As pharmaceutical R&D outsourcing continues to grow, contract research firms are redefining the one-stop shop
By Rick Mullin
Chemical and Engineering News
Volume 90 Issue 39 | pp. 11-16
Issue Date: September 24, 2012
The merits of the one-stop shop is a topic of perennial debate in business management circles. On one side of the argument is the proposition that a vendor’s full menu of services or products allows customers to consolidate suppliers. The other side argues that no one supplier can deliver the same high level of quality and service for each item on the menu.
The one-stop-shop approach has been tried in nearly every business endeavor, from retailing, where big-box stores hold sway, to the chemical industry, where the track record for companies trying to add pharmaceutical chemical manufacturing expertise has generally been poor.
Now, pharmaceutical research service firms are setting up one-stop shops. Spurred by the rampant outsourcing of research by large drug companies and drug development successes at emerging and virtual pharmaceutical companies, several contract research organizations (CROs) have acted to strengthen offerings, combining chemistry, biology, and physics to stretch from discovery to commercialization.
Large CROs that traditionally worked in late-stage drug development have moved to establish medicinal chemistry labs for drug discovery. In several cases, CROs have achieved a broad expansion of services by acquiring research facilities from drug companies looking to outsource the science.
The old debate over one-stop shopping has, however, become more nuanced in the current pharmaceutical industry environment. Service firms and their customers agree that much of the decision making comes down to where to outsource workhorse chemistry and where to outsource frontline science. Sources agree that a market still exists for boutique CROs that focus on one node along the discovery/development continuum. And some drug firms say they are working with more than one full-service vendor, negating the supposed advantage of one-stop shopping.
“The one-stop versus the niche supplier is the wrong debate to have,” says John Watson, chief commercial officer at Covance, a leading contract research firm. Customers are not choosing between one and the other, he says, and many employ both. Service providers “are making a business model decision,” he says. “Someone with a passion for a niche, say Phase I through proof of concept, with no desire to offer a one-stop shop, makes a business model choice. There is nothing wrong with that.”
Still, Covance has chosen to pursue the broadest array of services, offering them as a package or individually, according to customer preference. And its approach has been to take advantage of research and manufacturing cutbacks among major drug companies by acquiring their sites in the U.S. and Europe.
Covance’s first big move was the acquisition of Eli Lilly & Co.’s Greenfield, Ind., research complex in 2008. Covance paid $50 million up front and signed a 10-year research services agreement with the drug company. The move extended Covance’s reach considerably beyond what had been its purview of supporting customers in late-stage clinical development.
“When we purchased the Greenfield site in 2008, we had been looking at the discovery space,” Watson says. The firm was interested in adding high-throughput screening and combinatorial chemistry to its services roster, and it saw in the Lilly site much of what it needed. The purchase brought toxicology assessment, in vivo pharmacology, imaging, and other discovery-based technologies as well. “We moved further upstream, back to lead optimization,” he adds.
The one soft spot, he says, remained active pharmaceutical ingredient (API) manufacturing, but the firm is strengthening its manufacturing support via the 2010 acquisition of two research facilities with preclinical API manufacturing capacity from Sanofi. Covance paid Sanofi $25 million for sites in Porcheville, France, and Alnwick, England, as part of a 10-year research pact in which Covance will provide drug development services worth up to $2.2 billion.
For Covance, success hinges on integrating science along the drug development continuum while still offering services a la carte. “Often people will look at the one-stop shop in very simple ways, such as vendor consolidation,” Watson says. “But other things make it more interesting. It’s not just the ability to deliver a number of different services, but the ability to leverage and manage all the aspects that go into moving a drug candidate or molecule in the absolute best manner.”
Project-management-based service also allows CROs to work with other CROs, Watson says. For several years, for example, Covance used Almac Sciences in Craigavon, Northern Ireland, as an API manufacturing partner—an arrangement that ended after Covance acquired the Sanofi sites.
At about the time that Covance purchased the Sanofi plants, Almac was launching a project management program in its own effort to market end-to-end discovery and development services.
Almac’s Rapidd program combines the services of the company’s API manufacturing unit with its pharmaceutical development, analytical, and clinical services groups. According to Denis Geffroy, vice president of business development, Almac uses Rapidd to move a molecule from early-stage development to Phase I safety trials in humans by manufacturing both the API and the finished drug. These are the functions drug companies are most interested in consolidating with one CRO, he says.
The program was conceived three years ago, Geffroy recalls, when a drying up of early-stage development business forced the firm to emphasize its later-stage services. The early- and late-stage services converged into an integrated research offering. “The groups learned a lot from each other,” he says, noting that all of them were already operating at Almac’s main facility near Belfast, Northern Ireland.
And the consolidated services have become a key marketing tool in today’s more thoroughly outsourced pharmaceutical industry. “Clients are looking at efficiencies and time and cost savings,” Geffroy says. “They want to avoid delays.”
Aptuit, another CRO that advertises a one-stop-shop approach, amassed its offerings over the past seven years primarily via acquisition—most recently the purchase of GlaxoSmithKline’s R&D facility in Verona, Italy. In a deal similar to Covance’s Greenfield acquisition, Aptuit took over the Verona site and its scientists and entered a preferred-provider agreement with the original owner, explains Chief Operating Officer Stuart E. Needleman.
The Lilly and GSK deals also illustrate the demand for outsourced R&D services among large drug firms. “Customers have reduced staff, so there are fewer people and more projects,” Needleman says. Early-stage development programs are increasing at the same time that in-house organizations dedicated to these projects have disappeared or transferred to late-stage development. “Clients are now more receptive to a CRO with one team. They need quality, science horsepower, and a team approach.”
For Aptuit, the team approach is built on a string of global assets acquired since the company was founded in 2005 by former executives of the drug development and manufacturing firm ChiRex. Aptuit purchased EaglePicher Pharmaceutical Services, an API manufacturer; SSCI, a solid-state product development firm; and the chemical and pharmaceutical development business of Evotec in Oxford, England. Aptuit also invested in India’s Laurus Labs. Earlier this year, the company sold its clinical services division to Catalent for about $400 million.
“Aptuit built off a platform of acquiring integrated drug development pieces, demonstrating that those pieces were not discrete,” Needleman says. The company is able to offer coordinated analytical services, API manufacturing, and formulation chemistry. “The value to the client is speed, flexibility, and having one management team,” he says.
Not surprisingly, several full-service CROs are located in China, where companies have sprouted up to serve drugmakers seeking a low-cost alternative to in-house research. The largest of China’s CROs, WuXi AppTec, has also grown via acquisition. WuXi acquired AppTec in 2008, giving the company three U.S. facilities with in vitro and in vivo biocompatibility testing, microbiology services, and bioanalytical and cell biology expertise. The firm, with annual sales of more than $400 million, is also building a biologics manufacturing plant in China.
Richard M. Soll, WuXi’s senior vice president of integrated services, says the firm does not market itself as a low-cost Chinese service provider. Nor does it limit itself to the workhorse chemistry that is generally outsourced to Asia. “Many people don’t appreciate that we are rich not only in small molecules but also in biologics and medical device testing,” he says. WuXi operates eight campuses in China, and many of its operations are certified by U.S. and European regulators, Soll points out.
“Outsourcing to China or elsewhere has many different aspects,” says Hui Cai, WuXi’s vice president of corporate alliances. “The advantages relate to infrastructure costs, flexibility, and resources.” Like other broad-spectrum service firms, WuXi offers services individually or bundled, according to Cai. “Our vision is of an open-access platform,” she says.
The company is continuing to add services in areas such as transgenics, Soll says, pointing to a deal with Open Monoclonal Technology to develop fully humanized antibodies using transgenic rats. More recently, WuXi formed a joint venture with MedImmune to develop and commercialize MEDI5117, a biologic for autoimmune and inflammatory diseases, for the Chinese market.
Despite the trends fueling consolidation of research services, many companies are still averse to moving outside their realm of expertise. Kalexsyn, formed in 2003 in Kalamazoo, Mich., by former Pharmacia researchers, has stayed focused on medicinal chemistry in early-stage discovery. Chief Executive Officer David Zimmermann says the firm, with annual revenues nearing $6 million, is under no competitive pressure to broaden its service offering, and he questions whether the larger, more diversified CROs can compete with specialists on chemistry, especially in discovery.
“There are very good synthetic capabilities within a number of CROs, but I don’t think a lot of CROs offer intuitive, novel science the way I know our scientists are capable of doing,” he says. “When we founded the business, it was really to bring that unique skill set to pharmaceutical and biotech companies, mainly smaller ones that did not have the desire or means to build infrastructure and recruit world-class scientists.”
Kalexsyn generally works with smaller companies that come with molecules that need to be optimized for solubility, selectivity, and safety, according to Zimmermann. “We practice hypothesis-driven drug discovery,” he says.
Similarly, Alphora Research, a contract research firm in Mississauga, Ontario, works only on API development. “We are focused on process chemistry, analytical development, and taking the API into the clinic,” says Geoff Evans, vice president of business development.
Evans says the one-stop-shop CROs actually create a need for specialists such as Alphora to fill gaps. “It is very hard for these one-stop shops to be good at everything,” he says. He adds that acquisitions don’t quickly lead to a truly integrated service offering, given the time it takes to reconcile systems, workforces, and business cultures.
Alphora prides itself on being able to integrate its services with both a customer’s operations and other research partners, Evans says. “We have a network of suppliers and people who take our APIs and process them further.” He argues that it is easier for specialist research firms than one-stop shops to build relationships with other experts that might be needed. “A WuXi internalizes all of this, while we externalize it,” Evans says.
Other specialist firms create formal partnerships. For example, Molecular Profiles, a U.K.-based research services company, recently announced agreements with Onyx Pharmaceuticals, a medicinal chemistry development specialist, and MedPharm, a U.K. drug development firm.
“We operate in a very specific time frame in the development life cycle—early preclinical to clinical Phase II,” says Andrew Parker, senior business development manager at Molecular Profiles. “We have the ability to do preclinical chemistry materials control, formulation development, manufacturing of materials for preclinical and clinical trials, and some testing.” But the firm needs support at early stages of development and in moving projects into the clinic, he says. Onyx provides incoming support and MedPharm provides it on the way out, Parker says.
Molecular Profiles was spun out of the University of Nottingham in 1997 with expertise in linking drug function and structure, Parker says. In recent years the firm has added manufacturing capacity of up to 10 kg. But Molecular Profiles will look to outside partners to extend its reach further along the drug development continuum, he says. Parker emphasizes the need for firms that can bring deep, targeted expertise at particular steps in the process of bringing a drug to market.
For DavosPharma, which began as a chemical importer in the 1970s, research service integration is a matter of configuring teams of independent firms for its clients. Working as a kind of virtual CRO, Davos targets projects in early development through a Food & Drug Administration New Drug Application, according to President H. Barry Robins. The company works with several CROs in the U.S. and Europe on a project-by-project basis. Davos invested seed money in Anthem Biosciences, an Indian drug discovery services firm, in 2008.
The virtual CRO model, Robins says, affords greater flexibility than a one-stop-shop approach, because Davos can bring in appropriate levels of expertise at each step of a development program. He questions whether large companies such as WuXi can offer a uniformly high level of service. “We have stayed virtual,” he says. “We have looked at a lot of companies that we might have bought, and salivated over some of the potentials, but have chosen not to.”
Drugmakers large and small agree that the number of full-service CROs from which to choose contract research services continues to grow, fueled primarily by the big surge in outsourcing. “A lot of what we do is being virtualized now,” says William Murray, head of chemistry for cardiovascular and metabolics research at Janssen Pharmaceuticals, a division of Johnson & Johnson.
Approaches to outsourcing vary across Janssen, Murray says. “It depends on which part of the company you are in. Some of our therapeutic areas have gone with the one-stop shop, and some have contracts with WuXi well into development. They are a good company, but my view is that it’s nice to have a number of CROs. I think it’s probably a good idea to have partners in a couple of different countries, and maybe one in the U.S. as well.”
Many of the specialist CROs are focused on preclinical development, Murray observes, requiring drug firms to supplement them with later-stage support. He says small research providers are generally trying to expand their coverage. But what matters most to Janssen is its ability to select services when and where needed.
Not every drug firm is scaling down internal research. Sonia Pawlak, manager of strategic outsourcing in chemical development at Gilead Sciences, says drug companies with fully developed R&D operations will likely not see much advantage in working with a one-stop-shop contractor.
Instead, Gilead tends to work with specialist service firms. “We use CROs for multiple reasons: where we don’t have the skill or capacity, where we have more projects than we have people or space in our plants,” she says.
Geographic proximity to a service provider is important to Gilead, Pawlak adds, questioning whether linking research and manufacturing assets on different continents saves the customer time.
Epizyme is typical of an emerging pharmaceutical company that meets its needs for research services with a mix of broad-spectrum and specialized CROs. Robert A. Copeland, chief scientific officer, says the firm has been working with WuXi since 2009.
“Initially, it was exclusively for synthetic chemistry,” he says, “but it has grown to include a number of different services related to drug discovery and development, including in vitro and in vivo drug metabolism and pharmacokinetics studies, biochemical assays, compound synthesis, and solubility studies. And we are exploring with them the possibility of doing some animal efficacy studies.”
But Epizyme is not handing full development programs over to WuXi, Copeland stresses. The company works with a variety of service firms in the U.S., Europe, and China, including specialists. Epizyme, for example, has a contract with Kalexsyn. “We have no one-stop-shop CRO,” he says.
Copeland says Epizyme has strived since its inception to find the right blend of internal and external research. Early-stage biology and medicinal chemistry are done in-house. Work is transferred to a CRO once Epizyme’s scientists have designed a molecule and developed a standard protocol for synthesizing it. With that handoff, he says, the company has an eye on not only development but also manufacturing support.
The trick for both CRO and drugmaker is to ensure integration of services, especially at the junctures of research and development, manufacturing, and commercialization. These are junctures that aren’t easy to bridge. For example, although Epizyme works with WuXi, it has yet to contract with a CRO for integrated discovery and development services. “We have just not found that to be cost-effective,” Copeland says. “But we are keeping our eye on it to see if there are opportunities down the road.”
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