A recent article on msnbc.com described some of the causes and effects of offshoring / outsourcing R&D to India and China.  The full impact of these changes on the job market in the U.S. is yet to be completely defined.

• In May 2008, Merck signed a drug-discovery alliance with New-Delhi-based Ranbaxy Laboratories that would pay the Indian company large royalties if the program leads to a commercial drug.  Merck has formed similar co-discovery partnerships with India's Advinus and Piramal Life Sciences.

• Eli Lilly, GlaxoSmithKline, Johnson & Johnson, Forest Laboratories, Wyeth, and Bristol Myers Squibb also have partnered with Indian companies to develop new treatments for cancer, respiratory diseases, and heart conditions.

• In most cases, multinational partners are sharing technologies and biological insights that would have remained under lock and key a decade ago.

• There have been no new drugs from Asia yet.

• Outsourcing to China is also taking off.  Every big pharmaceutical company is hiring contractors like Wuxi PharmaTech, Shanghai ChemPartners, and Shanghai Bio for everything from synthesizing and analyzing drugs on tissue samples and animals to full-fledged discovery collaborations like those in India are starting to take place.

• Eli Lilly, for example, has formed an alliance with Shanghai-based Hutchison MediPharma.

• Other partnerships have been formed but have not been publicly announced.

• Rapid growth in offshoring R&D is expected.

• It typically takes more than 10 years to develop a newly discovered compound into a commercial drug that can win approval from the Food & Drug Administration, and most of the current strategic development deals are less than 3 years old.

• Asia has made impressive progress.  In a number of cases they have achieved milestones ahead of schedule.

• Essentially, the Asian partners are sharing the financial risk as well as the potential rewards of drug discovery.

• The forces driving Big Pharma offshore are gaining.  Some key blockbusters, including Fosamax (osteoporosis) and Lipitor (cholesterol-lowering) medications will go off patent and be exposed to competition from low-cost generics.

• There is a dire need for new drugs in the pipeline to replace those moneymakers.  Development costs in the West are skyrocketing, with pharmaceutical companies investing an average of $2.1B for every drug that ever makes it to market.

• Pressure to cut development times, recruit global talent, and penetrate the huge growth markets for medicines in the domestic markets of India and China also are acute.

• These pressures have pushed big pharmaceutical companies to turn to outside partners to combine resources, share costs, and find new ideas.

• China and India, with their huge pools of scientific talent and ambitions to emerge as global biotech powers, are happy to oblige.

• Neither India nor China is likely to become a major direct competitor to U.S. and European drug industries in the near future.

• The companies doing outsourced R&D work lack the breadth of skills and experience required to develop and test their own drugs to treat complex disesases like cancer and diabetes.

• Indian and Chinese firms are currently poorly equipped to independently navigate the lengthy, high-risk, high-cost clinical trials required to produce a commercial drug for the U.S. and Europe -- and then market them globally.

• But India and China must be taken seriously in the future.  They are rapidly building their capabilities through the return of those who have gained years of experience at U.S. companies and universities.

• In 2006, 8.5% of all pharmaceutical patent applications filed through the World Intellectual Property Organization included an inventor located in China, and 5.5% included one in India.

• Eventually, the Indian and Chinese pharmaceutical industries will have to start their own proprietary drugs to sustain their growth.

• According to BusinessWeek.com (4/07/08), as labor and facility costs continue to rise, and as the Chinese and Indian currencies gain steadily against the U.S. dollar, the big cost gaps between East and West already are narrowing.  Firms like Ranbaxy, Piramal, Biocon, and Dr. Reddy's, therefore, are using their profits from generics to fund their own internal research into original drugs.

• It could take a decade or more before Indian and Chinese companies master the entire drug-development process.  Until then, their value as partners to Western multinationals will only increase.

• The effects of these partnerships on jobs in the United States may have the same results that we experienced in other areas of manufacturing that began in the late 1990s.  Workers need to prepare for the changes in employment that may result.       

Big Pharma's R&D Booster Shot
Fortune's Pharmaceutical Industry Rankings 2008