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The Business of Clinical Trials Is Booming. Private Equity Has Taken Notice.


After finding success investing in the more obviously lucrative corners of American medicine — like surgery centers and dermatology practices — private equity firms have moved aggressively into the industry’s 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’s 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 — even though it’s a relatively new player in the field, formed in 2018 by investment giant KKR.

In July 2020, Headlands announced 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 “profoundly impact” clinical trials — including boosting participation among racial and ethnic minorities who have long been underrepresented in such research.

“We are excited,” CEO Mark Blumling said in a statement, to bring “COVID-19 studies to the ethnically diverse populations represented at our sites.” 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, according to Johns Hopkins University researchers.

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 — an urgent priority during the pandemic in studying vaccines to ward off a disease disproportionately killing Black, Hispanic, and Native Americans.

Headlands’ 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 But within two years, some of Headlands’ alluring promises would fall flat.

In September, Headlands shuttered locations in Houston — one of the nation’s largest metro areas and home to major medical centers and research universities — and Lake Charles, a move Blumling attributed to problems finding “experienced, highly qualified staff” 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’ trajectory shows the potential risks of trying to combine independent sites and squeeze efficiency out of studies that will affect the health of millions.

Yashaswini Singh, a health economist at Johns Hopkins who has studied private equity acquisitions of physician practices, said consolidation has potential downsides. Singh and her colleagues published research in September analyzing acquisitions in dermatology, gastroenterology, and ophthalmology that found physician practices — a business with parallels to clinical trial companies — charged higher prices after acquisition.

“We’ve 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,” Singh said. “So it’s a delicate balance.”

Dr. Aaron Kesselheim, a professor of medicine at Harvard Medical School, called private equity involvement in trials “concerning.”

“We need to make sure that patients” know enough to provide “adequate, informed consent,” he said, and ensure “protections about the privacy of the data.”

“We don’t want those kinds of things to be lost in the shuffle in the goals of making money,” he said.

Blumling said trial sites Headlands acquired are not charging higher prices than before. He said privacy “is one of our highest concerns. Headlands holds itself to the highest standard.”

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 covid vaccines to treatments for ovarian cancer, Parkinson’s disease, and Alzheimer’s.

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 registered studies this year as of late November, more than triple the number a decade ago.

Still, most trial sites are physician practices that don’t consistently perform studies, according to a presentation by Boston-based investment firm Provident Healthcare Partners.

“Independent sites are being purchased by private equity, and they’re 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,” said Linda Moore Schipani, CEO of Clinical Research Associates, a Nashville-based company that worked on covid vaccine trials for AstraZeneca, Novavax, and Pfizer. “That’s kind of the endgame.”

Headlands is a prime example. It announced 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 “extremely limited trial options,” something Blumling says distinguishes his company.

“I’m not an evangelist for private equity,” Blumling said. “The 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’t see out there.”

A research center in Brownsville, Texas — a stone’s throw from the U.S.-Mexico border and where 95% of the population is Hispanic or Latino — is one of several where it is partnering with Pfizer to boost patient diversity.

To recruit patients, Headlands “is really going beyond what a lot of sites do, which is social media,” Blumling said in an interview. “It’s going within churches, community fairs, really getting out into as much as possible the broader community.”

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 “did not have anything to do with the speed of trials.”

Similarly, he said, Headlands is moving the McAllen site’s operations to Brownsville “because it had a larger population of trained personnel.”

“We want to continue to grow sites and do great work,” Blumling said. “If we can’t find the people in order to do that at the quality that we demand, which is at the highest level, then it doesn’t make sense to keep those sites.”

‘The Writing to Me Was 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 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.

“The thing is speed, getting it to market. With a bigger network, you get that speed,” Torrence said on the podcast. “The 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.”

Joining Headlands had its benefits during the pandemic because she could “lean on” its other sites with experience running vaccine trials. “Had we not gotten those … we may not still be here,” Torrence said.

Torrence, whose LinkedIn profile said she left the company in 2021, didn’t 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.

“I completely support it,” he said. “If it’s about reaching that large patient population, it’s of course better to have larger groups with that funding.”

Opportunity in Long Covid

Contract research organization Parexel saw opportunity in the covid pandemic — 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’ private equity arm for $8.5 billion, billions more than the $4.5 billion that private equity firm Pamplona Capital Management paid when it took Parexel private in 2017.

A growing body of research shows the debilitating effects of long covid, including a recent study 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. “It’s a huge number of people,” said Dr. Nathalie Sohier, who leads Parexel’s infectious diseases and vaccines franchise. “There’s a lot of need.”

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’s because “it’s not a well-defined disease, and that really makes it highly risky for companies to invest in research,” said Cecil Nick, a vice president for Parexel.

“How are we going to be able to tell the FDA that our drug works? We can’t count the number of people who died; we can’t count the number of people in the hospital,” said Dr. Steven Deeks, 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 “there are few” companies in its long covid program. That hasn’t stopped Parexel from pitching itself 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.

“It kind of ties into access and control of patients,” Fenne said. “Technology makes accessing patients, and then also having more reliable information on them, easier.”

KHN senior correspondent Fred Schulte and Megan Kalata contributed to this report.

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation.

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