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Business and scientific needs of pharmaceutical MNCs’ drug development programs stimulated growth of CROs in Asia. Singapore has been chosen as the gateway, without exception for the entry of such new businesses, to Asia. China has increasingly been attractive for CROs too.
Growth and development of pharmaceutical MNCs propel growth of Contract Research Organizations (CROs) in Singapore and China
The combination of patent expiration of main revenue generating drugs, competition from generic versions of branded drugs, and increasing research and development costs are forcing pharmaceutical companies to look for strategies to cut costs and speed up the R&D processes. In order to boost productivity, companies are now contracting out more parts of their businesses while they restructure. This includes outsourcing of both clinical services and research, both of which are a majority part of CRO’s work.
A report conducted by Business Insights states that the global CRO market is expected to grow 14% per year during the next two years, making contract research a USD $35 billion industry by 2013 while Frost and Sullivan[i] estimates the CRO market to be approximately USD $40 billion by 2014.
Worldwide Big Pharmas Outsourcing Deals to CROs[ii]
Covance has made a 10-year agreement with Eli Lilly in 2008, its first such deal, a landmark $1.6 billion contract that has set it in charge of much of Eli Lilly service facilities in Indianapolis.
Sanofi-Aventis has also chosen the same route in Sept 2010, for $2.2 billion, with Covance who now has the next ten years to improve Sanofi’s Porcheville, France and Alnwick, UK R&D productivity sites.
In Oct 2010, GlaxoSmithKline has also taken up the trend to contract parts of their work to CROs. It has moved 14 researchers and several patent rights to Convergence Pharmaceuticals, in exchange for an 18% equity stake.
Singapore attracts CROs[iii]
Attractive location for CROs
Being ranked as the “World’s Easiest Place to Do Business” (World Bank, 2009), not only does Singapore has a strong legal system, stable political system, world-class infrastructure and reliable public utilities, it also has an excellent connectivity and access to talents.
Accelerator of drug discovery and development in Asia
The integrated countrywide research network coupled with advanced infrastructure linking research institutions, hospitals and universities have propelled the discovery of many innovative solutions to address current pressing medical needs. Moreover, Singapore ranks no. 1 in the world for intellectual property (IP) protection (World Economic Forum Global Competitiveness Report 2009-2010) and has a regulatory framework that facilitates innovation. In October 2009, Singapore was accepted into OECD’s Mutual Acceptance of Data framework that enables pre-clinical trials data from many of Singapore’s GLP-compliant facilities to be accepted by 30 OECD and non-OECD members that include the U.S., EU and Japan. This facilitates drug and/or device registration in the corresponding countries.
Choice of CRO headquarter location
Due to the above, there is also a trend that the large CROs (Quintiles and Takeda) are moving their headquarters there. Some of the other large, well-known CROs present in Singapore includes Quintiles, Covance, Pharmaceutical Product Development (PPD), ICON Plc, Parexel and Lundbeck.
Shifting CRO work to China
However, the roses are not always red for the CROs operating in Singapore. Due to the small population size of approximately 4 million, there are many practical limitations for the possible extent of work. Labor cost is comparatively more expensive. Although Singapore is a multi-cultural society, the genetic diversity is not superior to other developing countries in the region. Also, it is difficult to achieve enrolment numbers for later-phase clinical trials that require large patient populations.
CROs in China [iv]
CROs started operating in China in the mid-1990s when several of the world’s leading CROs (Quintiles Transnational, Covance and Kendle) established a presence in Beijing. Contract research has experienced explosive growth since then, and today China is home to more than 300 CROs of all sizes. The growth has been fuelled by demographic changes and economic trends, as well as recognition of the opportunities associated with a market whose potential has been estimated at up to $1 billion (8 billion RMB).
In 2005, Shanghai Biopharmaceutical R&D CRO Service Base and Shanghai Pudong Biopharmaceutical R&D CRO Service Center formally opened in the Shanghai Zhangjiang Hi-tech Park. The Center operates under U.S. GLP standards and was planned to be Asia’s largest CRO facility.
Dr. Ge Li, president of Wuxi Pharma Tech, China’s largest pharma CRO, is very optimistic about the contract research industry in China. Since the establishment of his firm in 2001, it has become China’s largest pharmaceutical R&D service firm and the world’s fastest growing pharma services company. Its revenues expanded nearly seven-fold, reaching $21 million in 2004, within three years. It has also been profiled as a case study by Harvard Business School.
CROs’ opportunities in China
An obvious reason for the increased presence of CROs to China is the lower costs. The cost of drug development in China is 20% of that of in the U.S. and many other countries.[v] Cost comparison between China and US-based CRO’s shows that study savings of between 35–50% are achievable and that these savings are likely to continue through 2012.[vi]
Other reasons fuelling this shift includes: genetic diversity with more than 50 ethnic representations, large pool of potential trial participants with a population of 1.3 billion, entry into the World Trade Organization (WTO) and establishment of China’s State Drug Administration (SDA, now called the SFDA). Also driving this growth are the hai gui, Chinese nationals who return to China after gaining professional experience in Western biopharmaceutical companies.
China’s changing regulatory frameworks – good or bad for CROs’ business
Following China’s entry into the WTO in 2001, pharmaceutical regulations were put in place and Good Clinical Practice (GCP) standards were issued in September 2003. This critical milestone clearly defined CRO and stipulated for the first time that CROs in China could conduct clinical trials on behalf of their clients. It provides a gateway and guide for CROs to carry out activities in China.
McClurg, vice president and CSO at MDS Pharma Services says, “As China improves its regulatory structure, the environment will become more normalized and more reliable. People there are recognizing the importance of playing by the regulatory and business rules [of other countries].” McClurg believes that more people will begin to consider Chinese firms as potential partners.
However, rules and regulations are constantly changed, as in the foreigners’ tax, in China and enforcement is also unevenly distributed. Hence, much delft is required to navigate the changing landscape.
Challenges for CROs to operate in China
“However, it would be a mistake to go there with the primary reason of saving money,” McClurg cautions. “The decision should be made based on the importance of the domestic opportunity. Your expense profile will be different, but not substantially less. Reduced personnel costs will be offset by increased real estate costs, increased travel, management, training, and start-up time and expenses. Establishing personnel policies and finding the right partners is a long-term process that takes a real commitment.”
Pharmaceutical companies have been and are still expanding their R&D efforts in China. In Oct 2011, Danish pharmaceutical company Lundbeck opened its first research and development (R&D) centre to strengthen its footprint in the Chinese research environment and enables it to perform tasks that were previously outsourced to Chinese contract research organisations.
Hence, not only do the CROs face external challenges of China’s dynamic landscape, they also face competition from within the pharmaceutical industry who is also their clients.
In summary, CROs are moving to Singapore and China with many similar and different needs specific to the environments and industry requirements. However, it is no doubt that CROs will continue to facilitate the development of international pharmaceutical and biopharmaceutical industries. The next 5 to 10 years will be an important period for the expansion of contract research in both geographies.
[i] Frost & Sullivan – Singapore CRO Market Positioning For Specialized Therapeutics – Document Transcript
[ii] Big Pharma Begins Outsourcing Research and Development, by: Investment U By Tony D’Altorio
[iii] Singapore draws global contract clinical research Organisations, Economic Development Board Singapore March 03, 2010
[iv] Contract Research Drives China’s Pharma Sector, August 2006, PharmaManufacturing.com, By Yibing Zhou, BioPlan Associates, Inc.
[v] Contract Research Drives China’s Pharma Sector, August 2006, PharmaManufacturing.com, By Yibing Zhou, BioPlan Associates, Inc.
[vi] Outsourcing Preclinical Studies to China: Benefits and Challenges, Eric Meyers, MBA
Rachel is an Analyst from Solidiance, based in Shanghai. She focuses on consulting projects in the med-tech and chemical industries. She previously worked in national-level laboratories in Singapore and China and analyzed business and operations strategy of Fortune 500 companies and innovative start-ups. Rachel holds a B.Sc. (Hons.) in Biological Sciences from the Nanyang Technological University. She was a visiting scholar at the Schools of Life Sciences and Economic and Management at Tsinghua University, China.