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Fairmount Partners
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Fairmount Partners is a registered Broker Dealer, member FINRA and SIPC.
Contents
Pharmaceutical Outsourcing Monitor
Introduction
Recent Observations & Trends February 19, 2020
Public Company Performance
In our first Monitor of the new decade, we address a sampling of
CRO
topics we’ve discussed before. It’s hard to group them into one
CDMO
theme. But it’s not hard to note the existence of some persistent
Laboratory Services
areas of concern to everyone involved in drug discovery and
M&A Snapshot
development:
About Fairmount Partners
Fairmount’s Pharma Services Team • The efficacy and efficiency (separate issues) of clinical
research,
Neal McCarthy
• Pharmaceutical pricing,
Managing Director
• The adoption of new technologies,
Michael Martorelli
• Regulatory changes,
Director Emeritus
• International trade conventions,
Roy Delizia
• Job satisfaction, and
Director
• Pre-competitive collaborations.
Cecilia Gleason, Ph.D.
Senior Vice President And based on recent developments relating to the coronavirus,
R.C. Wainwright we are adding one more serious, but hopefully temporary,
Vice President concern to that list.
Nick Lopez It’s also apparent that drug development firms and their
Associate outsourcing partners are becoming more concerned about some
Azfar Merchant new ideas, many of which we address in the pages that follow.
Analyst
Mihir Patel Michael A. Martorelli, CFA
Analyst Director Emeritus
Matt Wittig
Analyst
PHARMACEUTICAL OUTSOURCING MONITOR
Industry Insights│ February 2020
Recent Observations & Trends
Financial and Capital Markets

Thoughts on a New Decade
It’s tempting to add our own predictions to those of commentators who have been writing articles with
such eye-catching titles or key phrases as these:
“New Trends for the New Decade”

“A Look at Clinical Trials in 2030”
“Emerging Technologies Set to Disrupt Clinical Trials”
“New Strategic Options in the Market”
“Provocative Ideas for the Future”
“A Tsunami of Change is Coming”
As many readers know, we have been examining the pharmaceutical outsourcing industry since 1993.
There is one phrase that we believe summarizes this industry more than any other: The More Things
Change, The More They Stay The Same. Indeed, we’ve used that phrase in our writings several times over
the past 27 years. Despite the prognostications of some fellow analysts and commentators, we’re quite
prepared to repeat that phrase here at the dawn of a new decade.
We don’t dispute the fact that the drug development industry is doing many things differently than in the
past. And, we acknowledge that outsourcing service providers are more deeply involved in supporting
those efforts than ever before. But, experience has taught us to be skeptical about the nature of the
traditional, cautious, and usually very bureaucratic processes that veteran industry participants use while
trying to implement new ideas and technologies.
We will not make any bold predictions about the imminent adoption of ideas or technologies such as
RWE, remote monitoring, AI, virtual clinical trials, et al. But, we will use this Monitor to comment on
some advancements that drug developers and their outsourcing partners are indeed using to make
incremental changes in the long and still-challenging process of drug development.
In 2019, we commented somewhat expansively on the topics of real-world evidence, artificial

intelligence, unified clinical operations, clinical research as a care option, digital CROs, and in silico
disease models. We’ll continue to survey the industry landscape and describe some tangible preclinical
and clinical developments we find especially encouraging.
First, we present our usual evaluation of selected consolidating transactions across the outsourcing
industry during the past several months.
www.fairmountpartners.com PAGE │ 2
Recent Observations & Trends

Merger and Acquisition Activity
Later in this Monitor, we review the financial aspects of recent M&A activity across the pharmaceutical
outsourcing landscape. In the fourth quarter of 2019, we noted almost 80 relevant transactions, 62 of
which were completed by strategic buyers. As has been our custom, we comment below on several deals
that seemed particularly interesting:
• In October, ICON plc extended its activities to conducting clinical research at alternate sites by
acquiring Symphony Clinical Research, a leading provider of at-home patient and site support
services.
• Also in October, CNS Network and Hassman Research Institute combined to form Apex Innovative
Sciences, an independent operator of clinical trial sites focusing on complex studies for CNS
indications. That firm then acquired Clinical Trials Centers Alliance and its Ocean View psychiatric
hospital.
• In early November, the cloud-based software provider Veeva Systems completed the $430 million
acquisition of Crossix Solutions, which offers privacy-safe U.S. patient data and analytics to help drug
companies’ media and marketing efforts.
• Just a few days later, Veeva also completed the acquisition of Physicians World, a leading provider of
speakers’ bureau services.
• Also in November, the bioanalytical testing laboratory BioAgilytix expanded its lab services, business
base, and geographic footprint with the acquisition of Cambridge Biomedical, which also specializes
in large molecule bioanalysis. Fairmount Partners was pleased to represent Cambridge Biomedical in
this transaction.
• November was a very busy month for transactions involving private equity firms, including the
following:
o Arsenal Capital acquired the healthcare packaging unit of Clariant,
o HIG Capital acquired BioVectra from Mallinckrodt,
o Cinven, Astorg, and ADIA acquired LGC Group from KKR,
o Renovus Capital recapitalized Clinical Mind LLC, and
o Enhanced Equity Partners acquired Pharmaceutical Associates.
Continued on next page
Recent Observations & Trends (cont.)

Merger and Acquisition Activity (cont.)
• In December, Charles River Laboratories continued its steady pace of acquisitions by paying $380
million to acquire HemaCare Corporation, a leader in the production of human-derived cellular
products for the cell therapy market.
• In January, buyout firm Leonard Green & Partners LP agreed to join private equity firm Arsenal Capital
Partners as an owner of U.S. clinical trial services company WCG. According to press reports, the deal
valued WCG at about $3.1 billion.
• Ergomed plc, a European CRO and pharmacovigilance business publicly traded on the London Stock
Exchange, acquired US-based Ashfield Pharmacovigilance from Irish healthcare giant UDG
Healthcare. This follows Ergomed’s exit from drug development activities and fulfills its stated goals
of expanding its pharmaceutical services operations.
• Catalent, Mercachem-Syncom, Synteract, and Veristat were just a few of the other outsourcing firms
that made acquisitions in January 2020. The bigger news involved three meaningful Initial Public
Offerings. Each of them raised more than they anticipated when first filing their S-1s with the SEC:
o The full-service CRO PPD Inc. raised $1.6 billion in a public offering some eight years after
being taken private in December 2011.
o The drug discovery software provider Schrodinger Inc. raised $202 million in its first public
offering.
o And the start-up gene editing company Beam Therapeutics raised $180 million, 80% more
than projected when it first filed its IPO document.
Our Comment: As we’ve noted throughout most of the seventeen years that we’ve been publishing this
Monitor, the atmosphere is positive for continued consolidation in almost all segments of the
pharmaceutical outsourcing business. Similarly, the appetite for making investments in such companies
remains strong on the part of both public and private investors.

Merger and Acquisition Activity in the Biopharma Industry
We do not normally spend much time discussing mergers and acquisitions in the biopharmaceutical
industry. But, it’s worth noting the commentary made in EY’s annual M&A Firepower Report:
• Deal-making across the life sciences industry exceeded $357 billion in 2019, breaking the previous
record value of $335 billion in 2014.
• Four megadeals accounted for about 65% of the total:
o Bristol-Myers Squibb bought Celgene,
o AbbVie bought Allergan,
o Danaher bought GE Healthcare, and
o Pfizer-Upjohn bought Mylan.
• Because the M&A Firepower Report was published in November 2019, it did not include the details
of pending acquisitions by Astellas, Eli Lilly, Merck, and Sanofi that would add another $8.0 billion to
2019’s full year deal volume.
There were some other interesting points made by the report:

• Buyers have used focused deal-making to improve their five-year revenue forecasts but have done
so while focusing only on business areas in which they think they can be leaders.
• Many large firms have divested operations in areas and product categories in which they do not
believe they can be leaders.
• Buyers have been more interested than ever in seeking novel deal structures to improve their access
to innovation.
One trend the report discussed has some implications for private equity investors and for the providers
of outsourcing services. Specifically, more companies are structuring interesting financial partnerships to
accomplish different objectives, such as:
• Developing new technologies (as opposed to products),
• Making arrangements to deal with reprioritized products (existing drugs that are no longer a
company’s core focus), and
• Setting up specialized manufacturing operations.

Merger and Acquisition Activity in the Biopharma Industry (cont.)
Those actions are creating new types of opportunities:
• Private equity investors are finding new venture opportunities in which at least some portion of the
normal start-up risk is being mitigated by the active participation of a major drug company.
o For instance, in January, the investment firm Deerfield Management announced its intention
to partner with The Discovery Labs to form The Center for Breakthrough Medicines, a contract
development and manufacturing organization to facilitate the manufacture of cell and gene
therapy products. The Center will occupy 40% of Discovery’s $1.1 billion campus in King of
Prussia, PA.
• Outsourcing firms are finding new ways to service relatively small firms that have no interest in
establishing the type of infrastructure once commonly found in both large and small drug
development organizations. There are two recent examples from January:
o Charles River Laboratories expanded its involvement in venture activities and innovative
partnerships by signing a broad drug discovery pact with Takeda. (Link here)
o Civica Rx signed a long-term agreement with Thermo Fisher Scientific to develop and
manufacture selected generic drugs. (Link here)
Finally, we note that in early February, we read of yet another unusual type of financial arrangement
between a drug development firm and an outsourcing services provider when Algernon Pharmaceuticals
appointed Novotech as the lead CRO for the upcoming Phase II trial of a candidate for idiopathic
pulmonary fibrosis and chronic cough. That’s not unusual…But what was unusual was the companion
announcement that Novotech was making an investment of CDN$220,000 in the stock of its new client -
Algernon.
Our Comment: We know we sound like a broken record…but we continue to expect further consolidation,
as well as different types of financing arrangements, in the broad drug development industry.
Business, Operations & Related

New FDA Guidance on Effectiveness
In December 2019, the FDA issued new guidance that will broaden the definition of the “substantial
evidence of effectiveness” it will require before approving a new drug. (Link here)
The FDA still considers the gold standard for approval to be the completion of two randomized, double-
blinded, adequately controlled clinical trials. However, it has recognized some circumstances in which one
large, multicenter trial can be sufficient to justify an approval. It now proposes to change the statutory
language on “substantial evidence of effectiveness” to formally permit the agency to approve a new drug
after only one traditional trial, as long as there is “confirmatory evidence” of the product’s effectiveness
from another appropriate source.
The Guidance notes that there have been many changes in the types of drug development programs
being pursued by sponsors during the past several years. Companies are submitting more marketing
applications for products aimed at serious diseases with no adequate treatment, for drugs designed for
rare diseases with small populations, and for therapies targeted at very specific disease subsets.
The Guidance gives several examples of how a marketing submission can rely on only one adequate and
well-controlled trial plus confirmatory evidence:
• One adequate study on a new indication for an approved drug, as well as existing studies
demonstrating its effectiveness for other closely related indications.
• One adequate study supported by data that provides strong mechanistic support.
• One adequate study supported by additional data from the natural history of the disease.
• One adequate study supported by scientific knowledge about the effectiveness of other drugs in the
same pharmacological class.
Our Comment: The Guidance includes additional language about trial design, trial endpoints, numbers of
trials, and statistical considerations. The deadline for comments is February 18. We look forward to
writing some follow-up analysis and commentary.

Staff Turnover
The latest report from the accounting and financial advisory firm BDO noted that turnover rates in the
CRO industry have remained well above the 20% level for the past ten years. (Link here)
The authors expressed their surprise that the members of this metric-driven industry have not figured
out how to use annual compensation incentives to reduce this rate. They noted that turnover for clinical
monitors in the United States rose from almost 26% from 2014 to 2017 to more than 29% in 2018 (the
last year of complete data). However, outside the USA, the turnover rate declined from almost 23% in
2016 to 14% in 2017 before rising a bit to 16% in 2018.
The report outlined several factors behind the high turnover rate in the United States:
• High performance expectations,
• A steep learning trajectory,
• Disruptive M&A activity,
• Burnout due to long hours and extensive travel, and
• Opportunities for higher compensation and signing bonuses from competitors.
It went on to describe the true costs of turnover before suggesting ways companies can combat frequent
staff resignations.
For another take on this topic, we refer the reader to an October 2019 blog post by Clinipace CEO Jason
Monteleone. (Link here)
Jason acknowledged the difficulties of coping with turnover. But, he also suggested how turnover can
pave the way for promoting talented employees with more potential. His examples from Major League
Baseball told how some managements have coped with voluntary separations and lived to tell about it.
He noted that turnover will continue to occur and that company managements must plan to deal with
the consequences.
Our Comment: Jason was too kind to suggest that turnover can rid a company of an employee with
meaningful, but not necessarily fatal flaws, in their performance or personality. Also, we’ve seen that,
sometimes, turnover can enable a company to add by subtracting.

Participants’ Satisfaction With Outsourcing
In looking over some of the material we’ve been gathering since publishing our last Monitor, we were
struck anew by one particular aspect of an annual survey conducted by a familiar consulting organization.
An article in the October 2019 Applied Clinical Trials about The Avoca Group’s work raised some
previously unasked questions about the attitudes of folks who have been in the drug development
industry for less than ten years.
To be fair, the Avoca Group did not set out to identify any differences in the attitudes and views about
outsourcing between long-time industry employees and those with fewer years of experience. But, the
firm’s annual survey did uncover some interesting contrasts.
One set of survey questions confirmed some core observations from the past.
• On a satisfaction scale of 1 to 5, employers of sponsors expressed mean values of 3.5, 3.6, 3.7, and
3.9, respectively on the subjects of Value, Quality, Overall Work, and Overall Relationship. Based on
these “outsourcing health indicators,” they’re satisfied, but only at the C to C+ level.
• Employees of outsourcing firms recorded mean values of 4.7, 4.7, 4.8, and 4.8, respectively on those
same four subjective assessments. Based on those same health indicators, they are much more
satisfied with the outsourcing experience.
Drilling down further into these attitudes about the overall outsourcing experience uncovered the never-
before-seen suggestion that one’s answers might have something to do with one’s tenure in the industry.
• Respondents with more than ten years in the industry recorded mean values of 3.2, 3.4, 3.5, and 3.8,
respectively on the four measures noted above.
• Those with fewer than ten years in the business recorded mean values of 4.1, 4.0, 4.2, and 4.1,
respectively on those measures.

Participants’ Satisfaction With Outsourcing (cont.)
Why should people with fewer years’ experience be asserting greater levels of overall satisfaction with
their work? The Avoca Group acknowledged it needed to do further work to uncover the reasons for
those discrepancies. But, they did suggest a few possibilities:
• A person with ten years or less of experience probably has never worked in a traditional fully-
integrated drug company. When evaluating the overall outsourcing experience, that person may
have a different frame of reference from that of a long-time industry veteran.
• The ten-year-or-less veteran may have worked most of his/her career in one or more CROs. Doing so
could certainly give that person a different frame of reference from an employee who has never
worked for a CRO.
• Multiple surveys assert that people under a certain age have different attitudes about technology in
the workplace, innovation, and job fulfillment than their older colleagues.
Our Comment: As a member of the oldest third of the “baby boom” generation, we can certainly
understand the attitudinal difference expressed by colleagues in different age brackets. The Avoca Group
and other consultants will certainly be studying this topic in more detail. We’ll be sure to keep abreast of
their results.

Using March-in Rights to Deliver Lower Drug Prices
No one doubts that drug research costs a lot of money. Nor does anyone doubt that both the drug
industry and the federal government spend a lot of money on drug research. We’ve discussed the
relative sizes of those research budgets in previous Monitors. In this commentary, we are not revisiting
the controversy over the “real” cost of drug development. Instead, we examine the arcane concept of
“march-in rights.” Why do so now? Because during the past few months, several candidates for the
Democratic Party’s 2020 presidential nomination have suggested the use of this obscure provision in a
1980 law to deliver lower drug prices.
The government’s march-in power dates back to a provision in the 1980 Government Patent Policy Act,
more commonly known as the Bayh-Dole Act. It was passed to update and streamline the rules
concerning the transfer of a government patent to a private contractor. The relevant provision of the U.S.
Code, Title 35 states that if a patented invention is created by an outside contractor and with the help of
federal financing, the agency that provided the financing can, under certain circumstances, march in and
re-take control of the patent, which it could then assign to another party.
Let’s review that phrase again, this time with some added words.
The relevant provision of the U.S. Code, Title 35 states that if a patented invention (such as a drug) is
created by an outside contractor (such as a brand-name drug company) and with the help of federal
financing (from the National Institutes of Health or NIH), the agency that provided the financing (the NIH)
can, under certain circumstances, march in and re-take control of the patent, which it could then assign
to another party (such as another company, possibly even a government-owned one, that would agree to
charge a lower price than the one being charged by the brand-name drug company).
Over the years, patient advocacy groups have petitioned the NIH to exercise its march-in rights in order
to re-gain control of the patents on six high-priced drugs developed with some amount of NIH funding.
Agency officials of both political parties have refused each of those requests, noting that the conditions
under which the NIH could exercise that right do not include merely the fact that a drug has a high price.
Our Comment: If and when a Secretary of Health and Human Services agrees to assert the NIH’s march-in
rights, we suspect the affected drug company would surely pursue legal action to block that decision.
Stay tuned.

Public Sector Support of Drug Research
Even while drug company executives defend their allocation of millions of dollars to drug research, they
acknowledge the important role that public sector institutions, including the National Institutes of Health
(NIH), play in assisting those efforts. In October 2019, the British Medical Journal published an update on
the extent to which public sector funding helped the drug industry develop its products from 2008 to
2017. (Link here)
The authors examined the role of public sector funding in the cohort of 248 new molecular entities the
Food and Drug Administration (FDA) approved between January 2008 and December 2017:
• They identified 48 drugs whose development had been partially funded by either a government
institution, an independent public sector research foundation, or a not-for-profit hospital/research
university.
• They identified another 14 that had been partially developed by a company spun off from a publicly
supported research group.
• They concluded that 25% of the products approved in the United States from 2008 to 2017
benefited from public sector financial support.
The article noted the results of earlier analyses detailing the extent of public sector funding support for
new molecular entities approved during varying time periods:
10-year period 1981-1990 5%

10-year period 1990-1999 7%
18-year period 1988-2005 9%

18-year period 1990-2007 14%
The conclusion seems obvious – drug companies have become more reliant than ever on public sector
sources of funding to support their internal research efforts. A corollary argument might suggest that
drug companies should allow more input on pricing decisions from representatives of those public
sources of funding.
Our Comment: The article offered more insights into the topic. Yet, we do not believe this, or any other
single study, can address many nuanced aspects of the relative contributions to drug research made by
public sector institutions and privately financed corporations.

Pharmaceutical Pricing
In our October 2019 Monitor, we noted that Congress was considering half a dozen separate bills to
regulate the drug industry’s ability to establish the prices for its products. In December, the House of
Representatives passed one of them - H.R. 3, The Elijah E. Cummings Lower Drug Costs Now Act.
The Congressional Budget Office (CBO) estimated that provisions involving price negotiations with
companies would lower Medicare/Medicaid spending on drugs by about $456 billion over the 2020-2029
period. They would also cause drug companies experiencing reduced revenue levels from their products
to restrain their spending on drug research. Those reductions could result in several dozen fewer drugs
being approved during the next 20 years than would otherwise be anticipated.
Further, the CBO estimated that provisions adding more coverage of dental, vision, and hearing services
to the Medicare/Medicaid population would increase spending on those services by about $358 billion
over the 2020-2029 period.
The Republican-controlled U.S. Senate does not seem likely to take up any version of H.R. 3 any time
soon.
Our Comment: All participants in the drug development industry should remain vigilant about legislative
and/or administrative efforts to regulate drug prices.
Pharma Outsourcing Landscape

More on Artificial Intelligence (AI)
In our October 2019 Monitor, we promised to keep abreast of the efforts of companies using artificial
intelligence (AI) engines to help in drug discovery and development. Several recent developments
deserve our attention:
• The October 2019 edition of Deloitte Insights did a deep dive into the potential uses of AI in the
biopharma industry.
o It estimated the size of the market for AI in the biopharma industry at $198 million in 2018,
with more than 80% of those dollars involving an application for drug discovery.
o It predicted a compound annual growth rate of 52% for that type of business between 2018
and 2025, bringing the drug discovery portion of the AI market to about $3.0 billion.
o It predicted similarly rapid growth rates for applications in precision medicine, medical
imaging and diagnostics, and basic research, bringing the total AI biopharma market to $3.88
billion by 2025.
• The December 23, 2019 issue of CenterWatch Weekly commented on a study that had been printed
in a September issue of the Journal of Clinical Oncology Clinical Cancer Informatics. It described the
RESOLVED2 AI algorithm developed by researchers at several French institutions. In a retrospective
study using only Phase 1 data, RESOLVED2 demonstrated the ability to accurately predict the
likelihood of FDA approval for 462 agents approved from 1972 to 2017.
• TNW, a technology consulting firm, listed AI in Drug Discovery as one of its biggest AI trends of 2020.
A December press release quoted the CEO of start-up company Chooch.AI as suggesting that AI
algorithms could speed the process of experimentation and data gathering. He also suggested that
visual AI could replace manual visual processes such as cell counting and imaging.
• The January 2, 2020 issue of Nature included an article confirming that an AI model developed by
Google’s DeepMind subsidiary has demonstrated its ability to identify breast cancer from scans –
and do so with fewer false positives or false negatives than radiologists.
• The January 8, 2020 edition of The Lancet Oncology described a study suggesting that an AI model
developed by the Karolinska Institute in Sweden and Tampere University in Finland can be trained to
detect and grade cancer in prostate needle biopsy samples – and do so at a level of accuracy
comparable to that of international experts in prostate pathology.

More on Artificial Intelligence (AI) (cont.)
• The January 13, 2020 issue of CenterWatch Weekly called attention to a recent report by Signify
Research on the amount of private equity investments made in companies providing AI solutions for
drug development. Such investments totaled $1.3 million in 2019 versus $1.7 million in 2018.
The report listed the ten most-funded start-ups with AI applications for use in the clinical research
segment of drug development:
Berkeley Lights, PathAI, GNS Healthcare, Aetion, Notable Labs, AICure, Emerald Cloud Lab, Synthace,
Deep Intelligent Pharma, and Athelas.
Finally, we must call the reader’s attention to some comments made by an executive at ICON as reported
in the November 20, 2019 issue of Outsourcing-Pharma.com. Speaking at a conference that month,
Andrew Garrett warned against the danger of “going too far” with AI. He urged researchers to be
“healthy cynics” when evaluating that technology and to not be seduced by it. Using an elegant algorithm
on a dataset that may not have been generated in the most appropriate manner could be quite
problematic.
Our Comment: The potential of AI in the drug development industry seems tremendous. But as usual, the
devil is in the details. Here’s hoping the industry can look back on the decade of the 2020s and not regret
its premature fascination with yet another sexy technology.

News from The Tufts Center for the Study of Drug Development (CSDD)
Ken Getz and his colleagues have been busy. (So what else is new?)
• In a column in the December 2019 issue of Applied Clinical Trials, Ken discussed recent research
confirming that patient recruitment and retention are getting more difficult.
Table I from the article highlights the troubling facts.
Table 1: Comparing 2012 and 2019 recruitment and retention measures
Source: Tufts CSDD
Screen failure rates and dropout rates vary among disease categories. But in every category studied and
in each statistical measurement, the experience in 2019 was worse than the one reported in 2012.

(cont.)
Table 2 from the same article shows at least one bit of positive news.
Table 2: Regions ex-US experienced a sharp decline in the average number of study volunteers per site per
clinical trial since 2012
Source: Tufts CSDD
In the studies analyzed by Tufts, investigative research sites in North America showed the ability to
increase the average number of study volunteers enrolled per site. Unfortunately, sites in other regions
of the world were not able to demonstrate a similar increase in that metric.

(cont.)
An article in the January 2020 issue of CenterWatch Monthly mixed in some quotes by Mr. Getz along
with other facts from other sources; they each addressed the continuing problem of expensive failures in
Phase III trials:
• In the past decade:
59% of products did not advance from Phase I to Phase II,
35% of products did not advance from Phase II to Phrase III, and
38% of products in Phase III trials failed.
Summarizing this experience, Ken Getz noted that “The probability of successfully completing Phase
I to Phase III clinical trials, combining all of these above probabilities, is 13%.”
• Protocol amendments remain problematic:

52% of Phase I trials have at least one, increasing duration by 140 days,
74% of Phase II trials have at least one, increasing duration by 109 days, and
69% of Phase III trials have at least one, increasing duration by 239 days.
• The most interesting quote in the article saw IDEA Pharma’s CEO Mike Rea suggesting that “We need
more smaller, signal-seeking studies, and less big dumb studies in Phase II.”
Our Comment: Remember reading at the beginning of this Monitor the favorite phrase…”The more things
change the more they stay the same”?

Capsule Comments
As usual, we have chosen to address certain issues in this edition of our Monitor. But, we want to make
sure the reader knows that we are aware of some meaningful developments across many other fronts.
• The January 14 edition of The Wall Street Journal carried a story describing some experiments for the
value-based pricing of prescription drugs. It noted efforts by Alnylam Pharmaceuticals, Novartis,
Sanofi, and Eli Lilly to structure long-term payment plans for various high-priced products. Cigna
Corp.’s Chief Medical Officer Steve Miller noted the usefulness of value-based pricing. But he
cautioned “It’s definitely not going to revolutionize the system and make it more affordable.”
• The January 14 issue of The Journal of the American Medical Association included a Special
Communication assessing the FDA’s approval and regulation of drugs from 1983 to 2018. (Link here)
The study had several significant findings. Many related to changes in certain regulatory categories
from the period 1990-1999 to 2014-2018. When appropriate, the dates of the starting period were
adjusted to reflect new legislation, i.e. Hatch-Waxman Act, PDUFA I, and the Orphan Drug Act. The
authors found that the approvals of new generic drugs and biologics have increased markedly, and
the use of expedited development and approval programs have expanded greatly. But, they noted
relatively little improvement in the number of new drugs approved or the length of total
development times.
• The January 2020 issue of Clinical Pharmacology and Therapeutics included an article looking at
“Expanding Precompetitive Multisector Collaborations to Advance Drug Development and
Pharmacogenomics.” The authors intended to stimulate the awareness of various consortia that can
advance the industry’s collective knowledge. Since a pay-wall prevented our reading the entire
piece, we do not know whether they offered firm opinions on the effectiveness of the individual
consortia they examined. We have previously expressed our hope that groups such as TransCelerate
Biopharma, the Innovative Medicines Institute, the Imaging Consortium for Drug Development, and
others can help design and implement commonly used solutions to drive the efficiency and efficacy
of drug development. Time will tell.
• The January 17, 2020 issue of Science included an article discussing the publication of clinical trial
results on the NIH website ClinicalTrials.gov. (Link here) Institutions conducting human trials in the
United States are supposed to report their results in a timely fashion, typically within a year after
completion. But, this review showed that many institutions are not complying with that directive.
Interestingly, the article noted that the drug industry has a much better record than either academia
or the federal government in reporting results on time.

Capsule Comments (cont.)
• In our October 2019 Monitor, we looked at the relatively slow adoption of biosimilars in the United
States. Physicians have been particularly reluctant to use products that have not been approved as
“interchangeable” with the reference drug. In the European Union, approved biosimilars are
automatically deemed to be interchangeable. But, companies seeking that designation in the United
States need to convince the FDA that immunogenicity is not a problem, and the best way to do that
is to conduct a potentially expensive and time-consuming clinical study. This Guidance document
published in November 2019 may lead to a change in that requirement. (Link here)
The industry is closely studying that Guidance, in particular a sentence about one type of a
potentially interchangeable biosimilar:
“Consistent with these statements in the guidance and the recommendations in this section, a
comprehensive and robust comparative analytical assessment between a proposed
interchangeable insulin product and the reference product demonstrating that the proposed
interchangeable product is “highly similar” to the reference product with very low residual
uncertainty about immunogenicity generally would mean that an applicant would not need to
conduct a comparative clinical immunogenicity study, e.g., a switching study, to support licensure
under section 351(k)(4) of the PHS Act so long as the statutory criteria for licensure as an
interchangeable are otherwise met.”
• Brexit is Here. On January 31, 2020, the United Kingdom (UK) finally separated from the European
Union (EU). Now negotiators have to begin the hard work of establishing new trade agreements
between the UK and the EU - as well as between the UK and non-EU countries such as the United
States. We still cannot discuss the final arrangements for pharmaceutical sales and clinical trials in
the UK and the EU. We should note, however, that British Prime Minister Boris Johnson has
proposed a Medicines and Medical Devices bill that he claims should help the UK’s drug industry
increase its involvement in clinical research. We’ve said it before, and we’ll say it again: Stay Tuned.
• Safeguarding the Bioeconomy is the title of a 300-page report published in January 2020 by the
National Academy of Sciences. (Link here)

Capsule Comments (cont.)
It’s actually the work of the 17-member Committee on Safeguarding the Bioeconomy: Finding
Strategies for Understanding, Evaluating, and Protecting the Bioeconomy While Sustaining
Innovation and Growth. The report measured the bioeconomy’s contribution to the gross domestic
product at more than $950 billion. It noted challenges involving decentralized leadership,
inadequate talent development, cybersecurity vulnerabilities, and international competition and
made a series of recommendations to mitigate these risks. We believe this report should be required
reading for every participant in the broad ecosystem of biological research and drug development,
as well as every legislator, regulator, and administrator with some supervisory role over any aspect of
the country’s bioeconomy.
• In late January, anyone with any interest in the drug development business should have been
reminded of the risks of that activity. First, Eli Lilly announced the Phase III failure of the lead drug of
Arno, a company it acquired in 2018 for $1.6 billion. Within days, Ipsen Pharmaceutical Company
announced the Phase III failure of the lead drug of Clementia, a company it acquired in 2019 for $1.3
billion. Neither Lilly nor Ipsen seems ready to kill all further development of these compounds. But,
neither expected their high-profile acquisitions to look so bad and so expensive in hindsight. We
hope such news will make observers who question the cost of drug development appreciate the fact
that companies must absorb the cost of such failures without any help from potential patients,
insurers, or governments.
• Pitchbook’s annual deep dive into the private equity world presented 16 pages of data about that
industry’s activities in 2019. Interestingly, it noted that the median holding time of private equity
firms’ investments declined to less than 5 years; the first time that’s happened since 2011. (Link
here)
• As we were going to press with this Monitor, we noted another tidbit about AI. Sumitomo Dainippon
Pharma and its partner Exscientia Ltd. are starting a Phase I trial of DSP-1181, a long-acting and
potent serotonin 5-HT1Areceptor agonist. This compound was created by Exscentia’s Centaur
Chemist AI platform and prepared for its initial human trial only 12 months after its initial discovery.
That’s a tangible example of the power of AI.
Our Comment: All parties in the drug development enterprise continue to face challenges. But, we’re
encouraged to see so many presentations and discussions of ways to improve that entire system’s
efficiency and efficacy. The Chinese curse of living in “interesting” times seems always to apply to the
participants in this ecosystem.
Public Company Performance: CRO

Company Trading Statistics ($ in millions)
02/10/2020 Size & Profitability Profit Margins Trading Multiples
Enterprise Market LTM LTM EV/ EV/
Company Value Cap Revenue EBITDA GM% EBITDA% Rev EBITDA
$9,522 $7,704 $2,532 $555 37% 22% 3.8 x 17.2 x
$281 $284 $83 $10 55% 12% 3.4 x 29.1 x
$9,227 $9,206 $2,759 $481 30% 17% 3.3 x 19.2 x
$42,499 $31,032 $10,881 $1,892 34% 17% 3.9 x 22.5 x
$24,590 $17,825 $11,389 $1,897 28% 17% 2.2 x 13.0 x
$3,341 $3,364 $823 $149 63% 18% 4.1 x 22.4 x
$16,296 $10,824 $3,963 $712 63% 18% 4.1 x 22.9 x
$8,280 $6,866 $2,996 $478 49% 16% 2.8 x 17.3 x
$9,448 $6,538 $4,608 $573 22% 12% 2.1 x 16.5 x

Note: Gross margin figures subject to refinement based on individual company treatment of pass-through and reimbursed costs.
Note: PPD re-listed and began publicly trading on February 6, 2020.
Source: Capital IQ; data reported for latest twelve months (LTM).
3-Year Stock Trading Performance
100% 100%
Stock performance
80% 80%
60% 60%
40% 40%
20% 20%
0% 0%
Dec-16
Dec-17
Dec-18
Dec-19
Mar-17
Mar-18
Mar-19
Sep-17
Sep-18
Sep-19
Jun-17
Jun-18
Jun-19
Source: Capital IQ Public CROs (80%) S&P 500 Index (44%)
Public Company Performance: CDMO

$347 $358 $64 ($2) 16% -3% 5.4 x NM
$11,974 $9,185 $2,729 $573 32% 21% 4.4 x 20.9 x
$8,453 $6,604 $16,446 $928 8% 6% 0.5 x 9.1 x
$34,202 $30,995 $6,050 $1,157 38% 19% 5.7 x 29.6 x
$1,441 $1,043 $746 $120 70% 16% 1.9 x 12.0 x
$17,710 $17,597 $1,511 $434 51% 29% 11.7 x 40.8 x
$2,029 $1,964 $829 $132 21% 16% 2.4 x 15.3 x
$149,260 $133,907 $25,542 $6,532 46% 26% 5.8 x 22.9 x

Note: Gross margins for non-US based entities may not be comparable due to reporting limitations.

125% 125%
Stock performance
100% 100%
75% 75%
50% 50%
25% 25%
0% 0%
Mar-17
Mar-19
Mar-18
Dec-16
Dec-17
Dec-18
Dec-19
Sep-18
Sep-17
Sep-19
Jun-17
Jun-18
Jun-19
Source: Capital IQ Public CDMOs (117%) S&P 500 Index (44%)
Public Company Performance: Laboratory Services

$3,696 $3,063 $1,183 $250 29% 21% 3.1 x 14.8 x
$15,057 $12,196 $5,354 $989 30% 18% 2.8 x 15.2 x
$13,151 $9,395 $4,564 $806 19% 18% 2.9 x 16.3 x
$13,640 $12,222 $3,781 $814 55% 22% 3.6 x 16.8 x
$21,738 $20,202 $6,745 $1,450 43% 22% 3.2 x 15.0 x

Note: Gross margins for non-US based entities may not be comparable due to reporting limitations.

60% 60%
Stock performance
45% 45%
30% 30%
15% 15%
0% 0%
Mar-17
Mar-19
Mar-18
Dec-16
Dec-17
Dec-18
Dec-19
Sep-18
Sep-17
Sep-19
Jun-17
Jun-18
Jun-19
Source: Capital IQ Public Lab Services (42%) S&P 500 Index (44%)
M&A Snapshot: Statistics
Outsourced Pharma Services Total CROs & Related Services

5Y Avg. Trading Multiple: 12.8 x 5Y Avg. Trading Multiple: 12.6 x
2019 Transaction Count: 245 2019 Transaction Count: 54
2018 multiple artificially depressed as few
250 245 18.0x 60 deals publicly disclosed multiples 20.0x
54
51 50
48 18.0x
189 50
200 186 16.0x
Number of Transactions
42 43 16.0x
EV/ EBITDA multiple
EV/ EBITDA multiple

40
148 40
150 14.0x 14.0x
131 1 4 .4x
119 1 3 .8x
1 3 .6x 1 3 .7x 30 1 3 .2x 12.0x
1 3 .3x 1 2 .4x
100 93 12.0x 1 1 .9x
10.0x
1 2 .1x 20
1 1 .7x
8 .8x 8 .8x 8.0x
50 10.0x
10
9 .8x 6.0x
9 .3x
0 8.0x 0 4.0x
2013 2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018 2019
Actual Actual
Count Avg. EV/EBITDA multiple Count Avg. EV/EBITDA multiple
CDMOs Laboratory Services

5Y Avg. Trading Multiple: 14.0 x 5Y Avg. Trading Multiple: 13.0 x
2019 Transaction Count: 50 2019 Transaction Count: 62
60 22.0x 70 20.0x
63
62
51 50
20.0x 60 56 18.0x
50
EV/ EBITDA multiple

50 16.0x
EV/ EBITDA multiple
40 40 18.0x 46
40 1 6 .4x 38 1 6 .5x
39
1 5 .3x 16.0x 40 36 14.0x
1 4 .6x 1 4 .5x
30 1 6 .3x
26
14.0x 30 12.0x
20 23 1 2 .1x
20 1 2 .1x 1 1 .8x
12.0x 20 10.0x
1 0 .3x 1 0 .3x
1 0 .1x 9 .9x
10 10.0x 10 8.0x
8 .9x
0 8.0x 0 6.0x
2013 2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018 2019
Actual Actual
Count Avg. EV/EBITDA multiple Count Avg. EV/EBITDA multiple
M&A Snapshot: Q4 2019 Noteworthy Transactions

Date Target Acquirer Commentary
CROs, Research Sites, and Related Solutions

Leonard Green ▪ Leonard Green & Partners leads the recapitalization of WCG,
Nov-19 WCG
& Partners a leading provider of clinical trial optimization solutions
Nordic Capital, ▪ Nordic Capital, Astorg, and Novo Holdings A/S to (re-)invest in
eResearch
Oct-19 Astorg Partners, ERT, a provider of clinical trials data and technology solutions,
Technology
Novo Holdings for future growth
▪ Cato Research, backed by Water Street Healthcare Partners
Oct-19 SMS-oncology Cato Research and JLL Partners, acquires SMS Oncology, a European full-
service CRO dedicated exclusively to oncology
Symphony ▪ ICON plc (NASDAQ:ICLR) boosts its hybrid clinical trial and site
Oct-19 Clinical ICON plc support services with the acquisition of Symphony Clinical
Research Research, a provider of in-home and alternate site services
Amarex
NSF ▪ Global public health organization NSF International acquires
Oct-19 Clinical
International Amarex Clinical Research, a full-service CRO
Research
CDMOs & Related Services

▪ The Riverside Company invests in HealthTech Bioactives, a
HealthTech The Riverside
Dec-19 Spanish manufacturer of APIs, excipients, flavorings, and
Bioactives Company
sweeteners for pharma, nutraceutical, and cosmetic markets
▪ Recipharm AB (OM:RECI B) acquires Consort Medical, a
Consort
Nov-19 Recipharm provider of advanced delivery technologies, formulation and
Medical
manufacturing solutions for small molecule drugs
▪ Cognate Bioservices, backed by EW Healthcare Partners,
Cobra Cognate
Nov-19 acquires Cobra Biologics, a CDMO providing manufacturing
Biologics Bioservices
services for plasmid DNA and viral vectors
▪ H.I.G. Capital acquires Biovectra, a Canadian CDMO focused
Nov-19 Biovectra H.I.G. Capital on intermediates and APIs, from its parent company,
Mallinckrodt
▪ Delpharm acquires 5 manufacturing sites from Famar in
Famar (5 mfg.
Nov-19 Delpharm France, Canada, and the Netherlands; the group of 5 sites
sites)
represents a turnover of 250M€ and 1,300 employees
M&A Snapshot: Q4 2019 Noteworthy Transactions

Date Target Acquirer Commentary
Laboratory & Related Services

▪ BioAgilytix, backed by Cobepa SA, acquires Cambridge
Cambridge
Nov-19 BioAgilytix Biomedical, a specialist in large molecule bioanalysis;
Biomedical
Fairmount Partners advised Cambridge Biomedical on the sale
Cinven, Astorg ▪ Cinven, Astorg, and the Abu Dhabi Investment Authority
Nov-19 LGC Partners, and acquire LGC, a provider of scientific testing and measurement
ADIA solutions, for £3bn
Horizon’s
▪ Envigo acquires the research models business unit of Horizon
Nov-19 Animal Envigo
Discovery Group plc (LSE:HZD)
Models Unit
QualTek ▪ Discovery Life Sciences, backed by Water Street Healthcare
Discovery Life
Nov-19 Molecular Partners, acquires QualTek Molecular Laboratories, a provider
Sciences
Laboratories of immunohistochemistry services
Recipharm Center for ▪ Center for Translational Research (CTR) AB Group acquires
Oct-19 GLP Translational the GLP bioanalysis business of Recipharm AB; the lab will
Bioanalysis Research AB operate as a newly formed company, Lablytica Life Science AB
Data, Consulting, and Commercialization Services

▪ Audax Private Equity recapitalizes Corrona, a provider of real
Audax Private
Dec-19 Corrona, LLC world evidence through syndicated registry data and analysis
Equity
services
Medical ▪ Court Square Capital Partners acquires Medical Knowledge
Court Square
Dec-19 Knowledge Group, a provider of medical communications, consulting,
Capital Partners
Group and data analytics, at an enterprise value of $330 million
▪ UDG Healthcare acquires Canale Communications, a provider
Canale UDG
Nov-19 of corporate communications, public relations, investor
Communications Healthcare
relations, and creative services to life sciences companies
Physicians Veeva Systems ▪ Veeva Systems acquires Physicians World, a provider of

Nov-19
World (NYSE:VEEV) speaker bureau management services
▪ DFW Capital Partners recapitalizes R&Q Solutions, a provider

DFW Capital
Oct-19 R&Q Solutions of regulatory as well as quality consulting and engineering
Partners
services for medical devices, IVDs, and combination products
About Fairmount Partners: Overview
Fairmount Partners: Spotlight Transaction

Fairmount Partners advised Cambridge Biomedical on its recent sale to
BioAgilytix, a portfolio company of investment firm Cobepa. Cambridge
Biomedical is a specialized contract research organization that provides: (i)
bioanalytical testing of primarily large molecules for biotechnology and
pharmaceutical companies developing new therapies and (ii) diagnostic testing
services. The transaction expands BioAgilytix’s global footprint into the heart of
Cambridge, a major biotech center, and adds further capacity by joining
Cambridge Biomedical’s CLIA-certified, CAP-accredited, and GLP-compliant
facility with GxP laboratories in Durham, North Carolina and Hamburg,
Germany.
Fairmount Partners is a leading M&A advisor to Pharma Services

companies, offering unique and proprietary industry insights
142 33 20
Fairmount team Fairmount has closed Fairmount has closed
has completed 33 Pharma Services M&A deals with
142 Pharma Services M&A transactions buyers and sellers
M&A transactions in the past 4 years across 20 countries
Fairmount Partners is an independent investment bank focused on the needs of middle market and emerging
growth companies. It provides a range of investment banking and capital advisory services, including merger
and acquisition advisory, capital raising, fairness opinions, valuations and strategic advisory. The firm focuses its
activities on targeted industries in which it has a record of experience and success. While headquartered in
suburban Philadelphia, Fairmount works with companies across the globe.
About Fairmount Partners: Recent Deals
The enclosed commentary is neither an offer to sell nor an offer to buy securities, nor is it a form of investment recommendation. The information contained herein has been
obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Fairmount Partners and/or its employees may have a position in
the securities of the companies described herein. Available information supporting this report will be furnished upon request. Fairmount Partners may seek to provide
corporate finance services for the companies mentioned herein.

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Recent Observations & Trends

Financial and Capital Markets

“New Trends for the New Decade”

In 2019, we commented somewhat expansively on the topics of real-world evidence, artificial

Recent Observations & Trends

Financial and Capital Markets

Continued on next page

Recent Observations & Trends (cont.)

Financial and Capital Markets

Recent Observations & Trends (cont.)

Financial and Capital Markets

There were some other interesting points made by the report:

Continued on next page

Recent Observations & Trends (cont.)

Financial and Capital Markets

Recent Observations & Trends (cont.)

Business, Operations & Related

Recent Observations & Trends (cont.)

Business, Operations & Related

Recent Observations & Trends (cont.)

Business, Operations & Related

Continued on next page

Recent Observations & Trends (cont.)

Business, Operations & Related

Recent Observations & Trends (cont.)

Business, Operations & Related

Recent Observations & Trends (cont.)

Business, Operations & Related

10-year period 1981-1990 5%

18-year period 1988-2005 9%

Recent Observations & Trends (cont.)

Business, Operations & Related

Recent Observations & Trends (cont.)

Pharma Outsourcing Landscape

Continued on next page

Recent Observations & Trends (cont.)

Pharma Outsourcing Landscape

Recent Observations & Trends (cont.)

Pharma Outsourcing Landscape

Table I from the article highlights the troubling facts.

Table 1: Comparing 2012 and 2019 recruitment and retention measures

Source: Tufts CSDD

Continued on next page

Recent Observations & Trends (cont.)

Pharma Outsourcing Landscape

Source: Tufts CSDD

Continued on next page

Recent Observations & Trends (cont.)

Pharma Outsourcing Landscape

• Protocol amendments remain problematic:

Recent Observations & Trends (cont.)

Pharma Outsourcing Landscape

Continued on next page

Recent Observations & Trends (cont.)

Pharma Outsourcing Landscape

Continued on next page

Recent Observations & Trends (cont.)

Pharma Outsourcing Landscape

Public Company Performance: CRO

$9,522 $7,704 $2,532 $555 37% 22% 3.8 x 17.2 x