Page 34 - The South China Business Journal

c OMMUNITY NEWS

China Is Now a Global Drug Innovation

Powerhouse. Industrial Policy Had

Little to Do with It

By the Stanford Center on China¡¯s Economy and Institutions (SCCEI)

Insights

? In 2010, China accounted for less than 8% of global clinical
trials; by 2020, it had surpassed the United States in annual
registered trial volume, reaching over 5,000 trials per year by
2024 ? a 172% increase relative to the U.S.
? Innovative trials targeting previously unexplored biological
mechanisms rose by 49?123% relative to the U.S., and domestic
Chinese firms account for 88% of the post-2015 increase.
? The key driver was the 2016 National Reimbursement Drug
List (NRDL) reform that traded drug price cuts for inclusion into
China¡¯s national insurance program, thereby massively expanding
the market for innovative drugs, boosting cancer drug revenue by
500% and clinical trial activity by 86%.
China's clinical trial surge was real and high
? The NRDL reform explains 43% of the surge in oncology quality. Before the 2016 National Reimbursement
trial activity ? nearly double the combined contribution of Drug List (NRDL) reform, China¡¯s clinical trial
knowledge accumulation and talent inflows from the U.S.
(24%) ? while industrial policies like Made in China 2025 activity tracked the U.S. but at a fraction of the
played a negligible role. scale, accounting for less than 8% of global trials
in 2010. By 2024, that gap had not just closed but
reversed: China's trial volume had grown by 172%
or most of the postwar era, the U.S. and Europe relative to the U.S., surpassing it entirely by 2020.
Finvented novel drugs, and the rest of the world Importantly, this was not a surge in low-value generic
consumed them. Developing economies had little testing. Three independent novelty measures ? a
incentive to invest in indigenous R&D ? the fixed mechanism-of- action-based novelty score, an AI-
costs were too high, the markets too small, and the classified indicator of new molecular entities, and
technological frontier too distant. China fit this model a measure of Phase III trials benchmarked against
well into the 2000s, with its pharmaceutical sector existing innovative drugs rather than placebos ?
focused on generic manufacturing and biosimilar all show increases of 49?123% relative to the U.S.
production rather than frontier innovation. That Downstream outcomes tell the same story: out-
changed abruptly in the mid-2010s as China rapidly licensing transactions to multinational corporations
moved up the value chain. What accounts for China's doubled, first-in-world regulatory approvals for
remarkable transition from pharmaceutical free rider Chinese-developed drugs rose 36%, and new firm
to global innovator? entry grew 27%, all relative to 2015. Importantly, 88%
of the post-2015 increase was driven by domestic
The data. The authors compare clinical trial activity Chinese firms, not multinationals relocating R&D
and drug development outcomes between the U.S. to China ? indicating genuine indigenous capacity
and China before and after a healthcare reform building rather than geographic reallocation.
expanded insurance coverage for innovative drugs.
Trial data come from the Citeline TrialTrove database, The NRDL reform was the dominant driver.
a global census of clinical trial registrations; drug The authors identify the NRDL reform as the
development outcomes I? including out-licensing primary mechanism boosting China¡¯s trials and
deals and regulatory approvals ? come from Citeline drug development. Prior to 2016, China¡¯s national
Pharmaprojects; and market size is measured using insurance system covered mainly generic drugs,
SinoHealth drug sales data at the province-quarter forcing patients to pay full out-of-pocket costs for
level. To rule out alternative explanations, the innovative therapies. The NRDL reform introduced
authors control for scientific knowledge accumulation annual centralized price negotiations between
(OpenAlex publications), international talent flows, the government and pharmaceutical firms, with
regulatory streamlining (application records from successful inclusion triggering near-universal
China¡¯s drug regulator), and industrial policy (State insurance coverage. While negotiated prices fell by
Council policy documents). an average of 50% (and 66% for oncology drugs),

31 AMCHAM SOUTH CHINA
31 AMCHAM SOUTH CHINA