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 virtual approach, pharmaceutical majors partner with contract R&D providers. Examples include Eli Lilly's (Indianapolis)
partnership with ChemExplorer (Shanghai), which began in 2003, for drug-discovery activities, including a dedicated staff
of 300 scientists, and Eli Lilly's collaboration with Hutchinson MediPharma (Hong Kong) in 2007. The contract research organization
(CRO) WuXi PharmaTech has partnered with several major pharmaceutical companies in R&D: Johnson & Johnson (New Brunswick,
NJ) in preclinical services; Pfizer for in vitro absorption, distribution, metabolism, and excretion services; and Merck & Co. (Whitehouse Station, NJ) for chemistry-related
discovery services, according to company information from WuXi PharmaTech.
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).