CROs remain an attractive investment option for private equity organizations according to analysts who cite growing funding opportunities and continued demand as growth drivers for the trials sector.
The analysis – by Chicago, Illinois based law firm McDermott Will & Emery – looked at the current market outlook for contract research organizations (CROs) and the key differentiators making them attractive to private equity investors.
And – according to authors Paul Gadlock and Joel Rush – conditions in the CRO space are key.
“Following the biotechnology funding winter, capital markets have bounced back well from a funding standpoint and investor interest in CROs has since grown.”
The McDermott team also cited a shift in the type of work the pharmaceutical industry is handing over to contractors as another factor.
“Beyond market reasons, this is in part due to the shift by pharmaceutical companies toward outsourcing clinical trial management to CROs. It’s also in part due to an increase in study starts as biopharmaceutical companies seek to refresh pipelines after product patents expire.
“In general,” they add “completing clinical trials is mission critical service for pharma companies that have poured significant resources into research and development and into bringing a product to market, so the uptick in investing in CROs is likely to continue.”
Differentiators
The analysis also looked at the specific factors the private equity sector looks for when choosing a contractor and found that personnel and performance are key.
“Because CROs are service businesses, an investment firm interested in a CRO will first look at the talent and capabilities of the organization’s leadership team. Firms are more likely to invest if they are familiar with the CRO’s leaders or have backed them before.”
Investors also value success according to the authors, who say PE backers will spend significant time assessing whether there are any question marks associated with a CRO’s culture of compliance or whether there are any suspicious deviations in reporting not identified up front.
They also identified a CRO’s willingness to embrace new technologies as an investment driver.
“Because scale matters, CROs can optimize logistics management by automating certain functions with artificial intelligence (AI). The objective in so doing is to reduce the administrative burden on skilled individuals and allow them to realize their potential as thought partners.
“Companies have successfully implemented AI for a variety of use cases, including in medical writing, in pharmacovigilance and product safety to conduct literature searches, and in drafting documents for annual Investigational New Drug Application reporting updates.”
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