Contract Research & Manufacturing Services (CRAMS)

Trends in Deal Making

Barath Shankar Subramanian, Senior Industry Analyst

Pharmaceuticals & Biotechnology

October 7, 2009

2

Focus Points

• Impact of the Economic Downturn

• Overview of CRAMS Market

• Review of Recent PE-CRAMS Deals

• Factors Driving PE Interest in CRAMS Market

• Industry Best Practices

• Top Industry Challenges and Their Impact

• Conclusions

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Economic Downturn

• CRAMS is one of the fastest growing segments in the pharmaceutical and biotechnology industry

• Lower growth projections (10-12 percent YoY) for CRAMS due to economic downturn compared to 14-15 percent projected in 2007-08

• Small-mid size sponsors that outsource a greater percentage of activities have been impacted most by the downturn

• Larger sponsors are looking to spin-off/sell non-core activities and convert to a variable cost structure, which favors the CRAMSbusiness

• Larger, strategic deals between sponsors and CRAMS providers are a result of restructuring of “Big Pharma” business

4

Overview of CRAMS Market

The U.S. CRO market projected to grow from $10.9 billion in 2009 to $22.8 billion in 2016 at a CAGR of 11.1 percent.

CRO Market: Revenues (U.S.), 2006-2016

0.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Year

Revenues ($ M

illion)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Gro

wth

Rate

(%

)

Revenues Growth Rate

5

Overview of CRAMS Market

The U.S. CMO market projected to grow from $8.5 billion in 2008 to $15.1 billion in 2014 at a CAGR of 10.1 percent.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2006 2007 2008 2009 2010 2011 2012 2013 2014

Year

Re

ve

nu

es

($

Millio

n)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Gro

wth

Ra

te (

%)

Revenues Growth Rate

CMO Market: Revenues (U.S.), 2006-2014

6

Review of Recent PE-CRAMS Deals

• Patheon – JLL Partners (Apr 2007)• Acquired majority stake for $150 million

• Catalent – The Blackstone Group (Jul 2007)• Spun-off from Cardinal and bought for $3.3 billion

• PRA International – Genstar Capital (Dec 2007)• De-listed and bought for $797 million

• Quintiles – Bain Capital, 3i & TPG• Bought stake from One Equity Partners for $3 billion

• PharmaNet – JLL Partners (Feb 2009)• Buyout of company for $100 million

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Factors Driving Private Equity Interest in CRAMS Market

• Attractive growth rates and long-term sustainability of the

CRAMS market

• Favorable cost structure and business model of CRAMS

providers compared to sponsors offers competitive advantage

• Sponsors looking to spin-off/sell facilities with non-core

operations

• Recent economic downturn has made valuations favorable

• PE holdings in the CRAMS market can provide integrated

upstream and downstream services in the long term

8

Industry Best Practices

Industry Best PracticesIndustry Best Practices

Growth Built on the Strength of Long-Standing RelationshipsGrowth Built on the Strength of Long-Standing Relationships

Conversion of Brand Awareness to Brand PreferenceConversion of Brand Awareness to Brand Preference

Customer Focused Alignment of ServicesCustomer Focused Alignment of Services

PE firms have been able to

identify targets that have a

strong business

foundation and then focus on

adding value to these aspects

to leverage their

investments

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Top Industry Challenges and Their Impact

LowMediumMediumEnabling Data Availability and Connectivity Vital to Expansion

LowMediumMediumShift of Industry Pipeline Balance Toward Early-stage Development Increases Risk of

Failure for CRAMS Providers

LowMediumHighDeclining Clinical Pipeline and Unsustainable Cost of Failure Strains Smaller CRAMS

Providers and Sponsors

LowMediumHighConsolidation in the Biopharmaceutical Industry Could Result in Cutbacks on Number

of Service providers

MediumHighHighIncreasing Divide between Patient Access and Studies Threatens Productivity

5-7 Years3-4 Years1-2 YearsChallenge

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Conclusion

• Strong revenue and volume growth projected across global CRAMS markets

• CRAMS market is expected to witness a drop in revenue growth in the short term from the economic slowdown

• PE firms could build their own supply chain in the long term to leverage on complementary strengths between CROs & CMOs

• Strong growth fundamentals, especially in early stage outsourcing expected

• The shift in volume from the “Big Pharma” tier to “biotechnology and specialty pharmaceutical companies” is expected to have an impact on overall growth rate

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Next Steps

� Register for the next Chairman’s Series on Growth:

The Growth Excellence Model: Competitive Benchmarking & Growth

Investing (November 3, 2009) (http://www.frost.com/growth)

� Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep abreast of innovative growth opportunities(www.frost.com/news)

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For Additional Information

For Additional Information

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Corporate Communications

(210) 247-3870

Johanna.Haynes@frost.com

Carol Skloss

Director of Sales, North America

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Daniel Ruppar

Industry Manager

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