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KANSAS CITY, Mo. – Mounting cost pressures, a vast pool of talented scientists in other nations around the world and increasingly abundant opportunities for collaboration with other companies in emerging markets have spurred Western pharmaceutical companies to shift much of the manufacturing operations and clinical-trial work to India and China.

Yet, according to a report issued recently by the Kansas City-based Ewing Marion Kauffman Foundation on the globalization of the pharmaceutical industry, many of the largest, U.S.-based drug and consumer-products companies, including Merck & Co. Inc., Eli Lilly & Co. and Johnson & Johnson Inc., are now counting on the two Asian countries for advanced research and development, as well.

The study, titled “The Globalization of Innovation: Pharmaceuticals – Can India and China Cure the Global Pharmaceutical Market?” reports that Indian and Chinese scientists are rapidly developing the ability to innovate and create their own intellectual property as a result of Western companies shifting their research and development operations to the two countries. In fact, several non-Indian firms with business units in India and China are performing advanced discovery and have begun to move into the “highest-value segments of the pharmaceutical global value chain,” according to the study.

Wadhwa

“Globalization is happening faster than people think. Having India and China conduct such sophisticated research and participate in drug discovery was unimaginable even five years ago,” report author Vivek Wadhwa, an executive in residence and adjunct professor Duke University’s Pratt School of Engineering, and a fellow at the Labor and Worklife Program of Harvard Law School, said in a statement. “The challenge is for America to understand this trend and realize the potential of globalization.”

In 2006, 5.5 percent of all global pharmaceutical patent applications named one inventor or more located in India, and 8.4 percent named one or more located in China, according to Wadhwa, who led the team of researchers in the study. These figures reflected a four-fold increase since 1995.

Through detailed interviews with executives of 16 pharmaceutical firms in China and India on their business models, partnerships and technology capabilities, the researchers found that:

• Indian and Chinese companies are making strides in the most lucrative segments of the industry. In less lucrative segments, such as preclinical testing, animal experimentation and manufacturing, Chinese firms appear to be more numerous
  
• India is regarded as a more mature market for chemistry and drug-discovery activities than China
  
• Domestic Indian and Chinese firms rarely have the capital and the regulatory expertise to develop a drug beyond second-phase clinical trials. Their commercial development of new intellectual property therefore necessitates relationships with major multinational corporations.

Because subcontinent-based drug companies have considerable experience in manufacturing generic drugs that meet the U.S. Food & Drug Administration’s rigid standards, India’s role in early drug discovery has increased substantially in recent years – a trend that the researchers attribute to the country’s vast population, which is approaching 1.2 billion people. “The large populations of India and China make both countries exceptional markets for low-cost generic drugs, and domestic companies that have succeeded in marketing them in volume are using the proceeds to fund drug research and development,” the report states. “These activities most often take the form of either internal development of precedented drugs or development of the drugs’ intellectual property through partnership with a multinational [corporation].”

Accordingly, companies such as Ranbaxy Laboratories Ltd., Aurigene Discovery Technologies Ltd., Advinus Therapeutics India Pvt. Ltd., Nicholas Piramal India Ltd. and Jubilant Organosys Ltd. have negotiated long-term deals with Western pharmaceutical companies to discover and develop new chemical entities.

Increasingly, the aforementioned and other India- and China-based pharmaceutical companies are sharing the financial risk in discovery, as well as the potential financial rewards. Examples of such partnerships include Ranbaxy and the United Kingdom-based drugmaker GlaxoSmithKline Plc, which teamed up to develop a respiratory anti-inflammation medication; Advinus and Merck, which are collaborating on a treatment for metabolic disease, and Shanghai-based Hutchinson MediPharma Ltd. and Indianapolis-headquartered Eli Lilly. The researchers predict other Indian and Chinese drugmakers will follow suit.

But, it is too early to tell if India and China will eventually rival the United States as important sources of novel drugs, and not just as the world’s top producers of generic medications. Whereas high-tech sectors such as software development and electronics manufacturing have experienced tremendous growth in Asia – the former in India and the latter in China – in the pharmaceutical industry, new products take years to emerge from the research and development stage and then must still clear regulatory hurdles. According to Wadhwa, most of the new risk-sharing agreements between Western and Asian drugmakers are relatively new, dating to 2005, so it could be another decade before they produce concrete results.

Furthermore, Indian and Chinese companies will have to overcome significant obstacles that threaten to block future growth, including intellectual-property protections and even protectionist attitudes in the United States. In years past, Indian companies were able to achieve early growth by relying on national patent laws that recognized only process patents, or how a product was created – not the idea behind it. But in recent years, the Indian government has adopted new regulations that protect the idea behind an invention – so called “product patents” – and not just the process.

The report also cites backlashes in the United States against international outsourcing as another threat to the future growth of Indian and Chinese drugmakers. For example, Illinois-based Baxter International came under fire in the United States last year when its blood thinner Heparin, which contained an active pharmaceutical ingredient manufactured by the Chinese firm Changzhou SPL, was linked to at least 20 deaths in the United States. Neither the FDA nor the Chinese regulators had previously inspected Changzhou’s plant, but that changed when the media learned of the story. As a result of the deaths, Michigan Democrat Bart Stupak, who chairs U.S. House Subcommittee on Oversight and Investigations, is considering legislation that could “prohibit the marketing of any drug from a plant that has not been properly inspected.”

Despite these challenges, the researchers consider the early progress attained by Indian and Chinese pharmaceutical companies promising and exciting. The report cites as examples several companies that have reached significant development milestones with new chemical entities. And several drugs from these partnerships are going into clinical testing. As a result, the trend of research and development gravitating toward these countries is expected to gain further momentum.

	Litan

“The United States benefits from innovation wherever it occurs,” Robert Litan, vice president of Research and Policy at the Kauffman Foundation, said in a statement. “Having more countries like India and China develop treatments for diseases is good for the world and will help reduce the overall costs of health care. But the United States benefits most when those discoveries are made by companies owned primarily by U.S. citizens.”