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Private equity investments scare pharma clients, says CRO

By Fiona Barry , 16-Apr-2014
Last updated on 17-Apr-2014 at 09:16 GMT

Cromsource headquarters in Verona, Italy
Cromsource headquarters in Verona, Italy

Pharmaceutical clients view contract research organisations (CROs) with private equity investments as unstable and more focused on financial growth than their operations, according to Italian CRO Cromsource.

While many mid-sized CROs have received significant private equity investment in recent years, Cromsource financed its newest headquarters in Verona, Italy solely with its own revenue, said Kerry Dyson, Head of UK Operations.

Sponsors are wary that private equity (PE) investments may pave the way for disruptive acquisitions, Dyson told Outsourcing-Pharma.com.

We believe many clients view this negatively, and associate such investment with future instability and change.

Typically, private equity investors seek to build value over a short period and then sell their investment, leading to uncertainty for clients whose projects are often long term. Witness the many CROs with PE investment which have been acquired in recent months and years, including Aptiv most recently .

Additionally, equity ownership can cause research organisations to pay more attention to the “bottom line” and corporate debt than to responding to their pharmaceutical clients, said Dyson.

Many of our clients tell us that in their experience the PE investment groups holding CROs are focussed more on financial growth than quality of operational delivery and client focus,” he told Outsourcing-Pharma.com.

Italian and French offices

Cromsource announced yesterday the official opening of new headquarters adjacent to its existing office in Verona. The building will serve the company’s biotechnology and pharmaceutical divisions with clinical research, technology and staffing services.

The three-storey site measures over 16000 sq ft and includes archive storage and a 100-seat video-conferencing auditorium. It was constructed to ITACA protocols (Standards for Sustainable Building), a European environmental standard. The Italian expansion follows the opening of an R&D site in Paris, France last October.

European (biopharma) Renaissance?

Dyson told us the doubling of office space was needed to accommodate the growth of the company’s workforce and operations. He noted the biopharmaceutical industry in particular was driving CRO demand back to Europe.

We are aware that Europe – particularly Eastern and Central Europe which are regions in which we have deep experience – seems to be experiencing a resurgence of interest from biopharma companies, seeking to gain the benefits of cost efficiency and patient recruitment potential whilst still experiencing predictable regulatory timelines and high quality research sites.

Dyson acknowledged that recent shortcomings of CROs in other regions are contributing to this increased European demand:

Certainly some emerging markets which were perceived as of great potential have struggled in relation to ethical and quality concerns and delays in regulatory approval.

However Cromsource’s stability owed more to the company’s own efforts, he said.

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