Issue Date: October 4, 2010
Stormy weather looms for Western providers of pharmaceutical research and development services. Big pharma continues to sign up Asian service companies at the expense of traditional ones in North America and Europe. And the paucity of venture capital funding for biotechnology companies, a lingering effect of the recession, is clouding the future of another target market for research service firms.
But contract research organization (CRO) executives at the annual ChemOutsourcing conference, held last month in Long Branch, N.J., saw symbolism in the sunny skies above the hotel where the meeting took place. Leaders of small and midsized CROs based in the U.S., Canada, and Europe see continued relevance for their companies despite a changing pharmaceutical industry.
Speakers at the conference from Pfizer, Merck & Co., Abbott Laboratories, and other large drug companies repeatedly touted the advantages of hiring third parties to conduct many of the chemistry components of drug discovery and development—even though it’s often at the expense of scientists in their internal R&D ranks. Biology outsourcing is a newer but growing trend in the drug industry.
In a panel discussion about the outsourcing of complex, integrated discovery programs, big pharma executives generally expressed their satisfaction with the service they get from CROs. “The reality is most CROs don’t have the level of expertise that the major pharmas do. But they are learning very quickly,” said Tom Sowin, associate director for global external research at Abbott.
Yet although many of these firms are outsourcing more, business often goes to companies based in India and China rather than to Western suppliers. Mostly unspoken at the conference was the fact that scientists are paid much less in these developing countries than they are in the West.
Panelists were more up-front about other benefits of outsourcing to Asian CROs. For example, teaming up is a way for Western drug companies to establish a presence in emerging markets, noted David Stout, director of external services at Merck.
Few Western CROs maintain the hundreds upon hundreds of chemists and biologists that are on staff at big Asian firms such as China’s WuXi PharmaTech and India’s Syngene. Numerous smaller firms dot the Western landscape, though, and some claim to be doing fine, despite the headwinds they face.
For example, business is good at Adesis, according to Chief Executive Officer Ving J. Lee. The company employs 37 chemists, 30 of whom have Ph.D.s, at its New Castle, Del., laboratories, and it is hoping to hire more in the next 18 months, Lee said. The firm recently brought on a chemist who had worked at Wyeth’s labs in Princeton, N.J., and it is talking to some chemists from AstraZeneca’s Wilmington, Del., discovery center, which is being closed.
Lee acknowledged the tough funding climate for biotech companies, but he argued that it can force them to more prudently use what money they do raise. “You don’t want to spend expensive venture capital money to build infrastructure,” he observed. “You should use it to buy services instead.”
Although U.S. CROs have a reputation for mainly serving small biotech firms that aren’t able to manage an offshore project, Adesis has larger clients as well, Lee said. In fact, at the ChemOutsourcing conference he and colleagues met with chemists from big pharma companies that had cut back on internal research and needed assistance with heterocyclic pyridine chemistry, an Adesis specialty, and natural products. “They asked when we could start,” Lee recalled. “I said, ‘Tomorrow.’ ”
Somewhat bigger than Adesis is Alberta’s Naeja Pharmaceutical, which has more than 60 Ph.D. scientists on staff. About two-thirds of them are chemists, and the rest are biologists, according to Sameeh M. Salama, senior director of business development. He said Naeja’s trump card is its ability to provide biology-based services along with chemistry.
“There are low-cost providers in Asia and Eastern Europe with specialized chemistry skills,” Salama said, “but the strength of biology overseas has not matured.” Naeja got its start as a drug discovery firm focused on infectious disease, and that field continues to be a sweet spot now that it is a CRO, he added.
Western CROs that can provide active ingredient production for their drug industry clients also seem to be doing well. Cambridge Major Laboratories, a Wisconsin-based CRO and contract manufacturer, for example, will experience double-digit sales growth this year, according to Brian Scanlan, the firm’s vice president of corporate development.
Growth in CML’s drug development services business will stay flat or improve only slightly this year, Scanlan said. Doing much better, he added, is commercial drug and drug intermediate manufacturing, carried out largely in a $30 million facility the firm opened in 2008. Most business is with drug development customers that continued with CML when they needed larger quantities.
Similarly, Robert K. Maddox, president of High Point, N.C.-based PharmaCore, said his firm’s strong sales performance is being led by its new pilot plant, which, like CML’s facility, makes pharmaceutical chemicals under the Food & Drug Administration’s current Good Manufacturing Practices standards. “We’ve seen a real pickup in the business environment,” Maddox said. “We didn’t have a single chemist available up until two weeks ago.”
Success at PharmaCore and CML doesn’t seem to depend on the type of customer being served. Whereas a few years ago PharmaCore’s business was weighted toward big pharma, today, Maddox said, its customers are mostly small drugmakers or biotech firms. In contrast, Scanlan said that 40% of CML’s current business is with big pharma, almost double what it was last year.
Indeed, Western CROs haven’t given up on big pharma. Several executives at the ChemOutsourcing conference said the downsizing and restructuring occurring at big companies, although painful for many employees, can create opportunity.
One example is England’s Peakdale Molecular, which operates a 90-scientist laboratory providing drug industry clients with medicinal chemistry services. In February, Peakdale signed an agreement with Pfizer under which it will set up a second chemistry lab at the drug company’s Sandwich, England, R&D center. The immediate goal is to create a team of 50 chemists.
Mick Durrant, Peakdale’s director of business development, sees other favorable prospects as big pharma changes how it goes about drug discovery and development. The trend toward “microdiscovery”—conducting drug research in small integrated groups of scientists rather than on the industrial scale of yesterday—favors local CROs that can respond more quickly than ones in India or China, he said.
Likewise, Durrant argued, local CROs are well suited to serve the growing number of alliances between big drug companies and academic or nonprofit groups. “The field is more open than ever before,” he said.
Geoff Evans, vice president of business operations at Ontario’s Alphora Research, a provider of drug scale-up and small-scale production services, also sees opportunity in the current storm. Although big pharma is retrenching, and many biotech firms are struggling to get by, good science is still being done. “There are a lot of technologies on the shelf waiting to get funded,” Evans said, “and when they do, I’m convinced the projects will come back.”
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