Few people would dare call China the sick man of Asia. But a surge of "diseases of affluence"—including diabetes, breast cancer, and cardiovascular disease—is among the unfortunate side effects of a booming economy. Demand for drugs treating these and other health problems, combined with a rising level of income, is enlarging China’s pharmaceutical market by more than 20 percent a year and creating attractive opportunities for global pharma companies at a time when rates of growth in key European and US markets are decelerating (Exhibit 1).

While some multinational pharma companies are projecting near-term revenue growth of more than 30 percent a year in China, none have captured the market’s full potential. In a recent survey of almost 1,600 Chinese hospital doctors in 38 cities, we found evidence that companies are having trouble dealing with the magnitude of the country and the fragmentation of the industry and the market. While almost all major global companies have a presence in China’s largest and wealthiest cities, for instance, few have completely penetrated them. The impact of the multinationals is especially patchy in rural areas and smaller cities. What’s more, few products have achieved critical scale. Among the portfolios of the leading pharma...