Will Novartis Move Funds Intended For India to China?

Novartis (NVS) planned to invest $120 million in India, creating 5,000 jobs. It agreed to buy land in Hyderabad for an R&D center, plus it would also locate an IT center there. When the deal was announced in November 2006, it was trumpeted as the most expensive R&D investment ever made in India. But no more.

Earlier in August, Novartis lost an appeal in its patent suit in Madras, India over the leukemia drug Gleevec (known as Glivec outside the U.S.). The Indian court ruled that Gleevec represented an incremental improvement on existing drugs, rather than a new, and therefore, patentable entity. Gleevec, of course, enjoys patent protection elsewhere in the world. Novartis has decided not to pursue the legal process further. This week, Novartis nixed its plans to invest $120 million in India.

In an interview with the Financial Times, Novartis CEO David Vasella said its decision to put a stop to its Indian R&D investment was not meant as a punishment. Instead, he positioned it as common sense, given that the hurdle for IP protection in India is set so high. His message, boiled down to its persuasive core, was: Why bother developing drugs there if they can’t be protected?

Last November, when Novartis announced that it planned to make the investment in India, it also announced a slightly smaller, though still very substantial, $100 million commitment to China. Novartis has not said it will divert the Indian funds to China, though it stands to reason that at least part of the money may eventually find a home there. Novartis portrayed its India and China commitments as part of a move to build up its presence in Asia.

Before the November announcement, Novartis already had established an R&D center in the Shanghai's Zhangjiang Hi-Tech Park, and it had spent $83 million to build a manufacturing facility in Changshu, Jiangsu Province. Also in China, Novartis is involved in a number of collaborations, including looking into traditional Chinese medicines for compounds that could be put into western-style clinical trials and another relationship with WuXi PharmaTech (WX) (see story).

The verdict is that Novartis' change of heart is bad for India, and it may be very good for China.

Disclosure: none.