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Big Pharma is Dis-Integrating March 22, 2004 Elixir Pharmaceuticals is a new biotechnology company focused on developing drugs to reduce the aging process. Elixir was named one of the top 15 emerging biotech companies of 2003 by Fierce Biotech, the Biotech industry’s daily monitor. As it searches for new compounds to reduce the effects of aging, Elixir uses the high throughput screening and combinatorial chemistry technologies that were discussed in last week’s update.
Ultra high throughput screening
Elixir doesn’t own any of the technology for doing this kind of screening. Instead, it has contracted with a German firm called Evotec OAI to handle this work. Evotec takes Elixir’s testing specifications, runs them through its state-of the-art labs and machines, and returns the results to Elixir.
A combinatorial invitation from Evotec’s web site This kind of arrangement is common in biotechnology, where small firms would rather rent testing capacity than buy it outright. And Evotec works with a large number of biotech firms, with names such as Avidex, British Biotech, and Prolysis. Some of Evotec’s most recent partners, however, have come from the ranks of large integrated pharmaceutical companies, such as Pfizer, Roche, and Solvay. The industry magazine Contract Pharma predicted in March 2001 that large company budgets for outsourcing early stage discovery activities would grow by 20-25 percent annually over the next 5 years, driven primarily by new drug discovery technologies. Evotec confirms this prediction -- for the first 9 months of 2003, Evotec’s revenues grew at an annualized (currency-adjusted) rate of 31%. Using "merchant testers" such as Evotec makes particular sense with a technology like high throughput screening for a number of reasons:
===== Whenever a company can specify both the inputs the outputs of a particular process, that process becomes a candidate for outsourcing. As MIT’s Frank Levy told Business Week recently: The intuitive and serendipitous parts of drug discovery do not lend themselves to outsourcing, because it is impossible to specify the outputs from these processes in advance. But combinatorial chemistry and high throughput screening are prime candidates for outsourcing because they are sophisticated technical tasks with well-defined inputs (chemicals and targets) and outputs ("hits"). Information technology businesses have experienced this same kind of dis-integration in manufacturing, with the rise of companies like Flextronics and Solectron. As a result, Microsoft doesn’t need to build a manufacturing operation to produce its Xbox – it hires Flextronics instead. Even in product development, high tech businesses have been able to separate chip design from production. Large merchant chip houses can take a small company’s custom design and deliver a chip. This enables the kind of craft consumer electronics like Ambient’s Orb or Roku’s HD 1000. These small companies don’t need manufacturing or design scale to bring their products to market. The advent of the high throughput screening technologies creates the same dynamic in drug discovery as custom chip fabricators did in high tech. Companies of any size will be able to hire firms like Evotec to run high throughput screening on their compounds. In doing so, they will dismantle another part of the benefits to scale that large pharmaceutical companies have enjoyed for decades. New production technologies bring about changes in industry structure. As large pharmaceutical companies move their research efforts towards combinatorial technologies, they will be taking another step towards their own dis-integration. More Information: |
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