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Betting Big

Posted on 31/12/2013

As China looks to become a leader in the pharma scene, what should be done differently to create an R&D site culture that incentivises innovation, and what attributes open the door to this burgeoning market?

For nearly two millennia, China stood as the world’s most innovative and largest economy – only to have been displaced from the top spot 200 years ago. However, the tables are turning once more, as pharma companies bet big by shutting down sites in Europe and the US and expanding their R&D operations in China, particularly in Shanghai and Beijing. A large proportion of the pharma industry believes pharmaceutical innovation will accelerate in Asia and that local R&D will develop a more customised solution to these growing and increasingly important markets. The question is, will the big bet pay off? And, if so, how do you pull it off?

From Soup to Scale

In the late 1990s, scores of multinationals were catching on to the cost-cutting benefits of sending work to China – but not pharma. The industry was bulging at the seams with profits and confidence; whatever money could be saved by shifting R&D to Asia would have seemed inconsequential compared with the billions of dollars at stake in the development of a new blockbuster. In fact, as recently as 2002, the Chinese pharmaceutical R&D landscape resembled a ‘primordial soup’ – with lots of energy and potential, but very little in the way of organisation or sophistication. What a difference a decade makes. In the last 10 years, driven by the need from multinational pharma companies for increased costeffectiveness, this primordial soup has evolved – as is often the way – into a ‘higher order’ entity. As such, in a relatively short space of time, we’ve gone from the early days of western scepticism and disorganisation, to the rapid expansion of CRO outsourcing services, to way, way beyond. Evolution has recently accelerated too, with pharma companies now displaying unprecedented levels of commitment to China-based R&D – complete with large-scale, eight-figure financial investments. Their commitment is often coupled with the shutting down of sites in Europe and the US, necessarily, and so is not without significant risk. In addition to the need for increased costeffectiveness, the move for many forward-thinking pharma companies is motivated by their desire to tap – or at least try to tap – China’s massive (and increasing) healthcare market and the profit-potential housed there. Henrik Glarbo, previously Regional Managing Director at Mundipharma Asia, has “seen the rise and rise of China from the inside for over 20 years,” and predicts “it will be the world’s biggest market within 15 years.”

Getting Their Toes Wet

Pharma’s first foray into China-based R&D often took the form of CRO outsourcing. At the beginning of this century, hundreds of local biotech companies battled it out with mixed models of income-generation – attempting to subsidise their own drug discovery (or even generic development) with services to other biotechs, universities, and multinational pharma companies. They did so with varying levels of sophistication and success. However, although clinical trial outsourcing had taken place for some time, chemical synthesis was rare, molecular biology experiments only happened on a tiny scale, and animal studies were practically nonexistent. Pharma got its toes wet, but it was only after the Chinese R&D infrastructure (physical, legal and economic) had undergone radical, much-needed improvements that it decided to jump right in.

Come on in, the Water’s Fine

It didn’t take long – in a relatively short period of time, pharma’s initial trepidation transformed into full-on enthusiasm. The second half of the last decade saw a series of high profile announcements from multinational pharma companies, communicating their commitment to China-based R&D. As early as 2006, for example, AstraZeneca announced a $100 million commitment to create the company’s Innovation Center China (ICC), which was to be located in Shanghai. In 2007, GSK announced the establishment of a $40 million Shanghai R&D centre, primarily focusing on neurodegenerative disorders. Both these sizeable investments were soon trumped. During his visit to China in November of 2009, Novartis Chairman and Chief Executive Offi cer Daniel Vasella made this stunning announcement: his company would commit $1 billion to expand and upgrade its Shanghai laboratory facilities, creating the new, formidable China Novartis Institute for BioMedical Research (CNIBR) in Shanghai. Hot on Novartis’ heels, Novo Nordisk announced their own commitment: an investment of $100 million in its Beijing R&D facility, and to increase the facilities from 100 to 200 employees by 2015. And these companies were far from alone in their commitments to China-based R&D – many others, including Novo Nordisk, Genzyme, Sanofi-aventis, Johnson & Johnson, Merck Serono and Boehringer-Ingelheim have also established (or plan to establish) R&D bases in mainland China, often at the expense of their western facilities. Many see Asia as integral to any long-term business plan. As Patrick Keohane, Head of R&D, Asia-Pacific and Japan at AstraZeneca, puts it, “Asia should now be at the centre of any significant company’s clinical development strategy.”

What’s to Gain?

Of course, these companies will continue to utilise the hospitable Chinese environment for more cost-effective R&D with western relevance. But new opportunities are unfolding for the development of drugs, especially relevant for the Chinese market, and Novartis et al will put their newly acquired local knowledge and facilities to use in broadening business horizons and building up sales in China, and Asia as a whole. With their investments, pharma companies are buying much more than just research facilities – they are, potentially at least, buying a slice of an extremely large, extremely lucrative pie. Their investments will also allow them to compete for the top local talent from China’s growing PhD and pharmaceutical research scientist talent pool – which will be key to long-term success in the increasingly important Chinese (and Asian) market.

Going to Trial

It used to be the case that the big advantage of conducting clinical trials in China was cost savings. A study by FastTrack Systems in 2006 suggested that companies could halve their clinical trial costs. The survey gave China a 0.52 index, compared with 1.0 for the US, 1.09 for the UK and 1.58 for Germany. But today, China’s attractiveness is more market-driven. One aspect is developing new drugs for the Chinese market; another is that a well organised clinical trial programme can now accelerate speed to market. Where delays were measured in years, today they can be measured in months. There are around 140 CROlicensed clinical service providers in China, with an even split between domestic and foreign. It’s a very dynamic situation as evidenced by a 144 per cent growth in the number of clinical trials over a four-year period. Annual compound growth in China is now around 12 per cent.

But there are also significant growing pains. When it comes to the trials, local providers have sometimes proved poor in key issues around data quality and record keeping. Other challenges include intellectual property protection, sample export/ import regulations and clinical research talent, recruitment and retention. Where local providers have proved valuable is in the area of regulatory compliance. Experience suggests that the ideal strategy for large-scale trials is a close working relationship between a large CRO and a local clinical service provider to successfully negotiate the regulatory hurdles that exist in China. Areas where they make the difference are:

  • Local know-how in developing and executing a robust regulatory strategy
  • Developing good relationships and effective communications with the State Food and Drug Administration (SFDA)
  • Preparation of submission dossiers
  • Study sample management and fit within the regulatory framework

China is moving fast to create a positive environment for undertaking global trials in the growing Chinese market. The five-year planning cycle provides reassurance that progress will continue to be steady and directed toward a positive outcome. But one of the major challenges is finding enough regulatory professionals to staff the SFDA and therefore speed up the process. The situation is currently exacerbated due not only to a shortage of staff, but to their frequent rotation to minimise any opportunity for inappropriate influence which generates delays.

A Case in Point

Eli Lilly has been actively expanding its operations in China since the 1990s. It now has operations and R&D facilities in Shanghai, as well as manufacturing facilities in Suzhou and more than 30 offices throughout the country. In 2011, however, Eli Lilly announced plans to deepen its investment in China by opening a dedicated diabetes research centre in the country, strengthening the firm’s chances of delivering new, innovative therapies to treat the region’s rising number of diabetes patients. And they’re not the only company betting big in this way – “the diabetes epidemic in China was the core reason for my pioneering the move of Novo Nordisk to China in 1993,” says Glarbo.

Eli Lilly is already the fourth biggest player in the global market for diabetes treatments, behind Novo Nordisk, Sanofi-aventis and Takeda, and all these companies are now gearing up to respond to soaring demand for diabetes medicines throughout the world. Nowhere will the battle for market-share be more evident than in China. The country is already the world’s third largest pharma market, as well as the largest in Asia – sales in China are growing at an average rate of 22 per cent a year, compared with an average increase in global drug sales of 6.2 per cent.

With obesity and other diabetes risk factors on the rise, so are sales of diabetes treatments. The World Health Organisation (WHO) predicts that, by 2025, the number of diabetics will increase by around one-third worldwide. Around 80 per cent of all new cases will be in developing countries. It is expected that, by 2030, seven out of the 10 countries with the highest number of diabetics will be in Asia. Indeed, according to the International Diabetes Federation, “it would appear China has overtaken India and become the global epicentre of the diabetes epidemic.” In light of this unmet need and massively lucrative opportunity, many of the pharma companies mentioned above have identified diabetes as a priority area for both R&D and manufacturing in China.

However, simply transposing the traditional, western ways of working onto this new market won’t do. There are “key differences in the molecular basis of diabetes in Chinese and other Asian populations”, according to Eli Lilly. Therefore, the successful development of new, targeted therapies will depend on a new, targeted approach to the problem. Ultimately, it will depend on R&D that is tailored to both the Chinese environment and population. And this requires local knowledge. China’s own talent pool is high and rising – and it must be tapped effectively if there’s to be any chance of meaningful innovation in China. Or so says Amar Kureishi, Vice President and Chief Medical Officer, Asia Pacific at Quintiles: “China is different, but if you understand and respect that difference, it’s a country that will work to produce a win-win relationship for you and your company.”

Making the Most of It

For some years then, pharma companies have repeatedly announced large-scale financial commitments to China. Often, however, significant portions of these commitments go towards non-innovative activities. Despite these incremental, pharma-driven improvements in national innovation, China has yet to claim a seat at the table among the world’s major pharmaceutical R&D centers. Is this about to change? According to Kureishi, “China represents an opportunity for the industry to recreate drug discovery and development; done well it could be transformational for our industry.” And with improvements to its physical and legal R&D infrastructure, a restructuring and updating of its economy, as well as a commitment to improving access to healthcare and exportation of home-grown biopharmaceuticals, China is looking set to become an R&D superpower. Last year, Quintiles CEO Dennis Gillings speculated that China could eventually unseat the US as the world leader in biotech R&D. And those pharma companies with considered, explicit China-based recruitment strategies will be best-placed to take advantage of this new R&D order. There’s no doubt that the race is on for the first Asian blockbuster. But who will win it?

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