From 1997 to 2003 ten service providers were created by spinning-out assets owned by biopharm companies. Shedding assets allows the parent company to cut costs and focus on its core activities, while potentially gaining a stake in a new growth business.
“If an internal project is spun-out and has the opportunity to commercialise its technology and knowledge for a broader customer base [there is potential for growth]”, researchers wrote in the Journal of Business Chemistry.
The researchers cite Accovion, formed in 2002, as an example of a successful CRO (contract research organisation) spin-out. Accovion was formed from clinical research, pharmacovigilance and medical writing assets at Aventis, itself a spin-out created after the merger of Hoechst and Rhone Poulenc.
Accovion has grown operations, setting up subsidiaries in the UK, Czech Republic and Russia in the past year, by commercialising the technology and knowledge possessed by Aventis. However, the researchers warn that the benefits of this type of spin-out can be uneven.
“For service providing spin-outs, the outcome is mainly perceived beneficial from the spin-out’s perspective, while the parent organisations are more sceptical”, the researchers wrote. However, by retaining a stake in the spin-out, as Aventis did with Accovion, parents can profit from the growth.
The researchers formed their conclusions after interviewing people involved with the spin-outs of service providers and research and development-driven biopharm companies. In total 43 European spin-outs were profiled.
“Overall, research and development spin-outs do seem to have a positive impact for both the parent organisation and the spin-out team, in terms of flexibility, motivation and overall performance”, the researchers said.
New wave
Data compiled by the researchers shows an uptick in CRO spin-outs around the millennium and little since. Spin-outs are most common two to three years after large pharma mergers and acquisitions, the researchers found, and as such the 2009 wave of mega deals should now be creating new CROs.
On a small scale this is happening. After Pfizer made cut backs at Sandwich, UK, former employees created The Research Network, a consultancy and outsourcing service provider located at the site.
Pharma has also shed assets by transferring them to partner CROs as part of strategic partnerships. Eli Lilly, Sanofi and Merck & Co have all taken this approach as an alternative to spinning-out sites to form new CROs.
In some cases neither option may be viable. Pfizer failed to find CROs to occupy its Sandwich site and AstraZeneca’s search for a buyer of its Charwood, UK site has so far been unsuccessful. Overcapacity in the preclinical sector makes some sites less attractive as spin-outs or to potential CRO buyers.