Little Island, Big Pharma
For the past two years, Singapore has been making global drugmakers an alluring offer: The government has set aside $1.8 billion to encourage pharmaceutical companies to invest in the city-state. The money--to be spent over five years--pays for incentives ranging from research and development funds to capital for startups. And that's in addition to tax breaks and affordable space in government-built research and manufacturing parks. "We have money," says Philip Yeo, co-chairman of the Singapore government's Economic Development Board (EDB). "We need warm bodies."
Those bodies have arrived, and they're heating up Singapore's exports. In the past year, three global players--GlaxoSmithKline (GSK ), Wyeth (WYE ), and Schering-Plough (SGP )--have built new drug-making plants on the Southeast Asian island. Their arrival helped boost Singapore's pharmaceutical exports by nearly 60% last year, to $4.7 billion--and cemented the sector's place as the island's third-largest foreign currency earner after petroleum products and electronics.
Bulking up pharma is the right prescription for Singapore's continued growth. As semiconductor and other electronics exports last year fell 10%, to $7.1 billion, the economy appeared headed for a downturn. Then, in December, pharmaceutical exports soared 131% from a year earlier as multinationals fired up new plants making higher-value drugs. That was enough to produce 0.1% overall growth in the fourth quarter, and it kept the economy out of its second recession in two years. Drug exports "relieved concern of a double dip," says David Cohen, director of macroeconomic forecasting at MMS International in Singapore.
True, government subsidies have been partly responsible for the sector's success. In early 2001, the EDB set a target of investing $600 million over five years in new joint ventures with multinationals or startups focused on R&D. The board also has $600 million to reimburse Novartis, Eli Lilly, Viacell, and others for up to half of their R&D outlays. And it's giving another $600 million in grants to government-run research institutes to encourage cooperation with the private sector. As a result, since late 2001, five leading drugmakers have committed to investing a total of nearly $1 billion in the sector. "The incentives are extremely good," says Victor Hau, managing director of Singapore operations for Wyeth, which last year opened two plants at a total cost of $294 million.
Singapore, of course, has a lot more than subsidies to attract drugmakers. While relatively high wages discourage production of generic drugs in the city-state, Wyeth, GlaxoSmithKline, and others make high-end brands for export to the U.S., Europe, and Japan. They say the educated, English-speaking workforce, reliable electricity and water supplies, and good air links make it a natural base for their operations. Another attraction: Liberal rules on human stem-cell research, a factor that led ES Cell Australia Ltd. to open a $10 million lab last year.
Still, Singapore has a ways to go. Virtually all of the industry's growth so far has come from foreigners, with little help from homegrown companies. Also, there's a limit to the number of scientists this city-state of 4 million can produce. "One of the concerns people have is, `Do they have the critical mass of people for a large-scale effort?"' says V. Thyagarajan, senior vice-president and Asia director for GlaxoSmithKline.
But the government keeps pushing. On Jan. 29, the Agency for Science, Technology & Research opened its own $35 million biopharmaceutical plant. Scientists there will produce drugs from living cells in an effort to prove that Singapore can achieve the highest standards of quality control, says Miranda Yap, the plant's chief scientist. The goal is to make medicines on a contract basis for global drugmakers. The facility has already signed an agreement to conduct cell culture research for hormone treatments for Inhibitex Inc., a biotech startup in Alpharetta, Ga.
In November, the Singapore government plans to open Biopolis, a 185,000-square-meter research center for five existing biomedical research institutes. Yeo hopes the facility will help jump-start homegrown companies. In the meantime, multinational drug production is helping keep the Singapore economy out of the sick bay.
By Michael Shari in Singapore