cra policies that encourage innovation in middle-income countries web

7/27/2019 CRA Policies That Encourage Innovation in Middle-Income Countries Web

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Table of conTenTs

ExEcutivE summary.....................................................................................................................................................................................4

1. introduction.....................................................................................................................................................................................................16

1.1. Wt s nnoton nd wt do we men y nnoton pocy? ...................................................171.2. Exstng stdes exmnng te goston o R&D .................................................................................21

1.3. Metodoogy ........................................................................................................................................................................................ 23

1.3.1. Coce o cse stdes ...............................................................................................................................................................24

1.4. Strctre o te report ...............................................................................................................................................................25

2. innovation in middlE-incomE countriEs ....................................................................................................................26

2.1. Prmcetc R&D spendng ......................................................................................................................................... 27

2.2. Stges n te R&D process ...................................................................................................................................................30

2.2.1. Ery stge reserc ....................................................................................................................................................................30

2.2.2. Cnc reserc ................................................................................................................................................................................31

2.3. Empoyment n R&D...................................................................................................................................................................... 34

2.4. Te otpt o te nnote process .........................................................................................................................35

2.4.1. Pctons...........................................................................................................................................................................................36

2.4.2. Ptents ....................................................................................................................................................................................................... 37

2.4.3. New cemc enttes, new ormtons nd new doses ....................................................................39

2.5. Smmry..................................................................................................................................................................................................43

3. PoliciEs to dEvEloP thE innovativE caPacity in middlE-incomE countriEs.............44

3.1. Nton nnoton strteges ............................................................................................................................................45

3.2. Goernment poces or deeopng scentc cptes .................................................................. 49

3.3. Te deeopment o regon s nd scentc csters....................................................................543.4. Drect pc spport or nestment n R&D ......................................................................................................56

3.5. Regton o te cnc enronment.......................................................................................................................58

3.6. Smmry..................................................................................................................................................................................................62

4. PoliciEs that incEntivisE innovation in middlE-incomE countriEs .....................................63

4.1. Te roe o nteect property .......................................................................................................................................64

4.2. Coorton etween ndstry, goernment nd cdem ............................................................68

4.3. Encorgng oregn drect nestment ..................................................................................................................... 72

4.4. Smmry..................................................................................................................................................................................................77

5. thE imPact of thE changEs in thE global businEss modEl ................................................................785.1. Deeopng prodct portoos to commercse

n mdde-ncome mrkets ..................................................................................................................................................... 79

5.2. Te oogc reoton nd te opportnty o osmrs ..................................................................80

5.3. Osorng nd otsorcng te e cn .......................................................................................................82

5.4. Smmry..................................................................................................................................................................................................84

6. Policy imPlications ..................................................................................................................................................................................86

aPPEndix 1: choicE of casE studiEs ....................................................................................................................................89

aPPEndix 2: summary of national innovation stratEgiEs .................................................................93

aPPEndix 3: statistical analysis .............................................................................................................................................97


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lisT of Tables

able 1: Summar o the main lessons and select eamples rom case studies .........15

able 2: Interiews undertaken to deelop the case studies ....................................................... 25

able 3: Patent database comparison ............................................................................................................... 37

able 4: New drug deelopment b domestic companies in South Korea ......................39

able 5: Eamples o Chinas locall deeloped therapies .............................................................41

able 6: Eamples o Indias locall deeloped therapies ..............................................................42

able 7: Dimensions o the national innoation strategies .......................................................... 46

able 8: National innoation strategies in the public and priate sector ........................48

able 9: Policies applied to encourage the deelopment o skills ............................................52

able 10: Initiaties to build up a skilled workorce or attract back rom abroad....... 53

able 11: Policies undertaken to promote the deelopment o clusters...............................55

able 12: Direct unding support or inestments in research......................................................57

able 13: Description o the regulator approal or clinical trials .........................................60

able 14: Policies applied to promote strong inrastructure or clinical trials ..............60

able 15: Te intellectual propert regime and data protection ................................................66

able 16: Policies applied to promote the collaboration between

industr and academia..............................................................................................................................70

able 17: Policies applied to promote the collaboration between domestic and

international industr................................................................................................................................71

able 18: a policies applied to encourage oreign direct inestment

in innoation actiites ...............................................................................................................................75

able 19: Measures o innoatie acti it in middleincome

and highincome countries ..................................................................................................................98

able 20: Proies or innoation polic and countr characteristics.....................................99

able 21: Part ial correlations between the dierent pharmaceutical

innoation proies......................................................................................................................................102able 22: Estimates and interpretation rom the regression o clinical trials ..............103


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lisT of figures

Figure 1: Relatie perormance o the case stud countries ............................................................. 6

Figure 2: Location o R&D hubs b international pharmaceutical companies............... 8

Figure 3: otal number o clinical trials conducted

in middle and highincome countries to date........................................................................ 9

Figure 4: National innoation strategies ............................................................................................................. 9

Figure 5: Relatie importance o actors aecting innoatie actiities..............................14

Figure 6: pe o innoatie actiit and the ke participants.....................................................18

Figure 7: pes o pharmaceutical innoations .........................................................................................19

Figure 8: EUS and Europe R&D spending b PhRMA members 2010 and % change..... 27

Figure 9: Measures o inestment in pharmaceutical R&D............................................................ 29

Figure 10: Location o R&D hubs b international pharmaceutical companies ............ 30

Figure 11: Distribution o global clinical trials b region and phase as o Ma 2012............... 32

Figure 12: Distribution o clinical trials in case stud countries, 20062011 ....................33

Figure 13: R&D researchers, total and per million, 2009 or most recent ear...................34

Figure 14: Emploment in pharmaceutical and biotechnolog industr

or medical and health sciences R&D........................................................................................... 35

Figure 15: Number o articles published in a scientic or technical journal, 20042009.... 36

Figure 16: Number o medical science publications in 2010 and % change rom 2000...........37

Figure 17: Number o PC pharmaceutical patent application*

b countr origin, 19992009.............................................................................................................. 38

Figure 18: Class 1 drug approals in China deeloped b Chinese rms, 20032010 ..............40

Figure 19: Relatie perormance o the case stud countries ...........................................................51

Figure 20: Comparing education standards and polic eort among the case studies .........52

Figure 21: otal clinical trials ersus pharmaceutical market size, 20062010................61

Figure 22: Number o technolog transer cases per countr, 20002011 ............................69

Figure 23: Outward FDI rom OECD countries, ecluding South Korea, inpharmaceuticals and medicinal, chemical and botanical products,

20012010 (M USD) ....................................................................................................................................... 73

Figure 24: Composition o inward inestment in drugs

and pharmaceuticals, 20032010 .....................................................................................................74

Figure 25: Pharmaceutical market size, 20062010 ...................................................................................76

Figure 26: FDI in pharmaceuticals and pharmaceutical R&D

as a percentage o market size (20072010) .............................................................................76

Figure 27: Te eolution o the pharmaceutical business model ................................................. 79

Figure 28: Biosimilar capabilities b tpe o rm ........................................................................................81

Figure 29: Clinical research outsourcing status and preerencesb tpe o rm, Q4 2011 ............................................................................................................................ 83

Figure 30: Outsourcing and oshoring status b actiit in India

and China or 15 multinational pharmaceutical rms...............................................84

Figure 31: Relatie importance o actors aecting innoatie actiities.............................85

Figure 32: Inestment in research and deelopment as a percentage o

GDP b region, 20042006 and 20072009* ........................................................................... 90

Figure 33: Clinical trials b region as o Ma 2012 ......................................................................................91

Figure 34: Number o articles published in scientic journals ...................................................... 92

Figure 35: R&D ependiture b PhRMA companies ersus dierent polic proies...........100

Figure 36: Number o US and EU pharmaceutical and biotechnolog

patents ersus dierent polic measures ..............................................................................100

Figure 37: Number o clinical trials ersus dierent polic measures ..................................101


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4 OCTObER 2012

execuTive

summary


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POliCiES ThaT ENCOuRaGE iNNOvaTiON iN MiDDlE-iNCOME COuNTRiES 5ChaRlES RivER aSSOCiaTES

Te International Federation o Pharmaceutical Manuacturers and Associations (IF

PMA) asked Charles Rier Associates (CRA) to inestigate the conditions necessar

to encourage innoation in middleincome countries. Ultimatel, the purpose o this

project is to ealuate the policies o host goernments that encourage inestment in

innoatie actiities and the implications or uture innoation polic.1

Te report ocuses on eight case stud countries (Brazil, China, Colombia, India, Mala

sia, Russia, South Arica and South Korea). Te case studies were chosen using a number

o criteria. First l, we selected countries rom dierent geographic regions, ocusing on

those that had been most successul in deeloping innoatie actiities to date in their

region. Secondl, we chose countries that il lustrate a range o dierent polic approach

es. Tirdl, we chose a mi o countries with a longstanding objectie o deeloping an

innoatie industr as well as countries that had onl relatiel recentl embarked on

this. Finall, we included South Korea as a basis o comparison, which was a middle

income countr when it instigated its programme to encourage pharmaceutical innoa

tion and proides a longer term perspectie on what is achieable.

In addition, to reiewing the e isting academic literature and goernment sources, we

undertook 25 interiews with goernment ocials, academics, industr trade asso

ciations and indiidual companies.

innovation in middlE-incomE countriEs: succEss to datE and thE

global contExt

We use a broad denit ion o innoation: A multiphased process, beginning with lab

based research leading to patentable inentions, moing into the stages o clinical

research, which are then translated into sae, eectie and commerciall iable products rom which societ gains a benet in terms o improed health.

We can measure innoation in terms o the inputs (or eample, inestment or number

o people emploed in dierent actiities) or in terms o outputs (patents, products in

deelopment or products ultimatel commercialised). Although there is a wide range

o circumstances o the countries under consideration, there has clearl been con

siderable progress in all o the case stud countries in deeloping some elements o

innoatie actiit in the biopharmaceutical industr oer the last decade. Howeer,

the etent o progress aries signicantl:

InChina, SouthKorea,BrazilandRussia, overallspending onR&D formedi

cines has increased dramaticall oer the last decade while in others it is grow

ing more slowl.

erehasbeenasignicantincreaseinthenumberofclinicaltrialsoccurring

in China (undertaken to a signicant etent through the deelopment o con

tract research organisations) and South Korea. In other markets in our set o

1 Tis is complementar to eisting IFPMA research inestigating the enironment that is necessar to encourage

inestment in innoationordeeloping countries. Perez, M., C hu, R., orstensson, D., Consilium, P., Assemblingthe pharmaceutical R&D puzzle or needs in t he deeloping world: An assessment o new and proposed delinkinginitiaties aimed at encouraging R&D into neglected and tropical diseases a nd specic pe II diseases A reportor IFPMA, Ma 2012.


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Neertheless, in addition to the medicines, b participating in the range o innoatie ac

tiities described aboe there are likel to be a range o additional benets in the long term:

Clinicalresearchcontractscanprovidevaluableextrafundsforleadinghospitals

and help to sustain a nucleus o eperienced researchers in such centres;

e infrastructuretoparticipateinclinicalresearchbringsbenetsdirectlyto

patients and should bring medicines to market more quickl;

Undertakinglaterphasesofdevelopmentcanprovidetheplatformfromwhich

domestic or international companies establish networks to undertake the ull

range o R&D actiities within the middleincome countr; and

Forlargemiddle-incomecountriesthismightopenupthepossibilityofdeveloping

new treatments or diseases that are a high priorit in that countr, or on a regional

basis in Asia or Latin America, which ma be economicall iable without being

dependent on the US and European markets or commercialisation reenues.

Tereore, although it is common to discuss the progress that middleincome markets

are making in terms o pharmaceutical innoation, in realit, the pattern diers con

siderabl rom countr to countr.

lEssons from thE aPPlication of innovation Policy in thE casE

studiEs2

From the eperience o the eight case studies we can draw a number o lessons regard

ing the ke actors that can successull encourage domestic innoatie actiit.

o develop innovative activity (particularly early stage research), governments must

have a consistent long-term policy that is implemented eectively

2 A complete ersion o the case studies can be accessed through CRAs website. www.crai.com


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8 OCTObER 2012

Te innoatie process is long and dicult to predict. It takes about 10 to 12 ears

rom proo o concept to global commercialisation. Inestment in earl stage research

is not a linear process, and so it is dicult to assign clear time rames or costs to the

patented inentions which come out o it. Gien the unpredictable timings and the

signicant costs associated with establishing new research centres, it is unsurprising

that decisions regarding the location o research acilities are not taken er oten and

are important strategic decisions. Indeed, decisions on new inestments are likel to

be een more dicult, gien the ongoing trend to consolidate research and deelop

ment sites. Eamining the location o R&D hubs, the great majorit o international

R&D sites continue to be in the US and Europe, but the importance o China has in

creased dramaticall as illustrated in Figure 2.

Figure 2: Location o R&D hubs by international pharmaceutical companies

5

1 4

706

3

16

1

11

1 115

1

16

2

12

3

1

68

KEY

< 5

5-10

11-20

60+

Guide:

Americas:

Europe:

Asia & Oceana:

76

61

37

Sorce: CRa nyss sed on pc normton o iFPMa memers. Ot o te 27 memers, we coected dt on te octon oR&D centres or 20 compnes s o agst 2012.

urning to clinical trials actiit, these are oten made up o a series o trials being

undertaken in man locations globall, so we might epect greater feibilit on the lo

cation o clinical trials actiit. Middleincome countries host 15% o the clinical trials

(Figure 3). O the middleincome case stud countries, China and Brazil hae had the

highest number o clinical trials to date. Howeer, clinical trials constitute the most

epensie part o t he drug deelopment process and can themseles take si to eight

ears. Tereore, it is unsurprising that we onl see gradual changes in the location o

clinical trials oer time.


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Figure 3: otal number o clinical trials conducted in middle and high-income

countries to date

High income

Clinical trials in

high and middle

income countries

Clinical trials in

middle income

countries Asia Latin America AfricaOther (CEE and

Middle East)

China

India

RussiaMalaysia

Brazil

Colombia

Other

Other

Other

South Africa

Upper-middle income

Lower-middle income

174,818

11%

11%

25%

19%

6%

7%8%

8%2%

2%

1%

26,068

85%

12%

3%

Sorce: CRa nyss nd www.cnctrs.go. Nb: Sot Kore s excded de to ts stts s g-ncome contry.

Tis is also consistent with all the case stud countries haing a longterm polic on

deeloping innoation in the pharmaceutical industr (as illustrated in Figure 4). Tis

is seen as an important signal regarding the uture enironment or innoation.

Figure 4: National innovation strategies

Sorce: CRa nyss. *Te indn Nton innoton Pn ws drted n 2008 t t ws not mpemented. Tere s newnnoton pn eng drted, te Scence nd Tecnoogy innoton Pocy, wc s expected to e nnon ced n 2013.

**amendments to te progrmme were proposed de to dget concerns.


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common actors related to reliable inrastructure, and man counties historicall un

dertook all o these actiities; howeer, based on our case studies, deeloping an in

noatie industr does not require the countr to undertake al l o these actiities, and

the should not be seen as necessar steps to deeloping an innoatie industr.

Te polic priorities should thereore depend on the tpes o innoatie actiit t hat

the countr is tr ing to encourage:

Earlystageresearchrequiresworld-classinstitutionsforresearch,clustersofin

noatie companies proiding support on core technologies (high throughput

screening, gene sequencing, etc.), highl trained workorce (retained or attracted

back to the countr) and an enironment that encourages partnership;

Clinicaltrialsrequireecientregulatorysystemforappraisingclinicaltrialsde

sign, a supportie and wellregulated sstem or enrolment and strong medical

schools and clinicians or designing, managing and reporting trials design.

Tere needs to be coordination between industrial and health policy

When discussing innoation with polic makers and companies, there is much discus

sion o whether the should ocus on innoation or the global market or innoation

or the domestic market. Case stud countries dier considerabl in terms o whether

the are ocusing on global diseases (diabetes, cancer, cardioascular) or diseases

that are more prealent in their markets. For eample, South Ar ica ocuses on B and

hepatitis and Brazil ocuses on some neglected diseases, whilst India and China ocus

primaril on global diseases and opportunities. Clearl, i there is a ocus on domes

tic diseases, the importance o condence regarding the ultimate purchase o thesemedicines in the countr is itall important.

For some actiities, the location o actiities (part icularl clinical trials) is clearl im

portant in the assessment o the medicine. All countries would preer eidence rom

clinical trials based on patients with the same characteristics o the local popula

tion and to inole local clinical eperts. Tereore it is ineitable that the purchase

o medicines indirectl aects the location o clinical trials. Te larger the domestic

market opportunit, the more attractie it is to undertake clinical trials actiit in

such markets. Tis is particularl the case or latestage clinical trials.

For earl stage research it is oten argued that the ultimate purchase b the domestic

market is less important; howeer, een or earl stage research, the certaint regard

ing the enironment is likel to be higher i the countr alues the innoatie output,

and this will benet their citizens. Tis is particularl important i public unding is

inoled in supporting the research. Tereore, a coordinated polic encompassing

industrial and health polic is needed to support domestic innoation.

Intellectual property is a necessary but not sucient condition or developing indige-

nous research and to develop a domestic innovative industry

Te present innoation model is criticall dependent upon patents as a basis or ob

taining a reward or all o those who inest in dierent was at dierent stages o the


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Te global industr has plaed a signicant role oer the last 10 ears, perhaps part l

in response to the slower growth in its core business in Western markets. It has ad

opted a er strong and positie approach to engaging with middleincome markets

(particularl China) and inesting not onl in local marketing aliates, but also in

partnering with the emerging uniersit and goernment research institute rater

nit and, in quite a ew cases, with establishing their own selstanding corporate

research centres.

Te changing global business model is bringing new opportunities or middle-income

markets

Te transition in the innoatie pharmaceutical business models brings with it both

challenges and greater opportunities or middleincome countries:

Developingproductportfoliostopenetrategrowingmarkets:Te stagnation o the

pharmaceutical market in the West has created a need to look toward middle

income markets or additional reenue, which is translating to a greater need toconduct clinical trial actiities in those markets or marketing approal.

Thebiologicandbiosimilarsopportunity:New research isincreasingl ocused

on biologic medicines, which require dierent skills and capabilities. his is

likel to be beneicial or some middleincome markets that hae the skills

and appropriate eperience; in others, this is likel to represent some addi

tional hurdles.

Oshoringandoutsourcingthevaluechain: It has become standard practice or

companies to relocate their manuacturing acilities to markets where the cost oproduction is lower. Te industr is increasingl eperienced in managing com

ple interactions between dierent suppliers conducting earl stage research and

clinical trials. As middleincome countries deelop the capabilit to undertake

these actiities, this can onl increase their opportunit to part icipate in innoa

tie actiities.

Rankings the actors that determines the location o innovative activity

Finall, to test the actors that were most important rom an industr perspectie, we

asked the companies inoled in the interiew programme to rank the actors thewould consider when choosing the location o research acilit ies. Figure 5 shows our

ndings. Indeed, all the companies interiewed pointed out that scientic capabilities

(whether managing clinical trials programmes or undertaking earl stage research in

combination with leading research institutes) were the most important determinant

o innoatie inestments. Howeer, other important actors included intellectual

propert protection as well as the consistenc o industrial and health policies. Low

labour costs were not as big a actor in deeloping innoatie actiities (whether lo

call or rom attracting international inestment).


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Figure 5: Relative importance o actors aecting innovative activities

high

imPortancE

Medc scoos opertng to te gest nternton stndrds Csters o oscence-sed ger edcton nstttons Goernment et nd ndstr poces tt re we-gned Consstenty enorced systems o iP protecton

mEdium

imPortancE

a sond sc edcton system Coorte nternton pc-prte prtnersps (PPPs) Mrket strctres wc ctte eecte nd ecent dson o nnote

medcnes inestment y domestc goernment

low

imPortancE

access to nternton mrkets low or costs

Sorce: CRa nterews wt nne nternton prmcetc compnes

conclusions

Our conclusions can be grouped together under three headings:

Participation:Allmiddle-incomecountriescoveredinourcasestudiesareinvest

ing in bioscience strategies, but ineitabl the scale o inestment refects nation

al resources. Te continuing globalisation and disaggregation o the innoation

process should make it much easier or middleincome countries to increase their

share o both public and priate inestment in both basic and clinical research on

a piecemeal basis.

Innovationpolicy:ereisaverydierentopportunitydependingonwhetherweare

considering China, Brazil and India, or smaller markets such as Colombia and Mala

sia. Te policies need to be tailored to the countries situation. Not all countries hae

the market size or een the population that will encourage largescale clinical trials. It

takes considerable time and inestment to build up international standards research

centres that are necessar or earl stage research. Tereore a staged and targeted

programme should be deeloped that builds capabilities oer time in actiities where

the countr can compete internationall. For middleincome countries to adance

their participation in ke acets o the innoation process, there are urther improements that will be needed in these countries national regulator rameworks to con

orm with generall accepted standards across deeloped markets.

Rewards:e combination of public and private inward investmentsover the

past decade in South Korea and China, and to a lesser degree in India and Brazil,

has greatl upgraded their domestic capabilities in basic and clinical research.

Tere is eer reason to beliee, subject to urther improements in the regulator

rameworks, that this partnership will continue to fourish. From a national per

spectie, thereore, the rst obious pao or past inestments are these assets,

which with appropriate support rom sound goernment policies going orward

can be leeraged or decades to come to underpin competitie positions in the

broader contet o the globalisation o innoation.


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o deelop the range o innoatie actiities rom basic research to clinical deelop

ment a jigsaw o policies are needed (as illustrated in able 1). Tis will take consider

able time, and ke components are to hae a consistent polic ramework, a coordi

nated industrial and health polic, strong intellectual propert and an enironment

that encourages partnership between the dierent stakeholders.

able 1: Summary o the main lessons and select examples rom case studies

main lEssons illustrativE Ex amPlEs from thE casE studiEs

Governments must have

a consistent long-term

policy that is implementedeectively to develop early

stage innovative activity

s Ke demonstrtes te e o consstenty pcng prortyon deeopng otecnoogy ndstry, nty y nestng n screserc nd ten trog poces to encorge commercston.Oter contres tt e ong-term poces t nconsstentmpementton e not een s sccess.

The capabilities to

undertake dierent parts

o the pharmaceuticalindustry value chain are

dierent, and hence so are

the policy priorities

Te medc nrstrctre, popton nd reqrements to sere ocmrkets re drng cnc tr ctty n i, b nd r.

Te strengt o te cdemc reserc centres nd deeopngcsters n c nd s Ke re seen s key to encorgngery stge reserc.

There needs to becoordination between

industrial and health policy

Te nk etween te growng mrket opportnty nd tegoernments ojecte o deeopng n nnote sector s workngto mke c key octon or nnoton.s a s ncresngy recognsng wtn te goernment gencestt prcsng strtegy needs to e gned to ndstr strtegy.

Intellectual property

is a necessary but notsufcient condition or

developing indigenousresearch and to develop

a domestic innovativeindustry

Most pocymkers reported tt te iP system ws n sset to

encorgng domestc nnote ctty. Cnges n te iP system nb ws seen s sgncnt n settng te ondton or nnotectty.

Sustainable innovation

requires coordination

between public, privateand academic sectors

innote ctty n s Ke ony deeoped wen prtenestment ws encorged. s a nd b erecognsed te need to encorge prtnersp etween cdem,pc reserc nstttes nd nnotng prte compnes. in ctere re sccess exmpes o pc nd cdemc cptes(e.g., te bejng Genomcs insttte) spportng prte nnoton.

The changing global

business model is bringingnew opportunities ormiddle-income markets

Te dntges o otsorcng n i, reocsng on growt n

c nd te opportntes to deeop osmr compettors nb demonstrte te ncresed opportntes.

Sorce: CRa nyss


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1inTroducTion


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Te International Federation o Pharmaceutical Manuacturers and Associations (IF

PMA) asked Charles Rier Associates (CRA) to deelop eidence on the conditions

necessar to encourage inestment in innoation in middleincome countries.3 Te

objecties are to:

Build on existing research, including IFPMAs research investigating the envi

ronment that is necessar to encourage inestment in innoationordeeloping

countries4 and the importance o particular driers, such as technolog transer,

b analsing the policies that encourage innoation in middleincome countries;5

Reviewthelessonsfromcasestudycountriesregardingthepoliciesadoptedin

middleincome to encourage inestment in innoation;

Investigateifthere isacorrelationbetweeninnovationanddierentpolicyap

proaches; and

Setouttheimplicationsforinnovationpolicyinmiddle-incomecountries.

1.1. WHA IS INNOvAION AND WHA DO WE MEAN By INNOvAION

POLICy?

Te word innoation oers considerable scope or alternatie interpretations.6 We de

ne innoation as ollows:

Innovationisamultiphasedprocess,beginningwithlab-basedresearchandleading

to patentable inentions beore moing into the dierent stages o clinical research.

isisthentranslatedintosafe,eectiveandcommerciallyviableproductsfrom

which societ gains a benet in terms o improed health.

Innoation can thereore be measured b looking at innoatie actiities or the output

o innoation.

innovativE activity

Innoatie actiit is tpicall diided into basic research (sometimes described asdrug discoer), preclinical research, clinical trials (which themseles are diided

3 As dened b the World Bank, middleincome countries hae gross national income per capita in 2011 greater than$1,026 and below $12,475. Te dierentiate between upper ($4,036$12,475) and lower middleincomes countries($1,026$4,035).

4 M. Perez, R. Chu, D. orstensson, P. Consilium, Assembling the Pharmaceutical R&D Puzzle or Needs in the Deeloping World: A n As sessment o New and Propo sed Delin king Init iaties Aimed at Encoura ging R&D i nto Neglected and ropical Diseases and Specic pe II Diseases, a report or IFPMA, Ma 2012.

5 IFPMA, echnolog ranser: A Collaboratie Approach to Improe Global Health. Te ResearchBased Pharmaceutical Industr Eperience, 2011.

6 o illustrate, consider the ollowing three denitions: Innoation is the process o discoering something that isboth new and potentiall use ul; innoation is the process o discoering something new and deeloping it into asaleable product or serice; and i nnoation is a ccl ical economic process, whereb innoators discoer, deelop

and commercialise new products or serices and gain sucient returns on their inestments to reinest in continued R&D. All three denitions are commonl used, although the rst denition aboe, strictl speaking , reersto inention. According to Schumpeter, the making o the inention and the car ring out o the correspondinginnoation are, economicall and sociologicall , two entirel dierent things.


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intereres with the disease process at a molecular leel can be described b the term

radical innoation. Howeer, closel related molecules with dierent attributes that

ma oer signicant alue in treating particular disease ariants or patient segments

can be reerred to as incremental innoation. Tis project is intended to coer the

spectrum rom incremental to reolutionar.

Figure 7: ypes o pharmaceutical innovations

New

products

in a class or

formulations

New

chemical or

biological

entities

New disease

mechanisms and

families of closely

related chemical or

biological products

New or signicantly improved production or

delivery method

Major therapeutic

models e.g.

anti-infective based

on biotechnology

Incremental

Process

innovation

Radical Revolutionary

Observed types of biopharmaceutical innovations

Sorce: CRa sed on C. Freemn, Te Economcs o indstr innoton (london: Frnces Pnter, 1982)

Tis report ocuses on product innoation. Innoation can also occur in manuactur

ing or production process. Reengineering the production process can improe e

cienc and reduce costs (or raise qualit). Tis is oten reerred to as process innoation.

We can obsere a range o outputs: intermediate outputs such as the number o pub

lications, patents that hae been led, the products going through dierent phases o

deelopment, or the number o products registered and ultimatel commercialised.8

innovation Policy

Te objectie o this project is to understand the policies that encourage innoatie ac

tiit in middleincome markets. Tere is a broad consensus on the positie contribu

tion that inestment in innoation to create better modern medicines can make to thetreatment o both inectious and noncommunicable diseases (NCDs) and thereb to

global social and economic progress. It is widel recognised that social returns to in

noation eceed the priate returns through:

Directbenetstopatientsandsociety: Innoation creates new medicines and treat

ments that are aluable or patients, etending lies, improing qualit o lie and

meeting unmet needs. It is thereore oten o equal concern regarding health polic.

8 For innoation to be aluable, it is important that is diused and aailable within societ. As set out in the WorldBank report on innoation polic, Innoation means technologies or practices that are new to a gien societ. Te

are not necessaril new in absolute terms. Tese technologies or practices are being diused in that econom orsociet. Tis point is important: what is not disseminated and used is not an innoation. Dissemination is ersignicant and requires par ticular attention in low and mediumincome countries, Innoation Polic: A Guideor Deeloping Countries, World Bank, 2010.


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20 OCTObER 2012

Playinganimportantroleintheeconomicandsocialdevelopmentofcountries:It

is closel associated with economic growth as it helps improe productiit and

competieness creating jobs as a ehicle or deeloping eports. It is thereore o

ten associated to industrial polic.

Innoation polic thereore is multiaceted and comple, inoling man di erent

goernment departments and agencies. hese include departments responsible

or the econom, sciences and technolog and industr as well as departments

o health. Oten agencies are used to allocate and monitor goernment spend

ing, and the state ma een participate through public laboratories and public re

search institutes.

Innoation polic encompasses a wide range o tpes o polic. 9 It is widel accepted

that policies to encourage innoation need to refect technolog push (adances in

knowledge and their applications) or market pull (social or economic market oppor

tunities incentiising innoation).10 Innoation polic has recentl been reiewed in a

report commissioned b the Battelle echnolog Partnership Practice.11,12 Te reportnds that innoation policies in middleincome markets a re largel aimed at building

the tpe o scientic inrastructure ound in the US and are ocused on deeloping or

improing the ollowing areas:

BuildingR&D excellenceandacceleratingcommercialisationof research: Tis is

usuall done through deeloping regional industr clusters, encouraging and

raising the qualit o R&D through public inestment and encouraging priate

inestment and enhancing priate and public collaboration.

Attracting, retaininganddeveloping scientictalent: Tis includes programmesthat encourage students to stud math, science and engineering as well as incen

ties to attract and retain worldclass researchers and scientists.

Ensuring access to nancial capitalfor companies: Tis includes priate inest

ment in inestment unds and companies, especiall in innoatie, technolog

based companies.

While Battelle proides a comprehensie oer iew o the policies used b these 18

countries to encourage innoation in the biopharmaceutical sector, it does not draw

conclusions as to which actors are important.

9 We used a wide denition o innoation polic, including polices b which the goernment supports the innoators b pro iding appropriate nanc ial and ot her mea sures, remoes regu lator, inst itutional, or competitieobstacles to innoation and b strengthening t he knowledge base through inestment in education and research.Tis is consistent w ith World Bank, Innoation Polic: A Guide or Deeloping Countries, Te World Bank, 2010.

10 Success is highl dependent on eectiel coupling these two orces. J. idd, J. Bessant, and K. Paitt, ManagingInnovation:IntegratingTechnological,MarketandOrganizationalChange,3rdedition (Wile, 2005).

11 Battelle eamines the policies and programs o 18 countries (deeloped and deeloping) to encourage growth o

and innoation in the biopharmaceutical sector. Battelle echnolog Part nership Practice, Te Biopharmaceutical Research and Deelopment Enterprise: Growth Platorm or Economies around the World, PhRMA, Ma 2012.

12 Te countries included in the report are: Australia, Brazil, Canada, Chile, China, France, German, Ireland, Israel,Ital, Japan, Russia, Saudi Arabia, Singapore, South Arica, South Korea, Sweden and United Kingdom.


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1.2. ExISING SUDIES ExA MINING HE GLOBALISAION OF R&D

Te globalisation o the pharmaceutical industr is not a new phenomenon.13 Since

the 1990s, leading US, Swiss, German, UK and Japanese companies recognised that

as the costs and timescales o product deelopment continued to escalate and mar

ket lie ccles were shortened b generic competition, it was onl possible to sustain

a iable business model through globalisation. Leading EU companies established

research centres in the US, and leading US companies established them in Europe.

Similarl, manuacturing o actie ingredients was increasingl located in countries

that oered the best combination o skilled labour, low operating costs and scal in

centies, notabl Puerto Rico, Ireland and Singapore.

As competition bet ween nat ional goernments to att rac t a nd ret ai n t he location

o high technolog industr inest ment in their countr has sharpened in recent

ears, and industr ies , li ke the pha rmaceutica l sector, are under pressure to e

tend their global reach or reenues and seek urther cost eiciencies, it is not

surprising that both parties are continuall interacting to eplore new inestment opportunities. I n this contet the rapid economic growth and improed ac

cessibilit o man middleincome countries has brought them withi n the scope

o this process. he increasing role o middleincome countries has been widel

reported:

isisparticularlyfocusedonmoreroutineactivitiesinvolvedinproductdevelop

ment, such as compound snthesis, preclinical toicit tests and data processing.14

erehasalsobeenanotableshiftinthelocationofclinicalresearchactivitieson

a global basis.15

Some companies are currentl conducting oer 50% o their ongoing clinical studies in lowercost and emerging markets, and this proportion ma

well rise urther.16

Overthelastveyears,wehaveobservedanumberofsignicantinvestmentsin

earl stage R&D acilities in middleincome markets.17

It should not be surprising, thereore, that there is a ast academic literature on the

location and the implications or goernment polic, and this has increasingl o

cused on the actors eplaining the location o innoatie actiities in middlein

come markets.18

13 Olier Gassmann, Gerrit Reepmeer and Maimil ian on Zedtwitz, LeadingPharmaceuticalInnovation:TrendsandDriversforGrowthinthePharmaceuticalIndustry,2nd ed. (Springer, 2008), chapters 2, 4, and 5.

14 y. Friedman, Location o Pharmaceutical Innoation: 20002009,NatureReviewsDrugDiscovery9 (December2010): 835836.

15 Berndt et al., Te Globalisation o Clinical rials or New Medicines into Emerging Markets: Where Are Te Goingand Wh?Paper presented at the UNUMERI Conerence, Maastricht, June 2007. Berndt et al., rends in the Globalisation o Clinical rials,NatureReviewsDrugDiscovery(Noember 2007),accessed at doi:10.1038/nrd2441.

16 Kenneth I. Kaitin, Te Landscape or Pharmaceutical Innoation: Driers o CostEectie Clinical Research,PharmOutsourcing(MaJune 2010): 3605.

17 N. Kir iama, rade and Inno ation: Pharmaceut icals, OECD rade Polic Working Papers, No. 113, OECD Publishing, 2011.

18 We ocus on the literature that is concerned specicall with the biopharmaceutical industr. Tere is a large literature on innoation polic in general. See, or eample, J.E. Aubert, Promoting Innoation in Deeloping Countries: A Conceptual Framework, World Bank Institute, Jul 2004; or World Bank, Innoation Polic: A Guide orDeeloping Countries, Te World Bank, 2010.


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22 OCTObER 2012

One o the most releant studies was undertaken b Cockburn (2008).19 Cockburn

identied the trends in the location o innoatie actiit and the increasing impor

tance o middleincome markets, nding that the aailable eidence suggests that

emerging countries are plaing a rapidl growing role in the global research eort,

albeit currentl er small compared to the scale o actiit in the United States and

Europe. Cockburn identied a number o actors that infuence biopharmaceutical

companies R&D location decisions:

Structuralchangein the industry,creatingopportunitiesforcollaborationand

markets or specialised skills and serices;

Trendsintheworldeconomythat aredrivingglobalisationofmanyindustries,

including actors such as improements in communication technologies, greater

international mobilit o labour and capital, accumulation o human capital and

business inrastructure in lowcost emerging economies, and

HarmonisationofIPrulesfollowingtheTRIPSagreement.

Howeer, Cockburn concludes that the trend is onl relatiel graduall likel to

continue. He identied limits to the tpes o actiit that are likel to be relocated

outside the industrs traditional locations. Substantial oshoring o R&D actiities

is most likel to occur where the research actiit is relatiel routine, uses large

amounts o relatiel lowskilled labour and does not need to be tightl integrated

or colocated with other R&D actiities. In particular, largescale, latestage clinical

trials are the area where he epected the most actiit in middleincome markets.

Other aspects o the innoation process, he concluded, are much less likel to re

locate to lowcost locations. For eample, decisions about where to locate scienceintensie drug discoer appear to be much less sensitie to labour costs and ma

be drien primaril b actors such as proimit to leadingedge academic research

and cluster eternalities. Substantial geographic redistribution o core R&D eort

in this industr thereore seems likel to occur onl i and when these oshore loca

tions deelop their own critical mass o academic biomedical science and support

ing complementar inrastructure.

A more recent st ud b Sa mpath agrees with Coc kbu rn that there are a number

o barriers to innoatie actiit being undertaken in middleincome markets.

Sampath identiies areas speciic to biopharmaceutical innoation that are lacking in low and middleincome countries.20 Such countries generall lack the

human capital, institutional rameworks, inrastructure and capacit or R&D

that is necessar or biopharmaceutical innoation. here is also an inadequate

priate sector and inadequate publicpriate linkages necessar or the com

mercialisation o ideas. Lastl, there is a lack o coherence between health and

innoation polic.

19 I. Cockburn, Pharmaceuticals, in InnovationinGlobalIndustries:USFirmsCompetinginaNewWorld(Collected

Studies), Jere . Macher and Daid C. Mower, eds. (National Academies Press, 2008).20 P.G. Sampath, Creating Eniron ments Tat Support Resea rch and Inno ation, 2012, aail able at http://www.

orum2012.org/wpcontent/uploads/2011/05/%E2%80%9CCreatingEnironmentsthatSupportResearchandInnoation.%E2%80%9DPadmashreeGehlSampath.pd.


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Howeer, other studies (Wadhwa et al.) are more much condent regarding the speed

at which innoatie actiities will be undertaken in middleincome markets.21 Te

identi cost pressures and the need to tap global talent as well as growth opportuni

ties in middleincome market as the main driers encouraging international pharma

ceutical companies to shit clinicaltrial work to India and China. Te identi both

countries as becoming major partners in preclinical and clinical testing. Although,

recognising that it is too earl to judge the success o domestic industr, the note that

the earl progress is promising. Seeral companies, such as domestic companies hae

achieed signicant deelopment milestones with new chemical entities.

Indeed, the high leel o growth in publications and in the number o highl t rained

graduates is taken as eidence that it is ineitable that middleincome markets will

progressiel command a larger share o global R&D.22 Te signicant increase in the

number o patents per head o population is seen as strong eidence. Speculating oer

the net e ears, the see progress being made b India and China, graduall in the

case o India but a stepchange in the case o Chinas perormance. Te conclude,

Short o some unoreseen world cataclsm, the trends [regarding globalisation] lookunstoppable. Te new realit o global innoation presents companies with unprece

dented opportunities to tap into the comparatie adantages o nations, regions, com

panies and scientic institutions around the world.

Te aim o our report is to build on this literature, looking at recent eidence on the

perormance o middleincome countries to encourage innoatie actiit, and to

attempt to determine which actors are most important and the polic implications

that ollow rom this.

1.3. MEHODOLOGy

Te report is based upon a combination o an assessment o the most recent litera

ture, in the orm o goernment reports and academic studies, an eamination o in

diidual countr case studies and interiews with stakeholders. Specicall, we hae

undertaken:

Aliteraturereview:Here we ocused on the recent academic literature and goern

ment reports.

Eightcasestudiesofhowinnovationpolicyisencouraginginnovation:Tis includes

upper middleincome and lower middleincome countries. We ocus on whether

the hae succeeded in attracting innoatie actiit and the degree to which this

has been encouraged b eist ing polic initiaties.23

Astatisticalanalysis:Tis includes a broader set o countries and tests whether mea

sures refecting innoation are related to dierent polic instruments (or their proies).

21 viek Wadhwa et al., Te Globalisation o Innoation: Pharmaceuticals: Can India and China Cure the GlobalPharmaceutical Market?

22 omasz Mroczkowski, NewPlayersinLifeSciencesInnovation:eBestPracticesinR&DfromaroundtheWorld,(London: F Press, 2011).

23 A complete ersion o the case studies can be accessed through CRAs website. www.crai.com


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24 OCTObER 2012

Te objectie o each o these analses was to illustrate how dierent combinations o

actors hae contributed to encouraging innoation and their relatie importance in

these markets, while also highlighting the actors that hae constrained innoation.

Drawing on this, we set out our conclusions regarding the polic implications.

1.3.1. Choiceofcasestudies

he objectie o this report is to ocus on middleincome countries. Although

some lowincome countries hae the potential a nd a strong incentie to par tici

pate in scientiic and collaboratie clinical entures or deeloping and testing

new drug interentions (particularl or those inectious diseases that are par

ticularl damag ing to their national economic and social progress), the are not

included in this ana lsis.

We selected eight countries to ea mine in greater detail (Brazil, Colombia, Chi na,

India, Malasia, Russia, South Arica and South Korea). Although accepting that

eight case studies can onl proide a er partial and selectie iew o the dierse

situation in dierent countries, these were chosen in order to understand the dier

ent driers or encouraging innoation, illustrate more successul and less success

ul approaches and inorm the statistical approach. Te criterion or choosing the

case studies was as ollows:

Dierentgeographicalregions: In part icular, we wanted to learn lessons rom mar

kets in Asia (China, Malasia, Russia and South Korea), Arica (South Arica) and

Latin America (Brazil, Colombia).

Dierentstagesinthedevelopmentofaninnovativeindustry:We chose countries

with a longstanding objectie o deeloping an innoatie industr (or eample,

China) as well as countries that had onl relatiel recentl embarked on this (or

eample, Colombia).

Adoptingdierentpolicyapproaches:Te markets dier in terms o the policies

the are using to encourage innoationor eample, the use o public unding

ersus priate inestment, their ocus on particular therapeutic areas aecting

their own population and their polic on rewarding (or eample, the intellectual

propert enironment).

Finall we included, as a basis o comparison, South Korea (which is a highincome

countr toda), which has made impressie progress in other areas in innoation and

is currentl urther intensiing its eorts to inest and compete in the biosciences.

South Korea started its programme to deelop an innoatie pharmaceutical industr

as a middleincome countr.

o understand the perormance o the innoatie pharmaceutical industr (both b

domestic and international companies) we hae undertaken a series o interiews

with dierent stakeholders including industr associations, indiidual companies

that hae made signicant inestment in middleincome markets, policmakers and

academics. Tese are summarised in able 2.


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able 2: Interviews undertaken to develop the case studies

industry associationcomPany

PErsPEctivE

ExtErnal

PErsPEctivE

brz interprm Sno, Nortsbrz Deeopment bnk(bNDES), cdemc experts

Coom

asoccn de lortoros

Frmctcos de inestgcny Desrroo (aFiDRO)

N/a N/a

Cn

SiNO-Pdr,Reserc nd Deeopment-sed Prmcetc

assocton Commttee(RDPaC)

Merck acdemc experts

indOrgnston o PrmcetcProdcers o ind (OPPi)

astrZenec indPt.

Conc o Scentc ndindstr Reserc (CSiR),cdemcs

Mys N/a N/a N/a

Rss

assocton o internton

Prmcetc assoctono internton Mnctrers(aiPM)

Norts acdemc experts onnnoton pocy

SotKore

Koren Reserc-bsedPrmcetc indstry

assocton (KRPia)Pzer

Kore het indstryDeeopment insttte

Sot arcPrmcetc indstry

assocton o Sot arc(PiaSa)

astrZenecDeprtment o Scence ndTecnoogy; Tecnoogyinnoton agency (Tia)

Goperspecte

N/aGxoSmtKne;E ly

N/a

Sorce: Cres Rer assoctes

1.4. SRUCURE OF HE REPOR

Te rest o the report is structured as ollows:

In Chapter 2, we look at eisting data on the etent o innoation in middlein

come countries toda and how this is changing.

In Chapter 3, we reiew changes in t he capacit (push actors) to undertake inno

atie actiit in middleincome markets, drawing on the eist ing literature andthe eperience rom the eight case studies.

In Chapter 4, we reiew changes in the incenties (pull actors) to undertake i nno

atie actiit in middleincome markets, drawing on the eist ing literature and

the eperience rom the eight case studies.

In Chapter 5, we look at the implications or middleincome countries rom

changes in the global pharmaceutical business model.

We then attach a number o appendices. Tese include (1) details on how we chose the

case studies, (2) a summar o national innoation plans and (3) a statistical appendi

looking at the correlation between innoation and dierent polic instruments.


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26 OCTObER 2012

2innovaTion in

middle-income

counTries


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In this chapter we set out the etent to which innoatie actiities are currentl tak ing

place in middleincome countries, the ongoing trends and the results o inestment in

innoation. It is immediatel apparent that the intensit o innoatie actiities aries

considerabl rom countr to countr as does the t pe o actiit being undertaken. It

is also clear that there hae been signicant changes in the e tent o innoatie actii

ties oer the last 10 ears in some markets.

It should be noted that data on innoatie actiities is oten recorded using dierent

denitions in dierent countries and is not alwas aailable or all markets, so com

parisons across markets need to be made with considerable care.

2.1. PHARMACEUICAL R&D SPENDING

Pharmaceutical R&D is still highl concentrated in the highincome countries, and

the US alone accounted or 76% o R&D spend b PhRMA members. Howeer, com

paring the inestment in 2009 to those reported in 2005, we can see the signicantchanges in the inestment in Asia and Latin America b international biopharmaceu

tical rms (who are predominantl the members o PhRMA).24

Figure 8: Ex-US and Europe R&D spending by PhRMA members 2010 and % change

0

100

PhRMA R&D spend in 2010 % change 2005-2010

200

696

652

526

300

PhRMAR&Dspend(MUSD)

%c

hangebetween2005and201

0

400

500

600

700

800

-100%

0%

100%

200%

300%

400%

500%

-32%

455%

10% 15%42%

303%

15%46%

112%

371

282

205

44 43 41

Japan

Asia-Pacic

(exceptJapan)

Canada

LatinAmerica

andCaribbean

CentralandEastern

Europeannations,

includingRussia

Australiaand

NewZealand

India

MiddleEast

Africa

Sorce: PRMa indstry Proe, 2007 nd 2012. Notes: 2010 R&D gres were groped ccordng to ctegorston o 2005. Centrnd Estern Eropen ntons ncded Cyprs, Czec Repc, Eston, hngry, Pond, Soen, bgr, ltn, lt ,Romn, Sok, Mt, Rss nd te newy ndependent sttes. ind s compred to R&D spend n ind nd Pkstn n 2005,s tey were sted n te sme ne tem.

24 http://www.phrma.org/about/membercompanies


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28 OCTObER 2012

While PhRMA R&D spending proides a good idea o R&D leels b countr, it does

not capture the leel o R&D ependiture or the domestic pharmaceutical sector in a

gien countr. Such data is not aailable in international data sources. Howeer, us

ing local data, it is possible to nd data that relates more closel to the pharmaceutical

industr (although this is tpicall less up to date).25 Te problem arises when tr ing

to compare across countries, as each source uses a slightl dierent denition o R&D

ependiture, and the data is aailable or dierent periods o time.

Howeer, it is useul to compare trends. Tis shows that R&D ependiture in absolute

terms or the pharmaceutical sector has a positie trend in all countries ecept or

Colombia. Te size o the increase aries rom countr to countr. As Figure 9 shows,

pharmaceutical R&D spend in China, South Korea, Brazil26 and Russia has increased

dramaticall oer the last decade, while in South Arica the increase has been more

moderate. Tis is consistent with Mroczkowski noting that global innoation oshor

ing, which includes product deelopment, design and R&D, is growing at doubledigit

rates in some countries.27

25 In particular, data eists or si o the case studies: Brazil, China, Colombia, Russia, South Arica and South Korea.

26 It should be noted that research actiities in Brazil are mainl drien b public entities, howeer, data on theiractual ependiture is not publicl aailable. Te R&D i nestment rom Brazilian priate laboratories has traditionall been er low. Whi le it still remains low b international standards, R&D inestments rom Brazilian priate

laboratories has ehibited signicant growt h and reached $255 million in 2008. Tis now represents about 50% oinestment in Brazil, according to the Brazilian Min istr o Science and echnolog.

27 . Mroczkowski, Power Shits in Global R&D and Innoation: What Te Mean or Firms in Lie Science Businesses, http://www.tpress.com/articles/article.asp?p=1736044&seqNum=5 (last accessed September 30, 2012).


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Figure 9: Measures o investment in pharmaceutical R&D

0

200

2007

774

44

153

196

255

862

2008 2009 2010

2006 2007 2008 2009

2005 2006 2007 2008

Investmentinbiotechnology,U

S$,millions

SOUTH KOREA

RUSSIA

BRAZIL

GeneralexpenditureinR&Dinmedical

andhealthsciences,

US$,millions

R&Dinvestmentsby

privatelaboratories,

US$,millions

400

600

800

1,000

1,110

1,266

1,200

1,400

0

100

200

300

400

500

600

0

50

100

150

200

250

300

800

700

472

559

618

734

548

0.42

0.53

0.43

0.47

290

244

303

701

975

2005 2006 2007 2008 2009

2005 2006 2007

2005 2006 2007 2008

CHINA

SOUTH AFRICA

COLOMBIA

Expenditureonin

novationbymanufacturers

of"otherchemicalproducts",

inUS$,millions

R&Dexpenditureinmedicaland

healthsciences,

US$,millions

New

pharmaceuticalproductde

velopment

spendbysmall-mediume

nterprises(M

USD)

1,259

1,571

0

200

400

600

800

1,000

1,400

1,800

1,600

1,200

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0

50

100

150

200

250

300

350

Sorce: CRa nyss rom derence sorcess28

28 Tese represent dierent denitions o pharmaceutical R&D and represent dierent time rames, so comparisonshould be done with caution. South Korea: KRIBB, Biotechnolog in Korea, accessed ia http://www.kribb.re.kr/eng/le/btik/btik_008.html on June 1, 2012; China: Ministr o Science and echnolog o the Peoples Republic o China, China Highech Industr Data Book, 2011; Russia: UNESCO data; South Arica: National Sure

o Research and Eperimental Deelopment, 2011; South Arica: National Sure o Research and EperimentalDeelopment, 2011; Brazil: Osec, Brazils Pharmaceutical Industr: Opportunities or Swis s Suppliers, Osec ma rket report, 2010; Colombia: DANE Encuesta de Desarrollo e Innoacin ecnolgica EDI Iv, 20052006 and20072008; Encuesta Anual Manuacturera, rom 2005 to 2008.


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30 OCTObER 2012

2.2. SAGES IN HE R&D PROCESS

o understand what tpes o actiit are occurring due to this ependiture, it is useul

to distinguish between earl and basic research and clinical research. We nd that

the tpes o actiities taking place in dierent locations ar signicantl.29

2.2.1. Early stage research

While there has been outsourcing o drug deelopment in middleincome countries,

innoatie pharmaceutical companies hae generall continued to hae drug dis

coer headquarters in highincome countries. Tere is eidence that preclinical re

search is becoming more clustered in areas with research strengths in the li e sciences

as well as with academicindustr linkages, such as in Boston and San Francisco in

the US, LondonCambridge in the UK.30

Howeer, as can be seen rom Figure 10, based on a reiew o international companies

operations, there are a large number o R&D centres alread in China and a smallnumber o R&D hubs alread established in other middleincome countries like India,

Brazil, Russia a nd Indonesia.

Figure 10: Location o R&D hubs by international pharmaceutical companies

5

1 4

706

3

16

1

11

1 115

1

16

2

12

3

1

68

KEY

< 5

5-1011-20

60+

Guide:

Americas:Europe:

Asia & Oceana:

7661

37

Sorce: CRa nyss sed on pc normton o iFPMa memers. Ot o te 27 memers, we coected dt on te octon oR&D centres or 20 compnes s o agst 2012.

29 Tis is consistent with recent reiews such as I. Raols, M. Hopkins, J. Hoekman, J. Siepel, A. OHare, A. PerianesRodrguez, and P. Nightingale, Big Pharma, Litt le Science? A Bibliometric Perspectie on Big Pharmas R&D De

cline,TechnologicalForecastingandSocialChange,in press, 2012, aailable at: www.interdisciplinarscience.net/pharma.

30 I. Cockburn, F. Tiers, and E. Berndt, Te Globalisation o Clinical rials or New Medicines into Emerging Economies: Where Are Te Going a nd Wh? Massachusetts Institute o echnolog and NBER, 2007.


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International companies inesting in earl stage research capabilities in middlein

come countries oten do so in collaboration with domestic research centres. Below are

some eamples o collaboration in the case stud countries:

AstraZeneca launched the Asia Oncolog Strategic Alliance, which is aimed at eal

uating noel treatments or stomach and lier cancers. Te alliance is ocused on

China, Japan, Korea and Singapore because the goernments there hae prioritized

cancer therap. Guangdong General Hospital in China is one such institute with

which AstraZeneca has collaborations. Te institute was identied as a strong part

ner or deeloping compounds or lung, lier, stomach and oesophageal cancers.31

Johnson & Johnson Pharmaceutical R&D recentl started a collaboration with

ianjin Medical Uniersit Cancer Institute and Hospital in China to improe

their knowledge o oncolog in the region.32

Lill Singapore Centre or Drug Discoers (LSCDD) integratie computational sci

ences epertise will pla a ke role in the recentl ormed Asian Cancer ResearchGroup (ACRG)an independent, notorprot organisation established b Lill,

Merck and Pzer in Februar 2010 to accelerate research and to ultimatel improe

treatment or patients aected with the most commonl diagnosed cancers in Asia.

GSK, together with Jiangsu Wala, will produce accines or measles, mumps and

rubella (MMR) (Priori) and potentiall other paediatric accines. Under this proj

ect, announced in 2009, GSK is to transer the technolog to manuacture accines

locall oer time, and a new manuacturing acilit will be built or GSKs paediatric

accine Priori to suppl the accines to Chinas public accine market.33

Pzer ormed a research partnership with Samsung Medical Center to analse

tumours rom South Korean patients in order to generate gene epression proles.

Tese proles are epected to enhance treatment ecac o lier cancer. Pzer

also has a research partnership with the Korea Research Institute o Bioscience

and Biotechnolog (KRIBB).34

Aside rom actiities associated to the international industr , most preclinical re

search taking place in the case studies analsed is deeloped b academic or goern

ment institutions. Howeer, there are a lso domestic rms undertaking earl stage re

search in the case stud countries. Tere are clearl both Korean rms and Chinesecompanies ocusing on drug discoer. Tere are also some Indian drug companies,

such as Glenmark and Piramal Healthcare, that conduct preclinical research.

2.2.2. Clinicalresearch

Clinical research is conducted in man locations, and there has been a signicant

31 B. Hughes, Eoling R&D or Emerging Markets,NatureReviewsDrugDiscovery9 (June 2010).

32 Ibid.

33 http://silico.wordpress.com/partneringproles/glaosmithkline/.34 Te Pharma Letter, Pzer and South Koreas Samsung Medical Center Collaborate on Lier Cancer Research, Jul

15, 2010, aailable at http://www.thepharmaletter.com/le/96694/pzerandsouthkoreassamsungmedicalcentercollaborateonliercancerresearch.html.


33/106

32 OCTObER 2012

epansion in the number o clinical trials perormed in some o the more adanced

middleincome countries oer the last ears.35

It is interesting to eamine the tpes o trials attracted b each region. Data rom

clinicaltrials.go36 shows that Phase I trials are mostl located in North America and

European countries, while countries in the Middle East or Latin America are mostl

attracting Phase III and Iv clinical trials. Figure 11 shows these results. Howeer, al

though there has been signicant growth, clinical trials in middleincome markets

still represent a small proportion o the global market.

Figure 11: Distribution o global clinical trials by region and phase as o May 2012

0

20%

10%

Africa Asia CEE Europe

Latin America Middlle East North America

30%

40%

50%

60%

70%

80%

90%

100%

Phase I Phase II Phase III Phase IV

0.5%

0.5%

24.3%

1.6%

1.9%

2.1%

45.7%

62.4%

9.7%

1.8% 1.1%

13.2%

2.8%

42.6%

5.5%2.5%

42.6%

14.5%

5.7%

45.7%

8.3%

2.4%

45.7%

2.8%

35.2%

3.6%

8.7%1%

Sorce: cnctrs.go

Looking more closel at the case studies, we nd some signicant dierences in recent perormance. Te number o clinical trials in China and South Korea has grown

within the last e ears; Brazil, India, Russia and Malasia hae staed broadl con

stant, while in South Arica, the number o clinical trials has actuall declined. It is

also clear that the distribution o clinical research aries between middleincome

countries, with meaningul number o Phase I trials onl occurring in China, India

and South Korea. (See Figure 12.)

35 F. SantiagoRodriguez, Facing the rial o International izing Clinical rials to Deeloping Countries: With Some Eidencerom Meico*, UNUMERI, Maastricht, April, 2008; I. Cockburn, F. Tiers, and E. Berndt, Te Globalisation o Clinical

rials or New Medicines into Emerging Economies: Where are Te Going and Wh? NBER Working Paper, 2007.36 Clinicaltr ials.go is a clinical trials registr and includes recruiting, actie, completed, and inactie clinical trials.

rials are registered b pharmaceutical rms as well as national institutes. Tis means that trials not registeredwil l not be shown i n the ana lsi s. Additionall , trial s which ar e on multiple pha ses are c ounted more t han once.


34/106


35/106


36/106


Figure 14: Employment in pharmaceutical and biotechnology industr y or medical

and health sciences R&D

2007

2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002

2008 2009 2010 2003 2005 2008

Graduate Postgraduate-Master

Postgraduate-PhD

SOUTH KOREA

CHINARUSSIA

BRAZIL

0 0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

5,000

10,000

15,000

20,000

25,000

30,000

35,000

15,000 0

10,000

20,000

30,000

40,000

50,000

60,000

15,400

15,200

15,600

15,800

16,000

16,200

16,400

16,600

16,800

17,000

Numberofpeople

employedinbiotechnology

Numberofresearchersin

medicalan

dhealthsciences

Personnelin

volvedinscience

andtechnolog

icalactivitiesinthe

pharmaceuticalindustry

Numberofpeopleemployedin

pharmaceuticalR&Dactivities

60% 60%60% 60%

19%

42%

58% 49%41%

39%

36%

51%59% 61%

64%

58%

15%

14%

64%

16%

19%

66%

12%

30% 30%

30% 30%

10% 10%

10% 10%

8%

913

1,210

1,770

6%

3%

21,291

15,907

15,672

15,896

16,734 16,71316,652

38,59436,068

37,83340,009

53,055

21,853

31,590 31,740

Postgraduate Graduate

Secundary education

Scientists and Engineers

Others

Other education levels

Sorce: CRa nyss rom derent sorces 39

2.4. HE OUPU OF HE INNOvAIvE PROCESS

In this section, we look at innoatie output deeloped in middleincome countries.

We analse the number o scientic breakthroughs, proied b publications, the num

ber o patents that originate rom research taking place in particular markets and the

number products that a re registered and commercialised.

39 South Korea: KRIBB, Biotechnolog in Korea, accessed ia http://www.kribb.re.kr/eng/le/btik/btik_010.html

on June 1, 2012; Brazil: Te Industrial Sure o echnological Innoation, PINEC, 2006, 2008 and 2010; Innoation Rate: Te P roport ion o Firms Engag ing in Innoat ie Acti ities (author, url, or date aail able?); Rus sia:UNESCO data; China: Z. Li, W. Ke, and C. Guang, Deeloping Innoatie Capacit in China to Meet Health Needs,MIHR report to CIPIH, April 2005.


37/106

36 OCTObER 2012

2.4.1. Publications

Te number o articles published in scientic journals across sectors has increased in

most o the middleincome countries. Looking more closel at our case studies, China,

South Korea and India hae eperienced substantial growth in the number o articles

published, while Russia has remained stable. Te number o publications in China rose

substantiall, een though the number o articles published in 2004 was alread rela

tiel high. South Korea and India hae similar rates o growth in the number o articles

published in scientic and technical journals. Tese results are shown in Figure 15.

Figure 15: Number o articles published in a scientifc or technical journal, 20042009

Numberofarticles

10,000

0

20,000

30,000

40,000

50,000

60,000

70,000

80,00074,019

22,271

China Korea,

Rep.India Russia

FederationBrazil South

Africa

Malaysia Colombia

19,917

2004 2005 2006 2007 2008 2009

14,016 12,306

2,8641,351 608

Sorce: Word bnk dt

Tere is less data aailable in terms o scientic publishing in the pharmaceutical sectorin our case stud countries. From the data aailable, China ehibits the highest growth

in medical science publishing between 2000 and 2010 as well as the highest number

o publications in 2010 (see Figure 16). South Arica comes in second place in terms o

number o medical science publications among our case stud countries. Howeer, an

other source cited much higher publishing numbers or South Korea in the eld o mi

crobiolog, molecular biolog and genetics in the 1996 to 2000 time period.40 Tis again

shows the dicult o comparing innoation leels in the pharmaceutical sector.

40 South Arica published 681 articles in the eld o microbiolog, molecular biolog and genetics between 1996 and

2000, which is smal l when compared to South Korea, which published 1,698 articles in t he same time period (M.Gastrow, Great Epectations: Te State o Biotechnolog Research and Deelopment in South Arica,Afr icanJour-nalofBiotechnology7 (4) (2008). Additionall, in 2009, there were a total o 6,151 publications in biotechnolog inKorea (http://www.kribb.re.kr/eng/le/btik/btik_013.html).


38/106


Figure 16: Number o medical science publications in 2010 and % change rom 2000

BrazilChina

Number of medical science publications in 2010 % change 2000-2010

RussiaSouth

Africa

South

Korea

Numberofmedicalsciencepu

blications

1000

2000

0

3000

4000

5000

6000

7000

8000373%

167%

7%-25%

153%

7429

4227

546

3131

27% %c

hangebetween2000an

d2010

50%

0%

100%

-50%

150%

200%

250%

300%

350%

400%

Sorce: bttee Tecnoogy Prtnersp Prctce, Te boprmcetc Reserc nd Deeopment Enterprse: Growt Ptorm orEconomes rond te Word, prepred or PRMa, My 2012. Note: Coom, ind nd Mys were not coered y te report.

2.4.2. Patents

A common measure o the output o innoation used in the literature is the number

o registered patents in the countr. In particular, it is common to see analsis based

on the number o international patents (dened as the number o patents granted to

inentors rom a particular countr).

Tere are a range o data sources or the number o patents (as illustrated in able 3).

Gien the data aailabilit or the case studies analsed, we hae used Patent Coop

eration reat (PC)41 data or pharmaceuticals as it had the most complete data or

pharmaceutical patents or our case stud countries.

able 3: Patent database comparison

PatEnt databasE dEscriPtion limitations

Eropen PtentOce (EPO)

Ptent ppctons or grnted ppctons tote EPO. ae or otecnoogy ptents.

Eropen-centrc. lmted dt e orotecnoogy ptents.

Ptent CoopertonTrety (PCT)

Ptent ppctons or grnted ppctonstt cte te PCT nd pped trog te EPO.

atog more nternton n scope, stEropen-centrc.

unted Sttes Ptentnd TrdemrkOce (uSPTO)

Ptent ppctons or grnts to te uSPTO.uS-centrc. lmted dt e orprmcetc nd medcne ptents.

Word inteectPropertyOrgnston (WiPO)

Ptent dt gtered rom iP oces omemer sttes.

Te sme ptent my e conted moretn once. lmted dt e orprmcetc ptents.

Sorce: CRa nyss

41 Te Patent Cooperation reat (PC) is an international treat administered b the World Intellectual PropertOrganization (WIPO). Te PC allows or t he ling o a n international patent application in order to seek patentprotection in a number o countries simultaneousl. Te patent must be led at a national or regional patent ocein what is ca lled the national phase.


39/106

38 OCTObER 2012

Looking at data on the number o pharmaceutical patents led under the PC at the

international EPO, we ound that China, India and South Korea are more actie in

ling patents. When looking at the annual growth rate, it is worth noting that coun

tries like Brazil, Colombia and Malasia had a smaller number o applications in 1999,

which eplains the larger annual increase that is shown in Figure 17.

I we compare data across the dierent sources, the trends shown b the pharmaceuti

cal PC lings in the EPO are corroborated b patent ling trends in t he other sources.

For instance, South Korea and China also had higher leels o lings to the European

Patent Oce (EPO) or biotechnolog patents. Te number o medica l and science pat

ents to the USPO highlighted India as the countr with higher number o patents out

o our case stud countries, although data or China and South Korea is absent. Finall,

a report commissioned b PhRMA that used WIPO data also pointed out the increase

in patent lings rom South Korea, China and Brazil.42

Figure 17: Number o PC pharmaceutical patent application* by country origin,

19992009

NumberofPCTpatentapplicationsbyinventorcountries

Compoundannua

lgrowthrate(1999-2009)

50

100

150

0

200

250

300

350

400

450

500 60%

50%

40%

30%

20%

10%

0BrazilChina ColombiaIndia Malaysia

2009 CAGR (1999-2009)

Russia South

Africa

South

Korea

443

391373

54 47

1712

2

5%

19%

15%

22%

2% 2%

15%

52%

Sorce: OECD, OECD SttExtrcts. *Te nmer o prmcetc ptents ppctons to te Eropen Ptent Oce nder tePtent Cooperton Trety (PCT) y te nentors contres o resdence nd yer o ppcton. Frcton conts re pped orptents wt mtpe nentors.

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