By Deborah Borfitz

October 15, 2012 | Life science vendors must become more strategic and price-sensitive to “stay in the game” with their clients in the trillion-dollar drug development industry, says Andreas Scherer, managing partner at consulting firm Salto Partners. The industry consensus is that drug research takes too long and has grown unsustainably expensive.

The Tufts Center for the Study of Drug Development pegs the average cost of getting a drug approved and ready for market at a staggering $1.3 billion but, factoring in failed drugs, the figure is easily more than three times that amount, says Scherer. Across the major pharmaceutical companies, research spending correlates haphazardly with output.  Between 1997 and 2011, AstraZeneca spent nearly $12 billion for every new drug approved while Amgen spent just $3.7 billion, as recently reckoned by the InnoThink Center for Research in Biomedical Innovation.

A webinar hosted by Scherer in June instructed a global audience of life science vendors how to position themselves for success in this financially stretched and rapidly changing business environment.  He began by identifying the three major ways life science companies are reinventing themselves:

• Alternative financing. The traditional funding model, which uses existing medicines to sustain new drug candidates, runs short on cash when pipelines are thin. So companies are increasingly seeking external funding via collaborations with biotechnology firms and academia as well as single-asset companies financed by venture capital, angel investors, and—in the future—crowdfunding. Merck Sorono and Novartis each have their own corporate venture fund. Biogen and Pfizer have each launched a startup incubator program. GlaxoSmithKline, Novartis, Eli Lilly, and Roche collaboratively support Aileron Therapeutics, which is working on a new class of drugs called Stapled Peptides.
• Improve research and development (R&D) productivity. The options include expanding the pipeline via mergers and acquisitions (M&As). This allows pharmaceutical companies to enhance their worldwide distribution system and create synergies between manufacturing, R&D, sales, marketing, human resources, and information technology (IT). M&As are popular—over 19 major transactions were completed between March 2007 and February 2012—but create a new set of business-slowing challenges that include cultural clashes and potential over-estimation of the combined pipeline.
• Outsourcing. Global pharmaceutical firms have for years outsourced most forms of IT and, in more recent years, added accounting and human resources to the list. In the realm of R&D, outsourcing of pre-clinical and clinical trial work is commonplace while outsourcing of product registration work remains exploratory. Despite concerns about the visibility of project status and higher-than-anticipated costs, life science companies are poised to outsource more. Pfizer last year hired an executive from ICON, a clinical research organization (CRO), as part of a major restructuring and coordinated outsourcing strategy. Life science companies, in general, have “much more of an appetite for fee structures with a component of shared risk [with CRO partners].”

Enabling TechnologiesProductivity gains are facilitated by a number of technologies. Cloud computing, in particular, has emerged as an answer to the industry’s budgetary challenges, says Scherer. “Large [pharmaceutical and biotechnology] companies are trying research applications in the cloud and shedding staff at a high rate. Small to medium sized companies that rely heavily on next-generation sequencing technology are key candidates for cloud computing services, since there is a scarcity of financing.” Demand is also high among small labs and departments, he adds.

Amazon, IBM, Google, and Microsoft now all have cloud-based solutions, says Scherer, and Oracle recently acquired one from ClearTrial. Cloud-based technologies aid the adoption of adaptive clinical trials, which in turn result in better dosing levels, practical sample sizes, and potentially substantial time savings.

Enterprise project management software is proving instrumental in reducing cycle times and improving on-time delivery, making it an enabler for outsourcing, continues Scherer. Simulation and predictive modeling is reducing the duration of studies, reducing the cost of suboptimal compounds, and identifying additional indications and adverse events early on. “It’s all about catching signals.”

All Eyes on ChinaIncreasing numbers of clinical trials are being conducted in emerging markets as a means to speed recruitment, decrease cycle time, lower cost, and gain market access, says Scherer. Mature markets—U.S, Europe, and parts of Asia—have 1.5 billion potential patients, but “slow growth potential. The next billion will come from emerging markets.”

China provides a “critical window of opportunity” because the pharmaceutical sector is being actively fostered, says Scherer. Therapeutic development is predicted to grow 24% annually until 2015 and 21% annually thereafter until 2020.

Per the requirement of the State Food and Drug Administration in China, at least one clinical study of a drug must be conducted locally before it will be approved for sale. “Navigating the regulatory pathway can take…a few years,” says Scherer. Many life science companies are already reaching out to local CROs in China to conduct those studies and contract manufacturing organizations to handle drug management.

And the Winner Is?For vendors, succeeding in the life sciences requires tying their “enhanced value proposition” to the technologies and strategic issues of life science companies.