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Jun 8, 2011

Asia’s Emerging Markets Catching Up to the U.S. and Europe in Terms of Innovation

Countries like China and Korea are growing to be more than just manufacturing hubs.

Asia’s Emerging Markets Catching Up to the U.S. and Europe in Terms of Innovation

Over the past five years, China and other Asian countries have ramped up their international patent filings. [© Akasha+ - Fotolia.com]

  • The U.S. may still be the world’s leading nation when it comes to developing, protecting, and commercializing new technologies, but recent global patent numbers point to other countries vying for the top spot. China and several Asian nations are emerging as formidable innovators.

    According to the European Patent Office, U.S. applicants brought forth 60,588 applications in 2010, a figure surpassed by the 82,828 filed by the 27-nation EU, whose innovations accounted for almost 90% of the 92,553 filed by the 38 nations comprising the European Patent Convention. The EU’s patent applications rose just 5% over the 2009 figure, compared with 6% for EPC and 12% for the U.S.

    However, China’s 12,698 patent applications in 2010 marked a 54% increase over 2009 and a doubling from 2008. Not too far behind was South Korea with 12,342 patent applications, up a healthy 21% from 2009. And weeks before it was devastated by the March 11 earthquake and tsunami, Japan finished last year with a 10% year-over-year gain in patent applications, rising to 41,917, second among all countries.

    Emerging Asian nations are expanding their biotechnology industries beyond initial strengths in manufacturing and R&D toward more innovative work in developing treatments, tools, and technologies.

    “The fact that you’re starting to see a greater increase in international patent filings from countries like China indicates they’re getting more serious about commercialization and partnering,” Daniel J. Nevrivy, Ph.D., founder of Nevrivy Patent Law Group, told GEN.

  • China's Biotech Push

    Chinese president Hu Jintao late in May restated that biotech is one of seven “strategic emerging industries” whose growth the country wants to cultivate over the next decade. The declaration was initially made in March, when China made public its 12th Five-Year Plan for developing its economy between 2011 and 2015.

    Biotech along with energy, high-end equipment manufacturing, energy conservation and environmental protection, clean-energy vehicles, new materials, and next-generation IT would share a combined RMB 4 trillion (about $615 billion) of state funding. China wants these seven industries to comprise a total 8% share of GDP by 2015 and a 15% share by 2020.

    Not contained in the 12th Five-Year Plan is an appeal for “indigenous” innovation contained in an early draft but removed, “apparently in response to foreign investors’ uproar on the issue over the past year,” according to state-run China Daily.

    The Five-Year Plan calls for biotech companies to carry out additional mergers and acquisitions, with the goal of building up distribution of pharmaceutical product. The plan envisions that by 2015, China will have three national pharma distributors, each with annual revenues of at least RMB 100 billion (roughly $15.4 billion), as well as 20 regional distribution businesses, each with annual sales exceeding RMB 10 billion ($1.5 billion).

    “In the past decade or so, China has become a manufacturing powerhouse. But now there is a recognition there that in order to provide more opportunities for the population and tap its potential, it needs to focus more and more on innovation,” Dr. Nevrivy explained.

    “They have some power and influence because of their economy growing and because they have financial resources. What they don’t have is the prestige that the United States and Europe and Japan have.”

  • Innovation in Asia

    For biotech companies in emerging nations, the push toward greater innovation in turn enhances established R&D and manufacturing operations. “Innovation is the front-end leader and also enhancer of both R&D and manufacturing,” Helen Chen, a partner with L.E.K. Consulting in Shanghai, told GEN.

    “For example, domestic Chinese pharmas who are now more actively engaged in innovative drug research are filling up many preclinical CROs. Efforts to improve formulation are contributing to both process development and manufacturing growth.”

    Genor Biopharma, for example, announced in April that it is constructing a cGMP manufacturing facility in Zhangjiang High-Tech Park in Shanghai for production of its own mAb- and protein-based drugs. It will also set up a new drug R&D and quality control center.

    “Within this international standard manufacturing facility, Genor could offer high-quality and cost-effective CRO/CMO services to both international and domestic clients from gene expression to clinical materials production,” the firm has said. “The facility will be ready in mid 2011.”

    Chen cited two additional examples of Chinese biotechs focused on innovation: Shanghai Celgen Bio-Pharmaceutical and Epitomics. Shanghai Celgen received a new drug registration approval on May 10 for Qiangke, a recombinant human TNF receptor-IgG fusion protein for ankylosing spondylitis. Epitomics, a U.S. mAb company, has a wholly owned subsidiary in Hangzou. The company reported on May 26 that it will use its RabMAb® technology to produce antibodies for Bayer HealthCare’s drug target identification and validation efforts.

    Another U.S. company with R&D operations in China is Pfizer. The company decided to shift some of its Groton, CT, research work to Shanghai, where it is setting up its new Pfizer China Research and Development Center.

    “What they’re starting to see is, ‘Look, we can do some quality work in China.’ It helps them broaden their base there because it’s a growing market,” Dr. Nevrivy said. “And you can be sure that other pharma companies are talking about it, and things will happen. It is an endorsement for that type of work being done in that country. Whether it’s going to pan out has not been proven.”

    Another Asian country, South Korea, is reaping the fruits of long-term investment in R&D at percentages comparable to those in the developed world. Evidence of this is in the commercial success of some home-grown biotechs. Chen cited Celltrion, which plans to introduce biosimilars for breast cancer and rheumatoid arthritis to worldwide markets later this year after a decade of development work.

    Chen also noted LG Life Sciences (LGLS), which earlier this year received an exclusive license to manufacture, develop, and commercialize influenza vaccines using U.S.-based Novavax’ recombinant virus-like particle (VLP) technology in South Korea. LGLS agreed to fund clinical development and licensure of influenza VLP vaccines in South Korea and elsewhere as well as construction of a new VLP vaccine manufacturing facility at its Osong campus in South Korea.

    Across Asia’s emerging nations, stem cell companies have performed strongly, Dr. Nevrivy said, since they got a head-start with R&D activity at a time when many of their U.S. and European counterparts were awaiting the outcome of domestic controversies over government funding and patentability, respectively, of human embryonic stem cell research; court cases are still ongoing.

    Eager to join China, Japan, and Korea among top-tier Asian biotech nations are Taiwan, Singapore, and Malaysia. “They are much smaller countries, however, and are unlikely to reach the absolute volume of the bigger countries,” Chen said.

  • Obstacles

    One challenge to innovation in China and elsewhere in Asia, Dr. Nevrivy noted, is issues with IP development, from the alleged theft of technologies to lawsuits seeking to block weak patents. In 2009, China sought to respond to the problem through a set of amendments to its IP laws that were intended to bring them closer to international standard. One change increased the damages incurred for patent infringement.

    Another change offered companies incentives to file in China first. That would help Chinese researchers build up their numbers of patents, which as Chen noted is a credential used by research agencies to decide grant funding applications, much as the number of citations in peer-reviewed journals is evaluated by Western agencies that fund basic research.

    “The national government appears more serious about IP rights, but enforcement is done at the local level, where a lot of local officials must be pressured to crack down because counterfeiting and piracy provide jobs and economic benefits,” Dr. Nevrivy said.

    Another challenge for emerging nations is developing a base of talented professionals—or in China’s case, working to attract Chinese professionals who obtained their educations overseas to return home.

    In Japan, by contrast, challenges to innovation include two decades of a stagnant economy. The country had finally begun to climb out of it before the earthquake and tsunami triggered another economic slump.

    Japanese pharma has been looking overseas to acquire innovation rather than generate it themselves or through partnerships with smaller domestic firms. Astellas bought U.S.-based OSI Pharmaceuticals last year for $3.5 billion, and Takeda Pharmaceutical is buying Swiss-based Nycomed for €9.6 billion (approximately $13.7 billion). Three years ago Takeda bought Millennium Pharmaceuticals for $8.8 billion.

    The strategy is partly a response to pressures to maintain drug prices. Since ordering a price cut in 2008, the government has sought to contain drug prices in part by encouraging competition among generic drug makers.

    Over the past five years, China and other Asian countries have ramped up their filing of patents internationally. Taking advantage of competitive opportunities, as much as encouraging more patent filings and attracting top researchers, will be essential for Asia’s emerging nations to grow their biotech industries. Asian countries will have to compete in terms of number of companies as well as quality of discoveries to be on par with firms in the U.S. or Europe.


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