(FORTUNE Magazine) – In 2001, Novartis reached across the world--and deep into the past--to seek new drugs at the Shanghai Institute of Materia Medica, or SIMM, a leader in the study of traditional Chinese medicine. The Swiss pharmaceutical company is working with SIMM to extract single active ingredients from the institute's trove of traditional remedies and analyze them for possible development as modern drugs. So far the effort has yielded more than 1,800 compounds with the potential to treat cancer, diabetes, and other diseases.

Novartis is providing funds, know-how, and technology to SIMM. In return, it gets both potentially valuable compounds and an entrée to "a breeding ground for new ideas," says CEO Daniel Vasella. Deriving modern drugs from traditional remedies is tricky, adds Frank Petersen, head of natural-products research at Novartis, partly because time-honored categories of disease often differ from those of modern medicine. But unlike some pharmacopoeias, he says, "traditional Chinese medicine has had a good documentation system for over 2,000 years."

Delving into Asia's ancient medicines has already paid off for Novartis, which in 1998 launched an antimalaria drug based on an extract of sweet wormwood, a traditional Chinese fever remedy. Another Novartis drug now in advanced clinical trials also originated with Chinese healers: FTY720, which may help prevent rejection of transplanted organs and treat multiple sclerosis. The drug, which sprang from a fungus long used in Asia to brew potions thought to confer long life, was first synthesized by Japanese scientists in 1994 and could be submitted for marketing approval next year. --David Stipp