Should We Be Scared Of PE Firms Investing In Sites?
By Dan Schell, Chief Editor, Clinical Leader
Is it just me, or does it seem like there's been a lot of vilification of private equity (PE) firms that are purchasing site networks? I'm sure this sentiment has increased during the past few years considering these kinds of transactions have become more common. But is it justified?
Opponents of PE firms buying site networks usually cite the following concerns:
- Profit Over Patients: Critics argue that PE firms may prioritize profitability over patient care and research quality. Cost-cutting measures could lead to reduced staff, lower-quality training, or fewer resources, potentially affecting trial outcomes and patient safety.
- Short-Term Focus: PE firms typically operate on a short investment horizon, aiming to maximize returns in a few years. This focus might encourage decisions that prioritize immediate financial gains over long-term sustainability of the sites.
- Loss of Independence: Individual research sites, often built by physicians or researchers passionate about advancing science, may lose autonomy under corporate ownership. Critics fear this could lead to a one-size-fits-all operational model that stifles innovation.
- Market Consolidation Risks: The consolidation of site networks might lead to reduced competition, which could negatively impact the diversity and accessibility of clinical trial opportunities for both patients and investigators.
- Ethical Concerns: Some worry that financial pressures from PE ownership could lead to ethical issues, such as rushing patient enrollment or conducting trials without proper oversight to meet profitability targets.
Of course, there is a bigger issue at play here; namely, that site networks are in vogue again. I say again, because I'm sure many of you remember when SMOs were touted as the next big thing back in maybe the 2008 to 2010 time frame, only to almost disappear due to some of the exact concerns listed above, which led to skepticism about their reliability and effectiveness within the industry.
Today everyone is talking about the power of consolidation, the evolving market landscape, embedded site models vs. independent sites models, and the advantages of merging to achieve scale. To better understand how all these issues are connected and what makes today’s clinical landscape any more conducive for SMOs/PAOs (patient access organizations) than the last time this “shift” was attempted, I spoke with some site owners who are part of site networks — some PE-owned and some not — and a PE firm executive. The latter was Jason Layton, managing director, Pharma Services at Crosstree Capital Securities.
Layton emphasized that the clinical research site market is undergoing a generational change, similar to the emergence of CROs in the past. This change involves the consolidation and professionalization of sites and site networks, and it will likely continue throughout the next decade. “In the past 20 years or so, there has been a transition from the physician entrepreneurs who owned their practices and conducted clinical research to today’s landscape where many physician practices are owned by hospital networks,” Layton explains. “Additionally, during those past few decades, physicians have gotten squeezed on reimbursement for traditional patient care, which has increased their interest in doing clinical research. What we hear is a general satisfaction among physicians who primarily do research as a living. It's a better paying ‘client,’ and if you're good at it, it can be a better lifestyle.” This mindset is attractive to PE firms since they know the interest of the PI in clinical research is crucial to maintaining a good long-term investment of a site or group of sites. Furthermore, the more operational duties that you can remove from the PI’s daily routine, the better their satisfaction, which is why centralizing, standardizing, and “professionalizing” are key terms associated with the advantages of any site network or PAO investment/creation.
A REEMPHASIS ON THE “BUSINESS” OF CLINICAL RESEARCH
Kurt Mussina agrees with Layton that due to the industry being fragmented, the time is ripe for consolidation. Mussina is CEO of Paradigm Clinical Research, which operates six sites under a centralized management structure, with all staff as employees and standardized processes across locations. And despite his network being PE-backed, he said he still gets calls all the time from other PE firms about acquiring his company. “This is a relatively new development for a site owner; always getting pitched by PE firms,” he says. “A few years ago, you never saw any of these guys at conferences like SCRS, DIA, or SCOPE, but now I get all sorts of requests to meet with them.”
Mussina confirms that some of advantages of consolidated network include fewer sites for a CRO/sponsor to negotiate with (i.e., scale) and access to a larger pool of patients, both of which make the network more appealing to sponsors. He says for Paradigm, their growth strategy focuses on organic growth and establishing new sites rather than acquisitions.
One of the other site owners I spoke with (who asked to remain anonymous) also said they choose to start de novo sites for their existing network rather than acquire sites. They do this because they focus on finding geographic areas that have a high prevalence of diverse or underserved populations, which often also includes niche disease states (e.g., NASH/MASH, diabetes). Consequently, this focus on diversity makes their network more appealing to sponsors. “In general, one of the biggest advantages of consolidation is the centralization of back-office duties such as accounting and marketing,” they explained. “Traditionally, these are duties that fall to the site director/CRC, but that person is not an expert, nor do they typically prioritize these duties. Consequently, the business part of the site then suffers.”
PROFITS OVER PEOPLE/PATIENT CARE? REALLY?
We have all heard how the power dynamic in site-sponsor relationships is shifting towards SMOs, necessitating CROs and sponsors to foster and develop more collaborative relationships. This trend is likely to continue, with or without PE backers. Large SMOs like Velocity and Avacare will continue to grow, and more CROs and even IRBs will create their own site networks, which one of my interviewees likened to “putting the fox in the hen house.” And those fears that PE firms will focus on maximizing profits while minimizing investments in people and resources? I’m sure that could happen, and I’m sure someone has an example of it happening in another industry. Still — and maybe this is me being naïve — I’m not buying it. It seems these firms are smart investors looking at long-term trends. Not focusing on elements (e.g., staff, technology) that could risk scientific integrity, regulatory snafus, or just poor patient trial perceptions seems counterintuitive to their goal of running and growing these businesses. Because sites are businesses, and if they are going to continue to help those patients in need, there needs to be investment and a focus on operational efficiencies.