By George Baeder
Mounting techno-protectionism in response to China’s innovation drive seems destined to sap U.S. scientific leadership and entrepreneurial vigor, driving talent and capital to Europe and Asia. Biotech offers a compelling alternative to the current trend, creating a win-win model that other sectors may want to emulate.
China’s policies have been designed to harness cutting-edge technologies to drive growth, strengthen competitiveness and meet critical domestic challenges.
Yet in America’s echo chamber, U.S. policy makers, leading news outlets and political leaders from both parties imagine nefarious Chinese plots to steal American technology behind every U.S. lab bench and venture investment.
Protection of IP and access to global markets remain essential to any company’s competitiveness. And the U.S. does face real challenges from China, including commercial espionage.
But current American rhetoric masks the world-changing reality: Since opening and reform began in 1978, China’s legal system, regulatory frameworks, industrial standards and competitive landscape have consistently evolved for the better.
China’s steady process of domestic reform and integration within the global economy represents one of the most exciting global economic developments of the last 50 years. Its high-level policy outlines, such as those described in the 13th Five Year Plan and Made in China 2025, demonstrate an ambitious commitment to technological advancement.
The issue is whether the U.S. should see China’s technological aspirations as a threat or an opportunity.
Biotech offers an answer. As a scientific arena in which the U.S. has long been recognized as the global leader, biotech offers a concrete example of how China’s drive for innovation can create an increasingly level playing field for U.S. and European firms, and simultaneously accelerate global development of new treatments targeting unmet medical needs.
Over the last 24 months, China has radically changed its approach to drug development, regulation and reimbursement. Innovative biopharma firms outside of China have been the main beneficiaries.
Momentum for change accelerated in 2015 following the articulation of China’s innovation agenda, driven by two imperatives: China’s need to bring higher quality, innovative medicines to its own – increasingly demanding – patient population, and its push to build a globally competitive position in an industry undergoing fundamental structural change.
The result has been a dramatic leveling of the competitive playing field and creation of new opportunities for Western firms. China’s work is far from completed, and yet the impact has already been stunning.
Its regulatory system, previously designed to block foreign innovation, today hurtles full speed in the opposite direction. Of the 41 innovative drugs approved by China in 2017, 40 came from foreign firms, clearing a long-standing backlog.
In October 2018, China National Medical Products Agency (NMPA) specifically requested foreign biopharma firms to register 48 innovative drugs that had not yet been launched in China and indicated that China would accept global clinical data to support approval, rather than insisting on local clinical trials.
China has aligned its regulatory approach with global practice, dramatically cutting the time to develop and approve innovative drugs. Clinical trial authorizations that could take two years or longer, effectively excluding China from global trials, now take 60 working days. Approval time for NDAs have been cut from more than two years to 12 months.
As a result, foreign companies today aim for regulatory approval and product launch in China within months of the same compounds being approved in the U.S. and Europe. China’s next target is to cut the time needed for approval of an NDA from 12 months to six.
China is also advancing on three other key commercial fronts: IP protection, reimbursement and import barriers.
Draft revisions to strengthen China’s patent law, initiated in 2015, have entered the final stage of public comment and will likely be enacted by the National People’s Congress this year. In parallel, guidelines on data exclusivity, another source of protection for innovative breakthroughs, are being updated and strengthened.
In mid-2017, 36 innovative medicines made by global biopharma firms were added to China’s National Reimbursed Drug List – another first. In 2018, 30 more were added while tariffs on imported cancer therapies were cut to zero.
China’s health authorities extracted steep price cuts from companies in the process, just as U.S. and European payers do. But increased sales volume for expensive oncology treatments – such as Avastin bevacizumab and Herceptin trastuzumab from Roche – more than made up for the price concessions.
China’s emerging biotechs aggressively in-license compounds that leading U.S. and European biopharma firms shelved, accelerating development of medicines abandoned by large Western firms in the face of economic and/or scientific barriers. When successful, the global firms often retain the option to license back commercial rights for markets outside of China.
In light of this, the overwhelmingly negative attitudes in the U.S. toward Chinese innovation policies are clearly at odds with current reality.
This does not mean that the industry is free from bilateral problems.
But selective examples of Chinese “mercantilist” behavior sometimes from 10-15 years ago – ancient history given the speed of change in China – appear to dominate U.S. thinking.
Biotech may be uniquely free from some threats, both real and perceived, that face other sectors.
China’s state-owned drug conglomerates have a poor record of innovation and are not credible competitors for innovative foreign firms. Instead, the drive comes from young biotechs launched by entrepreneurs from both the U.S. and China and from large established domestic private sector firms, such as Jiangsu Hengrui Medicine Co. Ltd., Shanghai Fosun Pharmaceutical Group Co. Ltd. and Luye Pharma Group Ltd.
So-called “forced technology transfers” do not apply in a sector already open to 100% foreign ownership for nearly two decades. Venture capital and public equity markets, not subsidized loans from state banks, funds biotechs’ growth.
INNOVATION UNDER THREAT
Until recently, innovative life science firms on both sides of the Pacific could ignore distracting rhetoric. Instead, they steadfastly focused on leveraging obvious synergies that flow from combining the scientific resources and market scale of the world’s two leading economies, spurring a growing number of trans-Pacific collaborations.
Now however, U.S. policies designed to block Chinese VCs from participating in financing of innovative U.S. biotechs, proposals to “ban” scientists of Chinese origin from studying or conducting research in U.S. universities, or threats to prohibit exchange of technical and scientific data between U.S. and Chinese subsidiaries within the same company seem destined to fundamentally change the global innovation landscape.
Rather than protecting U.S. technology leadership as the techno-isolationists promise, the current trajectory seems destined to erode U.S. competitiveness in biotechnology.
Prior to recent visa restrictions, the Kauffman Foundation estimated international students would account for 50% of all STEM Ph.D.s by 2020, with students from China as the largest single group, accounting for over 30% – more than twice the proportion from India. America’s techno-isolationists seem not to have reckoned with the potential impact on U.S. scientific capability.
Scientists who originally came to the U.S. from China for graduate study or postdocs – some decades ago – feel increasingly uncomfortable in their new home. Newcomers from China, many of whom aspired to stay in the U.S. for the long term, now see a bleak future.
The techno-isolationists respond with naïve assertions that this Asian science and technology cohort will be replaced by “Americans”, despite data indicating the opposite trend.
Chinese investors are already shifting their focus to Europe.
CEOs from European biotechs I met with recently say they have been inundated with meeting requests from Chinese VCs and strategic investors over the last four months, a dramatic increase in comparison with the first half of 2018.
Conversely, U.S. VCs fear bringing on Chinese limited partners will embroil them in endless paperwork that slows deal making and increases costs.
A BETTER WAY?
The ongoing progress in biotechnology offers the U.S. and China a clear alternative to erecting new barriers to global innovation: Leverage deep U.S. academic research in basic science with China’s capital, high-speed translational and preclinical skills. Then pursue clinical development designed to serve unmet medical needs across global markets.
This is precisely the model American and Chinese entrepreneurs have pioneered, laying the groundwork for faster, more economical drug discovery and development. Underpinning this progress is close collaboration between the regulatory agencies in both countries, a foundation now being eroded by US policies.
Building on the progress already made and potentially replicating this success in other sectors requires continued leadership from the innovative private sector firms in China, the U.S. and Europe, intense and sustained dialogue among companies and government regulators and a willingness to identify the path to serve the best interests of people in all the countries concerned.
George Baeder is SVP strategy and business development at dMed Biopharmaceutical Co. Ltd.