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PE firms in clinical research race

Indian private equity funds with exposure to the pharmaceutical sector are chasing a new ambition — building global clinical research organisation chains.

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With demand getting bigger, these companies are building CRO chains

MUMBAI: Indian private equity funds with exposure to the pharmaceutical sector are chasing a new ambition — building global clinical research organisation (CRO) chains.

Leading the pack is ICICI Ventures (I Ven), which acquired US-based Radiant Research for about $65 million in June this year. The fund is now looking at similar investments in South America, Eastern Europe and the Asia Pacific. It has roped in the top five Indian pharmaceutical companies as partners, including Wockhardt and Dr Reddy’s. Along with these companies, I Ven will purchase CROs worldwide and integrate them as one single entity called Swiss Biosciences.

Similarly, Kotak Private Equity is doing the rounds of investment bankers to build something similar. An investment banker, who did not wish to be named, said, “Kotak PE wants to build a chain of clinical research organisation by acquiring companies in the US, Europe and India.”

Sources say UTI Venture Funds is also contemplating the same.

Abhijeet Biswas, vice-president (cross-border M&A), Singhi Advisors said, “A lot of private equity companies are approaching us to buy CROs in US and Europe. Usually, the acquisition would be small; within $100 million.”

Aluri Srinivasa Rao, director - investments, ICICI Venture said, “Though Indian CRO is important as part of your portfolio and to complete the chain, average revenues of these companies are about Rs 30 crore as most of them have just started. International CROs have matured and have better scope of earnings.”

Rao also explained that international PE funds follow similar strategy in the US and Europe. “Indian PE firms have just started following this route,” said Rao.

A CRO undertakes outsourced research from pharmaceutical companies. CROs come into the picture when drug discovery companies want their drug to be tested on humans. These studies require large number of patient population. Hence, pharma companies prefer simultaneous studies in different geographies. Putting up a global CRO gives this edge.

In fact, big life sciences companies, such as Reliance Life Sciences, are also building their clinical research units on much the same strategy.

The CRO business is currently in its infancy, though it is growing fast as global pharmaceutical companies are outsourcing research in a big way to manage their costs.

Currently, of the $80 billion global life sciences R&D market, CRO penetration level is close to 20%, according to I Ven. With growing R&D spend and increasing participation in clinical development activities, the global CRO industry is poised to grow at a high rate of 13% over the next 3 years.

Ajay Mittal, director - private equity and CFO, UTI Venture Funds, has another take. “It is a strategy where a fund would make multiple small investments before the consolidation starts. This helps the fund to be present across and get the maximum during the consolidation phase,” he said.

Mittal compared the scenario with private equity investments in mobile services space, wherein one fund would make multiple investments and either sell individually or bring the companies under one roof to exit.

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