Mid-Size CRO Competitive Landscape
Last week I had a great opportunity to attend and present (on behalf of Clinipace) at Baird’s Annual Healthcare Conference in New York City. As always, the conference was well run, well attended and provided the opportunity to meet with peers, customers and investors to discuss the pharma services sector. Everyone seemed to agree that increased biotech funding, mid-size CRO consolidation and the widening gulf between the large and midsize CROs has changed the sector dynamics. A frequent question was: “Which mid-size CROs does Clinipace see as their main competition?”. Ironically, just yesterday, I received the same question during Veeva's annual conference in Philadelphia. My Answer I don’t see the other mid-size CROs as Clinipace's prime competition. Realistically we are more peers than full on competitors. Naturally, we compete in many instances, but it’s less often than the investor community might think. We compete with mega/large CROs and niche/regional CROs more often than our mid-size peers. When I first entered the industry with MDS Pharma Services back in 2007, the question was: “How can a CRO differentiate with so many CROs in the market?”. I believe that narrative has changed in recent years in mid-size sector for the following reasons:
Differentiation among the mid-size CROs
Small pharma/biotech sponsors growth along with less mid-size CROs
The widening gulf between the large/mega CROs and their mid-size counterparts
Mid-Size CRO Differentiation
Today's mid-size CROs differentiate both therapeutically and geographically. I have pulled together data taken from several of the key mid-size CROs in the market today: Clinipace, Premier Research, Medpace, Synteract, Worldwide Clinical Trials, Pharm-Olam, TFS & CROM-Source. My apologies to other privately held mid-size CROs I may have omitted (I also needed to cut off my analysis as the chat below is already tough on the eyes). The schedule below lays out the key therapeutic areas for each of the aforementioned CROs.
The next schedule (with the purple header) summarizes the number of times a therapeutic area was listed by our mid-size CRO group. As expected Oncology & Hematology was listed by every CRO (Baird & Pharmaprojects estimate that 35% of current industry pipelines are focused on oncology - which means having some oncology expertise is a must for a mid-size global CRO). You can see that after oncology/hematology and rare/orphan disease there isn't a lot of overlap among the group (in fact 11 of the 18 therapeutic areas only came up once or twice).
A bit of a similar story from a geographic standpoint, the below schedule shows that our peer group all have a physical presence in at least 2 geographic regions. However, a few items jump out. Clinipace and Medpace have made the clear decision to invest in Asia-Pac with offices in 8 countries (shameless plug but last month Clinipace welcomed its 100th employee in India). Pharm-Olam and TFS have offices in the most European countries, which is no surprise as TFS was established as a European CRO and Pharm-Olam is known for its strength in Eastern Europe. I expect more Asia-Pac expansion from this group in the future.
Increase in Small Pharma/Biotech
The increased funding has doubled the number of biotechs with active pipelines. Creating a much larger market for today's mid-size CROs over the past decade.
Small pharma/biotech had more mid-size CROs to choose from a decade ago. Which is likely many thought that the mid-size CRO would become extinct as it was harder differentiate and compete (with a small customer pool).
With more buying customers and less competition, the mid-size CRO market has proven itself as a needed segment of the CRO market and has demonstrated long-term viability.
Mega/Large CRO Revenue Growth
I consider the mid-size CRO sector to include global CROs with revenue between $100M and Medpace's $700M, including pass-through revenue (Medpace being the largest mid-size CRO on the market). Mid-size CROs quickly reacted to the new market dynamics and focused their businesses on partnering with small pharma/biotech. The sustained success of the mid-size CRO sector suggests that smaller sponsors like the more customized focus they receive from mid-size CROs (this doesn't suggest that large/mega CROs aren't great companies - they certainly are but like all service industries its hard to have processes to partner with the likes of Pfizer and a startup biotech). I should point out that several of the large CROs launched divisions focused on the biotech market in 2019. A few observations from the chart below:
In 2010 there were 5 mega/large CROs, due to consolidation there are now 7 in 2019
In 2010, the IQVIA was 39x larger than the average $100M Mid-Size CRO, in 2019 IQVIA is 104x larger
In 2010, the "smallest" large CRO (Icon) was about 12.6x the size of a $100M mid-size CRO, in 2019 the smallest "large" CRO (PRA) is almost 29x a mid-size CRO
IQVIA is now 15x larger than the largest mid-size CRO (Medpace)
Consolidation at the top of the CRO market was expected and not a surprise - especially as strategic relationships with large pharma started to commence a decade ago. The big companies got bigger and the mid-size CROs changed. INC Research (Now Syneos) and PRA jumped up in category.
Therapeutic and geographic differentiation at the mid-size CRO tier combined with more opportunities (created by an increased biotech funding and a widening gulf between large/mega and mid-size CROs) has changed the competitive landscape. Mid-size CROs (at least Clinipace) compete more with regional and large/mega CROs rather than mid-size peers. Seems odd that the mid-tier would be competing with larger CROs, but makes sense considering larger CROs cover almost all therapeutic areas, have lots of relationships and launched divisions focused on the biotech sector. The good news is that customers have shown they value the mid-tier CRO and its place in the pharma outsourcing landscape in here to stay.
Jason Monteleone is CEO of Clinipace & President at Pivotal Financial Consulting, LLC. Clinipace is a global mid-size CRO with operations in the Americas, Europe and Asia-Pac serving small and mid-size pharma and biotech sponsors. Pivotal provides Divestiture Assistance, Acquisition Advisory Services and Strategic Planning to the Pharmaceutical Outsourcing Industry. Jason can be reached at firstname.lastname@example.org, email@example.com. Follow me on Twitter @JMPivotal. Sign up for Jason's latest blogs and updates at my www.pivotalfinancialconsulting.com.
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