Pharmaceutical companies are under escalating pressure to significantly increase the number of drugs that reach the market within a shorter timeframe. Wall Street expects pharmaceutical companies to grow annual revenues at a double-digit rate; to meet these demands, big pharma companies must introduce between three and five new chemical entities per year with peak annual sales averaging $500 million per drug. Furthermore, genomics information has greatly increased the number of potential targets, placing pressure on early-stage drug development activities such as structural proteomics and medicinal chemistry. Large pharmaceutical companies need to take advantage of the increased number of targets but lack the infrastructure to do so. More than ever, pharmaceutical companies need to partner with outside firms to compress the timeline of drug development, thereby decreasing overall cost and gaining access to additional drug entities.

Large pharmaceutical companies are in need of a method to grow their product pipelines in order to reach revenue demands and accelerate drug development. In the past, pharmaceutical companies have met their drug development goals by outsourcing specific services, such as clinical trials or chemical manufacturing, to contract research organizations (CROs) and contract manufacturing organizations (CMOs). The use of outsourcing by pharmaceutical companies has dramatically increased in the 1990s, owing to the aforementioned growing market pressures. It is estimated that, by 2004, nearly 42% of all pharmaceutical drug development expenditures will be committed to outsourcing, as compared with 4% in the mid-1990s.1 Although only 10% of funds allocated to early-stage discovery activities is outsourced, the future influx of targets from genomics will result in a predicted 20-25% growth rate per year. In order to meet the rising demand for increased productivity and to accelerate drug discovery and development, pharmaceutical companies are turning to outsourcing at an earlier stage as a way to grow the product pipeline. Companies that become proficient at strategic outsourcing, where contracts tend to be in the form of a long-term partnership, stand to gain a competitive advantage over those that focus on relationships based on short-term, tactical projects.

There are many reasons why pharmaceutical companies choose to outsource. One of the primary reasons is to gain access to innovative technology that accelerates the development of high-priority compounds through the product pipeline. By using innovative technology to decrease the timeline for drug development, pharmaceutical companies recognize revenue earlier and take advantage of a longer sales cycle under patent protection.

Many outsourcing service providers have innovative technologies that pharmaceutical companies do not possess. Large companies may be reluctant to invest in new technologies because of the possibility of poor incorporation into existing processes and expense due to changes. Outsourcing can provide companies with access to necessary equipment and methodologies without the time and cost required for internal development and maintenance. Outsourcing also allows companies to develop compounds in parallel rather than in a linear fashion, resulting in an increased number of compounds moving through the drug development pipeline simultaneously. Another major advantage of outsourcing is that, by contracting activities to technology-driven providers, pharmaceutical companies can focus their resources on late-stage development activities, commercialization and marketing of drug products.

In the past, pharmaceutical companies preferred to maintain an internal R&D drug discovery process while outsourcing only limited services, such as clinical trials. However, increasingly restrictive federal regulations are lengthening and complicating the drug approval process, requiring more time, effort and cost to bring new drugs to market. This has made outsourcing of early-stage R&D more attractive to pharmaceutical companies.

Outsourcing Origins
CROs were originally established to provide specific services, such as clinical trials, to allow pharmaceutical companies to focus their resources on proprietary R&D, while CMOs provided services for late-stage drug development. The emergence of CROs and CMOs occurred mainly due to increased federal regulations for improving new drug safety and efficacy and a need to access manufacturing capacity. At the same time, biotechnology companies were developing early-stage drug leads and concepts using innovative technology. Pharmaceutical companies accessed these innovations by forming partnerships with the biotech companies early in the discovery of these new drug opportunities.

Since then, outsourced services have evolved to fill the need for earlier stages of drug development, providing additional specialized services and innovative technology in upstream activities such as gene/protein identification and high-throughput screening. For example, some companies specialize in identifying potential drug targets, while others may be involved in the identification and optimization of lead compounds that can be screened against these targets, providing expertise in areas such as medicinal chemistry, high-throughput screening, analytical chemistry or cGMP synthesis and scale-up. The specialized stages within the pipeline of drug discovery can be coupled so that an increase in the number of potential drug targets will lead to more efforts in downstream activities of drug candidate development.

The Impact of the Genomics Revolution
The completion of the Human Genome Project has led to the identification of more than 120,000 genes and up to 10,000 new drug targets. Prior to genomics, only about 500 gene-based drug targets had been identified.2 The 6- to 20-fold increase in drug targets from today’s current market will result in a need for more efficient methods to elucidate these new drug targets. With the information generated by the genomics revolution, detailed structural information about proteins, through the use of expression, purification and 3D-structural determination (proteomics), will become available. This information can be used to more rapidly identify physiological drug targets by utilizing structural biology to design lead compounds rationally. In addition, recent advances in high- throughput screening/combinatorial chemistry, as well as the automation of existing technologies and the development of novel technologies, allow more rapid discovery and optimization of lead compounds. The explosion in the number of new targets requires pharmaceutical companies to partner with companies that can turn the information into new drugs.

Need for Better Partnerships
The pharmaceutical industry has changed due to the emergence of genomics-based and virtual pharmaceutical companies. Chemistry and technology-based drug discovery companies utilize large databases of information generated by genomics to aid in drug discovery. The emergence of virtual pharmaceutical companies has increased the percentage of outsourcing to highly competent, technology-based specialty organizations. Virtual pharmaceutical companies discover and in-license potential lead compounds and direct them through pre-clinical and clinical development process to an IND filing before licensing to pharmaceutical companies. Since virtual pharmaceutical companies lack the infrastructure to conduct in-house R&D, they must rely on technology-driven service providers to add value to the drug candidate by achieving preclinical and early-stage clinical success.

As discussed earlier, large pharmaceutical companies are faced with increased pressure to fill the pipeline with high-revenue drugs, despite rising development costs and increased federal regulations. The technological advances and changes within the pharmaceutical industry discussed above will help to fill that pipeline. However, the increased number of drug targets and lead compounds must be rapidly advanced through the pipeline in order to meet market expectations. One way to do this is to transform the relationship between the pharmaceutical company and the service provider into a strategic alliance model.

Drug Discovery and Development Services
Conventional outsourcing on a project-by-project basis is insufficient in the new era of drug discovery. Pharmaceutical companies of the future will increasingly rely on long-term strategic partnering in order to keep ahead of their competitors. For this type of alliance to be successful, the outsourcing services provider must apply experience and skills from within the company’s technological capabilities. One important benefit of forming partnerships and alliances is the ability to build intimate relationships that allow a freer flow of information. This allows organizations to respond quickly to the needs of their clients.

The overall goals for the drug discovery collaboration must be clearly established, and information that may be critical to project success must be readily exchanged. To maintain this type of relationship, outsourcing service providers must have the ability to provide full services to their clients and be more involved in the drug development decision-making process. Pharmaceutical companies will not only expect outsourcing companies to apply innovative technological developments to their projects, but to provide cutting-edge solutions to their overall problems. Companies that offer a broad range of technological capabilities within the drug discovery process, from genomics to clinical trials, will benefit from this type of growth and expansion.3 By making these types of alliances, pharmaceutical companies can then minimize early-stage investment in new drug targets prior to regulatory approval and may access capabilities and expertise not available internally to accelerate the drug discovery process. The formation of alliances with drug discovery and development services providers will also advance additional drug targets, increasing the number of new compounds in the pipeline and the likelihood of rapidly developing a new blockbuster drug.

It is becoming apparent that drug discovery and development service providers that can provide comprehensive capabilities and a global presence will benefit most from the growth in the outsourcing industry. As a result, organizations that previously had a narrow focus on specialized activities are now shifting towards a broader range of operations that encompass large segments of the drug development process, including target identification, lead discovery and optimization, process development, synthesis and scale-up, as well as pre-clinical and clinical trials. The modernized outsourcing services model integrates capabilities from all of these areas to form an “all-inclusive” partnership to expedite drug development. With the expanding capabilities comes a paradigm shift for these technology-based companies. They now form drug discovery alliances with leading pharmaceutical companies rather than simply solving short-term capacity issues.

In order to accelerate the drug discovery process, it is imperative for pharmaceutical companies to have access to the latest proprietary technology, which the formation of alliances can achieve. Technology-driven service organizations are expanding their capabilities by acquiring new technologies through company acquisitions and developing internal proprietary technology that separates them from their primary competitors. Recent technological advances include the development of high-throughput protein expression and crystallization, as well as development and screening of lead compounds and assays to test initial efficacy, to name a few. However, the need for new technology continues beyond the discovery of a potential new drug. For example, progress in automated process research can help pharmaceutical companies develop the optimum synthetic route for lead compounds. Recent advances in chiral technology, such as chiral chromatography and biocatalysis, allow rapid, efficient production of optically active compounds.

Technology-driven service companies can rapidly advance compounds through the early stages of drug discovery. This leads to increased revenues for the lifetime of the drug for pharmaceutical companies, since products can reach the market quickly and realize revenue sooner. By providing proprietary, enabling technologies that compress the timeline of drug discovery and are critical to drug development, technology and services organizations are able to access revenue from pharmaceutical companies in the form of royalties, research fees and milestone payments.

Pharmaceutical companies are searching for ways to reduce costs and accelerate drug development while meeting increasing product demands of the future. The emergence of virtual pharmaceutical and genomics companies has led to an influx of lead compounds within the discovery pipeline. Although outsourcing has been successful in the past for meeting specific needs, the huge potential for new drug targets generated by genomics requires a change in the way that outsourcing is viewed. Outsourcing providers must therefore evolve from organizations that supply specific services to technology-driven drug discovery partners. Companies that offer services spanning the various stages of the drug development process and thereby shortening the drug discovery timeline will gain a competitive edge in today’s market.

1. Borchardt, John K, “Playing the Economics Game with Outsourcing,” Modern Drug Discovery, 2000, 3 (2), pp. 28-34.

2. Dagani, Ron, “Pittcon at 51,” Chemical Engineering and News, April 2000, 78 (14), pp. 36-40.

3. Dvorin, Jeffrey, “Albany Molecular’s Next Act,” Pharmaceutical Outsourcing Strategies, December 2000, pp. 21-28