Pharmaceutical giants outsourcing R&D
By Jia Hepeng (China Business Weekly)
Updated: 2004-09-27 16:14

"I certainly believe Chinese firms have the knowledge and human talent needed to win more business arising from the outsourcing trend," said Ulrich Wandschneider, a partner of Deloitte Consulting, and a leading expert of Deloitte's life science and medical insurance division.

Wandschneider made his remarks on the sidelines of a workshop, "Capital Operations and Financial Management of the Pharmaceutical Industry," held September 19-21 in Beijing.

The event was sponsored by the China Pharmaceutical Industry Association. It attracted more than 100 drugmakers from across China.

Given the growing complexities and the amount of data required by the authorities, it makes sense for pharmaceutical companies to consider outsourcing work to contracted research organizations (CROs) with considerable experience, Wandschneider said.

As more pharmaceutically usable compounds are discovered, production costs and the time required to develop the new medical compounds create greater challenges.

It takes an estimated 10 years and US$800 million to develop new chemical drugs. That is up from five years and US$500 million a few years ago.

Wang Kui, an academic with the Chinese Academy of Sciences, once said, only 20 pharmaceutically usable compounds were invented worldwide each year since the early 1990s. Swiss drug giant Novartis recently signed medicine development contracts with Cengent Therapeutics, a San Diego-based structure-guided drug development company, to outsource its biopharmaceutical research.

Wandschneider said CROs that focus on the provision of innovative solutions are preferred by the major pharmaceutical companies.

"It is their knowledge, not just their data or technologies that make them indispensable allies throughout all phases of the drug-development continuum," Wandschneider said.

In recent years, the regulatory and ethical environments in developed countries, particularly those in Europe, have become increasingly difficult for major pharmaceutical giants, especially during development of drugs and their clinical trials.

"This pushes them to select developing countries to do more work in drug development and clinical trials," Wandschneider said.

China, he added, has the right conditions to attract pharmaceutical firms.

"The knowledge, experience, human talents and equipment of Chinese pharmaceutical industries make them good CROs," Wandschneider said.

Conducting pharmaceutical R&D for international firms might help China develop its own capacity to invent new drugs, he added.

In the past two years, Swiss pharmaceutical giant Roche, US-based Astrazeneca, France's largest private pharmaceutical firm, Servier, and Denmark's leading drugmaker, Novonordisk, have established innovative research facilities in China.

Yet, most of China's drugmakers continue focusing their efforts on developing generic medicine.

After appeals filed by domestic drugmakers, Pfizer lost its Chinese patent for Viagra and British pharmaceutical giant GlaxoSmithKline gave up its patent for Rosiglitazone, which is the major compound in the diabetes drug Avandia.

"China's IPRs record will not scare away international pharmaceutical giants, because its market is too big to give up," Wandschneider said.

"But the situation will make foreign drug firms reconsider whether to outsource their drug development to Chinese firms, because without good IPRs regulations, international pharmaceutical firms may lose the patents of their drugs to CROs they hire."

Graham Cooper, a senior investment expert with Deutsche Bank, said China's pharmaceutical giants are not strong, in terms of their scales. They should acquire their competitors through stock markets.

"The day when some Chinese pharmaceutical firms are listed in the New York Stock Market will be the time when many of China's drug companies become research-based industrial leaders," said Cooper.

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