During this session, the panelists discussed the current market outlook for CROs and the key differentiators making them attractive to private equity investors, such as therapeutic area (TA) specialization, their ability to ensure diversity in clinical trials and the integration of artificial intelligence (AI) into their value offerings. They also discussed how the expectations of CRO customers – primarily large pharmaceutical companies – are rising, with a renewed focus on speed and quality in trial execution.

Session panelists:

• Paul Gadiock, Partner, McDermott Will & Emery
• Jeanne Hecht, CEO and Chairwoman of the Board, Lexitas
• John Kerins, Managing Director, Cain Brothers
• Natasha Latif, Principal, The Vistria Group
• Justin Sabet-Peyman, Partner and Deal Team Leader, Patient Square Capital
• Dee Anna Smith, CEO, Sarah Cannon
• Moderator: Joel Rush, Partner, McDermott Will & Emery

IN DEPTH

Top takeaways included:

• CROs Remain Attractive to Private Equity Investors. Following the biotechnology funding winter, capital markets have bounced back well from a funding standpoint and investor interest in CROs has since grown. Beyond market reasons, this is in part due to the shift by pharmaceutical companies toward outsourcing clinical trial management to CROs. It’s also in part due to an increase in study starts as biopharmaceutical companies seek to refresh pipelines after product patents expire. In general, completing clinical trials is mission critical service for pharma companies that have poured significant resources into research and development and into bringing a product to market, so the uptick in investing in CROs is likely to continue.
• Investors Look for Red Flags When Conducting Due Diligence. Because CROs are service businesses, an investment firm interested in a CRO will first look at the talent and capabilities of the organization’s leadership team. Firms are more likely to invest if they are familiar with the CRO’s leaders or have backed them before. Second, when conducting their due diligence, investors will spend significant time assessing whether there are any question marks associated with a company’s culture of compliance (e.g., the investor will look into corrective and preventive actions if inspections have occurred) or whether there are any suspicious deviations in reporting not identified up front. Other factors investors will investigate and consider include the CRO’s thesis that the firm would be underwriting, the CRO’s consistency across authorization policies and, if it’s a smaller CRO, how it competes against the larger players in the market and ascertaining the smaller CRO’s “right to win” in that TA pipeline.
• CRO Customer Expectations Are Rising. Like private equity investors, pharmaceutical customers have increasingly high expectations for the CROs they contract with, particularly regarding the speed and quality of the trials conducted by the CRO. It is no longer just about when the first patient is dosed, but when the last patient is treated. In today’s environment, big pharmaceutical companies are especially frugal with their assets and tend to expect more efficiency from their CROs because of technology improvements that allow the CROs to report and match differently. Overall, however, customers still seek the same thing they’ve always wanted: a well-designed clinical trial executed to the highest quality standards to meet regulatory agency approval and eventually commercial launch.
• Both TA Specialist and Generalist CROs Can Deliver Value to Customers. TA expertise is foundational and critical to any clinical study, but certain TAs, such as oncology, are more likely to have specialist CROs than others. TA-specialty CROs have the advantage of deep key opinion leader networks, allowing them to move from Phase I to Phase III quickly. By contrast, larger generalist CROs offer a broad set of offerings and resources, giving them an advantage in logistics management, and are therefore more likely to win a Phase III trial. However, TA specialization is not the only thing CROs should strive to be experts in. To compete in today’s market, CROs should also master the functional design of trials, biostatistics and data capabilities on an international scale. There are paths to success for both specialty and generalist CROs.
• CROs Can Integrate AI Into Their Businesses to Optimize Efficiency. Because scale matters, TA-specialty CROs can optimize logistics management by automating certain functions with AI. The objective in so doing is to reduce the administrative burden on skilled individuals and allow them to realize their potential as thought partners. Companies have successfully implemented AI for a variety of use cases, including in medical writing, in pharmacovigilance and product safety to conduct literature searches, and in drafting documents for annual Investigational New Drug Application reporting updates. Newer use cases currently being tested include drafting trial plans, creating cost proposals and patient matching (including data modeling for predictive biomarkers). AI can reduce CRO operating costs and allow CRO personnel to do what they are best at, which is thoughtfully optimizing and executing clinical trials, but AI’s full potential is still to be determined.
• Achieving Diversity in Trials Remains a Challenge. Recent regulatory guidance instructing companies to enroll a diverse set of patients in trials is laudable and will help the industry understand how its products are being used in the real world. But challenges persist in increasing diversity both because of an unmet need for health centers that do research in underrepresented areas and because of a lack of trust in clinical care generally. As an industry, it is critical that stakeholders have tough conversations to find ways to reach these patients, such as improving communication to make potential patients aware of trials for which they are candidates, ensuring informed consent is properly translated and sending mobile clinics to underserved areas.