Dive Brief:

• Swiss pharma company Novartis on Thursday opened a major new research and development facility in Shanghai, delivering on a 2009 commitment to invest $1 billion towards expanding its presence in China, reports Bloomberg. 
• The 1,300-person Shanghai facility will Novartis' third R&D center, joining existing sites in Basel, Switzerland and Cambridge, Massachusetts, Bloomberg said. 
• China's healthcare market has expanded rapidly as more of its population moves into the middle class. IMS Health predicts Chinese drug spending will rise to between $150 billion and $180 billion by 2020, although annual growth rates are expected to slow. 

Dive Insight:

Novartis hopes its new R&D center will allow it to take advantage of both the higher demand for drugs within China and the growing number of qualified STEM graduates in the country. 

"What’s happened is there’s been an explosion of talent in China. At Novartis, we build where the talent is because we know that scientists and physicians don’t necessarily want to move to Basel if they’re not from there," said Novartis CEO Joe Jimenez in an interview with Forbes. 

Other pharmaceutical companies, such as AstraZeneca, have also expanded their presence in China, similarly eyeing the high growth potential of the domestic market. 

As IMS notes in a report on global drug use, almost all of the Chinese population has basic medical insurance after a decade-long expansion of healthcare access. This could benefit drug companies looking to launch new drugs in the country.

China currently spends $115 billion on drugs and, while growth is predicted to slow, IMS believes the market will continue to see annual growth rates of 7% to 10% through 2020. This steady growth could bring Chinese spending nearly on par with that of the five major E.U. economies by the end of the decade.

Novartis' Shanghai facility will work to develop drugs for the treatment of diseases particularly prevalent in China, such as lung and liver cancers, Bloomberg said. 

The drug approval process has typically been considerably slower in China than in other developed markets, although the Chinese Food and Drug Administration has vowed to accelerate approvals. 

Another potential stumbling block is government pressure on drug companies to lower the price of their drugs. AstraZeneca, GlaxoSmithKline, and Beta Pharma all recently agreed to price cuts of at least 50% on their drugs for lung cancer and hepatitis B. 

But that doesn't seem to phase Jimenez too much. In his interview with Forbes, he said: "Even with all that pricing pressure and with the slowdown of the economy, you still see this single-digit growth, so it’s still pretty good."