Pharmaceutical Companies Investing in R&D to Facilitate Entry into China’s Medical Market

Pharmaceutical companies are increasingly making R&D investments in China to facilitate entry into the Chinese drug market. China is already a hot destination for outsourcing manufacturing and clinical research, which offers companies significant cost savings. However, large pharmaceutical companies have begun to realize that developing R&D centers in China may, over the long term, provide them with invaluable inroads into China’s burgeoning pharmaceutical industry. China’s pharmaceutical market is estimated to surpass $25 billion by 2010, the fifth largest in the world.

In addition to cost savings, outsourcing R&D in China can give pharmaceutical companies increased presence in the China pharmaceutical market, which will in turn help foreign companies begin making valuable business and government contacts. Locating R&D in China also enables companies to be better able to cater to different product preferences or changes in the Chinese market. China also has many talented scientists, chemists, and engineers that can perform research at lower cost than their American counterparts. A typical all-in cost for a chemist in China is about one-tenth of the cost in the U.S.

It is also a good time to invest in R&D in China because the Chinese government is encouraging high-tech R&D, offering many incentives such as tax breaks to foreign companies engaging in these activities. Obviously, there are some risks involved in outsourcing R&D, the most prominent of which is intellectual property (IP) protection. Although in the past the Chinese government has been lax in the enforcement of IP rights, it has made significant improvements since its accession to the WTO. The potential for generating revenues from sales in China’s large pharmaceutical market is also significant enough for many companies to continue making R&D investments in China.