Will Providers Compete With Hubs – And Pharma – For Drug Discovery Customers?

By Louis Garguilo, Chief Editor, Outsourced Pharma

Here’s hoping this doesn’t rise to the category of grandiloquent theories, but the convergence of two global trends in drug discovery should be considered by business strategists at outsourcing providers as well as pharma sponsors.

First, all roads lead to hubs. From Boston to Beijing and Munich to Melbourne, proximity is promise.

Second, pharma is reaching into academia and out to startups with a renewed dynamism in their efforts to refill pipelines.

Combine the two – locate pharma assets within life sciences clusters to be closer to academia investigators and start-ups – like Bayer has done in Mission Bay, San Francisco, and drug discovery outsourcing providers might get squeezed out of new market opportunities. What is at stake? Potentially a lot: According to the newly released Life Science Leader supplement on CRO Research, 93% of biotechs and pharma companies on average say they engage providers for target identification; 94% for lead identification; and 85% for lead optimization.   

The Hubs: Be There or Be Square

Biotechnology hubs are not new. But these geographically defined clusters are reaching new peaks of energy and investment. They are becoming more inclusive of all activities and capabilities within their “zone,” and exclusive to those without. Within, everybody is talking to everybody else. The operative word here is “talking,” as in face-to-face over coffee or the lab bench top. In a world flattened by the Internet and mobile communications, the local pub and biotech incubator are flourishing. If outsourcing providers are not physically present, will they be left out of the conversation? 

A BioSpectrum article of August 12 says, “While technology and communications have allowed for truly global collaborations to take place, the more traditional networking platform based on physical proximity—clustering—remains a key component of the development of biotechnology activity. The universe of these clusters is growing, with new areas approaching critical mass in several locales outside of the US, mostly centered in Europe.”

Regarding cluster emergence in Europe, in an article I wrote for an upcoming CRO/CMO special report in Chimica Oggi (Chemistry Today), it is posited that if discovery service providers there could take advantage of “near sourcing” – the propensity to stay local – they could regain sales momentum and revenues.

Elsewhere, China’s life sciences clusters are seeing a growing muscularity. Originally benefiting from Western pharma’s willingness to travel the distances for its outsourcing services – arguably the overriding industry trend of the 2000s – China is now also a benefactor of near sourcing. What are the odds that if companies in these biotechnology clusters decide to outsource, they won’t do so close to home? For example, according to an analysis in GEN, Shanghai’s Zhangjiang Hi-tech Park in the Pudong New Area, nicknamed “Drug Valley,” is home to more than 250 life sciences companies. These include global pharma companies “and more than 110 indigenous CRO or outsourcing firms, novel drug discovery firms, contract manufacturers, and others.”

According to a recently released JLL 2014 Life Sciences Cluster Report, which measures Patent Cooperation Treaty (PCT) application data to gain insight into which countries might become the leaders of tomorrow, “applications (for new chemical entities or NCEs) by region has started to show some dramatic shifts.” The report says although the U.S. remains very much at the top of a country-by-country list, in recent years all of Asia surpassed North America and Europe in the number of overall patent applications.

Some of this trend is assigned to the formation of life sciences clusters throughout that expanded region. At the same time, and somewhat incongruous, there appears to be comparatively stilted discussion on how discovery service providers can capture these increasing global opportunities at their local sources.

And this leads us to the investigation of our next trend.

 Pharma Moving In Next Door

Starting in 2013, GSK has invited university-based investigators to enter its Discovery Fast Track contest in an effort to directly assist with interesting concept-stage drug discovery projects. Although not strictly geographically based, it is an example of pharma working more directly with academia to help fill its pipeline. Pearl Huang, Ph.D., vice president and global head of GSK’s Discovery Partnerships with Academia (DPAc), in our recent article about the program, describes the company’s thinking. “The last two and a half years we have reviewed over 1,300 opportunities, and started 14 programs, so our hit rate is about 1 in 100. So when 99 percent of your time is spent on something that ends up not as productive as you would like, you have to find a new way to do it,” she says.

Increasingly, the new way is for pharma to get closer to drug discovery investigators. With this, it is plausible that programs pulled into and advancing collaboratively with pharma – good things for the investigators and pharma – might actually decrease future opportunities for outside discovery service providers.

Pharma has in fact been looking for ways to get more from relations with academia for quite a while. Last year Outsourced Pharma featured an article about Eli Lilly in which Andy Dahlem, vice president of Lilly Research Lab (LRL) Operations and LRL Europe for Eli Lilly, said the following about a new type of partnership with academia: “This is not traditional outsourcing. This is partnering with outstanding innovators around the globe in a more committed fashion to discover and develop new medicines. We need to align our interests to produce meaningful outcomes for the research they do.”

Bayer Healthcare offers a perfect example to illustrate the trend of pharma's immersion into a local hub. It placed its U.S. drug discovery headquarters, and created the CoLaborator, an incubator for startups with interesting technologies, in the vibrant Mission Bay, San Francisco, life sciences ecosystem. (Stay tuned for an in-depth article on the CoLaborator in October.) To the extent possible, Bayer scientists now working directly with the biotech community might stay in-house (or in-community) to advance those programs. Moreover, when they do contract outsourcing services, will they favor providers located in or nearby the cluster? There is little reason to think they won’t.

The convergence of the accelerated, global growth of life sciences hubs with pharma’s increased localization and outreach strategies for academia and start-ups will impact outsourcing dynamics. CROs may find that to compete for new business, they will need to become the next neighbors within life sciences ecosystems.