Global Pharma 3.Indd

the globalization of innovation: June 2008 PHARMACEUTICALS Can India and China Cure the Global Pharmaceutical Market? The Globalization of Innovation: Pharmaceuticals i The Globalization of Innovation: Pharmaceuticals ii Authors Vivek Wadhwa Executive in Residence, Pratt School of Engineering, Duke University Wertheim Fellow, Labor and Worklife Program, Harvard University Fellow, Social Sciences Research Institute, Duke University Ben Rissing Wertheim Fellow, Labor and Worklife Program, Harvard University Gary Gere! Director of the Center on Globalization, Governance & Competitiveness; and Professor, Sociology Department, Duke University John Trumpbour Research Director, Labor and Worklife Program, Harvard University Pete Engardio Senior Writer, BusinessWeek Magazine Student authors and acknowledgements Jason Anastasopoulos, John P. Harvey, Udai Kaura, Jasmita Mohan, Ravi Prodduturi, Aishwarya Ramaswamy, David Siet, Elizabeth Skiotis, Tarun Wadhwa Global Engineering and Entrepreneurship @ Duke www.GlobalizationResearch.com " is research was funded in part by the Ewing Marion Kau# man Foundation. " e contents of this publication are solely the responsibility of the authors. The Globalization of Innovation: Pharmaceuticals iii The Globalization of Innovation: Pharmaceuticals iv Table of contents Overview: Globalization of innovation — industry by industry . 1 Summary of ndings . 2 Global pharmaceutical intellectual-property creation . 2 Business relationships . 2 Value-chain activity. 2 Examples of Pharmaceutical Opportunities in India and China. 3 Other observations . 3 Introduction: The pharmaceutical industry . 4 Global value chains: an introduction . 5 The pharmaceutical global value chain . 6 Vertical opportunities in the pharmaceutical value chain . 8 Storm over intellectual property . 10 Our ndings. 11 India and China in the global value chain . 12 Business models and work complexity . 12 Local advantages . 17 Cost savings . 17 Ethical issues and constraints on future growth . 18 Conclusions . 20 Company summaries . 21 Advinus " erapeutics . 22 AstraZeneca China . 24 Aurigene Discovery Technologies. 26 Aurobindo Pharma . 28 Biocon . 30 Cipla . 32 Dabur Pharma . 34 Dr. Reddy’s Laboratories . 36 Hutchison MediPharma . 38 Novartis China . 40 P$ zer (China) . 42 Ranbaxy Laboratories . 44 ShanghaiBio . 46 Shanghai ChemPartner . 48 Sun Pharmaceutical . 50 WuXi PharmaTech . 52 Works cited . 54 Appendix A: Glossary . 55 Appendix B: Methodology. 57 Appendix C: Detailed pharmaceutical value chain . 58 Appendix D: International Patent Classi cation (IPC) codes used in our WIPO PCT analysis . 61 The Globalization of Innovation: Pharmaceuticals v The Globalization of Innovation: Pharmaceuticals vi Overview: Globalization of innovation — industry by industry Industries are o% en thought of in terms of the nations intellectual-property creation and entrepreneurial that have launched the greatest innovations. " ere activity in the U.S. To better understand the is a perception of a U.S. automotive industry pitted globalization of innovation, we looked in-depth at against a Japanese industry, for example, or the several knowledge-intensive industries in India and U.S. pharmaceutical industry against the European China, the major countries undergoing the swi% est industry. Globalization has, however, rapidly change. changed the underlying nature of these competitive We have researched the globalization of several relationships. As in the personal-computer industry, industries by analyzing the shi% of intellectual- where components are designed and developed property creation through global patent $ lings, worldwide and manufacturing is largely performed economic data, global value-chain analysis, and in China, most knowledge-intensive industries have extensive $ eld research. " e analysis of patent become modular. and economic data provided some useful insights, Basic supply chains and distributor networks are but we believe that our $ eld research was the most today becoming increasingly fragmented. " ey are e# ective method for understanding the globalization now characterized by a diversity of business models, phenomenon. a multitude of players, and a global footprint. Like a We will present our $ eld analysis in the context of set of building blocks, these business components can the industry global value chains we de$ ned. For this be reconnected in di# erent and sometimes surprising research, we made several trips to India and China ways. Mass communication, low-cost computing, and interviewed the executives of approximately and global talent have enabled small- and mid-sized 115 $ rms in the pharmaceutical, semiconductor, corporations to act in capacities impossible only a automotive, aerospace, cell-phone, and computer- decade ago. Countries like India and China have networking industries. We toured their research been major bene$ ciaries of this trend. In certain labs, met heads of research and development (R&D) industries, these nations are on the way to becoming and local researchers, interviewed customers, hubs of research and development for the global and reviewed many of the technologies under market. development. We also interviewed academics at " e Global Engineering and Entrepreneurship several universities and government o! cials in the project at Duke University has been focused on the local regions. e# ect of globalization on the engineering profession Here we present our analysis of the and the sources of U.S. competitiveness. We have pharmaceutical industry, incorporating a value-chain researched topics including engineering education in analysis and company summaries of 16 Indian and India, China, and the U.S.; the reasons engineering Chinese pharmaceutical $ rms that highlight current and technology companies are going o# shore; business trends and transformations. the e# ect of immigrants on the U.S. economy; The Globalization of Innovation: Pharmaceuticals 1 Summary of ndings Multinational corporations are searching for means or make complete drug sales (i.e. inclusive to broaden their capacity for drug development while of supportive clinical data) to, multinational decreasing costs. Pharmaceutical $ rms in India and pharmaceutical companies that have the necessary China are increasingly forging partnerships with these resources. corporations to gain revenue and to develop their 2. Research partnership: In these relationships, a own expertise. " ese relationships largely appear to multinational corporation supplies a research be symbiotic. partner with an early- or mid-stage drug As a result of the movement of R&D to their candidate and contracts the partner to develop it countries, Indian and Chinese scientists are rapidly further. " e domestic $ rm gains access to a novel developing the ability to innovate and create their compound(s) and potential assistance from its own intellectual property. Several $ rms in India multinational partner, which in turn expands its and China are performing advanced research and own drug-development capabilities. A number development and are moving into the highest-value of these deals involve cost and risk sharing in segments of the pharmaceutical global value chain. exchange for joint ownership of the intellectual What is noteworthy is that most of the advances property. in R&D in India and China happened over the last 3. Contract research organizations (CROs): " ese decade with the greatest momentum being built over $ rms are typically contracted to perform speci$ c the last $ ve years. stages of drug discovery, development, or testing, and receive a $ xed payment upon reaching a Global pharmaceutical intellectual- predetermined milestone. Companies using this property creation model do not assume any of the risk, positive In 2006, 5.5 percent of all global pharmaceutical or negative, associated with drug development. patent applications (WIPO PCT applications) Several companies in India and China are contained one inventor or more located in India, and specializing within speci$ c disease types or within 8.4 percent contained one or more located in China. speci$ c functional areas of the pharmaceutical " is increased fourfold from 1995. value chain. 4. Generics, APIs, and manufacturing: India (and to Business relationships a lesser extent, China) has a vibrant generics and Despite issues with intellectual property, active pharmaceutical ingredient (API) market. multinationals are $ nding greater scope for Companies that focus on this market carefully cooperation with several companies in India and monitor the intellectual-property protection of China. " ey have developed a broad range of major drug products. When a product comes o# - relationships, which generally seem to have been patent, they explore means of mass-producing the successful and to be expanding in magnitude and drug using identical or similar chemical reactions. scope. " ese include: Value-chain activity 1. Original proprietary research: Several Indian 1. Indian and Chinese companies are making strides and Chinese $ rms are developing their own in the highest-value segments of global value proprietary drug products targeting global or chains. In the lower-value segments, such as regional markets, but they lack the ability to preclinical testing, animal experimentation, and advance a drug through the entire clinical-trial manufacturing, however, Chinese $ rms appear to process and market them worldwide. " ese be more prevalent. companies seek licensing agreements with, The Globalization of Innovation:

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