The Demand for R&D is Increasing

by on April 4, 2015 at 1:48 pm in Economics, Education, Medicine | Permalink

In my TED talk I said that if India and China were as rich as the United States is today then the market for cancer drugs would be eight times larger than it is now. Larger markets, both in size and wealth, increase the incentive to invest in R&D. Larger markets save lives. As India and China become richer, they are investing more in R&D and investing more in educating the scientists and engineers who produce new ideas, new ideas that benefit everyone.

The WSJ reports on this trend:

Chipscreen’s drug, called chidamide, or Epidaza, was developed from start to finish in China. The medicine is the first of its kind approved for sale in China, and just the fourth in a new class globally. Dr. Lu estimates the research cost of chidamide was about $70 million, or about one-tenth what it would have cost to develop in the U.S.

…China’s spending on pharmaceuticals is expected to top $107 billion in 2015, up from $26 billion in 2007, according to Deloitte China. It will become the world’s second-largest drug market, after the U.S., by 2020, according to an analysis published last year in the Journal of Pharmaceutical Policy and Practice.

China has on-the-ground infrastructure labs, a critical mass of leading scientists and interested investors, according to Franck Le Deu, head of consultancy McKinsey & Co.’s pharmaceuticals and medical-products practice in China. “There’re all the elements for the recipe for potential in China,” he said.

We have much to gain from increased wealth in the developing world.

1 MPS April 4, 2015 at 2:01 pm

Did you just accidentally argue for income redistribution?

My armchair economist analysis is: when there is a “glut” in excess capital to invest, then you should tax that capital and redistribute it so as to create larger markets to make investment more worthwhile and quench that glut.

What does it mean for there to be a “glut” in excess capital? My vague sense is you look for evidence that people are avoiding traditional R&D investment opportunities, namely common stocks and venture capital.

2 Sam Haysom April 4, 2015 at 2:29 pm

So when there’s a shortage of capital then you start taxing the beneficiaries to get some of that “glut” back right? Because when capital is scare it should be concentrated in the hands of those who would use it most effectively. If you aren’t willing to reverse the course of action when the underlying conditions reverse you are arguing in patently bad faith.

3 Pshrnk April 6, 2015 at 11:30 am

Sure in the form of tax credits, write offs etcetera.

4 derek April 4, 2015 at 2:44 pm

So you want to make it more expensive? In the post above a drug was developed for $70 million, in the US it is $500 million to $1 billion. Why would anyone invest in the US development of drugs when they come out the gate 10 times more expensive than what will be developed elsewhere?

If you intend on changing policy, why not cut the costs of doing business in the US so that investors will see it as a viable place to invest? If that isn’t possible, taxing capital is simply eating your seed corn.

5 Sam P April 6, 2015 at 2:43 am

I believe the $500 million to $1 billion figure is average all-up development costs, including the costs of all the failures. A recent Tufts study put the total cost including the cost of capital at $2.6 billion. If you focused on any individual drug that gets approved, the cost would be far lower. Also, the largest costs are in the clinical studies to demonstrate safety and efficacy, which are manpower intensive and probably where the biggest savings in China and India might be found. Some discussion here.

6 Alain April 4, 2015 at 3:57 pm

Epic mood affiliation post MPS! Hilarious.

7 Ray Lopez April 4, 2015 at 3:45 pm

Ridiculous. Nothing is invented in Asia, it’s all re-invented, appropriated from the West, a few molecules (at best) changed, and relabeled as Chinese. And the inventors are slave wage earners, forced to toil. Maybe a generation from now things will change.

And sure enough, five minutes of research with Google Patents shows I’m right. See below. Like that Lockeed fusion in the back of a pickup truck story, there’s more than meets the eye here, except to a gullible, Sinophile anti-patent type like AlexT.

Exhibit A (what Xian-Ping Lu invented in China and filed for a patent in 2003):
( histone deacetylase inhibitors (HDACI), their preparations and the methods of using these compounds or their pharmaceutically acceptable salt in the treatment of cell proliferative diseases, e.g. cancer and psoriasis.)

Exhibits B, C (what Xian-Ping Lu invented at his former employer Galderma, also in the same field of anti-cancer drugs, though different molecules)

Exhibit D (killer prior art): apparently nearly the exact same anti-cancer molecule as by Xian-Ping Lu, but from the year 1999 (priority date), five years before Lu’s 2004 patent application, and with a publication date of May 31, 2001, by inventors Elie Abou-Khalil, Daniel Delorme, Rico Lavoie, Rejean Ruel, Carl Thibault Applicant Methylgene Inc

(In some preferred embodiments, the contacted cell is in an animal. Thus, the invention provides a method for treating a cell proliferative disease or condition in an animal, comprising administering to an animal in need of such treatment a therapeutically effective amount of a histone deacetylase inhibitor of the invention. Preferably, the animal is a mammal, more preferably a domesticated mammal. Most preferably, the animal is a human.)

Simple scenario: China man Lu, a skilled anti-cancer drug researcher, saw what the Arab team of Abou-Khalil did with the anti-cancer drug histone deacetylase, which was filed for in 1999 but published in May 31, 2001. Lu then changed a few radicals and extensions on this molecule, filed for a patent three years later (one wonders why he took so long, possibly he was still learning how to do the synthesis), all for the greater glory of the motherland, China. And gullible Cannuck AlexT is impressed and waxes poetic. Ridiculous.

8 Cliff April 4, 2015 at 10:10 pm

You have no clue what you are talking about

9 Ray Lopez April 5, 2015 at 12:15 am

@Cliff – I gave you the Cliff Notes version, click on the links and read them. Easy for even a troll. Note both patented histone deacetylase compounds are expressly anti-cancer drugs. You can lead a horse to water…

10 tiger April 5, 2015 at 12:04 pm

Ray Lopez illustrates an extreme but common enough species of white expat in Asia particularly SEA.

He is a loser that is why he chose the path of settling in the Philippines with prostitute girlfriends. His ego will not allow him to acknowledge what a loser he is. He justifies his choices but creating a persona laced with white racial ego.

The most obvious attribute of him we see is that a combination of aspergers and delusional self rationalization brings him to repetitively claim to be a stud with local women.

Intellectually he is also committed to clinging on to white racial ego–that is the essence of his residence in PH and the self identity he tries to fabricate through prostitute girlfriends. Here he is almost gasping and hollering and jumping up and down to make sure you understand that China has invented absolutely no important invention recently. Because to acknowledge even one Chinese important recent invention it would seem would smash his intellectual racial ego premised in part that Asians can’t be creative.

A piece of work all around but these attributes I see a lot.

11 China Cat April 5, 2015 at 12:33 pm

The real Ray Lopez is annoying at times but more often interesting. You, however, seem a simpleton.

12 Edgar April 4, 2015 at 4:07 pm

“As India and China become richer, they are investing more in R&D and investing more in educating the scientists and engineers who produce new ideas, new ideas that benefit everyone.” Wonderful for the people of India and China and more power to them. Whether US consumers will see benefits remains to be seen. As markets in India and China grow, will seeking US approval be cost effective? Will FDA grow even more mercantilist? Should FDA approve, how long
before first anti-dumping pharmaceutical case? The safe bet is that our sanctimonious, nudging, governing elites will find a way to bollix up this potentially positive development.

13 Rafael Guthmann April 4, 2015 at 11:08 pm

I had made the same argument before in this blog. I think that economic growth has been much faster in the last two centuries (and the speed appears to be increasing) than in any other past civilization mainly because our western soon to become folly global civilization is so much larger in population so there are so many more brains in it and hence more ideas. Past civilizations might have developed decent institutions (and the institutions we have today are far from perfect, it’s even possible that some past civilizations had superior institutional conditions for economic performance than we have now) but their population was tiny, for instance, the Ancient Greek civilization was less than 10 million at it’s demographic peak, so that ideas were few constrained by the small number of brains so economic growth was very slow (but existent, archaeological evidence proves that for Ancient Greece).

14 Andao April 5, 2015 at 10:06 am

Does fda screening really add 10x to the developing cost? Chinese lab capital expenditures are going to be comparable – everyone uses the same equipment. Salaries might be lower, but they can’t be that much lower since these top scientists could work abroad if they wanted.

Even accounting for excessive bureaucracy, a 10x regulatory premium seems a little high.

15 steve April 5, 2015 at 3:46 pm

Getting approval to start studies takes longer in China that the US. The Chinese are also generally a bit slow to let new drugs from other countries into their markets. While the Chinese are now able to develop a new drug in country, they have yet to do so for anything that is especially original or used widely. Probably just a matter of time. While they have lots of experience making generics, developing new drugs is a young(ish) industry for them.


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