Sometimes, it seems as though every major corporation is moving into China. Of course, there are good reasons to do so, what with China's burgeoning economic growth and abundant cheap labor. Now AstraZeneca (NYSE:AZN) appears to have hopped on the China bandwagon, but in a different way from companies like General Motors (NYSE:GM) and Yum! Brands (NYSE:YUM), since the drugmaker's payoff could be a product with a virtual lock on the Chinese market.
AstraZeneca will spend $100 million on a new research facility in China. A couple of things about this move stand out. First, the amount seems pretty minuscule when considering that the pharma spent $3.4 billion on research and development last year. In addition, the decision isn't about taking advantage of China's pool of low-cost labor. According to the Financial Times, AstraZeneca is not using the center to shift jobs to China from Europe.
Instead, the company's increased presence in China is aimed at better understanding the biology of the Chinese people. Analysts of the drug industry have long noted the potential of personalized medicine, which theoretically would be tailored to maximize effectiveness in specific patient populations. Unfortunately, it's less clear how drug companies could operate profitably by producing pharmaceuticals that work on only a limited number of people. On the other hand, a drug that targets China's 1.3 billion people can hardly be called "personalized" -- that's pretty much medicine for the masses.
AstraZeneca already has some basis for thinking that such a drug is possible. While the company's anti-cancer medication Iressa has largely been a disappointment as a means of treating large numbers of people, it has shown more success in Asian patients. It's still too early to determine whether Iressa is a magic bullet for Chinese cancer sufferers, but even if Iressa doesn't pan out as a form of personalized medicine, the profit potential of a drug targeted at the Chinese market makes AstraZeneca's effort well worth its investment.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
