M&A Feature Introduction
An Industry Stacked: Mergers & Acquisitions
in Discovery, Manufacturing and Fill/Finish
As the supply chain shrinks, it has grown far denser.
There is no segment of the industry that has been untouched by the
deep internal layering caused by M&A activity. In this Executive Issue
feature, we explore how research, manufacturing and packaging have
shifted with consolidation.
Part 1: Contract Research Organization Mergers and Acquisitions
The CRO market is condensing while experiencing rapid growth.
Mergers and Acquisitions have served to both shrink and expand the landscape of the pharmaceutical industry. The industry is more powerful with more merger and acquisition activity, as the supply chain inevitably becomes more robust. A set of standards and internal organization takes over after a merger and permeates the company, so it is in alignment with the umbrella organization. Perhaps this is most imperative in the drug discovery and research stage of drug development, when the groundwork is being laid in support of the next blockbuster.
The contract research organization (CRO) space has been one of the most
active for mergers and acquisitions over the last several years and especially this past year. In the current arena of pharmaceuticals, strong players are becoming ever stronger. As of now, the top ten dominant CROs capture more than half of the total research market.1 This market is highly valued, with predictions showing a clear upward trend for research organizations. According to Zion Market Research, the contract research market is expected to grow to $59.42 billion by 2020, with a predicted CAGR (compound annual growth rate) of 9.8% in the latter half of the decade.2
The United States is currently leading in the market; North America captured a 50% market share in 2014.2 In spite of this, there is a growing global segment in research organizations, especially in developing nations. Emerging countries in the Asian Pacific, Latin American, and Eastern European regions have proven attractive for a number or reasons, including a large patient pool, low labor and manufacturing costs, and a skilled workforce.2
The contract research market is further segmented based on stage of drug development, from early-stage development services primarily focused on discovery, to late- and last-stage development services, which include phase II-IV clinical trials and central laboratory services. Also according to Zion Market Research, later stage development services are the greatest segment for the end-user in the CRO market. As such, this segment accounted for over 70% of the total market share in 2014; growth is expected to be especially present in this area for years to come, according to the survey.2 2017 was unprecedented in terms of mergers and acquisitions in the discovery phase — here are some of the most high-profile unions in the industry, and what they mean for the future of pharma.
IMS Research and Quintiles Becomes IQVIA
As CRO companies condense and we reflect on the trends going forward in CROs, it’s interesting to note that some of the most influential mergers have included a global element. Global expansion seems to be a reoccurring theme when analyzing the effects of past mergers and predicting what is sure to come. To this point, one of the most headline-grabbing mergers over the past 18 months was that of Quintiles and IMS. Quintiles, a CRO based in North America, expanded into European territory by merging with information and technology consultancy group IMS Health.1
After briefly becoming Quintiles IMS Holdings Inc., the firm became IQVIA — The Human Data Science Company.3 IQVIA is now a player in real-world data and has the potential to alter the way clinical trials are conducted. The company describes itself as “exploring a new discipline — Human Data Science — to unleash the power of data science and human science to improve health outcomes.”3 In mergers in general, there is usually a need or a gap in the market that the merger fulfills. As with IQVIA, the applied data is the key to progression in clinical trials, and for extending life outcomes for patients, and in all major therapeutic areas. This particular merger paid off for both organizations; the company predicts to generate $200 million in 2019 and sustain 1%-2% annual growth.1
LabCorp Expands with Covance and Chiltern
In 2015, CRO conglomerate Covance was acquired by LabCorp, a testing laboratories company. The merger followed LabCorp’s acquisition of Covance’s genomic lab.4 The acquisition was valued at $6.1 billion. The acquisition was meant to improve trial efficiency and patient recruitment, as well as deliver data faster to all parties — from drug sponsors to physicians and patients.1 Commenting on the merger and the added value of both firms together, LabCorp Chairman and CEO David King explained that the merger was leading the charge of the industry to consolidate for the better. “As a combined company, we will be well-positioned to respond to and benefit from the fundamental forces of change in our business, including payment for outcomes, pharmaceutical outsourcing, global trial support, trends in pharmaceutical R&D spending, personalized medicine, and big data and informatics,” King stated.5
Shortly following this decision, LabCorp set out to further solidify their position by acquiring Chiltern in a deal valued at $1.2 billion in cash.6 In the press release for the acquisition, which took place on July 31, 2017, it was announced that the merger would yield a CRO with “significant global scale” as well as an expanded workforce of more than 20,000 employees. The merger also provided LabCorp with Chiltern’s extensive oncology expertise, as well as expanded functional service provider (FSP) solutions.6 Again, Chairman and CEO David King spoke on the expanded capabilities that accompanied the merger. “Our acquisition of Covance has demonstrated the value of combining diagnostic and CRO capabilities, expertise, data and leadership. The addition of Chiltern furthers our strategy and will provide us with enhanced capabilities across a broader client base as we continue to innovate and grow.”6 After the dual mergers, LabCorp’s global reach has been greatly magnified, a key element in mergers and acquisitions.
INC Research Joins with inVentiv Health
On August 1st, 2017, INC Research Holdings, Inc. — a global research organization focused on Phase I-IV — merged with inVentiv Health, Inc., which was a privately held global CRO and Contract Commercial Organization (COO), to form Syneos Health. The combined entities are valued at about $7.4 billion.7 Penetration of the global market was a byproduct of the merger, similarly to LabCorp. Syneos has over 22,000 employees in 60 countries, and reach over 110 countries.7 Alistair Macdonald, Chief Executive Officer of Syneos Health, commented on the global expansion, stressing the worldwide reach of the new conglomerate: “Customers are increasingly seeking simultaneous approvals and product launches in multiple markets worldwide. The combination of INC Research and inVentiv will expand our global scale and add capabilities to grow our addressable market.”
As demonstrated, global opportunities are a tremendous motivator for contract research and contract development organizations to edge into a merger. Directly correlated to this is the growing commercial trend of outsourcing; demand for outsourcing is nowhere near slowing, demand will only increase — as will the need for specialized knowledge and expertise. An additional driver of merging is the acquisition of a company that bolsters, enhances or adds capability. Buying a company is perhaps the easiest way to acquire expertise without having to build it up. As for INC Research and inVentiv, both were leaders in oncology and the central nervous system, which netted a total combined revenue of $1.2 billion in 2016; the proficiency in these areas makes Syneos an attractive outsourcing candidate, as buyers are looking for proven skill before taking on a contract.7
Icon Meets MAPI
Mergers work to accelerate growth. When ICON, a top global CRO in its own right, acquired MAPI in July of 2017, a consultancy specialized in late-phase research, the CRO became the second-largest CRO to specialize in late-phase research on a global scale.1 This includes post-approval research, language services, consultancy, and pricing & market access.8 With the acquisition of MAPI, ICON gained the company’s access to Mapi Research Trust, the industry’s most subscribed library of clinical outcome assessments. Engaging in the growing trend of a move toward real-time and the implementation of Big Data in clinical trials, ICON is making the move toward useful implementation in trials at all phases.1
Enter Private Equity
In June of 2017, private equity (PE) firm Pamplona Capital Management agreed to acquire Parexel, which was ranked as a top ten CRO, for $5 billion.1 The company focused on drug development, clinical logistics, regulatory consulting and commercialization for life sciences at the time of the acquisition. In a statement on the acquisition, CEO Josef von Rickenbach noted that “Pamplona is an ideal partner, with deep healthcare expertise and a strong track record of investing in market-leading companies in the healthcare sector.” The buyout suggests that private equity is the third variable to consider; not only are attractive firms being taken over by other, larger firms seeking their capabilities, but that the PE sector views outsourcing as a prime space for investment. This was echoed in the same month, when Albany Molecular Research agreed to be sold to the Carlyle Group LP and GTCR LLC for $922 million.9
The movement of CROs over the last few years suggests that this is the trend of the industry; we anticipate the CRO landscape will shrink further as CROs give way to each other and as private equity gets a firmer grasp on the industry (and its major players). With that in mind, the early/drug discovery area is ripe for growth. Well into the next five years, continuous growth is predicted with no sign of slowing down.2
Read Part 2: What’s Driving M&A Among Pharma Sponsors?
Read Part 3: Getting to the Finish Line
Monique Ellis. Top CRO Mergers And Acquisitions Of 2017. ProClinical Life Sciences Recruitment Blog. 13 Sep. 2017. Web.
“Global Contract Research Organization (CRO) Market Will Reach $59.42 Billion by 2020.” Globe Newswire. 5 Jun. 2017. Web.
“Human Data Science Has Arrived.” Iqivia. Web.
“Labcorp to Acquire Covance for 6.1B” Genome Web. 3 Nov. 2014. Web.
“Labcorp To Acquire Covance For Approximately $5.6 Billion, Creating World’s Leading Healthcare Diagnostics Company.” Business Wire. 3 Nov. 2014. Web.
“Labcorp To Acquire Chiltern For Approximately $1.2 Billion In Cash, Advancing Its Leadership In Drug Development.” Chiltern. 31 Jul. 2017. Web.
INC Research and inVentiv Health to Merge. INC Research. 10 May 2017. Web.
ICON Acquires Health Outcomes Research Firm Mapi Group. RTE. 27 Jul. 2017. Web.
Divya Grover. “GTCR And Carlyle Group Are Buying Albany Molecular Research For $922 Million.” Business Insider. 6 Jun. 2017. Web.