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Amazon.com For Science

For the travel industry, there’s Expedia. For music, it’s Apple Inc.’s iTunes. For books, there’s Amazon.com.

Scientist Kevin Lustig of Solana Beach hopes that his web-based company, The Assay Depot Inc., will similarly transform the pharmaceutical research industry.

Lustig and his business partner, software developer Christopher Peterson, have developed a fast-growing online marketplace that pharmaceutical companies can use for free to shop for outsourcing help in more than 600 ultra-specific drug research areas.

“The pharmaceutical industry has a major problem that our system addresses,” said Lustig, who co-founded San Diego drug discovery company Kalypses Inc. in 2001. “There’s been an unsustainable increase in costs and a decrease in clinical success rates.”

With a dearth of new drugs in the pipeline and serious financial pressures, pharma companies have laid off thousands of employees — more than 20,000 in 2011, according to outplacement firm Challenger, Gray & Christmas Inc. — and are re-evaluating their R&D engines. To keep costs down, they’re more often relying on academia, small biotech companies and external vendors.

Lustig said his online marketplace, which was inspired by consumer websites such as eBay and Yelp, supports a new era of “virtual drug discovery,” with scientists spending more of their time finding new drug targets and using contract researchers to do the development legwork, all the way to human clinical trials.

“For the first time in history, it’s not about what you can do on your own in a research laboratory,” he said.

Drug Industry’s New Normal

Vendors can enter a basic listing on AssayDepot.com for free or pay anywhere from $50 to $299 per month for a more prominent listing that displays a catalog of services. “It’s not just a Yellow Pages,” Lustig said. “It offers significant technical detail.”

About 200 of the 540 registered vendors are paying for a premium listing, he said.

The website has processed nearly 10,000 requests for services, he said, with much of that activity happening in the last 14 months.

Assay Depot has also caught the attention of Big Pharma, which sees value in using the system internally. Since 2010, Assay Depot has forged deals with three of the top 10 drug companies, including Pfizer Inc., with each paying $250,000 per year to license a private version of the online marketplace that keeps track of hundreds of research vendors used for smaller projects.

With the Pfizer arrangement, Assay Depot has also linked the private research marketplace directly into the company’s internal purchasing system. “That makes us much more sticky than we would be otherwise,” Lustig said. “We think we have a good foothold established.”

The private research exchanges are built for easy scanning; they include a five-star rating system and badges to help scientists quickly see if vendors are compliant with regulations, such as the Foreign Corrupt Practices Act, and if there are already service agreements in place with the company.

“That’s really a huge thing to be able to order services on demand and not have to go through compliance review,” Lustig said.

Outsourcing Is In

While outsourcing is common in other industries, it hasn’t always been that way in the world of pharma. “Large pharmaceutical companies used to believe that anything that came from the outside was not good because they could do it better themselves,” said Bruce Register, a former Merck executive who is founder and CEO of Register Consulting & Executive Search in San Diego.

The downside: “They were spending 10 percent or more of their revenue on research,” and not seeing a good return on that investment, he said.

The drug research model began to shift in the early 2000s, prompting thousands of smaller contract research companies to pop up all over the world.

But there has never been an easy way to communicate with them and do e-commerce with them, Lustig said.

Lustig said he hopes the online marketplace will also “level the scientific playing field” by giving every scientist access to researchers in all areas of life science.

It’s an idea that first struck him in the hallways of UC San Francisco and Harvard Medical School.

“Being surrounded by fantastic scientists really brought everyone’s game up to a different level,” Lustig said. “Any time you had a technical question, you could just go down the hall and ask someone. My goal was to bring that kind of access to everyone else.”

Keeping It Contained

Lustig and his partner have raised a modest total of $3.5 million since 2007 to fund the company. “I’m fairly well hooked into the VC community and I could have raised more money,” said Lustig, who raised more than $170 million at Kalypses.

This time around, he didn’t want to give up control to outside investors. “I learned my lesson,” he said. “We went into this with the idea that we raise as little as possible, not as much as possible.”

The company has seven full-time employees and hires outside help for finance, legal expertise, graphic design, and other specialties.

“If we can scale this, we can keep the company below 20 people and still be the leader in this industry that we’re trying to create,” Lustig said. “It’s not about growing to 5,000 people. It’s about keeping it as small and contained as possible.”

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