Why Eli Lilly closed its research center in China?

Why Eli Lilly closed its research center in China?

On September 7th, Eli Lilly, the US Pharma giant, closed its Zhangjiang research center in China, just a month after GlaxoSmithKline (GSK)’s ended its neuroscience unit in Shanghai. Andrew Hodge, the president and general manager of Lilly China, announced the news to the Chinese employees. He stressed that the move is slated to optimize the business and apply resources more effectively into new drug research and development. And part of the R&D center staff will join Lilly’s Pharmaceutical Development and Medical Services Department.

Why the once red-hot Chinese market, where a slew of oversea pharma giants rushed to set up their R&D centers, is now getting cold? Citing from people familiar with this matter, the recent market cold wave is mainly due to the following two factors.

Lacking its own characteristics is the internal cause. Eli Lilly’s Chinese R&D center has no advantages over the US research team, regardless of its technology platform, drug targets, etc. In addition, it failed to stand on a global perspective and build up a research and production line meeting the unique needs of the Chinese market. Under this situation, it came as no surprise when the new high-level management shifts its strategic emphasis, the Chinese unit was abandoned.

On the other side of the pond, they are slow to respond to the unequal treatment of the Chinese government, and this is the unneglectable external cause. For an extended period of time, the Chinse FDA is inclined to curb the growth of overseas pharma companies, in the hope of supporting the development of domestic businesses. Multinational pharma giants are not allowed to apply for major patents or carry out high-tech services, such as gene sequencing; their staff could not apply for “The Thousand Talents Plan”, which is designated to promote the innovative drug research and development. A series of resistances were standing in their ways over the past few years.

Drilling down to the root cause, the new drug research and development is always a risky business. Even in countries standing in the forefront of medicine innovations, such as the US and Europe, it still requires significant amounts of supports from the government. However, China failed to recognize and understand this point. A number of people believe that leading domestic pharma companies can compete with multinational pharma giants. But no matter in technical level, or in innovative ideas, China has lagged behind. Chinese pharma companies rarely shoot for first in class medications.

Undoubtedly, the Chinese government needs to fully understand the important and positive impacts of multinational pharma companies having on the local ecosystem, promoting the establishment of domestic scientific parks and innovation centers. Otherwise, it can easily lead to a multi-domino chain effect, where one R&D center closes in China, and numerous more follows, just like AbbVie and Merck quietly closed their Chinese R&D centers. This is detrimental to the whole pharmaceutical industry.

In the eyes of international pharma giants, the retreat of China centers is largely due to the accumulations of past negative experience. however, to local innovative medication investors, this has become good news.

“The closure of Eli Lilly R&D center in China will give rise to the influx of a large number of professionals with deep knowledge into the market, enriching the talent pool and fueling the rapid growth of domestic pharmas at the same time.” Commented by Quan Zhao, the partner of Oriza.

According to Office of the Shanghai Municipal People’s Government, as of August 2017, a total of 416 oversea capital infused R&D centers have settled in Shanghai, ranked the highest within the country. Among them, 120 centers have pulled in larger than $10 million investments and secured more than 40,000 research staff. Currently, the Chinese R&D centers of Pfizer, Novartis, Roche, AstraZeneca, and others remain in operation.

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