Building a 'better' CRO as sponsors drive industry consolidation

By Melissa Fassbender contact

- Last updated on GMT

(Image: Getty/oatawa)
(Image: Getty/oatawa)

Related tags: CRO, Clinical trials, PCT Europe

As sponsors drive CROs to consolidate, building a firm the size of Iqvia would take more than 20 years organically, says consultant – who shares the stuff of nightmares (and dreams).

According to Neal McCarthy, founding partner and managing director of Fairmount Partners, USA, sponsors drive contract research organizations (CROs) to acquisitions. 

Why? Because sponsors want a global CRO with expertise across the spectrum of discovery, preclinical, clinical, and post approval research, he said.

“The large- and mid-size sponsors reward CROs with billions of dollars of work every year, but their RFPs [request for proposal] require offices from Boston to Brussels, and Bratislava and Beijing, plus expertise in health economics and electrochemiluminescense,”​ said Neal McCarthy, managing director at Fairmount Partners, USA, who will be presenting at PCT Europe next week.

McCarthy’s presentation will analyze the effect of mergers and acquisitions (M&A) and how to build a better CRO as the industry continues to consolidate.

“In theory, you could build a CRO from scratch organically, without a single acquisition,”​ he told us. However, if today 10 people were hired every business day (2,600 staff per year) it would take 21 years, 1 month, and 9 days to build a business the current size of Iqvia.

“If you goals are not that lofty, you can hire just 1,000 new staff a year and nearly duplicate Icon by July 4, 2032, assuming you have no employee turnover,”​ he said – though with the industry’s retention rates, this date would fall after Christmas 2036.

“However, if you add in a focused acquisition program, you can selectively add the expertise, services, geographic coverage and size that many sponsors demand, and do quickly and efficiently,”​ McCarthy said, “and that is why there is not a single $100m CRO that has grown to that size without an acquisition.”

The stuff of nightmares and dreams

In McCarthy’s nightmare, the US government drastically cuts the price of drugs – and while for “noble reasons”​ – the unintended result is instead that “the profits of the innovators disappear, R&D budgets are slashed, and this hobbles the growth of new wonder drugs.”

Alternatively, in his dream, CRO aggregation continues, but the market continues to support new and smaller CROs that “drive innovation and provide the personalized services smaller sponsors crave.”

Additionally, he would like to see preclinical companies add early clinical services to create a single provider from bench to proof-of-concept, which he said is the “promised land”​ for small drug companies.

Also in this dream, the $15bn research site market – with only one company currently bringing in more than $100m in revenue – would consolidate as well.

McCarthy said this would enable sites to recruit patients faster, get better data, and deliver new therapeutics in record time. Virtual trial software and telemedicine would also reduce site visits and costs, he explained.

Ideally, CROs would buy the $200-300m site groups to increase access to patients. Research sites would, in turn, add biostats, project management, and monitoring services with the industry embracing the combination of sites and CROs, McCarthy explained.

“We refine our ability to use data to design better drugs that do the most good, but don’t do any harm – like pain-killers without euphoria,”​ he said of this dream, in which the industry also perfects its ability to switch the immune system on to kill cancer – and finds a cure for wrinkles.

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