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Outsourced Chemistry Shop, BioBlocks, Sees Growth in San Diego and Hungary

Xconomy San Diego — 

Peter Pallai has an unusual take on outsourcing. In his view, it might be the way to bring some stability to the volatile world of biotechnology.

Pallai, a Hungarian-born medicinal chemist, is carrying out this vision through a contract-chemistry shop in San Diego called BioBlocks. Pallai started this outfit in 2002 after spending more than 20 years at drug companies, including Woburn, MA-based ArQule (NASDAQ: ARQL). In those jobs, he saw firsthand that after a biological discovery is made, say, of a promising new target for cancer, then the long, hard slog begins. Chemists need to work to “optimize” a drug that hits the target precisely, and tightly, without causing harmful side effects—a process that can take years and millions of dollars.

Approximately one out of 5,000 compounds pass an initial screen, hit the designated biological target, and end up making it to clinical trials. So Pallai’s pitch is simple. He and his team are good at one thing-chemical synthesis of new drug candidates to hit those targets. By outsourcing this piece of the puzzle to his team of chemists, about 25 of whom work in Budapest, Hungary, biotech companies can get the work done fast and well, he says. It makes sense professionally for his chemists as well, because they can get steady work, rather than hitch their wagons to one of hundreds of biotechs that dream of becoming the next Genentech, but are more likely to end up flaming out in a few years.

“This is a treacherous path to travel,” Pallai said when I visited his office a few weeks ago. “Companies have to ask themselves if these are things they really know well how to do. We can make them more efficient, and spend their intellectual effort on other things.”

BioBlocks claims it can shorten the process from a biological “hit” to the identification of a “lead” drug candidate to inhibit it. Running through the databases, the patent literature, finding the right reagents and ingredients is the chemists’ forte, he says. It’s a critical skill that biotech companies often lack.

So why do this work in Hungary? First, Pallai has connections there and speaks the language. But second, he says Hungary has an ample supply of talented chemists with experience at companies like Sanofi-Aventis. And, of course, the wages … Next Page »

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  • SRINI N

    Pallai’s business model is based upon cost arbitrage as is most outsourcing models. This will work until wage rates flatten out across the globe which will over a period of time. First work shifts to low cost execution locations. Then workers would shift to such countries thus flattening the wage curve.

    I feel the second stage in evolution of outsourcing would be when skills and expertise become the cause for outsourcing. Companies which merely play on cost advantage will fold up and only those with competency advantage will survive and thrive.

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