China's Drug Addiction

As an oncologist, Dr. Jiang Zefei is trained to save lives. Working in China's mediocre health system, this is rarely an easy task. Patients typically cannot afford basic care, and up-to-date medicine often isn't even available. Recently, though, Jiang has gained an unexpected helping hand: global clinical drug trials.

Lured by immense patient populations ailing from both chronic and infectious diseases, Big Pharma has turned to China to test its newest products. Jiang's cancer patients are the beneficiaries. "They're getting advanced care without worrying about the price," says Jiang, a staff physician at Beijing's No. 307 Hospital. "It's the difference between life and death."

Asia has become the next frontier for pharmaceutical firms desperate to find their next blockbuster drug while keeping research costs low. In 2006, big drug companies doubled R&D investment in China and India over the previous year, to $2.2 billion. Nearly all of that went into China, thanks to generous government support and strong infrastructure. Beijing wants to attract more than 2% of the world's R&D budget, or about $10 billion, by 2010.

Foreign drugmakers are happy to oblige. Both U.K.-based AstraZeneca and Swiss outfit Novartis have announced plans to spend $100 million on new R&D labs in Shanghai. In June, the U.S.'s Eli Lilly pledged to spend $300 million within the next five years. Britain's GlaxoSmithKline started 17 drug trials in 2006 and plans to double that number this year.

China isn't just a huge laboratory; it is the world's seventh largest Rx market and rising. Last year's sales of $13.6 billion are expected to double by 2010. With an aging Chinese population increasingly plagued by cancer, diabetes and heart disease, "we're incredibly bullish on the marketplace possibilities," says Liam Condon, president of Bayer Healthcare China, which recently doubled the capacity of its Beijing factory. "We are going to launch over 20 new products in the next five years," he says.

Big Pharma's top priority right now is to refill its drug pipeline; $29 billion worth of patents are set to expire worldwide in the next two years. The industry can do that cheaply in China, where salaries for American-educated scientists are often half those of their Western counterparts. "Of course money plays a role in the decision to do business there," says Lee Babiss, head of global research at Swiss giant Roche, which invested more than $50 million in China last year. "But it's more about getting new, diverse blood into our labs."

The price tag for drug trials in China can be one-tenth that in the U.S. or Europe, says Chen Li, medical director at the Shanghai-based firm KendleWits, which facilitates drug trials for major drug companies. Plus, she says, "patients are less likely to have been previously exposed to other medicines" that could alter results.

There are still some lingering doubts about China's system for guaranteeing product safety, patients' health (What happens to them when the trial ends?) and intellectual-property protection. Authorities arrested 774 people in August and September as part of a crackdown on the sale of tainted food, drugs and agricultural products. Two-thirds of multinational drug companies told the consulting firm PricewaterhouseCoopers in a recent survey that they remained concerned about both IP protection and corruption in China.

But drugmakers have found some allies in the Chinese courts. Pfizer won a landmark trademark-infringement case in October when a Chinese court ordered a domestic company to stop using Pfizer's logo on its website and fined the offender $25,000. Novartis CEO Daniel Vasella, for one, cites China's "enlightened" patent laws as the reason the Swiss drugmaker will continue to invest in China vs. India, where a court recently rejected the company's attempt to protect a patent on a leukemia drug. "China has made tremendous progress and taken the steps to show they have the right priorities," he says. Or, rather, it's done just what the doctor ordered.