Continuing our Top Companies coverage of Pfizer’s CRO alliance with ICON and PAREXEL, here’s a Newsmakers interview with Alan Morgan, group president, Clinical Research Services at ICON.  —GYR

Contract Pharma: Tell me about your role at ICON and how it fits into this new strategic partnership with Pfizer.

Alan Morgan: I’m head of the Clinical Research business, which covers Phase II to IIIb. That’s where most of this deal with Pfizer falls. If you look at the scope of the services involved, it’s post-proof-of-concept (PoC) on through Phase IV. Our services include program study design, program initiation, program management, site and country feasibility, data management, program setup, drug logistics, and scientific and medical communications.

It’s quite a broad range of integrated services. The nature of this deal is that it’s looking for the two providers to put together an integrated solution linking all those services together. That’s probably a change of strategy from Pfizer’s historical approach.

CP: They said they were using 17 clinical providers before this. That must be tough to integrate. Is there any word yet as to how ICON and Parexel will be dividing the work?

AM: There’s going to be an 18-to-24-month period over which the work is going to come across. Once we get to the outer range of that time period, we’ll start to see what the peak workload is like, and how it’s divided.

Pfizer’s been very deliberate and very focused on quality. It’s important that this is done in a carefully managed way. The first wave of work for ICON is a smaller number of studies that have been identified toward the tail-end of this year. So we have visibility of a small component of what the work is. It’s over a broad therapeutic area. It’s a very carefully managed, not rushed, buildup of work, Not a dramatic, snap-your-fingers-and-change-it-all process.

After that first period, Pfizer will determine which projects will be handed to which partners. It’ll be awarded on a compound basis, post-PoC. That is, if we’re awarded a project in Phase IIb, we expect that we’ll continue that study through Phases III and IV.

We’re anticipating having more than 100 studies running at the end of that 24-month period. We’ve got quite some time to build up to that level of work; I don’t know what dollar amount that will add up to. [The morning before this conversation, ICON’s chief executive officer, Peter Gray, gave an interview to Bloomberg in which he mentioned that the partnership is “likely” to yield $100 million or more in annual revenues for ICON. Mr. Morgan chose not to speculate on potential revenues from the deal. —GYR]

CP: Is there any take-or-buy component to the agreement?

AM: No, there’s no fixed minimum commitment.

CP: How long did the selection process take?

AM: I don’t know how long the process was on Pfizer’s end, but our involvement began in 4Q10. It was fairly intense through the next quarter, all the way up to the announcement in late May.

CP: I noticed that the person who previously had your role at ICON, Dr. John Hubbard, is now the senior vice president of Worldwide Development at Pfizer. Did his background with ICON help make it easier for the company to make its case to Pfizer during the bidding process? I don’t mean that in a conflict-of-interest way, but what impact did his familiarity with ICON and its processes have?

AM: The selection process involved a very lengthy and thorough evaluation of many vendors by a large team of Pfizer R&D executives. I think we were selected for our proven experience and expertise by a significant number of people. Perhaps Dr. Hubbard had a sense of our abilities from his previous role at ICON, but we went through a very diligent process, with a lot of audit-type activity from Pfizer to prove that we have the breadth and global experience, but also the appropriate quality systems in place to meet their standards. So, no, it wasn’t like we had an “in” at Pfizer.

We’re delighted to have emerged as one of two key partners after such a thorough selection process. We see it as confirmation of our experience and reach.

CP: Do you see more strategic alliances between CROs and major pharma?

AM: Absolutely. What we’re seeing in the marketplace is an increase in interest for more strategic deals among mid-sized pharma companies. It’s not contained to the very large companies like Pfizer; many companies are looking at changing the definition of their core competencies to be able to exploit CROs’ scale and expertise more strategically.

Large pharma companies have a huge portfolio of activity to potentially engage, but much smaller companies are just as interested. I think the Pfizer announcement may be a catalyst for other companies to look at this sort of arrangement.

There’s the strategic element of the deal, and there’s the facility-integrated services element, and I think that will attract interest and queries from our client base.

CP: Do you foresee more rollups within the CRO industry?

AM: There’s been a wave of deals in recent months, and it’s a trend I think will continue. As I said, both large and mid-sized pharmas are looking at deals that can help them narrow down the number of CROs they work with. They’re also looking for an integration of services and CROs that can integrate all the data. The CROs they’re choosing have a wide breadth of experience, a strong geographical presence and a strong reputation. To that end, CROs that are “sub-scale” see the inevitability of acquiring or getting acquired, lest they get cut out of these sorts of deals.

CP: Do you think there’s an optimal shape for a CRO? On the preclinical side, we’ve seen facility shutdowns and reduced service offerings.

AM: I think it’s still evolving. In preclinical, I think there was an oversupply in the marketplace. I think there’s a different dynamic for late-phase trials. The growth dynamics of a CRO are driven by three core elements:

1. On a macro-level, what will global R&D spend be?
2. What will outsourcing penetration be?
3. What will market share gain by global CROs be?

There’s a big question mark about #1, but we see #s 2 and 3 absolutely increasing. You can run a couple of scenarios around that:

A. What if there’s no overall R&D growth, but a 50% growth in outsourcing and 60% of that went to global CROs? Then you could say that the total global CRO market is growing by 100%. That would be an attractive market.

B. Even if R&D growth was declining, but you have 60% growth in factors 2 and 3, then you’d still see market growth above 100% for those global CROs.

So it’s really factors 2 and 3 that are driving global CRO growth: outsourcing penetration and global CRO market share gain. That makes the investment proposition for people who want to put global CROs together very strong. It’s a very attractive market scenario, from a business perspective.

CP: Are there problems with growing too quickly?

AM: ICON’s core strategy has been organic growth. We have been one of the fastest growing CROs in the market over the past seven years, but that’s been driven mostly by core business. It comes down to structured management of that growth.

As we look at this particular deal with Pfizer, I can tell you that it’s been managed very carefully, in terms of waves of work spread out over a time period. The most important element is maintaining the quality of delivery.

In the recent industry consolidation, you can see some fairly large companies that need to be integrated, and that process needs to be very carefully managed. With careful planning, it can be executed. The problem is in the marketplace, where some clients may elect not to place work with the new company until the integration is complete. So the challenge they have is to reassure clients around the integration.

CP: According to your CEO’s recent interview, ICON is looking to make some sort of acquisition in Asia. What is ICON looking to add in that region?

AM: In the past, we’ve put the proposition out there in investor presentations, that we’d like to “catch up” in Asia. That’s not the case now; we really have caught up and working to pull ahead. What we’re looking to do is build and grow on that base of 1,000 staff in Asia-Pacific, both through organic growth and through key strategic relationships to augment our own efforts. We recently announced one with ACRONet in Japan, which added 200 local Japanese staff to enhance our own Tokyo office. Before that, we established a relationship with Shanghai-based Tigermed, giving us access to at least 200 staff across China.

When you add those two relationships, then we’re one of the leading players in Asia. Having said that, there’s a major shift going in to focus on Asia, and we expect to see further growth there. We moved one of our senior executives, Dr. Malcolm Burgess, from the U.S. to China to oversee the region. We’ve made a number of key strategic hires in the region, too.

All of our clients are expressing a desire to put a larger portion of their patient population into Asia-Pacific. That trend’s been evident for several years.

CP: How long have ICON and Pfizer worked together?

AM: Pfizer was ICON’s second client after our founding in 1990, so we’ve worked with them for many years. Around 2010, Pfizer represented around 3% of ICON’s revenue base. They’ve been a significant client and we have a good relationship upon which to build.

CP: Why do you think major pharma companies are more open to announcing these arrangements? For years, they’ve avoided mention of outsourcing, and now we’re seeing some significant deals becoming public.

AM: That’s an interesting question! I’ve never really thought of it from their perspective. From our side, we’re always keen to be able to showcase our strategic partnerships. It helps us demonstrate to other clients that a company like Pfizer has gone through an exhaustive process and selected us.

One thing I would say: we have a number of relationships that have not been made public. What tends to happen is that those pharma partners may give presentations in a forum about this very sort of relationship. So they effectively make the announcement, but in a low-key way.

The decision-making process on the client-side about whether to make an alliance public isn’t transparent to us, so I’m not sure why that’s become a trend. If you find out, let me know!

For PAREXEL’s perspective, read our Newsmakers Interview with Josef von Rickenbach!

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Biographical Note

Alan Morgan, ICON Plc
Mr. Morgan was named group president, ICON Clinical Research Services, in August 2010. Prior to that, he served as group president, Early Phase and Laboratory Services. He joined ICON in 2006 and has more than 20 years of experience working in both the pharmaceutical and the CRO industries. Prior to joining ICON, Mr. Morgan was vice president and global general manager of the Phase II/IV business of MDS Pharma Services; he has also held senior positions at Covance, Glaxo Wellcome and ICI Pharmaceuticals.