Strategic Analysis of the World Combinatorial Chemistry Markets
27-Feb-2004
Having generated an estimated $535 million in 2002, the global combinatorial chemistry markets are projected to reach $852 million in 2009, at a compound annual growth rate of 6.9 per cent.
For the moment, however, reduced R&D spending by pharmaceutical and drug discovery biotech companies, among the biggest consumers of combinatorial chemistry services, is negatively impacting market growth.
Companies competing in this market are exploring several strategies to fend off the impact of such challenges. Shifting the process of compound synthesis to low-cost countries in Eastern Europe and the Asia Pacific could help conserve critical financial resources. Additionally, setting up in-house drug discovery research programmes can help companies develop leads, which they can then lease out to pharmaceutical and biotech companies.
"Investing in internal drug discovery programmes can help companies leverage in-house expertise in high throughput screening and lead optimisation," observes Industry Analyst Isaac Meek from Frost & Sullivan.
In a related opportunity, companies can look at licensing drug discovery tools - including software and instrumentation - to pharma and biotech companies.
As opportunities to enter into "shared-risk" agreements with Big Pharma decrease, combinatorial chemistry companies must consider developing similar agreements with drug discovery biotech firms instead.
Biotech companies in search of candidates for identified targets are far more likely to enter agreements that require the payment of future royalties and licensing fees than increasingly cost-conscious Big Pharma. Companies can also explore the possibility of generating "shared-risk" agreements from existing contract and catalogue business.
Growth prospects for the combinatorial chemistry markets are expected to become brighter as sustained genomics and proteomics research yield an increasing number of validated targets. Additionally, as pharmaceutical companies feel growing pressure to identify and develop new therapies in order to fill empty pipelines, their R&D spending is likely to correspondingly increase.
Accordingly, the combined R&D expenditure of drug discovery biotech and the top 20 pharmaceutical companies -- which touched $57 billion in 2002 -- is expected to top $73 billion by 2006. R&D spending of the top 20 pharma companies is anticipated to continue growing at approximately six per cent through 2006, although the percentage dedicated to combinatorial chemistry services is not expected to increase over the forecast period (2002-2009).
Conversely, the growth rate of biotech R&D spending is expected to decrease over the same period. However, biotech companies' consumption of combinatorial chemistry products and services is projected to increase as a percentage of their total R&D expenditure.
Major technological trends such as the development of libraries containing complex natural product-like compounds are expected to strongly influence the direction of the combinatorial chemistry markets. Market preference also seems to be leaning toward smaller, more focussed, "parallel" libraries. In fact, significant advances in informatics and modelling are enabling researchers to develop such libraries, which yield greater value.
Companies that focus on continued development of such libraries as well as on contract discovery services for Big Pharma can expect to find substantial growth opportunities.
In keeping with growing customer demand for complete drug discovery solutions, many combinatorial chemistry companies are shifting to an integrated research model that enables them to offer an extensive range of services and software products. This rising trend will particularly favour large companies.
The National Institutes of Health's (NIH) focus on "molecular libraries and imaging" is expected to drive the adoption of small-molecule research. This initiative is expected to be instrumental in giving public sector researchers access to compound libraries and has the potential to drive the market through lead optimisation research.
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