It may not come as a surprise to everyone, but these two countries are increasingly looked to as sources of advanced R&D, not just ingredients, manufacturing and clinical-trial work, according to a report sponsored by the Ewing Marion Kauffman Foundation.

The central thesis is that Indian and Chinese scientists are “rapidly developing the ability to innovate and create their own intellectual property as a result of the movement of research and development to their countries.” For instance, the report finds that, in 2006, 5.5 percent of all global pharma patent applications named one inventor or more located in India, and 8.4 percent named one or more located in China. This increased fourfold from 1995.”

“Having India and China conduct such sophisticated research and participate in drug discovery was unimaginable even five years ago,” Vivek Wadhwa, executive in residence at Duke University and a fellow at the Labor and Worklife Program of Harvard Law School, who led the the research, said in a statement. “The challenge is for America to understand this trend and realize the potential of globalization.”

According to the report, because Indian drugmakers have the most experience in selling generic drugs that meet FDA standards, India is playing a more strategic role in early discovery. Ranbaxy Labs, for instance, last month signed such a deal with Merck.

A few other reasons cited for the rise of China and India: In China, employees holding PhDs from top
universities can be hired for salaries of around $15,000 a year; pharma is partnering with Indian firms to conduct eruption skin-reaction tests, reducing costs to $30,000 from $80,000;

There are limitations, though, such as deep concerns over quality control and ethical issues in gathering tissue samples in China, and ongoing uncertainty over intellectual property in both countries. But the report suggests these can be overcome, at least to the point where R&D work will only increase over time.