Clinical Research Site Space: Will it Consolidate?
Clinical sponsors and clinical research sites drive clinical research in the United States and beyond. As TrialSite News recently reported, research sites in the U.S represent a highly fragmented market. They are represented by a complex mix of commercial operations, academic centers, research units of health systems and providers, physician networks, specialized research sites and boutique clinical practices. They are also represented by other organizational models such as site management organizations and integrated site networks. The number of actual research sites worldwide varies depending on who you speak with. TrialSite News proprietary database counts hundreds of thousands factoring in all centers and sites in rapidly growing China and India. However, a well-known “one and done” problem in the U.S. and beyond persists—a physician will become a clinical research investigator (hence representing a “Site”) and work on a clinical study only to never participate in another study again due to a well-documented confluence of factors and forces.
Fragmentation and Consolidation Potential
Commercial sponsors and CROs utilize approximately 3,000 research sites for clinical trial execution. This represents 7.5 percent of the total 40,000 physician count that have participated in research at least once. Of the approximately 1 million licensed physicians in the U.S. only 4 percent (40,000) have engaged in clinical research. The “one and done” problem considerably reduces actual investigator count that undertakes multiple studies over time. However, with new initiatives for site engagement, site-specific technologies and standards as well as the clinical research as care trends, investigator participation could increase over time.
Edgemont Capital Partners is a prominent middle market healthcare investment bank with a focus on pharmaceutical services. A leader in facilitating research site mergers and acquisitions, Managing Partner David Blume notes to TrialSite News that the clinical research site space is fragmented, representing opportunities for selective partnerships, joint ventures and acquisitions designed to generate operational scale, enhance performance and improve business development outcomes. Blume comments that perhaps 10 percent – 20 percent of research sites across the U.S. repeatedly benefit from a majority of the commercial sponsor business. Blume works with a group of private equity investors seeking to consolidate and drive efficiency, excellence and scale in the fragmented research site market.
TrialSite News anticipates more consolidation as private equity groups invest based on the opportunity to drive efficiency, scale and leverage in the dynamic multi-billion-dollar research site industry. The market for clinical research continues to morph and change. The move toward precision and targeted therapies, combined with the drive toward value-driven, evidenced-based care will create new opportunities for research sites. But risks will increase, and many research sites could be left behind if they cannot adapt, invest and scale.
The development of new drugs and therapies as well as devices and diagnostic tools (including digital therapies) represents one of the most value-added activities worldwide. The costs and risks are high; the stakes are grand in many cases. The rewards can be astronomical in monetary terms and for human life. The need for operational excellence, scale and leverage greatly advantages research sites. A select group of private equity players have been carefully moving into clinical research—buying up clinical research sites to create consolidation platforms. They have not been the only acquisitive force, as from 2014 – 2016, CROs were dipping their toes into the research site M&A space. What follows is a survey of select private equity players in the clinical research site market.
Private Equity Involvement
A handful of firms have quietly moved into and now operate research sites via direct equity ownership. What follows is a survey of transactions that have occurred over the past few years.
Linden Capital Partners
Last May in an Edgemont Capital supported transition, investor Linden Capital acquired Evolution Research Group (ERG) from its investor DFW Capital Partners. Linden Capital Partners is a Chicago-based private equity firm focused exclusively on leveraged buyouts in the healthcare industry. The group has developed a three-pronged strategy including 1) healthcare specialization 2) integrated private equity and operating expertise and 3) strategic relationships with large corporations. It focuses on middle market platforms in the medical products, specialty distribution and pharmaceutical, and services segments of healthcare. Linden’s heritage has deep roots with First Chicago Equity Capital, the private equity arm of First Chicago which became part of First National Bank of Chicago (now J.P Morgan). Founded in 2004, Linden has invested more than $2 billion in healthcare companies and today manages nearly $3 billion of commitments augmented by Limited Partner capital for larger transactions.
In their ERG acquisition, they now operate a leading independent clinical research site business serving commercial sponsors and CROs with a focus on neuroscience and other specializations. With 21 high quality-focused research sites (10 wholly-owned and 11 affiliated), and over 40 dedicated investigators including several key opinion leaders, Linden establishes a solid foundation to expand upon and grow. ERG has completed over 5,000 clinical trials phases 1-4 through a combination of its outpatient and inpatient facilities—380 beds across the U.S. with access to more than 215,000 special population participants and healthy volunteers for clinical research. Linden has established a solid foundation for which to grow a nationwide, if not global clinical research site operating platform.
Great Point Partners (GPP)
Founded in 2003 and based in Greenwich, CT, GPP manages $1 billion of equity capital making healthcare focused investments in the United States, Canada and Western Europe. GPP manages capital in private (GPP I, $156 million and GPP II, $215 million fund) and public (BioMedical Value Fund, approximately $600 million) equity funds. It provides growth equity, growth recapitalization and management buyout financing to more than 100 growing healthcare companies. It places an emphasis on biopharmaceutical services and supplies, services, outsourcing, pharmaceutical infrastructure and information technology enabled businesses. GPP acquired and recapitalized Alliance Biomedical Research (ABR) in 2016 and created VitaLink Research. ABR was founded in 2004 and has become a leading regional commercial research site with 11 locations in the southeastern U.S.. Based in Greenville, SC, ABR promotes on its company website that it consistently exceeds sponsor and FDA expectations during all quality audits while continuously ranking in the top 10 percent in global enrollment. ABR touts that its clustering of research sites provides the opportunity for inter-site cross training, idea exchange, and standardization of operating procedures. Again, the asset is now rebranded as VitalLink. In 2017 GPP’s VitalLink Research acquired Greenville, SC-based Upstate Pharmaceutical Research (UPR). UPR focuses on providing Phase II-IV clinical research with a respiratory therapeutic focus. The addition of UPR will enable VitaLink Research to provide high-quality clinical research to greater number of subjects throughout the Carolinas. GPP seeks strategic, targeted growth and intelligent research site consolidation via its VitaLink platform. GPP represents one of the leading private equity-based clinical research site consolidation market participants.
Waltham, MA-based Webster Capital was formed in 2003. A private equity firm that seeks to unlock company potential, its acquisition strategy focuses on branded consumer and healthcare services companies, with EBITDA between $3 and $15 million. It is currently investing in its third fund and has raised over $900 million of capital. Webster Capital has been on a good run. In its Fund IV capital raise, it was oversubscribed and received commitments from both new and returning limited partners, including institutional investors from Europe, North America, Asia and Australia—raising $875 million on an original target of $650 million. During August 2018, Webster Capital acquired clinical research site and services provider JBR Clinical Research (JBR).
Founded in 1986, Salt Lake City, Utah based JBR is a clinical research site manager for multiple therapeutic areas. JBR has completed nearly 500 clinical studies across phase I-IV since its inception. Using proprietary training and methods, they promote that they can produce study details unlike other research organizations.
Avego Healthcare Capital
Avego Healthcare Capital was founded in 2015 by a group of healthcare entrepreneurs with a passion for building high growth, market-leading companies. Avego focuses on the following investment target areas:
- Building Pharmaceutical Platforms
- Growing Pharmaceutical Services Companies (including research study sites)
- Investing in Niche Healthcare Businesses
In April 2018, Avego made its first research site acquisition by picking up and recapitalizing Meridien Research. The deal was brokered by investment bank Edgemont partners (its 21st clinical research site transaction). Of note, Meridien Research was a portfolio company of a group of private equity groups including Celerity Partners, Balance Point Capital and First New England Capital. Directly fitting into its investment thesis, Avego now owns Meridian Research, a leading multi-specialty clinical research site company operating six sites in Florida, ans focusing on conducting Phase I-IV in-patient and outpatient trials across more than 50 indications. Meridian Research was founded in 2000. It conducts early and late stage clinical research studies for global and mid-sized pharmaceutical and biotech sponsors and CROs. It maintains six privately-owned clinical trial facilities located in St. Petersburg as well as other Florida sites. The company touts that it is a leading research site services company specializing in a broad range of therapeutic areas, including central nervous system, mental health, neurology and metabolic and endocrine disorders.
Audax Private Equity
Founded in 1999, Audax Private Equity (Audax) has been focused on building leading middle market companies. Audax has invested $4 billion in 105 platforms and 573 add-on companies. Through a rigorous buy & build approach, Audax seeks to help platform companies execute add-on acquisitions that drive revenue growth. They manage approximately 13 billion dollars. In 2018, Audax acquired clinical research organization Altasciences Company, Inc., a leading early phase contract research organization. Altasciences has over 25 years of clinical research under its belt and over 250 clinical trials in a diverse array of therapeutic indications and targets. They offer a unique focus supporting drug development from lead candidate section to proof of concept. They have acquired and incorporated other assets and now their platform includes Algorithime Pharma in Montreal, Quebec, Vince & Associates Clinical Research in Overland Park, KS, Algorithime Pharma USA in Fargo, ND, and Altasciences Preclinical Services in Seattle, WA. It is anticipated that Audax may leverage the Altasciences platform to expands and acquire multiple research sites.
Navimed Capital is a DC-based private investment firm focused exclusively on the healthcare industry. They partner with select company management to build compelling businesses for the new era of healthcare. Formed in 2010, NaviMed have nearly 50 years of combined investing and operating experience in the healthcare industry and have funded more than 25 innovative companies. The firm focuses on investments in companies having at least $10 milliion of existing annualized revenue. Navimed acquired clinical research site Velocity Clinical Research. Navimed was a result of a merger between CRISOR and NHCR, and banker David Blume was again involved with this deal.
M3 (Sony Communications Network Corp Spin-0ff)
M3 operates m3.com, a specialized web portal for medical professionals that delivers healthcare related information to its 250,000+ physician members in Japan. It offers marketing and clinical trial services. Its U.S. subsidiary is based in Fort Washington, PA. In addition to Japan and the U.S., it has presence in the U.K., France, China, Korea and India. It is aggressively pursuing expansion overseas and has amassed over 4.5 million physicians as members across their global platforms—enabling the provision of services such as marketing support, marketing research, and job placement support that leverages the platforms media channel. M3.com was established in 2000 with Sony Communications Network Corporation, a supplier of network-related services, as the largest stockholder. The company was founded in 2003. M3 generates approximately $375 million and employs approximately 500 people.
In 2018, M3 embarked on its clinical research site acquisition strategy by acquiring Wake Research. Wake operates 12 clinical trial execution facilities broadly across the United States, including North Carolina, Texas, California, and southern areas of states stretching across from the East Coast to the West Coast, with specialties in the area of CNS and other diseases. Furthermore, partnerships with regional hospitals allow provision of access to over 700 thousand patients. Wake has made multiple acquisitions. Wake was formed in 1984 and is based in North Carolina. It employs approximately 100 and generates between $15 and $20 million in revenue with a focus on CNS, Gastroenterology, Gynecology and Dermatology.
M3 sought to achieve synergies in the acquisition, including patient recruitment optimization as well as the first step toward the establishment of an efficient large-scale clinical trial support services. It also sought to expand the clinical trial facility network centralized around Wake, via initiatives such as additional acquisitions with the goal of establish a strong presence with the $1.5 trillion yen ($13.8 billion US) addressable market through provision of large-scale yet efficient clinical trial support services.
Just in the past year, a series of significant clinical research sites have been directly acquired by private equity groups (in one case the acquirer was a Japanese online venture seeking to consolidate in clinical research). These private equity investors see the potential to establish an integrated platform for expansion in a highly fragmented but critically important clinical trials industry. M3 identifies the clinical research site market at $13.8 billion. TrialSite News estimates that there are potentially hundreds of research sites that could benefit from well-structured partnerships or select mergers and acquisitions. Private equity investors seek assets to purchase, combine and integrate to capitalize on the advantages of scale for clinical research site services. Clinical trials business dynamics create opportunity for consolidators to establish integrated site assets to help address the specific challenges of subject recruitment and increased operational demands placed on sites by sponsors and CROs, not to mention regulatory readiness. Although many research sites may not specifically fit private equity buyer target investment criteria, many will. TrialSite News expects further M&A activity associated with clinical research sites.Source: