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Contract Research & Manufacturing Services (CRAMS)
Trends in Deal Making
Barath Shankar Subramanian, Senior Industry Analyst
Pharmaceuticals & Biotechnology
October 7, 2009
2
Focus Points
• Impact of the Economic Downturn
• Overview of CRAMS Market
• Review of Recent PE-CRAMS Deals
• Factors Driving PE Interest in CRAMS Market
• Industry Best Practices
• Top Industry Challenges and Their Impact
• Conclusions
3
Economic Downturn
• CRAMS is one of the fastest growing segments in the pharmaceutical and biotechnology industry
• Lower growth projections (10-12 percent YoY) for CRAMS due to economic downturn compared to 14-15 percent projected in 2007-08
• Small-mid size sponsors that outsource a greater percentage of activities have been impacted most by the downturn
• Larger sponsors are looking to spin-off/sell non-core activities and convert to a variable cost structure, which favors the CRAMSbusiness
• Larger, strategic deals between sponsors and CRAMS providers are a result of restructuring of “Big Pharma” business
4
Overview of CRAMS Market
The U.S. CRO market projected to grow from $10.9 billion in 2009 to $22.8 billion in 2016 at a CAGR of 11.1 percent.
CRO Market: Revenues (U.S.), 2006-2016
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Year
Revenues ($ M
illion)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Gro
wth
Rate
(%
)
Revenues Growth Rate
5
Overview of CRAMS Market
The U.S. CMO market projected to grow from $8.5 billion in 2008 to $15.1 billion in 2014 at a CAGR of 10.1 percent.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2006 2007 2008 2009 2010 2011 2012 2013 2014
Year
Re
ve
nu
es
($
Millio
n)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Gro
wth
Ra
te (
%)
Revenues Growth Rate
CMO Market: Revenues (U.S.), 2006-2014
6
Review of Recent PE-CRAMS Deals
• Patheon – JLL Partners (Apr 2007)• Acquired majority stake for $150 million
• Catalent – The Blackstone Group (Jul 2007)• Spun-off from Cardinal and bought for $3.3 billion
• PRA International – Genstar Capital (Dec 2007)• De-listed and bought for $797 million
• Quintiles – Bain Capital, 3i & TPG• Bought stake from One Equity Partners for $3 billion
• PharmaNet – JLL Partners (Feb 2009)• Buyout of company for $100 million
7
Factors Driving Private Equity Interest in CRAMS Market
• Attractive growth rates and long-term sustainability of the
CRAMS market
• Favorable cost structure and business model of CRAMS
providers compared to sponsors offers competitive advantage
• Sponsors looking to spin-off/sell facilities with non-core
operations
• Recent economic downturn has made valuations favorable
• PE holdings in the CRAMS market can provide integrated
upstream and downstream services in the long term
8
Industry Best Practices
Industry Best PracticesIndustry Best Practices
Growth Built on the Strength of Long-Standing RelationshipsGrowth Built on the Strength of Long-Standing Relationships
Conversion of Brand Awareness to Brand PreferenceConversion of Brand Awareness to Brand Preference
Customer Focused Alignment of ServicesCustomer Focused Alignment of Services
PE firms have been able to
identify targets that have a
strong business
foundation and then focus on
adding value to these aspects
to leverage their
investments
9
Top Industry Challenges and Their Impact
LowMediumMediumEnabling Data Availability and Connectivity Vital to Expansion
LowMediumMediumShift of Industry Pipeline Balance Toward Early-stage Development Increases Risk of
Failure for CRAMS Providers
LowMediumHighDeclining Clinical Pipeline and Unsustainable Cost of Failure Strains Smaller CRAMS
Providers and Sponsors
LowMediumHighConsolidation in the Biopharmaceutical Industry Could Result in Cutbacks on Number
of Service providers
MediumHighHighIncreasing Divide between Patient Access and Studies Threatens Productivity
5-7 Years3-4 Years1-2 YearsChallenge
10
Conclusion
• Strong revenue and volume growth projected across global CRAMS markets
• CRAMS market is expected to witness a drop in revenue growth in the short term from the economic slowdown
• PE firms could build their own supply chain in the long term to leverage on complementary strengths between CROs & CMOs
• Strong growth fundamentals, especially in early stage outsourcing expected
• The shift in volume from the “Big Pharma” tier to “biotechnology and specialty pharmaceutical companies” is expected to have an impact on overall growth rate
11
Next Steps
� Register for the next Chairman’s Series on Growth:
The Growth Excellence Model: Competitive Benchmarking & Growth
Investing (November 3, 2009) (http://www.frost.com/growth)
� Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep abreast of innovative growth opportunities(www.frost.com/news)
12
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For Additional Information
For Additional Information
Johanna Haynes
Corporate Communications
(210) 247-3870
Carol Skloss
Director of Sales, North America
Healthcare
(210) 247-3810
Daniel Ruppar
Industry Manager
Pharmaceuticals & Biotechnology
(210) 247-2428