A wave of private equity-backed contract research organisation (CRO) consolidation, led by INC Research and inVentiv, has reshaped the industry, but could create problems for the buyers.

“Having three different operating systems, three different IT strategies, three different leaderships and cultures, [and] three different facilities in a given region that need to be rationalised [makes it] very, very difficult”, said Joe Herring, CEO of Covance, in a call with investors.

Throughout this process clients, concerned about the development of their potential blockbusters, are “watching every move”. Given the high stakes some clients may choose to use other providers while the integration takes place.

“I think we've seen clients take time out when they see those sort of things happen. And so I think it's going to take a while for roll-up companies to get their feet under them and compete”, said Herring.

Mid-tier blues?

Experience of earlier integrations, such as INC’s acquisition of MDS Pharma Services’ assets, should ease and accelerate the process, and ultimately the CROs involved think the rewards outweigh the risks. For mid-tier CROs, the risk is they will struggle if they lack the scale to win big strategic deals.

“We've been saying for the last several years that as pharma became more strategic in working with CROs that it was going to favour the top five players. So seeing players come together, I think, is totally expected”, said Herring.

However, there is evidence mid-tier CROs can prosper by winning business, some of it strategic, from smaller sponsors. “Most respondents felt that smaller sponsor companies are best served by small to mid-sized providers”, said the Avoca Group after its 2011 State of Clinical Outsourcing Survey.