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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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May 31, 2011

Extreme Outsourcing

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Posted by Derek

My local NPR station had this report on this morning, on one-person drug companies. Can't outsource much more than that!

Here are the two companies profiled: LipimetiX and Deuteria. The former is using helical peptides to affect lipoprotein clearance, and the latter is (as you'd guess) in the deuterated-drug game, which I've most recently blogged on here. (That one's run by Sheila DeWitt, who used to work down the hall from me in grad school 25 years ago). And there are several other outfits that they could have mentioned - some of them are not quite down to one person, but you can count the employees on your fingers. In all of these cases, everything is being contracted out.

There are downsides, of course. For one thing, these are, almost by necessity, single-drug companies. It's enough of a strain just getting one project through under those conditions, let alone running a whole portfolio. So the risk is higher, given the typical failure rates in this line of work. And you have to trust your contractors, naturally. That's a bit easier to do in the Boston area (and a few other places), since you can get a lot of work sourced locally. That doesn't make it as much of a Bargain, Bargain, Bargain as it might be overseas, but at least you can drop in and see how things are going.

Another thing the NPR piece didn't address was where these projects come from. Many of them, I'd guess, are abandoned efforts from other companies that still have some possibilities. Those and the up-from-academia ideas probably take care of the whole list, wouldn't you think? Has anyone heard of one of these virtual-company ideas where the lead compound came from some sort of outsourced screen? And is an outsourced screen even possible? Now there's a business idea. . .

Comments (24) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History


1. davideleahy on May 31, 2011 8:28 AM writes...

"Now there's a business idea. . .

Sure is.

Molplex -- because you should be able to do drug discovery in your pyjamas :)

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2. davideleahy on May 31, 2011 8:30 AM writes...

"Now there's a business idea. . .

Sure is.

Molplex -- because you should be able to do drug discovery in your pyjamas :)

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3. Matthew Herper on May 31, 2011 9:51 AM writes...

Acorda started out pretty close to this, with the CEO running the company from his apartment. It worked there. (Do note, however, that their main drug was in-licensed from Elan.)

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4. HTSguy on May 31, 2011 10:07 AM writes...

Yes, outsourced HTS (or fragment) screens have been available for a number of years. Commercial outfits such as Evotec supply the whole package (assay development, compound library, screening, followup assays) for your target. Same with some US CROs and also academic centers (as a sideline). As for the "quality" of the compound libraries, well...your mileage may vary.

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5. Still Scared of Dinosaurs on May 31, 2011 10:07 AM writes...

There are so many risks - dimensions of risk - in drug development that I cannot imagine one individual being able to manage them all. Just the fact that a scientific communication can turn into an opportunity for a patent squatter to swipe some IP rights makes me want a team to cover all the bases. Sure, I'd love a small team of A+ individuals but I've never met an indivual that could carry a drug into clinical trials and expect success. Past Phase 1 anyway.

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6. Mother nature on May 31, 2011 11:41 AM writes...

If outsourcing is to be done with minimal oversight, then it is a good business model that makes sense. If the sponsor requires a vast team to manage initiating work and reviewing interpreted data from outsourcing, then the cost savings need to be looked at with a raised eyebrow. I have seen nothing but the latter in environments where outsourcing has been force fed down scientific lines.

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7. Myma on May 31, 2011 12:22 PM writes...

For the discovery part, I think it is do-able with 2 or 3 people, but not one person. It needs one person to really know the biology, and the other to really know the chemistry. One or both should have a handy expert grab bag of computational tools to pre-screen out the thousands of bad ideas from the handful of possibly good ones, and the wisdom to know when the computation is crap.
And they both need money, at least to pay for the outsourced synthesis and assay part in not actual salary, so at least one needs a good track record of getting grants, angel investors, orphan disease foundations, etc.

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8. Anonymous on May 31, 2011 12:59 PM writes...

Everybody wants to make drugs, nobody wants to do the benchwork. :)

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9. Lacerta Bio on May 31, 2011 2:06 PM writes...

We're certainly seeing more of this. Typically we're seeing companies with:

> 2-3 Senior Execs who were made redundant from big pharma. One CEO-type, one "science" person, one "clinical" person;

> 1-2 assets, one lead, with one backup;

> Sourced from their former employer;

> Targeting a niche (no blockbusters here)

> LLC legal entity (which is atypical for many VCs, but becoming more popular with these "lite" asset-centric companies;

> Decent amount of VC involved (in other words, not a "seed" investment, but not a Series A either. Something in between);

The trick is to get your hands on the asset for as close to free as you can. VCs will then focus on driving the valuation of the asset, not the company. A few of these types of companies will become FIPCos, but that will be rare due to their inherently high failure rates.

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10. baychemist on May 31, 2011 3:19 PM writes...

I hear you, No. 8! American dreaming. Everybody wants to talk the talk and outsource the dirty work. Guess what? Pfizer is not Apple.

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11. Anonymous on May 31, 2011 3:58 PM writes...

I'm just waiting for academic labs to start outsourcing their projects. Can you imagine.

Reaction screening shows 17% yield.
Student optimizes pointless and trite transformation to 90%.
Outsource substrate scope to Wuxi.


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12. davideleahy on May 31, 2011 7:40 PM writes...

I agree with Myma that it's probably a minimum of 2 people, maybe 3 in a drug discovery team depending on skills -- not that they need to be in the same office or same continent of course. Also agree with Lacerta Bio about the factors that are enabling these "micro-pharma" drug discovery teams but would add one other big enabler -- the rapid growth of open (and free) data (e.g. Chembl, Drugbank, ...), open source design software and hosted collaboration systems.

It's tempting to focus on the extreme outsourcing element and argue that this is just more bean-counter type drug discovery on the cheap, but I don't think that is the main point. What excites me about this trend is the opportunity to eliminate the huge cost barrier to setting up a discovery project outside an established drug company. It also eliminates much of the enormous cost and time overheads of running a project that accrue when you work in a big and complex organisation. For experienced drug discovery scientists, there is only the project and the scientific/commercial decision making needed to drive it to a conclusion. No lean sigma meetings, no organisational change, no performance reviews. Just the drug discovery project. A management-free zone. I would bet that eliminating management overhead is mostly why these projects should cost less -- not the off-shoring. I would also bet that creating projects where the scientists can focus exclusively on discovery is why they are more likely to succeed.

Projects still need funding of course, but the business case is based on the risk-benefits of the project. You don't need to ask the VC for money for labs, equipment, management teams and other expensive stuff for setting up a new mini-biotech -- just enough to get you through to the next validation milestone. That's a much more attractive investment case.

I think that for experienced drug hunters there is a great opportunity in this trend towards small virtual drug discovery teams. A chance for experienced drug hunters to do what they are good at and what they are most interested in, working with a small group of people they like and respect.

Biggest potential down-side? The explicit separation between being in the lab and doing drug design. That's an interesting question. Can you be a successful drug hunter, without having your lab next door? Without any labs. Working from your guest bedroom?

I hope so. I bet we'd get a lot more new medicines if this "extreme outsourcing" trend pans out.

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13. Anonymous on May 31, 2011 8:15 PM writes...

@ davidleleahy

Nice plug for your company. I didn't think this blog was for advertising, but I'll let Derek have the final say.

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14. davideleahy on May 31, 2011 9:29 PM writes...


Perhaps. Sometimes hard to get the balance right when you are talking about something you believe in. Apologies if I crossed a line.

Nevertheless, when you work in a large company or University it's easy to look down your nose at those that make their own way in the world. It's one of the subtle barriers to taking up these "extreme outsourcing" or virtual team opportunities described in the original post. Stepping out might free you of the frustrations of working in a large company, but then nobody else but you is going to put food on the table. For that you need to communicate (i.e. sell) your ideas to other people.

I think the extreme outsourcing idea gives talented drug discovery scientists the opportunity to focus on doing what they are good at -- but its not without significant personal challenge.

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15. Anonymous on May 31, 2011 9:59 PM writes...

oh burn

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16. Sundowner on June 1, 2011 12:33 AM writes...

In Spain there are some of those virtual biotechs, with as few as five employees (CEO, Controller, Research Director and two lab people for the biology part). Single product companies, that is. They outsource the chemistry (us), animal essays, ADME panel, pharmacokinetics, formulation... everything. Some of them are doing pretty well, advancing now to Phase I.

But no one-man-biotechs here.

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17. Anonymous on June 1, 2011 1:33 AM writes...

Only 2 out of the 15 jobs listed on the first page on are non-temp jobs and non mundane QC/method development work. God why did I ruin my life pursuing a "career" in chemistry?

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18. petros on June 1, 2011 2:24 AM writes...

UK-based Angiogene seems to be based on this very small model (2 principals) and has been around for over 10 years. It also, with AZ, got a compound into phase II

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19. Chinabonding on June 1, 2011 2:40 AM writes...

Virtual companies could be a great path forward for research.

Now all you need is $3MM to pave a two year runway towards a $30MM-$50MM buyout, or level up in financing for clinical.

A $3MM ante to a $30MM+ pot hopefully will encourage alot of new ideas and, ultimately, alot of revitalization in our industry.

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20. Lolnonymous on June 1, 2011 5:01 AM writes...

@17 lol I ask myself that daily.

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21. CEO MBA on June 1, 2011 8:04 AM writes...

I think that this sounds a lot like what used to be called Snake-oil sales. If you get chased out of town by one pharma company just polish your sales itch and move on to the next sucker - sorry.............valued collaborator.

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22. Anonymous on June 1, 2011 3:06 PM writes...

Things are improving, but much of VC is turning away. Still lots of suckers out there.

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23. Ellen Clark, Clark Executive Search on June 5, 2011 11:14 AM writes...

My search firm has recruited for several of these virtual companies. It was interesting that some of the candidates reached about the positions were excited to be able to work from their homes and not have to relocate. But others worried that they would miss walking down the hall to bounce ideas off fellow scientists. Many also worried they would be out of a job should the one trick pony fail. But then again there is no job security anywhere so some thought it worth the risk to join these tiny companies.

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24. Innovorich on June 7, 2011 6:00 AM writes...

This is always going to be an attractive business model, partcularly for VCs - low start-up and fixed costs, flexible future planning, milestone based stepwise progression, and a big upside for success. It's almost silly picking out examples of these companies - there are dozens/hundreds across the world. This is the new world of drug discovery (remember your past posts on micropharma). Big pharma has washed it's hands of the people with the research expertise and subsequently they are now spread between biotechs, virtual biotechs, and CROs. If companies like Evotec have all the people and equipment, why would a VC want to pay to get all that stuff in?? So the VCs take the up-front research cost based risk (and the reward) and the pharmas then just act like private equity firms to buy up the winners and pay for the clinical trials (still the biggest risk-reward part of the pie), manufacturing (in the east) and sales.

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