R&D models

Examining the R&D models of the pharmaceutical majors in emerging markets provides insight into how the outsourcing paradigm may also further evolve in emerging markets. Pharmaceutical companies use several approaches: building internal R&D assets in those markets, a virtual model, creating collaborations for building, operating, and transferring R&D assets, and a partnership and risk-sharing model.

Several major pharmaceutical companies are investing to build their internal R&D capabilities in emerging markets. A prominent example is the $1-billion investment by Novartis (Basel), announced in November 2009, under which Novartis will expand its research center in Shanghai during the next five years. In 2007, GSK formed a new R&D center in China to focus on neurodegeneration disease. The R&D operations there encompass the full range of drug-development activities from drug-target identification to late-stage clinical studies and involve collaborations with research institutions in China and other countries. In 2006, AstraZeneca announced a $100-million investment for a research and innovation center in China. Roche established research operations in China in 2005 and later expanded its activities there.

Under the build, operate, and transfer model, pharmaceutical companies partner with contract service providers that serve as a foundation for making investments and developing shared assets in a particular country. Two examples illustrate that model. In 2007, Wyeth (Madison, NJ, now part of Pfizer) partnered with the CRO GVK Biosciences (GVK BIO, Hyderabad, Andhra Pradesh, India) to open the GVK BIO Wyeth Hyderabad Chemistry Center, a built-to suit research center for Wyeth, which included a team of 200 synthetic chemists, according to a 2007 GVK press release. Wyeth and GVK previously formed a collaboration in 2006. With the facility, GVK BIO assumed responsibility for designing synthetic routes for new molecules by carrying out the synthesis and characterization of target molecules for Wyeth.

Bristol-Myers Squibb (BMS, New York) partnered with the CRO and contract manufacturing organization Syngene (Bangalore, Karnataka, India), a subsidiary of the biotechnology company Biocon (Bangalore) and opened a dedicated R&D facility for BMS in March 2009. Construction on the facility began in March 2007 when BMS and Biocon entered into an agreement to develop integrated drug-discovery and development capabilities at Syngene. The facility houses 360 scientists and related staff and could accommodate as many as 450 employees. The facility spans the drug-discovery and development process from initial hit to lead optimization, early pharmaceutical development, and clinical nomination, according to March 2009 Biocon press release.

Under a partnership and risk-sharing model, pharmaceutical companies collaborate with contract service providers. Both the sponsor company and the contract service provider play a role in drug-development activities and share the risk of drug development. For example, AstraZeneca formed an R&D alliance with Torrent Pharmaceuticals in 2005. Eli Lilly formed a five-year deal with Jubilant Organosys (Nodia, Uttar Pradesh, India) for discovery services in 2006, extended that relationship in 2008, and in 2007 formed a $100-million deal with Nicholas Piramal (now Piramal Healthcare) for several preclinical candidates. Merck & Co. formed a drug-discovery pact with Advinus (Pune, Maharashtra, India) in 2006 and formed a collaboration with Ranbaxy Laboratories for development of anti-infective drugs in 2008.

As sponsor companies' model for R&D outsourcing evolves, so does the model for CROs. For example, in late April 2010, the CRO Charles River Laboratories (Wilmington, MA) agreed to acquire WuXi PharmaTech for $1.6 billion as a way for each company to enhance their capabilities in drug development. Charles River had 2009 sales of $1.2 billion: approximately 55% of its sales were in research models and services and 45% in preclinical services. WuXi had 2009 sales of approximately $270 million: 93% were in laboratory services and 7% in manufacturing services. The combined company will have sales of $1.5 billion, with 44% of its revenue in research models and services, 41% in preclinical services, and 15% in discovery services. With the acquisition, the size of Charles River will increase from approximately 8000 to 12,200 employees. WuXi's 4200 employees include 2900 scientists with advanced degrees, and 2000 of them are chemists (2).

Charles River is gaining several facilities in the acquisition: a 1-million-ft² R&D discovery facility in Shanghai; a 253,000-ft² discovery-chemistry facility in Tianjin, China; and a 314,000-ft² good laboratory practice preclinical toxicology facility in Suzhou, Jiangsu, China. Charles River is also acquiring a 300,000-ft² GMP API manufacturing facility in Jinshan, China, and a 75,000-ft² biopharmaceutical services facility in Philadelphia, which includes biologic drug-substance manufacturing (2).