Download Biopharma Discovery and Development Contract Services – Indiana

Biopharma Discovery and Development Contract Services –
Indiana Market Opportunities and Funding Options
An analysis of the pharmaceutical and
biotech development and manufacturing sector
January 2008
Biopharma Discovery and Development Contract Services –
Indiana Market Opportunities and Funding Options
An analysis of the pharmaceutical and
biotech development and manufacturing sector
January 2008
Copyright © 2007, BioCrossroads - BC Initiative, Inc./CICP Foundation
Table of Contents
I.
EXECUTIVE SUMMARY ...................................................................................................... 3
II.
PURPOSE AND OBJECTIVE................................................................................................. 6
III.
OVERVIEW OF PHARMACEUTICAL AND BIOTECH MARKET FORCES................................. 7
Convergence of outsourcing activities for pharmaceutical and biotechnology
companies ...................................................................................................................... 7
Defining and characterizing the outsourcing market space ........................................ 10
Contract Service Provider Scope of Services Map ....................................................... 10
IV.
RESULTING CSP MARKET TRENDS................................................................................... 11
(A) Size and Scale......................................................................................................... 11
(B) Consolidation and Fragmentation ......................................................................... 12
(C) Framework for Emerging Opportunities................................................................ 13
(D) Challenges to Outsourcing..................................................................................... 14
(1) Sponsor Transitional Issues .......................................................................... 14
(2) Offshoring vs. Domestic Outsourcing. .......................................................... 14
(3) Instructive Examples . ................................................................................... 17
V.
SPECIFIC GROWTH OPPORTUNITIES FOR INDIANA IN THE U.S. CONTRACT SERVICES
MARKET ............................................................................................................................... 18
1. Discovery (non-GLP) Services ................................................................................ 18
2. Analytical Chemistry Services................................................................................ 19
3. Pre-clinical Services ............................................................................................... 20
4. Contract Manufacturing........................................................................................ 21
5. Business Services................................................................................................... 23
VI.
CAPITAL MARKET INTEREST IN SERVICE VENTURES ....................................................... 24
Opportunities for private equity and venture capital markets .................................. 24
Private Equity and Venture Capital activity in contract services................................ 25
VII.
FINDING, FORMING AND FUNDING SUCCESSFUL SERVICE VENTURES .......................... 26
Pure startup CSPs ........................................................................................................ 26
Local Expansion of an Existing CSP.............................................................................. 27
Spinout of a Large Pharmaceutical Company ............................................................. 27
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VIII.
CONCLUSIONS................................................................................................................28
As Outsourcing Increases, Underserved Markets are Bringing Increased Opportunities
for Capital Investment in CSPs ....................................................................................28
APPENDIX I: Biopharma Development and Manufacturing in Indiana – A representative list of
companies, activities and employment ...............................................................30
Appendix II: Medco Headline and Article from Indianapolis Star ............................................31
Appendix III: CASE STUDIES OF SUCCESSFUL SERVICE COMPANY VENTURES ..........................34
Quintiles Transnational Corp......................................................................................34
Althea Technologies ...................................................................................................35
Aptuit..........................................................................................................................35
BioStorage Technologies, Inc......................................................................................36
Ricerca ................................................................................................................. 37
Appendix IV: Representative List of Indiana Contract Service Providers..................................38
Appendix V: Private Equity and Venture Capital Activity in Contract Services:
Underlying Data ...................................................................................................39
Appendix VI: GLOSSARY OF ABBREVIATIONS............................................................................41
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I.
EXECUTIVE SUMMARY
As the pharmaceutical and biotechnology industries face a series of convergent financial and
regulatory pressures, strategic utilization of third party vendors to perform essential, but noncore functions is increasing at unprecedented rates. The contract service providers (CSPs) that
serve as partners in this emerging “networked” model of drug development are consequently
experiencing record growth of 14 – 16% industry wide - - exceeding 20% in certain service
segments. As these trends continue, regions already rich with talent and resources serving
biopharmaceutical development will be able to further capitalize on existing assets and
facilitate the increased services that the market is demanding.
Factors such as increasing regulatory roadblocks, payor consolidation and demands for greater
transparency; pending patent expirations; risks from early and evolving science; increased
development expenses; escalating market and investor impatience; and growing needs for
more flexible business models moving from fixed to variable cost outlays are all familiar to fully
integrated pharmaceutical and mature biotechnology companies (“FIPCOs”). In the present
environment, FIPCOs need to become more nimble and flexible FIPNETS (fully integrated
pharmaceutical networks) by increasing focus on core competencies while looking to outside
service providers and strategic partners for assistance in validating, developing and bringing
products to market through a virtual network of business relationships.
The outsourcing forces that are facing pharmaceutical and large biotech companies are parallel
and convergent with those facing early-stage biotechnology companies. Here, the pressures
come from the private venture capital markets that have fueled their growth. As the
economics of the venture market have changed and the average price of the biotech IPO has
stagnated and dropped, venture investors are betting on an early sale or strategic acquisition
by a larger biopharma company to maximize return. As a result, biotech startups are operating
as virtual companies that rely almost exclusively on CSPs to advance product development to
the point of optimal exit or sale.
From discovery through development and commercialization, the current range of CSP services
is both comprehensive and specialized, including clinical trial management, central laboratory
services, product development and formulation, FDA regulatory services and other
complementary services. The overall CSP market, comprised of approximately 1,100 individual
CSPs, is valued at approximately $14 billion and growing at 14 – 16% annually. As smaller niche
and mid-size regional CSPs consolidate with larger CSPs to meet the increased demand resulting
from preferred provider relationships within the biopharmaceutical industry, biotech
companies are finding themselves with lengthy lead times that could jeopardize product
development and milestones imposed by venture investors. At the same time, the number of
early stage development candidates is increasing and more emphasis is being placed on proving
(or disproving) safety and efficacy as quickly and cost-effectively as possible. This all leads to a
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marketplace of discovery and development service providers that will not be able to meet the
mounting demand for service.
Services experiencing especially high demand in this market are early phase activities such as
analytical chemistry, toxicology and other pre-clinical services as well as Phase I clinical services.
Analyst reports describe the pre-clinical services industry as growing at 15 – 20% annually with
lead time for expanding capacity of approximately 2 – 4 years. Such substantial growth and
long lead times will only increase the reported backlogs of up to six months in study scheduling.
Outsourcing in the biopharmaceutical industry is not without its challenges. Many FIPCOs have
an institutionalized aversion to relinquishing control necessary for maximizing outsourcing
potential and managing relationships with CSPs.
The threat of offshoring presents a challenge to domestic outsourcing, but there are commonly
identified barriers for all pharmaceutical and biotechnology companies when considering
offshore alternatives, especially in India and China. These include well-documented concerns
over intellectual property protection, language barriers (China), clinical study quality and
integrity in remote locales, and perceived problems of delay around multiple layers of foreign
regulatory approvals.
As central laboratory services presented a promising opportunity 25 years ago that led
ultimately to the development of a major Covance facility near Indianapolis International
Airport, specific growth opportunities are apparent today for Indiana in the U.S. contract
services market. As pharmaceutical and biotechnology companies expand targets and
pipelines, capacity shortages are arising among many late-stage discovery and early-stage
development service providers. Analyst and industry reports cite backlogs in study scheduling
in these areas and demand growing for pre-clinical, Phase I, bioanalytical and analytical
chemistry services as well as biologics manufacturing. This report highlights five service
opportunities:
•
Non-GLP discovery services, such as pharmacokinetics/pharmacodynamics, in vitro
ADME (absorption, distribution, metabolism and excretion), in vitro toxicology
•
Analytical chemistry services
•
Pre-clinical services such as toxicology, bioanalytical and large animal study services
•
Contract manufacturing
•
Post-launch activities such as adverse event reporting
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These services offer strong growth opportunities generally and demand skills and training
already present in abundance in the Indiana market.
The capital markets are also taking notice of the contract services sector and diverse sources of
private equity and other capital are becoming increasingly available for the growth of service
providers in the pharmaceutical and biotechnology industries. Equity investors are attracted to
this sector because of its short time to revenue, relatively low capital requirements, and
proprietary service offerings protected by IP. The funding market for these types of
investments is still not efficiently organized and early capital for startup CSPs remains in short
supply. Still, as the market coheres and matures and opportunities become clearer, more
investors are likely to emerge and, in the process, gain greater comfort. Venture dollars are
sporadically appearing in companies offering services earlier up the value chain, while private
equity remains active in build-up investments in existing CSPs. Funding for service companies is
especially challenging for first-time start-ups, but more readily available for expanding or
consolidating existing CSP participants or spin-outs of new CSP offerings from larger
pharmaceutical parents.
For Indiana, the time is right for emerging CSPs in an appealing range of growth areas. Key
assets can indeed be productively assembled to pursue new ventures with the highest
prospects for success in accessing the capital markets, building the regional economy and
enhancing our signature strength as a national center for the development and manufacturing
of innovation.
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II.
PURPOSE AND OBJECTIVE
As a business model of growing “disaggregation” (specialization in high value competencies,
outsourcing others) becomes a new standard for fully integrated pharmaceutical and large
biotechnology companies, demand is escalating for high quality contract service providers. This
demand results not only from a series of pressures upon pharmaceutical and large
biotechnology companies, but also from the trend of biotechnology start-up enterprises
operating in a virtual model as an alternative to adding fixed-costs and infrastructure.
Outsourcing activity is accelerating. Backlogs, caused by capacity shortages, are currently
commonplace in certain service segments. The biopharma contract services industry is
experiencing double digit growth.
Based on our extended research, BioCrossroads believes this growth rate will not only be
sustained, but increase as the number of outsourced services rises. The contract services
industry, in our view, is disorganized and marked by (seemingly contradictory) movements
toward both consolidation of global, full service providers, and also continued fragmentation of
hundreds of regional and niche service providers serving other specialized market segments.
Indiana is one of only a limited number of U.S. locations having large pools of skilled employees
experienced in the FDA compliant environment of drug discovery and development. In this
region, opportunities exist to capitalize on rising demand throughout the contract services
market and to build upon established industry infrastructure and assets. To illustrate this
capacity, BioCrossroads has cataloged Indiana’s current assets on a map depicting the
concentration of biopharmaceutical manufacturing and development facilities already
representing more than 8,000 jobs within the state. That asset map is included as Appendix I to
this report.
This report will define the growing impact of the contract services industry, address funding
issues faced by emerging service companies and identify specific market opportunities as
industry disaggregation and outsourcing accelerate amid rising research and development
expenditures. Substantial data is readily available addressing trends, outlooks and strategies of
the contract services industry and research and development functions of pharmaceutical
companies. Our research seeks to utilize that data as a resource and translate it for application
in the current market.
This report is the product of primary and secondary research conducted through the
aggregation and synthesis of industry reports, in-person analyst consultations, and private
conversations with both company and funding participants in the pharmaceutical and
biotechnology industries. For convenience, a glossary of certain technical terms and
abbreviations used in this report is set forth in Appendix VI.
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For Indiana’s purposes, by identifying optimal emerging opportunities, utilizing existing
business and workforce assets, and developing a strategy to facilitate early stage access to
capital, a thriving biopharma contract services market – serving both pharmaceutical and
biotechnology customers – presents compelling possibilities.
III.
OVERVIEW OF PHARMACEUTICAL AND BIOTECH MARKET FORCES
Increasing costs and decreasing efficiencies are leading to a convergence of outsourcing
activities for both pharmaceutical and biotechnology companies
The pharmaceutical industry today is a world of well-documented and increasing pressures.
Topline factors, such as increasing regulatory roadblocks; payor consolidation and demands for
greater transparency; pending patent expirations; risks from early and evolving science;
increased development expenses; escalating market and investor impatience; and growing
needs for more flexible business models moving from fixed to variable cost outlays, are all
familiar facts of life for fully integrated pharmaceutical and mature biotechnology companies
(“FIPCOs”). In this environment, FIPCOs will indeed become more nimble and flexible fully
integrated pharmaceutical networks (FIPNETS) by increasing focus on core competencies while
looking to outside service providers and strategic partners for assistance in validating,
developing and bringing products to market through a far more virtual network of business
relationships. Contract Research Organizations (CROs), independent drug discovery and
development firms, Contract Manufacturing Organizations (CMOs), Contract Sales
Organizations (CSOs), and other contract service providers will thus all become even more
important partners in an era of constant change. As partnering continues and more work is
shifted from FIPCOs to contract service providers, future job growth in the biopharmaceutical
industry will see a similar shift as well.
Alison Sahoo, in a 2007 Business Insights report (“Optimizing Partnerships with Contract
Organizations”) identifies the most important drivers of outsourcing in the biopharmaceutical
industry as:
•
Greater number of clinical trials;
•
Increased complexity of clinical trials and regulatory submissions;
•
Greater amount of data required from clinical trials;
•
Rising cost pressures on pharmaceutical companies;
•
Growing pressures to bring drugs to market more quickly; and
•
Improved image of CROs.
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As summarized in the Pharmaceutical Researchers and Manufacturers of America (PhRMA)
2007 Industry Profile, R&D spending in the pharmaceutical industry reached $55.2 billion in
2006 and is projected to grow to $75 billion by 2008. This growth is fueled by an increase in
scope of research resulting in larger and lengthier studies, and is also influenced by a shift in
focus both on the type and number of drugs under development.
While arguably some approval process improvements have been made on the regulatory front,
including the added resources for new product review resulting from the Prescription Drug User
Fee Act (PDUFA), the overall time to market for a new drug has not decreased. The average
duration of clinical trials has risen by approximately 1.5 years since 2001, bringing the time to
take a drug through clinical development and approval to 8.5 years. This increased time frame
also fuels cost pressures and magnifies the importance of R&D efficiency.
Rising cost pressures and increased time to market are further intensified by key patent
expirations and increased generic competition. A recent article in the Wall Street Journal (“Big
Pharma Faces Grim Prognosis”, December 6, 2007) cites analyst forecasts to the effect that
over the next five years, patents will expire on more than three dozen brand-name drugs
accounting for $70 billion in annual U.S. sales – roughly half of the companies’ total combined
U.S. sales for 2007.
Many large pharmaceutical companies are implementing measures to spread risk and focus on
core competencies. AstraZeneca, for example, announced plans in September 2007 to
outsource all drug manufacturing activities within ten years. The company’s leadership stated
that manufacturing is no longer viewed internally as a core activity, and the company is
implementing actions aimed at becoming a pure research, development and marketing
organization while spreading risk and utilizing variable cost contracting for services that do not
fit within a narrowing focus. This announcement is part of an overall cost-cutting initiative,
including 7,600 announced job cuts, as AstraZeneca faces several patent expirations over the
next several years.
Similarly, in December 2007, Bristol-Myers Squibb announced it would cut approximately 4,300
employees in a restructuring of operations that will include sale or closure of half of the
company’s 27 manufacturing facilities worldwide, outsourcing additional manufacturing, and
winnowing of the BMS portfolio of 500 products by 60%.
In addition to pure outsourcing arrangements, pharmaceutical companies are establishing
strategic alliances and making innovative internal changes to boost R&D productivity. For
example, Pfizer announced in October 2007 the appointment of a new head of R&D concurrent
with the launch of an independent biotech R&D center in San Francisco. These announcements
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follow the announcement earlier this year establishing the Pfizer Incubator in La Jolla, California
with capacity to house up to eight start-ups for potential in-licensing candidates. All of these
moves are intended to increase productivity, decrease time to market and intensively focus on
building a world class biotherapeutics pipeline.
Similarly, Novartis has implemented an innovative variation on its internal venture capital fund
by recently creating the $200 million Novartis Option Fund. This new fund is structured on an
experimental investment strategy that makes seed investments to help start-up companies get
from idea to proof of concept. In addition to the traditional seed investment, which in itself is
in scant supply in today's market, an option fee allows Novartis to exercise licensing
agreements if certain milestones are met. This option fee is separate from and does not dilute
equity in the start-up. The success of this structure is yet to be proven, but Novartis is seeking a
platform to enable early access to innovative technologies. According to a recent published
statement of Novartis Chairman Daniel Vasella, moves like this are necessary in an environment
in which “[we] must rethink assumptions, from innovation to markets to sales to promotion”.
Pharma is not alone in addressing change. Less frequently acknowledged are the parallel and
convergent pressures toward disaggregation driving the development of the expanding earlystage biotechnology business. Here, such pressures come less from public markets, or
regulatory authorities, than from the private venture capital markets that have traditionally
fueled most of the growth of new biotechnology companies. While venture investments in this
sector continue to skyrocket - $3.2 billion was invested in the sector during 2006 according to
an industry leader participating in the Indiana Life Sciences Forum in October 2007 - the nature
of these investments has evolved considerably over the past decade.
For example, according to 2006 data supplied by DowJones VentureWire, an average venture
investment of $48 million in a biotechnology company in 2000 yielded an average exit through
an initial public offering of $280 million over a relatively short (2-4 years) cycle of investment.
Today, the average venture investment in a pre-IPO biotechnology company has risen to $103
million – and the average biotech IPO has plummeted to an average $110 million. Thus, the
economics of the venture market are urging an increasing strategy of an earlier sale or strategic
acquisition by a larger biotechnology or pharmaceutical partner, as an alternative to a later or
lower-value IPO. And with this strategy comes a disincentive for the venture investors to
promote – or even tolerate -- true and full biotech company formation when value is earliest
and most profitably demonstrated through validating the underlying science, rather than
building a successful new business.
Consequently, FIPCOs become FIPNETs through a process of outsourcing and disaggregation,
while venture economics lead biotech companies to the same result from the opposite
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direction by ensuring that these enterprises avoid vertical integration from the beginning.
More and more, venture-backed biotech companies will be utilizing variable-cost contracting
for services with high quality service providers rather than adding the fixed costs of
infrastructure and internal development functions to largely virtual enterprises. As a result of
these convergent trends, CSPs are experiencing substantial employment growth. According to
a senior industry analyst, the sector experienced a 12% increase in headcount in 2006,
following an 18% increase in 2005. As illustrated by Medco’s November 2007 decision to locate
the world’s largest automated pharmacy in Central Indiana, over 20 competing locations and
create 1,300 jobs; access to a skilled workforce is a determining factor in expansion in the
biopharmaceutical industry. Just as access to two top-tier university pharmacy programs drove
much of Medco’s decision (see Appendix II), Indiana has a breadth of talent both within
industry and higher education (including the nation’s second largest medical school and two of
the nation’s top five analytical chemistry programs) that will be able to meet the expanding
workforce needs of contract service providers (CSPs) as outsourcing accelerates.
This point, and the opportunities for Indiana-based discovery contract services providers to fill
resulting needs, has been reiterated to BioCrossroads time and again over the course of two
years of extended contact with multiple biotechnology companies (and strategy organizations
such as CONNECT) in San Diego. Other contacts we have explored in other biotechnology
centers, such as San Francisco and Boston, underscore the fact that substantial outsourcing for
discovery and development services is increasingly the norm for emerging biotechnology
companies, irrespective of geography.
Defining and characterizing the outsourcing market space
Contract Research Organizations are commonly defined as organizations that offer clients a
wide range of pharmaceutical research services, including many specific clinical/pre-clinical
activities. These services include: clinical trial management, central laboratory services,
product development and formulation, FDA regulatory services and other complementary
services necessary to move a new drug or biologic from discovery to FDA marketing approval.
Industry data categorizes the drug discovery and development services market under the
general “CRO” heading, with differentiations made between large-scale, full-service global
CROs, and specialty regional or niche service CROs. In practice, key service providers in the
pharmaceutical and biotechnology industry fall in various places along the spectrum of
independent drug discovery and development firms, and CROs, CMOs and CSOs are rarely
tracked independently. For purposes of this discussion, we refer to this entire array of thirdparty organizations as “Contract Service Providers” (CSPs).
The CSP landscape from discovery through development and commercialization is vast and
specialized. But, based on the converging trends for outsourcing by both pharma and biotech
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companies discussed above, BioCrossroads has begun to chart the expanding “shared ground”
of outsourced discovery and development services that can serve the needs of a widening
range of pharmaceutical and biotechnology company clients. In addition, there is a broad
scope of later development and delivery related services – pressures for today’s FIPCOs, largely
absent from pre-revenue biotechnology companies – that may also provide attractive
candidates for fixed-to-variable cost-shifting, risk-sharing and third-party investment. Services
currently or potentially provided by CSPs, broken out by stage, are highlighted in the following
figure:
IV.
RESULTING CSP MARKET TRENDS
(A) Size and Scale: The CSP market is currently estimated to be $14 billion and is projected to
increase at a rate of 14 – 16% annually in the near term, according to the Tufts Center for the
Study of Drug Development (Tufts CSDD) and the Association of Clinical Research Organizations
(ACRO).
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Today’s market is comprised of an estimated 1,100 CSPs worldwide with significant levels of
differentiation and scale. Only the top ten (most of which are located in the U.S.) contract
providers are truly global, full-service CSPs well equipped to vie for the bulk of the
pharmaceutical industry’s increasing needs. Approximately 100 other CSPs can be categorized
as full-service providers, but do not operate on a global scale. These are regionally focused
competitors for a different clientele, namely smaller pharmaceutical and biotechnology
companies. The remaining CSPs are niche providers focused on more specialized service
offerings, often based on nascent technologies. According to a 2007 Business Insights report
(“The CRO Market Outlook: Emerging markets, leading players and future trends”), what niche
providers lack in breadth they make up through depth of knowledge in their specialty fields.
(B) Consolidation and Fragmentation: The global CSP market is consolidating through mergers
and acquisitions of smaller niche and mid-size regional CSPs, in response to capacity shortages
caused by increased outsourcing by the pharmaceutical industry. However, as consolidation
serves as a response to pressures from preferred provider relationships within the
pharmaceutical industry, a void results elsewhere in the market serving venture-backed
biotechnology firms. Because the larger, consolidated CSPs give preference to their larger
pharmaceutical customers, biotech companies are finding themselves at the “back of the line”
for these same services even though timing and reliable scheduling are acutely important to a
biotechnology company’s venture capital investors. Thus, as the pharmaceutical industry
increases reliance on a shrinking number of preferred provider relationships, biotechnology
firms (and their investors) will struggle to identify their own preferred providers who offer high
quality service without lengthy lead times, jeopardizing product development. A whole new
sector of smaller, more responsive, high quality providers will likely be needed to serve these
companies. A recent article by Jim Miller, in BioPharm International (“Outsourcing Insights:
Booming Biopharma Pipeline Straining CRO Capacity”, May 1, 2007), finds capacity shortages
for biotechs causing lengthy lead times and annual price increases of up to 5%.
These smaller, high quality providers are beginning to organize as an industry and are
increasingly forming alliances to enhance each other’s service offerings. An industry
organization, the Pharmaceutical Industry Contract Research Association (PICRA), aids this
process by creating a forum to share information and explore opportunities. In a 2007 Business
Insights report (“Optimizing Partnerships with Contract Organizations”), Alison Sahoo provides
an Indiana example of PICRA members formalizing a contract research partnership. Indianabased MicaGenix is a pre-clinical service provider specializing in mutagenicity, histopathology
and regulatory preparation and Bioanalytical Systems (BASi), also based in Indiana, provides
complementary services such as pharmacokinetics (PK), pharmacodynamics (PD) and
toxicology. The two entered into an alliance to market each other’s services in order to
increase market penetration and strengthen client relationships. Concurrently, BASi also
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entered into an alliance with Indiana-based INCAPS (now Monarch Life Sciences) to promote
proteomics and protein characterization studies as an additional capability.
Overall, with the volume of early stage development candidates continuing to grow and the
pharmaceutical industry conducting more extensive early-stage testing on a wider range of
targets, emphasis is being placed on the need to prove safety and efficacy as quickly and costeffectively as possible with defined benchmarks along the way. The current marketplace of
discovery and development service providers will not be able to meet the mounting demand
for services.
(C) Framework for Emerging Opportunities: In this environment, demand is especially high for
bioanalytical and analytical chemistry, pre-clinical, Phase I and other early phase services once
perceived as core functions of integrated pharmaceutical and biotech companies. (“The CRO
Market Outlook: Emerging markets, leading players and future trends” Business Insights 2007)
Services such as in vitro ADME (absorption, distribution, metabolism and excretion) and
toxicology are becoming attractive outsourcing candidates. For example, a 2005 report from
Cambridge Healthtech Advisors (“Successful Outsourcing of Pharmaceutical R&D: Trends and
Strategies”) found that nearly all pharmaceutical companies plan to outsource at least 20% of
ADME services over the next three years, with similar plans from most of the surveyed
biotechnology companies, to outsource at least 20% of early development operations during
the same period.
Moreover, analyst reports resulting from the Society of Toxicology annual meeting, held in
March 2007, describe a preclinical services industry that is growing at the rate of 15 - 20% per
year. However, these reports further find that it would take two to four years for any expanded
capacity to come online. Due to the rising demand for early-phase services, companies
attending the conference reported backlogs of up to six months in study scheduling.
In the current market, attractive outsourcing functions generally have similar characteristics.
Access to a high quality service provider that can provide the requisite service is essential, and a
value proposition consisting of increased speed and/or decreased cost provides the incentive
for undertaking the disruptive action that outsourcing can represent.
Functions that are process-oriented or can be otherwise seen as commoditized services are
especially conducive to conversion to variable costs, thereby extending company resources
available to focus on core functions. In contrast, core business functions such as strategic
planning and lead discovery that are highly specialized, conducted with proprietary methods
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and holding potential for IP creation, present particularly high “barriers” to becoming feasible
outsourcing candidates. The following table illustrates this distinction:
(D) Challenges to Outsourcing
(1) Sponsor Transitional Issues: It is worth noting that, for many traditional FIPCOs, costeffective outsourcing remains an evolutionary process. A widely noticed aversion to
relinquishing control by pharmaceutical clients is inhibiting the realization of the full
benefits of outsourcing. In some cases, outsourcing actually leads to increased costs
due to a lack of clearly defined objectives, vague standards for demonstrating
equivalent quality, and inadequate staff training. According to reports from the
“Partnerships with CROs” conference sponsored by the Institute for International
Research in April 2007, large pharmaceutical companies have generally demonstrated a
clear strategic vision to maximize outsourcing potential, but have not yet developed the
necessary infrastructure to support effective implementation and management of
outsourcing relationships. Still, the very fact that pharmaceutical company utilization of
outsourcing continues to increase only underscores the significance, beyond pure
considerations of cost, of other outsourcing advantages – including productive
concentration of outside expert resources, risk sharing, and shifting from fixed to
variable-contract expenses for accounting purposes.
(2) Offshoring vs. Domestic Outsourcing: Particularly for the industrial Midwest,
“outsourcing” and “offshoring” often appear to be two sides of an unfortunate coin. To
succeed in a strategy seeking to build a credible next generation of service businesses
close to home, many fear that there is also an undeniable challenge in erecting sufficient
“barriers to exit” to keep the resulting companies from going the way of steel and
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automotive supply chains in migrating to lower-cost, rising-skill Asian and other offshore
labor markets.
For the moment, the CSP sector is one of U.S. and European dominance. Of the total
1,100 CSPs worldwide, approximately 900 are based in North America and Europe.
Nevertheless, the CSP industry is increasing rapidly in Asia, with marked and substantial
growth in both China and India. Prospects for achieving lower costs without sacrificing
quality or speed; increasingly sophisticated scientific and technical workforces; access to
new communities of “treatment-naïve” patients; and favorable tax climates are all
contributing to the expansion of established CSPs and, on a smaller scale, the
establishment of new stand alone CSPs in Asia.
For an Indiana-based strategy, two sets of factors make offshoring of services and
product development arguably less of an immediate “threat” in the biopharma services
sector than in other areas of traditional manufacturing and production.
First, there are commonly identified challenges for all pharmaceutical and biotechnology
companies when considering offshore alternatives, especially in India and China. These
include well-documented concerns over intellectual property protection, language
barriers (China), clinical study quality and integrity in remote locales, and perceived
problems of delay around multiple layers of foreign regulatory approvals. Additionally,
as offshoring continues for technology-intensive industries, the “labor arbitrage”
between the costs for skilled employees in U.S. vs. Asian markets will inevitably begin to
close. For example, a Wall Street Journal article from July 2007 (“Some in Silicon Valley
Begin to Sour on India”) identified rising labor costs, as well as hidden time and
geographic outsourcing costs, as drivers for some companies to begin looking for
alternatives for overseas operations.
Beyond this first set of general challenges to biopharma offshoring, there are inherently
differing vantage points for pharmaceutical companies and biotechnology companies
when assessing the feasibility of maintaining a virtual business structure encompassing
offshore components. Pharmaceutical companies often have strong and deep
management and administrative resources, global sales forces and markets, and
multiple needs for access to new populations of “treatment-naïve” patients throughout
the world. For these sophisticated organizations, offshore service providers in Asia –
especially for clinical services – are simply one more major, but manageable,
coordination challenge. Furthermore, for many of these large pharmaceutical
companies, that coordination challenge may be mitigated considerably by the presence
of familiar and preferred U.S. CSPs, such as Quintiles or Covance, and on the
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international scene in substantial and growing Indian, Chinese and other offshore
operations of their own.
However, for many biotechnology companies, particularly early-stage companies with a
limited number of products under development, no international workforce, and scant
administrative and management resources, the attractions of offshoring are arguably
very different. For these smaller biotechnology companies, service provider proximity,
and more easily enforceable intellectual property protection are often necessary
ingredients to assure reliability and manage outsourcing risks with only a minimum of
project management (or any other) infrastructure. Once again, this point on the value
of proximate U.S. discovery and development contract service providers has literally
been “brought home” to BioCrossroads time and again in our consultations with small
biotechnology companies and their sponsors in San Diego and other U.S. discovery
centers.
Some service segments present more attractive candidates than others as
biopharmaceutical companies do look offshore for outsourcing partners. As noted
above, clinical trials are an example of a subject and administrator-intensive service that
may benefit from looking offshore for expanded capacity. Conversely, segments such as
pre-clinical services or contract manufacturing present specific barriers to achieving
goals of matched quality and cost savings. Pre-clinical services, for example, rely on
advanced facilities and equipment and a small number of highly trained scientists to
drive value. According to Business Insights (“Partnering with Contract Organizations,”
November 2007), India, China, Latin America and Eastern Europe currently lack the preclinical infrastructure (and provider presence) of the U.S. and Western Europe, and
contract manufacturing, in lower-cost countries, also often has unclear cost advantages.
For similar reasons as the pre-clinical sector, manufacturing is less labor intensive and
has a high fixed-cost component of equipment that inhibit the level of savings that may
be achieved.
Thus, though not without risk, an outsourcing strategy contemplating a significant
(though not exclusive) ongoing role for U.S.-based CSPs seems warranted for Indiana,
especially in light of our prospects for involving biotechnology as well as pharmaceutical
company consumers of these services. Particularly for biotechnology companies, and
especially in the immediate term, sponsors are very likely to look first to U.S.-based
providers to set the standard of service. Ultimately, quality, proximity, and the absence
of cultural barriers should allow reliable and high-skilled U.S. CSPs to continue to enjoy a
significant share of the growing CSP market, even as that market inevitably becomes
more global and more competitive.
16
(3) A Need for Instructive Examples: Outsourcing is a well understood and documented
trend in other technology-intensive industries, including information technology and
telecommunications, but, for many, it is still regarded as a relatively new development
in the pharma and biotech sectors. In truth, outsourcing here is also not a new concept
and has been broadly utilized by the pharmaceutical industry as a short-term, tactical
solution to address capacity issues.
A highly instructive example of this fact can be found very close to home at the
Indianapolis-based North American central laboratory operations of Covance. Less than
25 years ago, a centralized method for efficiently and accurately collecting and reporting
data from clinical trials did not exist. Central laboratory functions were housed and
performed within every large pharmaceutical company, but industry standards were
lacking to ensure efficient access and accuracy of data. By the 1980’s, there was a
clearly identified need for these central laboratory services as a standardized, scalable
business function. From that identification grew what is today a $2 billion central
laboratory services industry.
In 1986, the world’s first central laboratory opened in Indianapolis, under the name
SciCor; known today as the Central Laboratory Services division of Covance, Inc. At the
time SciCor was the only company that could report timely clinical data (within 48
hours) using the same clinical trial methodology. With an error rate of less than 2%,
SciCor/Covance is now the industry standard for what has become a 100% outsourced
market.
Building upon the infrastructure and talent pool of locally-based Eli Lilly and Company, a
strategic acquisition, and the prospect of a key contract with Lilly, SciCor was able to
secure venture funding from CID Equity Partners (established and supported by the
State of Indiana) to develop a quickly successful business. In 1991, SciCor was acquired
by Corning, yielding sizable returns for its investors and providing the platform for a
world-class contract service provider. Along with SciCor, Corning acquired Hazelton
Laboratories (biological testing and development services) and G.H. Besselaar Associates
(clinical trials, market support services) to build the foundations of a full-service, global
CRO.
Spun out of Corning in 1997, Covance today is the global leader in central laboratory and
toxicology services and the second largest drug development services company in the
world. Operating 33 offices in 18 countries, Covance provides drug development
services from discovery through commercialization as a high-quality comprehensive
service provider and partner for the pharmaceutical industry.
17
SciCor/Covance was ahead of its time, and represented a high-risk venture at its
founding. SciCor’s founders, however, identified an opportunity to create a variable
cost for Lilly while commoditizing a service that could be offered to the pharmaceutical
industry as a whole. Today, after 25 years of expanded service and continued
profitability, Covance provides a helpful lesson for defining opportunity in an
environment of increasing external sourcing of R&D activities and escalating need for
allocating resources and risks. And SciCor/Covance is clearly not an isolated example.
Other brief case studies of both established and emerging CSPs in other service
segments are included as Appendix III of this report; and even in Indiana, there are
clearly a variety of CSPs already in successful operation all along the discovery –
development – delivery cycle for pharmaceutical and biotechnology products (see
Appendix IV).
V.
SPECIFIC GROWTH OPPORTUNITIES FOR INDIANA IN THE U.S. CONTRACT SERVICES
MARKET
With pharmaceutical and biotechnology companies expanding targets and pipelines, capacity
shortages are arising among many late-stage discovery and early-stage development service
providers. Ksenija Jakovcic, in a 2007 Business Insights report (“The CRO Market Outlook:
Emerging markets, leading players and future trends”), cites backlogs in study scheduling of up
to six months as a key indicator of mounting demand causing capacity shortages.
Consequently, later discovery and early development services present particularly attractive
growth opportunities. The same report also finds the demand particularly strong for preclinical
(ADME and toxicology), Phase I, bioanalytical and analytical chemistry services. Also, as the
industry expands its focus on biologics, timely and cost effective manufacturing options that
can bring products to market become increasingly important and represent an attractive longterm growth sector despite some short-term challenges.
Highlighted below are five service segments that offer strong growth opportunities in the U.S.
market generally. Each of these segments also involves skills and services that are especially
attractive and plausible to be sourced from the Indiana market. This is not an exhaustive list,
and our research continues to identify and target opportunities to leverage current assets for
growth.
1.
Discovery (non-GLP) Services
Primary research gathered from private conversations with pharmaceutical companies,
biotechnology companies and service providers forecasts increasing opportunities for
CSPs to serve as comprehensive discovery facilitators providing early, non-GLP (good
laboratory practice) services such as PK/PD (pharmacokinetics/pharmacodynamics), in
18
vitro ADME, in vitro toxicology, and other related services. Currently, cost competitive,
integrated discovery CSPs capable of handling large quantities of samples with efficient
turnaround times are in scant supply. Pre-clinical and specialty service CSPs have the
capabilities to provide such services, but their customarily GLP-compliant processes,
facilities and methods do not provide cost-effective solutions for either startups or
research-based institutions to reach proof of concept and attract market interest.
Furthermore, capacity within the preclinical service sector is being strained by the large
number of new drug candidates and the larger and longer safety testing that has
become standard in the post-Vioxx era. These trends lead to increased cost of
preclinical services and further reduce economies of outsourcing non-GLP discovery
services to existing GLP-compliant providers. Few academic institutions have the
expertise and capacity to perform these services at a competitive cost, and academic
bureaucracy and IP ownership issues, real or perceived, have been identified as major
impediments to effective turnaround time and overall quality of service from these
sources.
Non-GLP discovery services are crucial to traversing what has becoming known in the
industry as the “valley of death” confronted early and urgently in the biopharmaceutical
discovery and development process. As described by Duane Roth, CEO of CONNECT, a
globally recognized organization fostering entrepreneurship and growth in technology
of the life sciences, the “valley of death” is the crucial period between initial discovery
and reaching proof of concept, the point that value is created and becomes measurable
by outside investors. This barrier is faced by both industry and academic institutions
and is impeding innovation due to lack of access to required expertise. A highly
regarded researcher from the Indiana School of Medicine stated, at the 2007 Indiana
Life Sciences Forum, that innovation is “hitting a wall because scientists don’t know
where to go to get the expertise to take a lead forward.”
While the market appears strong for non-GLP discovery services, it is not evident if a
standalone non-GLP service provider, without more, can represent a viable business
model. Non-GLP studies are shorter and smaller in scope and therefore are typically
priced less than GLP studies (an established service sector). As an alternative to a standalone company, a large-scale, non-GLP service platform may be better suited to provide
a unique point of differentiation within a larger and more comprehensive discovery and
early development CSP.
2.
Analytical Chemistry Services
Analytical chemistry services provide an example of non-core, process-oriented
functions that are outsourced by small pharmaceutical and biotech companies out of
19
necessity and could be strategically outsourced by their larger counterparts to lower
drug development costs and reduce capital expenditures. Further analysis is warranted,
but it appears (and Business Insight’s “The CRO Market Outlook” report confirms) that
demand is especially strong for companies providing analytical chemistry services.
Analytical methods and instrumentation are critical in PK, PD, ADME, and other early
development studies (areas that are seeing the greatest demand and backlogs caused
by capacity shortages). Our analysis points to growth in analytical chemistry functions
based on the cited increasing demand for early development services reliant on
analytical chemistry and its broader application in high growth areas such as proteomics
and biomarker research.
The expertise and technical capabilities to enable proteomics and biomarker research
and discovery both overlap and complement the methods and instrumentation
instrumental to analytical chemistry. By building upon a robust talent pool from within
industry, Indiana has the raw materials to pursue this nascent area. Talent can be
drawn from Indiana University and Purdue University’s top tier analytical chemistry
programs and by potentially utilizing an existing broadly collaborative CRO (Monarch
Life Sciences, formerly INCAPS) that has already established a leadership position in
discovery-service proteomics and biomarker development.
Analytical chemistry fits squarely within the category of “Outsourcing Candidates” in the
table found on page five of this report. Such capabilities are essential to the drug
discovery and development process, but do not represent the type of core, “drug
hunting” activity that biopharmaceutical companies insist upon retaining in-house even
in today’s resource-constrained environment. Highly specialized, expensive equipment,
and the staff to run the analysis can be contracted for on a variable cost, fee for service
basis. Currently, a number of CSPs appear to offer some aspects of analytical chemistry
services. However, a dedicated, specialized, full-service analytical chemistry provider
remains a gap to be filled in this market.
3.
Pre-clinical Services
Pre-clinical services, such as outside toxicology, bio-analytical, and large animal study
services are all in shortening supply as the quantity of early drug candidates increases
and pharmaceutical companies increasingly look to outsource these functions.
According to a senior industry analyst, toxicology and bio-analytical services comprise a
$12 billion market – of which only 15% is outsourced today. As part of a pre-clinical
services market that is growing at 15 – 20% per year, opportunities will steadily increase
for high quality service providers that can quickly scale-up operations. As mentioned
earlier in this report, expansion capacity is contemplated within the current CSP
pipeline, but this capacity will likely be quickly consumed by current demand and
20
exhausted if even a single large pharmaceutical company makes a strategic decision for
entirely outsourcing these functions.
As an indication of the direction of the overall market, it is instructive to look at how the
largest worldwide providers of pre-clinical services (Covance and Charles River) are
performing and what they are planning for the future. Both Covance and Charles River
are seeing substantial growth in year-over-year revenues and backlogs. Covance, in its
third quarter earnings report (October 25, 2007) noted a 19.2% increase in early
development (pre-clinical) revenues compared to the same period last year. For
comparison, late stage development services net revenue grew at a rate of 12.9%.
Covance’s early development services (pre-clinical) comprised in excess of 50% of total
revenues for the quarter and backlogs increased 26.5% signaling a shortage in capacity.
Charles River experienced similar increases in the second quarter of 2007 reporting net
pre-clinical services revenues up 19.4% to $163.6 million.
Growth in both earnings and backlogs will likely only increase as greater emphasis is
placed on early safety testing to screen out inappropriate candidates at the earliest
stage to avoid significant development costs for drugs with high potential for failure.
Business Insights estimates (“Partnering with Contract Organizations”, November 2007)
that 25% of the $1 billion+ now required to bring each new drug to market could be
saved through better pre-clinical testing to identify failures early.
Pre-clinical service providers require greater expertise and are critically dependent on
specialized equipment and highly trained personnel. These factors add to the overall
capital investment required to operate pre-clinical service companies and increase
competition for top-tier toxicologists and pathologists who can run the studies. Alison
Sahoo, in a 2007 Business Insights Report (“Optimizing Partnerships with Contract
Organizations”), cites such “relatively high barriers to entry and scarcity of resources” as
compelling reasons for biopharmaceutical companies to look increasingly to high quality
outsourcing partners for these services.
4.
Contract Manufacturing
In line with the overall CSP market, the market for contract manufacturing services is
projected to continue enjoying double digit growth. The contract manufacturing market
was valued at $31.5 billion in 2005 and is predicted to approach $50 billion by 2010.
The primary reason for outsourcing manufacturing is evident: costs associated with
manufacturing account for up to 16% of the total costs of sales of the average drug
company according to Business Insights (“Optimizing Partnerships with Contract
Organizations”, November 2007).
21
The main growth driver in contract manufacturing has historically involved large scale,
small molecule API (active pharmaceutical ingredient) manufacturing. That trend
appears to be shifting. Existing capacity of full scale manufacturing for small molecule
APIs appears to be meeting or exceeding demand for the foreseeable future and assets
appear to be moving from the U.S. to tax advantaged locations and markets with lower
labor costs. Consequently, the projected growth in contract manufacturing will be
derived primarily from the growth of biologics manufacturing, including biologics clinical
trial material manufacturing, instead of small molecule API production.
A key indicator of these trends in the contract manufacturing market is the sales data
for existing facilities. A recent article by Jim Miller in Pharmaceutical Technology
(“CMOs Join Facility Swap Meet”, September 2007) analyzes facilities currently on the
market and recent facility sales. CMOs have traditionally been built through acquisition
of excess supply of facilities owned by large pharmaceutical companies. In a shifting
trend, CMOs are now becoming common sellers of facilities to divest underperforming
assets. Of the facilities that are on the market, small-molecule API facilities are the most
difficult to sell unless they have high-containment capabilities.
As demand for manufacturing shifts from traditional high volume solid dose production
to new formulations and dosages requiring greater expertise and different equipment,
many facilities that are currently manufacturing patent protected blockbusters face the
possibility of obsolescence as generic competition rises and patents expire. As a result,
many pharmaceutical companies are beginning to outsource their own excess capacity.
Alison Sahoo, in a 2007 Business Insights Report (“Optimizing Partnerships with Contract
Organizations”) points out that Abbott, Alpharma, Alza, Bayer, GlaxoSmithKilne, Pfizer,
Sanofi-Aventis and Shering all offer CMO services today.
Large molecules present a different story. According to Business Insights (“Partnering
with Contract Organizations,” November 2007), there are currently 650 biotech drugs in
development. Many of these are monoclonal antibody therapeutics which are very
expensive to produce and offer a substantial revenue opportunity for CMOs. Attractive
market opportunities include biologic capabilities in general, and especially injectables
manufacturing and/or the capacity to manufacture high-potency APIs.
The complex structures of biological drugs require an extremely precise manufacturing
process. And especially for biotech companies, navigating this process is challenging,
since the FDA requires that material used in Phase III studies for biopharmaceuticals
must be produced through employing the final manufacturing process in the final
manufacturing site for commercial production. Biomanufacturing facilities require large
capital investments and incur significant operating expenses. The lean, virtual structure
22
of biotechnology drug developers is not conducive to asset ownership of manufacturing
facilities, enhancing the cost variability of outsourcing biologics manufacturing and
creating an attractive market for GMP biomanufacturing CSPs.
Additionally, by outsourcing manufacturing functions, biopharmaceutical companies can
achieve cost variability and spread risk to manufacturing partners. Business Insights
recently quoted the cost of building a commercial manufacturing facility at $400 million
(“Biomanufacturing Strategies: Market drivers, build-vs.-buy decisions and opportunities
in contract relationship management”, September 2007). In the post-Vioxx era of
heightened safety regulation and increased post-launch studies, biopharmaceutical
companies can hedge risk by contracting for service and spreading exposure to third
parties rather than undertaking large capital investments prior to establishing a market
for their new products.
5.
Business Services
Opportunities also exist to achieve the convergent objectives of pharmaceutical and
biotechnology companies through disaggregation further down the value chain in
processes that support products post-launch. For example, adverse event reporting,
data management and medical writing are all functions likely to attract market attention
as disaggregation continues.
Adverse event (AE) reporting provides a particularly interesting example of a function
performed almost entirely in-house by large pharmaceutical companies today, but
involving process-oriented services even more segregable and scalable for third-party
investment than many other traditionally outsourced development services. Combined
with the product support functions and infrastructure of an in-bound call center, an
opportunity exists to leverage expertise of the regulatory process found within the ranks
of FIPCOs. By shifting labor, facility and infrastructure costs from fixed to variable, this
essential, but non-core function offers cost saving potential for a critical service
demanding rigorous standards and procedures and a high-quality talent pool.
AE reporting and call center outsourcing has already begun and is a sector with strong
growth potential. AE reports, for example, have grown at a 25% compound annual
growth rate (CAGR) for the past decade and a senior industry analyst predicts that
PDUFA IV that was approved in September 2007 will lead to a substantial increase in AE
monitoring. Two firms of note are currently active providers: Telerx Healthcare and
PPD, Inc.
Telerx is a privately held company with call center functions as its core operation. Telerx
was spun-out from Merck’s call center operation and is currently a wholly owned
23
subsidiary of Merck. Telerx has a dedicated healthcare and pharmaceuticals practice
that provides expertise in regulatory requirements (AE reporting), medical education,
and clinical trial recruitment. Telerx is privately held and therefore an analysis of
financial performance and market penetration is unavailable.
PPD is a publicly traded global CSP providing discovery, development and post-approval
services to the pharmaceutical and biotechnology industries. PPD’s Medical Information
and Professional Contact Center (MIPCC) division provides adverse event reporting and
call center services to its clients. The MIPCC division and Telerx would be both
instructive examples and key competitors to any new venture in this still new and
largely unorganized market sector that provides compelling strategic outsourcing
opportunities.
VI.
CAPITAL MARKET INTEREST IN SERVICE VENTURES
To what extent are the opportunities identified in the previous section IV attractive to the
private equity and venture capital markets?
Service companies offer convincing attributes, even in comparison to therapeutic and other
product-based companies in the pharmaceutical and biotechnology sectors. Compared to
product-based companies, service companies require a relatively low capital investment and
often possess a clearer and quicker path to revenue. While sales cycles may be long in
penetrating the large pharmaceutical market, such cycles generally represent a fraction of the
time that it takes to bring a drug to market and are often supplemented through revenue
opportunities presented by smaller biotech companies. From an investor standpoint, service
ventures also possess strong assets and create barriers to entry through IP held on proprietary
methods that can create real value. CSP growth has been strong and steady across most
sectors. Returns continue to be impressive in comparison with other investments.
Despite these “investable” characteristics, only limited data is available regarding current
investment activity in the contract services industry. Because of the shortage of organized
market information, BioCrossroads has compiled its own initial survey of funding activity in the
contract services sector. This is not an exhaustive list of recent market activity, but represents a
substantial sampling that casts what we believe to be a helpful light on overall industry trends.
The graphic below depicts disclosed venture capital and private equity activity in CSP financing
(both Indiana and non-Indiana based companies) over the past five years and identifies both
the type of investment and type of service.
24
Further information on the underlying market data is provided in Appendix V to this report.
Note that some venture or private equity investments have covered multiple service categories,
so that the number of service investment “dots” exceeds the number of reported transactions:
Private equity has generally played a more active role than venture capital in the CSP market.
Of the 60 service investments highlighted in the graphic above, 67% of the activity was
generated by non-venture private equity investors. Private equity investment is also heavily
concentrated in clinical services, probably due to the heavy reliance of the pharmaceutical
industry on clinical-stage contract service providers over the last 20 years. The bulk of the
1,100 CSPs worldwide serve this clinical service market segment, and private equity investors
have identified this sector as a solid source of quality growth and turnaround targets. Private
equity will continue to play an active role with established contract service providers as long as
demand for services continues to rise and year to year growth remains strong. As the industry
further consolidates, private equity is likely to capitalize on opportunities to build capabilities
and scale through acquisition.
Specific venture capital activity in the contract service sector has been sporadic and less
predictable than other private equity investment. Generally, venture investors have been more
25
attracted to companies providing later stage discovery and early development services, with
60% of reported venture investment funding discovery and pre-clinical work. Further, certain
venture investors may have a unique perspective on (and added incentive to invest in) this
segment of the market, if they have also made investments in biotechnology and other
product-focused companies for which these services are in high demand.
VII.
FINDING, FORMING AND FUNDING SUCCESSFUL SERVICE VENTURES
Service Company Formation and Capital Resources
Given the most promising areas for new investment, and the current trends for financing CSPs
within the capital markets, what are the best ways to organize new CSP opportunities in Indiana
to maximize the potential for third-party investment? There are three general models for new
company formation in the contract services industry. Each of those three models presents
unique attributes and challenges for both venture investors (attracted to growth through new
venture creation) and private equity investors (attracted to investments that establish new
opportunities for revenue expansion).
Pure startup CSPs are likely to have the greatest challenges. Such entities, seeking to form new
companies without a large pharmaceutical company or other credible CSP-sponsoring “parent,”
will have limited access to the capital markets. The long sales cycle into large pharmaceutical
companies (2 – 3 years has been a standard experience) provides a barrier to entry to many
start-ups. Patient investors at seed stages and throughout the ramp up sales cycle will be both
rare and crucial to the survival of new CSPs entering the market. Members of the investment
community participating in BioCrossroads Service Venture Funding Discussion in May 2007
concluded that start-up service ventures face particularly high barriers to early stage funding
due to unclear exits, significant variable costs and a perceived lack of specialized markets that
make many IP-based product companies attractive to investors. While the start-up CSP may
target biotech companies with typically shorter sales cycles, the time to establish a portfolio of
biotech clients that can provide a revenue stream comparable in size and reliability to that of a
large pharmaceutical client would probably be significant and discouraging to venture and
private equity investors alike. The leadership of the new CSP would likely need to deploy
personal capital and attract funds from angel investors and grants to commence operations and
growth before venture dollars become accessible.
Smaller companies and start-ups face exposure to project cancellations and cash flow shortfalls
making their operations extremely vulnerable. Alison Sahoo, in a 2007 Business Insights report
(“Optimizing Partnerships with Contract Organizations”) states that “this vulnerability has been
a driving force behind the number of research site closures, as well as several highly publicized
CRO bankruptcies, such as that of aaiPharma in 2005.” This volatility has led biopharmaceutical
companies to significantly increase their diligence processes prior to selecting outsourcing
26
partners. In short, start-up CSPs are an obvious, but generally not the best, option for new CSP
formation in this market.
A local expansion of an existing CSP is a more promising model for forming a new service
offering. By identifying assets in a market such as a skilled workforce and a demand for an
expanded service offering, an established CSP can be well positioned to enter into, or expand
its presence, in emerging markets. Strong historical growth in the industry and the solid
revenue base of established CSPs should readily attract suitable capital to an expansion effort.
For global CSPs that are generally large, publicly traded and enjoying ready access to credit,
there are a variety of debt and equity alternatives to finance expansion into new markets. For
regional/niche sector CSPs with an existing revenue stream, customer base, and an identified
growth strategy, the financing options are fewer, but venture investors may still look positively
on expansions into emergent service offerings and geographic regions with demonstrated
demand. As noted earlier, certain venture investors may also have the special strategic
opportunity to achieve dual goals through potentially high-yielding investments in CSPs that
may in addition be able to provide critical and cost-effective services for the development of
other biotechnology product companies in the VC’s portfolio.
A spinout of a large pharmaceutical company offers an especially attractive model for forming
a new CSP. Access to talent, assurance of key leadership, and an industry sponsor offering the
prospect of early and sizable contract revenues are all benefits of this model. In addition to
know-how, the sponsor can provide access to key personnel for leadership, physical assets and
start-up capital. Venture investors will be able to see a clear path to revenue with an
experienced business team and structure that is likely to surmount and surpass the rigorous
procurement hurdles of large pharmaceutical companies. These attributes will all likely reduce
the long sales cycles that otherwise present significant challenges to emerging CSPs. Private
equity investors implementing a build-up or roll-up strategy could be attracted for similar
reasons as VCs and would likely display interest in a pharma spin-out if the outsourced function
offered demonstrably complementary (and supportive) services for the investor’s other
portfolio companies.
It is worth noting that experience with corporate spin-outs in Indiana and elsewhere
underscores certain inherent challenges in considering this model. First, to the extent that a
spin-out carries with it existing (often, senior) “rebadged” employees from the sponsoring
entity, these employees typically come with higher expectations and resultant costs for salary
and benefits than others who might be hired from a presumably more competitive external
marketplace. Ultimately, the ability of these transitioning employees to share in the upside
equity potential of a successful new business should lead to greater openness to risk and higher
tolerance for financial flexibility. Still, the challenges of such transition will be substantial and
27
should be taken into account both as likely additional start-up expenses and also as factors to
consider and address when identifying and recruiting these key transitioning employees.
Second, as is clear from the longer tradition of outsourcing within the information technology
industry, the transition to a more virtual structure implies a variety of new roles and
expectations. Change is substantial not only for those employees who are rebadged, but also
for those employees who are retained within the sponsoring company and suddenly
responsible for managing (without replicating) the performance of their recently outsourced
counterparts and other new company personnel (see Thompson and Arian, Towers Perrin,
“Three Keys to Outsourcing Success: People. People. And People.” EDS, June 25, 2007)
“As corporations shift [IT] operational arrangements to a vendor, the day-today job responsibilities of the retained [IT] organization change markedly. The
hands-on project management style familiar to most employees must be
replaced by supplier management skills. Instead of dealing directly with their
line clients, employees must now act alongside their outsourcer as part of a
two-party team to address clients’ needs. And as clients’ needs change,
employees must repress the urge to intercede directly with clients and instead
communicate those changes to the outsourcer for handling. Perhaps most
important, employees need to be strong advocates for change within their
organizations.”
This lesson would not appear to be limited to one industry and, again, underscores the
importance of developing an effective human resources strategy as well as effective business
planning and investment strategies to ensure the success of any spin-out venture.
VIII.
CONCLUSIONS
As Outsourcing Increases, Underserved Markets are Bringing Increased Opportunities for
Capital Investment in CSPs
The contract services sector is growing at historic rates. All signs point to such growth
continuing for the foreseeable future. The scope of service candidates for outsourcing is also
growing. Services earlier up the value chain are beginning to be outsourced as large
pharmaceutical and biotechnology companies narrow the definition of which functions must
remain in-house. More specifically for Indiana, discovery and pre-clinical services, analytical
chemistry discovery and development services, and biopharmaceutical and high-potency API
manufacturing are all key market segments that will see mounting demand for outside
providers in the near term. These services are critical to the development process and have a
low probability of being offshored for out-sourcing in the near term. Especially for the
biotechnology companies, proximity, demonstrated experience and quality, and IP security
28
concerns put U.S.-based CSPs at an advantage in meeting the growing demand for these service
segments.
Diverse sources of private equity and other capital are becoming increasingly available for the
growth of service providers in the pharmaceutical and biotechnology industries. Attributes
such as consistently seeking greater performance, short time to revenue, relatively low capital
requirements, and proprietary service offerings protected by IP are attracting equity investors
to this market and providing a balance to traditional product-based portfolio investments. The
funding market for these types of investments is still not efficiently organized and early capital
for start-up CSPs remains in short supply. Still, as the market coheres and matures and
opportunities become clearer, more investors are likely to emerge and, in the process, gain
greater comfort.
Private equity and venture investors have been active in the contract services market, but
traditionally not in the market spaces identified in this report as growth sectors, and not in
start-up entities. Still, venture dollars are sporadically appearing in companies offering services
earlier up the value chain. As this market gains definition, investment activity is poised to
increase. Revenue-positive CSPs in emerging service sectors will ultimately provide private
equity investors with attractive targets for growth through expansion of revenues, process
improvements, build-ups and roll-ups.
For Indiana, the time is ripe for emerging CSPs in an appealing range of growth areas. Key
assets can indeed be productively assembled to pursue new ventures with the highest
prospects for success in accessing the capital markets, building the regional economy and
enhancing our signature strength as a national center for the development and manufacturing
of innovation.
29
APPENDIX I:
Biopharma Development and Manufacturing in Indiana –
A Representative List of Companies, Activities and Employment
Company
Anaclim
AIT Laboratories
Aledo Consulting
Anson Group
Aptuit (SSCI)
BASI
Baxter Biopharma Solutions
BioConvergence
BioStorage Technologies
Bristol Myers Nutritionals*
Bristol Myers Pharma*
Chao Center for Contract Mfg.
Chemigen
Commissioning Agents
Concentrics Research
Cook Biotech*
Cook Pharmica
Covance
DCL
Elona
Enzon
Exaromed
G&S Research
ICC
IN Institute for Biomedical Imaging
IU Vector Production Facility
JLM Pharmatech
KP Pharma
Krauter Solutions
Lilly - Clinton**
Lilly - LTC North**
Lilly - Tippecanoe**
Med Institute
MICR
Monarch Life Sciences
OBS Medical
Pfizer*
Project Technologies
Safis Solutions
SCHWARZ Pharma (UCB)
Sentry Logistics
Stanbio
Vesta Pharma
Activity
CRO
Toxicology
FDA Consulting
FDA Consulting
CRO
CRO
Contract Mfg
Contract Dvlpmt
Cold Storage
Dry/wet products Mfg
Solid dose Mfg
Contract Mfg
CRO
Regulatory Compliance
CRO
Tissue Mfg
Contract Mfg
CRO
CRO
Biotech Mfg
Contract Mfg
Market Research
Market Research
CRO
CRO
Biotech Mfg
Contract Mfg
Contract Mfg
Storage & Logistics
Dry products
Biotech Mfg
Bulk API; scale-up
FDA Consulting
CRO
CRO
CRO
Fill/Finish
Commissioning
FDA Consulting
Contract Mfg
Cold Storage
Biotech Mfg
Contract Mfg
*Vertically Integrated
**Excludes Lilly Corp HQ/R&D/G&A
30
Employees
20
170
8
20
100
300
825
27
50
700
300
21
7
140
30
100
205
850
200
14
150
14
45
3
70
13
40
20
15
200
1500
700
175
18
18
20
700
2
30
360
30
12
25
8247
Appendix II:
Medco Headline and Article from Indianapolis Star
31
November 13, 2007
Region's skilled workers key to Medco deal
By John Russell
[email protected]
November 13, 2007
When Medco Health Solutions began scouting the country last year for a site to build a massive pharmacy the size of
six football fields, the New Jersey company had one ironclad requirement.
The winning region had to have enough skilled workers — pharmacists, technicians and engineering experts — to
staff an enormous, mail-order operation that could dispense more than 1 million prescriptions a week.
Medco officials considered 21 cities, using computer models to analyze the work-force pools, before deciding it liked
what it saw in Central Indiana: two pharmacy schools at Purdue and Butler universities that together turn out about
300 graduates a year, along with a technical program at Ivy Tech that could provide plenty of technical and
distribution workers to operate a highly automated facility.
Medco, one of the nation’s largest pharmacy distribution companies, announced Monday that it would invest
$150.million in a new facility that will employ 1,300 people by 2012.
About 120 positions will be pharmacists, with the rest consisting of pharmacy technicians, engineers, information
technology specialists and managers.
Workers will make from $40,000 to $100,000 a year. The company will pump an annual payroll of about $60 million
into the region.
Medco has narrowed its selection to three areas in Central Indiana, in Boone, Hendricks and Johnson counties, and
said it will announce the winning site within 30 days.
Medco, a Fortune 100 company with sales last year of $42 billion, has two smaller automated centers in Nevada and
New Jersey.
“The largest and most modern, the flagship of our fleet, so to speak, will be here in Indiana,” said Kenneth O.
Klepper, Medco’s president and chief operating officer.
Last year, the company dispensed about 553 million prescriptions. Its mail-order service last year rang up sales of
$16 billion, or about 38 percent of its total sales.
Its clients include many large corporations, insurance carriers and government agencies. About one in four
Americans carries a Medco membership card.
Big win for Indiana
Gov. Mitch Daniels said based on payroll alone this will be the state’s biggest economic development win since
Honda announced in 2006 its plans to build a plant near Greensburg. Medco is expected to begin hiring in the second
quarter of 2008 and will do the bulk of its hiring in 2010 and 2011.
The state will provide the company with $18 million in performance-based tax credits and $450,000 in training
assistance.
But first, the region had to prove it could meet Medco’s work-force needs. Medco made it clear that finding enough
pharmacists and other workers was a make-or-break requirement.
The market for pharmacists is tight, with drugstore chains, hospitals and pharmaceutical companies scrambling to
find enough to fill openings. According to a recent study by the National Association of Chain Drug Stores
Foundation, there is a shortage of 7,000 pharmacists in the United States, pushing up starting salaries to from
$100,000 to $120,000.
32
On their first visit to Indianapolis, Medco officials met with pharmacy deans at Purdue and Butler, to get a feel for the
talent and size of the schools’ students. They talked to business leaders. They studied work-force maps and charts.
“Their very first question was: How many pharmacists are available?” said Mark Miles, president and chief executive
of Central Indiana Corporate Partnership. “They want the talent base here.”
Purdue University turns out about 160 pharmacy graduates a year, but about 40 percent leave Indiana for jobs or
post-doctoral study, said Steven R. Abel, assistant dean for clinical programs at Purdue’s School of Pharmacy.
Butler University last year turned out 122 graduates. Normally, about 25 percent leave Indiana after graduation, said
Mary Andritz, dean of Butler’s College of Pharmacy and Health Sciences.
“This will be another great opportunity to keep people in our state,” she said.
An economic match
State officials characterized Medco’s decision as a perfect match for Indiana’s economic future. That’s because the
new facility will offer jobs in three key sectors — life science, logistics and information technology — that the state is
trying to beef up as a way to overcome a slow decline in its traditional manufacturing economy.
“This really hit the sweet spot,” said Nathan Feltman, Indiana secretary of commerce and chief executive of the
Indiana Economic Development Corporation. “This is an opportunity to further diversify. We’re still the most
manufacturing-intensive state in the country.”
The company also said it was attracted here by the combination of Indianapolis International Airport, the huge FedEx
hub and the large UPS ground facility.
Medco describes itself as a “transformational” company that hires pharmacists who receive specialized training in
specific chronic conditions, such as cancer, diabetes, heart disease and asthma.
Some local life-science observers say Medco’s approach meshes well with the goals of such companies as
Indianapolis-based drug maker Eli Lilly and Co., which aims to develop “personalized medicines” with specific doses
for each person’s medical needs.
“Lilly is developing the personalized medicines. Medco will be the delivery end, getting the right dose to each patient,”
said David Johnson, president and chief executive of BioCrossroads, a nonprofit group that has helped raise more
than $120 million to invest in life-sciences companies in Central Indiana.
Building on a strength
Medco’s huge pharmacy will become the latest in a string of drug-related operations setting up shop in Indiana. Last
month, health insurer WellPoint opened its PrecisionRx Specialty Solutions pharmacy, a 126,000-square-foot facility
at the former United Airlines maintenance hub at Indianapolis International Airport.
The facility, which specializes in filling complicated prescriptions, now employs about 400 pharmacists, pharmacy
technicians, nurses, customer service representatives and others. It is expected to employ about 900 by the end of
2009.
Also last month, Arcadia Resources, a health-care and pharmaceutical services company, said it was relocating its
corporate headquarters from Southfield, Mich., in suburban Detroit, to the Northeastside of Indianapolis. In total,
Arcadia plans to create about 400 jobs in Indiana by 2010.
33
Appendix III:
CASE STUDIES OF SUCCESSFUL SERVICE COMPANY VENTURES
Quintiles Transnational Corp.
Quintiles is a privately held, global, full service CSP that provides professional services to the
pharmaceutical, biotechnology and healthcare industries. Quintiles, founded in 1982, is
headquartered in the United States and has 17,000 employees worldwide. Quintiles is the largest
contract research provider in the world, holding approximately 14% of the $14 billion global
outsourcing market.
The company operates through five divisions: product development; commercialization; strategic
partnerships; healthcare consulting; and medical communications.
The product development division of the company provides clinical development, strategic research
and product safety services to pharmaceutical and biotech companies. The scope of services
provided spans early product development through market launch and continues through post
marketing safety programs.
Quintiles’ commercialization business is run through its subsidiary, Innovex. Innovex provides sales
team development and marketing strategies and health management services to pharmaceutical
companies. Innovex also provides primary care, specialty and secondary care sales and marketing
services as well as sales representative recruitment and training.
Quintiles’ strategic partnering services are provided through a partnering group, NovaQuest.
Partnering services include co-promotional investments, strategic resourcing, and emerging
biotechnology. The goal of the strategic partnering services group is to convert fixed cost assets to
variable cost while providing high quality, efficient service to their partners.
Healthcare consulting services are provided through two subsidiaries: Quintiles Consulting and the
Lewin Group. Quintiles Consulting provides regulatory consulting for the pharmaceutical,
biotechnology and medical device industries and offers strategy support for medical device
development including preclinical and clinical trial services. The Lewin Group provides strategic
counsel to public agencies, non-profit organizations, and industry associations.
The medical communications services division provides continuing medical education (CME) for
physicians.
34
Quintiles has grown to be the world’s largest contract research services provider by incorporating
an aggressive global growth strategy including offices in Hong Kong, China, Russia, Mexico and India
since 1997. Quintiles is thus well positioned as contract research becomes increasingly
international in scope.
Quintiles offers extensive integrated services and is well positioned in important global markets, but
increased consolidation in the contract services industry threatens the company’s market share. As
CSPs continue to pursue increasing capacity and geographic presence, more full-scale global
competitors could emerge to challenge Quintiles’ pre-eminence. Through its strategic partnering
division, Quintiles has increased the value of its service by offering a true risk sharing relationship.
Such innovative partnership structures may become more common as global CSPs work to protect
their markets.
Althea Technologies
Althea is a contract manufacturer and service provider based in San Diego, CA. Founded in 1998,
Althea provides quantitative PCR (qPCR) assay services, plasmid DNA production, cGMP protein
production and aseptic vial and syringe filling of Phase I, II and III clinical products. The company
initially offered custom real time qPCR assay services and plasmid DNA production. Althea has
patent protection of a proprietary technology, “eXpress Profiling”, for gene expression analysis.
Althea’s initial source of equity has not been publicly disclosed, but Telegraph Hill Partners invested
$23M in a Series C venture capital round for Althea in January 2007. Funds from the Series C round
are targeted to Althea’s aggressive expansion strategy, including accelerating facility construction to
meet existing client demand.
Althea is an interesting example of a discovery and development service provider that is also
providing contract manufacturing services. It is reasonable to conclude from public statements that
existing client contracts provide Althea a strong revenue base to build a scalable service offering
with an identified plan for growth.
Aptuit
Aptuit, headquartered in Greenwich, CT., was founded by Michael Griffith in 2005 under the name
Global Pharmaceutical Development (GPD). Griffith was also the founder of ChiRex, a product
development and contract manufacturing service provider acquired by Rhodia in 2000. Aptuit was
founded with the objective to build, through acquisition, a fee-for-service services provider covering
all aspects of product development and contract manufacturing. Griffith developed an early
acquisition strategy focused on service providers capable of addressing a perceived backlog of
proof-of-concept clinical trials. Currently, Aptuit provides:
ƒ Active pharmaceutical ingredient
ƒ Drug substance development and
development
supply
ƒ Toxicology
ƒ Bioanalysis
35
ƒ
ƒ
ƒ
ƒ
Drug metabolism pharmacokinetics
Informatics
Pharmaceutics
Clinical packaging and logistics
At the time of its founding in 2005, Aptuit (as GPD) secured $150 million in private equity from
Welsh, Carson, Anderson and Stowe to commence operations. In 2006, Aptuit secured an
additional $750 million from Welsh, Carson, Anderson and Stowe as lead, and from Temasek
Holdings of Singapore.
Aptuit made several early acquisitions. Analysis of the companies acquired and comparison to
other cases in this report may help provide an initial framework for the definition of opportunity in
the discovery and service provider market. Aptuit acquisitions and services included:
ƒ Quintiles Early Development and Packaging: Former
Quintiles
Transnational
units
providing preclinical services, pharmaceutical sciences and clinical trial supplies.
ƒ Almedica International:
Provider of clinical drug supply services to global
pharmaceutical and biotechnology customers.
ƒ InfoPro Solutions:
Informatics services to meet pre-clinical and pharmaceutical
investigators’ needs.
ƒ Pharma Consulting: Service provider of all aspects of drug development aimed at helping
clients move efficiently and successfully from IND-enabling chemistry and biology to proofof-concept clinical studies.
Aptuit can be viewed as an example of a private equity-driven method of building a full service CSP
through acquisition of individual distressed service providers. With increasing globalization of CSPs
and more clinical trials being conducted off-shore, this model of building a full-service, global CSP is
attractive to investors. As capacity issues persist within the existing contract research market, a
company like Aptuit with strong leadership and a tested vision of building a full service contract
research organization can capitalize on short-term demand and could emerge as a competitor to
the top global CSPs and CMOs.
BioStorage Technologies, Inc.
BioStorage (BST), located in Indianapolis, provides advanced biomaterials storage, inventory
management, and worldwide cold-chain logistics. BST serves pharmaceutical developers and
manufacturers, non-profit and corporate clinical research facilities, donor organizations, forensic
labs, universities, zoological and veterinary treatment/research facilities, healthcare and life
sciences companies. Early-stage BST funders identified a need for a sample management provider
able to ensure sample integrity throughout the entire drug development process. In May 2007,
BioStorage secured $8.32 million in venture capital led by Radius Ventures (New York) with Spring
Mill Venture Partners (Indianapolis), Village Ventures (Williamstown, MA & Bloomington, IN) and
Twilight Venture Partners (Indianapolis).
36
As a key factor in its investment decision, Radius Ventures cited the biopharmaceutical industry’s
need for a high quality sample management provider that can ensure the integrity of biologic
samples throughout the development process. BioStorage has strong leadership from within the
contract services sector and has been a pioneer in setting the industry standards for Good Storage
Practices. This strong leadership from recognized industry veterans and the pioneering into a new
niche service area are key (and instructive) factors that likely attracted commitments to this funding
round.
Ricerca
Ricerca, located in Concord, OH., is a pre-clinical CSP providing both research and IND-enabling
study capabilities. The company has a unique service model that integrates biology and chemistry
to efficiently and effectively support drug discovery and development. With both GLP and cGMP
capability, the company also provides support for clinical trial studies including pharmacokinetic
studies, API production and bioanalytical methods development and application.
Ricerca is positioned to provide contract services for small molecules from discovery through
commercial manufacture using both biological and chemical capabilities. Services provided include
lead optimization, analytical and process chemistry, toxicology, pharmacology, radiosynthesis, API
manufacturing and regulatory support. Ricerca’s client portfolio is made up of both large
pharmaceutical companies and emerging small pharmaceutical and biotechnology companies.
Ricerca recently expanded its discovery services platform to include in vitro and in vivo lead
analysis. The services provided include medicinal chemistry, lead chemistry, toxicology,
pharmacology and ADME testing and are targeted to advancing molecules to development
candidates for an IND application.
Ricerca provides support to IND-candidates through process optimization, scale–up, manufacturing
(GMPs) and bioanalytical testing services.
With a $50 million financing including debt restructuring and a new capital investment by Bain
Capital Ventures, Cowen Investments and SV Life Sciences, Ricerca has embarked upon a growth
strategy with the goal of doubling revenues by 2009.
Ricerca’s growth plan also calls for capital expenditures of more than $15 million through 2009, the
bulk of which is planned to be invested in new chemistry and biology facilities and equipment, as
well as in training and staffing additions. Ricerca’s staff of 250 employees was expected to increase
by 15% by the end of 2007.
Ricerca is well positioned to take advantage of the pharmaceutical industry’s continued movement
to outsourcing further up the value chain. By adding capacity in discovery and pre-clinical services,
Ricerca can be viewed as a model of an integrated discovery and early development CSP that is well
positioned to absorb expected demand as the pharmaceutical and biotechnology industries
continue looking for new partners in development.
37
38
Private Equity
Private Equity
Pathology Services
API Development, Pharmacokinetics,
Toxicology, Bioanalysis, Informatics,
Pharmaceutics, Clinical Packaging,
Logistics
Althea Technologies
AmeriPath
Aptuit
Private Equity
Private Equity
Analytical Chemistry, Regulatory
Support, API Manufacturing
Gene Expression, Biomanufacturing,
Biopharm Product Development,
Biosafety Testing, Bioassay
Development, Clinical Manufacturing,
Delivery, Manufacturing, Packaging
Prestudy, Clinical Study, Bioanalytical
Study, Pharmacokinetic and Statistical
Analysis, Dermatology Bioequivalence
Studies
Cambridge Major
Laboratories
Cardinal Health PTS
(Catalent)
Cetero Research
Private Equity
Venture Capital
Development Services (in Asia for US/UK
clients)
Bridge
Pharmaceuticals
Venture Capital
Biomaterials Storage, Inventory
Management, Cold Chain Logistics
Private Equity
BioStorage
Technologies
BioReliance
Venture Capital
Private Equity
Plasmid DNA Production, cGMP Protein
Production, Aseptic Vial and Syringe
Filling, qPCR Assay Services
ABC Laboratories
Gene Expression Product and Service
Biologics Safety Testing, GMP
Manufacturing, Pre-Clinical and Clinical
Testing
Private Equity
In Vitro DMPK, In Vivo DMPK, cGMP
Analytical Testing, Stability Testing,
Environmental Assessments
Bar Harbor
Biotechnology
Funding Source
Services Offered
Company
X
X
X
Biology
X
X
X
Chemistry
DISCOVERY
39
X
X
X
X
X
X
X
Pre Clinical
X
X
X
X
X
X
X
X
Clinical
DEVELOPMENT
X
X
Regulatory
Submission
X
X
X
X
Full-scale
Manufacturing
DELIVERY
Private Equity and Venture Capital Activity in Contract Services: Underlying Data
Appendix V:
X
Marketing /
Promotion
Undisclosed
$3,300
Undisclosed
$35
$8
$210
Undisclosed
$900
$659
$23
Undisclosed
Investment
Size
(millions)
Acquisition
Acquisition
Acquisition
B
A
Acquisition
A
Growth
Equity
Acquisition
C
Growth
Equity
Investment
Type / Round
Genotyping, Gene Expression
Clinical Research Services
Central Lab Services
Clinical Trial Management C
High Throughput
Genomics (HTG)
Hilltop Research
IBT Reference
Laboratories
MaxCyte
Private Equity
Private Equity
Venture Capital
Private Equity
Private Equity
Venture Capital
Clinical Trial Management, Recruitment,
Data Management and Biostatistics,
Medical Writing, Medical/Regulatory
Affairs, Quality Assurance
Clinical Research Services
High Throughput Flow Cytometry
Products and Services
Clinical Research Services
Bioanalytical Services
Toxicology, Pharmacology, Metabolism
and Pharmacokinetics, Analytical and
Bioanalytical Service, Pathology, Surgical
Models, Data Management
Contract Manufacturing, Development
Services
Radiant Research
Radpharm
Sage Sciences
Synteract Clinical
Research
Tandem Labs, Inc.
WIL Research
Xcellerex
Private Equity
Venture Capital
Genome Based Discovery Services
Private Equity
Private Equity
Venture Capital
Private Equity
Private Equity
Venture Capital
Private Equity
Venture Capital
Protedyne
Patheon
Clinical Research Services
Pre-formulation, Analytical
Development, Formulation
Development, Clinical Trial Supplies,
Scale Up, High Volume Commercial
Manufacturing
Clinical Research Services
eStudySite
Medifacts
International
High Throughput Screening
Complete Genomics
X
X
X
X
X
X
X
X
X
40
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
x
X
X
X
X
X
$20
$105
Undisclosed
Undisclosed
$1
Undisclosed
Undisclosed
$2
$150
$16
$17
$5
$1
$8 +
undisclosed
debt
$6
$6
B
Growth
Equity
Growth
Equity
Growth
Equity
Seed
Acquisition
Growth
Equity
4
A
2
Growth
Equity
Acquisition
A
1
A
Appendix VI:
GLOSSARY OF ABBREVIATIONS
ADME
Absorption, Distribution, Metabolism and Excretion
AE
Adverse Event
API
Active Pharmaceutical Ingredient
ACRO
Association of Clinical Research Organizations
BASi
Bioanalytical Systems
CAGR
Compound Annual Growth Rate
CMO
Contract Manufacturing Organization
CRO
Contract Research Organization
CSO
Contract Sales Organization
CSP
Contract Service Provider
FDA
Food and Drug Administration
FIPCO
Fully Integrated Pharmaceutical (or biotechnology) Company
FIPNET
Fully Integrated Pharmaceutical (or biotechnology) Network
GLP
Good Laboratory Practice
IPO
Initial Public Offering
PICRA
Pharmaceutical Industry Contract Research Association
PhRMA
Pharmaceutical Researchers and Manufacturers of America
PD
Pharmacodynamics
PK
Pharmacokinetics
PDUFA
Prescription Drug User Fee Act
R&D
Research and Development
Tufts CSDD
Tufts Center for the Study of Drug Development
41
About BioCrossroads
BioCrossroads (www.biocrossroads.com) is Indiana’s initiative to grow the life sciences, a publicprivate collaboration that supports the region’s research and corporate strengths while
encouraging new business development. BioCrossroads provides money and support to life
sciences businesses, launches new life sciences businesses, expands collaboration and
partnerships among Indiana’s life science institutions, expands science education and markets
Indiana’s life sciences industry.
About BioCrossroadsLINX
BioCrossroadsLINX (www.biocrossroadslinx.com) is a non-profit organization, established by
BioCrossroads, Indiana’s initiative to grow the life sciences, which will advance Indiana’s
strengths in drug development and manufacturing through educational and workforce
development programs and regional collaborations. In addition, BioCrossroadsLINX will analyze,
organize and publicize Indiana’s research, industry and workforce strengths in biopharmaceutical
development and manufacturing.
Contact
BioCrossroads
300 N. Meridian St., Suite 950
Indianapolis, IN 46204
Phone: (317) 238-2450
Fax: (317) 238-2451
For general inquiries regarding this report and its contents, please contact Matt Hall at (317) 2382468 or [email protected].
For media inquiries, please contact Lori LeRoy at (317) 238-2456 or [email protected].
42
300 N. Meridian St.
Suite 950
Indianapolis, IN 46204
317.238.2450
www.biocrossroads.com
www.biocrossroadslinx.com
© 2007 BioCrossroads – BC Initiative, Inc./CICP Foundation