International opportunities for outsourcing of drug discovery and development research, preclinical studies, clinical trials, and product manufacturing, as well as the allure of large, untapped global markets for new and existing drugs, were the focus of several sessions at BIO’s annual meeting in May.
One session entitled “Going Global Overnight: The Dos and Don’ts of Expansion in Emerging Markets,” chaired by Dane Bedward, senior vp for international affairs and GM Eurasia at Genzyme, featured a panel of speakers representing government, biotech firms, and the business sector.
Matthew Hudes, U.S. managing principal for biotechnology at Deloitte, led the discussion, highlighting two major developments in 2010 that will impact biotechnology companies’ decisions about global expansion, outsourcing, and partnering opportunities—the economic crisis and the backdrop of healthcare reform, which Hudes believes will accelerate growth in the biotech industry, as price reductions will present “real incentives to lower costs.”
Hudes described the growing popularity of a “dual-purpose global strategy” that encompasses market expansion and sourcing opportunities. He anticipates increasing specialization in biotech outsourcing overseas, with small clusters of companies developing expertise in target areas such as preclinical development, clinical trials, or manufacturing.
It will be important for U.S. firms interested in these services to know where to find the resources they need and not to rely on a one-size-fits-all strategy. Additionally, he emphasized the importance of understanding the local culture, customs, and tax and business structure, and the value in building a local network that can provide this knowledge.
From the perspective of outsourcing manufacturing, Hudes presented some of the current challenges, including timing issues and keeping abreast of the continuously changing global landscape in terms of capacity and the lead time needed to secure a spot in a contract manufacturing organization’s (CMO) queue. Other factors to consider when deciding whether to outsource is the political stability of the region and access to a highly skilled workforce.
Another aspect of Hudes’ talk focused on strategies for “staying out of trouble” from a regulatory perspective. He cautioned the attendees on four areas of growing tension—increasing requirements for information/data gathering and reporting; rising risk of criminal and civil prosecution for companies doing business overseas, due mainly to increased enforcement of the Foreign Corrupt Practices Act (FCPA); cost pressures to improve efficiency; and increased demand for more proactive and responsive business operational support for expansion activities.
In particular, he warned that the costs of FCPA-related fines “are not trivial” and can run into the billions of dollars. This represents only the direct costs from criminal and civil penalties; indirect costs may include damage to a company’s reputation and brand value, legal and consulting fees, and the management resources required to respond to these actions.
Holly Vineyard, deputy assistant secretary for Africa, the Middle East and South Asia, for the International Trade Administration (ITA), U.S. Department of Commerce, spoke about the opportunities and challenges for doing business in India. The ITA’s National Export Initiative, created to help meet President Obama’s goal of doubling exports in the next five years, has helped strengthen the relationship between the U.S. and India.”
The government of India has increased fiscal incentives for R&D spending, including tax incentives, and is investing in biotech parks and training of scientists. Additionally, in its 2010 national budget, India has increased expenditures on healthcare by 10%. However, there remain significant challenges to doing business in India, Vineyard told attendees, in particular a weak intellectual property (IP) structure. She advised U.S. companies to utilize the tools and expertise available from the ITA to help navigate these challenges.
Haroon Hashmi, director of drug development at Biogen Idec, presented the strategy his company has taken for expansion, beginning by analyzing the global opportunities and targeting specialty markets in which to deliver products that can address large unmet patient needs. Asia Pacific and Japan alone represent about 20% of the world market, said Hashmi. Government spending on healthcare is increasing in these regions, as are individuals’ disposable incomes, he noted, and it is important to look closely at the issue of reimbursement versus out-of-pocket expenses, especially when assessing the potential market for niche products and high-end biologics.
One of the challenges for introducing products into countries such as China, Japan, and Korea is the need to provide clinical data from studies on local populations as part of the regulatory process. This may necessitate bridging studies, and companies need to decide whether to outsource trials or to establish a presence in the country. These types of decisions require a good understanding of the country’s regulatory pathway, reimbursement picture, and launch.
In the session, “Drug Approval in China—Challenges and Opportunities,” Jane Earley, director, pharmaceutics and medical devices, Office of Health and Consumer Goods of the U.S. ITA, spoke about strategies for drug approval in China, which currently represents an $825 billion market, estimated to grow to $975 billion by 2013. In 2009, China had the world’s third largest economy and was the U.S.’s second largest trading partner.
“China is changing rapidly and pursuing healthcare reform,” said Earley. It is establishing new regulations and moving toward greater harmonization with other countries. She encouraged companies to view China as a variety of different markets, and not a single market, as there are several secondary cities beyond the main markets of Beijing and Shanghai that present significant opportunities. In summary, Earley advised companies considering expansion into China to “craft an IP, register in China, and plan an exit strategy.”