Successful outsourcing depends on careful selection of target markets

1st April 2013

A new report suggests that the successful CROs of tomorrow willbe those that concentrate on the market areas that are witnessing cutting-edge research, focus on high growth categories such as mid-size pharma companies, and which strengthen client relationships through continuous improvement programmes.

In the recent past, the global pharma industry past has been under pressure to strengthen its drying product pipelines and overcome the losses due to blockbuster drugs going off patent. As a result, managing drug discovery processes and technologies has become one of the top challenges faced by the players. Drug discovery continues to be the forte of small biotech, pharma and research institutes; global pharma and biotech majors need the new technologies to maintain bottom-lines resulting in outsourcing and drug discovery.

Outsourcing drug discovery research is seen in the form of alliances, research agreements, and collaborations among pharma-pharma, pharma-biotech, biotech-biotech, and biotech ­pharma companies.

According to a new report from Frost & Sullivan's (F&S) global healthcare group (*), oncology, chemistry, broad-based screening, autoimmune and inflammation are the top segments where maximum outsourcing is seen. A total of $4.5 billion has been paid out in the outsourcing deals by all the categories during the period 1997 to 2002.

Big pharma companies have paid $2.52 billion during the same period. Similarly, mid-size pharma, big biotech, and mid-size biotech have paid out $456.9 million, $329.7 million, and $412.5 million, respectively, during the period 1997 to 2002. The biggest outsourcers are based in US and Europe. In the Asia-Pacific region, companies particularly in Japan, have a strong alliance track record in drug discovery research. ig pharma companies, mid-size pharma companies, big biotech companies, mid-size biotech companies, and others (Table 1). The category aothers' consists of chemical companies such as Dow Chemical and DuPont, government research institutes such as the National Institutes of Health, agri-based companies such as Monsanto and Syngenta, and companies with drug discovery interests such as Procter & Gamble.credibility in the industry is the first challenge to be overcome when aiming to achieve market leadership. This, it says, will involve: entering into alliances with firms of repute in selected segments, working towards making the alliance a success, and leveraging the networks of the client for further research contracts.

It is also pointed out that oversights in partner selection can endanger relationships with the client and the alliance. So it is important to anticipate differences arising from cultural and process differences and to deal with them proactively, and align objectives of the alliance and watch out for divergence.

Moving up the value chain is a daunting task for fledgling firms. F&S advises getting into the drug discovery contract research value chain at the chemistry and screening ends as these involve lesser investments in infrastructure and technology. They are also lucrative segments in terms of revenues. Also, such companies will need to leverage knowledge gained from alliances to pitch for contracts in advanced areas.

In terms of segmental breakdowns of total alliance payouts, broad-based screening largest at 17.6 per cent, followed by oncology (14.5), genomic targets (12.5), chemistry (12.3), infection (11.9) and autoimmune/inflammation (10.8). Between 1973 and 2002, the top five pharma companies signing up to alliances were GSK with 421, Pharmacia 394, Pfizer 302, Novartis 249, and Hoffman La Roche 270. In the same period, the top five alliance makers in biotech were Elan with 237, then Applara 230, Chiron 183, Genzyme 128 and Celltech 113.

In terms of future market trends, F&S expects: continuing adoption of new technologies; mid-size pharma outsourcing research work; most outsourcing to occur in genomic targets, autoimmune segments and oncology; companies entering into early stage deals; and an increase in average total Dollar value of alliances.

In conclusion, though big pharma companies have been the major outsourcers so far, outsourcing activities of mid-size pharma and biotech is rising, which will lead to increased opportunities for CROs. The maximum number of companies are outsourcing in the oncology segment, indicating the increasing amount of research work conducted in this field. Also, companies are focusing more on specific technology platforms that form an essential part of the discovery process; presence of a proprietary technology plays an important role in formation of new alliances. So the CROs that exhibit strongest growth in the future will be those that: u Concentrate on the right segments that are witnessing cutting-edge research; u Focus on high growth categories such as mid-size pharma companies; u Strengthen client relationships through continuous improvement programmes.

(*) World drug discovery contract research markets: profiles of top 50 global Outsourcers. Report number 4083-55.





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