Are patient-reported outcomes a growth industry? A business?
Philadelphia's ERT apparently thinks so, having just paid $81 million for the clinical trial business of Carefusion. The purchase could increase ERT's revenue by 50 percent, to perhaps $150 million yearly. That would put it in the general ballpark of the sales at Parexel's technology division or Medidata Solutions. The deal also leaves ERT with leading positions in respiratory trials and patient diary projects to match ERT's existing electrocardiogram-driven (ECG) cardiac safety business. Finally, the transaction will double ERT's current head count in Europe.
"It's a big deal," ERT president and CEO Michael McKelvey tells ClinPage, adding that it's larger than the 2008 purchase of safety assets from Covance. "This gives us the position to be No. 1 in cardiac safety and respiratory."
With 230 employees based in Hoechberg, Germany, Carefusion claims to handle the most respiratory electronic patient reported outcome (ePRO) trials of any firm in the industry. It manufactures its own handheld patient diary equipment—a relatively unusual decision that insulates Carefusion from the self-immolation of Palm or various consumer-driven mobile platforms from Microsoft. Carefusion has developed perhaps 20 devices for clinical trials—spirometers, glucometers and other equipment that have proprietary software and could be used by patients at home or in the clinic. ERT will be examining those tools both for clinical trials, it said, and usage in the health care market.
Aside from Carefusion's focus on respiratory and ePRO, McKelvey doesn't single out any of the ancillary clinical trial gadgets from Carefusion as being especially important to future growth. But he says there are synergies between cardiac safety and respiratory diseases.
Indeed, ERT estimates that respiratory trials and patient diary projects are each markets worth $250-300 million annually; the cardiac safety market is worth $750 million. So the potential market for the three research sectors (drug safety, respiratory, and ePRO) is $1.3 billion. The Carefusion business is growing as fast as 35 percent a year, ERT told financial analysts. That's the good news.
The bad news, as the firm told Wall Street, is that Carefusion had an unspecified number of cancellations that may have played a role in its parent firm selling the clinical trial operation. It's not clear if the cancellations were related to the broader economy, or to specific issues at Carefusion.
McKelvey says the firm will add the Carefusion tools into its own workflow platform, with the hope of unifying the project management of the two firms. ERT expects to cut $6-10 million in costs by removing overlapping departments and inefficiencies in the two firms, but expects to achieve those savings later, in 2011 and 2012.
ERT believes the sponsor community is seeking financially stable vendors as much as it ever has. And there is also a push to simplify the contracting process. "Clients would like to buy multiple services from one vendor," McKelvey says. "When you have the ability to customize for the need of a client, it gives you a little more flexibility in meeting the needs of clients, which is what we are all about."
A Green Season
In a broader evaluation of the industry in mid-2010, McKelvey said large pharma is starting to ramp up more projects. Despite lower revenues in the recent quarter, ERT has had three consecutive quarters of bookings in excess of $40 million. As the smaller sponsors get funding, they are also starting to initiate projects, McKelvey said. But the pace still has not reached the level before the downturn.
He's well aware of the guidance about patient-reported outcomes from the FDA; ERT owns unique electronic tools to assess suicidality. But McKelvey doesn't see any significant new regulatory pressures from the current administration. "There is a general mood in the FDA, rightfully so, making sure that the drugs people ingest in their bodies are safe," he says. "I don't see that changing too much in any administration."
The deal comes roughly a year after ERT exited the electronic data capture (EDC) market, selling its technology to another firm. So ERT is pursuing an eclinical strategy without having to play in the rough and tumble world of EDC. That means its overall visibility is lower. But sponsors could respond well to ERT's two strong core labs (cardiac safety and respiratory) and have faith in ERT's financial strength to sustain increasingly complex, global projects over multi-year time lines.
The competitive ramifications for the three largest ePRO firms—CRF, invivodata and PHT—are less evident. If the bankers behind those ediary firms become nervous, they might be sold off to Accenture, Cognizant or some other IT firm looking to raise its visibility in the life sciences. Standalone ediary firms could also be attractive additions to the eclinical portfolios of Oracle and United BioSource.
In the aftermath of Phase Forward being purchased by Oracle, it's clear that suites of eclinical tools are the ascendant approach. Financially healthy firms like Oracle and ERT are seizing opportunities to expand their technology suites and become much larger than competitors. That doesn't mean highly specialized technology providers with one product will vanish immediately. But they may have to form even stronger alliances with adjacent firms and contract research organizations to deliver their solutions as skillfully as Fortune 500 companies.d9A2t49mkex