Global Drug Discovery Outsourcing Market Gaining Momentum

Zhang, J.By: Jim Zhang, President, JZMed, Inc.

Today, externalization has become a core strategy among pharmaceutical and biotechnology companies for all types of activity, including R&D and manufacturing. In fact, the original concept of outsourcing has now been expanded to include all types of collaboration, including partnership and technology licensing.

Drug discovery has been one of the core sectors of the long value chain of drug R&D. However, in recent years, almost all major pharma and biopharma companies have focused on developing late-stage drug candidates due largely to the global financial crisis and the pressure of patent expirations of blockbuster drugs. Drug discovery research has been less focused, with many companies primarily relying on external resources, including R&D-focused biotech companies and professional discovery research service providers (CROs).

Outsourcing of a variety of tasks has become a
core strategy among pharma and biopharma companies.

This focus on late-stage development is now making many large pharma and biopharma companies realize that their early-stage pipelines have become thin. Drug discovery research has, thus, recently regained focus among these companies. However, their research strategy in this field has changed significantly.

New Strategies for Drug Discovery Research

New R&D strategies are constantly evolving in global pharmaceutical and biopharmaceutical industries. All drug companies have now recognized that early-stage drug discovery is not just for identifying a new medical (either chemical or biological) entity for a target. Rather, it is about validating the identified therapeutic target and better understanding the disease biology, pathology, and interactions between the compound and the target (as well as those off-targets). Consequently, major pharma and biopharma companies are more focused than ever on understanding disease biology in order to have more accurate therapeutic targets and to employ new technologies to truly improve R&D success rates.

Photo courtesy of Research Optimus

Photo courtesy of Research Optimus

New Drug Discovery Outsourcing Strategies

Along with the change of their discovery research strategy and practice, major pharma and biopharma companies have been shifting their outsourcing strategy from a risk-sharing emphasized model to a more technology-concentrated partnership. Discovering new therapeutic targets and thoroughly validating them have become the new priorities of drug discovery research. The integrated drug discovery outsourcing model has become the prevailing trend.

To this end, drug companies need the involvement of academia in early drug discovery more than ever. Almost all global major pharma and biopharma companies have forged close partnerships with a number of academic research institutions in recent years. Moreover, they are increasingly integrating human genetics research into their discovery and development programs. Genomics and proteomics have been widely employed not only in drug development, such as for the development of companion diagnostics and patient stratification, but also in drug discovery, such as for target identification and validation, safety biomarker development and application, and development of novel antibody drugs. In all these R&D activities, academia is playing increasingly important roles.

The new outsourcing strategy also is creating broader collaborations, not only with peer competitors, technology-bearing biotech companies, and professional outsourcing service providers, but also with academics, for both drug discovery research and new therapeutic target identification and validation. The latter includes not only pure research on disease biology but also discovery and validation of new biomarkers and their applications. Indeed, academia has become the third key element of many companies’ R&D efforts.contractsourcingfig1

Emerging Countries Play Increasingly Important Roles

Until now, the most desirable technology in drug discovery research has been compound libraries with diverse structures. However, this type of R&D work, especially the construction of small molecule compound libraries, has now been considered to be approaching maturity. Few drug companies large or small are now willing to assemble a large, internal team of synthetic organic chemists to do it. The majority has, instead, been outsourced in recent years to China and India as well as emerging countries. These outsourcing destinations have been the main places for global drug companies to look for focused compound libraries of small molecules that possess diverse structural features.

Continued growth in the global drug discovery outsourcing market is
expected to grow as means to improve R&D efficiencies and productivity.

On the other hand, there are growing numbers of service companies in emerging outsourcing destination countries such as Brazil, Russia, and Ukraine that are now also able to offer integrated drug discovery research services. Multinational drug companies are thus expanding their discovery research outsourcing scope in these countries while strengthening their current relationships with local partners.

Future Growth Potentials

According to research conducted by JZMed, Inc., in the past few years the global drug discovery outsourcing market has been growing at a CAGR of about 10.5 percent. Its current market size is estimated at $13Bn, accounting for close to 10 percent of the current total global drug R&D spending.

Of the total market value, the small molecule drug discovery outsourcing service market accounts for about 87 percent, reaching about $11.25Bn. Between 2009 and 2012, its CAGR was around 11 percent. The current biologic drug discovery outsourcing market is estimated at only about $1.75 Bn, accounting for about 13 percent of the current total global market. However, its CAGR from 2009 to 2012 was about 37 percent.

The current average outsourcing penetration of small molecule drug discovery research among major companies is estimated at 40 percent. The current average outsourcing penetration of biologic drug discovery research is, however, only about 15 percent. The overall average drug discovery research outsourcing penetration is about 30 percent at present.

Nearly half of the global drug discovery research
will be performed by third parties by 2018.

Driven by the strong desire of all drug companies to improve efficiencies and productivity in their R&D efforts, the global drug discovery outsourcing market is expected to grow at a decent pace in the foreseeable future. JZMed, Inc. forecasts that the global drug discovery outsourcing market will likely experience a CAGR of about 11.5 percent between 2013 and 2018, and its market value will likely reach close to $25Bn by 2018. By then, the overall industry-wide average outsourcing penetration of drug discovery research will likely reach close to 49 percent. In other words, nearly half of the global drug discovery research will be performed by third parties by 2018.

Of the total global market, the small molecule drug discovery outsourcing will likely account for about 75 percent reaching close to $19Bn by 2018. Whereas the biologic drug discovery outsourcing will likely account for about 25 percent reaching more than $6Bn by 2018 (See Figure 1).

About the Author: Jim J. Zhang, Ph.D., is President and Managing Director of JZMed, Inc., a leading market research company that specializes in the research of global pharmaceutical outsourcing industry with emphasis on China, India and emerging markets.

Before founding the company, Jim worked for nine years with Albany Molecular Research, Inc. (AMRI), a US-based and currently one of the world largest CROs. Jim’s technical expertise spans from chemical process research and development to drug discovery and development for viral infection, cancer, chronic obstructive pulmonary disease (COPD) and cystic fibrosis. Currently he holds 18 patents and is the principal author of 12 peer-reviewed research articles.

This article was originally published by Life Science on July 1, 2014. It has been annotated and reprinted with permission by the author. Facts within the are partially based on the latest research report of JZMed, Inc: “The New Trends of Global Drug Discovery Outsourcing.”

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