Healthcare sector comment: Increasing R&D expenditure driving the global CRO market

The global contract research organisation (CRO) services market is expected to reach $56.3bn (€46.6bn) by 2023, a rise from $39.1bn (€32.3bn) in 2018, demonstrating a CAGR of 7.6%1.

The key drivers behind this growth includes; an increase in R&D expenditure and the outsourcing of these activities, and the increasing number of clinical trials – particularly from developing markets such as Brazil, China and Russia. The rise in clinical trials can be attributed to the continuously ageing population and the chronic illnesses that this brings to bear. Not only this, lifestyle diseases are also on the rise. Future-proofing clinical trials will also bring drugs to market faster, by convergence of real-world evidence (RWE) and clinical data. RWE will help with early pricing strategy, designing the Phase III trial, as well as to determine product positioning and shape the market. We will continue to see RWE interest from CROs.

In 2017, North America accounted for the largest share of the CRO service market with approximately 40% of the revenue, led by major players such as IQVIA Holdings Inc., Covance Inc. and PAREXEL International Corp. The second largest market was Europe, however interestingly, Asia Pacific is currently the fastest growing, due to the cost of developing drugs in this part of the world being significantly lower than elsewhere.

Despite the expected market growth, it has been suggested that the CRO industry may be starting to mature2, driven by slowing revenue growth, a reduction in the number of CRO businesses, and fewer new customers to the market. We expect to see high levels of consolidation amongst CROs to counter this maturing shift. By gaining scale, access to knowledge and people, maintaining margins or entering new markets, this will help companies keep a competitive edge over respective rivals.

1Global Contract Research Organisation Services (CROs) Market 2018-2023 – Growth in the Biosimilars and Biologics Markets

2Contract Pharma – CRO Market View

Over the past year we have seen the CRO market become active in M&A. Below is selection of deals we have observed over the past 12 months:

SGS SA, the Switzerland-based provider of inspection, verification, testing, certification and quality assurance services, has acquired SIT Skin Investigation and Technology Hamburg GmbH, the Germany-based dermatological contract research organisation

Spectris plc, the UK-based manufacturer of measuring instruments and controls, has acquired Concept Life Sciences Limited, the UK-based contract research organisation for €185.8m

Eurofins Agroscience Services, the UK-based subsidiary of Eurofins Scientific SE, has acquired Selcia Limited, the UK-based contract research organisation

Charles River Laboratories International Inc., the US-based early stage contract research company, has acquired KWS Bio Test Ltd, the UK-based contract research organisation for €16.9m. It has also acquired Brains On-line BV, the Netherlands-based contract research organisation for €18.0m

Sotera Health LLC, the US-based lab testing and consulting services provider, has acquired Toxikon Europe N.V., the Belgium-based contract research organisation

Phoenix Equity Partners, the UK-based private equity firm, has invested in Sygnature Discovery Limited, the UK-based provider of integrated drug discovery services

Covance Inc., the US-based drug development company, has acquired Chiltern International Limited, the UK-based contract research organisation for €1.02bn

ICON Public Limited Company, the Ireland-based clinical research organisation, has acquired MAPI Development SAS, the France-based provider of patient-centred research services for €119.6m

inviCRO LLC, the US-based provider of software for medical imaging analysis, has acquired Imanova Limited, the UK-based provider of research and drug development services

Roche Holding AG, the Switzerland-based diagnostics and pharmaceuticals business, has agreed to acquire Flatiron Health Inc., the US-based technology firm aiming to accelerate cancer research with advanced real-world evidence platforms for €1.74bn


Medical Equipment and Supplies

Alphatec Holdings Inc., the US-based medical technology company, has acquired SafeOp Surgical Inc., the US-based producer of neuromonitoring devices for €23.7m

Orthofix International N.V., the US based medical device company, has acquired Spinal Kinetics Inc., the US based medical device company for €85.2m

Laborie Medical Technologies Inc., the US-based manufacturer of medical devices, has agreed to acquire Cognetix Medical Inc., the US-based manufacturer of fiber-optic and video endoscopy products for €190.9m

Platinum Equity LLC, the US-based private equity firm, has agreed to acquire LifeScan Inc., the US-based manufacturer of blood glucose monitoring equipment for €1.71bn

Boston Scientific Corporation, the US-based manufacturer of medical devices, has agreed to acquire NxThera Inc., the US-based medical device company for €195.7m

Canon Medical Systems Corporation, the Japan-based medical diagnostic imaging systems developer, has acquired Fysicon B.V., the Netherlands-based medical equipment manufacturer

Innovia Medical LLC, the US-based manufacturer of surgical equipment products, has acquired Network Medical Products Ltd, the UK-based producer of surgical products for ophthalmic and ENT specialists

3B medical Inc., the US-based manufacturer of medical devices for breathing and oxygen therapy, has acquired VBOX Inc., the US-based developer of gas separation apparatus


Health and Social Care

Cigna Corporation, the US-based health services organisation, has agreed to acquire Express Scripts Holding Company, the US-based pharmacy benefit management company for €44bn

Encompass Health Corporation, the US-based healthcare services provider, has agreed to acquire Camellia Healthcare, the US-based home healthcare services provider for €109.6m

KKR & CO LP, the US-based private equity firm, has agreed to acquire Heartland Dental LLC, the US-based dental support organisation

Nordic Capital, the Sweden-based private equity firm, has acquired Ober Scharrer Gruppe GmbH, the Germany-based ophthalmic services provider

Castlerock Recruitment Group Ltd, the UK-based healthcare and medical staffing services provider, has acquired Healthcare Locums Limited, the UK-based provider of health and social care professionals to public and private sectors

MEDNAX Inc., the US-based healthcare organisation, has acquired Children’s Eye Care PLLC, the US-based provider of medical and surgical eye care services

Pihlajalinna Oyj, the Finland-based provider of social and healthcare services for private patients, has agreed to acquire Doctagon Oy, the Finland-based provider of occupational health services for €28.6m

Southern Veterinary Partners LLC, the US-based operator of animal hospitals, has acquired Stewart Animal Clinic P.C., the US-based provider of veterinary services


Pharma and Biotech

Nichi-Iko Pharmaceutical Co Ltd, the Japan-based manufacturer of pharmaceuticals, has agreed to acquire Elmed Eisai Co Ltd, the Japan-based manufacturer of generic drugs for €129.7m

Agilent Technologies Inc., the US-based life sciences tools and services provider, has agreed to acquire LaserGen Inc., the US-based Biotechnology Company for €84.6m. It has also agreed to acquire Advanced Analytical Technologies, Inc., the US-based manufacturer of nucleic acid and genetic analysis systems for €201.8m

Karo Pharma AB, the Sweden-based biotechnology company, has agreed to acquire Ten Products Portfolio of LEO Pharma A/S, the Denmark-based provider of pharmaceutical products to dermatologic patients for €260m

Aphria Inc., the Canada-based pharmaceutical products company, has completed the acquisition of Nuuvera Inc., the Canada-based pharmaceuticals company for €236.8m

H.Lundbeck A/S, the Denmark-based pharmaceuticals producer, has agreed to acquire Prexton Therapeutics SA, the Switzerland-based developer of drugs for Parkinson’s disease for €798.4m

Sanofi SA, the France-based provider of therapeutic solutions, has completed the acquisition of Bioverativ Inc., the US-based biotechnology company for €8.2bn

BioAdaptives Inc., the US-based research company focusing on health and wellness products, has agreed to acquire Philco Animal Health Inc., the Canada-based producer of animal health products