The myths about China pharma

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Big pharma often waxes lyrical about why it makes sense to do more and more R&D in China: the size of the market; the need to be close to that market (and learn about the diseases that affect it particularly badly); and the local talent pool.

According to a study out this week from McKinsey, Healthcare in China, 80 per cent of global life science groups will be conducting R&D in China and other emerging markets by 2016. But it’s worth debunking a few of the myths about Chinese pharma R&D.

In China alone, total investment in R&D from major multinational drug companies has hit more than $2bn in the last five years. According to the report: “Chinese R&D sites are opening or growing almost as quickly as European and US sites are closing or shrinking”. But big pharma should be “wary of conventional wisdom about the conditions in China”, the report says. The biggest problem, it seems, is how to keep local talent sweet.

Multinationals are competing fiercely with local pharma operators for the same skilled people, “resulting in a shortage of professional expertise that threatens to put the brakes on multinational’s growth ambitions”. So what are the common myths and misconceptions about Chinese pharma?

1) It’s easy to hire good R&D staff in China. Not so, it seems: China has loads of people, lots of graduates, and even lots of life science PhDs. But the vast majority of them, even now, are not ready for multinationals: big pharma needs to budget for a lot of spending on in-house training, and may find it hard to scale sites up quickly to worldclass standards. Keeping the staff, once trained, is another big problem: According to one survey cited by McKinsey, out of about a hundred MBAs currently working for multinationals in China, four-fifths did not plan to stay in their current jobs for more than two years.

2) It’s cheap to make drugs in China. Wrong again: according to McKinsey, packages for management-level staff working at multinational R&D sites in China are three quarters of the western level and for top staff compensation is as high, or even higher in China than, in Europe and the US. Junior staff currently cost about a third of what they would cost in the US, but McKinsey estimates average annual cost will have risen to between 43 and 58 percent by 2015.

3) Money is all that matters to staff: McKinsey says job applicants are just as likely to be put off by weaknesses in corporate reputation or culture as by pay on its own.

4) Other big drug companies are their main rivals for talent: “Rapid growth, the promise of a future IPO, and the potential for dramatic increases in compensation and impressive job titles are now luring scientists at all levels to domestic companies”.

China may look like the new promised land for big pharma: it’s healthcare needs are massive, its talent pool is huge, and its government is committed to delivering a healthier population (as a way of keeping them quiescent). But multinationals that commit to China on the basis that it is big are soon disillusioned. McKinsey suggests global pharma companies should think twice before making that same mistake.

Related reading:
China: Pharma heads east for profit, FT
Pharma still bullish on EMs, beyondbrics
Chinese health care: big opportunities, beyondbrics

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