The Rise of Global R&D in Biopharma

tomasz_mroczkowski_141by Tomasz Mroczkowski - author of The New Players in Life Science Innovation: Best Practices in R&D From Around the World, FT Press 2011

It used to be fashionable to speak of an "innovation gap" between the dynamic United States and traditional Europe which seemed less capable of generating new technologies and start up firms.

Today the innovation gap has been renamed "an innovation emergency" by the European Union as it sees itself slipping further behind the US on key dimensions of innovation but .....what is new and really important: both Europe and The US are facing new challenges from emerging economies.

Until just a few years ago, the preeminence of the "West" (US, Europe, and Japan) in Research and Development (R&D) and high technology was taken for granted. Since the turn of the century this has started to change and the trend appears to be accelerating.

While Western nations have been facing acute problems in reaching their spending targets due to accumulated debt and unbalanced budgets, fast growing emerging economies, especially in Asia, have been increasing their R&D spending and rapidly improving their science and innovation capabilities. This is the key development which I discuss in my new book, The New Players in Life Science Innovation.

In 1999, the combined R&D spending of Asian countries was at about the same level as that of Europe at purchasing power parity (PPP) and well behind that of the United States. Since that time, Western spending has been growing slowly (especially in the US), while that of Asia has been soaring. Just five or six years later, Asian spending was not only well ahead of the European total, but had surpassed that of the United States.

By 2003, Asia's spending on R&D as a share of domestic product - at 1.92% of GDP - exceeded that of Europe, which was at 1.81%. With feeble economic growth expected in developed Western economies over the next decade it will be easier for the new players from Asia and Latin American to really start closing the R&D gap with the West. By 2020, we could be facing a very different balance of economic and technological power in the world . By that date we will be living in a global knowledge economy where leadership in R&D and control of intellectual property underpin real influence.

Human history has always revolved around a race to develop better ways of doing things. Economic history shows a connection between a nation's ability to innovate and its wealth and power. After the two world wars, the United States emerged as the wealthiest and most powerful nation of the 20th century and an undisputed leader in science and innovation. Now, it is the US that is being challenged by China, with other rapidly developing economies such as India, South Korea, and Brazil gaining ground in the race to be on top.

Large emerging economies have vast pools of talented manpower, much lower employment costs, and markets that are growing much faster than Western ones. Using those advantages together with government incentives, countries such as China, India, and South Korea now compete successfully for international R&D investments in advanced industries such as software and electronics.

They have now started to expand into biopharmaceuticals as well. The biopharmaceutical industries in developed economies face many challenges including exploding R&D costs, healthcare regulations, patent expiry, and the new competition from emerging economies. M. Shaw, CEO of the Indian company Biocon, made the statement that: "Innovation in the West has simply become unaffordable" (Beyond Borders 2010, Ernst & Young report 2010). 

To survive competitive pressures, multinational biopharmaceutical companies have extended their research partnerships beyond the triad of the US, Europe, and Japan to include new emerging market players. They have been accelerating the international offshoring of both discovery, preclinical, and clinical trials -- a practice growing at double digit rates and valued at over 33 billion USD in the biopharmaceutical industry.

Estimates made by McKinsey & Co suggest that only 10% of clinical support functions have been offshored so far, but that this ratio will soon reach 30% and, in theory, could be as high as two thirds. Some companies, such as the American firms Eli Lily and Merck, have embraced the model of global networked R&D much more aggressively than others.

In the past two years, a number of Western pharmaceutical firms have opened significant R&D centers in India and China. An alternative strategy used, for example, by Roche is to focus on new therapeutic areas and keep highly complex R&D and testing based on personalized medicine in-house or, at least, in country.

The impacts of job losses and lab closings on countries seem to be uneven. Merck has closed laboratories in Italy and Spain, while AstraZeneca has done so in Belgium, Sweden, and also Spain with more closures being announced. A study commissioned by Leem, the French pharmaceutical industry association, estimates that 32,000 pharmaceutical jobs will be at risk between 2005 and 2015. (Pharma Marketletter, May 28 2008).

The rise of new players in life science innovation from emerging economies should not be viewed as just a threat to the West. Instead, what we are witnessing is the emergence of a new "expanding universe" of global R&D, with new divisions of labor, and new opportunities for win-win trade and collaboration.

R&D has become a global business with significant opportunities to make money. Many aggressive private companies from developed, as well as emerging economies, are determined to profit from this new market. Companies like Biocon, Glenmak of India, and WuXi PharmaTech of China, are good examples. Just at a time when many Western companies in the R&D business are reducing head counts or lowering prices for their services - Biocon expects 20% plus growth, and much of that growth is to come from discovery research with international clients rather than just clinical trials or outsourced production.

These developments call for new strategies on the part of Western companies; strategies in which partnering and risk/reward sharing with emerging players will become much more important

The outcome of the new global competition within the knowledge based economy largely depends on how effective and efficient innovation systems are at the national, regional and company levels. The global race has begun. It is now a contest between the US, the EU and emerging economies like China, to create the most innovation-oriented economic system.

Tomasz Mroczkowski, Ph.D.
Professor, Department of International Business
Fulbright Scholar
Kogod School of Business
American University, Washington, DC

Author's website:

July 2011

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