A custom collaboration with: Quintiles
From Virtual to Vertically Integrated
The business models that could facilitate personalized medicine might end up as individualized as the treatments. Today’s options range from a virtual pharmaceutical company, like Celtic Pharma in Bermuda, to the vertically integrated companies often called simply “big pharma,” like Pfizer and Merck. These two ends of the pharmaceutical business–model spectrum, as well as the endless options in between, all come with specific advantages and disadvantages. In fact, it is even possible to build a pharmaceutical company that sidesteps profit (see “Putting Compassion behind Compounds”).
In today’s world of online businesses, it’s no surprise to see virtual pharmaceutical companies like Celtic, which was started by two investment bankers. Rather than building an extensive and expensive R&D team, Celtic relies on the work of others, and then buys the rights to products at the late clinical stage. Then, Celtic outsources clinical trials, manufacturing and marketing the launch of a drug. As the company’s Web site states: “Celtic Pharma is pursuing a rigorous ‘virtual pharma’ model of outsourcing for all activities except strategic decision making, regulatory interactions, contract negotiations and project supervision.” Then, Celtic auctions off the drug to a brick-and-mortar pharmaceutical company.
Large pharmaceutical companies might also benefit from increased outsourcing. Clearly, some of these companies are looking for ways to reduce costs. For example, AstraZeneca, GlaxoSmithKline and sanofi-aventis recently announced cuts in their R&D budgets. But that choice, says Novartis chairman Daniel Fasella, can easily prove self-defeating, leading to a situation in which “you have no sales anymore.”
So although the passing of the blockbuster era leaves vertically integrated pharmaceutical companies suffering under their own heavy budgets, they must think carefully to find efficient and economical ways to reduce spending. Some companies select mergers, as evidenced in 2009 by Pfizer joining with Wyeth and Merck purchasing Schering-Plough. Mergers will also be complemented with acquisitions—a trend that is likely to continue. On May 17, 2010, international intellectual property group Marks & Clerk in London reported that a survey of 381 biopharmaceutical executives found that 7 out of 10 expect acquisitions to be substantial in the next two years.
Nevertheless, most pharmaceutical companies lie in between the totally virtual Celtic and merging, multinational giants. All of these companies, though, can usually benefit from a similar tactic: the increased use of contract research organizations. Traditionally, pharmas engaged contract research organizations (CROs) for single tasks— clinical trials or process development, for example. Now, however, the contract companies offer entire suites of services, from drug discovery all the way to manufacturing. And contract manufacturing is growing rapidly on a global level, particularly in the biologics arena. Lonza Biologics, for example, plans to extend its manufacturing facilities from New Hampshire to Singapore and Spain.
Still, the current model of outsourcing needs substantial improvement, according to Michael King Jolly, head of Quintiles’s innovation business unit. Requests for proposal (RFPs) issued to CROs for provision of services are usually based upon internal—often erroneous—assumptions concerning feasibility, Jolly points out. Moreover, he says, “The RFPs are issued just prior to the need for such services—and hence on the critical path, with little opportunity for readjustment—with overall timelines already having been committed to the pharma company’s senior management.” CROs generally have significant insights into program feasibility based upon experience with patient availability and access, competitive trials in process, study design, inclusion and exclusion criteria, study budget, and logistical considerations, which Jolly says “should best be accessed far upstream to the RFP response point in the current process.”
To give CROs more responsibility, they need to be brought into the process sooner. Some companies already do just that. “We partner with the pharma company six to nine months prior to the time at which RFPs are usually issued, under a planning and design work order,” Jolly says. There’s even evidence that this approach can benefit both a pharma and a CRO. As Jolly concludes, “To date, such pilots have demonstrated that operational execution risk is lowered, program feasibility has been enhanced, and change orders/budget variance have been significantly reduced.”
The process of developing therapeutics has multiple expense points, which will undoubtedly change as new business models replace old ones. Here is a snapshot of the current major expenditures related to the bench-to-bedside enterprise.
© 2010 Scientific American,
a division of Nature America, Inc.
All Rights Reserved.