CROs used to be grouped into 3 buckets based on annual revenues: large, midsize and small/niche.
The companies in each bucket were rather clear:
- Large: Quintiles, PPD, Covance, inVentiv, PRA, Icon, Parexel, and INC Research
- Midsize: Medpace, Chiltern, Premier Research, Worldwide Clinical Trials, Synteract, and everyone else > $100m
- Small/niche: The rest of the field
The recently announced merger between inVentiv and INC Research along with the Quintiles-IMS and LapCorp-Covance combinations may have officially added a new bucket to the list.
I see four categories today:
- Mega: Quintiles-IMS, Covance-LabCorp, Inventiv-INC Research, and PPD
- Large: PRA, Icon, and Parexel
- Mid-size: Medpace, Chiltern, Premier Research, SynterAct, Worldwide Clinical Trials, and everyone else > $100m
- Small/niche: The rest of the field
Several years ago, it was assumed that all CROs below the large in size and scale would lose market share, as they wouldn't have the global footprint or capabilities needed to compete with the bigger players.
With the recent news that Parexel is exploring a sale, it appears that the large CRO category may become extinct.
However, the inVentiv-INC merger doesn't come as a great surprise. The large CRO category seems to be stuck between being large enough to partner with large pharma, but now have to deal with 3 super-sized competitors with more capabilities. They may also be too large to be the selection of choice for small pharma, biotech, and medical device companies.
Ironically, this merger activity could be a boon for all CROs placed in the mid-size/small bucket. These CROs can continue solidifying their status as the partner of choice for small pharma/biotech/medical device.
What will be interesting to see is if more significant transactions occur in the near future. I will also be interested to see:
- Who ends up acquiring Parexel
- If one of the large CROs acquires Chiltern (who reportedly is rumored to be up for sale per a Reuters report)
- If two of the three remaining large CROs combine to create a fifth mega CRO
- Lastly, if the mid-size to small CROs benefit from all the consolidation activity at the top of the food chain
I've learned over the years that pharmaceutical outsourcing is a dynamic industry. Right when you think you know what is coming next, the opposite occurs – but I do know it will be fascinating to watch the next steps unfold.
Jason Monteleone is a guest contributor to Outsourcing-Pharma.com’s Pharma Finance column.
Jason is the president of Pivotal Financial Consulting, LLC, which provides divestiture assistance, acquisition advisory services, and strategic planning to the pharmaceutical outsourcing industry. He was previously CFO at Theorem Clinical Research and Omnicare Clinical Research and senior finance director at MDS Pharma Services.
Contact Jason at jmonteleone@pvtfinance.com and follow him on Twitter @JMPivotal.