Which Countries Excel in Creating New Drugs? It’s Complicated


A lot has been written lately about innovation, or the lack thereof, in the world of biopharma. One question that often gets asked: which countries lead the way in creating new medicines? Many people think that drugs originate in the nation where the companies that produce them are headquartered. The truth, however, is much more complicated. Given that multi-national firms market the majority of medicines, figuring out where each one of their drugs originated requires digging through some extensive data vaults. A proper analysis requires the examination of company histories, free market deal making, and in some cases government interventions. Consider the following examples:

Roche is headquartered in Basel, so you might think that all of its drugs are created in Switzerland. Actually, many of Roche’s biggest blockbusters were born in the USA at Genentech, its South San Francisco based subsidiary. Roche’s acquisition of Genentech (initiated in 1990 and completed in 2009) has been a transformative driver of the company’s success in recent years. It led Roche to abandon the PhRMA trade group in favor of BIO, and to rebrand of many of its drugs from having the Roche imprint on the label to Genentech.

Sanofi is located in Paris, so its drugs originate in France, right? Many do, but with its acquisition of Boston-based Genzyme and more recent business deals with Tarrytown, NY-based Regeneron Pharmaceuticals (NASDAQ: REGN) and Cambridge, MA-based Alnylam Pharmaceuticals (NASDAQ: ALNY), much of the company’s R&D work is now happening here in the U.S. Want evidence for the importance of this American connection? Chris Viehbacher, Sanofi’s German-Canadian CEO, has actually moved from Paris to Beantown.

Pfizer’s corporate offices are located in New York City and its largest R&D facilities are in Connecticut, so its drugs are clearly made in America. Or are they? One of Pfizer’s biggest-selling drugs, sildenafil (Viagra), originated in its labs in Sandwich, England. If Pfizer had (or does) successfully acquired AstraZeneca and relocated the company’s headquarters to London for tax purposes, would all of its drugs suddenly become British?

Valeant Pharmaceuticals (NYSE: VRX), a U.S. based pharma company, became Canadian when it was acquired by Biovail back in 2010. The merged company adopted the Valeant name. Now Canadian Valeant is making an effort to acquire California-based Allergan (NYSE: AGN). Will Allergan’s drugs be required to make the long drive north on I-5 and cross the border if Valeant is successful with its bid?

The innovation and country of origin story gets even more complicated. Sometimes a company’s headquarters don’t change as a result of a merger, but its tax status can migrate to another country. U.S.-based Auxilium Pharmaceuticals (NASDAQ: AUXL) is planning to merge with Canada’s QLT. The combined company’s headquarters will remain in the U.S., but because of the 24 percent Canadian stake, the “New Auxilium’s” tax rate will drop from 35 percent (the U.S. rate) to Canada’s 15 percent rate. The deal will only happen if the combined company will “not be treated as a U.S. domestic corporation for U.S. federal income tax purposes.” Would this make the New Auxillium’s drugs Canadian, or will they be American? And will QLT’s products now be considered to be from the U.S.? Similarly, Chicago based AbbVie has recently acquired Ireland’s Shire with a similar “tax inversion” in mind, although the actual tax savings from this hookup have been called into question.

Let’s dive in a little deeper. Consider the data in the table below (from the Milken Institute report, The Global Biomedical Industry: Preserving U.S. Leadership). The table purports to show how the number of drugs produced within certain countries has changed over time. The take home message: drug discovery efforts have moved in large part from Europe and Japan to the U.S. over the past 30 years. But these numbers are difficult to interpret due to the frequent acquisition of both companies and products during this time period.



The percentage of all NCE’s (New Chemical Entities) that originated from U.S.-based companies rose from about 31 percent in the ‘70s and ‘80s to 42 percent in the ‘90s to 57 percent in the 2000s. These data raise three important questions:

1) Are the data reliable? I would argue that these numbers are questionable due to the fact that pharmaceutical companies migrate often (and therefore the place where “innovation” occurs moves as well) as a result of mergers, acquisitions, and relocations.

2) Does the apparent increase in the percentage of drugs discovered in the U.S. simply mirror the ascendance of the biotechnology industry, whose drugs began to (mostly) flow out of U.S. in the late 1980s and early 1990s?

3) With the advent of the biotechnology industry in the 1980s, why is there such a large decrease in the number of NCE’s during the 1990s when biotechnology products really began to enter the marketplace in large numbers? Has all the low hanging fruit been picked?

Let’s get back to pharmaceutical mergers and acquisitions. Industry consolidation has been going on for decades. As a result, there are larger but fewer fish in the pond than there used to be, and the small ones all have a worried look. Over the past 50 years or so many pharma firms have divided and recombined, imitating the biological processes that many of them study. While I haven’t done an exhaustive survey, the historic data clearly show that biopharma companies have been purchased by firms located in other countries as well as their own. Here are some historical examples (because you can’t tell the players without a scorecard), which I’ve simplified in a number of cases due to corporate complexities:

In-Country Pharma Acquisitions

American Home Products acquired A.H. Robins in 1989. AHP then bought American Cyanamid in 1994, which also gave it an interest in biotech Immunex. It also invested in Genetics Institute in 1992, and bought that company in 1996. AHP later changed its name to Wyeth, and was acquired by Pfizer in 2009. [U.S.]

Parke-Davis (once the worlds largest pharmaceutical company) was acquired by Warner-Lambert in 1970. Warner-Lambert, in turn, was acquired by Pfizer in 2000. [U.S.]

Swiss drug companies Ciba-Geigy and Sandoz merged in 1996 to form Novartis. [Switzerland]

British pharmaceutical company Beecham Laboratories merged with SmithKline Beckman (which had been created by the merger of Smith Kline French and Beckman), then Smith Kline Beecham merged with Glaxo Wellcome (which itself was created by the merger of Glaxo with Burroughs Wellcome) to become GlaxoSmithKline. [Great Britain]

Outside-Country Pharma Acquisitions

Wyeth (founded in Philadelphia) merged with Ayerst, McKenna, and Harrison Ltd of Canada in 1943 to form Wyeth Ayerst, whose name was later shortened to Wyeth. [Canada to U.S.]

Upjohn merged with Pharmacia AB of Sweden in 1995 to form Pharmacia and Upjohn. Monsanto acquired G.D. Searle in 1985, and in 2000 its combined pharmaceutical division was merged into Pharmacia and Upjohn, creating Pharmacia. [U.S. to Sweden times 3] Pfizer then acquired Pharmacia in 2003. [Sweden back to the U.S.]

Schering AG was founded in Germany. Its U.S. assets were seized during WW II and were placed under government administration until 1952, when they were sold off. [Germany to the U.S.] The new U.S. based Schering Corporation merged with Plough in 1971, and then Schering-Plough was acquired by Merck in a reverse merger in 2009. [U.S.]

Sterling Drug was established in West Virginia in 1901, and acquired the U.S. assets (under the Alien Property Custodian Act) of the German company Bayer AG at the end of WW I. [Germany to the U.S.] Sterling Drug (aka Sterling Winthrop) was acquired by Eastman Kodak in 1988, but in 1993 Kodak turned around and sold the company to what is now Sanofi (headquartered in France). [U.S. to France]

ICI (Imperial Chemical Industries), a British conglomerate, spun off its pharmaceutical business in 1993 as a new company called Zeneca. Zeneca merged with Swedish based Astra AB to form AstraZeneca in 1999. [Sweden to Great Britain]

Boots Pharmaceuticals (a division of the British conglomerate Boots) was acquired by the German conglomerate BASF in 1994. [Great Britain to Germany]

Takeda purchased Millennium Pharmaceuticals in 2008 [U.S. to Japan] and Nycomed in 2011. [Switzerland to Japan]

Yamanouchi Pharmaceutical and Fujisawa Pharmaceutical merged in 2005 to form Astellas Pharma, which then bought New York-based OSI Pharmaceuticals in 2010. [U.S. to Japan]

Sanofi bought Genzyme in 2011. [U.S. to France]

Connaught Laboratories, founded out of the University of Toronto and headquartered in Canada, was bought out by the Institut Merieux (a French holding company) in 1989. [Canada to France]

Other pharmaceutical maneuvers (beyond mergers and acquisitions) can also make it difficult to discern exactly where drugs come from and how they contribute to a company’s growth or expenses. These include:

1) Equity investments (e.g. Sanofi’s investment in Regeneron and Alnylam)
2) Joint ventures (e.g. Eli Lilly and Icos to develop Cialis)
3) Spinouts (e.g. Abbott Laboratories carving off AbbVie)
4) Revenue sharing (Wyeth/Pfizer shared in profits on sales of Enbrel with Immunex/Amgen)
5) Portfolio swaps (Novartis’s acquisition of GlaxoSmithKline’s cancer portfolio in exchange for its vaccine business)
6) Geographic market divisions (e.g. one partner gets the U.S. territory; the other gets the rest of the world).

All of this makes analyzing the innovation process extremely difficult. To paraphrase Winston Churchill’s famous quote, “New medicines are a discovery transformed by development wrapped up in a company approved by a regulator located inside a country.”

People are concerned about the geographic origins of new medicines primarily for two reasons: jobs and taxes. Jobs in biopharma are generally very well paid, and the companies should be contributing to the local as well as national tax base. These tax payments (but not necessarily the jobs) are currently at risk; a number of companies are working on “tax inversions,” as mentioned above, to cut these payments. Lawmakers, in turn, are looking at ways to block these tax dodges. Same old tax battles as before, just new strategies in play.

In addition to the issues of jobs and taxes, some politicians want to establish bragging rights for their nations. They hope that the number of new drug launches will illustrate the merits of their particular economic system or the benefits of funding government and university research programs. I don’t think patients care too much where their drugs are from; affordability is much more important. It’s likely that investors in most companies aren’t much concerned either where the company’s drugs come from. They’d rather have a blockbuster developed in another country as part of their company’s drug portfolio than a homemade dud.

Of more interest to me are the institutional underpinnings of new drugs. Did they arise out of academia, from small biotechs, or were they home grown from within Big Pharma companies? The answer to this question seems more important because understanding this issue might ultimately help accelerate the discovery of new medicines. Robert Kneller published a detailed analysis of the origin of new drugs approved by the FDA between 1998 and 2007 on a country-by-country basis. The most striking finding was that about 61 percent of the 118 new drugs coming out of U.S.-based companies originated in either academia or in smaller biotechnology companies. In contrast, less than 20 percent of the 23 new drugs coming out of Japan and about 25 percent of the 98 new drugs generated by all European companies (including the UK) met these criteria.

Creating an innovative drug is not the same thing as buying someone else’s drug innovation, even if the net output, a new medicine, is the same. If we really want to get a handle on innovation, the data used to create the table shown above should be recalculated using the actual country of origin of each drug (traced back to the beginning), rather than the location of the company’s headquarters. Even then, it’s difficult to determine whether the discovery, the development, or even the marketing was the key element in any drug’s success. Many potentially promising drugs never become winners as a result of poorly executed development plans.

I think this reanalysis would support the idea that the rise of biotech companies in the U.S. tipped the innovation balance strongly in our direction. This is despite the fact that biotechnology, as its own industry, only became profitable in 2008. It would likely also illustrate the critical role the government plays in supporting basic biomedical research, the foundation upon which the biotech and pharmaceutical industries are built. Others have different viewpoints of what factors influence drug innovation. In a recent Forbes article, author Paul Howard wrote, “The imposition of a number of drug price controls or their functional equivalents in the E.U.—reference pricing, capped drug budgets, health technology assessments, and the like— have all helped shift the epicenter of drug innovation from the E.U. to the U.S. (the world’s largest single pharmaceutical market) from the 1980s to today.”

Given that a number of new business models in the biopharma sector (e.g. virtual companies) are currently being tested, the reanalysis that I suggested above might only provide a more accurate look backwards. Drug discovery and development take place within a complex industrial, financial, and medical ecosystem where a change in one small part (e.g. pricing, reimbursement, more efficient manufacturing processes) can cause profound effects on the output. Simple will never be a word that describes a process that begins with something as intricate as biology. You can safely ignore those who try to tell you otherwise. In the end, drug innovation is not defined by country of origin. It arises out of the thoughts and dreams of scientists who choose to explore and expand the limits of biology and medicine, or as James Watson once put it, “Science that leads over the horizon depends on gathering the best minds and enabling them to do what the best minds naturally seek to do: pursue the most thrilling questions of the time.”

Stewart Lyman is Owner and Manager of Lyman BioPharma Consulting LLC in Seattle. He provides strategic advice to clients on their research programs, collaboration management issues, as well as preclinical data reviews. Follow @

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  • Yali Friedman

    I think that tracking patents covering approved drugs can yield greater granularity and precision, without the need for rigorous company history tracking. Because companies must disclose patents covering drugs in the US (the world’s largest drug market), and because patents must list all inventors, and because inventor locations are listed on patents, you can track inventor locations through drug patents.

    In fact, published such studies in 2009 (http://www.nature.com/nrd/journal/v9/n11/full/nrd3298.html) and in 2014 (http://www.nature.com/nbt/journal/v32/n6/full/nbt.2933.html), and my results are similar to yours.

  • Liam Gordon

    Is it possible that the drop in NCEs (Q3) is real e.g. approval of biotech drugs under BLA rules, aren’t being counted?