Online Extra: Lilly's Labs Go Global
Across the nation, so-called teaching hospitals have teamed up with Eli Lilly (LLY ) to find out, in experiments on volunteer patients, whether its newest drugs are safe and effective. Increasingly, Lilly is moving its research and development, including clinical trials, to China, India, and the former Soviet bloc. The reason: It's much, much cheaper to do this work in these nations, and Lilly considers the work itself to be as good as in the U.S. or Western Europe.
Lilly isn't the only member of Big Pharma relocating R&D operations to the developing world. Industry titan Pfizer (PFE ) is testing drugs in Russia, while AstraZeneca (AZN ) has been conducting clinical trials in China. But Lilly seems to be ahead of many of its peers. "If all of Lilly's plans jell, they would be very forward-looking," says Stephen DeCherney, president of global clinical research for Quintiles Transnational, which conducts drug trials on behalf of pharmaceutical and biotech outfits.
In general, Lilly also seems to get more from its labs. The Indianapolis-based drugmaker is renowned for its product pipeline. In the last five years, it has introduced eight drugs in the U.S. -- more than even some of its larger rivals -- and its execs say Lilly should be able to keep up that pace at least for the next several years.
Still, Lilly's profits aren't as phenomenal as they had been. The company estimates it earned $2.1 billion in 2005 on sales of $14.5 billion. While sales would be a record, it made more money every year from 2000 to 2003. Like other drugmakers, Lilly is getting squeezed by the rising cost of developing drugs. Company executives now put that cost at $1.1 billion per drug, including expenses on all the products that don't make it to the market. And they say this price tag looks likely to hit $1.5 billion in 2010. Lilly execs have set a goal of lowering that tab to $800 million instead. This is where India and China come in.
Chairman and CEO Sidney Taurel says Lilly today is doing 20% of its chemistry work in China, where he says costs are one-quarter that in the U.S. or Western Europe. Lilly helped start a lab in Shanghai in 2003, a year after industry pioneer Novo Nordisk (NVO ) opened a small research facility in Beijing. The startup, Chem-Explorer, works exclusively for Lilly and has a staff of 230 chemists today, of which 20% to 25% have PhDs.
Now, Lilly is expanding its R&D efforts to include clinical trials. These are the late-stage experiments to prove a drug can be used on humans. Typically, in the last phase of testing, a large sample of prescreened people with a disease or condition is given a drug over 12 months and carefully monitored by physicians and researchers to see how the drug performs against either a placebo or an existing product.
The tests are enormously expensive. Lilly estimates that each Phase III test costs at least $50 million a year. In fact, Lilly is spending more than $300 million right now to test an anticlotting pill, prasugrel, for heart patients.
"Those kinds of costs," says Dr. Steven Paul, Lilly's executive vice-president of science and technology, "are fundamentally unsustainable. There are multiple levers we have to pull, and one of them is cost. And one of the ways of doing that is doing some of these studies where the quality of the data generated is very high -- China, India, and Eastern Europe, the old Soviet bloc nations -- and the costs are low."
What about concerns that Lilly's experimental drugs will be ripped off during these trials in India or China, where intellectual property isn't often respected and counterfeit drugs are common? John Lechleiter, Lilly's president and chief operating officer, says Lilly has not had this problem in clinical trials. The more these two countries develop, he adds, the less concerned management is.
ACCESS TO PATIENTS.
Altogether, Lilly does probably 50% of its clinical research outside the U.S., though most of the foreign work is done in Western Europe. China and India account for only a sliver. Yet Taurel predicts that Lilly will be doing 20% to 30% of this testing in those two countries in the next few years. Money, of course, is an obvious main reason for the migration. But just as important is that these nations now have the research labs, hospitals, and professional staffs to conduct studies that would pass muster with the U.S. Food & Drug Administration or with drug regulators in the European Union.
"In India and China, we are starting to see some centers of excellence with very, very good clinical trial work to help us reduce the cost," says Taurel. "What happens in a country like India -- I was just there in August -- you have 500,000 physicians, and they have access to very large numbers of patients. And very often, they are so-called treatment-naive patients -- people who have not received any treatment before. You can do things faster and cheaper and, at the same time, with excellent quality."
Adds Paul: "It's not just cost here. Let me be very clear. It's availability of patients. The medical systems in some of these countries are really very sophisticated. The physicians in India are very sophisticated. The number of patients available for some of these trials is very substantial. There is infrastructure. And the data has to be high-quality, because if at the end of the day the data is not usable, what have you gained? Nothing."
Lilly's drug Arzoxifene, for example, is benefiting from offshore testing. Aimed at treating both osteoporosis and breast cancer, Arzoxifene is in the final stage of tests on 9,000 people, and most of this research is being done in India and Brazil. Lilly hopes to seek market approval for the drug from the FDA in 2009.
CENTERS OF EXCELLENCE.
Lechleiter says Lilly started going abroad with clinical studies about 15 years ago. It tried a global approach, doing experiments simultaneously in different markets, with Evista, a drug that was launched in 1998 for the treatment of osteoporosis. In its final-phase trial, 10,000 women were enrolled in the study. It was easier to do this in more than one country, in part because so many patients were needed. The biggest sources of patients for that study: Norway and Argentina.
Later in the 1990s, after Eastern Europe opened up following the fall of the Berlin Wall and the Soviet Union, Lilly began testing drugs in those countries. That's because doctors and researchers there had great medical qualifications, and they were crying for work. Lilly then moved into India in the late '90s and China in the last few years.
"It does take a lot of work on our part," Lechleiter says, "to ensure that we don't just enroll patients, but that we get good quality data. A piece of data from Russia has to have the same qualifications as data acquired in Chicago's best hospital."
That's one reason why Lilly wouldn't move all of its clinical research outside the U.S., he says. There also are so-called centers of excellence in the U.S. -- places renowned for their research in cancer, for instance, or heart disease -- and Lilly wants to keep them going because it needs them. It helps, too, that they're close to Lilly's headquarters to act as collaborators. Also, in order to get a better mix of patients, the company doesn't want to put everything in one country.
"TIME IS MONEY."
DeCherney of Quintiles cites another factor that will keep drugmakers from outsourcing research entirely: principle. Pharmaceutical companies often are reluctant to sell their newest products in places like India and China, because patients cannot afford them or because of worries about patent protection. This might not sit well if participants in clinical trials in these countries find that the drugs work. "It's sort of unethical to do clinical research in markets where you never intend to market the drug," DeCherney says.
Nevertheless, Lilly execs say outsourcing is picking up momentum. "The research is less expensive per patient outside of the U.S., but at the same high quality," Lechleiter says. "It also helps speed up the development process. In our business, time is money." He explains that a patent is effective from the date of a drug's discovery, not when the drug hits the market. So the faster Lilly can move the product out of the lab, the longer it can secure patent protection -- and high profit margins -- in the marketplace.
Arndt is a senior correspondent for BusinessWeek in Chicago
Edited by Rose Brady