To hear contract research organization (CRO) INC Research tell it, the marriage between themselves and MDS Pharma's Phase II-IV operations, which INC just bought, is the greatest match ever made—a fit even more snug and cozy than those two sides of the yin-yang symbol. The deal closes today.

“If we'd sat down before this and made out a wish list, if we'd sketched out what the perfect acquisition for us might look like, MDS's Global Clinical Development [Phase II-IV] is very close,” says Jean Chitwood, INC's vice president of corporate administration.

Good Therapeutic Fit

Privately held INC's primary therapeutic areas are central nervous system (CNS), infectious disease and oncology, with a new thrust in women's health and pediatric trials. MDS focusses on cardiovascular, diabetes and metabolism, respiratory, and vaccine work. “They have everything we've been light in—areas we've been looking to get into, areas we're excited about,” says Chitwood.

Then there's geography. INC has focused mostly on North America, with about 75 percent of its work force here, another 25 percent in Europe, and a very small presence in India. MDS is the opposite, says Chitwood, with about 25 percent of personnel here in the states and 75 percent in markets INC had been eyeballing. Think South America, China, Taiwan, Singapore, the Philippines. Forty countries in total.

Post-Approval

That's not all. “We've just started a group here focused on post-approval studies—that's a strategy they had been contemplating in their unit but not yet done,” says Chitwood. “We will be immediately able to apply that concept to customers that they are working with.”

The 800 MDS Pharma Services employees INC inherits are mostly clinical staff, which INC needs. Chitwood explains that MDS Pharma shared non-clinical operations like HR and billing with the many other businesses under the MDS umbrella. Thus, INC is not getting employees from those departments, which is perfect, as INC already has those functions covered. “Most of the folks we're getting are CRAs, biostatisticians—the core of the project team,” Chitwood says.

The two cultures ought to mesh well, too. INC has a set of cherished quality-control principles called “The Trusted Process” and MDS Pharma is all about Lean Sigma. The two seem like close cousins.

MDS Pharma had been having a bad time of it. Last year, the company posted a loss of $353 million on revenues of $582 million. It also had a loss in 2007—$122 million on revenues of $568 million. And this year hasn't looked great, either. Says MDS Pharma Services president David Spaight, the sale of Phase II-IV to INC “focuses the organization on our historic strengths in early stage, where we have the scale and scope to be market leaders and where we are a top-three service provider.”

MDS Refocusing

Analysts are also gazing favorably upon the deal. John Kreger, a financial analyst with William Blair who has kept an eye on pharmaceutical-industry outsourcing for 15 years, says, “I like it.”

“MDS was one of these classic conglomerates spread out over many industries but not really meaningful in any,” Kreger says. “They were a minor player in Phase II through IV. They needed to get bigger or to sell. We weren't surprised to see them sell it; it makes sense for them to refocus on some of the areas where they were strong, like Phase I and the bioanalytical testing that goes along with it.”

And for INC? “It's great for them,” Kreger says. “INC is part of a grouping of middle-tier CROs that have a good reputation and that do well, but could be helped by the added scale. As pharma gets more strategic and looks to work with fewer partners, the winners will be the large CROs with a global footprint and a full-service offering.” Indeed, with the addition of 800 MDS employees to its 1,200, INC may have just left that middle tier and stepped onto the big scene. And for just $50 million.

From 2000—when MDS Pharma got into late-phase work—to 2008, the company's Phase II-IV operations conducted more than 700 trials involving about 42,000 sites and approximately 300,000 patients.

1,000 Beds

INC and MDS Pharma had been working on the deal since the second half of 2008, says Chitwood. MDS Pharma's central lab operations are still on the block. “MDS intends to find a suitable buyer for Global Central Labs,” says Spaight. MDS has six central labs that employ 600 people in total. They are in Beijing, China; Baillet, France; Hamburg, Germany; Mississauga, Ontario, Canada; North Brunswick, N.J.; and Singapore.

Once MDS Pharma sells off its central labs, it will be left with about 1,900 employees, according to Spaight. It has more than 1,000 Phase I beds across facilities in Montreal, Canada; Belfast, Northern Ireland; Neptune, N.J.; Lincoln, Neb.; and Phoenix/Tempe, Ariz.

Everyone's happy. MDS gets to trim down and refocus on its strengths. MDS Pharma employees keep their jobs. And INC gets to get bigger, wider. “We were running into more and more situations where we weren't able to compete for the larger, more global projects because we'd have to subcontract with other providers to go into various regions,” says Chitwood. “We'd have to look for local providers and create partnerships. From a customer point of view, they see that as added risk. We're about to remove that risk.”

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