Innovation is Rapidly Globalizing: India and China are Becoming Centers of Pharmaceutical R&D says Kauffman Foundation Study

This study is the first in a series on how industries are rapidly changing and the most sophisticated forms of research are now being performed abroad

 

KANSAS CITY, Mo., June 11, 2008 – Cost pressures, the need to tap global talent, and growth opportunities in emerging markets led Western pharmaceutical companies to shift substantial manufacturing and clinical-trial work to China and India. But a new study sponsored by the Ewing Marion Kauffman Foundation on the globalization of the pharmaceutical industry shows that big pharmaceutical companies such as Merck, Eli Lilly and Johnson & Johnson are now counting on these countries for advanced research and development as well.

 

According to the study, The globalization of innovation: Pharmaceuticals. Can India and China Cure the Global Pharmaceutical Market?, Indian and Chinese scientists are rapidly developing the ability to innovate and create their own intellectual property as a result of the movement of research and development (R&D) to their countries. Several firms in these countries are performing advanced R&D and are moving into the highest-value segments of the pharmaceutical global value chain.

 

In 2006, 5.5 percent of all global pharmaceutical patent applications (WIPO PCT applications) named one inventor or more located in India, and 8.4 percent named one or more located in China. This had increased fourfold from 1995.

 

“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,” said Vivek Wadhwa, executive in residence at Duke University and a fellow at the Labor and Worklife Program of Harvard Law School, who led the team of researchers conducting the study. “The challenge is for America to understand this trend and realize the potential of globalization.”

 

“The United States benefits from innovation wherever it occurs,” said Robert Litan, vice president of Research and Policy at the Kauffman Foundation. “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.”

 

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

 

1.      Indian and Chinese companies are making strides in the most lucrative segments of global value chains. In less lucrative segments, such as preclinical testing, animal experimentation and manufacturing, Chinese firms appear to be more prevalent.

 

2.      India is regarded as a more mature venue for chemistry and drug-discovery activities than China.

 

3.      Domestic Indian and Chinese firms rarely have the capital and the regulatory expertise to develop a drug beyond phase II clinical trials. Their commercial development of new intellectual property therefore necessitates relationships with major multinational corporations.

 

According to the study, because Indian drug companies have the most experience in selling generic drugs that meet FDA standards, India is playing a more strategic role in early discovery. Companies such as Ranbaxy, Aurigene, Advinus, Nicholas Piramal and Jubilant have negotiated long-term deals with Western pharmaceutical companies to discover and develop new chemical entities.

 

In a growing number of cases, the Indian companies share the financial risk in discovery as well as the potential financial rewards. One Chinese company, Hutchison MediPharma, has formed a similar partnership with Eli Lilly. Others are likely to follow suit as Chinese contract research organizations gain experience and Western companies come to trust in China‘s ability to protect intellectual property, said the researchers.

 

According to the findings, it is too early to tell whether China and India will become important sources of new drugs. In contrast to industries such as software and electronics, in which there has been substantial growth in offshore R&D, the pharmaceutical industry takes many years for a new product to emerge from R&D and regulatory approval. Most of the new risk-sharing arrangements date from 2005, so it could be another decade before there are concrete results.

 

The early progress, however, is promising, say researchers. Several companies have reached significant development milestones with new chemical entities. Several drugs from these partnerships are going into clinical testing. As a result, the trend of R&D moving to these countries is likely to gain further momentum, according to the study.

 

Further information about the study can be downloaded at www.kauffman.org

 

About the Kauffman Foundation

The Ewing Marion Kauffman Foundation is a private nonpartisan foundation that works to harness the power of entrepreneurship and innovation to grow economies and improve human welfare. Through its research and other initiatives, the Kauffman Foundation aims to open young people's eyes to the possibility of entrepreneurship, promote entrepreneurship education, raise awareness of entrepreneurship-friendly policies, and find alternative pathways for the commercialization of new knowledge and technologies. It also works to prepare students to be innovators, entrepreneurs and skilled workers in the 21st century economy through initiatives designed to improve learning in math, engineering, science and technology. Founded by late entrepreneur and philanthropist Ewing Marion Kauffman, the Foundation is based in Kansas City, Mo. and has more than $2.4 billion in assets. 

Contacts:

Barbara Pruitt, 816-932-1288; bpruitt@kauffman.org, Kauffman Foundation

Tom Phillips, 212-935-4655, comptwp@aol.com, Communication Partners

Posted: June 2008


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