Navigating a Competitive CRO Landscape

Last summer I wrote a business plan for Lovelace Biomedical. It aimed at continuing to focus our energy on expanding our preclinical services business. Recently, I was looking to update the business plan and was taken aback at just how much I had to revisit the story about the competitive landscape. There are several competitors in the preclinical toxicology area. They are either a comprehensive services company, a complimentary services company or a core services company. Lovelace Biomedical is a core services company, in that it offers toxicology services, as well as some services such as bioanalytical. When identifying competitors in the general areas that Lovelace work in, I came up with the following list a little over a year ago:

Company Name (sorry if I missed you):
·      Covance         
·      Charles River Labs    
·      QPS   
·      Envigo
·      CitoxLab        
·      Frontage Labs
·      Absorption Systems   
·      Smithers AVANZA  
·      Sinclair Research       
·      SNBL 
·      Toxikon          
·      Experimur      
·      BASi  
·      Seventh Wave (recently merged with BASi)
·      IITRI
·      DRIK Safety Testing

The largest players in this space are Covance, with Charles River Labs right behind them. There continues to be consolidation among CRO players with the most recent being BASi Laboratories and Seventh Wave Laboratories.  As of 2019 the BASi/Seventh Wave consolidation is maturing, and they have picked up the Smithers Avanza toxicology laboratory (for a song), presumably to add some capacity and the reproductive toxicology capabilities.  Further, over the past year Envigo and Covance did an interesting ‘merger’ of sorts in which Envigo is now a consolidation of the Covance Animal Services area and the animal services that were at Envigo (and Harlan prior to their merger with Envigo).  Now the toxicology services at Envigo are a part of Covance.  Presumably Covance is doing a little bit of ‘keeping up with the Jones’s’ as they see Charles River gobbling up everyone else. Speaking of which, Citox is nowCharles River…
 
In the midst of all of that consolidation we saw over the past couple of years, Frontage Labs, a CMC and bioanalytical laboratory, bought Ricerca. Further, the American SNBL site was purchased by Alta Sciences, a clinical CRO that is obviously interested in expanding into the preclinical world. 
 
What has been somewhat interesting to me is that the consolidation and acquisitions cause you to look at the publicly available financials for many of the companies when these acquisitions happen. Outside of the big two, standalone nonclinical laboratories are not exactly killing it.  Most financial analyses that I have done of the smaller companies is that they are “breakeven-ish.” This just means that profitability in the CRO industry needs to come from two things,economy of scale and diversification of income streams. I think the old Wil, MPI sized companies were doing pretty well, and they were at a size where stand-alone services couldgain an economy of scale to be sufficiently profitable. Other companies diversify their revenue stream by selling commodities such as animals, diagnostic services, or in our case we perform contracts and grants along with a small clinical trial business. 
 
Overall, the CRO industry is pretty darn fascinating. It’s not for the faint-hearted, as it’s very competitive and difficult to perform at the same time. We have had the advantage of diversity and also specialized services…but it’s still often a challenge. It will be interesting to see how all of these consolidations work out, and to see if there are any more moves afoot. I will stay tuned, and in the meantime try to grow and sustain a successful yet humble single site facility.