Experts urge CROs to be ready for exit of private equity
Financial experts at Partnerships in Clinical Trials or PCT warned that the exit of private equity in contract research organizations (CROs) could threaten its robust growth, according to a report on the website Outsourcing-Pharma. Last week, Fairmount Partners Director Michael Martorelli told an audience in Vienna that CROs were posting high growth rates compared to pharmaceutical firms which were struggling with high costs and other issues about patent expiration and pipelines. This, he said, may lead Wall Street to think that the companies will continue to perform well.
Despite the overall boom in the industry, Martorelli said there were possible issues that could pose problems for individual firms as well as the wider market. He cited the attention given by private equity firms to CROs. Martorelli said in the last three years, US-based private equity companies had bought 12 CROs. These CROs included InVentiv, PRA, INC Research, Theorem, MedPace and PPD.
CROs are independent companies that take care of the development process of drug production, like conducting clinical trials in humans after a new molecule has been identified by a pharmaceutical firm.
Jina Ventures Head of Life Sciences Paul Richter said although public CROs like Quintiles, Covance and Icon were transparent in reporting their book-to-bill ratios, private CROs aren't as obvious. He said private equity companies exit from the CRO companies they invested in after five years but they are not clear on how they are going to do it.
However, Martorelli said private equity companies were motivated by different things. Their presence is also beneficial to the industry that some CROs realized that they lacked financial discipline after private equity steps in.
There were also other factors that were said could be detrimental to CROs. These include unexpected quality, issues in clinical research in India, nervousness of stock investors and problems with money. Spending limitations established by Big Pharma on research and development may also be a threat to CROs, the report said.