Lilly Works The World

LAST MONTH, a group of 15 executives and researchers from Eli Lilly & Co. traveled to Shanghai to inaugurate a research partnership with Hutchison MediPharma, a young Chinese pharmaceutical R&D firm that employs 150 scientists.

Outsourcing research to labs in China and India is not a new thing in the pharmaceutical industry. But executives involved in the Lilly-MediPharma partnership say it's not about outsourcing, but rather about sharing the risks and rewards of pharmaceutical research. Lilly has looked at MediPharma and decided that the company is capable of achieving breakthroughs in pharmaceutical research.

Robert W. Armstrong, Lilly's vice president of global external R&D, stresses that the partnership is not an attempt by Lilly to conduct more research in China per se. "We access capabilities around the globe," he says. MediPharma is a promising partner that simply happens to be in Shanghai, he explains. "Our people realize the world is where we operate." Unlike other drug firms, Lilly has not committed to building an R&D lab in China.

Formed in 2002, MediPharma is backed by Hutchison Whampoa, a giant conglomerate involved in port management, logistics, shipping, retail, and telecommunications. Hutchison Whampoa is chaired by Li Ka-shing, Hong Kong's richest entrepreneur. Widely reported to start most days with a round of golf, the 79-year-old Li also reads avidly on a wide range of subjects. About seven years ago, he started investing in Chinese traditional medicines, something that led to further involvement in pharmaceutical research, says Samantha Du, the managing director of MediPharma.

Du is a native of northeast China who holds a Ph.D. in biochemistry from the University of Cincinnati. In 2001, she was leading Pfizer's licensing and mergers and acquisitions in the metabolic diseases area when headhunters lured her to Shanghai to set up Hutchison's pharmaceutical research business. Like Du, most MediPharma managers have worked at multinational drug companies outside China.

Things have been going well at MediPharma lately, Du says. Last November, the company signed discovery partnerships with Merck KGaA and Procter & Gamble. She expects that the collaboration with Lilly will require the hiring of more staff and that MediPharma will employ between 200 and 250 people by next year.

As part of the new partnership, MediPharma will receive up-front payments from Lilly, as well as R&D support fees. When MediPharma achieves certain research milestones, it will receive as much as $29 million per drug candidate and royalties on worldwide sales. MediPharma will work on drug candidates in the very early stages of development; these will be selected jointly with Lilly.

MediPharma's own research programs have yielded promising drug candidates. Two drugs are undergoing Phase II clinical trials in the U.S., and several others are in trials in China. Du says MediPharma has applied for 66 international patents. She even says the success of her firm helped convince major companies to set up R&D centers in Shanghai.

Lilly does not see why it should build a drug discovery lab in the city, even though Novartis, GlaxoSmithKline, and Roche are doing so. "If we built our own lab, we might simply reproduce capabilities we already have," Armstrong says. Instead, Lilly indirectly employs several hundred chemists in Shanghai through the research firm ChemExplorer. And with the MediPharma partnership, Lilly now has set up a drug-discovery alliance with a promising local company.

Lilly is not cooperating with MediPharma to save money, Armstrong says. Rather, the firm seeks to diversify the thinking, knowledge, and experience that informs drug discovery. Furthermore, he says, the pact enables Lilly to continue developing compounds it might otherwise have abandoned for lack of research resources.

ALTHOUGH ARMSTRONG, one of Lilly's most senior executives, has headed global external R&D for only nine months, he has been setting up research alliances for the past five years, he says.

Armstrong maintains that Lilly researchers don't see increased collaboration with other companies as a threat to their jobs. "If we didn't engage our scientists' hearts and minds in these collaborations, it couldn't work," he says. Scientists at Lilly understand that the company is trying to expand its research capabilities, not limit its payroll, he says.

The MediPharma deal is only the latest for Lilly, which has set up research partnerships with various companies in North America, Europe, and Asia. For example, in India, Lilly is collaborating in drug discovery with Nicholas Piramal. The Mumbai-based firm has licensed a compound already patented by Lilly and is performing clinical development work on it. Lilly may reacquire the compound later, depending on the results the Indian firm obtains.

The collaboration with MediPharma is different. The Chinese firm will select Lilly compounds that are in early stages of development. In Shanghai, MediPharma will perform preclinical work on the compounds, clearing the way for Lilly to start clinical trials.

Major drug companies perform R&D in Asia in a multitude of ways. Lilly is unusual in that it has held off establishing its own R&D facilities in favor of setting up multiple drug discovery alliances with local companies. Armstrong is surprised when it is pointed out that the company's approach is not widely adopted. "I thought it was common sense," he says.