The Shrinking CRO Landscape – Mergers, Acquisitions, and Clinical Research

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By Staff Writer

clinical research mergers

Seems like every day there is talk of mergers inside the clinical research organization landscape.

CROs rise and fall as smaller companies are absorbed into larger ones. There is a general concern that too many mergers narrow the field of competition, strangling out smaller, more niche CROs and minimizing diversity in the landscape.

But that’s not necessarily the case. All CROs have a place in this ever-changing environment so long as the balance is maintained, and sponsors recognize the benefits and drawbacks of large and small organizations.

Recent Currents in the Industry

According to Deallogic, the healthcare sector spent approximately $160 billion last year just on mergers and acquisitions (M&A). This is in sharp contrast to the $85 billion in 2012. Just a few months ago, InVentiv Health merged with INC Research; LabCorp entered into an agreement with Chiltern and Covance; and Parexel was acquired by Pamplona. While just last year the industry saw some major M&A activity as IMS Health Holdings, Inc. merged with Quintiles (now IQVIA), and Teva Pharmaceutical Industries bought Allergan making it now one of the top ten pharmaceutical companies worldwide.

Mergers come with a myriad of obstacles for CROs, including changes in their client base, geographical expansion, or larger and more complex studies being abruptly adjusted in size. On the other hand, mergers also give sudden advantages, like expanded databases, client portfolios, elimination of parallel initiatives, or new technologies and relationships. Not to mention the impact mergers have on shareholders and the stock market.  

CROs are faced with many uncertain circumstances when mergers happen. Service downsizing and vendor overlap can become an issue, which can either mean the relationship will be cut back or, sometimes, if the company has had layoffs, then they could be adding more vendors.

Drawbacks of Mergers

However, without checks and balances, mergers restrict competition across the board. These new mega-corporations wind up being the sole dictators of business. It puts a great deal of CRO control in the hands of a select few. In other words, an oligopoly that limits production.

And when there is a lack of competition, prices start to rise. Limited competition means a select few wield all the marketing clout, enabling them to negotiate higher costs from clients. Every landscape, including pharma and CROs, needs diversity in order to thrive.

More fallout occurs within the merging companies themselves. While mergers may be beneficial for one company, it is not always beneficial for both. Regardless of their different strengths, two companies cannot operate with separate identities and functions. Eventually, the process will have to align causing disruptions.

Long periods of corporate paralysis can occur both before and during mergers. Management can struggle to align their hierarchy, sometimes engaging into internal politics to secure positions in place of doing their jobs. Everyone in the company becomes insecure, waiting for the inevitable backlash like raises being overturned.

Now new employees must be incorporated into already existing teams. What was once two highly functioning teams must now find a way to function anew, with individuals that come with different practices, alternate project management concepts, and schools of business thought. Both teams suffer lost productivity, a choppy integration, and added expenses, as well as security risks with the moving of critical and confidential data.

Ultimately, it is the clients and the service element that pays the price for the instability. 

“For the CRO industry, mergers hold several ramifications, mainly the potential for a negative impact on preferred partnerships that aren’t kept as the two companies become one.”

                                                                                                –Outsourcing Pharma

Find the Right Fit for Your Trial

More specialized CROs, albeit smaller in size, focus their best expertise on specific therapeutic areas, be it oncology, cardiology, etc. Clients who have a particular need find they may not need a large CRO. There are drawbacks, however. A smaller, specialized CRO’s reach may also be less global, able only to operate in select regions and in certain capacities, thereby limiting their patient scope management.

Drug companies ready to push their product to the next level in research need a full-service CRO. But bigger isn’t always better. Like buying a car, you should get the appropriate car for the job. You wouldn’t buy an expensive luxury model if you were going exploring off-road, and nor would you consider a puddle jumper car if you have a full sized family.

Steadily growing, private CROs, firmly established in today’s heaving market have a lot to offer. Their proficiency casts a wide net, including a slew of services vital to the success of any study, without the interference of shareholders and Wall Street. They also have the experience and the resources to propel their company forward, reaching more globally. Most aren’t large enough to be bogged down by shareholders that would dictate every move they make, nor are they handicapped by being too small and specialized.

There are a few private contract research organizations still standing tall on the pharma playing field. If they don’t answer to shareholders, they can challenge the system, remaining nimble and adaptable, always adjusting to the fluctuating needs of the pharma market. If they have never been involved in a merger, they may also remain independent, stable, and profitable with a wide geographical presence.  

Various estimates indicate that by 2018 the projected outsourced share of R&D worth $29.5 billion could serve as potential midsized and smaller CRO revenue.

                                                                                                -Applied Clinical Trials

Toward Stability and Predictable Enrollment

Stability also means there is less employee turnover. The wisdom and knowledge those employees have garnered over the course of their career stay with the company. Highly trained teams can stay together, ready to wield that expertise on their client’s behalf. The focus remains on quality rather than quantity. Every project is one they know they can meet the needs of the client and see the project delivered on time. The company can continue to grow organically at a steady pace with a dedicated team and a solid reputation. It’s the perfect vehicle for advanced biotechs and mid-sized pharmaceutical companies wishing to have a global reach for larger, late-phase studies.

What is needed is a CRO that is just big enough for global projects but not so big that they become lost in the bureaucracy. Those CROs have the expertise and the resources to scale up their operations at a moment’s notice, adjusting quickly to their client’s needs making them the right vehicle for the right situation. It’s all about having enough time for creating a relationship, not merely a transaction. Clients are looking for a CRO that goes the extra mile and that is willing to work closely together as part of a global family. The most successful trials rise and fall on the strength of their communication and connection, not the size of their payroll. Mergers that put service at risk ultimately disappoint in terms of sponsor and site relationships.

Lumbering giants have their place, but too many mars the market, creating less diversity. Too small and the company lacks the power to bring limited resources to bear. But just like Goldilocks and the three bears, sometimes clients want something “just right” to fit their project.