Oncology has the largest pipeline of drugs in development and pharmaceutical services provider Quintiles (NYSE:Q) wants to make sure it gets itself a bigger piece of that business.
Quintiles’ acquisition of Novella Clinical is intended to help the Durham company do just that. Novella’s expertise lies in providing clinical trial services for “emerging companies” – small pharmas and biotechnology companies, particularly those working in oncology. Quintiles says it has conducted more than 900 clinical trials of oncology drugs and helped develop or commercialize 45 of the best-selling oncology products, but most of those drugs came from large pharma companies.
“We have a large oncology group with a great deal of oncology expertise and experienced personnel,” said Paula Brown Stafford, president, clinical development at Quintiles. “But I wanted to have a unit that was focused on these emerging companies. And I wanted to have a unit focused on medical device companies.”
When the acquisition of Morrisville-based Novella closes, Quintiles’ oncology operations will have two units. Quintiles’ legacy oncology operations will serve mid-size and large pharma customers. Novella Clinical will operate as a unit serving smaller, emerging oncology customers. Novella CEO Richard Staub and his management team will stay on to run the 800-employee division. Both units will report to Stafford. She said she does not foresee any job cuts at Novella at this time.
Novella had not been looking to get acquired when Quintiles approached the company, Staub said. But he explained that global growth was one of Novella’s goals and the company was actively looking for acquisitions of its own to make that happen. Novella’s footprint covers North America and Europe, including West Central and Eastern Europe. Quintiles, the CRO industry’s largest player with annual revenue well in excess of $3 billion, operates in about 100 countries.
“We were interested in the Pacific Rim, we were interested in Latin America,” Staub said. “ The deal with Quintiles allows us to fast track that.”
Neither company would disclose any financial terms of the acquisition. Outside of a 1999 investment from the Family Health International Foundation – an amount Staub also declined to disclose – Novella has not received any outside funding. The FHI Foundation contribution was strictly financial and FHI has no bearing on Novella’s operations.
News of the Quintiles acquisition does not exactly come as a surprise. Earlier this month during Quintiles’ second quarter earnings conference call, CEO Tom Pike said the company was looking for “tactical, tuck-in acquisitions” to enhance Quintiles’ capabilities or fill a strategic need. In a Bloomberg News story published earlier this week, Quintiles CFO Kevin Gordon said the company was looking at acquisitions that add shareholder value.
Like Quintiles, Novella’s Research Triangle roots go deep. Founded as PharmaLink in 1998, the company was initially focused on bringing Internet-based technology to the clinical trials process. After the FHI foundation’s 1999 investment, the company’s name changed to PharmaLinkFHI.
Staub said that in 2005, the company made a conscious decision to expand its clinical trial offerings. Acquisitions filled out PharmaLinkFHI’s portfolio. In 2008, the company bought Britain-based Matrix Contract Research, a CRO and flexible staffing company that had already been a PharmaLinkFHI partner. The company changed its name to Novella Clinical in 2009.
Oncology, medical device expertise
Novella’s expertise in medical devices was developed organically. While there are other CROs that have expertise running medical device clinical trials, that segment of the CRO market remains fragmented. Staub said Novella also made a conscious decision to grow in oncology. In 2010, Novella acquired Prologue Research International, an Ohio CRO spun out of Ohio State University focused on oncology drugs. Novella also acquired the development staff of of Colorado-based OSI Pharmaceuticals, the team that developed pancreatic cancer and non-small cell lung cancer drug Tarceva, a Genentech product. 2010 was also the year that Novella crossed the $100 million revenue mark, ranking second in Triangle Business Journal’s list of the fastest growing private companies in the region.
Staub declined to disclose Novella’s current revenue figures but he said oncology work continues to bring in most of the CRO’s revenue, followed by medical devices. A biopharma division of Novella runs clinical trials across a number of therapeutic areas. Novella also offers contract staffing services to pharma companies.
Novella is not alone among small to mid-size CROs that chose to distinguish themselves by building up specific areas of expertise. In that sense, Novella can offer services that generalist CROs can’t. At the same time, Novella’s focus on emerging pharma and biotech companies filled needs these companies felt couldn’t be fulfilled by larger CROs. Stafford acknowledged that emerging companies need a “higher touch, closer customer interface” compared to their larger counterparts. In recent years, Quintiles hasn’t been able to serve many of those customers, she said.
With the Novella acquisition, Quintiles believes it can reach them again.