While the cost of drug development in the United States continues to grow, sector participants face other serious regulatory, pricing, and competitive threats. What that means is that the pharma/biotech sector is seeking opportunities for outsourcing some of the business processes (particularly the more expensive ones like analysis and testing). But before we discuss what strategic growth opportunities are available, let us review some of the facts about the sector:
I put the growth opportunities in three broad categories:
Solutions: This is the highest value category. What you do is to take a block of business processes within the firm that can be done independently (without requiring daily interaction with the drug company) and then develop a complete solution that you can present to the potential customers as a package. In most cases, you can even have multiple customers as long as you can take care of potential conflicts. This path is also the most preferred option by the drug companies because it makes life easy for their scientists who can then focus on more high-value tasks.
Services: This could include a range of services: analytics, testing, paperwork for dealing with regulatory agencies such as the FDA, market research, strategy, portfolio management, regulatory compliance strategy, etc. Most firms do not have these capabilities in-house and prefer to hire providers on an as-needed basis.
Products: One of the less attractive business models but if you have a product portfolio that includes some products that could potentially be used in the pharma/biotech sector, you must consider making the R&D investment to meet the specs of the sector. The prices can sometimes be in double-digit multiples of what you might be receiving in the commodity market.
Suggested readings/links: Charles G Smith has written an excellent guide The Process of New Drug Discovery and Development to give you an idea of the steps and where can you participate based on your skills and capabilities.
A quick search using the term "Biotechnology Contract Research" will show a whole list of companies that provide such research so that you can study what others are doing.
- Cost of bringing a drug to market from concept stage is approximately $800 million (according to PhRMA) and can take 10-15 years. Tufts Center for Study of Drug Development puts this number at approximately $900 million while Bain & Co. estimates it to be $1.7 billion (this number includes marketing costs as well).
- Out of as many as 5,000 drugs tested, only about 5 reach the clinical trial stage, and typically just one is approved by the FDA.
- Only three out of ten marketed drugs produce revenues that match or exceed average R&D costs.
- Generic share of prescription drug units rises to 72% in just 18 months after entry of generic substitutes.
- R&D costs in the drug industry are among the highest. During last ten years, R&D/sales ranged between 15-17%.
- During the last decade, pharmaceutical companies outside the industrialized world have become increasingly sophisticated in reverse-engineering or developing counterfeit drugs (operating sometimes in clear violations of international intellectual property rights).
I put the growth opportunities in three broad categories:
Solutions: This is the highest value category. What you do is to take a block of business processes within the firm that can be done independently (without requiring daily interaction with the drug company) and then develop a complete solution that you can present to the potential customers as a package. In most cases, you can even have multiple customers as long as you can take care of potential conflicts. This path is also the most preferred option by the drug companies because it makes life easy for their scientists who can then focus on more high-value tasks.
Services: This could include a range of services: analytics, testing, paperwork for dealing with regulatory agencies such as the FDA, market research, strategy, portfolio management, regulatory compliance strategy, etc. Most firms do not have these capabilities in-house and prefer to hire providers on an as-needed basis.
Products: One of the less attractive business models but if you have a product portfolio that includes some products that could potentially be used in the pharma/biotech sector, you must consider making the R&D investment to meet the specs of the sector. The prices can sometimes be in double-digit multiples of what you might be receiving in the commodity market.
Suggested readings/links: Charles G Smith has written an excellent guide The Process of New Drug Discovery and Development to give you an idea of the steps and where can you participate based on your skills and capabilities.
A quick search using the term "Biotechnology Contract Research" will show a whole list of companies that provide such research so that you can study what others are doing.