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There will be a continued amount of cross-border small-scale acquisitions in the contract research organization (CRO) industry, as more trials increase in size and go offshore, industry sources told Pharmawire.
With a major untreated patient population, a high level of expertise and low cost margins, US firms are garnering M&A interest in Asia.
As consolidation continues, there will be fewer smaller CROs and more mid-sized CROs with a global presence, sources said. US-based PAREXEL’s acquisition of Taiwan-based Apex International Clinical Research for USD 54.5m last year signaled a shift in strategy, where an increasing number of US firms acquired access to the patient population in Asia via acquisitions, they reiterated.
Terry Hisey, vice chairman and US Life Sciences Leader for Deloitte LLP said there will be increasing deal flow and consolidation between both Asian and US CRO companies.
”Foreign CROs are going to be an increasingly visible component of the industry as we move forward,” said Hisey.
In the current regulatory environment, and with the emphasis on safety, an increasing number of trials will have to be conducted in order to replace ”the blockbusters” that are going off patent.
Bill Suddath, managing director of the Health Care investment banking group at Robert W. Baird & Co said the trend towards an increased global out-sourcing ultimately comes down to patient access. A lot of domestic CROs have looked for global reach, and have looked to India given the access to the patient population and its potential for growth.
Patient recruitment is one of the most significant items in terms of a clinical trial, and people are going to look at alternate geographies for patient recruitment and access, he said.
With Jubilant active in the API (active pharmaceutical ingredients) sector, a second industry banker said Asian firms such as China-based, Wuxi Pharmatech, have made leeway into the US market via acquisitions. “You want a global solution for your pharmaceutical partners whether it is in Asia, Europe, or the US,” Suddath said.
iGate Clinical Research, an Indian-based CRO, would entertain approaches from US strategic partners, according to a company source. The company provides a complete range of Phase II-IV trial support services, and is the only CRO in India with research-dedicated CAP-accredited clinical labs.
Although there will be ongoing consolidation, he did not believe it would be on a large scale. “Charles River is currently trying to diversify its business, and if that comes through acquiring someone or merging with someone, that is feasible,” he added.
When asked whether contact manufacturing firm, Wuxi Pharmatech, will be one of the big ones to watch for during the year, he said there are a number of other CROs in China. Wuxi was the first CRO from China to list on the NASDAQ. This will be an increasing trend to watch out for, he added.
As people take advantage of the talent pool in Asia and leverage testing, the acquisition of smaller firms that bring specialization or add capacity to support this increased demand will likely increase, agreed Hisey. US firms are not just acquiring targets overseas to access the patient population, but the talented resources there. “As we move towards more targeted and tailored therapies, it moves from phenotype to genotype,” said Hisey.
The current industry landscapes in both China and India are extremely fragmented, with a number of small-scale CRO firms in competition. There will be “huge consolidation” as larger global companies want to garner critical mass, said Ashish Sanghrajka, Managing Partner at BIO-IB, an Investment Banking and Advisory firm focused exclusively on the Life Sciences Industry.
”While the trend towards global outsourcing of clinical trials increases, this will in turn trigger more consolidation,” Sanghrajka added.
Dinesh Jain, CEO of US-based CRO Aagami, said multinational firms that want to establish a base in India will acquire targets similar to Parexel’s acquisition of Synchron Research or PRA International’s acquisition of India-based Sterling Synergy. “There are companies who I know are planning to takeout CROs in Canada and the US,” he added.
Attractive acquisition targets would be companies with a good customer base that are struggling with current infrastructure, resources or finances, he said. “Indian CRO companies are going to come out in a big way, similar to the IT industry and engineering industry,” he added.
Cardiovascular, oncology, infectious diseases, and chronic diseases like diabetes will also force Western companies to conduct trials overseas as there is a large untreated patient population in Asia. “Once they go to India, they realize how good the quality is and how fast the recruitment rate is,” he said.
There are hardly any differences between China and India when it comes to pricing, but one negative factor for China is the SFDA regulations, China’s equivalent of the FDA, which does delay regulatory approvals, the Aagami executive said.
The International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH) is a unique project that brings together the regulatory authorities of Europe, Japan and the United States and experts from the pharmaceutical industry in the three regions to discuss scientific and technical aspects of product registration.
Indian authorities, however, have made the regulatory framework much easier. “These days for certain indications, if you can prove that the study is being conducted simultaneously, then Indian authorities can even approve the trial as quickly as four weeks, provided that ICH countries like the US, UK, Germany, Japan are doing the same thing.” However, trials on average will usually take nine months to one year, the Jain added.
Singapore’s Biopolis is a world-class research complex and a focal point for scientific talent. Due to the increasing consolidation in Asia, Singapore is becoming a global hub for Asia, as it attracts the neighboring talent pool from India, Thailand, Malaysia, and Indonesia. “Singapore is coming up in a big way,” agreed a second industry banker.
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