Pharmaceutical Outsourcing Part 2: An Introduction to Drug Discovery Strategies new opportunities lie in a fully integrated global outsourcing strategy

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