The pharmaceutical industry is limping a bit, especially in the West. Some of its biggest-selling drugs have been brought down or impugned by scandal — painkillers linked to heart attacks, antidepressants blamed for increasing the risk of suicide — and new drugs are oozing ever more slowly out of the pipeline. In response, many companies want to speed up drug discovery yet cut costs at the same time.
The way to meet these seemingly mutually exclusive goals may lie through global outsourcing. Other industries, such as finance and manufacturing, have been hiring workers in foreign countries for years, saving money on wages and benefits. In Britain and the United States, consumers have come to expect their customer-service calls to be answered by staff in India.
Some drug companies have relocated administrative tasks, including payroll and computer support, overseas. A report from management consultants A. T. Kearney, published at the end of last year, said that the top ten drug companies could save US$8 billion in ten years of outsourcing "general and administrative" tasks globally. Drug manufacturing, too, is increasingly being moved abroad.
A substantial number of companies are now also outsourcing hard science. Although early drug discovery is still mostly domestic, everything in the pipeline after that — from early development to clinical trials — can be farmed out. Companies are understandably cagey about discussing what parts of their operations they are outsourcing, and even what to call their far-reaching international workforce strategies (see 'Other arrangements'), but the trend is clear to industry observers (see box 1).
Growth industry: GVK Biosciences in Hyderabad plans to double its staff.GVK BIOSCIENCES"We are in the early part of the wave as far as outsourcing to India and China is concerned," says Nailesh Bhatt, chief executive of Proximare, a consulting company in Franklin Park, New Jersey, that helps drug companies to outsource. The impetus for technical outsourcing is a combination of cost-cutting and scientific supply and demand.
Chemistry provides a good illustration of India's attractions, in both economic and scientific terms. Bhatt estimates that the salary, overheads and benefits for one freshly minted American PhD come to an annual figure of $230,000. An Indian scientist would cost about a third of that.
Breaking the Bottleneck
But the issue isn't just cost, says Sam Tetlow, a principal at Research Triangle Ventures, a North Carolina venture-capital firm. Tetlow interviewed 72 drug and biotech companies in the United States, Europe and Japan to find out about their outsourcing plans and experiences. "There are hardly any chemists in the world, and that's where the bottleneck is," he says. Meanwhile, 122,000 chemists and chemical engineers graduate in India each year, according to the Kearney report. In the West, there has been a consistent shortage of medicinal chemists over the past several years (see Nature 424 594–596; 2003).
India is especially suited to fill this gap, thanks to international trade law. For years, Indian chemists were kept in demand by a lucrative trade in reverse-engineering popular drugs to make generics, says David Templeton, who represents the Indian company SIRO Clinpharm in the United States. That changed on 1 January, when India fully joined the Trade-Related Aspects of Intellectual Property Rights agreement (TRIPS). This closed the legal loophole that allowed India to make generic versions of drugs still under Western patent protection. Now many of the Indian drug firms that used to make generics are turning to contract research and manufacturing.
First in line: India is increasingly the destination of choice for drug companies seeking to outsource elements of their operations.D. H. WELLS/CORBISMany contract research organizations (CROs) work on the process of figuring out, step by step, what a drug does in a person's body in order to prove both that it is safe, and that it has some effect. Half of the companies that Tetlow talked to plan to outsource at least 80% of this work by 2008.
Another hot area is animal-model pharmacokinetics, using animal models of human disease to see how drugs metabolize within the body before they are tested in humans. Also popular is lead optimization, putting promising compounds through their paces to see if they are worth developing. These two processes weed out drugs that looked promising in screens or in animals but don't work in humans, preventing costly human trials that are doomed from the beginning.
Sanjay Reddy, chief executive of Hyderabad-based GVK Biosciences, stresses that the next challenge for Indian CROs is to stop promoting themselves in terms of cost savings and start stressing their value-adding expertise. His company serves seven of the biggest ten drug companies, he says, and specializes in medicinal chemistry, cheminformatics, bioinformatics and clinical research. He hopes to double the number of scientists working for him in the next year, and expand to cover discovery, preclinical, clinical and chemical development. "It's a very exciting time," he says.
At Dr Reddy's Laboratories in Hyderabad, Anji Reddy is prepared to adjust. "From generics to new drugs, from imitation to innovation, is a big leap but there is growing optimism that Indian companies have an opportunity in the R&D space," he says.
Growing Pains
There are, of course, disadvantages to outsourcing preclinical work abroad. Doing business half-a-world away is not easy. Keeping in verbal touch with your partners means waking up early or going to bed late.
As in the beginning of all things, there is an ad hoc feel to some of these arrangements. As time goes by, drug companies will formalize their strategies, Bhatt guesses, and CROs will be more stable. "These companies are just getting started," he says.
Chris White of A. T. Kearney agrees that the industry is still exploring outsourcing options. "They are really just trying to show proof-of-concept and work out the bugs," he says. But along with other observers, he feels that an increase in outsourcing is inevitable. "Those that don't follow the pack will be left behind," he says.
According to his survey of drug companies, Tetlow says, the number-one reason for outsourcing in general is "focusing on core competency". In other words, it makes sense for these companies to stick with the things they do well, and hire out the rest.
This suggests a natural limit to outsourcing. There is some work that is so essential to what made a company successful in the first place that it would make no sense to hire someone else to do it. And there might be some projects so classified that companies would want to keep them close to the chest.
Biotech outsourcing stays domestic
Big drug companies are not the only outsourcers, according to Sam Tetlow of venture-capital firm Research Triangle Ventures. Biotech companies are nearly as enthusiastic, although they are not going abroad so much. Biotechs are usually small and don't have the staff to do everything themselves. They also work notoriously close to the bone, and the cost savings to be made offshore are tempting.
Tetlow points out that partnering with established companies can increase the credibility of a scrappy start-up. In a survey he did of biotech companies around the world, he found that they were more likely than the big drug firms to list "utilization of external expertise" as their top reason for outsourcing.
EMMA MARRIS
Other arrangements
Drug companies are opening facilities in India and establishing different models of collaboration. AstraZeneca recently opened a research centre in Bangalore specializing in tuberculosis. Carol Cruickshank of management consultants A. T. Kearney was duly impressed when she visited the centre during a trip to India to look at the outsourcing picture. "If you were dropped by helicopter into that facility, you'd have no idea you were in India," she says. "It's nicer than AstraZeneca's facility in Wilmington."
Since October 2003, GlaxoSmithKline has had an agreement with Ranbaxy Laboratories in New Delhi to do drug-discovery work. For GlaxoSmithKline, it is one of a number of international collaborations that set up what spokesman Rick Koenig calls an "alternative drug-discovery initiative" to complement its in-house efforts.
EMMA MARRIS
