more acceptance towards its usage as sponsors began seeing the benefits of adapting trials to incoming data, in real-time.
The technique has its detractors within the scientific community, but last year the FDA held a series of pre-guidance meetings to help sponsors navigate these uncharted waters with more reassurance their data would be valid.
Maryland-based CRO United BioSource Corporation (UBC) began to get more requests for adaptive trial design services about two years ago. In September, UBC bought an ownership stake in ClinResearch, a Germany-based CRO with a strong
focus on adaptive clinical trials. Clin-Research employs a staff of about 100 biostatisticians, data analysts and trial monitors in offices in Cologne, Germany, and Moscow and Kiev, Russia.
Philadelphia, Pa.-based Premier Research Group consolidated its clinical trials services into a single business group called Strategic Product Development. In addition to managing the CRO’s clinical operations and medical affairs team it will run the company’s adaptive trial design and informatics services.
Focus on Safety Opens Up New Markets
Cardiac Safety: The cardiac safety market segment has evolved dramatically in the last three years following a series of drug recalls, black box warnings and other cardiac safety issues. The industry saw increased scrutiny surrounding cardiovascular risks, especially with long-term product use. In 2005, the FDA issued its ICH-H14 guidance, mandating that all new drugs undergo a specific cardiac safety test called prolongation of the QT interval. That regulatory change helped shape the sector and provided players in the space a windfall of new business.
Companies such as iCardiac, Spacelabs and Cardiocore offer ECG services to sponsors and even began banding together to help leverage themselves into the marketplace.
In November, iCardiac Technologies, Spacelabs Healthcare and Charles River Laboratories—three companies helping sponsors determine the effects of new drugs on the heart—joined together to form a collaborative called The Cardiac Safety Network.
The network combines each vendor’s core competencies in clinical cardiac safety trials to offer sponsor clients a single point of contact for recruiting healthy volunteers, running studies and analyzing cardiac testing data.
And eResearch Technology’s recent $50 million purchase of Covance’s ECG core lab gives credence to the fact that the cardiac safety testing arena is gaining ground.
Although the market for ECG studies is more robust in early stage trials, post-approval research—already on the rise—is expected to expand with long-term studies conducted in traditional clinical trial formats. And because the risks of serious cardiovascular side effects are inexorably associated with the long-term use of certain drugs, the trend may contribute to the size of the cardiac safety market.
Post-Approval: The industry’s post-approval and outcomes research business has been growing at a fast clip in the last two years due to a variety of factors. The research continues to become a necessity to sponsors, and what sponsors want, CROs must strive to deliver. Years after the withdrawal of Vioxx, the pharmaceutical industry has been hit time and time again with drug safety issues with commercialized products, some of which have been on the market for many years. Tracking product safety and efficacy through patient registries, event reporting and post-marketing studies are helping sponsors enhance their development strategies and product uptake.
Former FDA commissioner Mark McClellan summed up the future of evidence-based medicine at a recent summit in New York: “In the post Vioxx, post Medicare Part D world, future commercial success will depend on extending evidence, from well-controlled clinical trials, to demonstration of real world success, real world safety, real world cost-effectiveness and real world comparative effectiveness,” McClellan said.
Regulators Look to Change the Game
PDUFA Reauthorized: Probably the most anticipated regulatory act passed in the last five years was the FDA Amendments Act of 2007, enacted in September. The core of the law reauthorized the Prescription Drug User Fee Act (PDUFA), but included a series of changes that will no doubt have profound effects on the clinical trials industry.
First enacted in 1992, PDUFA needs to be renewed every five years and was set to expire on Sept. 30. The mechanism allows the FDA to collect fees from drug and device companies applying for regulatory approval. The new bill calls for an increase in those submission fees to bolster FDA’s drug safety review and post-approval monitoring initiatives, much of which were created after a series of high profile recalls and safety issues.
Under the bill, pharmaceutical developers would pay nearly $400 million and medical device makers $48 million in fees next year, a 25% increase.
The law also gave the FDA more power to regulate and monitor drug safety after drugs are approved. The new rules added to PDUFA could cause the industry segment to grow even faster and may increase the number of clinical trials conducted in all phases.
The new provisions made sponsors directly responsible for monitoring drug safety over the long term. It also gives the FDA the teeth to enforce what are known as post-approval study commitments—trials the sponsors commit to perform if the product is approved. These are usually trials that answer safety questions that might require long-term studies. The status of these promised trials, however, have been largely unmonitored by the agency in the past.
Written into the bill are regulations that require drug developers to publish all clinical trial results used to obtain a drug’s approval, including any trial results used by the review committee, which reviewed the product, and any trial conducted after the product has been approved.
The need for long-term safety studies are not in dispute. The industry, medical community and regulatory bodies can see that drugs may have additional or more severe side effects if taken for years. Since outcome studies can last years longer than those with surrogate endpoints, others have raised the question about whether patients should be denied access to life-saving drugs while the studies are underway.
Two other important laws were reauthorized in 2007: the Best Pharmaceuticals for Children Act (BPCA) and the Pediatric Research Equity Act (PREA). Both of these are designed to encourage more research and development of treatments for children.
FDA Criticized over Site Audits: The FDA audited fewer than 1% of investigative sites, the inspector general of the Department of Health and Human Services, Daniel R. Levinson, found in a report in September. The 41-page report said the FDA has just 200 specially trained inspectors to audit an estimated 350,000 investigative sites. Others estimate that the number of sites is much lower.
The report found that federal health officials did not even know how many clinical trials were being conducted in the U.S. According to CenterWatch, an estimated 59,000 drug trials, phases I, II and III, were being conducted worldwide in 2006.
The inspector general also recommended that the agency create a registry of continuing clinical trials, launch a registry of research ethics boards, build a database to track its research inspections and get more authority to regulate research assistants.
Aside from citing limited resources, there was little disagreement from the FDA.
Looking Ahead to 2008
In 2008, the industry can expect the high rate of acquisitions set last year to continue. Expansion into global markets will be necessary for those in the industry that want to remain in the top-tier of organizations to which pharma and biotech outsource.
eClinical technologies will continue to have an enormous impact in clinical trial conduct enabling sponsors to reduce safety concerns, while at the same time allowing them to get to database lock faster and less expensively.
We look forward to your news in 2008, because we’re sure there will be a lot of it. To the New Year!