China Blog Series Part 3: One billion reasons why pharma R&D in China has reached the big leagues?
This is part 3 of a 4 part blog series featuring growth, challenges and predictions for China’s emerging life science industry:
Subject to the same questions as other R&D commitments
One year later, the CNIBR expansion is still unfolding. Details of exactly where and how the funding will be spent have yet to be released. As with many of the MNC R&D center efforts that have come before, it remains possible that the amount of cash earmarked for innovative drug R&D may be allocated over a long period of time and be only a fraction of the total commitment. (Even a fraction of one billion dollars, however, is still no small sum.)
Motivations, collateral benefits
Presence in an increasingly important market: Novartis is of course buying much more than a just research facility with its investment. With a pharmaceutical market that is poised to become the world’s second largest over the next decade (worth USD 109.5 billion by 2020), China is a focus of increasingly intense interest for all multinational drugmakers. Having a major presence — a presence which extends beyond commercial/sales/regulatory functions to include manufacturing and now, R&D — is becoming increasingly important. (The black box of distribution will likely remain outside company walls for the near- and mid-term, unless centralized procurement is able to engender significant transparency.)
Goodwill: Like other such investments by MNC pharma, Novartis’ CNIBR commitment is also motivated by a desire for governmental goodwill. With new national and regional pricing and reimbursement lists, expansion of government health insurance and community healthcare, and increased oversight of hospitals, tendering, and prescribing- it is clear that China’s healthcare sector will remain a highly regulated one, and issues of market access will be critical for any company seeking to enjoy the fruits of China’s expanding pharmaceutical market.
Recruiting: The CNIBR, now headed by Dr. En Li, will also allow Novartis to extend a sizable taproot into China’s PhD and pharmaceutical research scientist talent pool. While this pool has undoubtedly grown larger in recent years, new R&D centers built by multinational pharmas and the expanding presence of CROs has rendered competition for skilled research staff increasingly stiff. A marquis investment such as the CNIBR will likely give Novartis an extra edge, beyond simple compensation, in attracting top talent.
Implications for the sector as a whole
Novartis’ headline-grabbing CNIBR announcement will likely accelerate a number of (already occurring) trends in the pharmaceutical research sector: Outsourcing activity moves west (or at least out of Shanghai and Beijing): As mentioned above, the Novartis investment, and others like it, will serve to raise the stakes in luring skilled scientists and increase salary expectations across the board. Contract research shops and as well as MNC pharma functions depending on lower-cost R&D manpower will be forced to move to markets where wages remain at lower levels. This phenomenon is already occurring. Excel PharmaStudies’ (now part of PPD) selected Taizhou City for its new biometrics center and several notable deals have been signed involving Wuhan’s Biolake including WuXi PharmaTech’s USD 100 million commitment to build a 40,000 square meter CRO facility and Pfizer’s newly opened radiation biology facility (with current staff number of 40 which is expected to reach 200 over the next two years). Nanjing has also become a locus of increasing amounts of CRO activity.
Number and quality of students studying pharmaceutical-related sciences will rise: Like the westward shift of CRO bases, this phenomenon is already underway; for example, the number of students enrolled at the Shanghai Institute of Biological Sciences (SIBS), a leading center of postgraduate training in fields related to pharma R&D, has more than doubled over the past decade from 723 students (including 394 PhD candidates) in the year 2000, to 1467 (973 PhD) in 2008. Novartis’ high-profile investment will likely give an added boost to the growing amount of young talent choosing the pharmaceutical R&D-related fields.
Follow-on commitments for more infrastructure/acquisitions, both R&D and otherwise: While most research-based MNC pharmas have likely already planned spending increases for China in the future, the CNIBR announcement may have galvanized boards and CEOs to consider the timeframe of their China strategies. Novartis has made a major play on a key area of the global pharmaceutical chessboard, the rest of big pharma will need to consider if it will respond in kind. Some have already done so — Sanofi-Aventis announced in April that it will establish an Asia-Pacific R&D center in Shanghai; others have made non-infrastructure investments that can still provide access to Chinese talent and novel compounds, such as Lilly’s planned venture capital fund to provide financial aid to early-stage research programs in Chinese universities.)
- Dr. Jon Zifferblatt
Managing Director, General Biologic
About General Biologic
GBI is an information and professional services firm founded in China in 2002. With more than 30 professionals in Shanghai, our business is providing critical data and advice covering China’s pharmaceutical, biotechnology, and healthcare industries. Our goal is to create a transparent operating environment for our clients, and provide the insights into the competitive landscape they need in order to capitalize on the tremendous opportunities available in China. Our clients depend on the news, data, and analytics we provide to make informed decisions every day. GBI’s clients include most multinational pharmaceutical companies and a leading group of biotechnology companies, healthcare companies, investors, consultants, law firms and financial analysts. For more information, please visit http://www.gbipharma.com/.
