Clinical research organization Clinipace’s fundraising haul today of $9 million puts it in a position to do more of what the Morrisville company has been doing in over the last two years – finding and acquiring companies.
After Clinipace closed on its acquisition of California CRO Paragon Biomedical last month, CEO Jeff Williams told WRAL Tech Wire that he has other acquisition targets in mind but he was not ready to disclose any details. If the Clinipace’s recent history is any indication, another announcement could be coming. Looking at the acquisitions Clinipace has already made gives insight into the kind of CRO the company aims to become.
The Paragon acquisition, Clinipace’s fourth, brought to the company new therapeutic areas and new global territories to test promising drug candidates but the deal offers something even more important. Paragon emerged as a potential acquisition target in 2010, said Clinipace CEO Jeff Williams. Negotiations started in 2011. A deal could have happened sooner but Clinipace had its hands full with acquisitions two and three, deals that closed last year.
The deal for Irvine, Calif.-based Paragon, announced on September 25, could prove to be pivotal for Clinipace. In giving Clinipace its first West Coast presence as well as offices in the United Kingdom and an additional office in India, Clinipace doubles in size — in both revenue and headcount. Williams said scale is key for competing for the kind of clinical trial work it is targeting.
“That’s the name of the game for us, we’re after capacity,” Williams said.
Paragon was after the same thing. The company, founded by CEO Gena Reed and her husband in 1989, was also looking to add to its global scale through partnerships or acquisitions. Paragon, which has never taken any venture capital or private equity investment, initially focused on the United States and expanded globally to track with customer demand. Paragon’s growth has been primarily organic, though it did add its U.K. and India locations through a 2005 acquisition of U.K.-based CRO InDatum.
Specific financial terms of the Paragon acquisition weren’t disclosed. While Clinipace is slightly larger and is the acquirer in the deal, Reed said Paragon brings to the table structure and systems of a CRO that has relationships with pharmaceutical companies dating back more than 20 years. The company has developed clinical trial expertise in therapeutic areas such as cardiovascular, central nervous system and infectious diseases. The younger Clinipace, founded in 2003, was initially a technology company built on proprietary software for managing clinical trial data. Clinipace became a full-service CRO and global company through acquisitions. Last year, Clinipace closed deals for Colorado consulting firm Regulus Pharmaceutical Consulting and PFC Pharma Focus, a Swiss CRO that also has offices in Germany, Israel and India.
Clinipace’s acquisitions follow the CRO industry’s merger and acquisition trend, much of that activity involving North Carolina companies. Raleigh-based INC Research’s $232 million acquisition of the larger CRO Kendle last year gave INC additional therapeutic breadth and geographic scale to propel INC among the CRO industry’s top players. Shortly after announcing the Kendle acquisition, INC struck another deal acquiring Australia CRO Trident Clinical Research. That deal expanded INC’s reach into Australia and Asia.
Quintiles, the largest pharmaceutical services provider in the clinical research sector with facilities in 60 countries and more than $3 billion in 2011 revenue, doesn’t need acquisitions to broaden its global reach. The Durham-based CRO has made four acquisitions in the last year, the most recent an August deal for Durham genetics analysis company Expression Analysis. In each of those deals, Quintiles acquired a much smaller company with particular expertise in an aspect of drug development or commercialization.
Large CROs such as Quintiles and PPD are using their scale to pursue “strategic partnerships” with the large pharmaceutical companies. While contract terms vary, these arrangements may cover multiple therapeutic candidates over the course of many years. The CRO may take a greater stake in the work by injecting capital into the drug programs in exchange for a greater share in the fruits of a successfully commercialized drug. When INC acquired Kendle last year, CEO James Ogle said part of the reason for the deal was to better position INC to compete for strategic partnerships.
That’s not Clinipace’s strategy. Clinipace seeks small and mid-sized drug companies; a market that Williams says is underserved by larger CROs. Mid-market companies don’t have the size or the drug pipeline to negotiate the kinds of strategic partnerships that have become fashionable among large CROs. But the smaller players are still looking for global clinical trial options.
Williams acknowledges that many CROs are looking at emerging markets, particularly China. Clinipace has a presence Brazil and India but it won’t enter China any time soon. Client demand will drive Clinipace’s expansion strategy. In the near term, Williams is eyeing Eastern Europe and Spain, markets where mid-market pharma companies are interested in running clinical trials.
“We’ve never embraced the notion of build it and they will come,” Williams said. “Everybody’s talking about (China). We’re going to keep our eye on it.”
Williams said that Clinipace and Paragon together should reach $55 million in 2012 revenue and he projects that organic growth will drive the company to between $65 million and $75 million in revenue next year. Backlog, a CRO industry measure of work yet to come from contracts and letters of intent, has increased four-fold in the last year for Clinipace and Paragon separately. Williams attributes the increased backlog in part to more pharmas responding to Clinipace bids this year compared to last year.
Clinipace and Paragon do not have overlapping customers and Williams said that the combined company will be better able to compete for work with larger drug companies. But he adds that Clinipace is not abandoning its mid-market pharmaceutical focus.
With the Paragon acquisition, Clinipace will now employ more than 430 people. Williams said that even though Paragon is based in California, the deal helps hiring prospects at Clinipace’s Morrisville headquarters. When the company is better positioned to win new business opportunities, it is better positioned to hire throughout the organization. Clinipace currently employs 55 in North Carolina, most of them in Morrisville. Williams could not offer any hiring projections but he did say Clinipace isn’t finished buying companies. Part of a recent $13 million fundraiser was designated for the Paragon deal. The rest could apply to another acquisition.
“That’s part of this business — always positioning yourself to be the most attractive partner (to pharmaceutical companies),” Williams said.