Emerging Countries' R&D: A Contest, but No Wipe Out

Emerging country markets are widely viewed as Big Pharma’s ace in the hole to replace declining rates of innovation in the US and Europe, with numerous studies claiming the BRICK nations (the ‘K’ is from South Korea) are at the center of a revolutionary global shift in the source points for new ideas -  what observers call the phenomenon of “reverse innovation.”

A new report from Thomson Reuters, Building Bricks: Exploring The Global Research and Innovation Impact of Brazil, Russia, India, China, and South Korea, finds that while China is the leader overall in terms of investment and output, it does not necessarily produce quality research and offers significantly less pharmaceutical breakthroughs than, say, India, Russia or Brazil. These countries, as the report indicates, will serve to bring some disruptive changes to the mostly western-dominated drug industry between now and the end of the decade, as a result of the inroads these countries are making in earmarking more domestic resources to back innovative research. This has in turn spawned rising interest among other governments and outside investors. Everyone is trying to follow the same model.

The extensive statistical data base analyzed in the report shows that while China leads in published research papers across all industries, India, Russia, and Brazil in 2010 exceeded China in the number of filed patent applications in pharma. India’s patent applications in 2010 exceeded the global average in pharmaceuticals by a factor of 1.46, with Russia second with .73, Brazil at .69, and China behind, at close to the global average. South Korea produces less pharmaceutical patents than the global average by a ratio of about .27 per cent.

Brazil scored particularly well in patentability in the life sciences category, suggesting that it and other emerging countries will soon pose some real disruptive changes to the G7 countries’ traditional strength in pharmaceuticals. This could come in the form of more innovative manufacturing processes, where BRICK countries with sizable manufacturing bases are forced to deal with the issues of drug production more readily than established nations that develop medicines remotely from outsourced manufacturing sites in cheaper labor markets. Jonathan Adams, director of Research Evaluation for Thomson Reuters and a co-author of the report, points out that “Brazil is ‘the natural knowledge economy’, with a national  research portfolio skewed towards areas such as agrochemicals, biofuels, plant and animal sciences. Along with the largely untapped potential of the Amazon Basin, these make it an unconventional and interesting player in the pharmaceutical space.”

Overall, BRICK countries are stepping up investments in R&D to improve their competitiveness against Western Europe and the US, with South Korea as the clear winner.  In the past 6 years, it has spent over 3% of domestic GDP on R&D, higher than Germany, while China trails, on par with France or the UK.

China has had a notoriously bigger workforce in comparison with other markets, though there has been some drop off since economic growth began trailing off in 2008.  Growth in the other countries has been slow, if at all, pointing to the pinching of human capital by companies seeking to do more work with fewer employees. But with the BRICKs continuing to invest in higher education, this stalling in the growth of human capital rate will most likely be offset by the onset of more skilled labor forces led by all the investments in R&D programs.

On output measures alone,  China far surpassed all other BRICK players in churning out over 150,000 scientific research papers in 2011, an almost 600% increase since 2000. With runners-up India and South Korea not having reached a third of this figure, it’s easy to see why China is hailed as the production powerhouse of tomorrow. But the report also states that specific business segments in other countries, such as Russia’s immunology disease research base, have higher regulatory standards. Additionally, South Korea, while outnumbered by its Chinese neighbor in the number of patent filings, has shown its ability–according to external observers– to produce patents with a higher level of innovation. The question thus arises:  is quantity the match for quality?

Many of BRICKs’ choices of industry are based on the prioritization of R&D initiatives around the most pressing political and economic needs. For example, India’s focus on pharmaceuticals may be the result of heavy investment in drug manufacturing plants by contract research organizations [CRO], on behalf of big pharma.

That said, BRICK countries have grasped the concept that investment in R&D is a long term way to attract foreign interests to further bolster their emergence.  The report concludes that there is no longer any monopoly to preserve pharma’s predominantly western silo of innovation. Each country will be required to reevaluate its skill set and expertise offerings to keep pace with change.