The development of innovative drugs in China has attracted attention in recent years. Data shows that there are currently 13,537 drugs in clinical research worldwide, with 4,774 drugs developed by Chinese companies or involved in development, accounting for 35% of the global total, ranking second in the world.

 

This year, the term "innovative drugs" appeared for the first time in the government work report during the National Two Sessions. It mentioned, "Accelerate the development of frontier emerging industries such as hydrogen energy, new materials, and innovative drugs, actively create new growth engines such as biomanufacturing, commercial aerospace, and low-altitude economy."

 

Today, China's innovative drug industry is entering the fast lane of development and rapidly forming new productive forces. Especially since last year, there has been an "explosion" in the authorization of domestic innovative drugs for overseas markets, and the revenue scale of innovative drug companies continues to climb.

 

With the breakthrough in domestic innovative drugs, what should we pay attention to? Outlook Think Tank interviewed Liu Guoen, Dean of the Institute for Global Health Development at Peking University, asking him to discuss the current situation, challenges, and future trends of China's innovative drug development, as well as how to balance the research and development, market access, and accessibility of innovative drugs for patients through medical insurance negotiations and policy adjustments.

 

Below is a summary of the interview.

The Benefits of China's Innovative Drugs Going Global

The development of innovative drugs not only requires significant investment but also takes a long time. On average, it costs $2 billion USD to develop a new drug in the United States, including failed research and development efforts. According to research conducted by our team on several Chinese innovative drug development enterprises, using a calculation method like that used in the United States, the investment for developing a new drug in China is over $200 million USD, with a research and development period of over 10 years.

Enormous investment requires corresponding returns to sustain pharmaceutical companies' continuous efforts in innovative drugs. Considering the level of economic development and residents' affordability, as well as the funds raised by medical insurance and the extent to which it can cover the costs for universal healthcare, despite the large size of the domestic market, there are still difficulties in China's developmental stages.

 

In this situation, if China's innovative drugs can go international, it will bring even greater returns to pharmaceutical companies, thus providing them with assurance to continue their pharmaceutical research and development innovation. For example, last year, a cancer drug developed in China (Tislelizumab) received approval from the U.S. Food and Drug Administration (FDA) and was priced at more than 30 times its price in China in the U.S. market. Moreover, there is not a significant discount on medical insurance payments for innovative drug prices in the United States.

 

Therefore, I believe that more Chinese innovative drugs going global is a very positive development.

 

At the same time, when Chinese innovative drugs receive better returns in the international market, there is a greater possibility for these drugs to enter the domestic universal healthcare coverage, providing affordable medication for Chinese residents. These two aspects complement each other, and it's not just in the pharmaceutical field; many innovative technologies and products worldwide follow a similar process of initially being priced high before becoming accessible to the masses.

 

It's worth noting that for Chinese drugs to go international, factors such as relevant data and regulations, such as data sharing during clinical research and development processes, become crucial elements. There are medical data platforms in China currently working on this. Chinese pharmaceutical companies need to pay attention to these conditions and prepare to meet the relevant requirements of the countries where they apply for drug approval.

“Herd Effect”

"The Herd Effect," also known as "herd mentality," manifests in the field of drug development when everyone rushes to pursue a new target or pathway that emerges. This results in a concentrated effort in research and investment in that particular target or pathway. I believe it objectively reflects that drug development in our country is currently in the stage of application innovation from 0 to 1, 1 to 10.

 

Drug innovation can be divided into two main categories. One is original target innovation, which represents true innovation (0 to 1), and we call it original innovation. The other is existing target innovation, where some pharmacological or formulation aspects have already been revealed, and innovation is carried out based on this foundation, known as application innovation (1 to 10). If innovation faces significant uncertainty and risk, then the risk of original innovation is much higher than that of application innovation.

Once a new target is identified, the uncertainty and risk in subsequent research and development are relatively lower, and the investment required is not as significant. Therefore, pharmaceutical companies tend to concentrate their efforts in the 1 to 10 stage, taking advantage of their comparative strength in later-stage development. Everyone wants to engage in 0 to 1 research, but the conditions such as infrastructure, funding, etc., still need to be matched.

In the United States, the main source of funding for original research is the federal government, which invests several times more in drug discovery than the combined investment of universities and companies. For example, the National Institutes of Health (NIH) in the United States is the largest institution supporting medical research and development with an annual investment of over $48 billion, accounting for about 1% of the federal budget, not including other channels and local government investments in medical research and development. In comparison, China's fiscal support for original drug research and development has not reached such a significant level yet.

Chinese enterprises are still more focused on the 1 to 10 track because corporate investment is a market behavior and tends to choose relatively less risky investments.

How do we promote original innovation? We suggest that the government, within its capabilities, increase its investment in the research and development of original innovative drugs. Then, let the relatively certain application innovation be completed more by market entities. Market entities can judge based on market supply and demand and lead the investment in research and development funds based on market competition and selection principles. If the main bodies of these two types of innovation investment can be clearly defined and each performs its duties, we believe that over time, with the further enhancement of national strength, domestic innovative drugs will perform better in these two categories.

 

How do we ensure that more innovative drugs are accessible to the public?

 

The focus of universal healthcare is broad coverage and basic protection, so the priority is to ensure that clinically effective, accessible, and affordable drugs and services are covered.

 

The national medical insurance directory should, based on ensuring safety, effectiveness, and affordability, reasonably include some newly available drugs that are both affordable and necessary into the basic medical insurance directory, providing "value for money" protection for critically ill patients and patients with rare diseases.

 

For most newly launched drugs, more people in need can benefit through multi-level medical insurance measures such as commercial medical insurance. After these new drugs receive better and more reasonable payments, they can continue to innovate in research and development and have better conditions to join the national medical insurance. Additionally, successful international expansion allows participation in the international market's circulation, forming a continuous and positive cycle of interaction.

Entering the information age, data has become an increasingly important factor of production, and the sharing of medical data is an important condition for promoting the development of commercial medical insurance. For example, commercial medical insurance needs data analysis based on the national medical insurance to formulate scientifically reasonable commercial medical insurance products to better meet patients' needs while ensuring normal operation of enterprises. The development of commercial medical insurance benefits the national medical insurance, and the relationship between the two is not one of opposition but of mutual promotion, competition, and complementarity.

How to achieve data sharing on a safe basis, especially when these data involve privacy such as genetics and health, is a problem faced by all countries. I believe that international experience can be drawn upon for reference. The United States has high ethical requirements but is also open in terms of data sharing. For example, the United States has a Medical Expenditure Panel Survey (MEPS), which covers detailed personal data on medical service usage for tens of thousands of representative residents of the United States throughout the year. After anonymization, the whole society can apply these data for research, and foreign institutions can also conveniently download and analyze them. From the above experience, the protection of data security and privacy is not contradictory to the effective use of data but can develop compatibly.

 

Promoting pharmaceutical innovation requires a conducive environment

To promote pharmaceutical innovation in China, a good overall environment is needed, which should have the following characteristics.

Firstly, the entire society needs to be inclusive of the concept of original research and development (R&D). If every innovation is expected to be flawless, the pressure on innovators would be too great. Therefore, a mechanism of inclusivity is crucial. Whether successful or not, every attempt contributes to the exploration of the future. In this process, some individuals may succeed due to hard work, professionalism, and sometimes luck, while many others may not.

Secondly, there should be patent protection. Given the high uncertainty of innovation, drug development is often described as a risky endeavor. Genuine patent protection is essential for new products. Although the patent protection period is typically 20 years, drug development may take more than ten years, leaving less than a decade for exclusive patent rights.

Everyone generally supports patent protection, but it has two connotations. One aspect is the protection of innovative technology, which is widely understood. The second aspect, especially for enterprises, is that the genuine value of patent protection lies in the market pricing power of new technologies. Therefore, good patent protection is essential.

In the past few years, I have been fortunate to participate in the adjustment of the national medical insurance catalog, responsible for conducting pharmacoeconomic evaluations. Standing from the perspective of national medical insurance, we aim to negotiate favorable procurement prices. However, we must not forget that the premise for negotiating a good price is the availability of genuinely good drugs on the market. If innovative products are not available, we cannot purchase them. Therefore, medical insurance and enterprises complement each other. It's about seeking the best balance between providing the public with new and good drugs quickly and economically, while also promoting the sustainable development and research investment of enterprises.

Thirdly, there should be a sound rule of law. A sound legal environment is crucial to ensure that a society's rules are stable and credible. Pharmaceutical research and development (R&D) cycles are long, costly, and risky, and are most susceptible to changes in non-market factors. The pharmaceutical R&D cycles in both China and the United States show that the average development period for a new drug is over 120 months. With such a long investment cycle, lacking stable policies and rules based on the rule of law can severely constrain pharmaceutical R&D and innovation investment. Therefore, the rule of law is particularly important. The more sound the rule of law, the more stable the expectations of entrepreneurs regarding the market, thus facilitating better long-term investment decision-making.

If we can move towards a more inclusive society, further protect the patent technology and pricing rights of innovative drugs, strengthen the construction and practice of high-quality rule of law, and make entrepreneurs have stable expectations of the market, our advantage as a populous country will not only be better utilized in modern service industries but also in the emergence of more and better scientists and entrepreneurs. This process will provide the necessary human capital and technological strength for the innovative development of China's pharmaceutical industry.

 

What role does AI play?

 

According to public reports, there is currently no pharmaceutical developed entirely by artificial intelligence (AI) on the market. The rapid development of AI has aroused increasing interest and expectations in AI pharmaceuticals. Regarding the current trend of AI pharmaceuticals, I have the following non-professional opinions on its role: Currently, the role of AI in pharmaceuticals is based on extensive, comprehensive, in-depth, and efficient analysis of relevant data already existing in human society.

 

As described by the American economist Joseph Schumpeter, innovation is called "creative destruction.” From my understanding, AI has not yet reached that innovative stage. For example, in a recent popular video created by AI based on textual prompts, a woman walks naturally on the street with a sky and background environment that seems lifelike. However, her hair, nose, eyes, and mouth may each come from different individuals in the world rather than being created from scratch.

 

If AI could develop the concept of "creative destruction" like the human brain in the future, the successful development of original pharmaceuticals through AI design would be just around the corner.