PHA-Exch> Outsourcing the Drug Industry: U.S. giants are rushing to partner with Indian and Chinese companies

[Claudio Schuftan]

From: Vern Weitzel <vern.weitzel at gmail.com>
crossposted from: "[health-vn discussion group]" health-vn at cairo.anu.edu.au

http://www.businessweek.com/magazine/content/08_37/b4099048471329.htm


Outsourcing the Drug Industry

U.S. giants are rushing to partner with Indian and Chinese companies —
tapping their brainpower and saving millions of dollars in the search for
breakthrough treatments

by Pete Engardio and Arlene Weintraub   excerpts


At first glance, companies such as Jubilant and Piramal may seem too
undeveloped—or perhaps just too culturally remote—to rub shoulders with the
world's top pharmaceutical makers. But judging from all the deals taking
shape in India, they may have a critical role to play in the industry's
future. In recent months, Western executives have been flocking to India's
hastily built science parks, looking for allies in the never-ending quest to
develop blockbuster treatments. With little fanfare, they've started a
process that could lead to wide-scale outsourcing of drug research to Asia.

Five Western companies have formed drug discovery partnerships with
Jubilant, including Eli Lilly (LLY), Amgen, and Forest Laboratories (FRX).
Lilly is also partnering with Piramal, as is Merck (MRK). Every month deals
are signed with India's elite pharmaceutical companies. The goal is to take
promising compounds discovered by the multinationals, run tests to weed out
the weakest candidates, and develop some of the others into marketable
drugs. Eventually the Indian partners also hope to rack up scientific
breakthroughs that lead to entirely new medicines for diseases such as
Alzheimer's, cancer, or diabetes.

Looking beyond India's potholed streets and poverty, Western drug executives
say they've forged a powerful model for research collaboration. The timing
is no accident. Despite spending billions at home on technologies to turn
gene-based discoveries into new medicines, pharmaceutical companies are
struggling to come up with revolutionary products that will pull them out of
a five-year slump with virtually no revenue growth. In desperation, the drug
giants are paying hefty premiums to swallow biotech companies—witness
Roche's $44 billion bid to purchase Genentech (DNA) in July.

What the multinationals now seek from India is the same combination of
brainpower and cost savings that made the subcontinent a leader in software
and computer services. Some Western companies are volunteering to share
intellectual-property rights on new discoveries and even divvy up the
profits.

The rush east, where five PhD chemists can be had for the cost of one in the
West, entails risks. At a time when Pfizer (PFE), AstraZeneca (AZN), and
others are slashing U.S. R&D jobs by the thousands, the buildup in Asia is
bound to set off alarms that America is sacrificing another key industry
through radical outsourcing. But if the strategy works, it could save the
drug industry billions of dollars, bring down the prices of new drugs, and
accelerate breakthroughs.

The impact of research outsourcing will be amplified greatly as China, with
an even bigger pool of biochemists, expands its role. Lilly, Sanofi-Aventis
(SNY), and others have already struck up partnerships there.

Even Indian drug executives, however, realized the knockoff business is a
dead end. Almost all of India's top pharma managers say their cherished goal
is to stamp out diseases in the Third World. That will require breakthrough
medicines, not factories full of pirated generics. They also recognize the
only way to jump-start a modern industry is through collaboration with
Western drug companies. So in 2003, New Delhi reversed course and said it
would protect the rights of foreign patent holders.


Over time, the partnerships evolved into co-development arrangements. The
turning point was a 2003 collaboration between GlaxoSmithKline (GSK) and
Ranbaxy. Glaxo handed over novel compounds thought to have medicinal value
and offered its Indian partner a share of the intellectual-property rights
and millions in royalties if it could help develop a commercial drug.
Western drug companies have announced about $400 million worth of such deals
so far, but the total value is probably much higher. BristolMyersSquibb, for
example, has expanded a research partnership with Bangalore-based Biocon. It
includes a state-of-the-art research facility that will house 400
scientists—the cost of which has not been announced.

For the Western partners, the first objective in these alliances is to cut
costs. In the U.S., specialized research outsourcing firms will charge a
drug company $250,000 and up for the full-time services of a PhD chemist.
With an Indian partner, the same work can be done for roughly one-fifth the
cost. But what Western companies long for, more than anything, is to
replenish their drug development pipelines. It can cost as much as $100
million to nurture a potential drug from a germ of an idea to the point
where it is tested in people. After all that, the odds of any drug winning
Food & Drug Administration approval are just 1 in 8. By conducting many
experiments in low-cost Asia, the drug companies believe they can run more
projects while keeping R&D budgets flat. In other words, they gain "more
shots on goal"—a phrase that gets repeated so frequently you'd think it's a
quote from a sacred Indian text.

The other catchphrase that comes up constantly is "fail fast, fail cheap."
When scientists study potential drugs in the test tube and then in animals,
they detect many problems that ultimately cause drugs to fail, such as toxic
side effects or inadequate absorption in the body. Killing projects at that
stage is essential, because most of the cost to develop a drug—a few hundred
million dollars, typically—comes later, during human clinical trials.


Western drug companies are giving Asian partners more responsibilities than
they ever imagined. Suven Life Sciences, an Indian startup in Hyderabad, is
co-developing drugs for brain diseases with Lilly. As part of the deal,
Suven can work on its own drugs for Alzheimer's, obesity, and Parkinson's
disease, provided they don't compete with jointly developed products.
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