There’s a spot in Shanghai’s Zhangjiang Hi-Tech Park where one can see separate R&D facilities run by AstraZeneca, GlaxoSmithKline, Eli Lilly & Co., and the drug development services company Novasep. Walk a few steps, and Novartis’ large R&D center comes into view. Turn around, and about 300 feet away is the regional headquarters of the lab instrument maker PerkinElmer.
No other place in the world houses such a high concentration of major R&D centers from multinational companies in the pharmaceutical and chemical industries. Although the rapidly rising cost of doing business in Shanghai might seem to make Zhangjiang vulnerable to the layoffs rampant throughout the industry, the park shows no sign of becoming any less attractive.
“It saddens me when I learn that major drug companies are laying off hundreds or thousands of people, especially research people,” says Frank Liu, deputy director of the Zhangjiang Hi-Tech Park. “But the major drug multinational companies—they have to date never reduced their headcount here.”
The R&D facilities in Zhangjiang represent a veritable who’s who of the drug and chemical industries. Firms with R&D centers in the park include Roche, Pfizer, DuPont, Dow Chemical, DSM, and General Electric. Several facilities are considerable. The Dow, GE, and DSM facilities consist of multiple physical structures that on the whole amount to research campuses. The single building of the DuPont R&D center accommodates 250 scientists, 100 support staff, and a pilot plant.
In 2009, a total of 319 companies from the life sciences industry operated R&D facilities in Zhangjiang, and of these, 29 were major multinational companies, Liu says. Life sciences companies in the park employ 20,000 scientists.
The park is also home to 42 publicly funded research facilities, hundreds of small and medium-sized enterprises, hospitals, and science education facilities that turn the area into a science research ecosystem. Many of the R&D centers in the park belong to Chinese drug firms.
Several reasons explain why the world’s chemical and life sciences companies choose to set up in Zhangjiang. “When they come to China, managers from foreign companies really love Shanghai,” says Chunlin Chen, chief executive officer of the contract research firm Medicilon, which operates labs in the park. In Shanghai, foreign executives find a cosmopolitan city with the logistical infrastructure and material comforts that can be found in any developed part of the world. And Zhangjiang is located close to Shanghai’s main international airport.
Another reason that companies select first Shanghai and then Zhangjiang is the availability of scientific talent there. “On the whole, the most talented people in China tend to be more willing to live in Shanghai than elsewhere,” says Liu, the park administrator. Boosting the supply of quality people, he points out, is a local policy that provides generous grants to highly experienced Chinese scientists who return to China from abroad.
It’s also cost-effective to perform R&D in Shanghai, Liu claims. Numbers computed by the Zhangjiang administration indicate that the cost of developing drug candidates in Shanghai is only a fraction of what it is in Europe or the U.S. Other cities in China may offer lower costs, he acknowledges, but “the R&D efficiency is higher in Shanghai” because of better talent availability, Liu claims.
Still, it’s premature to claim that drugs can be developed more cheaply in China than within a corporate R&D center in a developed country, counters Y. Richard Wang, who heads operations at AstraZeneca’s R&D lab in Shanghai and who manages the company’s relationships with Chinese contract research firms. “If you come to China to do R&D, the cost is not really the driver,” he says. “As the quality of people and experience reaches world-class levels, the costs start to approach those of Europe and the U.S.”
Moreover, a lot of AstraZeneca’s research in China is performed through external partners, Wang explains, and this method of drug discovery is so new that no reliable cost data exist yet. But being located in Zhangjiang is efficient for AstraZeneca because dozens of contract research firms are based there. And the park enjoys special benefits such as expeditious customs clearance.
Other than cost reasons, companies from around the world come to China to develop products for the Chinese market, park administrator Liu says. In the case of pharmaceuticals, he adds, Chinese authorities may require some tests to be performed on local patients before drugs are approved for domestic launch. Having a scientific presence in China also enables companies to license materials and drugs invented in China for international launch, Liu notes.
Being in Zhangjiang is not ideal for every type of R&D, warns Ye Lao, deputy head of R&D for nutritional products at DSM China. The company has nearly 100 researchers in China, she says, and is still expanding its research operations in Shanghai. “Zhangjiang is not a bad place—there’s an abundance of scientific talent,” she says.
The problem for Lao is that Beijing would be a better place to develop nutritional products. “We need to register our products in Beijing, and the regulations keep changing,” she says. DSM nevertheless decided that Zhangjiang is the optimal location to centralize China R&D operations for all of its business lines.
The Zhangjiang Hi-Tech Park has rapidly expanded since it was created in 1992. Initially granted 1.6 sq miles by the government, the park has since grown to 10 sq miles. The administration still has 4 sq miles of land to develop.
Cities such as Beijing, Tianjin, Suzhou, and Taizhou that launched their own science parks in recent years now offer alternatives to Zhangjiang. But because of Shanghai’s preeminent position as China’s business capital, Zhangjiang is likely to remain for some time the country’s foremost center for big-company R&D in chemistry and the life sciences.