Fine Chemicals

Integrate expectations

Integrated CRO services formed the topic of one plenary panel at PharmaChem Outsourcing 2011. Andrew Warmington reports

Outsourcing is forecast to grow 10% in 2011, but how will this affect CROs, CMOs and the pharmaceutical companies in both East and West? Such was the question asked at one of four plenary panel sessions at PharmaChem Outsourcing (PCO) 2011 in Long Branch, New Jersey, in September 2011.

The event, now in its fourth year, attracts well over 1,000 attendees and over 80 exhibitors. As well as the plenary sessions, it features three days of multi-track panel discussions on issues of interested to the pharmaceuticals and biotechnology sectors and suppliers of contract services, plus exhibitor presentations and other networking. It returns to the same venue on 12-15 September this eyar.

The panel for this particular session was balanced, with three from the world of Big Pharma and three from biotechs or CROs. Naturally they brought different perspectives, but there was also some consensus on where things are going.

The world's largest pharmaceuticals company, Pfizer, had announced a 25% cut in its R&D budget earlier in 2011, API sourcing lead Tom Niemeyer observed. There will be a proportionate fall in funding of clinical projects and thus fewer projects going to CROs. The later stages, with the drastic downsizing of operations at Sandwich, UK, will also see less outsourcing.

"I don't see growth in R&D in most areas, but I do see growing opportunities in areas like formulation, analytical services and possibly also high value starting materials by sending more steps outside before the final API synthesis is done in-house," Niemeyer concluded.

Eric Martin, senior account manager for R&D procurement at AstraZeneca, agreed that Big Pharma's R&D record over the past decade had not been good. A lot of money has been spent but it has not paid the expected dividend and AstraZeneca's pipeline as it faces the impending 'patent cliff' is not as good as it would like.

"It will be a very dynamic market for the whole pharma industry as revenues fall, leading to restructuring," Martin said. AstraZeneca itself closed three R&D sites 18 months ago and has more generally rationalised its portfolio and outsourced resources in certain therapeutic areas.

"Now we are looking for integrated service providers and niche products. Where the market has well-defined capabilities that can make us more flexible, such as in chemistry, toxicology and API manufacture, we will look at externalising more in the future," he added.

Dr Stefan Walke, director of corporate research, said that, as a privately owned company, Boehringer Ingelheim could follow a different path and will focus on its internal R&D capabilities. It does need to find opportunities outside but more as an add-on than to compete with internal capabilities.

"Boehringer Ingelheim is already at saturation point with some outsourcing. Our chemistry outsourcing cannot increase much more but companies that offer, say, biologics or ADME might be used more. Combining chemistry with other activities via integrated services is a clear growth area for us," Walke said.

AstraZeneca continues its R&D at Charnwood but has closed several other sites

Dr Daniel Kassel of Takeda San Diego, the US-based discovery research operation of the Japanese pharmaceuticals firm, commented: "We all need to be smarter about who we work with. The attrition rates on compounds prior to IND must be reduced. We can reduce risk by selecting the right CRO and paralleling the compound development."

The second key thing in Kassel's view is to improve the speed to IND by engaging the right CROs earlier, during lead optimisation, so as to develop the right route quicker. Takeda San Diego's dependence on CROs will probably not change but who it selects will be based on a background of rising costs and falling revenues.

Niemeyer agreed that integrated services are certainly a growing industry trend but Pfizer is only just getting to grips with the concept. As part of its strategy of consolidating its vendor pool, the company is mow moving away from different sourcing teams for each of its financial areas and has set up special sourcing groups for that purpose over the past year or so to source integrated services.

"I see growth in this field. However, CROs generally offer all of the services but are leaders in only one or two each.  For there to be continued growth in integrated services, the CROs will have to build strengths in more areas," he argued.

Kassel and Walke agreed that the idea sounds good in principle but each part of a pharma business has different requests and the communication between, say, their CMC/toxicology and pharmacology groups is rarely good. "Pharma companies need to do a lot better at aligning their needs to enable CROs to offer true integrated services," Kessel said.

"The model sounds great," Walke agreed. "It would be nice to pick experts in each area, but it is already challenging enough to run R&D projects in one location. Breaking it up into multiple projects in different time zones could be a nightmare. It might work for Virtual Pharma companies, but isn't really on for Big Pharma."

Boehringer Ingelheim, Walke added, is consolidating its partner portfolio. This offers benefits in terms of building trust over the long-term. However, this and integrated services do not necessarily mean the same thing. Often, a partner has only one key service that the company needs.

What are the key criteria to becoming a preferred partner? "If I knew that, my life would be simpler," Walke said. "There will always be surprises and working with someone often comes down to gut feeling and a commitment from the sponsor to progress with partnership. A partner can look good on paper and in due diligence, but it can still all go wrong."

Boehringer Ingelheim partners with CROs mostly as an add-on to internal capabilities

AstraZeneca, Martin said, has also been consolidating its supplier base recently so there are relatively few openings now. However, when it does start a new relationship, it usually starts with a small job and builds up the scope of the projects later. "It is a tremendous effort to build a relationship and make it work," he said.

For Takeda, according to Kassel, it comes down to three Cs: confidence, which can indeed be a lot to do with gut instinct, communication skills and cost-competitiveness, though not always in that order. Niemeyer added that cost-competitiveness is increasingly top of the list in the selection process but delivery timelines are crucial too.

"Pfizer has consolidated its supplier base to those who have risen to the top," he said. "There has been an overall decline in the project volume and we are looking to consolidate further still. It is likely that the 10% growth will be distributed mainly among our existing CROs. We are still on the lookout for others to work with and there will be opportunities but getting that first job is becoming more challenging."

From the CRO side, Dr Xiaochuan Wang, CEO of Sundia MediTech, a Shanghai-based pharmaceutical and biotech R&D outsourcing company, said that she had noticed Virtual Pharma as well as Big Pharma consolidating its supplier base. Many too are going to China, where the CRO industry is very competitive. Sundia is seeing increasing demand for pre-clinical studies and IND filing, API formulation, rapid drug discovery and clinical trial-related studies, she added.

"The competition is certainly getting increasingly hard on price. Customers are very stressed on quality, timelines and flexibility," said Dr Bert Friesen of CRO CanAm Bioresearch. Project management, he added, is another issue in integrated services, because Big and Virtual Pharma alike are looking for capabilities like this in order to ensure that everything is done as it should be.

CanAm started out ten years ago focusing on providing chemistry then biology and physiology services. Recently, however, it had focused purely on chemistry because it has seen an ever increasing number of Virtual Pharma customers who cannot afford to set up labs. Generally, CanAm does all of their work, including project management. It is also seeing more and more Big Pharma customers too.

"Cost-competitiveness is important," countered Walke, "but it is secondary in the early phases of drug discovery. Many other factors contribute as well, such as flexibility, timelines and degree of innovation, which are at least equally important." There was no great drift to China and India, he added, but the opportunity seems to be bigger there.

China's cost advantage over the West has shrunk dramatically in recent years

Martin added that he has seen a big levelling in recent years as European costs have gone down and those in China and India have risen. The gap is not nearly as big as it once was. For AstraZeneca itself, China and India are important and the company has its own oncology and infection R&D in China, but it does not choose CROs for their location.

In recent years, Wang noted, the exchange rate to the US dollar had fallen from eight to six Yuan, while the cost base had gone up. In addition, while there are hundreds of Chinese CROs, relatively few are operating to international standards.

"We compete on cost on a worldwide basis," said Friesen. "We have the advantage of a 35% tax credit from the Canadian government and can therefore compete with China and India. We have invested a lot in equipment but are always running hard to keep up. The demand for quality, delivery and timelines is ever increasing. You cannot make a mistake or the client will be gone for good."

To conclude, panellists were asked what they expected to have changed by 2016, especially in early stage development work and clinical trials materials. "There will be a lot more partnering and alliances and less Big Pharma in-house work. And we will look for partners offering flexibility and project management skills," said Martin.

As well as alliances, Niemeyer foresees an increase in academic collaborations and that this will impact the CRO space in the early phases. There will also, he said, be more consolidation or grouping of pre-clinical and clinical work. Instead of different CROs being used for each, they will be brought together more often for reasons of streamlining.

"I wouldn't be surprised to see emerging market CROs consolidate more because only a few measure up to real scrutiny," added Kassel. "I can also see a growing number of providers of pharmacological services, such as new indications for existing molecules, leading to a trend to partnering with all the animal models for a disease."

Walke added that predicting anything in this industry is difficult but added: "The way we think about partnering with others will change. We will have relationships where the links between different partners are integrated so that it's less obvious what is being done where and by whom."

 

From Online Issue: February 2012