HONG KONG – Through efforts such as China Made 2025, the Thousand Talents program and its five-year plans, China has been putting considerable work into innovation and has emerged as a prolific patent filer that is closing the R&D gap with the U.S. and EU despite a late start in areas such as biotech.

According to PwC's recently released 2015 Global Innovation 1000, Asia topped North America and Europe in terms of corporate R&D spending. Asia's growth was mainly driven by imports and domestic R&D spending. That spending growth was most conspicuous in China, with spending in domestic and imported R&D up by 79 percent.

The U.S. remains the biggest R&D spender in the world, but Asian countries are closing in.

PwC identified the three largest industries for R&D spending globally this year as computing and electronics, health care and auto. Health care should top the list by 2019.

"The innovation across many sectors, including [the] pharmaceutical industry, which the government has attached great importance to, is one of the main driving forces of China's future economic growth," said Fangning Zhang, an associate partner at McKinsey & Co in Shanghai. "Within [the] pharma sector, we can already see some momentum on drug innovation in China with efforts from both [multinational corporations, MNCs] and increasingly domestic companies."

The output of China's and the U.S.'s drug innovation programs is very different, Zhang told BioWorld Today.

"There are three main output channels for drug innovation: academic institutes, biotech start-ups and established pharmaceutical companies" said Zhang. "The proportion of these three sources for investigational new drug approvals between 2009 and 2013 in China and [between] 2012 to 2013 in the U.S. was roughly 3-to-1-to-6 and 1-to-4-to-5," respectively.

For example, U.S. pharma major Pfizer Inc. built its China Research and Development Center (CRDC) in Shanghai in 2005. The center works on global drug development, safety and regulatory operations. The CRDC has also partnered with academic institutions and has made contributions to workshops with the CFDA.

"China is one of the fastest-growing pharmaceutical markets in the world and the ongoing China health care reform will continue to drive the expansion of China's pharmaceutical industry, including new drug research and development," said Allyanna Anglim, Pfizer's APAC media relations manager. "The country's emerging R&D talents and the Chinese government's Made in China 2025 vision will also continue to drive investment in biomedical innovation and the life sciences sector.

"The pharmaceutical industry trusts that the Chinese government will more fully implement policies that support and encourage biopharmaceutical innovation, accelerate the approval process of new medicines," Anglim added.

For both MNCs and local drugmakers, the slow regulatory process has always been a problem. This year, the CFDA has made a series of moves to accelerate novel drug approvals from the State Council's push to the CFDA's approval fast lane. (See BioWorld Today, Oct. 22, 2015, and Nov. 16, 2015.)

But the challenge is that the market reward for innovative drugs remains limited and China's per capita health care expenditure is still far behind developed countries.

"The policy side of supporting drug innovation has two main aspects: CFDA's review and approval, and market access-related policies such as reimbursement plan afterward," said Zhang. "Compared to other elements of the drug innovation ecosystem, this area still has significant room to improve."

'AN END-TO-END ECOSYSTEM'

China's listing and tendering system for drugs is fragmented and inefficient; the Reimbursement Drug List, or RDL, with narrow coverage is not updated frequently enough. In addition, the government's spending on health care remains constrained and focuses on providing basic coverage only. The development of private health insurance is still at a very early stage. Those all create a big hurdle for innovators looking for funds.

"We need to look at innovation as an end-to-end ecosystem," said Zhang. "The government has made moves to encourage technology transfer and spur investment in R&D, etc., but if the innovative drugs can't realize their commercial value for the long run, the enthusiasm of pharmaceutical companies to develop new drugs will be dampened."

For biologics and more expensive drugs that are not likely to be covered by government funds, other levers could help bridge the funding gap such as patient assistance programs and self-pay market or redeployment of savings from possible price cuts of mature drugs.

China has clearly made science-based innovation an important priority for the country's future development. The government has invested heavily in building institutions and capabilities for innovation.

However, China is far from a strong global competitor in the biotech space. Reuters' 2015 State of Innovation report showed that the Chinese Academy of Science, Jiangnan University and Zhejiang University are three of the top five global biotech innovators in terms of inventions. But McKinsey Global Institute's report, The China Effect on Global Innovation, said China has less than 1 percent share of global revenue in branded pharmaceuticals and a mere of 3 percent in biotech, semiconductor design and specialty chemicals.

Part of the reason behind that is the slow progress in science-based innovation – it can take 10 to 15 years to launch a novel drug – and the regulatory hurdles. There are also issues with intellectual property protection and underinvestment by the private sector.

Another problem is a lack of eligible talent. While there are thousands of biotech major students graduating each year in China, companies still struggle to find candidates that fit.

"Today, not many graduates can meet the technical or soft skill requirements of the industry straight out of school every year," said Zhang from McKinsey. "The bench strength of China, compared with countries like the U.S., is still not strong enough because we started later, but we're making progress.

"Compared with some of the emerging markets, China's big talent pool is an advantage," Zhang added. "The overseas talents are also returning; they're not just bringing back technical expertise but also management skills and concepts through years of experiences working in [the] pharma industry."

More than a decade ago, there was a "craze for going abroad" in the Chinese life sciences field. The Chinese government is now bringing the talents back home. The Thousand Talents program launched by the central government in December 2008 has brought back more than 4,180 overseas scientists by May 2014.

"Based on the recent performance of Chinese industries, the investments made to build innovative capacity, and the opportunities for greater innovation success . . . we believe that China can not only meet its innovation imperative, but can also emerge as a dominant force in innovation globally," said the McKinsey report. "The overall effect could be accelerated innovation globally, challenges to market leaders from new innovators, and new, lower-cost products and services that fill unmet needs of emerging-market consumers and keep up with the shifting demands of consumers in advanced economies."