Last year a private equity-backed surge in CRO (contract research organisation) consolidation reshaped the sector but observers expect deal making to return to traditional levels in 2012.
“When you look at the players that are left nothing jumps out at me in terms of CRO consolidation”, Ciaran Murray, CEO of Icon, told investors at JP Morgan Healthcare Conference in San Francisco.
Small deals and bolt-on acquisitions will continue, Murray said, but the companies involved in big CRO consolidation will pause and “digest” last year’s takeovers. “I don’t think there will be the same extent of large-scale consolidation”, Murray said.
The comments were made the day after major preclinical CRO Charles River became the latest target of takeover reports. Analysts were divided on the likelihood of Charles River being bought.
Outsourcing penetration
The wave of deals last year pushed mid-tier CROs, inVentiv Health and INC Research in particular, closer to their leading rivals. In doing so the CROs added the scale needed to compete for big strategic deals and Murray said there is plenty more business to be won.
Strategic deals have seen big pharma companies increase use of third-parties but few use an almost fully outsourced model. However, Murray said this is where the sector is going as using a half in-house, half outsourced clinical trials model leaves companies “riding two horses”.
“The pressures we see on pharma customers, the plans they have, and the models they’re looking at all lead towards [70 to 80 per cent penetration]”, Murray said. Icon is talking to pharma companies that are considering these levels of penetration to “really variablise their cost bases”, the CEO said.