Contract Research & Manufacturing Services
(CRAMS)
Trends in Deal Making
Barath Shankar Subramanian, Senior Industry Analyst
Pharmaceuticals & Biotechnology
October 7, 2009

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
2

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 CRAMS
business
• Larger, strategic deals between sponsors and CRAMS providers
are a result of restructuring of “Big Pharma” business
3

Overview of CRAMS Market
The U.S. CRO market projected to grow from $10.9 billion in
2009 to $22.8 billion in 2016 at a CAGR of 11.1 percent.
CRO Market: Revenues (U.S.), 2006-2016
25,000.00 16.0
14.0
20,000.00
12.0
Revenues ($ Million)
Growth Rate (%)
10.0
15,000.00
8.0
10,000.00
6.0
4.0
5,000.00
2.0
0.00 0.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Year
Revenues Growth Rate
4

Overview of CRAMS Market
The U.S. CMO market projected to grow from $8.5 billion in 2008
to $15.1 billion in 2014 at a CAGR of 10.1 percent.
CMO Market: Revenues (U.S.), 2006-2014
16,000 12.0%
14,000
10.0%
Revenues ($ Million)
12,000
Growth Rate (%)
8.0%
10,000
8,000 6.0%
6,000
4.0%
4,000
2.0%
2,000
0 0.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014
Year
Revenues Growth Rate
5

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
6

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
7

Industry Best Practices
Industry Best Practices
Industry Best Practices
PE firms have
been able to Growth Built on the Strength of Long-Standing Relationships
Growth Built on the Strength of Long-Standing Relationships
identify targets
that have a
strong
business
foundation and
then focus on Conversion of Brand Awareness to Brand Preference
adding value to Conversion of Brand Awareness to Brand Preference
these aspects
to leverage
their
investments
Customer Focused Alignment of Services
Customer Focused Alignment of Services
8

Top Industry Challenges and Their Impact
Challenge 1-2 Years 3-4 Years 5-7 Years
Increasing Divide between Patient Access High High Medium
and Studies Threatens Productivity
Consolidation in the Biopharmaceutical High Medium Low
Industry Could Result in Cutbacks on Number
of Service providers
Declining Clinical Pipeline and Unsustainable High Medium Low
Cost of Failure Strains Smaller CRAMS
Providers and Sponsors
Shift of Industry Pipeline Balance Toward Medium Medium Low
Early-stage Development Increases Risk of
Failure for CRAMS Providers
Enabling Data Availability and Connectivity Medium Medium Low
Vital to Expansion
9

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
10

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
Carol Skloss
Johanna Haynes Director of Sales, North America
Corporate Communications Healthcare
(210) 247-3870 (210) 247-3810
Johanna.Haynes@frost.com Carol.Skloss@frost.com
Daniel Ruppar
Industry Manager
Pharmaceuticals & Biotechnology
(210) 247-2428
Daniel.Ruppar@frost.com
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