Is there a CRO bubble? Analysts say yes, with caveats

By Zachary Brennan contact

- Last updated on GMT

Related tags: Finance

Is there a CRO bubble? Analysts say yes, with caveats
With sky-high valuations and soaring M&A prices, the question of whether there’s a biotech bubble continues to crop up, though now some analysts are saying this so-called bubble and its inevitable pop may be a cause for concern for CROs (contract research organizations).

John Kreger, an investment analyst at the banking firm William Blair, told attendees last week at the Partnerships in Clinical Trials conference in Boston that he does believe there’s a bubble for CROs as “this is about as good as I’ve ever seen it​” for the industry.

And because the biopharma industry is a growth industry again​,” Kreger said, “We’re seeing pharma outsoucing as a nice de-risked way to play the market​,” especially as new technologies deployed by CROs are changing business profiles to make them more compelling.

‘Strong Cycle’

But, similar to what CRO executives have told Outsourcing-Pharma.com in the recent past, the bursting of a biotech bubble and the decline of a number of biotech companies’ share prices won’t spell immediate trouble for CROs, especially as most build up backlogs of work worth billions of dollars.

David Windley, analyst at Jefferies, told Outsourcing-Pharma.com that “CROs have tended to trade in relation to biotech more than pharma. I think it is fair to say that strongest biotech funding environment since the early 2000s has extended a very strong cycle for CROs, particularly on the Phase II-IV side.”

But Windley notes that we should take a closer look at biotech cash because when “the biotech bubble bursts, so to speak, biotech stocks will drop, but a bunch of companies will have just completed financings. They won’t be out of cash the next day​.”

There are also some major differences between this latest bubble and previous infusions of funding into the industry.

I’m certainly not one to deny that this funding cycle will eventually come to an end​,” Windley said. “However, key differences would be that FDA approvals have improved​” and innovation is changing in a couple of ways, such as sponsors bringing actual cures to market in some key cases, such as in Hepatitis C, while the leveraging of genomics “is delivering some payoffs​.”

Other experts seem to think that this wave of biotech cash could also cause more CROs to go public.

Michael Mortorelli, director of Fairmont Partners, noted that the low cost of borrowing is driving investments into both the biotech and CRO industries, though he added that when “you look at the amount of PE [private equity] money in the industry, something is going to give in the next couple of years in terms of [companies] going public. That’s the nature of what PE does​.”

Related news

Show more

Related products

show more

Local Lab Data Management

Local Lab Data Management

Q2 Solutions | 01-Jul-2020 | Technical / White Paper

When a clinical trial requires local or point-of-care laboratory testing, managing the resulting data can be a significant burden to both the sponsor and...

Laboratory Solutions for COVID-19 Clinical Trials

Laboratory Solutions for COVID-19 Clinical Trials

Q2 Solutions | 10-Jun-2020 | Clinical Study

As a leading laboratory services organization for trials across the globe, we are proud to partner with clients to support COVID-19 clinical trials. Our...

Parents as Gatekeepers for Children with Cancer

Parents as Gatekeepers for Children with Cancer

PRA Health Sciences | 08-Jun-2020 | Technical / White Paper

The RACE for Children Act will require new drugs intended for adult cancer treatment to also be studied in pediatric cancers when the molecular target...

Related suppliers

Follow us

Products

View more

Webinars