CRO – Contract Research Organization: How Drug Research is Evolving

Index

List of Figures

List of Tables

List of Abbreviations

Introduction

Methodology

1. Merger & Acquisitions Fundamentals
1.1 Definition and History
1.2 Types and history of Merger & Acquisitions
1.3 Recent M&A Trends

2. Contract Research Organization Industry
2.1 The Drug Development Process
2.2 Fundamentals of Contract Research Organizations
2.3 Strategic Analysis of the Drug Development Market
2.3.1 Macro environment – PESTEL
2.3.2Microenvironment - Porter
2.4 Growth Strategies in CRO Industry
2.4.1 Structural Changes in the CRO Industry
2.4.2 Growth Strategies
2.4.3 Mergers & Acquisitions in the CRO Industry

3. Explanatory Approaches and Motives for M&A
3.1 Strategic Motives
3.1.1 Synergy
3.1.2 Market Power
3.1.3 Portfolio Hypotheses / Diversification
3.2 Financial Motives
3.2.1 Valuation Theory
3.2.2 Tax Hypothesis
3.3 Managerial Motives
3.3.1 Hubris
3.3.2 Agency Hypothesis

4. Success Factors for the Merger & Acquisitions process
4.1 Merger & Acquisitions Process
4.1.1 The Planning Phase
4.1.2 The Execution Phase
4.1.3 The Integration Phase
4.2 Potential Success Factors during the M&A process
4.2.1 Potential Success Factors in the Strategic Planning Phase
4.2.2 Potential Success Factors in the Execution Phase
4.2.3 Potential Success Factors in the Integration Phase

5. Case Study: Merger & Acquisitions in the CRO industry
5.1 Data & Methodology
5.2 Why M&A occur in the CRO Industry
5.3 Potential Success Factors for the M&A process in the CRO industry
5.3.1 Strategic Planning Phase
5.3.2 Execution Phase
5.3.3 Integration Phase
5.4 Reasons for success failures for the M&A process in the CRO industry
5.5 Determinants and evaluation for success after the M&A

6. Conclusion and Recommendations

Appendix

Bibliography

List of Figures

Figure I-I Structure of the book

Figure 1-1 Concept of M&A definition

Figure 1-2 Merger Waves in the US Industry

Figure 1-3 Merger Waves in Europe and Asia Pacific (total numbers of deals)

Figure 1-4 Recent world-wide Mergers & Acquisitions

Figure 2-1 The drug development process

Figure 2-2 CRO revenue growth 1992 – 2013E

Figure 2-3 The CRO scope of operations

Figure 2-4 The ten largest CRO corporations by revenue

Figure 2-5 Clinical Trial Management Systems

Figure 2-6 Revenue growth for the CRO industry

Figure 2-7 Worldwide distribution of clinical trials

Figure 2-8 EBITDA multiple 2007 – 2012

Figure 3-1 Possible synergy benefits

Figure 3-2 Diversification Strategy

Figure 4-1 The development of the M&A process

Figure 4-2 The planning phase and its first three steps

Figure 4-3 The execution phase with steps 4 – 6

Figure 4-4 Valuation approaches

Figure 4-5 The integration phase with its three last steps

Figure 4-6 Stages for a successful screening process

Figure 5-1 Sent and completed surveys and analysis in which kind of M&A the participants were involved

List of Tables

Table 2-1 Selected takeovers in the CRO industry

Table 3-1 Potential reasons for Merger & Acquisitions

Table 4-1 Potential success factors of the strategic planning phase

Table 4-2 Potential success factors in the execution phase

Table 4-3 Potential success factors in the strategic integration phase

Table 5-1 Summary of the potential reasons for M&A in the CRO industry

Table 5-2 Potential success factors in the strategic planning phase

Table 5-3 Potential success factors in the execution phase

Table 5-4 Potential success factors in the integration phase

Table 5-5 Summary of potential reasons for M&A in the CRO industry

Table 5-6 Determinants and evaluation of success after an M&A

List of Abbreviations

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Introduction

This book deals in general with mergers & acquisitions in the CRO industry, and more specifically with reasons for M&A, success factors during the M&A process, and why M&A can fail in the Contract Research Organization industry.

The pharmaceutical industry faces increasing obstacles in respect to the development and introduction of new medications. That has to do with stricter requirements for admission and sharper controls by authorities. Today, the research and development of a new drug can easily consume more than $800 million and lasting between 10 and 15 years. Due to these admission, money and time pressures, pharmaceutical companies are looking for an alternative in the drug development process. A very popular alternative is the outsourcing or in-house working with Contract Research Organizations (CRO). Contract Research Organizations are specialized in coordination and monitoring of drug development activities. Due to their focus they often offer a more sophisticated and faster process.

Demographic changes, chronic diseases like cancer and diabetes, and completely new cluster of symptoms demand new therapeutically treatments. The size of the CRO market in 2012 was around $32 billion and had an estimated market growth of around 9 – 12% for 2013. Increased outsourcing and allocation of R&D money towards CRO reflects a driving force for prospective growth. To benefit from the good industry outlooks CROs adjust their service offerings and strengthen their competitive situation.

More and more Contract Research Organizations consider mergers & acquisitions as a vital solution to achieve their objectives. Since couple of years we can observe an increased number of deals. Large corporations can close the gaps in the internal service pipeline and smaller firms can use mergers as a financial exit.

However, many M&A activities are considered as ineffective and contra-productive for the shareholder value – either destroy or merely add. Depending on the study, the numbers of M&A failures vary from 50% to even 80%. Possible reasons may be not enough integration planning and unrealistic expectations on the cost and time. The reality shows that it is not that easy to cut costs by simple combining two departments after a merger or acquisition. Additionally, we can see that mergers and acquisitions basically not succeed during the actual process.

Methodology

Mergers and Acquisitions in the CRO industry are a relatively new field from the perspective of academic research. When we have such a high number of M&A failures in general, is it possible to identify and counteract the reasons. The purpose of this book is, whether the possibility exists to workout specific factors in avoidance of failures for M&A.

In order to answer this question, the book is structured in the following way. After the introduction, the fundamentals of Merger & Acquisitions will be described. The definition, the history and what are recent trends for the M&A market.

The next chapter is to get acquainted with the Contract Research Organization industry. After the description of the drug development process, the book presents the fundamentals of the CRO business. The structural analysis consists of the PESTEL and Porter-5-Forces.

The third chapter is about explanatory approaches and motives for mergers and acquisitions. It is divided in the parts of strategic, financial and managerial motives. The core of this chapter is to assess key motives of each part from the theoretical point of view.

After the merger and acquisitions process is described in chapter four, the book examines the potential success factors of the strategic planning, execution and integration phase. Similar to the previous chapter the factors are based on academically research.

Finally, the fifth chapter is a case study where theoretical and practical aspects are combined. The previous examined theoretical framework is evaluated on the basis of a survey. The data is analyzed in tables and on the one side ranked according to the number of entries and on the other side according to the average score.

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Figure I-I: Structure of the book

1. Merger & Acquisitions Fundamentals

1.1 Definition and History

The conceptual word-pair Merger & Acquisition is used since the first merger wave in the years 1895 till 1904 (for M&A history see Chapter 2.1.2).^[1]

The word merger has a clear legal meaning. A merger occurs when two or more corporations are combined and only one legally ceases to exist.^[2] For instance, company A mergers and disappears legally into company B. Shareholders of company A exchange their shares for those of company B. Often the companies are about the same size. Generally, a merger differs from a consolidation. Referring, to the above-mentioned example with company A and B, a consolidation would generate an entire new company C.

An acquisition is the process where the shares or assets of one corporation come to be owned by another corporation. The purchase may lead to the outcome that one company takes a controlling interest of another company. Moreover, an acquisition occurs when one corporation acquires from another corporation an entire business operation and its assets.^[3]

Additionally, the term Merger & Acquisitions has a series of different national and international meanings^[4]:

- Collaboration, Strategic Alliance and Joint Venture
- Spin off
- Management Buy-in and Buy-out (MBO)
- Private Equity involvement
- Public Private Partnerships (PPP)
- Initial Public Offering – IPO
- Transformation and Restructuring
- Outsourcing

However, in the following chapters the focus will be on a narrower definition of M&A (see Figure 1-1). Besides the previous mentioned M&A definitions we are going to use the terms strategic alliances and joint venture. Strategic alliances and joint ventures are increasingly more important and common organizational vehicles for companies in the drug research and development (R&D) business.^[5]

illustration not visible in this excerpt

Figure 1-1: Concept of M&A definition

Own representation based on Grünert (2006)^[6]

Strategic alliances are contracts between legally distinct corporations or other organizations.^[7] These corporations usually implement a strategy together, share resources and pursue a specific, mutually beneficial goal.^[8]

Another form of strategic relationships is a joint venture. A joint venture is a common subsidiary between two or more legally independent corporations. All involved parties share mutually in the profits and losses.^[9]

1.2 Types and history of Merger & Acquisitions

The academic literature discovered that mergers & acquisitions phases usually come in waves.^[10] Thus far, five completed waves have been examined - those of early 1900s, the 1920s, the 1960s, the 1980s, and the late 1990s, followed by periods with significantly lower activity.^[11] These periods mostly characterize the US M&A market, whereas the European and Asian market had a significantly lower transaction value until the 1990s. Specific types of merger and acquisitions characterize each wave. Typically, the formation of a wave goes along with political, economical, and regulatory changes.

illustration not visible in this excerpt

Figure 1-2: Merger Waves in the US Industry

Own representation based on: Müller-Stewens (2010)^[12]

The first wave (1897-1904) was characterized by horizontal consolidations (about 80% of all M&As) in the heavy manufacturing industry, like fabricated metal products, petroleum products, chemicals, and machinery.^[13] A horizontal consolidation generally occurs, when two competitors from the same industry combine. This kind of consolidations often led to monopolistic market structures.^[14] Approximately 42 important industries were controlled by companies with at least 70% market share.^[15] The wave finally ended up due to economical reasons and the stock market crash. Additionally, the Supreme Court introduced the Northern Securities Decision and the Sherman Act, which was used to attack anticompetitive structures.^[16]

The second takeover wave emerged in the late 1916s and continued through the 1920s. The wave was strongly characterized by vertical mergers and the monopolistic markets structures changed to oligopolies with two or more commanding corporations.^[17] A vertical merger is the combination of two companies in the same production process but at different value chain stages.^[18] Consequently two basic forms exist: the backward integration, a corporation acquires a supplier, and the forward integration, where a corporation buys its customer. The stock markets crash of 1929 and as the consequence thereof Great Depression marked the end of the second wave.^[19]

Regulatory changes in the anti competitive law led to the third takeover wave (1965-1969). This was mainly characterized by diversifying takeovers that led to the development of conglomerates.^[20] Pure conglomerate mergers occur between companies in largely unrelated markets that are not competitors and do not have a customer-supplier relationship.^[21] Academic literature and studies show that many merger & acquisitions were followed by poor financial performance – more than 60% of cross-industry acquisitions that occurred during the period were sold or divested.^[22] A recent example for a conglomerate merger is the fusion between Berkshire Hathaway and Burlington Northern Santa Fe.^[23]

The emerge of new financial instruments and markets (e.g. Junk Bond market^[24] ) together with significant changes in antitrust law (deregulation) introduced the fourth M&A phase (1981-1989). During this period the market was strongly characterized by going-private transactions like Leveraged Buy-Outs (LBO) and Management-Buy-Outs (MBO). Through this instruments listed companies were acquired and subsequently delisted.^[25] Both transactions are characterized by the way of financing where a great amount of money is borrowed. The LBO is usually undertaken by company outsiders (private equity investors), whereas a MBO is realized by the company’s management team.^[26]

In 2011, one of the largest publicly held CRO companies PPD was acquired via a leveraged buy out (LBO) by the Carlyle Group and Hellman & Friedman for approximately $3.9 billion.^[27]

Increasing globalization and technological innovation together with the economic and financial bull markets led to the fifth M&A phase between 1992 and 2001. According to the volume of transactions this wave was the first one with a real international nature with the transnational Mega-Deals. For the first time the deals in Europe were almost as large as the deals of the US market.^[28] Particularly, German, British and French firms were very active as acquires, but also popular takeover targets.^[29] Companies start to move toward core businesses or specializations with divestitures or other forms of restructuring.^[30] Divestitures can occur as a spin-off, sell-off, and equity carve out or can take the form of sales of corporate assets and resources.^[31]

For instance, ICI demerged via a divestiture into ICI and Zeneca, which merge with Astra to form the second largest UK pharmaceutical company AstraZeneca.^[32] Additionally, five out of the ten largest M&A deals occurred during this wave, e.g. the acquisition of SmithKline Beecham by Glaxo Wellcome in the year 2000 for $76 billion to form another pharmaceutical big player GlaxoSmithKline.^[33]

illustration not visible in this excerpt

Figure 1-3: Merger Waves in Europe and Asia Pacific (total Number of deals)

Source: Thomson Reuters Financial Securities Data

As mentioned above M&A waves go along with political, economical, and regulatory changes and typically occur during periods of high economic growth. Often the end of a wave was due to stricter legal rules or stock market crashes - similar to the first two takeover phases the third and fourth ended with a stock market crash and economic slowdown, the fifth was also negatively influenced by the 9/11 terrorist attacks.^[34]

1.3 Recent M&A Trends

Recent studies have examined that merger waves increased in intensity and frequency.^[35] The waves have larger volumes and are following more rapidly. After the fifth wave ended the total transaction value dropped by 55% in 2001 and 39% in 2002.^[36]

The sixth merger wave started in 2003, with a total transaction value increase of approximately 30% and climax in 2006, before it significantly dropped in 2008.^[37] Low interest rates after the stock market crash in 2001 led to excessive lending and high liquidity. Also cost-cutting programs, which were introduced by the corporations after the crisis, generate large cash pools. As a consequence thereof the financing patterns changed to be more cash than equity intensive – the portion of equity in deals decreased by nearly 30%.^[38]

Summarizing, mergers and acquisitions play more and more important role in the business world. A successively increasing number of company fates depend on the evolution. The number of transactions increased over the year and will rise together with the amplitudes over the next years.

illustration not visible in this excerpt

Figure 1-4: Recent world wide Mergers & Acquisitions

Source: Thomson Reuters Financial Securities Data, Institute of Mergers, Acquisitions and Alliances (IMMAA)

2. Contract Research Organization Industry

2.1 The Drug Development Process

The history of the Contract Research Organization industries can be traced back to the Contergan- and thalidomide scandal in the 1950s. Contergan was a drug based on the ingredient thalidomide. It was developed and introduced by the German pharmacy company Chemie Grünenthal. The purpose of the drug was to help woman against morning sickness in the early period of pregnancy and to help against headaches and colds.^[39] Despite the low quality of scientific and clinical research the drug was introduced in 1957 in Germany and latterly on at a global scale.^[40] The outcomes were tragically as side effects of thalidomide led to teratogenic (causing malformations) effect on human foetal development.^[41]

Since this huge thalidomide scandal the process of drug approval has completely changed.^[42] The FDA^[43] (Food and Drug Administration) regulation became much more stringent.^[44] One major shift was the Kefauver-Harris Amendment in 1962. The act required important changes from the pharmacy and cosmetic companies:

- Effectiveness and safety of all new drugs
- Regulatory Controls on the entire clinical research process
- Disclosure of side effects on drug marketing and labelling^[45]

The FDA approach became the global standard of pharmaceutical drug trials. First of all, because the volume and size of the US market but later on due to the harmonization process of regulatory requirements in Europe and Japan.^[46]

The drug development process is very complex and can easily take up several years. According to a PhRMA research study the development of a new drug consume on an average $800 million - $1 billion and lasting between 10 and 15 years.^[47] Generally, the FDA-mandated drug development process consists of four main stages: drug discovery, preclinical research, clinical trials, and Regulatory Approval (see Figure 2-1).^[48]

illustration not visible in this excerpt

Figure 2-1: The drug development process

Own representation based on PhRMA study (2007) and Mirowski (2005)^[49]

The entire development process starts with the drug research. The primary drug research is a model of cooperation between many different participants. Private organizations like huge pharmacy corporations or smaller specialized companies are usually the primary source of research findings.^[50] Public institutions like medical schools, universities, and other research facilities also play a very significant role in the discovery process.^[51] In both approaches the scientists will set up a research project to understand and find a way to cure a disease. After the groups have enough materials to fully understand the disease pattern the point is to identify a molecule or lead compound that could cure the disease.^[52] Since the 1990s the high throughput screening (HTS) is a dominant approach for identifying lead compounds.^[53] With this method we can screen hundreds of thousands potential successful lead compounds, which may cure the disease.^[54]

After the screen of thousand of possible lead compounds the scientists choose the ones, which are particularly promising and relatively safe. These lead compounds are used in the preclinical phase on animal material, typically mice and rats. If the therapy shows successful outcomes, the research facility will fill out the Investigational New Drug (IND) application to receive the preliminary approval for the next stage.^[55]

The clinical trial phase is divided in three different parts (trial phase 1 – 3, see Figure 2-1), each with an increasing number of patients. The drug is used for the first time on volunteer human candidates und must undergo excessive studies to asses the safety and efficiency.^[56]

1. Phase (20 – 100 healthy candidates)
- Pharmacokinetics: Absorption and metabolism of the drug
- Pharmacodynamics: Estimation of desired and adverse effects
- Determination of dosing range
- => Overall drug safety

2. Phase (100 – 500 patients with this special disease)
- Is the drug working in a proper way and improve the patients conditions
- Interactions with other drugs
- Adverse effects

3. Phase (1.000 – 5.000 patients to provide statistically significant data)
- Benefit-Risk relationship of the drug
- Final determination of drug safety and effectiveness

If the scientists can show that the tested drug is both safe and effective they submit the New Drug Application (NDA), which can have more than 100.000 pages. The NDA is the formal process to obtain the permission to sale and to marketing a new drug. Additionally to the above-mentioned points the regulating authority assess if the labelling is appropriate and if manufacturing methods are adequate.^[57] The final step (after the drug was already approved) in the drug development process is phase four trial (Post-Marketing Surveillance). The regulating authority demands subsequent monitoring under more real-life conditions. In this phase scientists can focus on different drug doses and demographic groups with different ethnical background.^[58]

2.2 Fundamentals of Contract Research Organizations

As we have seen the drug development process is one of the most extensive and expensive activities conducted by any private industry segment in the world. It is also stringently regulated and monitored. Following the identification of a promising new drug candidate, a drug developer (sponsor) must demonstrate safety and efficacy through a series of prescribed laboratory experiments and tests in both animals and humans. The above-mentioned data for study of drug development reinforces the long-standing observation that developing a drug typically takes twelve to fifteen years and costs can easily excess $1 billion. Derived from these data the importance of an effective and efficient Contract Research Organization (CRO) is evident.

According to academically researches pharmacy corporations start to outsource or work in-house with specialized CROs in the 1980s. As we determined earlier the process of drug development is very lengthy and costly and pharmaceutical corporations are seeking for opportunities to cut costs. Outsourcing could shorten the drug development process and bring the desired cost benefits. Estimations expose that a drug delay may even cost $4 million to $5 million per day in lost revenues.^[59] Therefore, the management of clinical trials has become a business of its own.^[60] Pharmaceutical companies are able to turn their fix costs into variable costs. Usually, Contract Research Organizations coordinate and monitor the clinical trial phase I – III. This phases stand for approximately 70% of the complete research & development cost of a drug.^[61] Additionally to the core business CRO corporations conduct pre-clinical studies, phase IV marketing surveillance and maintain their own central laboratories.

Since the emerge of the Contract Research Organizations their industry faces successively growing revenues (see Figure 2-2). Between the years 1997 and 2007 the compound annual growth rate (CAGR) was approximately 34% and for the years 2008 to 2013E 15%.

illustration not visible in this excerpt

Figure 2-2: CRO revenue Growth 1992 – 2013E Own representation based on Mirowski (2005), IMS Health, Healthcare Insider, Clinuity^[62]

To sum it up we can abstract that Contract Research Organizations work in the intersection of three most important points: Global regulations, which are the basic framework for conducting any kind of drug development, Business (Money), without this any corporations would invest the amount of money and time to find a new drug, and human life, every research should be conducted under the premise of optimal level of safety.

illustration not visible in this excerpt

Figure 2-3: The CRO scope of operatio

2.3 Strategic Analysis of the Drug Development Market

The strategic analysis of the CRO business is very important for understanding the manifold influencing factors. For the macro environmental screening I use the PESTEL analysis (PESTEL: Political, Economic, Social, Technology, Environmental, Legal). The microenvironment is analyzed with Porters-5-Forces. Both analyses PESTEL and Porter-5-Forces are based on academic research of literature and conducted interviews with managers in the CRO industry.

2.3.1 Macro environment – PESTEL

Political:

Politics have a quite high influence on the CRO industry. A very important issue where the government intervenes is the Regulatory Approval process. As mentioned in chapter 2.1 the regulatory approval is the permission to conduct the study in a specific country, for instance, in respect to ethical correctness. Most studies require a multi-country background, what therefore demand an approval process in every country. A new law in the EU, referred as the Voluntary Harmonization Procedure (VHP) might reduce the workload and particularly the costs for this process.^[63]

Additionally, the relations between countries play a significant role. For example, it is hard for US (currently the biggest market for pharmaceutical and CRO corporations) companies to conduct clinical trials in former Eastern bloc countries – countries that do not belong the European Union. Wars between countries and the border relations have also significant political influences for the CRO industry. The corruption of political institutions can ease or hamper the work for Clinical Research Organizations.

Moreover, the healthcare system is a very important indicator for the effectiveness of conducting clinical trials in a specific country. Generally speaking, managers in the industry suggest, that the better the healthcare system and medical care is the less successful are clinical trials in that country. When we are facing a weak healthcare system people can get easier access to modern treatment and better medical care through clinical trials and therefore take part in it.

[...]

^[1] Wirtz, B., Mergers & Acquisitions Management, Gabler, Wiesbaden, 2003, p. 10.

^[2] Krug, J.A., Mergers & Acquisitions, Sage, London, 2008, p. 2 f.

^[3] Lucks, K. / Meckl, R., Internationale Mergers & Acquisitions, Springer, Berlin, 2002, p. 24f.

^[4] Achleitner, A., Handbuch Investment Banking, Gabler, Wiesbaden 2002, p. 141 f. and Copeland, T.E., et al., Financial Theory and corporate policy, Prentice Hall, Boston, 2005, p. 755 f. and Picot, G., Handbook Merger & Acquisition, Schaeffer-Poeschel, Stuttgart, 2012, p. 29.

^[5] Robinson, D.T. / Stuart, T., Financial Contracting in Biotech Strategic Alliances, Journal of Law and Economics, 50, (2007): p. 560f.

^[6] Grüner, T., Mergers und Acquisitions in Unternehmungskrisen, Dissertation University of Gießen, Gabler, Wiesbaden, 2006, p. 27.

^[7] Underhill, T., Strategic Alliances, Penn-Well, South Sheridan, 1996, p. 1.

^[8] Robinson, D.T., Strategic Alliances and the Boundaries of the Firm, Review of Financial Studies, 21 (2), 2008, p. 650f.

^[9] Gutterman, A., A short course in International Joint Ventures, World Trade Press, Novato, 2002, p. 1.

^[10] Gaughan, P.A, Merger, Acquisitions, and Corporate Restructering, Wiley & Sons, Hoboken, 2007, p. 27 and Martynova, M. / Renneboog, L., A century of corporate Takeovers, Journal of Banking and Finance, 32 (10), 2008, p. 2153, and Eckbo, E., Handbook of Empirical Corporate Finance, Elsevier, Berlin, 2008, p. 295

^[11] ibid.

^[12] Müller-Stewens, G., M&A als Wellen-Phänomen, Schäffer-Poeschel, Stuttgart, 2010, p. 16.

^[13] cf, Gaughan, P.A., Merger, loc.cit., p. 30 and Fligstein, N., The transformation of Corporate Control, Harvard University Press, Cambridge,1993, p. 72.

^[14] ibid.

^[15] Sudarsanam, S., Creating Value from Mergers and Acquisitions, Pearson Education, Harlow, 2003, p. 15

^[16] Gaughan, P.A., Merger, op. cit., p. 36

^[17] DePamphilis, D.M., Merger, Acquisitions, and other restructuring activities, Elsevier, Burlington, 2011, p. 16.

^[18] Megginson, W.L. / Smart, S.B., Introduction to Corporate Finance, Cengage Learning, Mason, 2008, p. 855

^[19] Gaughan, P.A., Merger, op. cit., p. 36

^[20] Martynova, M. / Renneboog, L., A century of corporate Takeovers, Journal of Banking and Finance, 32 (10), 2008, p. 2145 f.

^[21] French, R., et al., Organizational behaviour, Wiley & Sons, Hoboken, 2011, p. 319.

^[22] ibid.

^[23] Pride, W.M., et al., Business, Cengage Learning, Mason, 2012, p. 126.

^[24] Junk Bonds are publically traded debt obligations. They are rated as noninvestment grade by the independent rating agencies (Standard & Poor’s lower than BBB- and Moody’s lower than Baa3); see Altman, E.I. / Nammmacher, S.A., Inside the high yield debt market, Beard books, New York, 2003, p. 1.

^[25] Renneboog, L. / Simons, T., Public-to-private transactions: LBOs, MBOs, MBIs and IBOs, Discussion Paper, Tilburg University, 2005, p. 2f.

^[26] ibid.

^[27] Online Sources: “http://www.contractpharma.com/contents/view_expert-opinions/2011-12-14/ppd-goes-private-whats-next/” and “http://www.pharmatimes.com/article/11-10-06/PPD_goes_to_private_equity_for_US_3_9_billion.aspx”, Accessed: 21.03.13)

^[28] McCarthy, K.J., Understanding success failures in mergers and acquisitions, Dissertation, University of Groningen, 2011, p. 15.

^[29] Martynova, M. / Renneboog L., Mergers and Acquisitions in Europe, Discussion Paper, Tilburg University, 2006, p. 10.

^[30] Bhagat, S., et al., Hostile takeovers in the 1980s: The return to corporate specialization, Brookings Papers on Economic Activity,1990, p. 1 ff.

^[31] Brauer, M.F. / Wiersema, M.F., Industry Divestiture Waves, Academy of Management Journal, Vol. 55 (6), 2012, p. 1472.

^[32] Sudarsanam, S., Creating, op. cit., p. 25.

^[33] ThomsonReuters

^[34] McCarthy, K.J., Understanding success, op. cit., p. 40.

^[35] Dong, et al., Does investor misevaluation drive the takeover market, Journal of Finance, No. 61, 2006, pp. 725 – 762 and Moeller, S.B., et al., Wealth destruction on a massive scale. Journal of Finance, No. 60, 2005, pp. 757 – 782.

^[36] Alexandridis, G., et al., How have the M&As changed? Evidence from the sixth merger wave, European Journal of Finance, No. 18 (8), 2011, p. 669.

^[37] ibid.

^[38] The fifth merger wave was dominated by stock financing (around 70% of all deals include stock compensation). .Rhodes-Kropf, M. / Viswanathan, S., Market valuation and Merger Waves, Journal of Finance, 59 (6), 2004, pp. 2685 - 2718 and Andrade, G., et al., New evidence and perspectives on mergers, Journal of Economic Perspectives, No. 15, 2001, pp. 103 – 120.

^[39] Reichl, F. / Schwenk, M., Regulatorische Toxikologie, Springer, Berlin, 2004, p. 433.

^[40] White, A., Thalidomide and the FDA, Health Care Law & Policy, No. 12, 2001, p. 4ff.

^[41] ibid.

^[42] Drews, J., Die verspielte Zukunft, Birkhäuser-Verlag, Basel, 1998, p. 160.

^[43] The FDA is the central U.S. department of Health and Human Services. The core functions are Medical Products and Tobacco, Foods, Global Regulatory Operations and Policy, and Operations. Particularly, the FDA is responsible for protecting the public health by assuring the safety, effectiveness, and security of human and veterinary drugs. The European equivalent is the EMA (European Medicine Agency) where the FDA is also very active due to its extensive regulatory cooperation. (Source: http://www.fda.gov/AboutFDA/Transparency/Basics/ucm192695.htm, Accessed: 21.04.2013)

^[44] Grabowski, H.G. / Vernon, M., Consumer protection in ethical drugs, American Economic Review, 67 (1), 1977, p. 359 f.

^[45] ibid.

^[46] Getz, K. / de Bruin, A., Breaking the development speed barrier, Drug Information Journal, No. 34, 2000, p. 732

^[47] PhRMA, Drug discovery and development, Pharmaceutical Research and Manufactures of America, Washington, 2007.

^[48] Mirowski, P. / Van Horn, R., The contract research organization and the commercialization of scientific research, Social Studies of Service, Vol. 35 (4), 2005, p. 509

^[49] PhRMA, Drug discovery, op. cit., p. 2 f., and Mirowski, P. / Van Horn, R., The contract, op. cit., p. 509 f.

^[50] PhRMA, Drug discovery, op. cit., p. 3 f.

^[51] ibid.

^[52] Hubbard, R., Structure-Based drug discovery, RSC Publishing, Cambridge, 2006, p. 4 and PhRMA, Drug discovery, op. cit., p. 3 f.

^[53] Rankovic, Z. / Morphy, R., Lead generation approaches in drug discovery, John Wiley & Sons, Hoboken, 2010, p. 22.

^[54] ibid.

^[55] Mirowski, P. / Van Horn, R., The contract, op. cit., p. 509.

^[56] Meinert, C., Clinical trials: Design, conduct, and analysis, Oxford University Press, New York, 2012, p. 4, and PhRMA, Drug discovery, op. cit., p. 3 ff.

^[57] Online Source: http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/ApprovalApplications/NewDrugApplicationNDA/ (Accessed: 30.04.2013)

^[58] Chin, R. / Lee, B., Principles and practivces of clinical trial medicine, Elsevier, London, 2008, p.39.

^[59] Pope, D., Do it right…the first time, Applied clinical trials journal, March 2013, p. 50.

^[60] Jonvallen, P., Compliance revisited: pharmaceutical drug trials in the era of the contract research organization, Journal of Nursing Inquiry, No. 16, 2009, p. 1.

^[61] Huijstee, M. / Homedes, N., Putting contract research organizations on the radar, Journal of International Psychiatry, Vol. 9 (2), 2012, p.32.

^[62] Mirowski, P. / Van Horn, R., The contract, op. cit., p. 508, IMS Health, Healthcare Insider, Clinuity

^[63] EU clinical trials directive 2001/20 EC.