By Martin Grueber, Research Leader, Battelle, Cleveland, Ohio and Tim Studt, Editor in Chief, Advantage Business Media
Tuesday, December 22, 2009
Less than ten years ago, the U.S. was the epicenter of the pharmaceutical universe, with global firms establishing R&D centers throughout the U.S. to be near where the action was and build on the massive funding at the National Institutes of Health. But a funny thing happened over the past decade. Despite the five-year NIH budget doubling program, big pharma’s drug pipelines became thinner. And despite new technologies, the overall drug development cycle didn’t become shorter, while R&D costs continued to escalate. And after 2002, the NIH’s R&D budget basically stagnated at just under $30 billion/year.
The emphasis on basic research in chemical-compound based pharmaceuticals and biologic-based biotech remains firmly entrenched in the U.S. and European labs. But, the historical way of doing things, as well as where drug development is performed is changing.
To cut costs and artificially rebuild its drug development pipelines, big pharma has turned once again to the mega-mergers, with their resultant reorganizations and massive layoffs to reduce duplication of effort. Through most of the past decade, biotech had seen a resurgence. But with the banking crisis in 2008 and the 2008-09 recession, investors sought out other, less-risky, investment vehicles, and the venture capital funds that once were available were reduced to a trickle. Big pharma saw the opportunity and began buying up small biotech firms; even the profitable biotech giant Genentech was recently purchased by Roche, which has publicly stated that it has no plans to change the already very successful biotech, and has moved a big portion of its R&D organization to Genentech.
Ten years ago, at least partial Asian outsourcing of the expensive clinical trial portion of drug development was instituted by a number of European and U.S. pharmaceutical firms. As a result, India and China further strengthened their already significant pharmaceutical capabilities. Generic manufacturers have established a significant presence, as exemplified by India’s Ranbaxy recent acquisitions of Romania’s Terapia, Belgium’s Ethimed, and GSK’s Allen SpA in Italy. More recently, European and U.S.-based pharma have begun establishing significant R&D centers within Asia to build on these now-established technical capabilities, reduce their development costs, and, at the same time, support the very large local market for pharmaceuticals.
German drug maker Merck KGaA, for example, recently announced plans to build a global R&D center in Beijing, China, for its Serono drugs division. Earlier, Novartis announced it will spend $1 billion to make China a third pillar in addition to Basel, Switzerland, and Cambridge, Mass. for its global R&D organization. Novartis put any Indian plans on hold, following the patent denial by India of its Glivec cancer medication. Swiss pharma Roche opened a research lab in Shanghai in 2004, as did the UK’s AstraZeneca in 2006; another AZ site is under construction in Zhangjiang.
