It is well known that of all the industry sectors the pharmaceutical industry is the most research and development (R&D) intensive and innovation driven, as the survival of the industry is dependent on a steady flow of new and better drugs. In the R&D process, the cascade of events, which traverse from concept to market for a single drug could take as much as 10 to 15 years for completion and cost as much as $800 million to $2 billion. The biggest dilemma the R&D based companies face is to ensure that drugs are made at costs, which are affordable and at the same time sold at prices which enables the investors derive adequate returns on their investments. To ensure that these twin objectives are equitably met, the companies, which make up the industry, need to develop their own strategies to deploy their resources optimally by carrying out their R&D activities in-house or through outsourcing.
The discovery and development of a new drug starts with the identification of candidate molecules derived through synthesis or isolation from natural material of plant or animal sources and screening thousands of them in experimental animal models deemed to simulate human disease conditions. The candidates are then put through a plethora of pre-clinical tests to establish its potential as an effective therapeutic agent. The important aspect of assured safety of the candidate when used as a drug is addressed by conducting acute, sub-acute and chronic toxicological tests in both rodent and mammalian species. Additional mid to long term studies to rule out potential mutagenicity, carcinogenicity and teratogenicity of the drug when used in humans also need to be carried out. The absorption, distribution, metabolism and excretion patterns of the drug are evaluated through elaborate pharmacokinetic investigations in animals.
Process technology as well as formulation development are other activities, which are carried out concurrently with pre clinical biological investigations. The most expensive part of drug development is the validation of efficacy and safety of the drug in humans by carrying out the phases I to III of clinical trials before submitting the data to the appropriate regulatory agency for registration and marketing approval. It is clear that in such a complex, arduous and time intensive development process, the rate of attrition is bound to be very high. It is to be noted that estimates of the relative costs of many components in the total R&D process may vary a great deal. Even assuming that around 50 per cent of the said total costs of around $1 billion is consumed for marketing related activities, one still need to take into account the expenditure of R&D of new drugs that would come around $500 million. Of this, the three phases of clinical trials as per US costs constitute around 35 per cent, i.e., $175 million, of which multi-centric open, comparative and double blind trials alone cost around $100 million.
These costs are steadily on the rise in the developed markets of USA, Western Europe and Japan. In 2006, against a US company's R&D spending of $35 billion, only 18 new drugs were approved by US FDA. Given that the drugs approved in 2006 were the result of efforts started several years back, it is clear that the success rates have declined dramatically over the years, making pharmaceutical R&D one of the most non productive and perhaps ineffective industrial activities.
Declining pipelines and failures, both during the development phase and even post marketing, have made the drug discovery process unaffordable even for large pharma companies. The strategies of global mergers and acquisitions and recourse to newer approaches, including the use of more rational drug discovery tools such as genomics and proteomics are yet to yield tangible results.
In such a scenario as this, if investments into R&D of new drugs, the life line of this industry and the hope of large numbers of ailing humanity, are to be sustained the innovator companies need to evolve newer strategies to make new drugs discovery and development activity more manageable and cost effective.
R&D perspectives
Patenting products both for ensuring market shares as well as exclusive marketing rights and commanding prices during the pending period of the patents are other imperatives for R&D based large pharmaceutical companies. Ideally, companies prefer to have integrated internal structures to take care of all these core activities including, drug discovery and development as well as manufacture and marketing. However, it has become increasingly difficult to operate integrated internal structures even for the largest companies. Many large companies depend on individual innovators and small pharmaceutical and biotechnology companies for licensing in products for development.
Outsourcing R&D
While outsourcing of active pharmaceutical ingredients (APIs), intermediates and fine chemicals, particularly for the generic drugs industry, by the large pharmaceutical companies from third world countries like China and India has been on for the last one decade or more, the trend to outsource R&D activities needed for drug discovery and development is a new phenomenon, which started off recently. The compulsions for this are largely to contain costs as well as to utilise in-house R&D capabilities and resources for high priority activities in areas of their core competencies. As of now, India and China are in the forefront of offering such facilities and services for outsourcing R&D and therefore are the target destinations for international companies.
In sheer numbers, China and India together account for one third of the global market and therefore the importance of these countries from purely a market opportunity perspective is obvious. Multinational corporations have already made strong strategic moves to exploit these markets. Also, they have started setting up manufacturing bases on their own or through their licensees and JV partners in these countries. However, outsourcing of R&D services or setting up own R&D centres in offshore locations is relatively new to the leading corporates in the pharmaceutical sector.
Of the total R&D spend of $61.1 billion in 2006, it is estimated that not more than $14 billion was being outsourced from their own subsidiaries or from third parties by the major R&D based companies. Of these, the bulk of the activity has been in the area of clinical trials, particularly phase II and phase III. According to a recent report from A.T. Kearney, China topped the list of low cost global locations for carrying out clinical trials, one of the expensive components (60 per cent) of the drug discovery and development process.
English being the language of science, business and global negotiations is a major advantage India has when compared to China. The dominance of Indian software companies and the availability of facilities and professionals in this sector enable them to compete, collaborate or support global business with innovative solutions.
The Indian companies, which are active in the drug discovery and development processes, have acquired core competencies in several areas that will be beneficial for global R&D based companies. The country's strength in chemical synthesis for combinatorial libraries or for specific requirements of new candidate molecules of varying complexity for pre-clinical or clinical research on drugs under development is well known and is being extensively used by many offshore corporations.
A large number of companies have entered into contracts to supply prescribed quantities of such products meeting quality specifications prescribed by the contracting companies. The process technologies for their synthesis are either provided by the company or developed by the supplier based on the terms of the contract. While India has no statutory requirements for good laboratory practices (GLP), the guidelines are OECD compliant and the Department of Science & Technology gives the NABL certification for biology and analytical laboratories. Indian strengths in toxicology and pharmacokinetic studies are relatively low and these are the areas where much more efforts to bring them to the global state-of-the-art is required.
Thus, India is emerging as a hot place for outsourcing chemical synthesis, preliminary screening, custom synthesis and clinical trials by large pharma companies and the business potential is deemed to be very high for Indian companies to enter into win-win collaborations with global pharmaceutical and biotechnology companies. From a global overall perspective, India merits to be a favoured destination for outsourcing new drugs discovery R&D.
(The author is a senior research scientist and industry expert based in Chennai)