Parexel CEO: Consolidation has created ‘ferocious’ competition among CROs

That competition is being driven by consolidation in the CRO space, which has helped to create many of the CROs that most recently went public, such as INC Research, and may also cause some of the smaller players to think about ways to grow their businesses or push into new niches.

“We probably have fewer competitors today than we’ve ever had​,” von Rickenbach told us, noting that it’s going to be increasingly difficult for smaller CROs to compete in the industry.

“If you have a real bona fide niche, or a clearly differentiated offering, you’ll probably have a good run, but other than that, it’ll be increasingly tough​,” he said, noting that competition right now is playing out “at every level: cost, expertise, technology, timing, you name it…Competition amongst the top players is ferocious, and it usually works in favor of the customer​.”

The expectation for more consolidation comes as the biopharma industry “has never been more fragmented than today​,” von Rickenbach said, noting the large percentage of intellectual property coming from smaller companies. And whereas 20 years ago, when Big Pharma drove the action, today you see the smaller companies winning drug approvals, and larger companies poaching smaller ones to buttress their pipelines.

“I think the mega mergers in the biopharma space have not created much value – if they come back it’s simply because people have amnesia around how vacuous they really were. In the end it’s all about the pipeline​,” von Rickenbach added.

Areas Needing Work​

As far as pain points for the CRO industry, von Rickenbach said that there seems to be some major overlaps in the way audits are conducted, and inconsistencies in the amount of oversight from clients.

Last year, Parexel was audited more than 1,500 times from regulators, NGOs and sponsors – sometimes even by different departments from the same sponsor, Von Rickenbach added.

“[The number of audits is] not going to go down to zero but let’s say within a large client company, you would expect that they would consolidate and coordinate that better, which would take down their own cost basis​,” he said, noting that all of Parexel’s audits “came out fine. It would be a different story if every other audit would show disastrous findings but just to go in and confirm things are OK seems to be redundant​.

“In many cases I would say oversight is another example​” of where the industry needs work as the promise of strategic partnerships “was that we would need less oversight and I would say we do. If you look at the small companies, they get approval at a higher rate than the larger companies and they have very little oversight [of their CROs] because they don’t have the resources or the manpower…[whereas] large companies have tremendous amount of oversight…a little more trust actually would not hurt​.”

Major M&A Coming​

As far as potential mergers and acquisitions are concerned for Parexel, von Rickenbach said bigger deals than what they’ve done recently – which includes the purchase of QSI​ in India -- could be on the way.

“What we have done recently is reviewed our financial situation and balance sheet and felt that acquisitions would be a more important part of our strategic plan going forward​,” he said, noting that the company has “beefed up​” its M&A teams as the company prepares for “maybe not necessarily more deals, but a bit bigger​.”

New therapeutic expertise or technology “could be interesting​,” he added.