“I still see a lot of emails and phone calls and LinkedIn messages,” said Brad Hightower, CEO of Hightower Clinical, when asked about private equity (PE) investment in clinical research. “There’s still a lot of activity in the space for sure.”
He’s yet to be convinced it ends well, and he’s not alone. PE firms have spent years buying up research sites, and sponsors have started asking what that means for quality.
Is the concern valid? Can site networks owned by PE be trusted? AMRC put that question to a cross-section of panellists on our most recent webinar, moderated by Dan Schell, chief editor of Clinical Leader.
Dave Windley, senior healthcare analyst at Jefferies, set the scene, explaining Brad’s multitude of emails, calls and LinkedIn messages. R&D spending, he said, is climbing out of its post-COVID trough and “reaccelerating toward that mid-single digit range,” with small biotech the swing factor, since its budgets rise and fall with what the capital markets will lend rather than with sales. Trial starts are on the rise as well, after years of studies sitting in ClinicalTrials.gov and never reaching first patient in. “That has steadily improved over multiple quarters.”
Investors want a share of that growth. Firms buying site networks are looking at a fragmented market that runs on 50 separate contracts when 3 would do, and want a platform that can handle 100 trials a year instead of 25. “The investment thesis… investing in this space is a growth thesis,” Windley explained.
“The investment thesis… investing in this space is a growth thesis,”
David Windley, Jefferies.
By contrast, sponsors worry the revenue PE investors are seeking will be funded by cuts, not growth. That’s down to comparisons with the wrong industry, Jim Kremidas, AMRC’s executive director, noted. What happened in healthcare following PE investment came from captive patients and a capped price. “Insurance companies are trying to minimize the payments they provide healthcare providers,” he said, and when someone else sets the price, operational cost is the only lever left to pull. Kremidas argued that the better comparison is CROs, which sell to the same customers.
“This is a service industry, and if you’re not delivering good service, you’re not going to get repeat business,” He explained. “And if you don’t get repeat business, you don’t have a backlog, and your value does not increase.” A patient often has one clinic within reach, while a sponsor has thousands of sites. “That sponsor can go to any site they want.”
“This is a service industry, and if you’re not delivering good service, you’re not going to get repeat business,”
Jim Kremidas, AMRC.
Windley pointed out this is exactly what happened to CROs. IQVIA and PPD all spent stretches under private equity ownership and came out as leaders in the CRO space. They “didn’t cut costs and shrink and not invest in delivery in a way that sacrificed their future.”
Jesse Hoffman is living that theory. As Chief Business Officer at AMR Clinical, he led the company through a recapitalization backed by Curewell and noted that they sold quality.
Sponsors choose sites based on access to patients first and data quality second, so a PE firm that buys a network to strip out the costs finds those sponsors have gone elsewhere. “You need a financial partner that’s actually going to invest in your quality systems and invest in your access to patients, because that is scalable and that’s how you’re going to grow your business. If they come in and all they want to do is cut costs, that’s not a recipe for success.”
Brad Hightower wasn’t convinced, and he’d done his research. Ahead of the session, he spoke to ten site owners who had been through buyouts, and discussed the impact on regulatory compliance, PI oversight and staffing. He was skeptical that most PE firms understand what they’re buying, and that a site could hide the damage for years without anyone noticing.
The panel went on to debate what a three- to five-year exit plan does to a study that runs trials longer than a fund holds, whether a PE firm’s due diligence covers quality measures like protocol deviation rate, and how a sponsor can tell if a site is backed by a good PE firm or a fashionable one.
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