Core Functions Like R&D More Often than Not Entrusted to Outside Agencies to Save Money!--h2>
Outsourcing has become so paramount to a pharmaceutical firm’s strategy that it is a given that noncore functions will be outsourced. Core functions, however, like the discovery of potential new drugs, used to remain in house. This pattern has been changing as companies are now routinely outsourcing a number of core functions including clinical trial management, manufacturing, and, increasingly, portions of drug discovery.
Declining R&D budgets are a factor. Overall expenditures on discovering and developing new drugs by PhRMA members increased nearly 10% in 2010 to reach $50.7 billion. The 2010 rise was short-lived as PhRMA estimates R&D spending dropped just over 2% to $49.5 billion in 2011.
Outsourcing has proven to be a useful tool for pharmaceutical companies to manage their core functions. It has also resulted in time and cost savings as well as financial and operational flexibility.
Drug discovery requires technical expertise in the areas of molecular biology, ultra-high throughput screening, molecular and behavioral pharmacology, and combinatorial, medicinal, and analytical chemistry. The process can be organized into four stages: target identification, target validation, high-speed screening, and lead optimization.
It is a high-cost, risky business because only a fraction of the therapeutic targets selected for study will actually yield products that obtain regulatory approval from the FDA. The average drug can take 10-plus years to progress from the discovery phase to the clinic, with only one compound out of 10,000 evolving into a viable product.
Discovery has become increasing complex since the 1990s as a result of advances in molecular biology and the emergence of new-generation biological therapies. These advances plus the emergence of new technologies have made it unsustainable for companies to undertake all drug discovery functions in-house. Therefore, the industry has chosen to outsource core drug discovery functions more frequently.
Crossover and new advancements in chemistry, molecular biology, pharmacology, microbiology, and biochemistry have resulted in the evolution of new methodologies and their application in drug discovery. These new technologies come with the promise of generating greater numbers of more effective drugs, while maintaining or reducing current costs.
Overall, Kalorama Information sees the market for outsourced drug discovery services as robust with an optimistic outlook going forward, despite the current unsettled economic environment. The global market reached $9.4 billion in 2011, which increased 15% from $8.2 billion in 2010.
This market is expected to experience robust growth reaching $11.1 billion in 2012. The global drug discovery outsourcing market is expected to grow at a compound annual rate of 16% over the next five years, exceeding $21 billion by 2016.
Another major trend that continues to gain momentum is choosing outsourcing partners in Asia and Eastern Europe. It is not only large pharmaceutical and biopharmaceutical companies that are moving their outsourcing offshore, but smaller biopharmaceutical companies are following this trend as well.
Small biopharmaceutical firms such as virtual companies that lack the infrastructure to carry out complex chemistry, biology, and lead-optimization services are choosing outsourcing partners in India or China, thus expanding the rapidly evolving global drug discovery outsourcing market.
The number of Chinese CROs offering drug discovery services has expanded significantly since 2004. Only a few companies, albeit fast-growing companies, were operating in Shanghai in 2004. However, in three years this changed very quickly. By late 2007, several drug discovery laboratories were opened in Shanghai, Beijing, Suzhou, Guangzhou, and other cities.
India’s pharmaceutical industry is a robust enterprise driven by its emergence as a global leader in the generic manufacturing field, as well as its contract clinical research and contract manufacturing organizations. Drug discovery in India is still in its infancy, and it has only been recently that contract drug discovery research has become a focus.
Asia is not the only beneficiary of the growth in outsourcing. CROs in Russia and Ukraine emerged as the Soviet bloc dissolved in the early 1990s. After the breakup, scientific funding plunged, and many highly experienced and highly educated chemists essentially found themselves out of work.
As major pharmaceutical companies scale down their own R&D operations, offshoring critical tasks such as discovery will become more prevalent.