What is the competitive edge at drug R&D? Innovation or consistency?

China making big gains in drug R&D jobs state covets

Greg AndrewsApril 9, 2011  Here in a gleaming new building, Crown employees are conducting high-end early-stage research on new drugs—and doing so at what by U.S. standards are bargain-basement prices. The total annual cost for one researcher at Lilly might run $300,000 to $350,000 a year. The figure at Crown is one-third of that, said Chuan "Joe" Shih, Crown's executive vice president of integrated drug discovery. Former Lilly researcher Shih helps lead one of the many drug R&D firms in the Shanghai area. The Taiwanese-born Shih ought to know. He spent 25 years as a researcher at Eli Lilly, attaining the lofty company title of distinguished scholar. He left two years ago for the senior management post at Crown—part of a throng of fast-growing contract-research organizations in China. Crown won't divulge its full list of clients. But it includes heavyweights, including New York-based Pfizer Inc. Lilly and many other pharmaceutical firms also are outsourcing an increasing amount of drug research here, as they struggle to lower drug-development costs and get new drugs to market faster. The entire industry is under unprecedented pressure as patents expire on the current crop of blockbusters. "Many, many companies come to this part of the world because of the lower cost and the talent," said Shih, co-inventor of Lilly's Alimta, a lung cancer drug with $2.2 billion in annual sales. He said the Chinese government adds to the allure of using CROs here by providing them lucrative incentives that further reduce expenses. Faming Zhang, a former Lilly executive and Indiana University professor, founded Crown five years ago. Company officials have raked in tens of millions of dollars in venture capital and eventually hope to take the company public. They certainly have plenty of growth to tout. Crown employs 180 in Beijing and another 170 outside Shanghai, and the company plans to add another 180 outside Shanghai by the end of this year. Researchers work in laboratories to create potential new drugs and test them on mice, monkeys and other animals.

Emerging competitor  The emergence of firms like Crown is a worrisome trend for the U.S. economy, said Benjamin Shobert, managing director of Teleos, an Indianapolis consulting firm. "It could be the same sort of threat we face in manufacturing. But America believes it can afford to give away some of our high-labor-content, low-value-added manufacturing. We have to keep this kind of work," Shobert said. "We have to show that, 'Yeah, we're more expensive, but we produce much more high-quality outputs,' or we'll lose that, too." For now, U.S.-trained scientists do maintain an edge over China-trained scientists, who generally have most of the basic skills they need but are less adept at creative problem solving, Shih said. "You just have to develop a very good environment to nurture them and push them," said Shih, one of several experienced researchers who worked in the United States and now are part of Crown's management team. Lilly's CRO partners in China include WuXi AppTec and ChemExplorer. It also operates its own research-and-development center in Shanghai and is building a diabetes research center here. The company hasn't abandoned central Indiana, by any means. It still employs more than 10,300 people in the region, many in R&D. But in an interview in Shanghai with IBJ last month, Lilly CEO John Lechleiter said CROs in China have more to offer than cost savings. "The skill level and the quality and the increasing availability of high-skilled and high-quality operations in the contract-research space renders these firms globally competitive," he said. Asked whether the emergence of high-quality pharmaceutical research in China puts research at risk in the United States, Lechleiter said: "There is not one easy answer. I will say I think our research tends to migrate to where the intellectual capital sits." In recent years, he said, Lilly has had difficulty getting green cards or permanent resident visas for some of the Chinese people graduating from American universities it wants to hire. "So we need to follow the talent, and I expect there will be people recruited to the U.S. who will want to stay in the U.S. And there will be Chinese people and others who want to come back here. Our research center in Shanghai gives them a place to land." Putting R&D in China also helps position companies to sell into the huge, emerging Chinese market, said Rachel Gong, an independent health care consultant in China. But the cost savings are particularly compelling given the struggling pharmaceutical industry's need to invent new drugs quickly and the high risk of failure. In the United States, a $100 million investment might advance just one or two drugs to late-stage development, she said. In China, that money might advance 10.