Blog | June 26, 2025

Can Innovation in Drug Discovery be a Service?

By Matt Clark, Chief Scientific Officer

Service providers are evolving from simple contractors to essential innovation partners in modern drug discovery

The Missing Link in Drug Discovery Conversations

A world-renowned research institution recently held a symposium organized by its research licensing office. The theme of the symposium was: bridging the gap between academic research and the commercial priorities of the biopharma ecosystem. The goal was to accelerate the adoption of new technologies and the development of new therapeutics. A panel discussion explored how innovators can attract investment. Much of the discussion revolved around forming stronger connections between academics, investors and pharma. Those familiar with the drug discovery ecosystem, however, might note a crucial omission: service providers. While academics, investors, and pharmas are key stakeholders in the incubation of new technologies and biotech formation, the role of service providers was absent from the discussion.

Service providers can be viewed as the backbone of the industry, providing crucial resources, world-leading talent, and the enabling data that shape the value propositions for biotechs and pharmas. In this article, we explore the important role service providers can play in the discovery of new therapeutics and in facilitating access to new technology platforms. We will also examine the challenges they face in justifying investments, as they rely on profitability in a market constrained by intense competition, price pressures and a preference for in-house innovation platforms. Our focus is on the discovery and pre-clinical development phases of small molecule drug discovery, though the same dynamics apply to biologics and to later stages of development.

Outsourcing and CRO Engagement in Drug Discovery

In recent decades, drug discovery companies (both established pharmas and biotech startups, collectively “biopharma”) have undergone a fundamental transformation in how they resource their research activities. The availability of skilled personnel in relatively low-cost countries like China and India has led to the outsourcing of large portions of drug discovery research, particularly in synthetic chemistry, but also biochemistry, protein science, DMPK, cell biology, and in vivo studies. It is now routine for pharmas to maintain large teams at low-cost CROs. For value-added research, similar providers exist in western countries where, while the personnel costs are generally not competitive, data quality and specialized expertise can be a differentiating factor. Regardless of geography, there now exists a multitude of service providers, ranging from well-established behemoths to niche providers, who create a powerful data-generating ecosystem which can be accessed by drug hunters to push their ideas forward in a capital efficient manner.

Pharmas can maintain large footprints at low-cost providers and can flexibly allocate those resources across multiple drug discovery projects as needed. In this model, the CRO functions as an extension of the pharmas’ internal research team. Project strategy, tactical planning and nearly all decision-making remain with the pharma’s project leadership. This model is both attractive and efficient: CRO FTEs are less expensive than internal staff and the footprint of the CRO resources can be easily flexed—adding heads during peak demand or reducing them when demand drops—without hiring, facility builds, capital expenditure, or layoffs. Pharmas have created internal capabilities to manage external resources, including data handling, storage and annotation, shipping logistics, and project management.

Biotech startups engage with CROs in a different way, depending on their stage in the biotech lifecycle and available capital. Some even operate as fully virtual companies without internal research capabilities, relying on service providers for data generation. Such biotechs can be thought of as “a scientist, an idea, and a bank account,” a model common at the seed stage but sometimes sustained through multiple investment rounds. Other biotechs adopt a more pharma-like approach, building strategic internal expertise and core research capabilities, supplemented by CRO support in specific areas. Blended teams of internal and external resources are increasingly common.

The Two Main Biotech Models: Disease Hypothesis vs. Platform-Driven

The way biotechs engage with CROs is often influenced by their own value proposition and founding thesis. Broadly, biotechs fall into two categories: those based on a novel disease hypothesis and those that centered on a modality or platform. Disease-focused biotechs are often spun out of academic labs where research has revealed new therapeutic approaches, such as identifying a novel target, mutant, binding site, or disease pathway. With disease biology as their core value pillar, these biotechs are typically platform-agnostic and, as a result, highly virtual, leveraging a network of service providers for the necessary technologies and expertise and guided by a lean team of internal research leaders and advisors.

Platform biotechs, on the other hand, are founded to exploit a new approach, modality, or technology for therapeutic development. These platforms could be things like PROTACs, RNA targeting, DNA-encoded libraries, AI algorithms, quantum computing, or other technologies that are not specifically geared to a particular disease or pathway. Such biotechs deploy early capital to build their platform and then exploit it to create new therapeutics.

It would be disingenuous to describe these companies as “a platform looking for a disease;” in most cases, platform biotechs are deliberate in selecting target indications that synergize with the capabilities of their platform. Still, while the starting point is the platform, this can create resourcing conflicts when programs reach capital-intensive stages such as pre-clinical or clinical development.

It is common for biotechs to reduce research spending to conserve cash for clinical trials. For platform biotechs, this is particularly problematic. The very capabilities that created the pipeline assets are shed to fund their development. As a result, opportunities for new therapies from the original platform are lost. While platforms are sometimes sold to other biotechs, this appears to be the exception rather than the rule. If the same platform is required for a new biotech’s pipeline build, then it must be rebuilt from scratch, requiring additional capital and time.

The Role of Innovative CROs in Supporting Biotech Growth

This build-scrap-rebuild cycle creates a clear opportunity for the more innovative service providers. Unlike cost-focused CROs that merely offer flexible staffing and overhead savings, innovative CROs deliver technology platforms and scientific expertise that can give the biotech a competitive edge in its pipeline build. The idea is simple: CROs can maintain platforms over a long term, building a critical mass, refining capabilities, and spreading costs across multiple clients. This creates economies of scale, making access to cutting-edge technology more affordable and efficient than in-house reinvention development.

Biotech clients benefit by accessing platform capabilities at a lower cost, often with greater sophistication than they could achieve internally. Meanwhile, CRO staff gain long-term opportunities to develop and improve technology without being subject to the volatility of a startup’s funding cycle. Everyone wins.

A growing number of CROs now provide differentiated, innovative technologies. For instance, some provide organ-on-a-chip technologies that improve the predictive value of disease models. These are typically delivered through flexible service models that give biopharma clients access to complex tissue modeling capabilities that would be cost-prohibitive to create in-house. Others offer high-throughput formulation services aimed at improving the oral availability of biologics, which is a data- and infrastructure-heavy process that is often inaccessible to smaller biotech firms without partnership models. Additionally, CROs specializing in advanced hit discovery, including DNA-encoded library screening, give clients access to massive libraries of drug-like compounds, sophisticated data analysis pipelines, and cumulative expertise built from running hundreds of discovery campaigns. These platforms allow clients to overcome internal limitations and pursue high-risk, high-reward programs that would otherwise be out of reach.

These examples illustrate how innovative CROs offer a capital-efficient path for accessing advanced drug discovery platforms. As strategic partners, these service providers bring deep knowledge, long-term perspective, and operational scalability that can help biotechs reach the clinic faster. Their interests are aligned with those of their clients. They succeed when their clients succeed, and the business models they offer can reflect this shared risk.

Challenges and Opportunities for Service Providers

As attractive as this model is, two questions remain about its viability. Firstly, the financial upside for service providers can be a challenge. The low-cost CRO ecosystem has led biopharma procurement teams to prioritize price above all else, even when the value of innovative platforms can’t be easily captured through a simple fee-for-service structure. At the same time, risk-sharing and milestone-based deal structures remain largely confined to biotech-pharma partnerships, but this is beginning to change.

In most cases, service providers create enterprise value through profitability and growth rather than asset ownership. If the market does not support service rates that allow CROs to maintain profit margins and continue investing in innovation, these providers will disappear or pivot toward a low-innovation, low-cost model. This would leave industry stuck with the wasteful build-scrap-rebuild cycle. In the end, such fragmentation of innovation will slow the discovery of new therapeutics and hinder the development of groundbreaking technologies that can drive a new era of rapid discovery and development of precision medicines.

Secondly, it is an open question whether the biopharma community will accept that certain innovations and high-value platforms are best operated within service providers. Biotechs who have invested in technical platforms often regard them as core to their value proposition and can be loath to abandon them (up until the moment they are forced to shut down the platform to conserve cash for clinical development).

Reimagining the Role of Service Providers in the Drug Discovery Ecosystem

Can innovative service providers find their place alongside academics, investors, and biopharmas as crucial links in the drug discovery value chain? Can platform innovations thrive and grow within profitable, service-oriented enterprises? We believe that for the biopharma industry to fully capitalize on advances in personalized medicine, artificial intelligence and new treatment modalities, it must begin to view service providers differently.

We look forward to seeing how this dynamic drug discovery ecosystem evolves over the next few years.

This article is originally published in European Biopharmaceutical Review, Summer 2025, pages 22-24.

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