CROs seek consolidation as resource strength

Clinical research and drug development, one of the fastest growing areas in the country's services sector, is on a rapid consolidation mode.

India's Rs 5000 crore drug development sector, which witnessed mushrooming of clinical research organisations (CROs) both domestic and global, in the last couple of years, is now increasingly opting for mergers and strategic alliances among industry peers as well as with investment companies.

Though the sector is posting an year-to-year growth of around 80 per cent, most of these CROs, who have set up shop in the country in the last few years, have been seeking inter-corporate alliances and strategic tie-ups as the sector is now exposed to strong internal and external competition.

During the year, five major consolidations took place in the Indian CRO space. The leading cases include acquisition of Sterling Synergy Systems by PRA International, Praxel-Synchron joint venture, Barings' stake acquisition in Siro Clinpharm.

Industry anlysts say that the increasing M&A activity among the CROs at a time when the sector is growing rapidly in India can be compared with the same trend took place int he developed markets in the past.

"Therefore, keeping the global CRO history in mind, the pattern that is emerging in India is that of consolidation," said a leading analyst who tracks the sector.

"Currently there are multiple CROs mushrooming in the country. With a growth rate of more than eighty per cent, everyone wants to enter the field. At the same time, growing in the same pace in future would depend on their resource capabilities and the cross-border reach.

Hence,there is a strong trend of acquisitions, mergers, partnerships and stakes in the Indian CRO space today," he said.

In May this year, PRA International closed acquisition of Sterling Synergy Systems, a CRO based in Mumbai and Pune for an undisclosed amount to enhance the PRA's local reach in India.

Soon after the PRA-Sterling deal, the Ahmedabad based Synchron Research Services entred into a joint venture arrangement with Praxel International, a leading global clinical trial company.

Pursuant to this, Praxel purchased a majority stake in a newly formed entity called Parexel International Synchron Private Limited into which Synchron transferred its clinical trial business operations located in Bangalore in June this year.

In June, there was another major equity deal signed between the private equity firm""Barings Private Equity Partners and Siro Clinpharm, one poineering CROs in India. Barings picked up about 30 per cent stake in Siro Clinpharm for an undisclosed sum.

Industry sources attribute these consolidation process to four major reasons. First being the access to better process and potential clients others include global CROs' immediate attention to India and financial backing for scaled-up operations among others.