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Lilly committed to China despite IP woes

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Eli Lilly and Co. will continue to build its business in China, even as it faces intellectual property theft, Lilly CEO John Lechleiter told Dow Jones Newswires in an interview published Nov. 20.

Indianapolis-based Lilly is one of several Western pharmaceutical firms that see China as a linchpin of growth in coming years, due to patent expirations and a slowdown in government reimbursements for prescription medicines in their traditional U.S. and European markets.

China remains a small market for Lilly. It generated $320 million in sales for the company in 2010, just 1.3 percent of its $23 billion in sales worldwide. But China is expected to become the world’s third-largest pharmaceutical market this year and is projected to pass Japan and become the No. 2 market by 2015, according to IMS Health, a Connecticut-based pharmaceutical research firm.

In the third quarter, Lilly’s revenue from China grew 31percent, compared to 9 percent worldwide. Lilly drugs such as Zyprexa, which lost its western-market patents this year, and even Prozac, which has been off-patent for a decade, have been growing sales rapidly in China.

While the firm is also targeting markets in South Korea, Taiwan and Australia, China and Japan "are clearly our focus in Asia," Lechleiter told Dow Jones.

Lechleiter joined a group of other CEOs in a meeting with Chinese President Hu Jintao at the Asia Pacific Economic Cooperation summit in Hawaii this month. He said China has shown "remarkable progress" in anti-counterfeiting efforts, though he acknowledged that intellectual property theft remains a problem.

"The importance of intellectual property protection is understood by the highest levels of government in China," Lechleiter said, adding that officials realize stronger enforcement will be needed to protect China's own nascent industries.

Whereas in the past, intellectual property concerns made Lilly more reluctant than its peers to move aggressively into China, under Lechleiter the company has made major investments there. It has more than 3,000 employees in the country, and just opened a diabetes research center there to explore the unusual ways diabetes affects Chinese patients.

China's rapid economic growth has produced a burgeoning middle class, which now has the wealth to eat the diets and live the sedentary lifestyles common to westerners. The result is that more and more Chinese are developing the chronic illnesses that afflict prosperous societies, such as diabetes, heart disease and cancer.

"That plays into our strengths, and it means that we can expect to succeed with a portfolio of medicines in China that will look very similar to or the same as medicines that we have elsewhere in the world," Lechleiter said.

Lilly also is pressing Chinese authorities for more timely regulatory approval of innovative drugs, he said, and is pushing for betting representation of its drugs on health plan formularies in China, which can be biased in favor of generic or traditional therapies.

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