The region’s strategic shift from outsourcing to innovation
Once the exclusive domain of companies located in western Europe and the U.S., the amount of biopharmaceutical R&D activities conducted in emerging and non-traditional geographies has seen significant growth in recent years. As drugmakers face an increasingly competitive landscape and development costs continue to rise, pharmaceutical firms big and small are seeking every advantage to maximize the value of their R&D efforts. As a result, many companies have flocked to Asia-Pacific for better access to patients, lower costs and operational efficiencies.
Yet amidst the massive clinical development work occurring in the region, a thriving biotechnology sector is driving innovation on its own. With less experience in traditional biopharmaceutical development, these regional innovators are turning to research-based partnerships as a way to further advance their portfolios. We shall discuss the variety of factors that are behind the region’s transformation from a simple outsourcing destination to a potential hub of true biopharmaceutical innovation.
A New Landscape of Opportunity and Investment
For more than a decade, the emerging markets of the Asia-Pacific region have held special promise for the global biopharmaceutical industry. Driven by a combination of rapidly expanding economies, technological innovation and a talented workforce, the region has seen explosive growth in both economic and political power during the past 10 years. Today, China and India stand on the threshold of global superpower status, while a range of factors — from deregulation and better trade links, to improved access and the rise of medical tourism — have enabled markets such as Malaysia, Vietnam, Indonesia and others to take on increasingly important roles in the region.
From a biopharmaceutical development perspective, such growth has hardly gone unnoticed. In recent years, a veritable wave of western companies have set up shop in the entire Asia-Pacific region and beyond, eager to capture a portion of the region’s comparative advantages in talent costs, patient pools and disease demographics. Faced with declining R&D productivity, increasing development costs, decreasing pipelines and lower earnings, these companies are turning to Asia for greater efficiency, lower costs and increased speed to market in clinical development operations.
In meeting these needs, the region has more than matched its promise as a low cost, higher value service provider. Yet, as the industry continues to grapple with its challenges, the potential sought by many western companies as part of their Asian strategy is changing. Biopharmaceutical companies are under intense pressure to increase productivity, accelerate timelines and better manage complexity throughout all phases of the drug development paradigm. In order to operate effectively in an increasingly competitive economic and commercial landscape, they are searching for new partners and new strategies to help navigate risks and seize opportunities.
In this regard, Asia as a whole may be poised to assume the mantle of leadership as the strategic partner of choice for global pharmaceutical companies — a partnership that goes beyond simply providing patients and data. Today, Asia is gaining the experience and infrastructure needed to expand its ability to support the global biopharmaceutical industry by performing work and fostering innovation that moves higher and higher up the biopharmaceutical value chain.
As a result, outsourcing to Asia is shifting from a tactical to a strategic imperative that builds upon the region’s experience and expertise. As pressure on biopharma’s development pipelines continues to grow, companies are setting their strategic sights on a future where Asia is not just a market and support powerhouse for the industry, but a provider of key contributions to drug discovery and research innovation as well.
To be sure, the region has yet to develop a completely outsourced drug discovery program that has progressed from inception to drug candidate, and such an event is likely to remain a few years or more away. Nevertheless, as the wider global economic balance shifts from west to east, a virtuous circle is being created that not only enhances Asia’s attractiveness as an outsourcing partner, but may ultimately change the drug development paradigm in the region and beyond.
This cycle is already beginning to bear fruit. Increasingly, western biopharma companies are turning to research-based partnerships as a way of sourcing high-end expertise and building up drug discovery investment in Asia. For example, in 2009 Pfizer announced a joint initiative with the Shanghai Institutes for Biological Sciences (SIBS) to support fundamental research geared toward drug discovery and development programs in China.1
The impetus for innovation is coming from other sources as well. A mixture of collaborative research, contract research, outsourcing and co-development is sprouting all over Asia, fueled by organizations such as CROs that are seeking to enhance revenue streams and expand market opportunities. India-based biopharma companies such as Dr. Reddy’s that have specialized in generic drug manufacturing are also seeking to compete in new drug discovery. Many private equity funds located in the developed world are investing in a range of higher end activities by Asian biopharma companies.
With such widespread innovation occurring across the region, the possibility exists for Asia-Pacific to become a prime proving ground for the notion of “virtual drug development,” in which nearly every step in the development lifecycle is provided by a network of nimble partners. This could involve partnering with innovative companies or research centers to access intellectual property — with or even without capital — to develop and commercialize promising drug candidates. A flexible, global partner could prove to be a valuable ally in such a construct due to its efficient cost structure and regional focus.
Governments across the region are stepping up, too. The Indian government, for example, has started offering incentives to domestic and multinational drug makers to encourage new drug discovery and turn the country into one of the top five pharma innovation hubs by 2020.2 Countries such as South Korea, Singapore and Malaysia have all identified the biopharmaceutical industry as a strategic sector worthy of public infrastructure investment and support.
Singapore, for example, continues to attract attention with two flagship R&D centers operated by the Agency for Science and Technology Research (A*STAR), including Biopolis, opened in 2003 to develop biomedical sciences, and Fusionopolis, an interdisciplinary research center designed to bring technology experts from A*STAR and those from the private sector together under one roof. Singapore has committed to an additional $9.2 billion from 2006 through 2010 to transform the city-state into a public and private R&D hotspot.3 The government also offers a number of R&D grants that can subsidize as much as 50% of a company’s capital expenditure, depending on what type of skills and expertise it brings to Singapore.
In Malaysia, innovation and development holds special status as well. The development, testing and production of biopharmaceutical products are entitled to High Technology Pioneer Status, which offers significant tax incentives. Malaysia is also a participant to the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), which helps to protect innovative patents. To bolster clinical trials, the Clinical Research Centre (CRC) functions as the clinical research arm of the Ministry of Health to operate a network of 17 centers around the country. CRC serves as a single point of contact to access all Ministry of Health hospitals and clinics to carry out clinical trials in Malaysia.4
For its part, South Korea’s biotechnology and pharmaceutical industry has been rapidly growing, due in no small part to government support. The Korean government has set forth Bio-Vision 2016, a national plan to promote biotechnology aimed at strengthening the core infrastructure necessary to develop and commercialize original bio-technologies.5 As a key growth engine for the county, the Korean biotechnology industry is expected to reach $6.5 billion in 2010, with actively developed products including hepatitis vaccines, antibiotics, amino acids (particularly lysine) and more recently, post-genomics related products.6
Regional and Global Biopharma Market
The biopharma market in the region is expected to grow at 16.4%, more than triple the corresponding global rate, driving global market share from 9% to 16% over a five-year period (2009-14). China and India will increase their global rankings in the global biopharmaceutical market to #3 and #10 by 2014 (current rankings are #5 and #14 respectively). The region’s market will be the world’s third largest (after the U.S. and western Europe) by 2014, and the second largest by 2018, if predicted growth rates are maintained. These data represent a remarkable market shift from the west to the east, creating a huge growth opportunity for appropriately positioned providers of goods, services and intellectual property.
Sources: Goldman Sachs: Unites States: Healthcare Services: CRO, December 2007
Frost and Sullivan: Entry Feasibility Study of the China Local CRO Market, August 2008
Ernst & Young: Clinical Services – India Market Assessment, October 2008
Espicom: The Outlook for Pharmaceuticals in South East Asia, 2008
Business Insights: The CRO Market Outlook To 2014 – Emerging markets, leading players and future trends, August 2009
Expanding Markets, Increasing Power
For this cycle to continue, a range of factors must come to fruition before Asia can meet its promise as an incubator for drug innovation and discovery. Key countries — particularly China and India — must address longstanding issues that have undermined progress in the past. Perhaps most important, stakeholders throughout the region — from pharma executives to government regulators to academic leaders and beyond — need to embrace the transition and be ready to align the region’s growing market power with ever-increasing internal and external demands.
One of the most visible factors is simple economic power. Even after years of torrid growth, many countries in the region remain poised to continue expanding for the foreseeable future, despite global economic challenges that could derail some more developed economies. China, for example, is projected to overtake the U.S. as early as 2025 to become the world’s largest overall economy, while India is expected grow to almost 90% of size of the American market by 2050, according to estimates by PricewaterhouseCoopers.7
Such growth will be critical as the global biopharma industry seeks new commercial markets. Assuming annual growth rates of 10% to 15% in Asia compared to between 5% and 7% a year in G7 countries means China is on track to become the second or third largest pharmaceutical market in the world by 2020. In addition, India could land in the top 10, while countries such as Korea, Indonesia, Malaysia and others are projected to see double-digit growth in healthcare expenditures in coming years.8 Not only will the Asia-Pacific market grow to a size of great significance, but it also affords new opportunities for treating region-specific diseases and tailoring treatment modalities to local needs.
The Changing Nature of Clinical Research
From a clinical research standpoint, the region remains particularly attractive due to the availability of large pools of potential patients and motivated investigators for clinical trials. As biopharma companies work to minimize both time- and cost-to-market, Asia, which accounts for more than 60% of the world’s population, continues to offer significant advantages from a logistical, genetic, therapeutic and demographic perspective.
As a result, the number of trials throughout the region has skyrocketed in recent years. According to clinicaltrials.gov, clinical trial studies in the Asian region increased by 67% from 2007 to 2009, with China and Korea seeing growth of 120% and 155% respectively in the same period.9 Thailand and Singapore saw a jump of 60%, while Taiwan had the largest number of active clinical trial studies in 2009 with more than 800 ongoing trials.
Although the amount of clinical trial activity in the region looks to be on an upward path for the foreseeable future, much of the nature and intent of the activity is changing below the surface. Lower costs are often cited for conducting trials in emerging markets, but when talent, infrastructure and other factors are considered, the overall cost of trials in Asia today can approach levels found in more established areas.10 As countries throughout the region invest in much-needed infrastructure, develop greater expertise and identify new opportunities, they continue to attract the level of technical and leadership talent that erodes the region’s overall cost advantages. As a result, many western companies have started to re-examine their assumptions about the region’s up-front cost advantages by finding value in the reduction of overall development costs from increased speed-to-market.
Additionally, instead of viewing clinical activity in Asia solely as a means to support drug programs seeking regulatory approval outside of the region, today regulatory authorities and companies are starting to train their sights on providing value and data to support unmet needs within the region itself. Japan, for example, now accepts data from regional trials conducted in countries such as China, Taiwan and South Korea in an effort to cut approval time, a significant break from the past. Some multinational pharmaceutical companies are also taking a closer look at aligning clinical trial activity with Asia-specific opportunities, drawn by the promise of tackling underserved disease states within the local population.
Two Giants Lead the Way
In order to fully examine the forces driving Asia to develop into a provider of not only outsourced clinical research but also drug discovery and innovation, it may be helpful to focus on the two largest countries in the region: China and India.
In many ways, both countries are integrated into the global biopharma supply chain in ways difficult to imagine a decade ago. The city of Shanghai, for example, has become a go-to destination for both a growing local pharma industry as well as international companies like Roche, Novartis, Novo Nordisk, GlaxoSmithKline, AstraZeneca and others.
Both countries continue to see their share of late-stage trials grow at a rapid clip. India posted a 35% CAGR in the number of Phase III trials from 2004 to 2008.11 China is expected to see late-stage research revenues expand by 18% annually before reaching $240 million by 2012.12 According to a recent survey conducted by Contract Pharma, 35% of the total number of worldwide pharma companies planned on outsourcing projects to Asia in 2009, with China and India the top two destinations due to market potential and cost-saving opportunities.13
Both countries have distinct comparative advantages that are helping them carve out critical niches in the world market. Compared to China, India offers some key operational advantages for conducting trials, including information technology (IT), data management Resources and the cost and speed of patient recruitment.14 Further, the country adds a number of large medical centers available to conduct trials, a high quality of physicians and trained personnel and a high degree of English literacy as additional advantages.
For its part, China is benefiting from an overall synthesis of regulatory harmonization, infrastructure development and a global influx of talent and expertise, supported — at least in part — by a state government increasingly in tune with the needs of the industry.
The Chinese government is working hard to reduce the number of days for approvals as it seeks to develop the capacity and capability for conducting clinical trials in the region. It is also investing heavily in the kind of infrastructure necessary to foster research and innovation — an issue critical in a region where interrupted power supplies, antiquated ports and inadequate highways still exist in many areas. Nevertheless, China’s GCP standards are still evolving, along with those of India. In late 2009, it was announced that the Contract Research Organization Union of China (CROU), under the guidance of the China National Pharmaceutical Technology Market Association, is developing the first industry standard for the Chinese CRO sector.15 In India, the government is laying the groundwork for increased oversight of clinical trials and harsher penalties for companies that violate GCP.16
Both countries are also tackling a further challenge: the need to improve regulatory timelines. Delays of as long as 12 months are not uncommon in China, and despite recent moves to streamline processes, waits in India may be as long as nine months.17 In contrast, while approval times in Singapore are approximately three months.
China has streamlined its regulatory structure in recent years in an attempt to align the country with international standards of practice, substantially modifying the country’s legal system governing pharmaceutical research, production and marketing.18 India has also undertaken a range of initiatives in this area, including a move from a decentralized approach to drug control to a single Central Drug Authority, modeled after the U.S. Food and Drug Administration. As governments in China and India seek to remove regulatory hurdles where possible, approval times are expected to shorten further.
Finally, a reversal in the diaspora of technical and leadership talent that once migrated from Asia to the West is gaining steam. Many CROs in both countries were started by returnees or today have one-time expatriates serving as senior executives. These executives and experts interact regularly with their counterparts in global companies, further fostering the exchange of knowledge and insight necessary for innovative R&D.
A More Uniform Approach
So is the stage set for Asia to take the next step up the value ladder in helping the global biopharma industry increase productivity, accelerate timelines and manage complexity? Perhaps. But in order for the region to fully realize its potential, some final pieces of the puzzle must be addressed.
For one, Intellectual Property Protection (IPP) remains a significant barrier to real innovation. In the past, the majority of outsourced clinical activity in Asia has focused primarily on relatively inexpensive areas such as biology and chemistry, driven by pharma’s desire to keep higher-value, more patent-heavy activities under direct control. Today, however, an increasing number of CROs across the entire region — both local and foreign-owned — are moving into more lucrative stages of the drug development chain. These offerings include integrated drug discovery capabilities that encompass the drug discovery spectrum, from lead identification to lead optimization, supporting biology, process chemistry, formulations, preclinical toxicology and more.19
As Western companies begin to feel more confident about outsourcing discovery research projects to Asia — a vital step in creating the critical mass necessary to foster innovation — they must believe patents are safe and secure. Fortunately, significant progress has been made by some key Asian territories to enforce IPP and implement patent laws. Singapore has established a strong track record for IPP, South Korea’s 2007 Free Trade Agreement with the U.S. includes an improved patent system, and China and India have also placed the need to address IPP issues near the top of their agendas.20
Harmonization of government regulatory schemes is also an urgent issue. While some countries such as India may fare better than eastern Europe or China in terms of a regulatory environment, the situation is hardly uniform across the region. Despite their growing economic prowess, many Asian countries outside of China and India lack the market size or human resources to develop full-fledged pharmaceutical companies on their own. A more uniform approach to regulation of clinical studies and results could, over time, help create a pan-Asian pharmaceutical market large enough to encourage a range of biopharma companies to find their niches without having to reinvent the wheel in each new geography.
Linking Ideas and Expertise
Beyond state responsibilities and legal protections, the region’s culture of innovation is further hampered by legacy issues surrounding a lack of educational infrastructure and effective collaboration between industry and academia. To innovate, scientists are best served when able to draw from different disciplines like mathematics, biology and chemistry.
In Asia, however, educational systems often create scientists who have little exposure across disciplines, due to excessive focus on specialization and minimal opportunity to change disciplines. Despite a steady rise in the number of doctorates in natural sciences and engineering awarded throughout the region, sufficient linkage has not been established between key innovation centers such as universities, public institutions and private industry facilities, further hampering drug discovery by minimizing interdisciplinary processes.
Finally, the most powerful force in enhancing innovation throughout the region may be a simple change in thinking. For the most part, the R&D business models of western biopharma companies are still heavily skewed toward a developed markets perspective — demonstrated by the regularity in which research priorities and in-licensing opportunities in Asia remain focused on the needs of North American and western European nations. To fully engage in the processes that lead to innovation, the region as a whole must re-examine its priorities to include placing its own unmet healthcare needs in line with its vast potential for drug discovery and development.
Whether addressing tuberculosis, diabetes, hepatitis C or any of a range of Asian-specific disease manifestations or characteristics, the desire to effectively leverage lower cost, higher value processes and infrastructure to pilot novel drug development methods may, in the end, be harnessed most effectively when the end user resides across town rather than across the world.
A New Center of Gravity
Although significant challenges remain, a culture of innovation is poised to take root today across Asia, as the infrastructure for world class R&D is developed, the level of technical and leadership talent grows and a renewed emphasis on regulatory harmonization takes place in countries big and small. As the center of gravity for the industry shifts from developed to developing geographies, the balance of pharmaceutical investment and innovation will also shift toward a future where high-end drug discovery in Asia will play an increasingly significant role.
For those companies prepared to partner with providers who are driving change across the region — and are able to successfully navigate risk and seize the opportunities in this new health landscape — the potential for Asia to play a critical role in the global drug development industry can fully be realized.
- Pfizer (July 29, 2009), “Pfizer Announces Partnership With Shanghai Institutes For Biological Sciences For Drug Discovery Activities” Press release. Retrieved 2010-02-15. http://bit.ly/doO4Ts
- The Economic Times (March 2, 2009), “Centre may inject $2 bn/yr into drug research.” Retrieved 2010-02-15. http://economictimes.indiatimes.com/news/economy/finance/Centre-may-inject-2-bn/yr-into-drug-research/articleshow/4210074.cms
- Science/AAAS (March 6, 2009), “Singapore’s Science Bet.” Retrieved 2010-03-02. http://bit.ly/bwp9WJ
- Trade Chakra.com (2009), “Pharmaceutical Industry in Malaysia.” Retrieved 2010-03-02. http://www.tradechakra.com/economy/ malaysia/pharmaceutical-industry-in-malaysia-185.php
- Biotechnology Journal (2008), “Bio-Vision 2016: The second national framework plan for biotechnology promotion in Korea.” Retrieved 2010-03-02. http://mbel.kaist.ac.kr/lab/publication/int212.pdf
- Burrill & Company (2009), “Korea.” Retrieved 2010-03-02. http://international.burrillandco.com/regions-20.html
- PriceWaterhouseCoopers (2008), “The changing dynamics of pharma outsourcing in Asia: Are you readjusting your sights?” White paper. Retrieved 2010-01-27
- BioSpectrum Asia (Nov. 30, 2009), “SE Asia next big emerging markets for life sciences firms: Report” Retrieved 2010-02-15. http://www.biospectrumasia.com/Content/301109PHL11398.asp
- BioSpectrum Asia (Sep. 17, 2009), “Healthcare infrastructure supports CRO growth in Asia.” Retrieved 2010-02-15. http://www.biospectrumasia.com/content/280809OTH10467.asp
- VOI Insight (July 21, 2009), “The Case for Globalization: Ethical and Business Considerations in Clinical Research.” White paper. Retrieved 2010-01-27
- Ernst & Young (2009), “Taking wings: Coming of age of the Indian pharmaceutical outsourcing industry.” White paper. Retrieved 2010-01-29
- AsiaOne News (Sept. 4, 2009), “China’s drug contractors on a fast-growth track.” Retrieved 2010-02-15. http://www.asiaone.com/News/Latest%2BNews/Business/Story/A1Story20090904-165580.html
- Contract Pharma (2009), “Annual Outsourcing Survey.” Retrieved 2010-02-15. http://www.contractpharma.com/download/2009_CP_Outsourcing_Survey.pdf
- PharmaAsia (June 1, 2008), “Clinical Trials Go Global.” Retrieved 2010-02-15. http://www.pharmaasia.com/article-7041-clinicaltrialsgoglobal-Asia.html
- MicroArray (Oct. 27, 2009), “First Chinese Clinical Research Outsourcing Industry Standard Under Development.” Retrieved 2010-02-15. http://microarray.wordpress.com/2009/10/27/first-chinese-clinical-research-outsourcing-industry-standard-under-development/
- Pacific Bridge Medical (Feb. 1, 2009), “India Steps Up Clinical Trial Oversight After Infant Death.” Retrieved 2010-02-15. http://www.pacificbridgemedical.com/newsletter/article.php?id=394
- PWC, 14
- LeadDiscovery (2008), “How to Conduct Clinical Trials in China.” White paper abstract. Retrieved 2010-02-15. http://www.leaddiscovery.co.uk/reports/980/How_to_Conduct_Clinical_Trials_in_China/
- PharmaOutsourcing (Oct. 2009), “Future Trends in Preclinical Sourcing by Big Pharma.” Retrieved 2010-02-15. http://pharmoutsourcing.com/images/article/Stout_Final.pdf
- Research and Markets (Sept. 2009), “The Outlook for Pharmaceuticals in South East Asia to 2013.” Research report. Retrieved 2010-02-03. http://www.researchandmarkets.com/research/659abb/the_outlook_for_ph
Dr. Ferzaan Engineer is chief executive officer of Quintiles India. He can be reached at email@example.com. Dr. Anand Tharmaratnam is senior vice president and head of Clinical Development, Quintiles Asia-Pacific. He can be reached at firstname.lastname@example.org. This article is an adaptation of a recent white paper.The original document is available at www.quintiles.com/perspectives.