After finding success investing in the more obviously lucrative corners of American medicine 鈥 like surgery centers and dermatology practices 鈥 private equity firms have moved aggressively into the industry鈥檚 more hidden niches: They are pouring billions into the business of clinical drug trials.
To bring a new drug to market, the FDA requires pharmaceutical firms to perform extensive studies to demonstrate safety and efficacy, which are often expensive and time-consuming to conduct to the agency鈥檚 specifications. Getting a drug to market a few months sooner and for less expense than usual can translate into millions in profit for the manufacturer.
That is why a private equity-backed startup like Headlands Research saw an opportunity in creating a network of clinical sites and wringing greater efficiency out of businesses, to perform this critical scientific work faster. And why Moderna, Pfizer, Biogen, and other drug industry bigwigs have been willing to hire it 鈥 even though it鈥檚 a relatively new player in the field, formed in 2018 by investment giant KKR.
In July 2020, Headlands it won coveted contracts to run clinical trials of covid-19 vaccines, which would include shots for AstraZeneca, Johnson & Johnson, Moderna, and Pfizer.
In marketing its services, Headlands described its mission to 鈥減rofoundly impact鈥 clinical trials 鈥 including boosting participation among racial and ethnic minorities who have long been underrepresented in such research.
鈥淲e are excited,鈥 CEO Mark Blumling said in a statement, to bring 鈥淐OVID-19 studies to the ethnically diverse populations represented at our sites.鈥 Blumling, a drug industry veteran with venture capital and private equity experience, told KHN that KKR backed him to start the company, which has grown by buying established trial sites and opening new ones.
Finding and enrolling patients is often the limiting and most costly part of trials, said Dr. Marcella Alsan, a public policy professor at Harvard Kennedy School and an expert on diverse representation in clinical trials, which have a median cost of $19 million for new drugs, .
Before covid hit, Headlands acquired research centers in McAllen, Texas; Houston; metro Atlanta; and Lake Charles, Louisiana, saying those locations would help it boost recruitment of diverse patients 鈥 an urgent priority during the pandemic in studying vaccines to ward off a disease disproportionately killing Black, Hispanic, and Native Americans.
Headlands鈥 sites also ran, among other things, clinical studies on treatments to combat Type 2 diabetes, postpartum depression, asthma, liver disease, migraines, and endometriosis, according to a review of website archives and the federal website ClinicalTrials.gov. But within two years, some of Headlands鈥 alluring promises would fall flat.
In September, Headlands shuttered locations in Houston 鈥 one of the nation鈥檚 largest metro areas and home to major medical centers and research universities 鈥 and Lake Charles, a move Blumling attributed to problems finding 鈥渆xperienced, highly qualified staff鈥 to carry out the complex and highly specialized work of clinical research. The McAllen site is not taking on new research as Headlands shifts operations to another South Texas location it launched with Pfizer.
What impact did those sites have? Blumling declined to provide specifics on whether enrollment targets for covid vaccine trials, including by race and ethnicity, were met for those locations, citing confidentiality. He noted that for any given trial, data is aggregated across all sites and the drug company sponsoring it is the only entity that has seen the data for each site once the trial is completed.
A fragmented clinical trials industry has made it a prime target for private equity, which often consolidates markets by merging companies. But Headlands鈥 trajectory shows the potential risks of trying to combine independent sites and squeeze efficiency out of studies that will affect the health of millions.
, a health economist at Johns Hopkins who has studied private equity acquisitions of physician practices, said consolidation has potential downsides. Singh and her colleagues in September analyzing acquisitions in dermatology, gastroenterology, and ophthalmology that found physician practices 鈥 a business with parallels to clinical trial companies 鈥 charged higher prices after acquisition.
鈥淲e鈥檝e seen reduced market competition in a variety of settings to be associated with increases in prices, reduction in access and choice for patients, and so on,鈥 Singh said. 鈥淪o it鈥檚 a delicate balance.鈥
, a professor of medicine at Harvard Medical School, called private equity involvement in trials 鈥渃oncerning.鈥
鈥淲e need to make sure that patients鈥 know enough to provide 鈥渁dequate, informed consent,鈥 he said, and ensure 鈥減rotections about the privacy of the data.鈥
鈥淲e don鈥檛 want those kinds of things to be lost in the shuffle in the goals of making money,鈥 he said.
Blumling said trial sites Headlands acquired are not charging higher prices than before. He said privacy 鈥渋s one of our highest concerns. Headlands holds itself to the highest standard.鈥
Good or bad, clinical trials have become a big, profitable business in the private equity sphere, data shows.
Eleven of the 25 private equity firms identified by industry tracker PitchBook as the top investors in health care have bought stakes in clinical research companies, a KHN analysis found. Those companies have been involved in studies ranging from to treatments for ovarian cancer, Parkinson鈥檚 disease, and Alzheimer鈥檚.
Contracted firms also analyze patient data and prepare materials to secure approval from regulatory agencies, in hopes of getting more drugs to market faster. And a big draw for investors: Clinical research companies make money whether or not a drug succeeds, making it less risky than investing in a drug company.
The number of clinical trials has exploded to more than 434,000 this year as of late November, more than triple the number a decade ago.
Still, most trial sites are physician practices that don鈥檛 consistently perform studies, by Boston-based investment firm Provident Healthcare Partners.
鈥淚ndependent sites are being purchased by private equity, and they鈥檙e moving into larger site groups of 30, 40, and then their game plan is to roll that up into a business and then sell it again,鈥 said Linda Moore Schipani, CEO of Clinical Research Associates, a Nashville-based company that worked on covid vaccine trials for AstraZeneca, Novavax, and Pfizer. 鈥淭hat鈥檚 kind of the endgame.鈥
Headlands is a prime example. in November 2019 that it would acquire six centers in the U.S. and Canada, including three sites in Texas and Louisiana owned by Centex Studies that would help improve participation among Hispanics and African Americans.
It has made other acquisitions since then and opened new sites in areas with 鈥渆xtremely limited trial options,鈥 something Blumling says distinguishes his company.
鈥淚鈥檓 not an evangelist for private equity,鈥 Blumling said. 鈥淭he ability of KKR to be willing to invest in something that is a three- to five-year return versus a one- to two-year return is something that you won鈥檛 see out there.鈥
A research center in Brownsville, Texas 鈥 a stone鈥檚 throw from the U.S.-Mexico border and where 95% of the population is Hispanic or Latino 鈥 is one of several where it is partnering with Pfizer to boost patient diversity.
To recruit patients, Headlands 鈥渋s really going beyond what a lot of sites do, which is social media,鈥 Blumling said in an interview. 鈥淚t鈥檚 going within churches, community fairs, really getting out into as much as possible the broader community.鈥
Headlands closed the Houston and Lake Charles sites because of staffing issues, Blumling said, and finished or moved their studies elsewhere. Blumling said the decision to close those locations 鈥渄id not have anything to do with the speed of trials.鈥
Similarly, he said, Headlands is moving the McAllen site鈥檚 operations to Brownsville 鈥渂ecause it had a larger population of trained personnel.鈥
鈥淲e want to continue to grow sites and do great work,鈥 Blumling said. 鈥淚f we can鈥檛 find the people in order to do that at the quality that we demand, which is at the highest level, then it doesn鈥檛 make sense to keep those sites.鈥
鈥楾he Writing to Me Was on the Wall鈥
In 2006, Devora Torrence co-founded Centex Studies, which she described as 鈥渕y little mom and pop business鈥 in a about female entrepreneurs in science. She said a flurry of interest from private equity came at the end of 2018. The appeal was evident: Drug companies were relying on bigger clinical trial networks.
鈥淭he thing is speed, getting it to market. With a bigger network, you get that speed,鈥 Torrence said on the podcast. 鈥淭he writing to me was on the wall that either I get some outside investment and scale up myself, or kind of listen to these guys and see if maybe now would be the right time to exit.鈥
Joining Headlands had its benefits during the pandemic because she could 鈥渓ean on鈥 its other sites with experience running vaccine trials. 鈥淗ad we not gotten those 鈥 we may not still be here,鈥 Torrence said.
Torrence, whose LinkedIn profile said she left the company in 2021, didn鈥檛 respond to messages from KHN.
Lyndon Fullen, a health care consultant and former Centex employee, said private equity provides funding that allows companies to add study sites.
鈥淚 completely support it,鈥 he said. 鈥淚f it鈥檚 about reaching that large patient population, it鈥檚 of course better to have larger groups with that funding.鈥
Opportunity in Long Covid
Contract research organization Parexel saw opportunity in the covid pandemic 鈥 millions of people were developing long covid after infection and there were few, if any, meaningful treatment options.
The company, which employs more than 19,000 people, was acquired in 2021 by EQT Private Equity and Goldman Sachs鈥 private equity arm , billions more than the $4.5 billion that private equity firm when it took Parexel private in 2017.
A growing body of research shows the debilitating effects of long covid, including a of tens of thousands of patients in Scotland where nearly half had not fully recovered months later. But treatments addressing its root causes could be years away. 鈥淚t鈥檚 a huge number of people,鈥 said Dr. Nathalie Sohier, who leads Parexel鈥檚 infectious diseases and vaccines franchise. 鈥淭here鈥檚 a lot of need.鈥
Long covid represents the promise and peril of the work to develop new drugs: Millions of patients create a potentially lucrative market for drug companies, and yet researchers and industry experts say they are reluctant to jump in. In part, that鈥檚 because 鈥渋t鈥檚 not a well-defined disease, and that really makes it highly risky for companies to invest in research,鈥 said Cecil Nick, a vice president for Parexel.
鈥淗ow are we going to be able to tell the FDA that our drug works? We can鈥檛 count the number of people who died; we can鈥檛 count the number of people in the hospital,鈥 said , a University of California-San Francisco professor who is running an observational study on long covid patients.
As of August, among more than 4,400 covid studies, only 304 focused on long covid. A third of those were related to drug development, Sohier said.
Sohier said 鈥渢here are few鈥 companies in its long covid program. That hasn鈥檛 stopped Parexel from as the ideal partner to shepherd new products, including by doing regulatory work and using remote technology to retain patients in trials. Parexel has worked on nearly 300 covid-related studies in more than 50 countries, spokesperson Danaka Williams said.
Michael Fenne, research and campaign coordinator with the Private Equity Stakeholder Project, which studies private equity investments, said Parexel and other contract research organizations are beefing up their data capacity. The aim? To have better information on patients.
鈥淚t kind of ties into access and control of patients,鈥 Fenne said. 鈥淭echnology makes accessing patients, and then also having more reliable information on them, easier.鈥
KHN senior correspondent Fred Schulte and Megan Kalata contributed to this report.
