We spoke to Ian Lennox, chairman and chief executive officer of Ricerca Biosciences, to discuss the company’s recent acquisition of the MDS Pharma Services Business, as well as its new motto “IP through IND,” encompassing the developmental phase between intellectual property (IP) and submission of the investigational new drug (IND) application. The MDS acquisition more than doubles the size of Ricerca, adding facilities and almost 600 associates in Bothell, WA, Lyon, France, and Taipei, Taiwan. –KB

Contract Pharma: What were the reasons for acquiring MDS? How does it complement Ricerca’s existing capabilities?

Ian Lennox: It’s a perfect fit. First, the addition of MDS Pharma Services’ Pharmacology/DMPK capabilities to Ricerca’s existing services offers clients in North America, Asia and Europe a perfect fit for their needs. The acquisition has no overlap. For example, Pharmacology/DMPK, based in Bothell, WA, and Taipei, Taiwan helps select the best drug targets for our clients. This service integrates well into Ricerca’s medicinal, process and kilo laboratories for API preparation based in Concord, OH. Clients have told me during due diligence that they liked Ricerca as the new owner and requested Ricerca continue to deliver service levels — as little as one week response time — with reliable and repeatable data.

The second reason is the facility in Lyon, France.I believe it is one of the finest toxicology facilities anywhere. It is certainly one of the most respected in Europe. It has always been a first-class facility with very high client ratings. It has a much greater breadth of capabilities than we have at Ricerca in North America. As such, we’ll leverage knowledge and experience into our North American toxicology business.

CP: Do you think the downturn for preclinical services has lifted?

IL: I believe the downward turn is over, and we have seen stabilization. We’ve seen the basement and I think we’re bouncing back, but it’s not unlike what we see in the newspapers about the general economy, which is why we feel better because we’re 12 months into this and we’ve adapted to the environment and have had a chance to get used to it. Coming out of the last three days at the Society of Toxicology and Informex meetings in January, there’s a greater sense of optimism. There’s more money from private equity, and the venture capital flowing into the biotech sector is improving. We’re seeing more activity, more RFPs and more decisions. Now, more people are saying they want to start these trials right away versus last year when, with the smallest delay, they would not make a decision. They would hesitate, wait a month, wait another month; they would meet with the board and come back, etc. It was just constant delay. We’re now seeing people say, “I want to get in, and I want to get scheduled.”So, we’re seeing much more responsiveness.

On the big pharma side, I would say it’s still in flux, but I think we’re about 95% through. A lot of that falloff related to the Merck /Schering-Plough, Pfizer/Wyeth mergers is just ending this quarter. I do believe there’s reason for optimism, but it hasn’t translated into direct orders just yet. I feel a lot better now than I did this time last year.

CP: Why do you think the downturn is going to lift?

IL: There are two big factors. Big pharma is starting to get their reorganizations in order and a lot of the people within pharma are getting freed up to make decisions. When big pharma goes into the funk of a merger, nobody knows who is responsible, and nobody can make a decision. People are now being given the authority to lead teams and make strategic plans. Those people are beginning to come out of the woodwork and say, “We want to move forward on these programs.”

In biotech, the reason is very clear. There has been a fairly significant increase in the amount of capital that has gone into biotech and that money is starting to filter through into the non-clinical segment.

A third component is really pronounced. I have seen an unprecedented amount of big pharma outsourcing. They’re shutting down facilities and getting out of some of their facilities, which is where people like me are looking for some growth. Not just growth in R&D, but growth in the trend toward outsourcing. I haven’t seen activity from big pharma like this since the early 2000s when they started really taking a critical look at what they do: “Do we really want to operate a toxicology facility, or do we want to continue to be in the chemical manufacturing business?”We’re seeing, left and right, big pharma making decisions to get out of those businesses. It’s going to be very positive for the outsourcing business over the course of the next five years. I’m actually more bullish on that than I have ever been. Two or three big clients that never used to outsource are taking major programs outside. Five years ago, they would have never done this.

CP: In what other areas is Ricerca looking to grow, either internally or via acquisition?

IL: First and foremost, we’re going to focus on this acquisition and grow organically. We’ve got a lot of work to do and there’s a lot of growth potential available to us. I highlighted that I really believe this acquisition is a perfect fit in that it brings in the front end, which is the pharmacology and DMPK, and attracts the clients at an earlier stage. In the non-clinical space, clients do like bundling those capabilities immediately into the chemistry and toxicology, so that’s a very nice fit. I would say one of the areas that Ricerca doesn’t have a lot of strength is formulation, even though we are known for analytical chemistry and pre-formulation. If you look at it and say you’ve got a discovery piece, you’ve got a leading position, and you’ve got North America and Europe’s strong presence in the biology and toxicology business, then you’ve got all the components to basically deliver your clients an IND. What’s missing? The missing piece would probably be a stronger presence on the formulation side, where we would do formulations for the client to take them directly into the clinic with the formulated product. So, I’ll look to partner and explore that area. It would be the natural piece that’s missing from our equation.

CP: Are there geographic regions of growth that you’re trying to reach?

IL: Prior to this acquisition, about 85% of Ricerca’s business was North America and the balance of it was Japan. If you took a look at our customer mix, it was approximately 80% biotech and mid-sized pharma, approximately 10% large pharma and another 10% specialty pharma and other areas. Today, the new Ricerca is approximately 50% biotech — a much smaller dependence on the biotech sector — about 35% big pharma and about 15% specialty pharma and other clients. Our geographic mix is about 60% North America, 30% Europe and 10% Asia.

We mimic our clients pretty well; that’s how I get paid. I don’t feel that we have a need to grow geographically. We have a very nice mix, a good overlap with our clients geographically, as well as a nice overlap with the split of business between biotech and mid-size pharma — that’s our niche area. I don’t have a need to bulk up in any geography. I think we’re in pretty good shape.

CP: Will the acquired MDS Pharma Services units run separately or operate under a single Ricerca business model?

IL: We will organize around our facilities. The vice president and general manager in Lyon will continue in his role and I retained the vice president and general manager for the Bothell and Taipei sites as well. At the Ricerca Concord facility, I’m bringing in a new vice president and general manger.We will have the added capabilities of having marketing and sales teams, human resources and finance — all of the functions needed to run that particular business, including centralized IT function, compliance service function, etc. for all of the sites, but each site will operate separately.

We don’t want to lose the fabric of these businesses. Clients want to go to these facilities because of the study directors and the unique personality of the sites. We won’t try to make it so that all of the sites look the same. We want to interface with the client and the study directors; the personality of these sites should be maintained, particularly if the client loves doing business with you at that site. I’m going to keep the personalities of these sites very much intact. We’re going to make sure that the relationships are maintained. Frankly, every general manager and vice president likes to run his or her own business. We’ll have a centralized mechanism for keeping up with clients and a group that does client management and project management across the facilities, but the focus is going to be on the four sites: Taipei, Bothell, Concord and Lyon. That whole organization then reports to a chief operating officer, who in turn reports to me.It’s a very small corporate group; there are only four of us.

Kristin Brooks is the associate editor of Contract Pharma. She can be reached at kbrooks@rodpub.com.