Private equity dollars are flowing toward clinical trial sites as industry conditions demand larger site networks, PitchBook's analysis of first quarter 2024 deal activity shows.
“Clinical trial sites are undoubtedly the hottest category of pharma services as previously [physician practice management]-focused firms pivot into the life sciences category closest to their historical area of expertise,” the report's authors wrote. Notable examples of this trend include the buyout of Worldwide Clinical Trials by Kohlberg & Co. and VSS Capital Partners’ investment in Eximia Research Network, both of which closed in late 2023.
Given that the trial site niche is still fragmented, there’s plenty of room for M&A activity, according to the analysis. Contract research organizations (CROs) are hopping on the opportunity, including the acquisition of site network Elixia by American Clinical Research Services in early May and Alcanza’s steady collection of trial sites in areas with large Hispanic populations.
For CROs, scooping up trial sites is one aspect of a greater movement toward vertical and horizontal consolidation, a long-standing trend that is still playing out in the space, the PitchBook report confirmed. CROs continue to combine with contract development and manufacturing organizations to establish end-to-end drug development capabilities under a single roof, making them more competitive in the outsourcing market. This is driving defensive M&A among larger firms and pushing smaller companies to find ways to scale.
All the momentum is driven by a frenzy of new cell and gene therapies, immunotherapies, and mRNA-based vaccines that have heated up the outsourcing market, along with a shift toward specialty drugs that treat narrower populations. It’s also become more expensive and complicated to get a new medicine through regulatory approval, as the FDA ramps up requirements around trial diversity and mandates a greater number of endpoints, according to PitchBook.
“As a result, pharmaceutical companies are increasingly turning to outsourced services to provide specialized support, lower costs, and reduce time to market,” the report's authors wrote.
Private equity firms have capitalized on this momentum in recent years by shifting their healthcare investing focus from provider, business services and healthcare IT toward pharma services. There were 300 PE deals in the segment in 2021 and 275 in 2022, a notable jump from the 139 deals back in 2017, according to the report.
Even as activity cooled in 2023 and early 2024 in line with broader trends in healthcare, total deal activity in 2023 was 50% higher than between 2017 and 2019. Interest by sponsors in “M&A-heavy strategies” like trial site businesses is largely responsible, the report explained.