PE interest in CRO and services sector growing, says report

COVID-19 has increased demand for clinical trials and related services, creating opportunities for private equity (PE) investors, according to new analysis.

Consulting group Grant Thornton made the comments in a report analyzing investment dynamics in the healthcare space. The analysts revealed that last year was a very active year for private equity in the healthcare, pharmaceutical and services space.

They wrote that, “Despite the COVID-19 pandemic, US healthcare companies posted record PE deal count and the third-highest deal value of the decade in 2020.”

“Investors prioritized significant investment into and preparation for greater reliance on remote care options and overall robust digital infrastructure.”

Examples of CRO-focused PE investment in 2020 include Genesis Drug Discovery & Development (GD3) acquisition of California-based Comparative Biosciences.

Also Headlands Research, a KKR company, bought the JEM Research Institute, a central nervous system (CNS) focused clinical research center and Toronto Memory Program, a clinical trial facility specialized in Alzheimer’s disease studies.

And in December Investcorp acquired Sanos Group, a provider of specialized clinical trial services based in Denmark.

Clinical revenues

The PE industry’s focus on digital and remote care benefited the clinical and lab services sector according to the authors, who said revenue growth at such companies made them particularly attractive to investors.

“Healthcare businesses that take risks and have capitation models have benefited from the pandemic. While providers continued to collect capitated payments, utilization of services dramatically declined, which resulted in significant windfalls. The increased earnings in value-based care models intensified interest from PE.

“Laboratory services and clinical-trial-site businesses are also subsectors that experienced heightened volume due to COVID19.”

The authors also noted that the physician practice management sector – organizations that provide non-clinical practice management services to medical practices – has also benefited increased demand for lab services.

“Many PPM practices have reaped the benefits of this market demand. In fact, some PPM practices are creating their own labs, which can provide timelier results and are more cost-effective.”

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