The Globally Integrated Biotech Is Down, But Not Out

Alex Harding, MD. Entrepreneur in Residence, Atlas Venture; internal medicine physician, MGH

“What else can you do? The entire isolation of Russia. Nowadays we see real solidarity of the whole world to cancel or stop any economic, cultural, technological, financial connections with Russia and we urge the same from the Drug Discovery community.”

This was the message on Mar. 5 from Andrey Tolmachov, founder and CEO of Enamine Ltd., a Ukrainian chemistry services provider, to his clients in the biopharma industry.

Tolmachov’s words reflect the dire situation in Ukraine, a country under attack from the Russian army, and fighting to preserve its existence as an independent nation. His words also reflect powerful economic ties between Enamine and the drug discovery industry.

Andrey Tomalchev, CEO, Enamine

As reported by Jason Mast at Endpoints, Enamine has become a dominant supplier of chemical building blocks and gigantic chemical libraries that can be used by biopharma companies to conduct high-throughput drug screens. In its facilities in Kyiv, Enamine has enormous banks of freezers containing millions of compounds that cannot readily be obtained anywhere else in the world.

Tolmachov’s appeal, then, is not solely an emotional appeal. Numerous companies, including powerful large pharma companies, have a strong economic incentive to see Ukraine, and Enamine, pull through this war intact. Perhaps those incentives will make those companies more likely to heed Tolmachov’s words and exert economic pressure on Russia to back down.

Such dependence upon a single company based in a mid-sized emerging country is a case study on the opportunities and pitfalls of the globalized business model that has emerged in the biopharma industry over the past 10-15 years.

The vision behind this model was that companies headquartered in one location could tap into resources from diverse geographic regions, exploiting cost of living differences and strong regional expertise to obtain quick and cheap services, all while maintaining flexibility to expand and contract services rapidly depending on scientific and business needs.

That vision has taken a beating over the past two years. The war in Ukraine is only the latest example of a major geopolitical crisis to strain the globalized biopharma business model.

Pandemic Lockdowns

The biggest stressor, of course, has been the COVID-19 pandemic. Early in the pandemic, when most of China went into lockdown, biopharma companies’ work at key Chinese service providers, including WuXi AppTec, Pharmaron, and ChemPartner, and others, ground to a halt.

Just as companies scrambled to shift those services to service providers in the US and Western Europe, the virus spread globally, leading to rolling lockdowns throughout much of the world. For the past two years, managing a global network of vendors has turned into a global game of whack-a-mole as different cities and countries have gone through unpredictable pandemic restrictions that have contributed to various business interruptions and delays.

Stalled Supply Chains

Next came the supply chain crisis. Globalized companies rely upon fast shipments between facilities. A biopharma may hire one company in Asia to produce an experimental molecule, another company in Europe to perform in vitro characterizations of that molecule, and a third company in the US to study the molecule in an animal model of a certain disease.

The drug discovery process is iterative; anywhere from a few dozen to a few thousand molecules may be made and tested in a variety of in vitro and in vivo studies before a specific molecule is chosen to enter clinical trials. Even a one-week delay in shipping between two sites that gets multiplied many times over during a drug discovery campaign can dramatically delay a company’s timeline to begin clinical trials.

Crippled Service Providers

Now, the Ukraine crisis has brought another stressor to the globalized biopharma business model. Enamine is no longer able to fulfill any orders from its Ukrainian facilities. While Enamine has a few facilities outside of Ukraine, including one site in New Jersey, those sites are small compared to the Kyiv headquarters and cannot perform the full range of services that were performed in Kyiv.

Beyond the preclinical services that Enamine focuses on, clinical trials are also under threat. Hundreds of clinical trials were active in Ukraine at the start of the war. Some trials are dependent on Ukrainian sites to enroll a large percentage of their overall patient quotas. Most of those sites have surely stopped enrolling new patients, and many patients who were already participating in a trial have probably been forced to discontinue prematurely because of the war.

What Now?

With all the stresses to the globalized model over the past two years, it is natural to consider reverting to an entirely local and in-sourced approach to drug development. Rather than working with companies across the globe to manufacture compounds, test them preclinically, and study them in clinical trials, one could imagine building internal facilities and hiring scientists to conduct all the work of drug discovery and development within one biopharma company based here in the US. Clinical trials could all be run in-country as well.

In light of all the challenges that have arisen over the past two years, wouldn’t an “in-sourced and localized” model be safer and more efficient than the globalized model?

Absolutely not.

For one thing, it isn’t possible to internalize all the capabilities that outsourced providers offer. Enamine, for example, offers millions of compounds that can be ordered off the shelf and billions of compounds that can be synthesized on demand. No small or mid-sized biotech could dream of developing such a capability internally. Enamine has spent 30 years building up this capability.

What’s more, even if a biopharma company could build those capabilities internally in a city like Cambridge, MA or San Francisco, CA, they would likely sacrifice quality in doing so. While those cities harbor an exceptional concentration of biotech companies, they do not hold a monopoly on scientific talent. There are excellent scientists in China, India, Ukraine, and elsewhere that companies can work with, who would be unavailable to a company that insisted on working exclusively with scientists based in Cambridge or the Bay Area.

Last, we should not assume that the US and Western European countries are not themselves vulnerable to crisis. If anything, the past two years have demonstrated that we are all vulnerable, whether it be to a pandemic or even a war. A flexible, globalized model will be more resilient in the long run than one dependent on any single location.

A More Robust Globalized Model

Rather than abandoning globalization, the biopharma industry should seek a more robust network of global service providers. Companies should partner with multiple service providers in diverse geographic regions so that if one company or one country shuts down, another service provider in another region will be able to pick up the slack. Companies should get contracts in place before they need them, and those contracts should allow services to flexibly expand and contract.

Biopharma companies should also assess their supply networks for weaknesses. Wherever possible, companies should avoid relying on a single supplier for a crucial service or material. In some cases, it may be necessary to maintain a stockpile of a material that is subject to shortages or that only one vendor can provide.

Taking these measures will preserve the advantages of the globalized biopharma business model—flexibility, affordability, and quality—while making the model more resilient to unforeseeable macroeconomic and geopolitical events like those that have occurred in the past two years.

For Enamine, all we can do now is follow Andrey Tolmachov’s advice and push for a Russian withdrawal. For our industry, for the future, we can build an improved globalized model that benefits from the capabilities of excellent companies like Enamine, and does so in a more resilient, sustainable manner.

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