PHARMA:
Trial Site Management

DECEMBER 2024

Pharma Trial Site Management at a Glance

Trial Site Management Organizations (SMOs), which specialize in managing critical aspects of clinical trials—such as patient recruitment, site coordination, and data oversight—are experiencing rising demand. This growth is fueled by expanding drug development pipelines and the increasing need for streamlined trial execution.

Sector Overview

  • Site Management Organizations offer comprehensive support to trial sponsors and CROs, including patient recruitment, data management, site selection, and trial coordination
  • The global SMO market is projected to grow at 6.9% annually, reaching $12.3 billion by 2032, with the U.S. leading the way
  • Growth in this sector is fueled by an expanding drug development pipeline, a strong R&D environment, and the rising demand for clinical trials to support an aging population

Select Industry Growth Drivers

Drug Development Pipeline

Ongoing advancements in drug development play a key role in driving industry growth and expanding treatment options.

Number of Clinical Trial Starts

The rising number of clinical trials reflects increased investment and progress in developing new medical treatments.

Pharmaceutical R&D Environment

A robust R&D environment fosters innovation, ensuring a steady flow of new drugs and therapies to the market.

Projected Market Growth

$ in billions

Clinical Trial Initiations by Therapeutic Area

% of total clinical trial initiations as of 2023

Drug Development and R&D Advancements

Record-high R&D spending is expected to sustain future growth within the industry, ensuring a steady pipeline of inflows for clinical trial sites and management organizations.

Large Pharma R&D Spending

$ in billions

Overview and Key Metrics

  • R&D Investments Drive Growth: Continued increases in R&D spending are propelling innovation in drug development, supporting a steady pipeline of new treatments and therapies
  • Post-Pandemic Recovery: The industry has bounced back from the 2022 slowdown, with R&D funding levels exceeding pre-pandemic benchmarks and fueling long-term advancements
  • Focus on Clinical Trial Expansion: A significant portion of R&D expenditure is being allocated to clinical trial sites, ensuring that the infrastructure for testing and development remains robust
~6,120
Number of U.S. companies with active drug pipelines (2024)
27.0%
Growth in number of U.S. companies with active drug pipelines since 2020
8.3%
R&D spending growth from 2018 to 2023
$72B
Total R&D spending attributed to Biopharma (2023)
69
Novel active substances approved and launched globally (2023)
24.4%
SMO expenses as a percentage of total R&D costs (2023 average)

The increase in R&D funding has already strengthened the U.S. drug pipeline and is expected to continue enhancing it, leading to more clinical trials being initiated. Although the total number of trials has decreased and normalized after a COVID-related surge in 2021, the rise in rare disease trials reflects a shift in research priorities that is driving continued growth in trials moving forward.

Total U.S. Drugs in Development

# of drugs, in actuals

The number of drugs in active development has consistently grown since 1995 in the U.S. with an average increase of 248.8 drugs per year, a 4.8% increase YoY.

Clinical Trials Initiated by Phase

# of clinical trials, in actuals

Rare Disease Trials Initiated

# of rare disease trials, in actuals

Source: Citeline, IQVIA, Publicly available information

Prevailing Themes Across Trial Site Management

Utilization of site networks and SMOs has been rising, driven by trust in their ability to manage larger, more complex trials, particularly in later stages, as well as increasing costs and challenges with patient recruitment and enrollment.

SMO Utilization and Key Industry Trends

% of BioPharma and CRO survey respondents reporting usage of SMOs 'often' or 'regularly'

1. Increasing Trial Complexity

As clinical trials become more advanced, SMOs and site networks are handling increasingly complex protocols, particularly in Phase II and III trials. This growth reflects the rise in trials for rare diseases and personalized medicine, both of which require more sophisticated trial designs and management.

2. Elevated Cost of Trials

With the growing complexity of clinical trials, costs are rising across all trial phases. Larger trials, more complex protocols, and the use of advanced technologies contribute to this increase. SMOs are critical in managing these costs efficiently, providing infrastructure and expertise to streamline operations.

3. Challenges Surrounding Patient Recruitment and Enrollment

Despite advances in trial design, patient recruitment and enrollment remain significant challenges for providers. As trials become more complex and target more niche populations, identifying and engaging eligible participants has become increasingly difficult, leading to delays and increased trial costs.

Source: L.E.K. Consulting, Publicly available information

1. Increasing Trial Complexity

Trial Design

40.6%

More procedures per trial indicate a significant increase in the demand for more detailed and complex data collection

60%

Increase in total number of investigative sites (2010 – 2020), indicating expansion of geographical and logistical scope of trials

Protocol Complexity

~100%

More total endpoints reflect the growing need to capture a wider array of outcomes for regulatory and therapeutic purposes

3.6m

Average number of data points generated in phase 3 trial, a 3x increase from a decade ago (2010 – 2020)

Protocol Complexity

At least 1

Substantial amendment is expected to be made during the trial process in...

67%
of Phase 1 Studies
82%
of Phase 2 Studies
89%
of Phase 3 Studies

The growing complexity of trials, with more procedures and data demands, has led to greater reliance on SMOs. They are essential for handling operational challenges, managing frequent amendments, and ensuring trials stay on track efficiently.

Source: Tufts Center for the Study of Drug Development (CSDDD), Publicly available information

2. Elevated Cost of Trials

Spiraling clinical costs have become a major sponsor pain point, driving increased SMO utilization as they address trial complexities and patient enrollment challenges, which continue to cause delays and extend trial durations, ultimately increasing costs further.

Average Clinical Trial Duration by Phase

# of days, in actuals

Daily Direct Costs of Clinical Trials

% in thousands, 2016-2021 averages
  • Patient recruitment challenges, rising trial complexities, and longer trial durations have driven a sustained increase in clinical trial costs in recent years
  • Across all therapeutic areas, Phase II and Phase III clinical trial costs increase significantly due to the complexity of studies performed, and larger patient populations required
  • SMOs streamline operations and manage site coordination more efficiently than sponsor-driven models, leveraging economies of scale to spread back-office costs across multiple sites
2.6x
The total costs of clinical trials have increased by 2.6x from the 1990s to the 2010s and are expected to continue rising

Source: L.E.K. Consulting, Publicly available information

3. Challenges Surrounding Patient Recruitment and Enrollment

The rise of personalized medicine, rare disease trials, and other market forces has increased pressure on patient enrollment, causing significant delays. This opens up more opportunities for SMOs that offer recruitment services to address these challenges efficiently.

Enrollment Summary

% total U.S. clinical trials initiated
  • Increasing Recruitment Challenges: Only 27% of screened volunteers qualify for trials, making it difficult to find the right participants and slowing down trial progress
  • Rising Travel Burdens: Travel is becoming a growing issue for participants, with 44% citing it as a significant barrier in 2021, up from 15% just two years prior, contributing to delays in enrollment
  • Higher Recruitment Costs: Phase I and II recruitment budgets have surged by 157% and 108%, making SMOs essential for leveraging their decentralized models and broad geographic reach to efficiently manage trial recruitment

Key Insights on Patient Enrollment and Recruitment

Source: National Library of Medicine, L.E.K. Consulting, Publicly available information

Regulatory Considerations

Regulatory and legislative actions are increasing oversight within clinical trials, which may add further pressure to an already challenging patient recruitment environment.

Implemented Reform

The Food and Drug Omnibus Reform Act of 2022 (FDORA) reauthorized the FDA’s user fee programs for five years, introducing several key reforms designed to modernize the trial process and improve outcomes for both sponsors and participants, including:

Clinical Trial Diversity

Section 3601 of FDORA promotes greater diversity in clinical studies. Sponsors are now required to submit "diversity action plans" for certain late-stage trials for drugs and devices, unless waived or excepted by the FDA.

Decentralized Clinical Trials

FDORA mandated the FDA to issue guidance on decentralized trials, enabling the use of digital health technologies for remote data collection and patient engagement, which could improve recruitment and retention rates.

Increased R&D Funding

The act provides significant funding increases, including a $3.53 billion boost for the FDA. This additional funding supports clinical trials and healthcare research, strengthening infrastructure and resources.

Accelerated Approval Times

FDORA allows the FDA to outsource specific services, such as inspection support and vendor approvals, to expedite the approval process.

Proposed/Pending Reform

The Clinical Trial Modernization Act (H.R. 8412), introduced in May 2024 as bipartisan legislation, aims to improve access to clinical trials by addressing financial and geographic barriers. The act seeks to reduce participant burdens and promote inclusivity by proposing key provisions, such as:

  • Allowing sponsors to cover patient-related costs like medical copays and non-medical expenses for travel, food, and lodging
  • Amending the Internal Revenue Code to exempt up to $2,000 in sponsor payments from taxable income, along with updates to income limits for Medicaid

In June 2024, the FDA released draft guidance on Diversity Action Plans, outlining requirements for sponsors to enhance inclusion:

Enrollment
Goals

Sponsors are required to define specific enrollment objectives by age, race, ethnicity, and sex, ensuring that clinical trial populations reflect diverse patient groups.

Inclusion
Strategies

DAPs must include strategies for enrolling and retaining underrepresented groups, like community engagement and resource allocation.

Additional
Factors

Sponsors should consider geographic location, socioeconomic status, and health conditions when designing recruitment strategies.

Source: Publicly available information

Pharma Trial Site Management M&A Overview

The fragmented SMO market is accelerating consolidation through single-site roll-ups and vertical integration by larger CROs. Financial sponsors are driving significant demand, outpacing the limited number of scalable platforms available, which in turn is pushing transaction multiples into the mid-teens for high-potential opportunities.

Transaction Summary

# of transactions, in actuals

Investment Tailwinds and Headwinds

Tailwinds

1

Favorable Industry Trends

Reliable and rising demand SMO offerings further sustained by ongoing market trends as trial complexity, costs, and recruitment challenges rise.

2

Ripe for Consolidation

The sector is highly fragmented with 20,000+ clinical trial sites in the U.S. while independent sites occupying 90%+ of the market share.

3

Lack of Reimbursement Reliance

Site management and network prospects offer investors a haven away from risks and operational challenges of being associated with government or third-party reimbursement.

4

Negotiating Leverage

Sponsors are increasingly prioritizing positioning themselves as a 'sponsor of choice' in preferred arrangements with sites granting scaled SMOs greater pricing power and profitability.

5

Pharmaceutical Pipeline

Robust pharma R&D spending is expected to continue as several major patents expire and subsequent generic/biosimilar drugs enter the market.

Headwinds

1

Staffing and Retention

Staffing shortages and high attrition rates are creating upward pressures on wages. Sites are averaging double the usual turnover rates seen in pre-covid levels.

2

Regulatory Scrutiny

The industry faces increasing scrutiny on trial processes and data management, with stricter FDA regulations raising costs and timelines for SMOs.

Source: Pitchbook Publicly available information

Premium Valuation Drivers

SMOs create value by expanding trials, improving site networks, and boosting efficiency through centralized operations and standardized systems. These factors are driving higher valuations from investors.

Value-Add Capabilities for SMOs

Expanding Trial Opportunities

SMOs enhance business development and operational efficiency to consistently secure more trials and establish long-term partnerships with sponsors.

Strengthening Network Sites

SMOs collaborate across multiple sites, leveraging expertise to boost referrals and enhance investigator networks with specialized knowledge.

Increasing Patient Enrollment

Centralized operations and improved efficiency allow SMOs to scale patient enrollment and trial capacity across their sites effectively.

Maximizing Patient Revenue

By moving into areas like protocol design, SMOs capture more revenue per patient, increasing their value in the trial process.

Levers for Operational Excellence

Integrating sites with standardized SOPs ensures consistency in service delivery, enhancing quality and reliability across locations.

Standardizing IT systems, including CTMS and eReg, across platforms boosts process efficiency and simplifies operational workflows.

Centralized management of finance and regulatory functions allows sites to focus more on clinical outcomes, driving operational efficiency.

Strengthening customer-facing teams, such as BD and customer service, enhances responsiveness and improves sponsor relationships.

Expanding recruitment reach and demonstrating the ability to identify and recruit diverse patient populations provides a competitive advantage.

Source: Publicly available information

Notable Private Equity-Backed Platforms

Operator
Acquirer
Initial Investment
 May 2021 Dec 2021 May 2018 August 2018 January 2018
Number of Sites
 80+ 30 20+ 18 21
Total Investments
 22 12 6 11 12
Recent
Add-Ons

Source: Pitchbook Publicly available information

Pharma Trial Site Management Select Transactions

Date Target Acquirer Transaction Type
September 2024 Was acquired by PE Buyout / LBO
July 2024 Was acquired by PE Buyout / LBO
July 2024 Was acquired by Corporate M&A
June 2024 Was acquired by Add-on
June 2024 Was acquired by Add-on
June 2024 Was acquired by Add-on
June 2024 Was acquired by Add-on
June 2024 Was acquired by Add-on
May 2024 Was acquired by Add-on
May 2024 Was acquired by Add-on
April 2024 Was acquired by Add-on
April 2024 Was acquired by Add-on
April 2024 Was acquired by Add-on
March 2024 Was acquired by Add-on
February 2024 Was acquired by Add-on
February 2024 Was acquired by Add-on

Source: Pitchbook

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