After successful investments in more clearly lucrative areas of U.S. medicine, such as surgery centers and dermatology practices, private equity firms have moved aggressively into a more hidden niche of the industry: They are plowing tens of millions into the clinical drug trial business. One hundred million U.S. dollars.
To bring new drugs to market, the FDA requires pharmaceutical companies to conduct extensive studies to demonstrate their safety and efficacy, and conducting these studies to the agency’s specifications is often expensive and time-consuming. Bringing drugs to market months earlier and bringing manufacturers millions of dollars in profits for less than usual.
That’s why private equity-backed startups like Headlands Research see an opportunity to create a network of clinical sites and improve corporate efficiency to execute this critical scientific work faster. And why Moderna, Pfizer, Biogen and other pharma bigwigs are willing to hire it — despite being a relatively new player in the field, founded in 2018 by investment giant KKR.
In July 2020, Headlands announced it had won the coveted covid-19 vaccine clinical trial contract, which included vaccines from AstraZeneca, Johnson & Johnson, Moderna and Pfizer.
In marketing its service, Headlands described its mission to “profoundly impact” clinical trials — including promoting the participation of racial and ethnic minorities that have long been underrepresented in such research.
“We’re excited,” CEO Mark Bloomlin said in a statement, “to bring COVID-19 research to the diverse ethnic population represented on our site.” Pharmaceutical industry veteran with venture capital and private equity experience Blumling told KHN that KKR supported him in starting the company, which has grown by buying established test sites and opening new ones.
Finding and recruiting patients is often the limiting and most expensive part of a trial, Dr. The average cost of a new drug is $19 million, according to researchers at Johns Hopkins University and Marcella Alsan, a professor of public policy at Harvard Kennedy School and an expert on clinical trial diversity.
Before covid hit, Headlands acquired research centers in McAllen, Texas; Houston; Metro Atlanta; and Lake Charles, Louisiana, saying the locations would help it increase recruitment of diverse patients — That’s the imperative of working on a vaccine during a pandemic to prevent diseases that disproportionately kill Blacks, Hispanics and Native Americans.
According to a review of the site archives and the federal website ClinicalTrials.gov, Headlands’ site hosts clinical studies for the treatment of type 2 diabetes, postpartum depression, asthma, liver disease, migraines and endometriosis, among others. But within two years, some of Headlands’ tantalizing promises will fall through.
In September, Headlands closed locations in Houston (one of the largest metropolitan areas in the U.S. and home to a major medical center and research university) and Lake Charles, a move Bloomlin attributes to the difficulty of finding “experienced, high-quality High-quality staff” to carry out complex and complex work and highly specialized clinical research work. No new studies are being conducted at the McAllen facility as Headlands shifts operations to another South Texas location that it launched in partnership with Pfizer.
What impact do these sites have? Bloomlin declined to specify, citing confidentiality, whether the sites met registration goals for the covid vaccine trial, including by race and ethnicity. For any given trial, data from all sites is aggregated, and once a trial is complete, the pharmaceutical company sponsoring it is the only entity that sees the data at each site, he noted.
The fragmented clinical trials industry makes it a prime target for private equity, which often consolidates the market by merging companies. But the trajectory of Headlands shows the potential risks of trying to combine independent sites and squeeze efficiency out of research that affects the health of millions of people.
Yashaswini Singh, a health economist at Johns Hopkins University who has studied private equity takeovers of physician practices, said there are potential downsides to mergers. A study published in September by Singh and her colleagues analyzed acquisitions in dermatology, gastroenterology and ophthalmology and found that physician practices — similar businesses to clinical trial companies — charge higher prices after acquisitions .
“We’ve seen that in various cases, less competition in the market is associated with higher prices, less access and less choice for patients, and so on,” Singh said. “So it’s a delicate balance.”
Dr. Aaron Kesselheim, a professor of medicine at Harvard Medical School, called private equity participation in the trial “worrisome.”
“We need to make sure patients” know enough information to give “full, informed consent” and ensure “data privacy is protected,” he said.
“We don’t want those things to get lost in the shuffle of money-making targets,” he said.
Blumling said the test sites that Headlands acquired were not charging higher prices than before. He said privacy “is one of our top concerns. Headlands upholds the highest standards.”
The data show that, for better or worse, clinical trials have become a big and lucrative business in private equity.
Eleven of the 25 private equity firms identified by industry tracker PitchBook as the largest investors in healthcare have bought stakes in clinical research companies, an analysis by KHN found. These companies are involved in research ranging from covid vaccines to treatments for ovarian cancer, Parkinson’s disease and Alzheimer’s disease.
Contracting companies also analyze patient data and prepare materials to secure regulatory approval in an effort to bring more drugs to market faster. A big draw for investors: Clinical research companies can make money regardless of the success of their drugs, which is less risky than investing in pharmaceutical companies.
The number of clinical trials this year has ballooned to more than 434,000 registered studies as of late November, more than triple what it was a decade ago.
Still, most trial sites are doctors’ offices, which don’t consistently conduct research, according to a report by Provident Healthcare Partners, a Boston-based investment firm.
“The independent sites are being bought by private equity, they’re getting into larger site groups of 30, 40 people, and then their game plan is to consolidate it into a business and then sell it again,” said Linda Moore Schipani, CEO of Clinical Research. Associates is a Nashville-based company that is running covid vaccine trials for AstraZeneca, Novavax and Pfizer. “This is the final outcome.”
The headland is a typical example. It announced in November 2019 that it would acquire six centers in the U.S. and Canada, including three locations owned by Centex Studies in Texas and Louisiana, which will help increase Hispanic and African-American participation.
Since then, it has made other acquisitions and opened new sites in areas with “extremely limited options for trials,” which Bloomlin says sets his company apart.
“I’m not a private equity evangelist,” Bloomlin said. “KKR’s willingness to invest in something with a three- to five-year return versus a one- to two-year return is something you won’t see out there.”
A research center in Brownsville, Texas — a stone’s throw from the U.S.-Mexico border where 95 percent of the population is Hispanic or Latino — is one of several studies partnering with Pfizer to improve patient diversity one of the centers.
To recruit patients, Headlands “really goes beyond what a lot of websites do, which is social media,” Blumling said in an interview. “It’s doing it within churches, community fairs, really reaching as much as possible into the wider community.”
Headlands closed their Houston and Lake Charles sites due to staffing issues and completed or transferred their studies elsewhere, Blumling said. Bloomlin said the decision to close the sites “has nothing to do with the pace of testing.”
Likewise, he said, Headlands is moving operations from the McAllen site to Brownsville “because it has more trained personnel.”
“We want to continue to grow the site and do a good job,” Bloomlin said. “If we can’t find someone to do it with the quality (the highest level) we demand, there’s no point in keeping those sites.”
“Letters written to me are on the wall”
In 2006, Devora Torrence co-founded Centex Studies, which she described as “my little mom-and-pop business” in a 2021 podcast about women entrepreneurs in science. In late 2018, there was a wave of interest from private equity firms, she said. The appeal is clear: Pharmaceutical companies rely on larger clinical trial networks.
“The key is speed, and bringing it to market. With a bigger network, you get that speed,” Torrens said on the podcast. “The letter to me is on the wall, either I get some outside investment and scale myself up, or I listen to these guys and see if this is the right time to get out.”
Joining Headlands has its benefits during a pandemic, as she can “live on” other sites with experience in vaccine trials. “If we didn’t get those … we probably wouldn’t still be here,” Torrance said.
Torrence, whose LinkedIn profile shows she is leaving the company in 2021, has not responded to KHN’s messages.
Lyndon Fullen, a health care consultant and former Centex employee, said the private equity funding allowed the company to add research sites.
“I fully support it,” he said. “If it’s to cover that many patient populations, certainly the ones with more funding are better.”
Chances of Covid-19
The contract research organization Parexel saw an opportunity in the covid pandemic – millions of people living with covid for a long time after infection, with few, if any, meaningful treatment options.
The company, which employs more than 19,000 people, was bought by EQT Private Equity and Goldman Sachs’ private equity arm in 2021 for $8.5 billion, more than the $4.5 billion that private equity firm Pamplona Capital Management paid to take Parexel private in 2017. out billions of dollars.
A growing body of research suggests that prolonged COVID-19 is debilitating, including a recent study of tens of thousands of patients in Scotland, nearly half of whom had not fully recovered months later. But treatments that address its underlying cause may still be years away. “There were a lot of people,” said Dr. Nathalie Sohier leads Parexel’s Infectious Diseases and Vaccines franchise. “There are many needs.”
Long covid represents both the promise and the risks of working to develop new medicines: Millions of patients create a potentially lucrative market for pharmaceutical companies, but researchers and industry experts say they are reluctant to join. Part of the reason, says Cecil Nick, a vice president at Parexel, is that “it’s not a well-defined disease, which does make it very risky for companies to invest in research.”
“How can we tell the FDA that our drug is working? We can’t count the number of people who died; we can’t count how many people are in the hospital,” Dr. Steven Deeks, a professor at the University of California, San Francisco, is conducting an observational study of patients with long-term infection with the new coronavirus.
As of August, of more than 4,400 covid studies, only 304 looked at long-term covid. A third of those are related to drug development, Sohier said.
Sohier said there were “very few” companies in their long-term covid plans. That hasn’t stopped Parexel from positioning itself as the ideal partner to steer new products, including by doing regulatory work and using remote technology to retain patients in trials. Spokesman Danaka Williams said Parexel had conducted almost 300 covid-related studies in more than 50 countries.
Michael Fenne, research and events coordinator for the Private Equity Stakeholders Project, which studies private equity investments, said Parexel and other CROs are beefing up their data capabilities. Purpose? Better understand patient information.
“It’s a little bit about patient access and control,” Fenne said. “Technology makes it easier to access patients, and then it also makes it easier to get more reliable information about them.”
KHN Senior Correspondents Fred Schulte and Megan Kalata contributed to this report.
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