Asian Migration
by Mark W. Anderson
June 2008
Access to patients, lower costs and increased efficiencies are leading to an explosion in the amount of clinical research being conducted in Asia.
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Once the exclusive domain of companies located in Western Europe and the United States, the amount of pharmaceutical research and development activities conducted in emerging and non-traditional geographies has seen significant growth in recent years. As drug makers face an increasingly competitive landscape and development costs continue to skyrocket, pharmaceutical firms big and small are seeking every advantage to maximize the value of their R&D efforts. And for an increasing number, that means finding a global partner for clinical trials and other research activities.
As these activities increasingly go global, so, too, has a reliance on contract research organizations, or CROs, to carry out the work in the field. As pharmaceutical companies struggle to manage more active clinical programs in more investigative sites around the world, the growing complexity of such operations seems tailor-made for bringing in a partner with local expertise and facilities. A quick look at the numbers backs up these trends. According to research firm Frost & Sullivan, global pharmaceutical R&D expenditures nearly doubled from 2002 to 2007, jumping from US$12.7 billion to US$24.9 billion, while the amount of CRO revenue around the world has exploded. From 2005 to 2010, Frost & Sullivan estimates the amount of revenue for CROs worldwide will leap from US$11.26 billion to US$20.83 billion.
So where are all these research dollars going? Increasingly, they are finding their home in Asia. With vast patient populations, lower costs, a trained workforce, access to local markets and potentially favorable regulatory environments, the ability for pharmaceutical companies to decrease their time and cost to market by performing clinical trials in the region is proving exceedingly attractive. Frost & Sullivan recently estimated that Asian CRO markets earned revenues of US$1.2 billion in 2006 and estimates this to reach US$2 billion in 2010. The region is emerging as a powerhouse in pharmaceutical R&D, and is likely to become an increasingly important player in the coming years. But even as companies scramble to plant their flag in a changing landscape, a host of issues stand in the way before the CRO sector and pharmaceutical clinical research activities as a whole can bloom to their fullest potential in the region.
Broadening the Scope
For their part, pharmaceutical companies themselves have been shifting their own, in-house R&D activity from mature markets such as Japan and Australia into more emerging geographies of late. For example, one of China’s main cities, Shanghai, has seen a wave of Western pharmaceutical firms open clinical research and development centers there, starting with AstraZeneca in 2002, Roche in 2004, and Wyeth and Novartis in 2006. More recently, U.S. drug giant Pfizer announced plans in June 2007 to spend US$300 million on R&D in South Korea, five months after announcing its decision to close its research center in Japan.
But the wave into Shanghai isn’t the whole story. Beyond these developments stand other, parallel trends, specifically in the growth of CRO providers and the expansion of R&D activities into newer, emerging geographies.
“There are really two dynamics at work here,” says Dr. Anand Tharmaratnam, head of clinical development for Quintiles Asia Pacific, in Singapore. “There are the companies that never worked in Asia before, but see the importance of China, India, Taiwan and other markets for the future commercial success for their drugs. So they are jumping on the bandwagon and coming to Asia. Then you have others that have been in Asia for 10 to 15 years already, in the more mature markets like Japan and Australia, who are now looking to expand into the newly emerging geographies.” That means countries that even two years ago may not have been on any pharmaceutical companies’ radar screens, such as Vietnam, Thailand, Malaysia and Indonesia, are seeing a jump in interest today.
“CROs are clearly the growing sector in Asia today, and their scope is broadening,” says Ling Li, senior client partner of Korn/Ferry’s Global Life Sciences Market based in Hong Kong. “We’re seeing CROs engage in activities from drug discovery to preclinical and clinical trials, and we can expect there will be more players in this market in addition to those already established, such as Covance and Quintiles, as they build up their presence in Asia.”
Three Key Drivers
From a clinical research perspective, the drivers behind the region’s growth can be summed up in three simple words: patients, markets and costs. As stricter regulatory requirements for the number of participants required in a trial come into effect around the world, along with a spike in the average number of trials necessary before new drug applications, drug makers face increases in both time- and cost-to-market. Here, Asia can offer potentially significant advantages, from a logistical, genetic, therapeutic and demographic perspective.
“CROs are important in Asia for just about any pharmaceutical company, says Namrata Bahadur, head of clinical development and medical affairs for emerging growth markets at Novartis, in Basel, Switzerland. “For one, everybody has cyclical workloads, and a back-up plan to manage the ups and downs is needed. Second, and very important, we may not have the expertise for a particular therapeutic area in all markets at the same level.”
As multiple research facilities across a region are brought online, each one needs to recruit only 40 or 50 people, not the entire 300 or so often needed for a trial, says Tarun Mehta, managing director of strategic outsourcing at Protiviti, a Menlo Park, Calif., USA-based risk and advisory services provider. “That means a pharmaceutical company can run the trial simultaneously, and shorten its time to market,” Mehta says. “There’s also the opportunity for a different age mix—a young population in India, say, or an aging one in Japan. So, from a genetic, demographic or disease likelihood perspective, it’s more cost effective.”
Once established in a particular location within Asia, access to the local market from a sales standpoint can also look attractive. “Because conducting clinical trials in a specific country gets [a drug maker] close to the regulatory authorities and makes them aware of their drug, when they come to file, it’s not something completely new,” Tharmaratnam says. “Also, it gets them closer to key opinion leaders who are going to be working on the clinical trials, because those key opinion leaders are going to be their future key prescribers.”
A Decided Advantage
The other big driver, of course, is cost. Viewed from a global pharmaceutical perspective, the potential cost arbitrage available from outsourcing R&D activities in Asia when compared to the United States or Europe can be compelling. For example, by a large margin, the largest markets for CRO activity within Asia are China and India, both of which offer significant cost savings to Western pharmaceutical companies. When measured against the United States or Europe, the cost of carrying out clinical trials in China is at minimum 15 percent lower for Phase I and 20 percent lower for Phase II or Phase III, due in large part to access to a cost-effective and educated R&D workforce, according to Pharma Focus Asia. For its part, India carries an estimated cost savings of 50 percent in Phase I studies and 60 percent in Phase II & III studies.
Much of this cost advantage can be traced to two primary factors: lower physical and commercial infrastructure costs, and talent costs. The ability to build necessary clinical research facilities at a lower investment, due to lesser construction, communications or equipment costs is undoubtedly a key driver for the growth of the sector in the region. But access to talent may be the most powerful advantage the region offers.
“Fundamentally, when you’re looking at R&D, a chemist is a chemist is a chemist, if they’re well trained,” Mehta says. “But a chemist in China or India is likely to represent a lower cost than a chemist in Japan or in Germany. So for companies that need to build up their pipeline in a cost-effective manner, it would make sense, in order to increase their capacity, if you can hire two to four chemists for the price of one.”
But as more and more companies—both CROs and pharmaceutical firms—move into Asia, competition for resources and talent is likely to increase, potentially mitigating some of the competitive advantages providers in the region currently enjoy. Wage inflation stands as a likely hurdle, as countries such as China struggle to repatriate a generation of educated scientists and clinical staff that migrated elsewhere—particularly to the United States or Western Europe—in past years.
“As the volume of work increases in Asia there will be competition for skilled resources,” says Steven Yang, vice president of Pfizer Global Research & Development for Asia in Shanghai. “A key challenge in the region will be to identify, train and retain top talent at all levels within the clinical development value chain. Those companies that invest in training and focus on high-quality staff with low staff turnover will be especially sought after.”
Pressures on the Talent Pool
Beyond China and India stand the more emerging geographies, such as Vietnam, Thailand, Malaysia and others, each of which is scrambling to secure their place amid growing opportunity in the region. These countries provide a regulatory environment conducive to clinical trials much like China and India, while offering many of the other competitive advantages, such as improving infrastructure, lower costs, access to R&D talent and government investment.
“I think pharma companies are really in their third stage of evolution from a global CRO sourcing perspective,” Mehta says. “Much of the first two stages—such as IT and proof-of-concept activities—were done in places like Japan, India and elsewhere. Now, as they try to realize additional capacity through increased clinical trials, they are looking at these and other geographies as well.”
Despite their attractiveness, however, setting up CRO operations in Asia, be it in China, India or another country, is not without its challenges. Of these hurdles, access to talent and expertise—the very drivers that helps make the region attractive—is paramount. In many Asian locales, the pool for available clinical research talent is struggling to replenish itself as the industry expands.
“There has been a ready supply of technical talent [throughout Asia], but as in the United States, the war for talent has gone global,” says Bob Ferguson, managing director and senior client partner with Korn/Ferry Life Sciences Market in Seattle, Wash., USA. “The need for highly technical employees and leaders may pose a problem for continued growth and expansion for CROs in the region. In addition, we are finding that there is a very particular leadership model required for success in the executive suite of CROs today.”
In addition, the talent pools in various countries around the region are undergoing structural shifts as well. Within the more mature markets, such as Singapore, Taiwan or even China, investigators who have worked historically in tertiary institutions such as hospitals are now migrating toward burgeoning private health care systems, and may subsequently be unavailable to CRO researcher pools. And, as an industry that is still relatively new in Asia, it’s not widely advertised in universities as being a career opportunity for those graduating in nursing, medicine or the pharmaceutical sciences.
A Lack of Clarity
Equally difficult can be a lack of uniform regulatory structures from country to country and across the region. “As far as regulatory structures and timely approval processes, we still have a lot of room for improvement in most of the countries, especially China,” Bahadur says. A clinical trial approval takes 8 to 9 months in China, although the time needed to recruit patients—typically half the time needed in the United States and Europe—lessens the impact of regulatory delays. “Nevertheless, this type of initiative and this type of openness with the health authorities is very much needed, especially in China and India,” she says.
What is clear, however, is that many, if not all, of the countries in the region are undertaking a concerted effort to get up to speed on establishing Western standards and operational procedures from a clinical research trial perspective. Bahadur notes that in China, government authorities certify hospitals as able to conduct clinical trials as per International Conference on Harmonization (ICH) Good Clinical Practice standards, and any global trial cannot be conducted in a hospital that is not certified. Additionally, the number and growth of active U.S. Food and Drug Administration -regulated investigators in the region is growing substantially. Figures from the Tufts Center for the Study of Drug Development show that from 2001 to 2006, the number of such investigators jumped nearly 31 percent in China and nearly 50 percent in India, more than any other emerging market country the Center tracked for the period.
“While the emerging Asian markets are a little behind the established markets with respect to experience and infrastructure, it is clear that they are committed to improving both infrastructure and process without compromising quality,” Yang says. “This takes time and may require us to think more globally rather than assuming that what is done in the West is always best.”
A Network of Opportunity
As global pharmaceutical companies scan the globe for attractive sourcing opportunities and resources, CROs in Asia are likely to remain well within their sights. The overriding strategic response for pharmaceutical companies to competitive pressures remains to increase capacity, reduce time-to-market and improve efficiency and productivity, Mehta says. And, as they have to accomplish all three at the lowest possible cost, Asia is likely to remain a high-growth market for CRO activity.
“What we’ll see, I believe, is more of a distributed network in a single geography or within multiple geographies, where there are centers of excellence of CRO and clinical research operations in the region,” he says. “It may be that the [basic] research is being done in one country, while the clinical trials are being done in another, and the data analysis and the bioinformatics are done in a third. Together, they’re being able to do it in a very efficient and productive manner.”
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