Preclinical prices improving says Huntingdon CEO; firm is mulling US capacity expansion
Since UK-based preclinical services firm Huntingdon Life Sciences (HLS) bought Harlan Laboratories in May last year the firm has been busily reorganizing into a research models unit and a contract research business.
In an exclusive interview CEO Brian Cass told Outsourcing-pharma about the complexity of melding two companies, how growing biotech demand and big pharma expectations are driving recovery and how the UK-headquartered firm is competing in the US.
When the acquisition took place last year you told us there was not a great deal of overlap between the two firms in terms of capabilities and customers – What are the new (research model) capabilities Huntingdon has added to its offering?
The merger of HLS and Harlan has created a global CRO with a full non clinical service offering in addition our new company is the second largest supplier of research models and services (RMS). Within our RMS division we offer a range of standard and specialty rodent species, as well as dogs and guinea pigs; diets and bedding for laboratory animals, including both standard and customer research diets; and a suite of specialist services, such as surgically pre-implanted models and custom breeding of our customers’ animal models.
Can you give me an idea of the complexity of integrating the two companies?
Merging a $200m business and a $300m business and fully integrating their operations is of course a complex challenge, however, the cultural similarity between the two companies has helped enormously in this task. A key focus for both companies was customer service and throughout our integration we worked hard to ensure our customers’ needs have remained our highest priority.
We have created a strong executive leadership team comprising individuals from both legacy businesses, and they have gelled really well into an effective force to execute that integration. We did identify integration synergies in one of the CRS facilities in Switzerland and so are closing that particular site. However, as a result we are adding some limited capacity at our UK and German sites to transfer that work. We have a great team working on the integration and we’ve brought in specialist consultant resources to help where needed. We have a clear roadmap and are confident on successfully completing what we need to in the next year or so. The most notable positive of the integration has been how positively our customer base (both potential and current) has reacted.
As I understand it you now have a network or 38 sites (5 from Huntingdon and 33 from Harlan). Is this correct and can you tell me which counties you now operate in?
That’s right. We now have 9 CRS sites and 20 RMS sites across Europe, North America, India and Israel. The rest are distribution centers and sales offices. The great thing about our network is now we have sites close to all of our main customer geographies.
In which regions do you expect to see greatest demand for pharmaceutical?
Well at the moment I think that we and other non-clinical CROs are beginning to see a rising tide of work from both the small biotech companies, who have had more access to capital in recent times, and the larger pharmaceutical and biotech companies, many of whom were concentrating their development spent on later stage assets in the last few years. North America is particularly strong, though we are now seeing increasing strength from Europe. All CROs have experienced the increase in biologic molecules entering development over many years, which has meant we all had to expand our service offering, with the additional capabilities and capacity of our new company we believe we are well positioned to further capitalise in this area.
Various reports say capacity utilisation is increasing and that this is driving up prices. Is this true for your company?
It is definitely true that we are seeing better capacity fill rates than we have for a while. I also think that we and the other major players in this space have been fairly careful in talking about any immediate or significant impact on pricing levels. We have definitely seen some directional improvement, but it is difficult to make any specific claims.
Recovery in the US is being driven by smaller biotech customers securing financial backing. Are you seeing an increase in demand from smaller biotechs?
The outsourcing market is being driven by both smaller and larger companies. However, we have definitely seen a strong increase in sales from our biotech customers, partially because we believe we’re executing a great sales and marketing plan at the moment, but also because we see a general strengthening in demand from smaller companies. The money has clearly returned to this market and we are now seeing increasing funds coming from Governmental bodies and via venture capital - particularly from investing arms of pharma companies. For us as a business, 2014 saw our strongest year in this segment since 2007 - which roughly follows the recovery in financial markets. We are really well set within this sector as many of the small, nimble operators look to us to help them develop their drug, right down to an understanding of its chemistry.
What is the trend in demand from larger pharma?
Overall the relationship with big pharma has changed a great deal. There is a real added value part of the sell now – back 15 years it was more of a tick box exercise with the regulators, and they expected similar studies with similar outcomes. With the rise of biologic technologies, understanding the pharmacology of drugs is far more important. There is a key focus on the actual pathway during drug development and how the drug acts, all the way through from late research to preclinical and clinical. The paradigm is changing and the successful CROs will be those offering additional scientific understanding and great customer service, and these are essential core tenants running through our business.
A wave of consolidation is sweeping the preclinical services sector – CRL’s acquisition of Galapagos, CitoxLab’s various deals, LabCorp’s takeover of Covance – What does this say about the market?
This has always been a very attractive and competitive market, and perhaps more so since 2008. Over the last 5-10 years we have seen an increasing drive for customers to look to providers who can give them more value in helping develop their products. Those providers who can add the most value, through broad product and service offerings, geographic reach, and scientific and technical excellence have done well against a very competitive backdrop.
Can Huntingdon-Harlan compete in the US? Surely Covance or CRL are always going to hold the lion’s share of that market?
We already are competing very effectively in the US, both HLS and Harlan separately performed successfully here in the past - as evidenced many times over the years by winning a number of global preferred provider deals. Whilst those competitors are larger than us in non-clinical, we believe we are well positioned to win market share based on our well recognized scientific and technical excellence, and the value we bring to our customers. We’re also in a good place to consider how we might add scale to our US CRS operations in the future. And, on the RMS side of our business we are already the second largest provider of research models and services both globally and in the US.
What is next for Huntingdon-Harlan?
Well our first objective is to finish the job of integrating these two long-standing companies and so continue to increase the value we bring to our current customers and those we are winning. Our success in delivering that, in addition to the structure and scale of this new, half a billion dollar company, will give us plenty of opportunities to think about how we continue to improve our company in the future – so do watch this space!
Huntingdon-Harlan are set to announce a new name for the company this year.
