Growth Opportunities in Drug Discovery and Early Development Outsourcing Services

Revenue forecast

The revenue estimate for the base year 2023 is $26.60 billion, with a CAGR of 9.9% for the study period 2021–2028

The Impact of the Top 3 Strategic Imperatives on the Drug Discovery and Early Development Outsourcing Services

Disruptive Technologies

Why:

• Technological developments to support personalized medicines, such as the transition from induced pluripotent stem cells (iPSC) to organoid cultures and engineered tissue systems; proteolysis-targeting chimeras (PROTACs); robust molecular and genome editing technologies; and easy access to whole genome sequencing are essential pillars of drug discovery and early development programs.
• Artificial intelligence (AI) and machine learning (ML) raise the prospects of innovative and cost- and time-effective therapies development.

Frost Perspective:

• AI/ML tools and novel drug development platforms have proven useful in designing novel therapies for undruggable targets. The FDA modernization Act 2.0 suggests the use of technology for preclinical models will further propel AI/ML.
• In the 5–7 years, molecular technological innovations, such as ribonucleic acid (RNA) drug discovery tools, high throughput screening (HTS), and many more, will help identify these “undruggable” targets.

Industry Convergence

Why:

• A growing shift toward establishing one-stop-shop service providers is fueling merger and acquisition (M&A) activities, resulting in a growing number of contract research, development, and manufacturing organizations (CROs).
• The emergence of small-to-mid and virtual biotech companies is leading to a great need for outsourcing services with requirements linked to toxicity assessment, cell line engineering, and antibody testing (among many others), which are the pillars of effective drug discovery and preclinical development.

Frost Perspective:

• In the next 3–5 years, contract research organizations (CROs) will continue to expand their internship laboratory settings with acquisitions and partnerships with specialized central laboratories.
• Players such as RASA life sciences and their bioinformatics CRO are unique, specialized service providers impacting pharmaceutical (pharma) partnerships.

Innovative Business Models

Why:

• Increasing complexities in drug development drives academic institutes and biotechnology (biotech) start-ups involved in the early discovery stages to partner with pharma companies that have the development and disease expertise to transition from bench to clinic quickly.
• Successful collaborations between academic institutes, pharma/biotech companies, CROs, and regulators to expedite drug development spark the need for a shift in partnering business models for drug discovery and innovation.

Frost Perspective:

• In the next 2–3 years, tech-enabled drug discovery (TEDD) players such as Recursion, Valo Health, and Atomwise will support drug repurposing and predictive models to find new drug molecules with a higher success rate passing through the drug development life cycle.
• Biotech companies will continue to engage in licensing deals with big pharma companies to support new approaches, such as RNA-targeting through small molecules.

Scope of Analysis

• This analysis provides an overview of the global drug discovery and early development outsourcing industry with a 5-year global revenue forecast from 2022 to 2028.
• The geographic scope of this global study focuses on three key regions, namely North America (NA), Europe and Asia-Pacific (APAC). The analysis includes revenue forecasts by region at an overall level, with additional qualitative insights on regional trends and players.
• The study also looks at M&A activity and other investment trends influencing the drug discovery and early development outsourcing industry.
• Drug discovery and early development outsourcing includes services such as target identification; hit to lead generation; lead optimization; in vitro and in vivo preclinical evaluation; absorption, distribution, metabolism, and excretion (ADME); toxicology; pharmacokinetics (PK); bioanalytical; and other analytical testing services.
• The study provides qualitative insights on the outsourcing landscape by service provider type, meaning CROs and CDMOs, in terms of the key activities each vendor supports. Furthermore, analysis includes comprehensive competitive benchmarking of the key stakeholders for specific service portfolios pertaining to drug discovery and pre-clinical development services.
• Last, the study offers qualitative insights on the therapy areas driving the outsourcing of drug discovery and early development activities.

Growth Drivers

Driver: Growing Focus on Advanced Biologic Therapies: The pharma market currently holds more than 30 innovative cell and gene therapies, 5 of which were approved in 2022 alongside the approval of RNA-based therapies for COVID-19. This indicates the prowess of large molecule pipelines and a simultaneous need for technical know-how and infrastructure to support the consistent development of these therapies, thereby leading to increased outsourcing of drug discovery services.

Driver: Increased Technology Adoption: Investment in AI-driven technologies among biopharma companies has risen manifold, which will propel outsourcing or partnering of pharma, CDMOs, and CRO companies with TEDD vendors and AI-enabled clinical development players that can provide access to skilled resources such as data scientists and information technology (IT) professionals as well as the necessary wet and dry lab capabilities to support the early-stage programs.

Driver: High Cost of Drug Discovery and Pre-clinical Development: Drug discovery and pre-clinical testing alone account for more than 30% of all drug development costs. As a result, pharma companies are increasingly looking at cutting down on costs by outsourcing to drug discovery CROs that have the infrastructure and lab infrastructure needed to support these activities at a lower cost.

Driver: R&D Investment in Acquiring Advanced Equipment for Drug Testing: The pre-clinical pipeline grew to more than 11,000 molecules in 2023, creating a strong boost to the key techniques used for drug testing, such as mass spectrometry. With growing focus on proteins, peptides, and nucleic acid-based therapies, techniques such as MALDI-TOF MS and ligand binding assays have gained traction, driving large-scale investments from CROs, CDMOs, and research labs, in turn driving analytical testing outsourcing.

Growth Restraints

Changing Regulatory Frameworks for Pre-clinical Development:

The FDA recently announced the FDA Modernization Act 2.0, which prohibits the use of animals for pre-clinical testing and instead promotes the application of simulation models. This can indirectly impact pre-clinical outsourcing, especially to CROs that are directly involved in in vivo animal testing.

Challenges with Method Validation During Stability Testing:

Stability testing and associated method validation during drug testing is of utmost importance to avoid unnecessary cost and timeline implications, whilst assessing potential success or failure. Especially with the rising number of biopharmaceuticals, such as monoclonal antibodies (mAbs) and antibody drug conjugates (ADCs), molecules contamination leading to batch-to-batch inconsistencies and improper coordination among analytical development teams could lower the success rates of the drug development process due to poor stability.

IP Transfer Challenges:

To date, many pharma and biopharma companies prefer conducting drug discovery phases in-house because of issues related to intellectual property rights and technology transfer to outsourced partners that involve potential data breaches. This can directly impact the outsourcing penetration rate for drug discovery services as well as industry growth.

Competitive Environment