Issue Date: July 27, 2015
Europe’s Contract Research Firms Look Downstream
Europe has long maintained a special association with pharmaceutical chemistry. The Continent is known for active ingredient factories ranging from family-owned garage shops to sprawling big-company complexes. Similar operations have arisen in the U.S. and Asia over the past 20 years, but the European drug chemical industry maintains a distinct culture.
The same can be said for pharmaceutical chemistry research, a sector in which experienced medicinal and organic chemists set up independent labs to work under contract to drugmakers. Owing to the rise of small pharma companies and the downsizing of large ones, the demand for contract research has bourgeoned, and those labs have grown in size.
Still, Europe’s contract research organizations (CROs) remain committed to drug discovery and early-stage chemistry. Shunning the comprehensive—in some cases one-stop-shop—approach that has emerged in Asia and the U.S., Europe has cultivated a community of small firms with staffs of fewer than 200 people.
In recent years, that community has coalesced around a program called the European Lead Factory, or ELF, sponsored by the European Union’s Innovative Medicines Initiative. Launched in 2013, it is a consortium of large drug companies, academic research institutes, and CROs teaming up to create screening compounds against drug targets and amassing a public compound library in Newhouse, Scotland.
Executives with the five CROs participating in ELF say they see it as yet another avenue for growth. Some view the initiative as an opportunity to expand their services into downstream drug development and the larger-scale manufacturing that goes with it.
Mercachem, based in Nijmegen, the Netherlands, has steadily added facets to its chemistry offering since it formed in 1998 with just seven employees. Starting with basic synthesis services, the firm has added compound library design, discovery and medicinal chemistry, process research, and, in 2011, its first lab-scale facility that works under current Good Manufacturing Practices (cGMP) standards.
Last year, Mercachem bought a cGMP manufacturing suite in Prague. Acquired from Synthon, the plant will allow the company to offer compound scale-up and synthesis of active pharmaceutical ingredients (APIs). It will bring the total headcount at Mercachem to 145.
According to Frank Leemhuis, a Mercachem managing director, the company’s growth has far exceeded his expectations when he and Co-Managing Director Eelco Ebbers launched it as a spin-off from Radboud University of Nijmegen.
“The market has shaped up much more than we imagined,” Leemhuis says. “Our original idea was quite conservative—maybe we would have 10 people after five years? We had 30 after five years. I expected outsourcing would become more important, but I didn’t expect it to grow so drastically.”
Sygnature Discovery, a U.K.-based CRO, has experienced similar growth, expanding from a staff of five to 133 since its founding in 2004 as a medicinal chemistry lab for hire. It now offers computational chemistry, in vitro biology, drug metabolism and pharmacokinetic services.
The company started with the vision of providing medicinal chemistry services “that added more science to the mix, rather than just a pair of hands,” says Paul Clewlow, senior vice president of business development. “Nowadays, more often than not, we are involved in fully integrated drug discovery projects, anywhere from hit identification through hit-to-lead optimization. We are intimately involved in clients’ projects and in the decision-making about how to take projects forward toward development.”
Simon Hirst, Sygnature’s chief executive officer, worked as a research chemist at AstraZeneca and later at OSI, where he managed contracts with chemistry service firms. “This was in 2002, and it was a pretty miserable experience at times,” Hirst recalls. “I would fight for a budget, find a provider, sign the contract, then everything would go quiet. Communication was lousy. You were renting pairs of hands. I always thought it could be so much better.”
Hirst left OSI to work at CombiPure, a small company formed by a former AstraZeneca colleague to do high-throughput purification and analysis for large pharma companies. There, his idea of starting a medicinal chemistry services firm took shape. He wrote up a business plan while on a vacation, came home, and started Sygnature.
The company’s initial focus was on discovery-oriented chemistry, and its first customers were biotech firms in San Francisco and Oxford, England. Since then, the market has expanded rapidly, yielding opportunities at large drug companies in the wake of restructuring.
“Ironically, this has also meant a great market for recruiting,” Hirst says. Sygnature, he quips, has been more successful at finding jobs for laid-off AstraZeneca chemists than has AstraZeneca.
Edelris, a Lyon, France-based CRO launched at about the same time as Sygnature, was started by former drug research leaders at Bayer, Novartis, and Merck KGaA in laboratory space exited by Merck. “The drug discovery guys at these companies decided to put together a CRO,” says Jean-Yves Ortholand, CEO of Ederlis.
The four chemists who started the company knew that big pharma was embarking on big changes that would create a market for specialized chemistry services. “We had an opportunity to launch a company that was not a spin-off from big pharma but more of a new activity that we did not have at that time, using three-dimensional compound collections and fragment-based lead discovery.”
The company initially focused on natural-product-like compounds. “We knew the high-throughput-screening drug discovery process, and we knew the pitfalls of the screening collections we were using. We felt there was a way to be more innovative, more selective and to make compounds that have a better profile and better potential.”
Now with a staff of 35 and annual sales of more than $3 million, the company has added computational chemistry and virtual screening, Ortholand says. But the focus remains on 3-D characterization of unique compounds, medicinal chemistry, hit exploration, and hit-to-lead optimization.
“We are working in a proprietary chemical space that contains more than 5 million compounds that we know are accessible and are undisclosed,” Ortholand says.
The most veteran of the five CROs participating in ELF is Syncom, a Dutch company that has evolved over 25 years from a fee-for-service organic chemistry operation to a partnership-oriented CRO with a focus on chiral and medicinal chemistry. Ton Vries, who took over as CEO from founder Hans Wynberg in 2000, says Syncom was forced to evolve toward advanced chemistry and problem solving by the arrival of low-cost Chinese CROs in the late 2000s.
Over the years, Syncom has worked in close partnership with contract manufacturing organizations (CMOs), operating as the de facto research arm for DSM Fine Chemicals. Working with DSM, for example, Syncom innovated an efficient means of separating chiral enantiomers that came to be known as Dutch Resolution. By the early 2000s, the company had 100 employees, Vries recalls. That dropped to 80 by 2009, largely because of the pressure from China.
More recently, Syncom has experienced 10% annual growth. Sales were about $12 million last year. Staffing is back at 100, according to Vries, and Syncom is building new laboratories with a target of employing 130 chemists by the end of 2016. The company is currently working in partnership with Cambridge Major Laboratories’ Dutch manufacturing operation, the former ChemShop.
“We are always looking to be in partnership with the CMO part of the game,” Vries says, “because we develop the chemistry, and it’s nice to be in contact with companies that can bring it to the next stage, who can do the cGMP production.”
Indeed, moving forward from drug discovery chemistry has emerged as a dominant theme for these European firms with the emergence of ELF and its growing library of compounds for drug discovery. The effort, essentially a crowdsourcing venture, pairs CROs with academic researchers who provide drug discovery targets. CROs identify compounds, which are screened at a center in Oss, the Netherlands, and maintained in the library in Newhouse.
Dimitrios Tzalis, CEO of Taros, a 15-year-old CRO based in Dortmund, Germany, coordinated the library production effort when ELF was launched and now oversees the five CROs’ contribution to the library, which currently houses 380,000 compounds and targets a total of 500,000 by 2017.
Tzalis says he was intrigued by the notion of bringing academia, big pharma, and CROs together to identify, screen, and manage a communal library. He notes that the Hungarian firm ChemAxon provides software to support the crowdsourcing function in conjunction with software designed by Taros.
Taros, like the other CROs, keeps its focus on discovery chemistry. Tzalis received his Ph.D. at the University of California, San Diego, and started the company after completing a postdoc at Philipps University, in Marburg, Germany. During his time in the U.S., he says, he got a good read on the burgeoning biotech sector.
“Back then, the focus at biotech companies was on platform technologies,” he says. “I was thinking that all of them would require chemistry sooner or later in order to turn those technologies into drugs.”
Taros, which started with three employees and now has 70, has been growing at 15% a year after a lag in business in 2009. Tzalis says the firm, like its peers, has built out its menu to include services such as computational chemistry and medicinal chemistry. The company has been operating a pilot-scale manufacturing facility in Hyderabad, India, since 2004.
“But our focus and our real strength remains organic chemistry,” he says.
Despite a common stick-to-itiveness regarding discovery-centered chemistry, Europe’s CROs exhibit increased interest in forging paths downstream into drug development services. All of them agree that participation in ELF offers an important means of getting there—if, that is, the compounds they created for the Newhouse library are selected for development.
As Mercachem starts integrating its new manufacturing site in Prague, it has its eyes on the compounds it is contributing to ELF. “It is an investment in our future,” says Leemhuis, emphasizing that not all of the cost of working on ELF compounds is compensated by the EU. “We have ownership rights to the compounds we discover, which means, once a compound is pursued further, we are entitled to downstream payments. And as the originator, we have first-option rights for downstream work, once that gets outsourced to third parties.”
Meanwhile, Syncom’s Vries, contemplating opportunities beyond chiral-chemistry-based discovery research, opines on why European CROs have been hesitant to move beyond early-stage chemistry. Chemistry entrepreneurs in the U.S., he says, are more willing to take risks by starting biotech companies and trying to bring forward a drug.
“Europe is maybe a little bit more conservative,” he says. “But we have always, especially in the Netherlands, had good chemists able to develop and support novel chemistry.” Although the research services business doesn’t have the potential upside of drug discovery, it does provide more stability, Vries says.
But he agrees with Leemhuis that ELF may offer a route downstream that is amenable to European sensibilities. “As CROs, we are interested in taking part in future work,” he says, “maybe also in picking up some of these projects ourselves and becoming, ideally, the company that can bring such a project forward. Slowly we become more like a drug development company, and not only a CRO. So we move along the value chain.”
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