Does the consolidation in the pharmaceutical industry affect CROs/CMOs, e.g. does it create a necessity for outsourcing partners to consolidate, too?

Mark Rogers: Between 1993 and 2015, drug companies spent an estimated $1.7 trillion on M&A activity, with 74% of this activity attributed to only 20 companies. 2014 alone saw 185 deals of which 22 were valued at more than $1 billion. This trend continues today with nearly $34 billion being spent on M&A in the first quarter of 2017 (according to DCAT Value Chain Insights) and is likely to continue and perhaps even escalate. In particular, the political climate in the USA, advocating lower corporate tax rates and supporting repatriation of overseas revenue, may provide pharmaceutical companies even more incentive to pursue acquisitions to augment their growth. This trend in M&A has been primarily driven by a need to compensate for reductions in growth as a result of investment in early phase pipeline development, aptly demonstrated by the very recent, $11.9 billion acquisition of Kite Pharmaceuticals by Gilead.

Interestingly, the CRO/CMO service industry has also undergone a similar trend with increasing M&A activity. For example, the estimated global deal value in 2015 is estimated at $12 billion, according to the Clinical Trials Yearbook 2016. A major driver for this comes from increased competition as a result of active outsourcing partner consolidation by the pharmaceutical industry, to ensure better efficiency and consistency, particularly following acquisition. M&A in the CRO/CMO sector has been sought primarily to improve the global footprint, acquire higher levels of technology and provide a broader portfolio of services. There seems to be little evidence that M&A in the pharmaceutical industry has resulted in any significant loss of business for the CRO/CMO sector but rather, has been grounds for scope change and perhaps some downsizing. Despite the magnitude of the M&A activities, the fundamental and primary demands on the pharmaceutical industries outsourcing partners for quality and on-time delivery will continue to dominate, regardless of the size or activity of the pharmaceutical business.

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