Current Issue

2008-12-19

Current Issue: Pre-clinical outsourcing to Poland

Introduction

Over the last decade outsourcing has become an important strategic issue for pharmaceutical companies. Rising pressure to reduce costs and time-to-market has led to outsourcing not only of traditional non-core functions such as manufacturing and clinical trials, but also increasingly of preclinical studies and drug discovery activities. Since the expansion of the European Union, established pharma companies are looking more and more into services of the outsourcing companies from Eastern Europe. Eastern Europe possesses one of the most established and expanding infrastructures for research outsourcing. One of the countries worth paying special attention to is Poland, and particularly a city located in the South of country – Krakow, the scientific capital of Poland. According to a rankings describing outsourcing investment tendencies, Poland clearly stands out in the CEE region and ranks 1st in Europe and 5th in the world in terms of outsourcing investment attractiveness. Investors appreciate the quality of Polish human resources and emphasize the country’s attractive location in the centre of Europe, as well as the availability of scientific aid on the part of Polish academic centres.

Drug development process

One of the most important issues that has been arising recently as a serious concern to the pharmaceutical industry is the increasing cost of the drug development process. Over the past few decades, R&D costs have been growing faster than inflation, driving down returns for pharmaceutical companies. A well-known study published by DiMasi et al. in 2003, has shown that average cost of developing a drug in 2000 was estimated at $802 million. When compared with a study from the same author from 1991, using the same methodology, it shows that costs of development of a drug since 1987 have risen at an annual rate of 7.4% above general price inflation. As a result, pharma executives are being pressured to boost the efficiency and reduce the time in which a developed drug reaches the market. This has led the pharmaceutical industry to do what has been already done some time ago in fields such as IT, HR and finance – outsource their work and therefore focus on their core competencies.

Pre-clinical development

Pre-clinical development is a stage of drug development during which important feasibility, iterative testing and most of all safety data on the drug tested is collected. It is also a crucial component for both IND and NDA filings, yet most companies in the face of more stringent regulatory rules, and more studies required, cannot handle everything in house. In fact, research conducted recently by Contract Pharma has shown that more and more pharmaceutical companies have virtual drug safety toxicology groups and outsource everything. According to the data from Parexel International, preclinical research accounts for 13 to15 % of the overall costs of the drug development, which gives us $80 to $120 million per one drug development process. Assuming that a global annual R&D expenditure has reached $58.8 billion in 2007, it means that approximately $8.82 billion was spent on preclinical research last year only. With no doubt, that is a significant amount of investment to manage.

Outsourcing pre-clinical research and its benefits

There are many ways for companies to organize their preclinical research. Options available include obviously doing the majority of the work in house with company staff and facilities which can be rather expensive. In comparison if a company chooses to contract out part of the preclinical work , the budget can go down by as much as 47%. In case when a company decides to completely outsource their preclinical development, the costs of this process can be cut down by as much as 59%. Choosing to outsource partially can save the com-pany 7% from the whole cost of R&D process, which transfers to $49 million in savings; if the company de-cides to outsource preclinical development completely, as much as 9% i.e. $63 million can be saved.

Average cost of pre-clinical development per one approved NCE.

Apart from costs saving, there are two other clear benefits to outsourcing: faster execution and decreased risk. Time analysis shows that almost a full year can be saved between the shortest and the longest model of preclinical development. Outsourcing greatly reduces a company’s financial risk by limiting capital investments, such as lab space and equipment, thereby converting fixed costs to variable costs. It also eliminates the start-up time required to recruit, hire and train personnel. There is particularly a rationale in this for small pharma and biotech companies to outsource the ‘commodity’ tasks of development process. Outsourcing therefore allows to redirect the company’s limited resources to focus toward long term competitive and proprietary advantages. Outsourcing is also an important means of gaining cost-effective access to specialty resources, technology and expertise to expedite development and regulatory process. Using a complete outsourcing service of an experienced CRO helps mitigate execution risk, since combined experience enables making go/no-go decisions earlier. This leads to effective elimination of failing compounds in the preclinical phase. Other benefits include the fact that smaller companies can move their compounds forward for a given cost, therefore delaying partnering until more beneficial deals appear. Additionally, an established CRO as a preclinical developer, through an objective and experienced validation, can add reliability to the project and increase confidence of potential partners what eventually can substantially affect the value of the deal.

Factors determining the attractiveness of the outsourcing destination

Cost of labor

It is well known that emerging economies in Asia or Eastern Europe, offer cost advantageous services. Substantial savings, up to 50% off the average Western/US-based CRO, which can be captured by using CRO services of emerging countries are due to the fact that salaries paid to employees in the emerging countries, are still much lower than in the West, including highly skilled employees. Low cost base and relatively good scientific capabilities have been the key factors driving Asia’s popularity as an outsourcing destination. However recently increasing salaries for highly skilled workers can affect its status of a low cost outsourcing base. Traditionally, outsourced work has been contracted out to companies based in the most technologically advanced countries, particularly in US and some Western Europe countries. However, this has been changing recently, with emerging countries such as India, China and Eastern European countries like Poland, drawing more and more attention as good outsourcing locations. Before a company decides to outsource their preclinical work, there are a number of key factors that have to be considered regarding the country where the CRO is based.

Intellectual Property protection

IP protection is probably the most crucial factor in choice of outsourcing vendor. Until recently IP protection had a very weak status in Asian countries, and in fact concerns still remain regarding the specificity of the IP protection system. As far as Eastern European countries are concerned Russian Federation has been listed on the 2006 Priority Watch List by the Office of the US Trade due to the country’s inadequate IP protection. It is completely opposite however for Poland which is a part of the EPO and therefore guarantees an adequate IP protection under the regulations of European Patent Convention.

Academic background and education level

Eastern European countries have a reputation where specialists possess a superior scientific training, which they successfully apply in their jobs. According to US specialists, this training is frequently beyond what is easily available in the West. Poland is one of these countries and possesses a long-standing tradition of excellence in classical synthetic and medicinal chemistry, biology, theoretical physics, mathematics and informatics. Poland has one of Europe’s youngest societies, half of the nation being under the age of 35. At the same time the country ranks 2nd in terms of number of students. Polish society ranks as one of the best-educated societies in Europe; there are 126 state higher education academies including 17 universities, 18 universities of technology, as well as 301 private schools of tertiary education. There is a very large amount of young scientists employed out of which over 30 000 hold a PhD degree. The knowledge and expertise of Polish scientists fully meets Western standards, as many innovative therapies have been used as standard of care in Polish hospitals. The life sciences field in Poland employs around 30 000 researchers and Polish higher education institutions each year produce over 1 400 graduates in biotechnology, with the numbers continuously increasing. The transfer of biotech know-how is facilitated by the participation of Polish researchers in numerous international initiatives. There is also an increasing trend of scientists returning to Poland, with a wealth of international experience. Due to a long-standing tradition of high-level education in Poland, the country is not only abundant in excellent scientists but there is also available a largely untapped pool of Polish pharmaceutical and biomedical discoveries. This knowledge pool will grow further over the next years. Thanks to European Union and government initiatives the R&D expenditure in Poland is expected to grow seven times over next ten years.

Economic and political stability of the country

Poland has a good economic and political stability. The economy is strong and is still expected to grow, thanks to its limited exposure to the international property crisis and a positive impact from the falling commodity prices. Euro is expected to be introduced in 2011. There is also a very positive attitude of the state and local authorities to the development of outsourcing opportunities in Poland, often expressed through tax incen-tives. Another competitive advantage of the country is that it is under a civil law based on German legal traditions. The legal system is very transparent, and since joining the EU, it has undergone increased harmonization with rest of the EU through the implementation of EU Directives into the Polish law and direct application of Regulations. That applies also to Biotechnology-related legislation which fully complies with European Union regulations. The freedom of contract is an established Polish legal principle. The domestic debt as well as inflation is in check and the level of corruption is much lower than in most other emerging economies, especially in comparison to non-European locations.

Logistic factors including language, time and cultural differences

Despite the fact that English is widely spoken around the world, major and often very significant cultural differences between countries remain. When choosing an outsourcing destination it is very important to take into account these cultural factor. According to recent studies from a major Big Four auditor², 69% of all outsourcing deals fail, for lack of cultural compatibility between the vendor and the client and poor relationship management. A recent report by Outsourcing Factory² highlights the fact that when dealing with high context cultures such as Indian, Arabic and Asian, who put great price on honor, reputation and tradition, it has to be understood that the proceeding are likely to take longer than it is the case with low context cultures such as European. High context cultures in partnership try to avoid surprises and minimize confrontation, in order not to “lose face”. Politeness being valued more than clarity, the initial proposal may be considered more as the initial steps to building a lasting relationship, rather than a final plan. These sort of characteristics of these cultures lead to customers complaining that for instance Asian providers show no interest in being evaluated either at service level or output. Since the main focus when outsourcing to Asian countries remains on low labor costs, the services providers will not be able to mature to the kind of services foreigners desire. Some outsourcing projects have suffered from quality problems, as the meaning of “quality” may differ from country to country and the requirements which have to be fulfilled to obtain a certifications sometimes differ considerably from the Western standards. When conducting research in Poland it is ensured that good phar-maceutical standards are maintained through the quality, safety and environment at EU regulations. There is also already a well-established generic industry present in the country including GSK, Sanofi-Aventis, Baxter, Teva, Adamed and Polpharma which has created a wealth of expertise in high quality research and manufacturing among the Polish work-force. Another complaint reported by scientists outsourcing to Asia is the sometimes different social and religious acceptance with regards to work on animals.

Comparison of Poland vs. other outsourcing destinations.

Natalia Pawela
Business Analyst of BioCentrum

About BioCentrum

BioCentrum is a privately-owned biotechnology service and product provider. BioCentrum was established in 2004 and its mission is to create a platform for its clients and partners in order to help them translate innovative discoveries into preclinical candidates with improved chances to reach the market, in the shortest amount of time possible. BioCentrum offers a wide range of preclinical development services including chemistry services, ADME testing, biopharmaceutical development, OECD compliant toxicological studies and various behavioural studies, covering all the prerequisites needed for initiation of a first administration to humans. BioCentrum also offers services in the field of protein chemistry, and possesses a unique expertise and experience in production of highly purified, active enzymes, inhibitors and other biologically active recombinant proteins. Moreover the company performs contract research as well as produces mouse monoclonal antibodies on a laboratory scale. Continuous focus on quality has allowed BioCentrum to build long lasting and successful co-operations with numerous biotechnological companies among others from USA, Germany, France, United Kingdom, Sweden and Poland.