Biopharma services

In Q3’21, biopharma services—including CROs, CDMOs, and diagnostics lab services—continued to ride a wave of global growth and diversification in biopharma.

CDMOs and CROs have traditionally competed by offering specialized product development and formulation capabilities and innovative bioprocessing capabilities. And, as the way drugs are developed and manufactured changes, these companies must continually acquire new capabilities to compete. Developers of biologics, for example, need data analytics to track novel biomarkers.

Drug development and trials have also changed as a result of COVID-19. The pandemic forced adoption of remote lab services and decentralized trials—trends that will continue post-pandemic. 

And the record speed of COVID-19 vaccine development has set new expectations for how quickly life-saving therapies should be developed.

At the same time, the pandemic has made it imperative to expand patient access and convenience—such as through home testing, drive-through testing, and virtual clinical trials.

These trends, as we noted at the beginning of 2021, are driving M&A activity in biopharma services.¹ CROs and CDMOs are acquiring other players in their subsectors to obtain unique capabilities, as well as to expand geographically. For example, in July, ICON, an Ireland-based CRO, completed the $12 billion acquisition of PRA Health Sciences, a U.S.-based CRO. ICON seeks to benefit from additional service offerings, a larger geographic footprint, deeper therapeutic expertise, and expanded talent and capabilities.

In August, Recro Pharma announced its acquisition of IRISYS for $50 million. The combination of the two U.S.-based CDMOs aims to broaden the scope of services and the customer base. Also in Q3’21, North American Science Associates announced the acquisition of Clinlogix for an undisclosed sum; both companies are medical-device CROs.

As the market for targeted therapies expands, so too does the need for companion diagnostics (CDx) to determine whether specific patients around the world have the relevant biomarker. To broaden its presence in the global CDx market, Veracyte, a U.S. company specializing in genomic cancer testing, is acquiring HalioDx, a France-based manufacturer of lab kits. The deal, announced in June, is valued at €260 million (or about $358 billion, as of October). Among the benefits, Veracyte seeks to develop and manufacture in vitro diagnostic (IVD) tests in Europe.

Biopharma companies are also looking for CDx capabilities, usually through partnerships, rather than acquisitions. In August, two Chinese firms, Impact Therapeutics and Burning Rock Biotech announced a partnership to develop CDx to discover new biomarkers for Impact’s targeted agents. In September, AstraZeneca and Thermo Fisher Scientific’s clinical sequencing business announced a collaboration to develop CDx to support AstraZeneca’s growing portfolio of targeted therapies.

A potential headwind for growth and dealmaking is a scarcity of talent. With their businesses booming, some CROs are struggling to hire enough qualified people to meet all the demand for clinical trials.

We are already seeing higher labor costs. If CROs can’t pass those through, they become a drag on EBITDA. CROs also need to carefully evaluate build-out and staffing decisions to avoid overcapacity if a slowdown occurs.

Biopharma services companies will continue to look for new capabilities and resources to meet rising demands from biopharma customers. Increasingly, biopharma firms want to leapfrog from preclinical to late-stage trials, for example. And, following the precedent set by the COVID-19 vaccine developers, they want to get therapies to large and diverse populations in weeks and months, not years. Patient access and convenience, which gained paramount importance during the pandemic, will continue to be top priorities. In Q4 and 2022, biopharma services companies will look to deal makers to help them gain the capabilities they need to meet patient expectations.