Investopedia: PPD Goes Private

For some time now, investors have been expecting big things from the providers of outsourced pharmaceutical research and clinical services. The thought has always been that as major pharmaceutical companies like Pfizer (NYSE:PFE) and Merck (NYSE:MRK) conduct mass-firings, the industry would evolve more towards a focus on drug target identification and marketing, and would outsource more and more functions like clinical development. That plan has not exactly lived up to investor expectations and Monday's announcement that Pharmaceutical Product Development (NYSE:PPDI) is selling itself to private buyers, looks to be a curious deal.

The Deal  
PPD announced that it had accepted a $3.9 billion all-cash offer from Carlyle and Hellman & Friedman. At a price of $33.25 per share, PPD shareholders are getting a 30% premium to Friday's close and a fairly sizable premium to other major CROs like Covance (NYSE:CVD) and Parexel (Nasdaq:PRXL). By the same token, though, this deal is coming in at the lower end of the range of the company's fair value and shareholders who remember when this stock traded in the $40 range, may not be so thrilled with this deal.


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CRO's A-OK

Most academics and analysts consider increasing specialization a sign of maturity and efficiency within an industry. Luminaries like Henry Ford and Steve Jobs may have had visions of controlling every part of the manufacturing process, but more and more companies take the approach of focusing on a narrow part of the process and outsourcing everything else. 

Enter the CRO 
The pharmaceutical and biotechnology industry is no different. While most companies do maintain in-house R&D capabilities, more and more they look to outside firms for critical steps in the process. One of the biggest industries to spring up to serve the pharma sector is contract research organizations (CROs). CROs help firms research new compounds, optimize lead candidate identification, conduct early-stage testing and facilitate the late-stage clinical trials that the FDA requires for approval.

There are now believed to be more than 1,000 CROs worldwide, and this sector captured about 20% of the global bio-pharma research budget in 2008. Given the exceptional costs of conducting clinical trials, as well as the complexity and intricacy of patient management and data analysis, it is fair to assume this percentage is going to increase. Simply put, bio-pharma companies are skilled at developing compounds and (particularly in the case of big pharma) marketing them, and conducting their own trials is a hassle that many organizations have learned they just do not need. (For more see, Measuring The Medicine Makers.)

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The original article indicated that ICON is a British company. This is incorrect. ICON is headquartered in Ireland. The piece will be corrected. 
  

The Future Of Stem Cells

There has been no shortage of hype regarding the possible therapeutic uses of stem cells. To date, though, there has been a lot more hope than clinical results, no doubt in part to research restrictions imposed by the prior U.S. presidential administration. While companies ranging from the huge Pfizer (NYSE:PFE) to the much, much smaller Osiris Therapeutics (Nasdaq:OSIR) and StemCells (Nasdaq:STEM) are gamely trying, it may be a decade (if ever) before we have any late-stage clinical success stories to talk about with stem cell therapies. 

That does not mean, however, that stem cells may not have a major role in medicine and drug development long before then. One of the more interesting concepts in development right now concerns the use of stem cells in the drug design, validation and testing process. If successful, stem cells could significantly alter the preclinical drug development process and lead companies to more successful clinical trials and more productive drug development. 


The full article can be read at:
http://stocks.investopedia.com/stock-analysis/2010/The-Future-Of-Stem-Cells-PFE-OSIR-STEM-CRL-AZN-GSK-GERN-LIFE0615.aspx