By Kate Hammeke, VP of Market Research, Industry Standard Research (ISR)
OUTSIDE FACTORS CAN INFLUENCE how a contract research organization operates, ranging from the exit or promotion of a key staff member to a significant change in operations or personnel due to a merger or acquisition.
Four CROs included in Nice Insight’s annual research merged with or were acquired by other contract research companies in 2011. Three years on, it is time to check how the newly formed CROs have fared now that they have integrated new staff and had a sufficient amount of time to adjust to the changes that accompany a merger or acquisition. The companies under review are: INC Research/Kendle, Agilent/Biocius, Inventive Health/Pharma- Net, and Eurofins Lancaster/ Lancaster Labs.
Productivity is a key outsourcing driver, as it contributes to the sponsor’s ability to help speed the product to market. If an acquisition results in a decline in customer perception for productivity — a metric continuously monitored by Nice Insight — it indicates that the business should be reevaluated to mitigate issues relating to the change in perception. Each of these CROs’ scores slipped in productivity postintegration and still have not fully recovered. Inventiv Health showed the largest drop in the category (down five percentage points) relative to PharmaNet’s score in 2011. Agilent also struggles to maintain the positive perception Biocius possessed in productivity, down four percent from the 2011 rating. Both INC Research and Eurofins Lancaster fared better, with only a two percentage point decrease from prior productivity ratings.
Not surprisingly, preserving one’s regulatory track record can be difficult through major changes to the structure of the business. This category experienced the largest downward shifts in customer perception after an acquisition, with each CRO falling between five and seven percentage points in customer perception. Quality has been the top-ranking criteria for CRO partner selection the past four years running, and maintaining quality post-M&A should be the top priority for businesses going through this transition. Yet it seems this is one of the more difficult customer perceptions to uphold years later, despite the heavy focus on its importance. Eurofins Lancaster fared the best in this category, despite dropping one percentage point, as their quality score (74 percent) was the highest of the group.
A CRO’s reliability — or ability to meet all project milestones and timelines — is essential to keeping a study on track and within budget. A change in a company’s reliability score warrants investigation, as the ability to maintain timelines directly impacts the sponsors’ ability to deliver. While none of the CROs made significant improvements in reliability postmerger, Eurofins Lancaster and Agilent maintained their reliability ratings; conversely INC Research’s and Inventiv Health’s scores slipped (8 and 4 percentage points respectively).
The one customer perception measure where several of the newly formed CROs show noteworthy positive shifts is affordability. Inventiv Health, Eurofins Lancaster, and Agilent have all improved their affordability scores by five or more percentage points. While affordability is an important attribute, it has fallen in rank in the past four years, from third to fifth place. And when asked about how price factors into CRO strategic partner selection criteria, it is often iterated that when quality and reliability measures show parity, cost comes into play. Otherwise, price is seldom used as a differentiating factor. Therefore, improved customer perception in affordability is not a good reason to keep a CRO on the preferred vendor list, especially when affordability comes at the expense of another customer perception attribute.
These findings suggests that when one of the CROs on your company’s preferred vendor list is acquired by another CRO — even if it is another business on your preferred vendor list — the sponsor’s procurement staff should reevaluate the new entity to ensure it still meets the criteria of a preferred vendor. Monitoring companies on the provider list to see if they have undergone significant changes in structure or staff is a good first line of assessment. Next, opinions gathered via word of mouth from colleagues should be considered. Lastly, a review of how the business is rated among industry peers — measuring pre- and postchange — will provide fundamental ongoing due diligence. In the past year there have been a number of notable acquisitions among CROs — PRA International’s merger with RPS, Huntingdon’s purchase of Harlan Labs, and Icon’s acquisition of Aptiv Solutions. Keeping an eye on how these businesses perform in the coming years will be important to preserving a solid preferred vendor list.
Survey Methodology: The Nice Insight Pharmaceutical and Biotechnology Survey is deployed to outsourcing-facing pharmaceutical and biotechnology executives on an annual basis. The 2013-2014 report includes responses from 2,337 participants. The survey is comprised of 240+ questions and randomly presents ~35 questions to each respondent in order to collect baseline information with respect to customer awareness and customer perceptions of the top 100+ CMOs and top 50+ CROs servicing the drug development cycle. Five levels of awareness from “I’ve never heard of them” to “I’ve worked with them” factor into the overall customer awareness score. The customer perception score is based on six drivers in outsourcing: Quality, Innovation, Regulatory Track Record, Affordability, Productivity, and Reliability. In addition to measuring customer awareness and perception information on specific companies, the survey collects data on general outsourcing practices and preferences as well as barriers to strategic partnerships among buyers of outsourced services.