In the period from 1997 to 2002, the top ten segments in drug discovery outsourcing accounted for cumulative alliance payouts of $4.51 billion.
- Broad-based screening, oncology, and genomic targets are the three segments exhibiting higher payouts than the remaining segments
- In all the segments, big pharma is the largest outsourcer, accounting for more than 50 percent of the payouts on an average
- In the cardiovascular disease segment, big pharma dominates completely with 92.3 percent share
- In the autoimmune/inflammation and CNS segments, mid-size pharma is prominent with a share of 37.4 percent and 24.1 percent, respectively
- In the oncology and metabolic segments, big biotech is prominent with a share of 21.1 percent and 29.1 percent, respectively
- Outsourcing by biotech companies is minimal in the autoimmune/inflammation segment
An analysis of the top alliance making companies have shown that GSK leads the lot with maximum number of alliances followed by Pharmacia and Pfizer.
Outsourcing budgets for this group of companies excluding clinical research averages at 2% of the total R&D spend. Clinical research outsourcing brings this figure upto 25% of the total R&D expenditure. A look at the basic research payouts made by the top pharmaceutical players shows Pfizer as a lone player with budgets over $100mn during the past three years. Lilly and Novartis are the only other payers with outsourcing budgets for basic research close to that of Pfizer. In fact the top 25 outsourcer's list that encompasses companies from the pharmaceutical and the biotechnology industries does not include pharma majors like Abbott, AstraZeneca, and Aventis. Boehringer Ingelheim is the only company in this group to have not initiated alliances or disbursed budgets for contract / collaborative research.
Molecular genomics, bioinformatics, therapeutic proteins and gene therapy are areas common to all players for seeking external capabilities and expertise for their individual research programmes.
In terms of the other specialized domains, the outsourcing activity is not comparable to that in genomics, bioinformatics and therapeutic proteins.
In the area of stem cell research, Johnson & Johnson and Novo Nordisk are the only two players to have liaised with specialists for basic research work. Johnson & Johnson has tied up with Neuronyx for adult derived stem cell research for applications in cardiovascular therapies while Novo Nordisk is working with its wholly owned subsidiary Zymogenetics in the generation of beta cells for transplantation and "stem cell factors" for oncology and blood and immune system applications. GlaxoSmithKline and Pfizer form another group in this sector who has sought murine stem cell based screening tools form VistaGen in their drug discovery programmes.
Skin and tissue engineering also had only two major collaborations limited to marketing rights - Johnson & Johnson with Integra LifeSciences and Novartis with Organogenesis. The former collaboration has progressed from a marketing agreement to a contract research agreement for collagen-based absorbable implants in cartilage regeneration and surgical adhesives. In case of the latter alliance, with Organogenesis filing for reorganization, Novartis has access to marketing the product upto June 2003 post of which things remain unclear. Apart from these, Lilly had also sought expertise from Organogenesis for the development of artery implants, the future of which also remains uncertain.
Lilly is also in the forefront for contract research agreements in Phytopharming. The company's partnership with ProdiGene is exploring enzyme production in transgenic maize. Bristol-Myers Squibb is another company has tied up with two molecular framing specialists - Agracetus and Phytomedics. The alliance with Agracetus focuses on production of a monoclonal antibody in transgenic plants while the latter has been engaged for a more broad based alliance for plant based protein secretion technology. Apart from Lilly and Bristol-Myers Squibb, Bayer is also exploring alternate cost effective solutions for the large scale manufacturing of therapeutic proteins which cannot be categorized as pure phytopharming. It has liaised with Biolex for its proprietary aquatic plant factories - Lemna System which appears to have a number of distinct competitive advantages in comparison to field crop or animal-based transgenic production systems.
In the domain of plant based drug discovery, the research collaborations are comparatively more frequent than stem cell research and cell therapy for this group which has accessed natural product libraries for their internal drug discovery programmes. Abbott is exploring this arena for therapy areas including oncology, metabolics, antivirals, immunology and neuroscience. AstraZeneca has a programme with the Griffith University, Australia for exploring plant and marine organisms from the Australian rain forest for novel therapies. Bristol-Myers Squibb has sought access to the concept through its liaison with Albany Molecular Research for the latter's natural product extract libraries to be utilized across disease domains. Lilly has also liaised with Albany Molecular Research for its libraries. The company has two other collaborations - Exelixis and Shaman which are working on plant based drug discovery for identification of anti-thrombotic agents and antifungals respectively. In addition, Merck and Merck KGaA also have alliance in this domain for a broad based agreement and for antidiabetic therapy respectively.
Any player entering the drug discovery contract research space should focus efforts on obtaining projects in segments that have the following characteristics:
- High in number of deals being made
- High in terms of deal value
- Healthy growth of the segment
- No extreme specialization required
Applying these criteria, the best entry strategy for new entrant is to focus on 'broad-based screening (BBS)' and/or 'chemistry'. Typical drug discovery contract research opportunities in broad-based screening involve activities such as high-throughput, low throughput and high content screening, custom screen designing, and assay development. In the chemistry segment, opportunities include targeted and custom design of combinatorial libraries, lead optimization, and structural activity relationship (SAR) modifications.
Developing a proprietary platform that assists in drug discovery has been found to be a surefire strategy of clinching important alliances with larger companies. Many small companies which have developed such platforms have entered into numerous alliances and established themselves. On analyzing alliances entered into by 100 pre-commercialization biotech companies, it has been observed that 65 per cent of the $13.10 billion payouts have been in alliances involving technology platforms.
STRATEGIES FOR GROWTH
Earlier big pharma companies were the major outsourcers of research work. The total outsourcing by them in ten major therapeutic areas (oncology, chemistry, broad-based screening, metabolism, infection, genomic targets, gene therapy, cardiovascular system, CNS, and autoimmune and inflammation) amounted to approximately $2.51 billion during the period 1997 to 2002. However, the trend in the outsourcing payouts shows that mid-size pharma companies are also outsourcing research work. Though the outsourcing payout is considerably smaller than the big pharma at about $457 million during 1997 to 2002, there are compelling reasons why mid-size pharma will be an important outsourcer for contract research organizations to focus on in the near future.
It is evident from the current developments that the field of oncology, CNS, and genomic targets will witness tremendous growth in the research and development of diagnostics and therapeutics. These developments in turn would lead to licensing relevant platform technologies and outsourcing relevant research work. By focusing on developing emerging technologies in these fields, drug discovery contract research organizations can cash-in on the huge opportunity available. Focusing on segments like genomic targets, oncology, and CNS is an important growth strategy for drug discovery contract research organizations.
From the study of alliances made in the industry so far, it has been proven that smaller firms with stronger reputations receive larger up front payments and cede less project level control to the bigger pharmaceutical or biotech firms with whom they are forming alliances. In fact, among private biotech firms, having a stronger reputation is associated with shorter, less complex contracts. It has also been observed that past alliance experience is a key success factor for prospecting future alliances with the same client as well as others.
INDIAN SCENARIO
India's drug-outsourcing market amounts to just $470 million. But it's expected to grow 30% a year, hitting $800 million by end 2005.
A host of players are entering the outsourcing game. Hyderabad-based Divi's Laboratories does custom chemical synthesis for Merck, Abbott Laboratories, and Glaxo and makes generic anti-inflammatory and anti-arthritic formulas for other firms. Bulk drug maker Matrix Laboratories has seen its outsourcing business grow five-fold, to $10 million, in one year. In Bangalore, Biocon has 300 scientists doing contract research, up from just 25 in 2000, after sealing deals with Pfizer, AstraZeneca, and Bristol-Myers Squibb. Ociumum Biosolutions, also based in Hyderabad, develops bioinformatics software in India. It has sold some of its software to Dow AgroSciences, and set up a contract research arm in Indianapolis. iGATE Clinical research international is doing a lot of outsourced clinical research activity for companies like Pfizer, Eli Lilly & Co., Bayer etc. Ahmedabad based Synchron is one of the oldest CRO in India and has carried out bioavailability and bioequivalence studies for most of the MNCs worldwide. Suven Life Sciences has bagged a $2 million contract recently for carrying out contract research on low back pain for a US based biopharmaceutical company.
As multinational drug companies in the United States and Western Europe look east to outsource research and clinical trial activities, countries such as India will gain proficiency and expertise, assisting its move from generic and specialty contract manufacturing to innovative drug discovery and development in its own right, setting the stage for increased global competition.
- (The author is Industry Analyst, Healthcare Practice, Frost & Sullivan. He can be reached through at sdedhia@frost.com.)