Features�PERSPECTIVE

featureOutsourcing drug discovery to Indiaand China: from surviving to thriving

Swaminathan Subramaniam1, swami_subramaniam@merck.com, swami2m@gmail.com and

Sundeep Dugar2

Global pharmaceutical companies face an increasingly harsh environment for their primary business of

selling medicines. They have to contend with a spiraling decline in the productivity of their R&D

programs that is guaranteed to severely diminish their growth prospects. Outsourcing of drug discovery

activities to low-cost locations is a growing response to this crisis. However, the upsides to outsourcing

are capped by the failure of global pharmaceutical companies to take advantage of the full range of

possibilities that this model provides. Companies that radically rethink and transform the way they

conduct R&D, such as seeking the benefits of low-cost locations in India and China will be the ones that

thrive in this environment. In this article we present our views on how the outsourcing model in drug

discovery should go beyond increasing the efficiency of existing drug discovery processes to a

fundamental rethink and re-engineering of these processes.

Drug Discovery Today � Volume 17, Numbers 19/20 �October 2012 PERSPECTIVE

Pharmaceutical R&D outsourcing to India and

China has been commonplace for several dec-

ades now [1,2]. This has primarily been in the

domain of preclinical and clinical development

and has involved activities, such as manufac-

turing and multicentric clinical trials. The ratio-

nale behind outsourcing these activities was to

add to internal resources or to avail specialized

capabilities, not available internally, on an as

needed basis.

In the past decade outsourcing to India and

China by pharmaceutical companies has

expanded to include drug discovery research

[2,3]. Pharmaceutical companies use drug dis-

covery outsourcing as part of a comprehensive

and integrated outsourcing strategy to access

unique capabilities and cost-effective resources

in emerging markets, such as India and China.

Clearly the term ‘outsourcing’ in its original sense

does not capture the complexity of the contracts

1359-6446/06/$ - see front matter � 2012 Published by Elsevier Ltd. h

and processes that govern discovery ‘outsour-

cing’. Many companies use terms such as ‘alli-

ance’ or ‘collaboration’ to describe their drug

discovery partnerships. It is to be understood

that the term ‘outsourcing’ is used here in its

broadest sense, to include all situations where a

partner company [a biotech company or a drug

discovery contract research organization (CRO)]

is contracted to undertake activities in the drug

discovery value chain (e.g. lead optimization).

Although outsourcing of activities such as

clinical development or manufacturing was

simply to access resources to implement a well-

defined and linearly sequenced series of tasks,

the paradigm in drug discovery outsourcing is

to access resources to address and solve pro-

blems. The solution, if it exists, is in previously

uncharted territory and the solution seeking

process is non-linear and iterative requiring

real-time course corrections driven by learn-do-

ttp://dx.doi.org/10.1016/j.drudis.2012.04.005

learn cycles. The history of drug discovery has

shown that successful drug discovery efforts

that can manage this complexity come from

focused, tightly knit and highly motivated

teams. Successful teams take complete own-

ership of the project and are able to sustain an

intense and high level of scientific engagement

spanning several years. Given the importance of

such an ‘ownership’ mentality for project suc-

cess, how does project ‘ownership’ in its deepest

sense get transferred to the scientists in the

drug discovery partner organization? This dif-

ficulty is further compounded by the geogra-

phical separation of teams, cultural and time

zone differences, asymmetries in availability of

resources (personnel and physical) as well as

subject matter expertise within the partner

organizations. All of these issues apply, in par-

ticular, when outsourcing discovery projects to

India and China.

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The current situation

Despite these challenges, the trickle of drug

discovery outsourcing to India and China that

started around the year 2000 has now turned

into a fairly substantial volume of business with

several integrated providers of one-stop drug

discovery services emerging in these countries,

such as WuXi Apptec in China and Syngene in

India. Outsourcing to India and China is also

dominated by simpler fee for service models

unlike the more complex deals that are usually

struck between major pharmaceutical compa-

nies and US/EU based discovery partners. While

outsourcing drug discovery to companies in the

US/EU has been predicated largely on issues

relating to resource flexibility and access to novel

intellectual property or specific hard to replicate

capabilities, the principal driver for outsourcing

discovery related activities to India and China

has been to bring down costs.

Having achieved the immediate objective of

lowering costs, one must ask whether we can

now address the more crucial objective of

increasing the probability of success through

these relationships. It should be evident that

merely replicating the current model of phar-

maceutical innovation in a lower cost location

will only change the cost side of the equation

without significantly affecting the probability of

success. Indeed a certain loss of effectiveness

and efficiency is inevitable when outsourcing a

complex activity like drug discovery and this is

likely to adversely impact timelines and/or

probability of success.

This half-empty scenario can be turned into a

half-full scenario if outsourcing of drug discovery

to the new location is used as an opportunity to

redesign and/or reengineer the process of drug

discovery [4]. This can be accomplished by taking

advantage of the unique characteristics of these

newer locations. Such a redesign will also call for

outsourcing and research managers in pharma-

ceutical companies to discard notions about

successful drug discovery models that have been

conditioned by the peculiar and historical con-

straints in their home environments. How then

can we maximize the opportunities afforded by

emerging outsourcing destinations?

The ‘How’ of outsourcing drug discovery

to India and China

Managers responsible for outsourcing at large

firms would do well to operate their outsourcing

strategy guided by the following principles:

(i) Maximize the scale of the outsourced

activities

The benefits of outsourcing are amplified

exponentially with increasing scale of the

1056 www.drugdiscoverytoday.com

outsourcing activity. For outsourcing to

have near-term impact through cost sav-

ings, it has to be significant in size, both in

terms of volume and scope. All the costs

associated with managing such an endea-

vor need to be factored in when assessing

efficiency and potential cost savings. This

would include, apart from the direct costs

of travel and full time equivalent (FTE)

payments dedicated to managing the

activity, the efficiency penalties incurred

due to the complexity of operating across

boundaries of culture, geography and

organizational capability. Having incurred

the upfront fixed costs of initiating the

outsourcing activity and climbing the

learning curve associated with the new

activity, it is fiscally not prudent to hesitate

or be tentative in scaling up the activity to

realize maximum benefit from the upfront

investment. Thus, while the outsourcing

budget has to respect the limitations due to

the overall R&D budget, the intention must

be to extract the maximum benefits

realizable by optimizing the scale and

scope of the outsourcing engagement.

(ii) Use a partnering mindset

(a) Unlike most large pharmaceutical

companies that have a heritage of

drug discovery spanning many dec-

ades, most institutions that have set up

operations in India and China to

provide research and development

services are less than a decade old

and have limited comprehensive drug

discovery and development experi-

ence. Thus they will not, at least at

the outset, have a comparable under-

standing of the project and the

associated challenges. This will neces-

sitate comprehensive knowledge

transfer and mentoring especially dur-

ing the initial phase of the project. It is

surprising how not enough effort is put

into systematically and preemptively

transferring the requisite knowledge to

the partner. This knowledge can make

the difference between success and

failure and also save precious time in

the long run. Transfer of knowledge

can include things as simple as transfer

of an assay protocol all the way to tacit

knowledge that is helpful in trouble-

shooting the assay when it does not

work.

(b) Furthermore, a sense of shared accom-

plishment and commitment is crucial

for this model to succeed and hence

embedded partnership structures that

unite the scientists in the two organi-

zations into a single seamless team

should form the basis of the operating

structure. Open dialogue among team

members from both organizations will

then enable free exchange of informa-

tion and teamwork. Such a structure

will facilitate joint ownership for

‘scientific’ failures and successes, espe-

cially when it is underpinned by well

defined metrics and tools to ascertain

the productivity and contribution of

the individuals on the team. Often, in

external alliances or outsourcing, much

attention is paid to binary success and/

or failure outcomes. The embedded

partnership structure should support a

more nuanced interpretation of the

aggregate outcome, including the

‘learning’ derived from ‘scientific’ fail-

ures which can contribute positively to

long-term success of the team.

Embedded partnership structures with

shared teams and governance struc-

tures facilitate the perception of a

partnership, rather than a simple

customer–vendor relationship. Only

when both partners recognize that

they are each in the relationship for the

long-term will it enable the kind of

honesty that promotes a virtuous

learn-do-learn cycle of cumulative

learning that can lead to break-

throughs [5].

(c) The partnering mindset can be

strengthened by developing contrac-

tual arrangements that create condi-

tions for both partners to share risk

along with the potential for reward.

Partners in China and India often have

the financial flexibility in addition to

the desire to move up the value chain

by sharing risk and reward in part-

nered projects [2].

(iii) Change the resource allocation paradigm:

Outsourcing to a lower cost location (where

costs for equivalent activities may be 1/3 to

1/4th that in the home location) also affords

opportunity to increase financial leverage,

for example by undertaking projects that

may not meet the financial benchmark set

using home country costs for comparable

resources. For example, the development of

a new treatment for tuberculosis may be

cost effective if a bulk of the research and

development work were to be outsourced

to India or China.

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Features�PERSPECTIVE

Both China and India are experiencing rapid

expansion of investment in their academic

and government funded research sectors.

Especially for projects that would have a

special relevance to these countries there

are increasing options for public–private

partnership models or matching funding

from government sources for early stage

discovery projects. Such sources of funding

will become increasingly important con-

tributors to overall biomedical research

spending globally and large pharmaceuti-

cal companies would do well to proactively

explore collaborative arrangements with

state research institutions and/or funding

agencies, for mutual benefit. This has to be

based on a resource allocation model that

pushes against prevailing headwinds in

global pharmaceutical R&D that force a

resource limited view of what is feasible

and core for the business. The assessment

of program viability using the prevailing

‘blockbuster or bust’ mentality may be

counterproductive in this context.

(iv) Modify research strategy

Drug discovery research in India and China

should also be looked upon as an opportu-

nity to rethink research strategy. For exam-

ple, one of the most expensive and resource

consuming activities in preclinical R&D is the

evaluation of test compounds in suitable in

vivo models for drug disposition and efficacy.

Despite the richness of information available

from in vivo testing, it is feasible to take only a

handful of active compounds into whole

animal testing because of the associated

costs of compound synthesis and animal

testing. Metrics to decide when and how

many compounds are to be taken into in vivo

testing have to be rethought when there is

generous availability of resources for those

activities at a much lower cost.

Another area where India and China based

research organizations have an embarrass-

ment of riches is in chemistry, particularly

natural product chemistry, complex organic

synthesis and scale-up. A research strategy

to take advantage of these resources

should incorporate the synthesis of more

complex structures, including those derived

from naturally obtained scaffolds.

The richness in chemical resources also

affords the possibility of carrying through a

larger and more diverse set of compounds

into later stages of screening thus delaying

attrition to a later stage when the multi-

parametric optimization of compounds is

more fully complete. This may be counter

intuitive in an environment where ‘fail early

fail fast’ has become the mantra. But, as

recent examples of both late stage drug

failures and drug successes have shown, we

may be throwing the baby out with the

bathwater by applying exceedingly strin-

gent criteria early in the discovery space,

thus limiting the chemical space accessible

for exploration in later stages of drug

discovery.

Finally, operating across different time

zones makes possible the option of fuller

utilization of the working day. The differ-

ences in time zones can be used to daisy

chain crucial and sequential activities in the

discovery process across time zones to

enable a virtual 24/7 drug discovery

process. This model has been extensively

used with great success in the information

technology industry. Certain processes in

drug discovery are particularly amenable to

such an approach. For example, a computa-

tional chemistry team in India can process

and analyze structure–activity relationship

data generated from a biological screen on

the US East Coast, so as to enable rapid

triage of a compound set. However, all this

will require matching changes in internal

process and structure to enable the new

workflows that result.

(v) Modify internal structure and process

Accommodating the changes in the out-

sourcing model to fully leverage and

capitalize on such alliances as envisaged in

the previous sections will also require

internal structure and process changes in

the organizations on both sides of the

equation.

(a) Local presence: The operational model

prescribed here calls for a much closer

and higher level of engagement with

partner organizations in India and

China. Establishing a regional R&D

hub consisting of a balanced team of

seasoned drug hunters from the parent

organization can be a key factor to

enable a high and sustained level of

engagement with partner organiza-

tions in these regions. Such a regional

R&D hub can also improve efficiency by

enabling decentralized decision mak-

ing on projects without the problem of

loss of control that the parent organiza-

tion sometimes faces in partnered

discovery programs. It particularly

addresses issues relating to bilateral

knowledge transfer and provides a

jump start to the local endeavor by

dedicating experienced and skilled

personnel to the alliances in the region.

(b) Disaggregate project tasks across multi-

ple best in class partners: No one partner

can possibly offer the comprehensive

and across the discovery value chain

support that pharmaceutical companies

have over the years managed to create

internally. Therefore, despite the desir-

ability of integrated projects, often there

is a need to create a chain of best in class

partners [6,7], with the regional R&D hub

having the role of integrator, this has the

additional benefit of building and

retaining project specific knowledge

and experience within the regional

R&D hub that then becomes available

to the pharmaceutical company’s inter-

nal R&D organization.

Concluding remarks

Drug discovery is one of the most complex and

challenging endeavors with few equals in

industrial science. Historically the pharmaceuti-

cal industry through its research and develop-

ment efforts at its core locations in the US and

Europe has been successful in finding innovative

therapies for unmet medical needs. The current

lack of R&D productivity, despite large financial

outlays, coupled with the expiration of

blockbuster patents and the resultant loss of

revenues comes as a challenge that requires

innovative and out-of-box approaches.

A new model of sustainable research and

development can include access to resources

and talent from countries like India and China.

However, this cannot be in the form of a sim-

plistic ‘cost reduction’ manifesto. It has to be

from the perspective of investing in research and

development relationships through embedded

partnerships, re-engineered discovery processes

and new organizational structures to support

these new approaches.

Using a network of partners to source inno-

vation is commonplace in the aircraft industry

and Boeing’s development of the 787 has some

lessons for the global sourcing of innovation by

the pharmaceutical industry [8]. Aircraft devel-

opment has similarities with the pharmaceutical

industry in terms of the complexity of techno-

logical inputs required and large upfront finan-

cial costs. Boeing’s approach to developing the

787 was based on collaborations with over 50

partners from over 130 locations working

together for four years. Instead of replicating the

skills of its more focused partners, Boeing sought

to have the role of an orchestrator, blending the

complementary skills of a diverse set of partners.

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A key success driver was Boeing’s ability to treat

smaller companies as ‘partners’ rather than as

‘suppliers’. Boeing’s approach to orchestrating

inputs from a large and diverse set of partners

can be instructive to pharmaceutical companies

seeking to replicate a similar model.

Given the complexity of the task and the

challenges of developing the requisite resources

it will take more than mere intent from senior

management to pull this off. But, if done with

thought, resiliency and commitment, then suc-

cess can be achieved. A failure to do this will

mean failure for the key stakeholders such as

patients and this should not be an option.

1058 www.drugdiscoverytoday.com

References

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dynamics of pharma outsourcing in Asia: are you

readjusting your sights?

2 Carlson, B. (2008) Pharma outsourcing on upward

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3 Clark, D.E. (2011) Outsourcing lead optimization: the eye

of the storm. Drug Discov. Today 16, 147–157

4 Subramaniam, S. (2003) Productivity and attrition: key

challenges for biotech and pharma. Drug Discov. Today 8,

513–515

5 Robertson, G.M. and Mayr, L.M. (2011) Collaboration

versus outsourcing: the need to think outside the box.

Fut. Med. Chem. 3, 1995–2000

6 Hutchins, S. et al. (2011) Open partnering of integrated

drug discovery: continuing evolution of the

pharmaceutical model. Drug Discov. Today 16, 281–283

7 Kaitin, K.I. (2010) Deconstructing the drug development

process: the new face of innovation. Clin. Pharmacol.

Ther. 87, 356–361

8 MacCormack, A. et al. (2007) Innovation through global

collaboration: a new source of competitive advantage.

HBS Working Paper 07-079.

Swaminathan Subramaniam1

Sundeep Dugar21MSD Pharmaceuticals Pvt Ltd(an affiliate of Merck and Co., Inc.,Whitehouse Station, NJ, USA), Platina,10th Floor, C-59, G-Block, Bandra Kurla Complex,Bandra East, Mumbai 400098, India2Sphaera Pharma Pvt Ltd, Plot No. 32,Sector 5, IMT Manesar, Haryana 122051, India