Table of Contents
- About the Strategic Intelligence Team
- Scope of the report
- Definition of outsourcing
- Format of the report
- CHAPTER 1 DRIVING FACTORS OF DRUG DISCOVERY OUTSOURCING
- The pharma industry is facing an unprecedented number of challenges
- Is the pharma industry's R&D productivity in decline?
- R&D investment has been increasing, but the number of NMEs
approved has been falling over the past decade
- Increasing drug development costs are leading to lower returns for
companies
- Companies are shifting towards a "networked pharma model"
- Product in-licensing and co-development deals are helping to boost
major companies' R&D productivity
- Outsourcing provides an opportunity to drive productivity and
efficiencies across a variety of business functions
- There are a number of steps within drug discovery that can be
outsourced
- Drug discovery outsourcing provides an opportunity for companies to
boost long-term R&D productivity
- Key advatages and benefits of drug discovery outsourcing
- Outsourcing offers a number of financial advantages
- Outsourcing can help shorten the drug discovery stage
- Access to additional drug discovery expertise and technologies
- Focus on core competencies
- Flexibility is another advantage
- Key disadvantages and risks of drug discovery outsourcing
- Outsourcing is not without its own costs
- The level of returns on compounds generated through outsourcing
agreements tend to be lower than in-house
- Reduced opportunity to develop internal expertise
- Some companies are concerned about the loss of control
- Confidentiality of proprietary information is of the utmost
importance
- CHAPTER 2 OPTIMIZING DRUG DISCOVERY OUTSOURCING STRATEGIES
- Introduction
- The wider issues that need to be considered when outsourcing drug
discovery functions
- Adopting a holistic approach to outsourcing can be useful to identify
additional external opportunities
- Case Study: Novartis's recently formed Strategic External Resourcing
Group provides an opportunity for a more cohesive outsourcing strategy
- Pharma and biotech companies use outsourcing either tactically or
strategically
- Traditionally, companies have used outsourcing of drug discovery
functions as a tactical tool
- Strategic use of outsourcing can provide additional benefits
- Case study: GSK adopts a strategic model to outsourcing by creating
a Center of Excellence for External Drug Discovery
- The type of outsourcing agreement that is suitable varies between
projects
- Full-Time Equivalent agreements are more suitable for longer-term
agreements
- Agreements associated with high risk should have a more
collaborative nature
- Maximizing value realization
- Some degree of autonomy must be left with those involved in forging
external alliances
- It is important to involve relevant scientists to optimize an
outsourcing strategy in practice
- Case study: AstraZeneca has dedicated drug discovery alliance teams
in therapy area departments
- Case study: Eli Lilly has a Research Acquisition Group devoted to
evaluating external alliance opportunities
- Companies should use a robust screening process to identify a suitable
outsourcing partner
- Companies tend to use preferred vendors where possible
- Companies should use at least a three-step filtering process
- Potential vendors need to be filtered against a good, realistic set
of selection criteria
- Contractual terms that are satisfactory to both parties need to be
negotiated
- Objectives and goals of the agreement need to be clear from the
outset
- The degree of customer control is dictated by the contract
- Effective management of a relationship with a service provider is key
to successful outsourcing
- The customer needs to devote resources to managing an outsourcing
contract
- Strong, open communication is a fundamental element
- There should be a degree of flexibility in managing the relationship
- Both parties should view the agreement as a partnership
- Companies should make plans to manage disputes
- Case study: Merck & Co.'s approach to managing external
chemistry collaborations
- Monitoring the relationship is a key tool for quality control
- Companies should conduct regular and irregular assessments
- Companies should base periodic assessments on performance metrics
- Greater benefits can be realized when performance metrics are used
well
- CHAPTER 3 OFFSHORING DRUG DISCOVERY FUNCTIONS TO EMERGING COUNTRIES
- Introduction
- Further integration of global outsourcing is an opportunity for
companies to realize greater value
- There are some key factors that companies need to consider before
outsourcing to emerging countries
- Companies should adapt their implementation approach when outsourcing
to emerging markets
- Case study: Wyeth takes a strong management role in its deal with
GVK-Biosciences
- Benchmarking the suitability of key countries for outsourcing drug
discovery functions
- Western service providers cannot compete with service providers in
emerging countries on cost
- Intellectual property protection remains weak, but is improving in
India, China and the Russian Federation
- Drug discovery capabilities are strongest in chemistry and weakest
in biotechnology in emerging countries
- Country profiles
- India
- Datamonitor's recommendations
- Intellectual property protection
- Scientific and technical drug discovery capabilities
- Logistical factors
- Foreign companies' drug discovery outsourcing activity in India
- China
- Datamonitor's recommendations
- Intellectual property protection
- Scientific and technical drug discovery capabilities
- Logistical factors
- Foreign companies' drug discovery outsourcing activity in China
- The Russian Federation
- Datamonitor's recommendations
- Intellectual property protection
- Scientific and technical drug discovery capability
- Logistical factors
- Foreign companies' drug discovery outsourcing activity in the
Russian Federation
- CHAPTER 4: BIBLIOGRAPHY
- References
- Conference Literature
- Publications and online articles
- Sources
- Conference Literature
- Articles
- Useful online resources
- APPENDIX: SUPPORTING DATA
- Glossary of terms
- Methodology
- Exchange rate
- List of Tables
- Table 1: Number of FTEs in Johnson & Johnson Pharmaceutical
Research & Development division
- Table 2: Median gross weekly wage in the private sector in India,
China and the Russian Federation is a small fraction of the cost in
Germany and other Western countries
- Table 3: Key drug discovery outsourcing deals involving Indian service
providers since August 2004
- Table 4: Key drug discovery outsourcing deals involving Chinese
service providers since August 2004
- Table 5: Key drug discovery outsourcing deals involving Russian
service providers since August 2004
- Table 6: Exchange rates*
- List of Figures
- Figure 1: R&D expenditure has increased substantially, however,
NCEs approvals by the FDA have decreased
- Figure 2: There has been a decline in the number of approval filings
submitted for both new molecular entities as well as biologics in the US
- Figure 3: Companies are increasingly using a 'networked pharma'
operating model to improve productivity and drive efficiencies
- Figure 4: The leading 55 pharmaceutical companies are becoming more
dependent on in-licensed products to generate prescription drug sales
- Figure 5: Secondary core and non-core functions are suitable areas for
pharma and biotech companies to outsource
- Figure 6: Drug discovery costs are estimated to account for around
25-35% of the total R&D costs of developing a drug
- Figure 7: Four main steps in small molecule drug discovery
- Figure 8: Key risks and benefits of outsourcing drug discovery
functions
- Figure 9: The greater role a customer plays in a drug discovery
agreement with a third party, the greater resources the customer needs to
dedicate to manage the complexities
- Figure 10: Process of identifying outsourcing partners
- Figure 11: Examples of key parameters companies should use in their
detailed assessment of and proposal stage with potential vendors
- Figure 12: Further integration of global outsourcing of drug discovery
functions in a company's business model provides an opportunity for
companies to realize greater value
- Figure 13: Western countries offer a more secure environment and a
wider range of drug discovery services than emerging countries, but they
cannot compete with their low cost base
- Figure 14: Key indicators for outsourcing drug discovery functions in
India
- Figure 15: Ranbaxy has increased its R&D expenditure as a
proportion of sales over the past three years, highlighting its moves
towards developing new innovative prescription drugs.
- Figure 16: Key indicators for outsourcing drug discovery functions in
China
- Figure 17: The annual growth rate of scientific researchers' salaries
in China has increased from 13.2% between 1998 and 1999 to 18.5% for
2001-02
- Figure 18: Key indicators for outsourcing drug discovery functions in
the Russian Federation
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