The investigation by Chinese authorities into a host of drugmakers for bribery has put a chill on business there, but not frozen them in their tracks. Plans announced in the last two days by Johnson & Johnson ($JNJ) and Merck KGaA to build new plants in China show the market is too vast and too important to allow a little uncertainty to put the arrangements on ice.
Merck says it will build an €80 million ($107.67 million) plant in Shanghai that will focus on diabetes drugs Glucophage, Concor and Euthyrox. It will also make drugs for heart and thyroid conditions. It is slated to come online in 2017.
According to the China Post, Johnson & Johnson will build a new facility in Xi'an, the capital of the Shaanxi province, and J&J Vice President Clifford Howard told the newspaper the biopharmaceutical project will be J&J's largest in China. He did not give the amount of the investment. The 267,000-square-meter plant will replace a Xi'an-based Janssen Pharmaceutical facility built in a joint venture by J&J and a Chinese partner in 1985. Construction of the first phase of the project will start in April 2014 and the base is expected to begin operation in 2016.
The Chinese investigation got started this spring with very public allegations that GlaxoSmithKline ($GSK) had put together a slush fund of nearly $500 million that it used to bribe doctors and officials to buy its drugs. The investigation quickly spread to other drugmakers, with companies like Novartis ($NVS), Sanofi ($SNY) and Eli Lilly ($LLY) being questioned. A 61% fall in sales in China in the third quarter reported by GSK is an indication of the kind of effect the probe is having on business there.
But that is expected to be temporary, and as Reuters points out, citing consultant McKinsey, China's healthcare spending is slated to hit $1 trillion in 2020, from $357 billion in 2011, a market so large that even a small piece is significant.
"In 10 years it's conceivable that China will become the largest pharmaceutical market in the world," Benjamin Bai, a Shanghai-based partner at law firm Allen & Overy, told Reuters. "Do you think (drug firms) can afford to get out of China? No, even if it's difficult, they will find a way to adapt."
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