PRA and INC trade up amid a warm reception for CRO debuts

PRA Health Sciences ($PRAH) and INC Research ($INCR) have both seen their shares tick upward since pulling off IPOs earlier this month, a sign that, despite biotech's boom and bust, the window for CRO debuts remains open.

PRA is trading nearly 20% above its opening price after wrapping up its IPO last week. The North Carolina CRO moved an additional 2.6 million shares to cover over-allotments, netting $330 million in total after discounts and fees. Meanwhile, INC is up more than 27% after its closing, which brought in a gross $172.5 million after its underwriters bought up 1.2 million extra shares.

It's a similar story for Catalent ($CTLT), which is up nearly 30% since pricing in July, and Quintiles ($Q), which has risen roughly 45% since going public last year.

Each of the industry's IPO successes has followed a familiar path, beginning with a private equity buyout that leads to bolt-on acquisitions and ending with a big cash-out on Wall Street. With PRA and INC pricing within weeks of one another, PPD and inVentiv Health are the last of the big, privately owned CROs in the industry, spurring speculation that one or both of them could be headed for the public markets.

Investor interest in the world's biggest CROs is driven by drugmakers' increasing reliance on outside researchers. The outsourcing industry is on pace to grow about 8% a year, according to Industry Standard Research, reaching $32 billion by 2018. ISR estimates that about 31% of all clinical development spending is outsourced to CROs, a number the firm expects to reach 43% in the next 5 years.

And the industry's allure isn't limited to bankers. LabCorp ($LH), a major player in medical testing, has signed up to pay about $6 billion in cash and stock for Covance ($CVD), another of the world's biggest CROs. LabCorp's margins have been continuously battered by declining reimbursement and global pricing issues, and the company sees the growing demand for drug development services as a salve for disappointing revenues.

- read PRA's release
- here's INC's statement

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