Small is beautiful – the future of SMEs in pharmaceutical development

In the ever-changing landscape that is pharmaceuticals, small truly is beautiful.

“It is the responsibility of the decision makers and the actual participants to maximise the return of the invested billions and generate useful results for the benefit of the European economy.”
-Jozsef Repas

How can a small European pharmaceutical service provider remain competitive and attractive in the changing Pharma landscape?

After the credit crunch and seeing the ongoing crisis of the Big Pharma companies it is becoming more and more obvious, that the influential work of E. F. Schumacher, "Small Is Beautiful -A Study of Economics as if People Mattered" is more relevant than ever. The world is not only suffering from the consequences of the worst financial and economic crisis since the Great Depression of the 1930s, but we are also facing what seems to be an anthropogenic global warming.

There are signs indicating that the world is finding its way out of the economic crisis, however, this does not necessarily mean that the pressure on the pharmaceutical industry will ease. The pressure remains to improve the efficacy and reduce costs. After the consistent growth of the pharmaceutical industry in the 90s, recently the blockbuster model has come under pressure as it has reached the limit of its ability to generate sufficient revenue in the long term. The patent cliff is close and that, combined with weaker pipelines, means lower revenue for pharma companies. In fact, sales at many big pharma companies were flat or down in the last quarter.

Big Pharma companies responded to the situation with cost saving measures. They reduced R&D budgets and layed off thousands of researchers. Many manufacturing sites were closed, especially in the Western hemisphere. Big Pharma is turning more and more East and buys products and services en masse from Asia. More reorganisations are expected, which means more outsourcing of R&D and manufacturing operations.

Another interesting trend is the sale of R&D facilities to pharmaceutical service providers. Such deals frequently go with multi-year research contracts, that is, most employees remain in place, work on the same or similar projects, only the employer changes. The long term utilisation of such large facilities is hard to predict.

The good news is that the number and volume of outsourcing projects will likely increase from Big and Medium Pharma. For the most important and time sensitive projects, flexible (which means small) custom research organisations are needed. Fast decisions, short turnaround times and good communication will be crucial in establishing a circle of these trusted service providers. Most big and medium sized pharma companies established criteria to select and sort service providers all over the world. Small and medium sized pharma companies typically have stronger pipelines. However, the lack of funding for developmental projects of small pharma companies forced many of them to focus on late stage projects and stall discovery or early stage molecules. Big Pharma wisely noticed this trend and stepped in as a financier. More cooperations and investments from Big Pharma are and will find their way to small biotechs.

As a consequence, more outsouring projects can be expected from small pharmaceutical companies as well in the future. Regarding Asian service providers, their prices for large volume projects are very competitive, but due to the high employee fluctuation, the quality of their service fluctuates as well. Due to their price advantage, Asian CROs have been boasting double digit yearly growth for years now. However, the price advantage is decreasing, because the wages of higly qualified and experienced workforce are approaching European levels. It is worth mentioning that European CROs have stronger tradition and more experience in R&D. Generally speaking, their innovative approach, communication and project management skills are up to the highest customer expectations. The geographic location and the relatively small cultural differences between Europe and the USA make communication and site visits relatively easy for American customers as well. Custom research or manufacturing organisations from the former East Block offer the best of two worlds, Western style services with prices between that of the West and the East. Nevertheless, small and medium size pharmaceutical companies still prefer to work with local service providers.

Unfortunately, the European Custom Research Organisations (CROs) also suffered from the change of the business environment over the last few years, and some of them faced serious problems. Thanks to their ability to adapt to the changing business, most of the Small and Medium sized Enterprises (SMEs) managed to survive and expect to see growth in 2011.

The European Commission also realised the importance of SMEs regarding the future of the European economy (Think Small First principle) and the aim of the Enterprise European Network is to help SMEs become more successful in the European programmes. The European Commission wants SMEs to be the drivers of economic activity and innovation.

For the current 7^th Framework Programme (FP7) more than 50 billion Euros will be invested in research and innovation till 2013. It is the responsibility of the decision makers and the actual participants to maximise the return of the invested billions and generate useful results for the benefit of the European economy. The change of the application process to the funds makes these financial resources easier for SMEs to access, which hopefully will mean more research and less paperwork for them.

Ubichem, as a Hungary based medium size chemistry service provider for the pharmaceutical industry is expecting, that European companies will benefit through multiple ways from the recent changes in the business environment.

Chinese entrepreneur Jack Ma of alibaba.com explained his vision regarding the way out of the crisis at the 2009 Singapore APEC SME Summit: "In the last century, big was better, but in the 21th century, I believe small is beautiful because it is not about how much equipment you have, it is about how quickly you can change yourself to meet the market".

Ubichem, as a service provider, has always been capable to adapt rapidly to the changing requirements of its customers. Our aim is always not only to deliver the ordered services, but also think ahead about the customers' needs after completion of the actual work, even if we have to take some risk. We believe that this proactive approach can be very beneficial as we can help to compress the timeframe of the projects and provide viable choices, thus flexibility to our customers.

We can foresee more time critical development projects. For example, our American customers could even benefit from the time difference stemming from our European location. In collaboration with their research team, thanks to the daily communication and share of the development results we managed to develop and scale-up difficult technologies within very short periods of time working in a virtual two shift system in the laboratories in the US and in Hungary. Thanks to the better financial situation of the virtual and small biotech companies, we can see a growing number of active projects in their portfolios.

Ubichem Research Ltd. of Hungary is well positioned to face the challenges of the changing pharmaceutical outsourcing landscape. Being a relatively small enterprise, we can make decisions fast and are willing to take risks and be proactive in trying innovative ideas. Our labs and multipurpose plant can tackle projects from late discovery till Phase III clinical trials. Our comprehensive range of services along the drug development path, on top of the usual scale-up, intermediate and clinical API manufacturing services, include safety evaluation, analytical services, radiolabelling, salt screening, crystallisation and stability studies, impurity profiling and preparation of reference standards. Additionally, being located in a relatively low cost country within the EU and with tradition of pharmaceutical sciences makes Ubichem Research a wise and beautiful choice.

About

Jozsef Repasi has over 20 years experience in pharmaceutical research and development. As cofounder and Managing Director of Ubichem Research Ltd., his responsibilities include managing the daily operation of Ubichem and directing the continuous development of the company