Over the last two decades, the Pharmaceutical industry has seen a radical change. The unprecedented downsizing of the internal discovery of big pharmaceuticals, patent expiration, shift towards biologics have seen a surge in the externalization and outsourcing activities. As the industry is looking for new sources of discovery and innovation with limited resources, there is a growing preference to move towards externalization and willingness to embrace the concept of outsourcing.
Seven drugs of the current top- 10 best selling drugs are biologics, the penetration of biologic drugs is expected to reach 30% by 2020 of the global pharmaceutical market and some of the key modalities include monoclonal antibodies, recombinant proteins, peptides, cell and gene therapy products. Global R&D spend in the biopharmaceutical industry is estimated to be $194 billion in 2016 and according to industry experts, 75-80% of the expenses can be outsourced. However, current penetration rate is around 58% which presents a huge opportunity for the CROs to tap the Trends in Drug Discovery Outsourcing: A Perspective market. The global pharmaceutical outsourcing market was estimated to be $113.7 billion in 2016 and out of which 49% is accounted for CROs. Among the $55.7 billion CRO market, 31.2% accounts for discovery-based service i.e. $17.4 billion in 2016 and the remaining 68.8% accounts for Preclinical and clinical services.
Biology related services segment is a high growth area with huge potential and expected to grow faster at a CAGR of 17.2% compared to the small molecules segment due to increase in budget allocations for R&D by biopharmaceutical companies.
The drug discovery CRO industry is witnessing increased consolidation. Many Asia-based companies are increasing their foothold in Europe and North America. GVK BIO, a Contract Research & Development Organization (CRDO) from India has taken over Aragen Bioscience. Aragen has early stage discovery biologics capabilities and played a leading role in oncology and fibrosis based animal models for preclinical biotechs in bay area. Similarly, ChemPartner established research facility in South San Francisco. Also, WuXi AppTec acquired HD Biosciences (HDB), a biology focused preclinical drug discovery CRO.
Advancement in drug discovery technologies such as iPS cells, automated high content screening, patch clamp, gene editing and DNAencoded libraries have expedited the drug discovery process with increased efficiency. There is an increased interest in the use of DNAencoded libraries (small molecules tagged with DNAs) by major pharma companies.Majority of the companies offering DNA-encoded library services are from US (DiCE, X-Chem, Ensemble therapeutics) and Europe (Nuevolution, Vipergen, Cominnex, Philochem). There seems to be very little competition in APAC. This trend should push some of the CROs from APAC region to acquire companies with proprietary technology in DNA-encoded libraries or to build capabilities and this seems likely to be a focus point for majority of the CROs especially from APAC.
Evolving business models including risk-based and insourcing are facilitating better collaboration between pharmaceutical companies and CROs. Some of the companies established a new business model known as insourcing which is a new sourcing for pharma where CROs work on-site at customer location in an integrated fashion. This new model provides outstanding performance with efficient cost and time.
CROs should build capabilities to differentiate in the area of Target Identification/Target Validation on how to use human disease pathology knowledge/primary tissues from humans clubbed with Omics knowledge to further validate the concepts. As most of the CROs propose targets from literature and sponsor companies consider it as risky option to invest in such projects without substantial evidences. As a de-risking strategy some CROs are investing internally and validating the concept by siRNA, knockdown approaches and take the concept to a level-up and then approach the sponsors companies who are working in similar area. This approach would increase the sponsor confidence in the CRO program.
There is a huge demand for the novel therapeutics addressing the unmet needs, for example, there are no FDA approved drugs or any therapies for NASH treatment and there is a tremendous opportunity for CROs to work on novel tar...
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