Outsourcing the Drug Industry

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Kamath and Balaji joined Jubilant Biosys after long stints with U.S. companies Michael Rubenstein/Redux

Piramal's Mumbai-based company has ventures with Merck and Eli Lilly Brad Harris

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The rush east, where five PhD chemists can be had for the cost of one in the West, entails risks. At a time when Pfizer (PFE), AstraZeneca (AZN), and others are slashing U.S. R&D jobs by the thousands, the buildup in Asia is bound to set off alarms that America is sacrificing another key industry through radical outsourcing. But if the strategy works, it could save the drug industry billions of dollars, bring down the prices of new drugs, and accelerate breakthroughs.

The impact of research outsourcing will be amplified greatly as China, with an even bigger pool of biochemists, expands its role. Lilly, Sanofi-Aventis (SNY), and others have already struck up partnerships there. China has "extraordinary potential," says Eric J. Topol, former chief cardiologist at the Cleveland Clinic, who advises HUYA Bioscience, a drug licensing venture based in San Diego. China could yield "a flood of potentially important therapies. It's just a matter of time".

The East-West research collaborations are new and have yet to produce a single drug. But many Western executives say they're stunned at how quickly the Indian industry is achieving targets set by the joint ventures. Just a few decades ago, India was a outcast in the pharma business. To the outrage of Western multinationals, New Delhi in the 1970s declared it would cease honoring patents on pharmaceuticals. Thousands of generic drugmakers then sprouted up, reverse-engineering Western medicines and distributing them in India and in other developing countries. The Indian executives argued they were providing a social service, selling antibiotics, say, for a fraction of what Western patent holders demanded. In the 1990s, Indian generics makers Cipla and Ranbaxy Laboratories started selling AIDS cocktails in India and Africa at just $1 per dose.

Even Indian drug executives, however, realized the knockoff business is a dead end. Almost all of India's top pharma managers say their cherished goal is to stamp out diseases in the Third World. That will require breakthrough medicines, not factories full of pirated generics. They also recognize the only way to jump-start a modern industry is through collaboration with Western drug companies. So in 2003, New Delhi reversed course and said it would protect the rights of foreign patent holders.

The first collaborations involved fairly simple lab work, mainly to save on labor costs. The Indians wanted more responsibility. But while India had plenty of good chemists who could crank out drug knockoffs, it lacked biologists with the deep knowledge and experience to develop novel compounds.

When Sandeep Gupta, a former Forest Labs research director, toured Indian pharma companies in 2006, he urged the CEOs to import talent fast. "I told them unless they expanded their biology capability, I couldn't [make deals] with them," he says. Soon, local drugmakers were snatching up thousands of Indian-born biologists who had trained abroad and offering them leadership opportunities. Jubilant nabbed Kamath, a 14-year veteran of Pfizer, to head its nascent structural biology department, and V.N. Balaji, who had worked at Monsanto (MON) and Allergan (AGN), as chief scientific officer. The company quickly expanded its team of 50 chemists and drug discovery experts to an army of 700. "If you told me five years ago this would all be here today, I would have replied 'no way,' " Kamath says.