Novartis, the $33 billion Swiss pharmaceutical company, is opening a pioneering biomedical R&D facility in China. The $100 million plant, scheduled to begin operations in May, will increase the company’s long-term access to the huge Chinese pharmaceutical market and attract top Chinese scientific talent. But CEO Daniel Vasella says there’s more to the story. Novartis, one of the first of the drug giants to open a bench-science R&D center in China, sees the country as an emerging center of scientific inquiry. Novartis’s investment in an R&D facility in Shanghai appears to be a big bet on China’s future as a world scientific power. What was the thinking behind the move? In China, several factors have come together. One is that the government has put a lot of effort into having people study sciences such as chemistry and engineering, specialties that have been declining in the West. At the same time, China has improved the quality of its training and educational system. And fluency in English, the lingua franca of R&D and business, has become prevalent. All this adds up to an environment that is right for fostering world-class research and development. Of course, you still have to attract and retain the best scientists. Most important is to create a scientifically challenging environment, where people can learn and work with a significant degree of freedom. Other important aspects concern the quality of life and of the environment—air, water, and noise. We also need networks and clusters. That requires both world-class academic institutions, such as teaching hospitals and medical schools of high caliber, and a pool of talented academics. The increasing number of such institutions not only allows us to recruit researchers but also provides intellectual stimulation and an exchange of innovative ideas. At our Cambridge, Massachusetts, R&D facility, which opened in 2003, we are in the neighborhood of MIT and Harvard. When you work in Cambridge and you go to a restaurant, you’re more likely to bump into someone with an interesting idea who is an expert in his or her field than if you’re in other places in the world. These factors—work culture, quality of life, schools, jobs for spouses, networks and clusters—are not yet ideal in cities like Shanghai and Beijing, but there is so much progress that many scientists of Chinese origin who trained in the West now find it attractive to return and make a real impact. One should not look at where we are today. One should try to imagine, from the trajectory, where things will stand tomorrow. Someday in the future, Shanghai will be a globally respected scientific center, fulfilling national objectives. This competitive spirit, paired with large human and monetary resources, makes China, and Shanghai in particular, a highly promising place. In biomedical research, it is also an undeniable advantage to be close to a large number of patients so that we can truly understand their needs. What role did potential cost savings play? Today, costs for R&D in China are about 40% lower than in the U.S. But we estimate that this cost advantage will eventually disappear. With Chinese GDP and disposable income rising, and with competition for skilled labor becoming more intense, wages for highly trained people are increasing, year after year. It would be very shortsighted to make costs the main reason for establishing an R&D institute in China. While we obviously conduct cost analyses, we primarily focus on human resources and a stable environment that respects intellectual property rights. Does Novartis’s move indicate that from the standpoint of intellectual property rights, China is now safe for foreign R&D? The IP environment in China is now safer, but it is not without risks. We are convinced that, from a legal and political point of view, China is committed to protecting IP rights. But China is very large, and the tradition there has been to copy things. It will take time for the idea to permeate the population that there is more advantage in respecting IP than in taking it. Ultimately, locating our new R&D center in China is an expression of trust—trust that the government and the people we hire will respect our property and work together to build a global scientific center of excellence.
