No China lead – COVID highlighted deep failures in its approach.

The Covid pandemic could have been the moment for China’s drug companies to shine. President Xi Jinping’s administration in 2015 made biotech one of the 10 key sectors to build up under its Made in China 2025 state industrial strategy. The government went on to streamline regulation and attempted to align standards with those of the Western world, aiming to make its drugmakers more competitive so they could eventually challenge Pfizer Inc., AstraZeneca Plc and other pharma giants.

As a result, venture capitalists, private equity funds, investors in initial public offerings and others have poured more than 1.5 trillion yuan ($216 billion) into the Chinese biotech industry since 2015, according to Bi Jingquan, the former head of China’s drug regulator. Chinese companies accounted for 7 of the world’s 10 largest biopharma IPOs from 2018 to 2020, according to McKinsey & Co., and the combined market value for the industry soared from $3 billion in 2016 to more than $380 billion in 2021.

But even those outsize bets haven’t been enough to transform the sector into a high-tech powerhouse, with the pandemic only highlighting deep weaknesses in the country’s innovation ecosystem. More than a dozen founders, scientists, investors and analysts, interviewed by Bloomberg News in China and overseas, pointed to a string of shortcomings holding back the biotech industry, including a lack of basic research and a reluctance to take big risks. There are lingering questions about the Chinese drug industry’s ability to produce novel therapies and move away from the “me too” copycats it’s churned out for the past decade, they say.

China is “weak on innovation, and its pharma industry stands on wobbly academic foundations,” says Jin Dong-yan, a professor specializing in virology and cancer at the University of Hong Kong. “If the industry only takes pride in doling out subpar products to poor countries, that won’t constitute going global. It just means embracing backwardness. The industry will get stuck in the lower end of the value chain and nowhere close to the top of the world we had envisioned the industry to be in documents like the Made in China 2025.”

The biotech and pharmaceutical industries are among a group of critical sectors, along with semiconductors and aerospace engines, in which China isn’t ready to compete globally, even after decades of money and attention from the central government. The setbacks they have faced highlight the difficulties in developing brand-new products in a country that focused for years on mass manufacturing and producing only local versions of drugs made by foreign brands. Despite the years of investment, the Chinese drug sector has come out with almost no completely novel medicines, which are also known in the industry as “first-in-class” drugs.

In August 2022, when McKinsey published a survey of pharmaceutical company executives and investors—many of them based in China—many were uncertain about the country’s ability to develop breakthrough therapies in the next five years given the country’s persistent lag in research compared with Western peers.

Li’s Stemirna faced obstacles during the pandemic. While pursuing his doctorate at the MD Anderson Cancer Center in Houston, Li, 49, had studied possible ways to tackle cancer using micro RNA, a molecule that helps control the making of proteins. But as the pandemic continued, he found himself focusing on the new area of infectious disease. And there were few scientists in China with whom to consult. “We have far less experience in the broader RNA space, and that inevitably resulted in the yawning gap with Europe and the US,” Li says.

Regulators in China weren’t familiar with the technology either, unlike the US Food and Drug Administration, which already had experience vetting mRNA techniques for potential drugs and vaccines. This unfamiliarity likely contributed to the Chinese government’s decision to take the safer route and rely on more conventional approaches. It provided labs, factories and speedy regulatory approvals to companies developing vaccines using tried-and-tested technologies. Li, meanwhile, depended on funding from private funds such as Sequoia China and spent a lot of time convincing regulators that his vaccine based on the technology was safe.

Moderna’s path in the US was dramatically different. It had begun researching the use of mRNA medicines as far back as 2011, and while the pandemic ripped around the globe, it received billions in funding from the US government’s Operation Warp Speed, which was putting money into a broad variety of Covid shots.

As 2020 went by, the gap between Stemirna and its Western mRNA peers grew only wider. Li and his team ditched their initial candidate when they realized they’d missed a tiny tweak the shots from Moderna and BioNTech SE had been given. Those companies were using the prefusion form of the coronavirus’s protein to ensure it generated the right antibodies to fight the disease—and that was likely what made their shots so highly effective. Stemirna went back to square one to design another candidate with a similar tweak.

Meanwhile, President Xi’s Covid nationalism strategy had largely cut off collaboration with foreign partners. In late 2020 the International Vaccine Institute (IVI) in Seoul offered to help Walvax Biotechnology Co., one of the leading Chinese drugmakers trying to develop a homegrown mRNA vaccine. Jerome Kim, director general of the institute, says the offer was to work with Walvax to test its mRNA vaccine in Africa and Southeast Asia.

Walvax, which declined the offer, is still awaiting approval for its vaccine in China. It declined to respond to Bloomberg’s queries regarding the potential collaboration with the IVI.

Chinese companies also trailed in making antiviral treatments for Covid patients, while Western drugmakers such as Pfizer produced Paxlovid and other medicines.

“I thought China was more advanced in its biotech industry,” says Peter Hotez, a professor at the Baylor College of Medicine who served as a US science envoy during the Obama administration. “It was a wake-up call for all of us.”