Invest in Biotech CROs
CRO - Contract Research Organization (CMOs - manufacturers often fall under this umbrella as well).
Wanted to pass on / record this snippet from an older (3/1) issue of Genetic Engineering & Biotechnology News. The article was entitled Small Biotechnology Firms Reach Out to CROs for Help and was a PR piece for an upcoming conference '17th Annual Partnerships with CROs and other Outsource Providers' (article may require registration and cookie setting). It contained the comment "In fact, the growth rate of outsource spending by sponsor companies has outpaced the growth rate in overall global development spending—15% versus 11%, respectively—since 2001, according to a Tufts CDSS report."
Now find me a market growing at 15% annually, and I'm certain to be interested in some of the companies in it. Sometimes this is too obvious a market, and the companies have already been splashed all over the cover of Business Week. When that happens, you are likely too late - the companies are already too expensive. But biotech service organizations - these aren't typically household names, so they are worth a good long look. The article quotes the Tufts CDSS report (which I'm sure everyone knows is the actually the Tufts CSDD - Center for the Study of Drug Development). Tufts CSDD are the guys behind the oft quoted $800 million dollar pill figure (Its 1.2B by the way for a biologic drug). Their much awaited (yes, I'm still tongue in cheek, but yes I was in fact waiting for it) Outlook 2008 summary on the drug industry is here (pdf):
It contains the comments:
Demand for contract research organization
(CRO) services will likely grow by 16%
annually over the next three years as
sponsors seek assistance in managing large,
complex global projects without increasing
their internal headcount.
Nice growth market (they like diagnostics as well but that's been blogged about here previously). I've got a few that operate in the outsource arena in my CAPS port already (VTIV, CAH, TMO) and others more indirectly. I should look to add more.
The article (remeber - likley PR originated) contains references to diverse companies companies like Syndax Pharmaceuticals (private), INC Research (private), United BioSource (private), Purdue Pharma (private), and Celtic Pharma (private) - sense a trend here, it is an industry filled with private companies. So while public investment may be limited, there is also lots of opportunity for consolidation.
I'll try to cover some public opportunities in another blog.