Novartis CEO talks up China R&D and its ‘explosion of talent’

Joe Jimenez

Novartis ($NVS) has just cut the ribbon on a huge $1 billion research center in China--a country full of promise but one that Big Pharma is still finding tricky to navigate.

Speaking to Fortune magazine as the Shanghai R&D facility officially opened its door this week (and after being in the works since 2009), CEO Joe Jimenez is keen to look past recent troubles for the industry in the region, saying that there has “been an explosion of talent in China.”

He said that at Novartis--which this month split its pharma and oncology units into two separate businesses--the company “builds where the talent is because we know that scientists and physicians don’t necessarily want to move to Basel [its HQ] if they’re not from there.”

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He added: “We’re treating this as a truly global R&D center. The first drug for us that was fully discovered in China is about to enter into the clinic. It’s a drug for liver fibrosis. And that’s going to be a global drug.”

The Swiss pharma’s chief said that the country has made a commitment to build a domestic pharma industry and are spending about $200 billion a year on research and development--second only to the U.S. “They churn out 30,000 Ph.D.’s a year in science and engineering,” he said--far more than the U.S. or Europe.

But where there is opportunity and scale in China, there is also danger--just ask GlaxoSmithKline ($GSK)--with the tight grip of government pervasive across the industry.

You can also ask Novartis as in March, the drugmaker agreed to pay $25 million to settle a U.S. SEC case that claimed it paid bribes to health professionals in China to increase sales from 2009 to 2013. These were the same sort of charges, among other seedier allegations, thrown at GSK in 2013--which seriously cut back its sales in the region.

And the opening of the center comes at a time when China, which has had an economic wobble in the past year, is seeking to clamp down even harder on high priced meds.

China's National Development and Reform Commission (NDRC) in fact this week announced the launch of an investigation into all aspects of drug and medical device sales and prices among domestic and foreign firms in a step that could lead to enforcement action--making it a nervy time for foreign drugmakers in the region.

The country also lags behind in allowing the sale of the latest new drugs, such as in hep C, with many resorting to “health tourism” to gain access to curative meds Harvoni and Sovaldi from Gilead ($GILD). This is something of an opportunity given the unmet needs in a country swelling to more than 1.35 billion people--but pharma will need to learn to play ball the Chinese way to work through pricing lockdowns and difficulties with local and central government.

Still, gaps in access to cutting-edge drugs in China are blamed on an approval process that can take more than 5 years, with the country reluctant to hire outside vendors for assistance or rely on approval data from abroad for a pharmaceutical market estimated at $150 billion.

But Jimenez is positive about what the future holds within China in terms of drug discovery. “The Chinese historically have not been proven innovators in certain areas,” he told Fortune. “If you look at what’s happening now, it’s changing. I think partly because of the flood of new technologies that are emerging, and companies like Novartis that are training Chinese scientists in the way that we discover drugs.

“At least in the pharmaceutical industry, there will come a time when breakthrough innovation occurs in China on a regular basis. I’m convinced of that only because the government has put the resources there to make it happen. I don’t think there’s anything innate in the Chinese that would prevent them from innovating. I think part of it is being trained in how great drug discovery takes place.”

The company said its new 1,300-person facility will be its third major research center, after Basel, Switzerland and Cambridge, Massachusetts.

The Novartis research center will further focus on diseases more prevalent in China, such as lung, liver and gastric cancer. Having new medicines in those areas in coming years should help the company to secure a toehold in the world’s second-largest pharmaceutical market after the U.S.

- read the Fortune interview
- see Bloomberg’s feature

Related Article:
Novartis, NEA join $188M gamble on China biotech fund

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