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

9/2/14

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.

Table

 

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 … Next Page »

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?