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European Pharmaceutical Contractor

Value Added

The contract research organisation (CRO) market continues to witness robust performance and strong growth. Indeed, industry consolidation and higher demand in emerging markets has accounted for the majority of sector sales. However, with success comes additional responsibilities and new opportunities. CROs are now evolving from being just transactional providers that only run clinical trials, to full-service consultancies that offer their clients a comprehensive range of capabilities, from drug discovery services to regulatory submissions, pricing and market entry consulting. Given the current headwinds facing the drug industry, these wrap-around services are not only smart, but are also higher margin – resulting in more attractive balance sheets.

Shifting Focus: Strategic Advisors

Quintiles

As anticipated, Quintiles is the world’s largest CRO based on sales revenue. Analyst expectations were confirmed on 15 February 2013, when the company filed its S-1 registration statement with the Securities and Exchange Commission, announcing its intention to take the company public. The initial public offering raised $489.6 million in net proceeds which the company will put a portion of towards financing acquisitions. In September 2013, Quintiles purchased Novella Clinical – an oncology-focused CRO – for $146.6 million, in order to enhance the company’s offerings to emerging biopharmaceutical and medical device companies.

Allume is a comprehensive, goto- market service introduced by Quintiles that combines consulting, clinical services, commercial expertise and information technology. The service helps small and medium businesses efficiently launch new products and shorten timelines to peak sales, while retaining strategic and corporate control of their assets. Biopharma companies are looking for new ways to optimise product value, expedite market access and mitigate commercialisation risks – Allume achieves this by simplifying and organising the complex, resource-intensive launch planning process, leaning on Quintiles’ market entry experience. To maximise value, companies must plan product launch much earlier in the drug development process, especially when preparing to enter new geographic markets.

Covance

Covance posted a 10.2% increase in revenue in 2013 – impressive, considering the company historically hovers around growth rates in the low-to-mid single digits. The surge in top-line results was due to continued strong performance from Covance’s Late-Stage business, which witnessed higher demand for testing and central lab services, and growth overseas following the company’s expansion in Singapore. However, weak demand for preclinical services on a market-wide basis negatively impacted Covance’s early development segment.

The company launched a new managed markets service offering to help biopharma and medical device companies to improve cost controls and manage contract terms. The new service will help its clients to gain better visibility into contract performance with managed care organisations, group purchasing organisations, federal and state programmes and wholesalers. Covance believes the service targets a substantial need in the marketplace, as chargebacks and rebates used in contracts account for as much as 20% (about $50 billion per year) of US sales for biopharma and medical device companies. It is estimated that the industry loses up to $11 billion in US revenue per year, due to inefficient processes and contract management systems, at a time when the economic environment for the sale of drugs and devices has never been more challenging.

Catalent

Catalent’s net revenue increased $105.5 million, or 6.2%, to $1.8 billion in fiscal year 2013. The increase was primarily due to the inclusion of a full year of revenue from the acquired Aptuit Clinical Trial Supplies business for $410 million. The acquisition significantly expands Catalent’s Development and Clinical Services (DCS) business, transforming the company into the second-largest global provider of clinical supply solutions, and strengthening their global leadership in delivery technologies for drugs and biologics. Currently, Catalent’s DCS segment offers clinical supply services, analytical chemistry, respiratory product development and regulatory consulting. The DCS business also has access to a number of cell lines for biologics production.

Parexel
In 2013, $1.7 billion in services revenue was posted by Parexel, a rise of 24.2% compared to the same period in the previous year. The company bolstered its advisory and support services portfolio by purchasing two consulting firms: the Heron Group and Liquent. The Heron Group is a leading life sciences consultancy that provides commercialisation services to support biopharma companies. It has expertise in market access planning and strategy, economic modelling and evaluation, pricing and reimbursement strategies, and dossier writing.

Prior to its purchase of Heron, Parexel acquired Liquent, a provider of software solutions for regulatory submissions and product registrations. Earlier in 2014, Parexel released a new regulatory outsourcing service line focused on post-approval regulatory activities. Clients are now able to outsource significant portions of their regulatory affairs in a cost-effective manner by combining the advisory service with Liquent’s InSight technology platform.

ICON
With its purchase of PriceSpective for $37.1 million, ICON deepened its market access and pricing advisory services. PriceSpective is a consultancy that has a strong reputation for excellence in strategic pricing, market access, health economics and outcomes research, and payer engagement services. Since its inception in 2003, PriceSpective has developed strategies for hundreds of development and in-market products across more than 40 disease areas. Just weeks earlier, ICON bought BeijingWits Medical Consulting, a leading CRO based in China. The company is a renowned expert in Chinese regulatory processes and a leading advocate of good clinical practices in China.

Charles River
In 2013, Charles River’s services revenue rose slightly to $1.2 billion as a result of acquisitions implemented to expand its microbial detection services. It acquired Accugenix – a global provider of current good manufacturing practice-compliant contract microbial identification testing – for about $17 million. Accugenix is an acknowledged industry leader in species-level identification, and strain typing of bacteria and fungi that are recovered from manufacturing facilities.

Charles River Laboratories expanded its Research Models business in China, signing an agreement in October 2012 to acquire 75% of Vital River – a majority stake costing some $27 million. Vital River is China’s largest commercial provider of laboratory animal models for use in preclinical research. For the last 10 years, it has been a licensee to Charles River, specialising in a region which has experienced a surge in demand due to increased drug development initiatives within academia, government and biopharma.

Patheon
Patheon was the peer group growth leader in 2013. Its revenues surged by 36.6% to $1 billion – an increase of $274 million compared to the same period in 2012. Furthermore, it closed on its $255 million deal to acquire Banner Pharmacaps, one of the world’s largest speciality pharmaceutical manufacturers of proprietary softgel formulations. Banner has four manufacturing facilities and leading positions in some of the industry’s fastest-growing product categories, including gelatin-based dosage forms.

Patheon announced the formation of Patheon Certified Consultants, a new consulting capability made up of industry veterans who provide a unique service to emerging biotech and pharma companies – as well as to their investors – to help address early-, mid- and latestage questions in drug development. These experts have collectively brought to market more than 200 pharmaceutical products, including some of the largest blockbusters in the world. All of these professionals are equipped to serve as hands-on partners to organisations of any size as they make their critical decisions to transition molecules from discovery, through development and towards market entry.

Albany Molecular Research
Albany Molecular Research (AMRI) penned an exclusive license agreement with Chai Therapeutics for the development of ALB-109564 – the company’s novel tubulin inhibitor compound in late Phase 1 testing, targeted at treating cancer by preventing cell mitosis. Previously announced results from the Phase 1 dose-escalation study showed that the compound was well tolerated and efficacious. AMRI has built a strong initial programme around the compound, providing an early indication that it may offer clinically-relevant activity, distinct from other tubulin inhibitors.

Under the terms of the agreement, AMRI received an undisclosed licence fee and reimbursement for certain costs associated with the intellectual property related to ALB-109564. Chai Therapeutics received an exclusive licence to the compound, and will be solely responsible for all related R&D and patent costs going forward, while AMRI will receive a share of future consideration from the further development and sales. AMRI also has a few other proprietary programmes, including compounds in the clinic for inflammatory bowel disease, irritable bowel syndrome and schizophrenia, each with dedicated business and licensing strategies aimed at creating long-term value for the company.

In April, AMRI completed its $41 million purchase of Cedarburg Pharmaceuticals – a contract developer of complex active pharmaceutical ingredients for both generic and branded drug-makers. The company was also awarded a seven-year contract from the UK’s Defence Science and Technology Laboratory for the development and supply of an investigational drug to be used in Phase 1 clinical trials.

Looking Ahead

CROs are adding new capabilities specifically aimed at helping small- and mid-sized biopharma companies to optimise value and minimise risk. In a post-patent cliff world, small and medium pharma and biotech will become the heart and soul of the drug industry, and will be responsible for a large share of the innovation the industry will see in the future. CROs are ramping up their advisory services to meet the requirements of companies, which tend to have varied needs and much smaller budgets compared to their Big Pharma brethren.

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About the Author

Adam M Dion is an Analyst in the Healthcare Industry Dynamics Team at GlobalData. He is the author of GlobalData’s PharmaLeaders benchmark reports, which rank the competitive positions of the top companies in the pharma, biotech, and CRO and contract manufacturing organisation sectors. Prior to joining GlobalData, Adam was an Analyst with Technology Business Research, a leading market research and consulting firm covering blue-chip hardware, software and business process outsourcing companies. His analytical commentary has been quoted by leading sources, such as The Wall Street Journal, Bloomberg, Forbes, Financial Times, The Guardian, CenterWatch and Outsourcing-Pharma. Adam received his BS in Neuroscience from Merrimack College, and MS in Marketing from the University of New Haven.
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