Bioanalytics Service Providers & CROs – Competitive Landscape & Market Outlook

1.

What are the core services typically offered by a bioanalytic CRO [contract research organisation]? What are the major sources of differentiation in services offered vs other pre-clinical CROs?

2.

To confirm, toxicology studies wouldn’t be typically offered by a bioanalytical CRO and would come under the service offering of another pre-clinical CRO?

3.

A key theme recently has been the shift away from small molecules – and arguably even monoclonal antibodies – to new modalities, including complex antibody structures such as antibody-drug conjugates, bispecifics and even trispecifics. You also have oligonucleotides, C&GTs [cell and gene therapies] and so on. How have these new modalities changed the calculus for the bioanalytical CROs in terms of services required by customers and CRO lab requirements to meet those needs?

4.

To what extent do CRO requirements and equipment need to be customised to the specific mechanism of action? Would a CRO specialising in more complex antibody structures have the infrastructure and equipment needed to run bioanalytical services for C&GTs? Is there some bleed-over across those mechanisms of action, or are the requirements highly customised to the modality in question?

5.

Scientific talent and expertise is in short supply across the industry and it seems specialised talent is required to pivot into some of the new modalities. To what extent is that a major pain point for any bioanalytical CRO looking to make such a pivot?

6.

On what basis are CROs able to attract and retain specialised talent, especially vs biopharma? Can CROs pay the same salaries? Given the supply-demand imbalance, it seems the CRO employee workload would be very heavy on top of that.

7.

Are CROs invested in building out proprietary tools in assays? We touched on the equipment and talent. Is that something upon which different CROs can truly differentiate, especially for the emerging modalities?

8.

For C&GT or other emerging classes of therapeutic, given the field is fairly nascent, presumably there isn’t as large a menu of validated assays that a CRO can in-licence. If so, is it a key source of competitive advantage and differentiation to be able to develop such assays for these emerging modalities in-house? Are CROs taking the initiative and taking that development in their own hands?

9.

What are the CAPEX requirements and other barriers to entry for a traditional bioanalytics CRO looking to pivot into some new modalities?

10.

Would you say the outsourcing rate for C&GT or other new modalities is higher or lower than previously?

11.

What are the typical lead times in the industry? I’ve heard the historical average for small molecules is 3-4 months at best, but how should we think about lead times for biologics, oligonucleotides, C&GTs and so on?

12.

To your point, how do you see the lead time evolving for bispecific or C&GT capacity? How should we think about the growth in demand from the biopharma customers relative to the increased capacity expansion by the service providers?

13.

How large a premium are customers of bioanalytical CRO providers willing to pay for faster lead times? For curative therapies such as C&GT, getting to market first is of paramount importance as patients are essentially removed from the TAM. How much are customers prepared to pay for capacity on demand?

14.

Given the maturing C&GT pipeline, is there greater competition for capacity and greater demand for shorter lead times? Do C&GT CROs enjoy a greater proportion of total customers willing to pay double vs other modalities?

15.

You mentioned needing four, perhaps up to seven, assays to adequately characterise a bispecific vs only two assays for a monospecific. It seems therefore that the numbers of assays one needs to develop, and the services offered, are far larger in scope and more complex for the new modalities. How should we think about the contract economics – price point, margins, contract duration and so on – for the CROs as they pivot away from a small molecule to bispecifics or C&GTs?

16.

Several CROs have been moving into these new classes of therapeutic – BioAgilytix has been acquiring a number of businesses across end markets and is diversifying the services it offers. Is it reasonable to assume that for a given C&GT programme, the total revenue or lifetime value of the contract would be greater than in small molecules? Would the margin for PK [pharmacokinetic] or biomarker analysis services be higher?

17.

Is the service model itself changing? Are CROs moving away from fee-for-service and towards outcome-based or FTE [full-time equivalent]-based models?

18.

Would you say FTE models are more prevalent in the emerging modalities – bispecifics, cell therapies and oligonucleotides – than historically, or would you say it’s an industry-wide shift?

19.

Can you elaborate on the economic incentive for CROs to shift towards an FTE model? You mentioned the FTE model has its perks in that it guarantees revenue for the CRO.

20.

Would the margins be higher for the FTE vs fee-for-service model?

21.

As the service revenue mix shifts and CROs sell increasingly more FTE models, would that be margin accretive?

22.

How significant a demand driver is ID [infectious disease] for bioanalytical services? My understanding is that, pre-pandemic, this wasn’t really a growing end market for bioanalytics or CROs more broadly, but that has dramatically reversed because of the pandemic. How easily can non-ID-specialised bioanalytical CROs pivot into this field and capitalise on that inflection in demand?

23.

How large a growth driver do you think the wider focus on IDs will be for some of the tier 1 and 2 bioanalytic players?

24.

Which bioanalytical CRO or service provider more broadly do you think is best-placed when it comes to IDs, vaccinology and so on?

25.

Presumably another key driver would be precision medicine, especially in oncology, which is the use of very targeted biomarker testing to identify patients that would have an optimal response to a given therapeutic. How large a growth opportunity is this for bioanalytical service providers? By how much would this expand the TAM for CROs?

26.

Do you think the rapidly maturing proteomics market will lead to a hockey stick inflection in demand for biomarker analysis services? Would that be a near-term driver, or around 5-10 years away?

27.

Thinking about the extent to which precision medicine will serve as a driver for bioanalytics and certainly biomarker service demand, what percentage of clinical trials today – whether phase 1, 2, 3, etc – involve biomarker testing as a primary or secondary endpoint?

28.

How often will a CRO-developed biomarker assay used in a clinical trial for enrolment criteria then be commercialised as a companion diagnostic or used in IVD testing more broadly?

29.

Another key trend is the decentralisation of clinical trials. Does that in any way impact sponsor requirements for, and the range of services offered by, bioanalytical CROs?

30.

How should we think about the rate of outsourcing to China, given the extending lead times and supply-demand gap we’re seeing in Europe and the US? What type of work is being outsourced?

31.

I think Frontage opened a 315,000-square-foot facility for safety tox in China and also has a DMPK [drug metabolism and pharmacokinetics] facility. PPD announced expansion and is setting up bioanalytical centres in Suzhou. Would all of that be for China’s domestic use?

32.

I’ve heard the regulatory environment in Australia and New Zealand is particularly attractive for early-stage pre-clinical and bioanalytical work. Why is that and how rapidly do you see volume shifting to those regions?

33.

Regarding the current R&D funding environment – given the wider biotech downturn and macroeconomic inflationary environment – do you think bioanalytical CROs are more or less exposed to the aforementioned pressures vs the clinical stage or broader pre-clinical CRO players?

34.

The majority of sample volume for a bioanalytical CRO would be clinical vs GLP [good laboratory practice] or non-clinical. Therefore, if R&D funding dries up and sponsors become increasingly cautious about running IND [Investigational New Drug]-enabling studies, that will impact the players that rely on pre-clinical sample volumes, such as those specialising in safety-tox. On balance, clinical studies will have to continue, especially those that have already started. Sponsors will continue developing drugs that are in the clinic, which plays into the bioanalytical CRO service providers’ favour given the majority of their volume is in clinical. Is that a fair summary?

35.

By how much is sample analysis a higher-margin business than assay creation? Are we talking about 10-15pp on gross margin, or more material?

36.

What would be the benchmark for a healthy bioanalytical CRO’s split across assay creation vs sample analysis work?

37.

For an average C&GT, given the work and the time that goes into assay creation and the lower volume of samples analysed, does that imply the lifetime or overall value of the contracts is less than in other modalities?

38.

Presumably the most important criterion is that the bioanalytical CRO is fit for purpose. Beyond that, what are the subsequent KPC [key purchase criteria] when evaluating bioanalytical service providers that are fit for purpose or otherwise have the required competencies a customer’s specific needs? Could you rank those KPC?

39.

Are the relative importance of the KPC changing at all? Given the tight lead times we discussed and your comments that customers are willing to pay double if you want shorter lead times, are biopharma customers increasingly putting lead times higher up in the list vs quality and reputation going down in the pecking order?

40.

To your point, how transparent is pricing between the service providers? Is significant price competition happening in order to win customer contracts?

41.

On quality and QA, my understanding is that the biopharma industry revolves around risk mitigation and increasing the likelihood of success where possible. What do customers look for in a bioanalytical CRO that satisfies that requirement?

42.

What would be a threshold number of 483 forms after which it would be unacceptable to a prospective customer to work with a CRO?

43.

How much value do customers put in a one-stop-shop solution, whether across modality – so small molecules biologics and C&GT – or across the spectrum of pre-clinical to clinical trial management services?

44.

How many CROs would a customer typically want to work with and spread the risk?

45.

Would a large pharma use multiple bioanalytical CROs for a particular project?

46.

How should we think about the stickiness of bioanalytical service customers across programmes? Presumably, it’s fairly sticky for a particular programme, but if Pfizer wants to initiate a new trial and needs some biomarkers analysed for that particular therapeutic, how likely is the company to go back to a CRO it has worked with historically?

47.

Presumably, a major sticking point or source of stickiness would be that a lot of the assays have to be custom-developed. How easy is it to perform a tech transfer between CROs? If a company worked with CellCarta to develop an assay for a certain biomarker analysis, how easily could that be transferred to PPD or Iqvia?

48.

Regarding talent, we are seeing fairly significant wage increases – we’ve heard around 10-15%. How easily can a CRO pass those on to the end customers vs having to absorb them into its own P&L?

49.

You mentioned multi-year contracts are fairly rare. What would you say is the average contract duration for a bioanalytics CRO?

50.

Can you segment the bioanalytical CRO competitive landscape? Who would you define as the large tier 1 CROs offering the bioanalytical services we’ve been discussing and who are some standout tier 2 or 3 players here? Perhaps you could delineate by modality.

51.

You mentioned it’s really difficult to delineate by modality, but when we were talking about IDs you highlighted Nexelis as a really interesting player given it picked up several immunogenicity labs from GSK. Do any players – out of those you mentioned or anyone else in C&GT – stand out as having something unique, differentiated, particular talent, expertise or infrastructure?

52.

How you would position players such as BioAgilytix vs KCAS vs CellCarta vs Nexelis according to their core competencies and successful growth via acquisition and asset integration?

53.

How do you see the market shaping out? We’ve seen significant consolidation and the pace doesn’t seem to be slowing. BioAgilytix was acquired by a PE company in 2021. LGC Drug Development, which has a large bioanalytics unit, was carved out from the wider LGC group and is set to be acquired by a PE firm. KCAS is owned by a PE firm. Strategic players are being very active in rolling up assets. What are your expectations for the pace of consolidation?

54.

What percentage of R&D dollars that are being outsourced to bioanalytical CROs would the tier 1 players capture today? What do you expect that percentage to look like in five years if the pace of consolidation continues?

55.

If we take all the tier 1 and 2s, so not just top three you identified earlier, how much market share do you see them capturing in five years? How much market share might the tail of smaller companies hold on to and what might be the market fragmentation over the coming years?