America is 4% of the world's population. It's about 13% of all the drug buying, but it's also more than half of the sales in terms of dollar amounts. So it's huge. And this is a big advantage because like, you know, innovation does respond to the money and it has to. We're more likely to have false positives and false negatives in our trials because they are smaller than theirs. Theirs are less likely to have both. The type 1 and type 2 error rates are both down for China because they run bigger, better trials. China says, well, no, we're gonna make you profitable. We're actually gonna make you money. If you are a firm that we are negotiating with and you lower those costs, we're gonna help you sell more so that you don't have a reduction in your profits so that you become more profitable and we pay less money and everybody's just better off in general.
What happens when the United States is no longer the leader in biomedical innovation? For decades, the U.S. dominated drug development, producing a large share of the world's new therapies and setting the pace for clinical research. But over the last few years, that started to change. China has rapidly expanded its clinical trial system, accelerated approvals, and is now leading in both volume and novel drug development. This shift isn't about scale. It's about systems, regulatory design, trial structure, funding models, and incentives all shape how quickly new treatments reach patients and where innovation happens. The question now is whether the U.S. can adapt?
or whether the center of gravity for biotech continues to move. Theo Jaffe and Gabriel Dickinson speak with Cremieux. Welcome to MTS, Cremieux Recuée. How do you pronounce it in the French? Cremieux Recuée. Cremieux Recuée. That was pretty good. We're going to add you. You had a slight Canadian accent there. To the tweet wall. Uh-oh. Strandle the tweet wall. Let me make this bigger so I can look at it. Nothing ever happens. That's what it says. That's the watchword in MTS. Welcome to MTS. Nothing ever happens. Here are the situations. What do I have?
Great. So are we live right now? We are. We are live right now, Krem. We are live on MTS. It's so good to have you on the show. Thank you so much. I'm saying Krem because Kremo, those last like four vowels there, three vowels are just like, they're scaring me. And Australians, we already struggle with vowels. It's already a challenge for my people. So Kremo, I mean, great to have you on. Theo and I are very pleased to have you on. And we were just like, come on the show. Let's chat. And you were like, I'm going to come on the show and I'm going to talk about...
clinical trials. We were like, sure, sure. Let's learn. We're all going to learn a little bit. We're all going to learn a little bit. So, I mean, why don't we start, Krem? Do you want to just give us, I suppose in a way, what is the best way to describe, Kremot, is you're kind of like this independent researcher. You have this big kind of breadth of interest. On genetics, metrics, and demographics. Oh, yeah. Genetics, metrics, and demographics. Metrics comes a lot. What is the apostrophe before metrics? What does that mean? You say, I read about genetics, metrics, and demographics in your Twitter bio.
I'm really glad you asked. So I use it to refer to both that I do psychometrics, I do econometrics, and sometimes pleometrics as well, which is, you know, basically the same thing for history, not just economics or genetics or psychology. I'm thinking pleometrics. Pleometrics, you said? Pleometrics, I like to do, you know, jumping jacks and stuff. It's pretty into jumping jacks, yeah. Well, fantastic. Well, so, I mean, it looks like you've got a deck to take us through. We're about to get the deck, but feel free, we can kind of riff it. We're just interested to hear what you have to say, Theo. I mean, you know, so, Krem, do you want to take us off? What is it? I mean, maybe start by contextualizing it for us. What is...
What's the context here? What's the background? Yeah, so in recent years, ever since 2016, China has been just up and away the big, big leader in biopharmaceuticals, biotech, producing new drugs, even producing new medical devices. They're getting way ahead of the U.S. For decades, the U.S. has been the top dog by a huge margin. We've produced something like 40% of all of the world medical innovations when you talk about things that are approved and things that actually work. And that is no longer the case. China is actually ahead of the U.S. now. I'm going to show you some documentation of that. Some people haven't realized it yet. It hasn't really leaked to the press at this point. They don't realize that China is actually the top dog now.
which upsets things. It changes a lot. And maybe just to even take a further step back, sorry, Theo, but just to take a further step back, Grimo, it's like, okay, so why do we care about that at all? It's like, we can see the number, am I right in saying the number of, and it's not just medications, right? You can say more generally, it's like interventions. So the number of interventions that are kind of making it through clinical trial and being approved for use, China is leading in that number now. And like, why does that, you know, in a very like kind of surface level, you know, someone might say, who cares who comes up with it? Surely the US is going to be the largest market for it. Surely there's going to be all these process improvements. I mean, GLP-1s, obviously.
kind of originally developed overseas. It's driving the trade deficit with that country, but the biggest market in the US. So tell us a bit more about that. So there's good and bad to this. It's really good that China is actually now innovating because for a long time, I mean, they've been, they're the largest country. India might be, I think, a larger population now. I'm not sure I have to check that. India is larger. At least if they're not, what? India is larger, as of recently. India is larger population. Okay, so they've become larger. They're number two. They're still enormous. That region, the Asia region, that broader East Asia region, including Southeast Asia, is something like half the world population. It's enormous. It's so, so many people. And they've not been innovating. They've been pulling their weight. But now they are. Now they are pulling more than their weight. I mean, the U.S. is kind of pulling more than its weight too.
I think they're pulling a pretty big share. They're out innovating per capita Europe now, which is really, really incredible. And that's great. It means we get like more medicines and treatments and things that will keep us alive too. So it's really good in that respect. If the more innovation is the merrier. The big downside is that China could just at some point say, hey, we got the cure for cancer and we're not going to share with you. Which would be bad. That'd be bad. That'd be bad. That'd be really bad. Sell it to us.
They don't really care about that. Remember, they're communists. They have a bureau of their government, the military civil... Let's not throw around the C word like that, all right? It's a mixed economy, Kreb. It is a mixed economy. It's more capitalist than America in some ways. It's more capitalist than America in some ways. It definitely is in some ways. I'll actually get to some of those when I get to start the presentation. But...
The thing is, at the end of the day, all the corporations do serve the government. They have a whole government bureau, the Military Civil Fusion Bureau, and if they so wish, they can stop exports of things. They can stop production of things. They could totally reorient their supply chains and take control of companies, fire, kill, jail bosses of the companies. Who was that CEO a few years ago, a very famous billionaire who they basically just totally deposed him from his company? Jack Ma of Alibaba. I was thinking Jack Ma. Okay, so yeah, they basically took him right out. They can do whatever they want. If it is in their interest, they can just decide that it's over and you're not selling that drug to America for ideological reasons.
So it sounds like without kind of presupposing, without getting ahead of you here, it sounds like the kind of general story here is there are good aspects to, if we're looking generally, how has the Chinese clinical trial process changed? How is that changing the contribution to kind of global medical research? There are some kind of pros and cons. The kind of like meta story here that you're also interested in, Kram, is like there's a strategic element to being the country that is driving kind of cutting edge medical research. And I suppose, again, I don't want to get ahead of your conclusion here, but it strikes me that there are probably process reasons, kind of internal bureaucratic and policy reasons in the US why...
China has been able to pull ahead here in what you might think is an area where the US has a natural advantage. So maybe I'll stop just predicting what you might be able to say and let you go through and take us through your thoughts here. Yeah, let's do. Yeah, all right. So can you guys see the screen? Is it like front and center? Yep, we pulled up. All right, so basic general thing. If you don't know what a clinical trial is, they're usually, they have four phases that's agreed upon by different countries. It's called the ICH, Council on Harmonization, where tons of different member countries came together and they agreed on some general ways trials are laid out. And those general ways are like, you know, do a phase one, show that it's safe, then do a phase two where you...
target some group of people that's like a little larger, and then you show that it's safe and it works. And then you go to phase three where you get like a big population representative sample or whatever, you know, the drug population user representative sample is. And then once it works on that, we approve the drug. And then phase four is not really an actual genuine trial phase. It's just post approval monitoring to make sure the drug remains safe and efficacious and whatever else. So it's, those are the general steps in a clinical trial. I've simplified there, but that's basically how it works. AmeriCo runs. Did it transition slides? Can you guys see that?
All right. So America runs a lot of phase one, two, and three trials. It runs more than, you know, more than 1,500 a year in recent years. It used to run fewer than that. It's been increasing somewhat. You can see that it went from like 1,300-ish to like 1,600-ish in the most recent year. The reason that last year is the 2025 data is marked as like a little different color is because it's possibly incomplete. There might be some more filling into the data sources as time goes on.
Which basically you can just see where America stands in terms of running clinical trials. Most of our clinical trial pipeline is in phase twos. That's often where things fail. In phase one, they often fail too. I mean, every step, there are a lot of failures. And what's the total rate? Like if you take, of all the interventions that go into trials, it's like something like 10% make it through. Yeah, it's more than 90% failures. It's really bad. Like your top reason is, oh, it's just not safe. Or like it goes from preclinical to human and does nothing, no efficacy. And then it just dies. And then the pipeline is emptied. And some things can be rescued from the pipeline. That's a different topic. It's about repurposing. Like, you know Vivek Ramaswamy's business?
You guys remember Roy Vant? No. R. Roy Vant. Basically, he finds drugs that have been abandoned and he looks at them and he goes, oh, this actually helped this like secondary endpoint. Let's go pick up that drug, buy it for cheap because it was abandoned and then repurpose it for this other thing. And then like it actually seems to work. Isn't this kind of what Martin Shkreli did? I don't know if I would call what he does repurposing. Maybe he's done some repurposing. I'm not aware, but he did buy Daraprim. Financial repurposing is definitely a term you could use. Not really the same thing. I'll definitely do that. So let's look at how China's done though.
China's done better. They're definitely rising more. They haven't been doing this for as long. You can see that they had a big, big, big jump since 2016 is when they did their big clinical trial reforms. And if you put these side by side, you'll see that China is actually now ahead of the U.S. in terms of running clinical trials. They are, and in the short span of a few years, in 20 years, they've managed to go from doing practically no clinical trials to doing more than America. Every single graph of the West versus China is just this.
Yeah. Yeah, pretty much. This is what solar panels looks like. This is probably what silicon is going to look like soon. It's everything. And if it's not there yet, it's going to be. It's a really alarming thing, but it keeps happening.
If you look at this and just put it all together like this, with everything lumped together, you can see, yeah, they've clearly surpassed the US. They surpassed us during COVID, and they were on that trajectory for a little while. During the first year of COVID, they had a little slowdown. Everything kind of got muffed up there, but now it's doing fine, exceptionally. They're running amok. They're going incredibly fast. And this is already more than the EU does as well. The EU does a little less than the US in total. So if you combine the US and the EU, the free world is still ahead of China. But that's not going to last for long because both the EU and the US are on these relatively flat trajectories, whereas China is on the up and up. Kind of rough.
And this does translate into real things. So these are new drug approvals, and these are drugs first approved in China. China is actually getting drugs approved. These are drugs that are going to actually show up in drugs people do end up using. These are not just trials that they initiate that do nothing. These matter. People buying them off the dark web, getting them shipped to San Francisco, getting very skinny. Yeah, I see. It's incredible.
Yeah. They also aren't just MeToo drugs. So one of the things China's been accused of for a long time is they're doing MeToo drugs. And a MeToo drug is where you basically see a new drug get approved and then you copy it immediately. And this happened with the cure for hepatitis C. It was either Amgen or Delia did it first, but then Amgen or Delia, whichever one wasn't the first one, copied them the next year with a drug that was incredibly similar to their little retroviral combination thing. And then the actual price on the drug that is paid by the insurers, the net price, not the price that's listed that you can see, came down immediately.
When you have like 10 drugs in a space, the cost of the drug is like 90% down. When you have two drugs, you're like having the price. This is a pretty expected thing. Another company jumps in, they lower the price. China didn't just do that. A lot of drugs have done this though. Like we have all these MADs that are used in immunotherapies. These are all cancer immunotherapy drugs. And they are clearly me too drugs. They just copy the leader because the leader here has made so, so much money. Pembro has made an incredible, incredible amount of money. But China is not just- Just a context for the audience. If you're just tuning in, we're talking about kind of Chinese, changes in Chinese.
in the clinical trial space and how that's kind of translating through to kind of interventions being approved in China and for the rest of the world. What you've pulled up here, this is, it looks like a table from Wikipedia. Is that right? It's a bunch of, it's a bunch of different compounds that all have the same or a similar target. You said this is a cancer? Yeah. It's a cancer drug. And so this target here, this is the, what is that? Do you know the PD one? Is that like a? Yeah. So these are immunotherapy check one drugs. They make it so you can like, your immune system can respond better in the course of cancer treatment. We added on to chemotherapy these days, like all the time. They're increasing, it's like a little revolution in cancer treatment where they just layer on the immunotherapy and suddenly.
People are recovering at rates we've never seen before. It's a really, really good thing. These drugs have been revolutionary and that's why they make so, so much money. They were the top grossing drugs until I think last year or the year before where GLP-1s have overtaken them. I think you added together all of these. They would probably still be more than GLP-1s, but I'm not exactly sure on that. So don't quote me. Anyway, are these Chinese drugs just me too? So the answer is no. These are cell and gene therapy trials. Most cell and gene therapy targets have not been done yet. There are very few actually approved gene therapies. I mean, very few is relative to whatever your personal metric is, but I say there's not very many of these drugs yet. And China is doing tons of these trials. They are going after...
enormous numbers of gene therapies for things that have like just never been touched before. And we know this because if you look at novel gene therapies, they're coming out ahead. And this is about like, I think it's like the same year they come out ahead. Yeah. First ever phase one appearances. They are rushing ahead of the U.S. The U.S. has had like, like in 2025, we had like 20 something new gene therapies have never been done before entering phase one. And China had six times as many. That's. Yeah, sure. Maybe you're getting here, but like, what is the, what is the kind of underlying institutional process thing that's driving this? I'll get to that.
This first third of the presentation is basically just documenting that China is ahead. And they are ahead, not because they're copying anybody, but because they're really innovating. And they really are innovating. And they have another advantage when it comes to these gene therapies. In the U.S., we are banned from offering gene therapies that do germline changes, meaning that they affect sperm or eggs. So if you were to edit somebody in a way that led to a change in their kids, meaning you cured their condition for all time, that's very bad in the U.S.
reasons. I don't think they're good reasons. I can see there'd be ethical concerns. You know, there'd be ethical concerns. You can see, obviously, yeah, you wouldn't get too healthy. You might make your country a much better place, and that's really bad. We've got to prevent that. It's always a risk. It's always a risk. I mean, the thing is, all the excuses are kind of bogus. If we can cure a family of like a horrible debilitating disease for all time, why don't we? I think we're slowly coming around on this society. We're going to do that because China's going to do that in part. I think that might be like a little bit of our motivation to do that. But they don't have as much resistance to that. So they are willing to actually cure families forever, which is something we don't do in the West.
Oh, well. Another thing is they are actually ahead in antibody-based drug trials. They are also ahead, and antibodies have been like a big thing in recent years. They're really good drugs. Small molecule drug trials are even ahead in that. Those are very easily produced like pills and stuff. When you just look at all novel drug compounds, again, they are ahead. So for example, you know those new, there are oral small molecule GLP-1 drugs now, and they're basically just like a pill form, easily mass-produced version of the GLP-1 drugs you're familiar with. Like tons of drugs are small molecule drugs. It's a very broad category of drugs that can be easily produced in a bioreactor and just like shoot a lot of pills in a week.
It's a useful modality. If you want to look it up later, you can. Anyway, novel drug compounds. Again, they're ahead in this. Novel frontier drugs, like the first drugs to ever be done for some big category of thing. This includes like even mRNA vaccines and stuff. They're ahead in all of it. And they're gaining faster actually on totally novel things than they are in general. So they're already ahead of the U.S. when it comes to clinical trials in general. And they're way ahead. They've been ahead for several years when it comes to things that are completely new and novel. Put the U.S. and China next to each other in terms of totally novel things.
China's even more ahead than it was for things in general. It is a rough, rough situation. Some other people have documented also that China's trials fail less for statistical reasons because they have bigger enrollments. They make it easier to enroll and they have a bigger population. It's a lot easier to run a big clinical trial in the US that actually just like, you know, works. And maybe just to explain that for one second, stupid naive question, but it seems like that's just a kind of function of if you have a small effect size for a given intervention, you need a much larger population before that becomes statistically significant, right? That's right. Yeah, exactly. And we're more likely to have false positives and false negatives in our trials because they are smaller than theirs. Theirs are less likely to have both. The type one and type two error rates are both down for China because they run bigger, better trials.
And they allow them to be organized across... What's the y-axis on this graph? Oh, that's the number of people in the sample. The number of people in the average clinical trial? That's right. Yeah. So like in their biggest year, they had like 400-ish people in the average clinical trial. Wow. Clinical trials generally aren't that big. But they're bigger when they're closer to phase three, so China's will probably get bigger in coming years as they have more phase threes.
We'll see, though. But they run bigger antibody trials. It's another relatively novelty-filled modality. They run bigger small molecule trials. They don't run bigger on everything, but they do run bigger in general. And this helps them to run trials that are more likely to succeed. We often have drugs that get abandoned for reasons to do with these type 1 and type 2 failures. Kind of sad.
How did it happen? This is the part that you want to give. I'm impatient. I'm a simple man. I have low attention span. I gotcha. So before 2016, China, they required all their clinical trials to go through CFDA. That's like their version of the FDA, the Chinese FDA basically, accredited sites in China. They didn't let you run things abroad. They didn't let you take in foreign data, which is a huge impediment because it was hard to run trials in China. And their investigational new drug reviews, that's the reviews to get like a new drug, you know, approved all that or to start the trial or whatever, anything like that. They took a really, really long time, like most of a year on average. And that meant a lot of drugs actually were taking more than a year. Some were taking like two years to get reviewed, which is...
Just too much. And the approval time for a novel drug, or actually for any drug, sorry, averaged six years, which is absolutely nuts. And there was no fast tracking until they had this committee meeting in 2009 where they were like, oh, we can start doing that later. And then they basically didn't do it until... A little later than that. And it's like, I mean, this makes sense. If you were to imagine, like very naively again, like not to glide over all the differences between present day China and say the USSR during the Cold War. It's like, if you imagine just like, the words USSR clinical trials, just like, that's like a bureaucratic nightmare. You've got to imagine that's taking 25 years. It's just like never happening. So it kind of makes sense. This is naively what you would expect of a kind of process driven, centralized bureaucracy with a big civil service that's kind of driving this pretty slowly, right? So this is naively what you expect, but that's pre-2016. And so I assume the next slide is.
So this is when China really just like starts ripping and roaring. They convened a like a, you know, central party meeting where they were like, oh, we want to take suggestions from everybody about how to reform the system. And they genuinely let in like tons of professors, academics, even foreign people, like, you know, foreign Chinese nationals or like just come in and start proposing here, reform this, that, that thing, that thing. And then like suddenly they were accepting everybody's ideas and implementing stuff. And they've mostly done it in these four ways.
2015 to 2017, they started accepting overseas clinical trial data. There's the Council of Harmonization that I mentioned earlier. They started accepting stuff from other countries that are part of that ICH. And just like, because they're all good, they're all reviewed, they're all trustworthy countries. Why don't we accept their data? All they require pretty much beyond like some basic assurances is that you make some effort to show that the drug will work in Chinese people and then bam, they'll accept the data. They made it a very easy process. There's more to it, but it's incredibly easy in general.
They streamline their site management. They change the accreditation criteria. So sites no longer have to be like, you know, oh God, they actually had like lots of diffuse regional stuff going on. They made it. So there's like one national framework.
They allow parallel ethics committees. This is actually one of my favorite things. Basically, if you are running a bunch of sites for your trial and one site in one region of the country approves the experiment, then every other site suddenly gets the same approval. That's awesome. One ethics committee already signed off. So this doesn't work that way in America? How does ethics approval work? Don't trigger him yet, Jones. No, it doesn't work that way in America. I really wish it did. There are some cases where it does, but it's quite, sadly, no. We need IRB reform in America. China has it. Their IRBs, their ethics committees are much more efficient and streamlined than America's, which is...
Kind of crazy when you imagine a communist country versus an anomaly capitalist country. You would expect the cutthroat capitalists to be the one to go, ah, fuck ethics. But no, the Chinese don't even say fuck ethics. They go, do everything, and then we will allow you to do it in the most streamlined, efficient way. It's very like Ezra Klein-pilled. It's like very abundance-pilled. It's like they've been closely following Ezra Klein, and in 2016 they were like, oh, let's do a very kind of moderate liberal abundance reform about how can we do this sensibly? Keep all the same lines in place. Given the years, it's kind of like Ezra Klein has been communist-Chinese-pilled.
I mean, kind of. China's a very sort of abundance-filled country in a lot of ways, like in terms of housing, in terms of development infrastructure. California could use a little bit more Chinese mindset on building high-speed trains, for example. Oh, yeah. Absolutely, absolutely. I mean, they really can. They can do everything so cheaply. They can make tons of infrastructure. They're really amazing. There are so many things I can go over there about the reforms. I've written down a lot of stuff here. My favorite thing is the market authorization holder system, the MAH. It is, I think, the coolest part of the reforms, and America definitely needs this immediately. Basically...
If you were the person bringing a drug to market, you are the holder of the MAH, and you have to have these assurances that all your preclinical data is good, that your clinical trials are managed properly, that your manufacturing is done up to some standard that can be audited at the end of the process of the clinical trial, and if the government says, sure, that's good, you can take it to market. They basically make you have all the assurances up to the final phase, after which they audit you. And they like, you know, you go through some basic audits and then suddenly your drug is on the market. But you don't have to go through a bunch of rigmarole the entire time. Like they take out government inspections and steps along the way. Right, right, right. So I should pause there. And so if you're joining us right now, MTS Live, we're here with Crem. We're talking about basically progress reform in the Chinese clinical trial space. The headline here from Cremaux is that China is ahead on all of these, has kind of just pulled ahead just recently in the last few years on new drug approvals and particularly on new drug approvals.
approvals for kind of novel clinical targets, which is like, I mean, and the significance, we can talk about it later, but it seems significant in a bunch of different ways, potentially. The takeaway here is the thing that drove, or at least in part, the thing that drove this change has been some major process change, some major reform in China about the actual process of running a clinical trial and taking a target through to approval. And this, I mean, it's good to just, I think it's good to just pick one out. We can kind of get lost in the detail here, but it sounds like this particular example you're talking about, Karim, is like, how do things work in the US? In the US, you go through a clinical trial. Throughout that process, you have to provide a bunch of different data and assurances to the regulator.
I imagine there's a review period for that. So they say, submit it by this state. We'll get back to you in 60 days. Oh, you got something wrong. We'll have another request for information. That'll take another 90 days to get back to. So you just have all of these kind of like kind of stop points in the process of bringing a drug to market. What you're saying is that the model that China is using right now that they've gone to as part of this reform process is that each, if you're bringing a drug to clinical trial, if you're bringing an invention to clinical trial, you kind of keep all the records throughout the entire process. You abide by a certain set of standards set by the regulator, but they don't check them until you reach the final phase three trial. And then they go, okay, let's audit your entire history here.
Or phase two early approval. They can approve based on earlier trial results too. They are impressive. They found tons of ways to shorten the process to go from two miles to actually approving the drugs. And so you're just shortening the approval loops, right? And you're just taking out a bunch of kind of review periods. I mean, this is the nature of kind of any, if anyone watching right now, if you've ever worked with, I mean, if you've ever tried to like do some minor renovations in your house and it required some approval from a local, it's not like, it's not a criticism necessarily. It's just like the nature of administrative review is you submit something and then an actual person usually has to sit down and look at what you've submitted and they have to check against a bunch of standards. And that itself is like good social technology because it drives a bunch of good outcomes. But the nature of that process is it takes a long time.
If you do something wrong or you don't put the right data in or you label something incorrectly, they have to come back to you and you just go back to the bottom of the pile. And it sounds like you're talking about basically they've streamlined the process in such a way that the actual administrative review process is much faster. But at the same time, they've kind of tried to keep the policy goals of the administrative review process intact. So the outcome is at the same standard, but the process is much improved. Is that right?
That's right. Yeah. And they have shortened the review times. They made everything just go quicker. They made everything streamlined. They produced the number of people that everything has to go through. So you can have like one official who does, you know, three of the things that used to be given three things that might be given to three different officials in the past that might've taken way more time. They do so much stuff that has made everything so, so much more efficient.
And, I mean, it's really every step along the way. It's incredible. They even have a system where you can have companies come and, like, bid for production of your API, your active pharmaceutical ingredient, all of your stuff, and you can, like, find ways to lower the cost in that way. Oh, interesting. Yes, it's tons of incredible things. I love every little bit of it. It's really, it's got a lot of stuff that America should work on emulating. The rest of the world should, too. There's all sorts of crazy things that we just don't do that are obvious things that they have implemented, and it's been great for them. For the reforms, you can see the review backlog used to be, like, almost two years. I mean...
It was really bad. More than a year and a half. It was incredibly bad. And now it's 65 days to their target. And they're trying to get down even less than that. They're trying to do reviews in like 40 days, which is going to be insane. It's a really good thing if they can. And the way, I mean. It's contextualized again. It's like 600 days. I mean, if you, the thing that drives, the thing that drives this is if you are a pharmaceutical company, you've invested a bunch of different, you know, a bunch of money in developing a drug, a target. 600 days might just like make that financially non-viable, right? Exactly. It might burn through all your capital just waiting on the regulator.
That's kind of the intent with some of the regulations in the U.S. We have a regulation called GDUFA, which is the generic version of PDUFA, the prescription drug user fee amendments, where prescription drug producing companies go to the FDA, they pay for the FDA to be the reviewer. They cover the FDA salaries and all that. And if the FDA approves the drug, the FDA starts getting paid. But with GDUFA, a generic drug that will compete with the prescription drug, the way it was initially set up, which was designed by the prescription drug manufacturers, was that if you want to bring a generic drug to market, you have to pay immediately on the review. And the review, there are all these ways that they kept the reviews going longer and longer. So tons of companies would come and propose, I want to bring this generic drug to market so I can lower all these costs.
And they were like, no, you have to wait. And then you burn through all your capital and your company's gone. There's no actual general drug production anymore. It's just raising the walls to try and compete with a cheap generic. And so like, I mean, again, to contextualize it, it's like, if you look at the price of the amount of the percentage of, you know, GDP spent on healthcare, it just kind of goes up. If you look at US drug prices compared to the rest of the world, they're quite a lot higher. There are lots of different reasons for that. This is definitely not the only one. But it seems to me like the big picture here is like, this has effects on what you pay for medication. It has effects on how fast you can get treatment for novel conditions. It's like actually like kind of flowing through all these different channels as well. Is that right?
Yeah, absolutely. And they even have allowed different methods of trial design that are incredibly novel and allow you to get done with a trial quicker. Like the big proposal now in the US that we've been dealing with for like three years now or been trying to do is like to increase the number of endpoints and to make it easier to monitor trials, like by updating, for example, the CDC's death index, which see like, do people die at whatever dates? By the way, it's actually surprisingly hard to track deaths. The death index doesn't update immediately on somebody dying. You have to wait. So if you want to like backfill your data from your trial, if you're like, oh, we saved lives or we didn't save lives, you got to wait. Some trials actually set up their own call centers to call out the hospitals, call out people's homes, like figure out, are you still alive?
I guess if you die, you just don't reply the text. You're not going to reply. You're like, yeah, I am dead. Oh, did they leave the trial? Is the doc going to tell us this person died? I kind of don't know. If the CDC updated the death index, they could save a lot of money during their trials, though. But also, if we had novel methods of designing our phase threes, we could complete them half the time. The number of these trials that have innovative control arms is radically increasing in China and not even a thing in the U.S. We haven't even approved these innovative control arms. So what is this Y-axis measure? Log points?
Yeah, a log point increase in the number of trials with innovative control arms. So in China, basically, you're seeing a big increase in the number of trials that have control arms that are totally novel. Like, you can actually take, for example, Eli Lilly wants to do this. So Eli Lilly has these two trials. One where they tested duloglutide and another where they tested terzepatide against... Terzepatide was tested against... I think it was... It was tested against some other GLT-1RA. No, it was tested against...
Some other drug. Anyway, it was an active comparator. And they wanted to get the full placebo effect size. They wanted to get the, what is the effect versus nothing, basically, versus an inert saline shot. So they have these two trials, and they both have the same inclusion criteria, and everybody in one trial is eligible to be in the other trial. So your control arm for your, like, novel thing, you don't have to actually have a control arm, just use the control data from that previous trial. That's an innovative control arm. It's an example of it. You don't have to, like, enlist so many people. You can save money by not running the placebo thing again, because producing a placebo drug is a non-trivial cost. And monitoring those people is a non-trivial administrative bit of overhead. You can cut that out entirely if you have the same eligibility criteria and all that. You can just compare.
just the treatment group, to this old control group. So, I mean, we're coming up here on like, I don't know, half an hour, 40 minutes or something like that, Krem. So, and I think if we can just kind of like bring everyone up to where we are now, it's like, we've talked about this a couple of times, but it's like, the US, clearly on a bunch of different measures, China producing a lot more, they're kind of pushing more drugs through trials. They're targeting specifically kind of more unique or the frontier of a bunch of different candidates. And there's some kind of, there's like, it seems to me that the reasons for that are...
you know, if you go very granular, they're very complicated. But the high level reason seems to me that they have taken a principled approach to doing some policy reform in the space. Yeah. And they have traded, you know, they have been careful about trade-offs between speed and efficacy, you know, speed and policy goals and how they do this. And they've designed good institutions that produce good, I mean, this is a classic Ezra Klein liberalism. So take it through.
I assume that you have like, I assume you have a 50 page document for the administration to consider. How does the US catch back up to China? If you would just give us a very high level, is it, you know, it's obviously not just callers of climate. Presumably there's like a bunch of experts in the space. Gosh, I'm so glad you asked because- Right, go ahead, go ahead.
What are some ways China has done this? Well, it's been, you know, they have tons of reforms. It's not just the clinical trials we've seen so far. That is a huge, huge thing. They've also changed how manufacturing is done, how the assurances for manufacturing are done, the requirements for manufacturing. They've offered people like independence from certain regulations if they're sufficiently innovative. They've opened up their capital markets. They've historically been pretty close. I don't know if you know this, but people used Bitcoin back in the day to try and leave China.
They've opened them up. You're going to do pharma stuff. You're allowed to take VC money in China without restrictions for, like, pretty much, not without restrictions, but pretty much without restrictions for pharma stuff. They've opened everything up. They've reformed everything. They've taken every little good thing that you can imagine and gone, of course, let's just do that. And they've eliminated corruption in this as well. They're in the process of it. They are actively, like, you know, jailing people. And I really wish we did it in the U.S. Like, remember that Stanford ex-president who did all the fake Alzheimer's stuff? We actually just had the anti-fraud corporation guy, Alex Yeh, on MTS earlier. Wonderful, wonderful. I agree with what they're doing. The Key Tams, we're doing it too. It's a very fun little...
It's worth a lot. I think it'll be very good. You should actually invite the other guy who did the Dana Farber key time case on. He is very interesting. It's like one guy filed his own case against Dana Farber for fake images and stuff. Sholto David. What's that? Sholto David.
I think that's the guy, yeah. Bring him on. I think he'll have a lot to say about fraud and stuff. But like Eliezer Maslio, the guy who used to run the NIA's neuroscience division, he was the top researcher globally on Alzheimer's and Parkinson's, like his publications and all that stuff. And he basically led to the misallocation of billions of dollars of money, which is like clinical trial and stuff. And tons of people spent time trying to replicate his stuff and it just did not work. So it went down like a tech tree that shouldn't exist. You spent all your level ups on, you know, bullshit. That's just terrible.
I actually think China will get ahead in a lot of ways because they prosecute frauds. And the government is like, once they've identified something as fraudulent, they're not going to fund it anymore. And the frauds are going to be out. And they'll find people who are connected to these fraudsters. And they'll also cut them off, too. They're willing to do things that take a lot of really quick actions on that. But I do want to get to the most important thing, actually. Yeah, please. So this is the big thing. One of America's big advantages comes from the fact that Americans buy the most drugs.
Medicare, Medicaid, when those came about, they led to huge increases in funding for conditions that are commonly affected by Medicare, Medicaid stuff. So like if Medicare is buying a bunch of drugs for blah, blah, blah condition, suddenly the research effort for those conditions increased substantially. Like the elasticity is pretty high there. They lead to big increases in the volume of research for things that matter. America is 4% of the world population. It's about 13% of all the drug buying, but it's also more than half of the sales in terms of dollar amounts. So it's huge.
And this is a big advantage because like, you know, innovation does respond to the money and it has to. And trying to figure this out. So is this just, they actually learned because, is this just because we sell a lot of very sort of high dollar amount expensive drugs? It sort of is. We also just buy more of everything. Like, look at, I mean, look at the volume of purchases. A lot of our spending, our volume is on generic drugs. And that's part of why our actual cost is not so bad once you count out high dollar items. But, and it's mostly like a volume thing at the end of the day. But yeah, I mean, we pay more and we pay more often.
Trying to figure this out. They've done some incredible drug reimbursement reform stuff. And it's actually been really, really good for them. Basically, you look on the left here. That's the change in price when they negotiate down a drug. So they negotiate down a drug price, which a lot of countries do. And they do it pretty openly. They say what the prices are. Like in other countries, like in Germany, for example, they have hidden little discount rates. We don't actually know what the real prices are until you get to the point of care and you try and actually purchase something.
China did that, and they radically lowered the cost of the drugs. They also increased the quantity of the drugs sold by an even larger amount. Right, right, right, right. Look at that in total. What they do is look on the far right there, and that's what they actually did. They cut down government expenditures on drugs.
they also increase the profits of the firms they negotiated down. So generally when like a Western country negotiates with a firm, they lower their profits. They hurt the profits of the firm. And they have to maybe make up some of that money by charging the US who has a policy of not negotiating in general. Until very recently with some bar like Medicare, Medicaid stuff we've done under Biden. But we generally don't negotiate so they charge us more because they have to make up the costs from other countries. Well, China says, well, no, we're gonna make you profitable. We're actually gonna make you money. If you are a firm that we are negotiating with and you lower those costs, we're gonna help you sell more so that you don't have a reduction in profits so they become more profitable and we pay less money and everybody's just better off in general. Their people are healthier and everything just works better. The firms survive more.
It's a good system. They are actually aligning the market and consumer needs. And it's, I don't know if it can be done in a free market. It's actually very alarming to me. And there are seemingly not bad effects on competitors for these companies.
You look at the spillover effects on competing firms, like the effects on the competing firms' prices or the quantity of drugs they sell, and there's nothing there either. If anything, the coefficients are slightly positive, so these other firms that are not in the negotiations don't seem to lose at all. China's actually doing market design that is really effective, and it's kind of daunting. They figured out that part of why America innovates is because it pays so much, and they've exploited this mechanism and made themselves better off for it. The government's paying less, people are paying less, the prices are just down across the board for all these drugs. It is amazing. To recap it, they lower the prices, they increase the volume sold, the revenue goes up, the companies end up better off.
and there are no spillovers. It's goddamn amazing. It's really incredible. And the areas that they target with their negotiation, much as America's Medicare and Medicaid mechanisms did, those areas see the biggest increase in clinical trials. The clinical trial effort gets distributed to the areas that China is targeting, and China is targeting really good areas because it's kind of obvious what we should target. If you ask people who are developing drugs what we should target in order to make the population healthier, they kind of know. There are lots of hints and indications, and they're like, oh, well, we're not spending enough money on these things. And China's regulators are like, oh.
Great. We'll listen. And we will actually put the effort towards those things. And those things are often really expensive because they're often like, you know, places where they have a lot of new drugs and new drugs tend to be expensive. They target them. They lower the price. They increase the quantity sold. And it leads to more effort in those spaces, which brings down the cost even more and reduces the firm's market power relative to the government and makes it so they can negotiate down further and lower the cost further through competition. There's a supply response. There's a supply response on the kind of bringing new candidates to market. So this is, I mean, it's very interesting. I think, so we've got about 10 minutes left to the show, Krem. And I think like...
If someone is listening to this, they're in the administration, they're going to clip it and send it to their friend who's in the administration, or if it's just like, maybe it's out to the think tanks, I'm going to assume people are thinking about this in a whole bunch of different spaces. What is it? Is it just like, is the takeaway here just like, like there is no shame in just studying what China did and trying to replicate it? I think pretty much, yeah. The FDA is doing a lot too. We have new approval pathways coming out. We have new Bayesian methods are being allowed in clinical trials. We are doing a lot of the things. That's a win for the molecules. Bayesian methods, that's a win for the molecules. We should have talked about how they love. It's actually earlier.
So true. It's really, there are a lot of great things going on and the CFR is getting pulled all the time. We are doing this massive deregulatory drive and if Doge had had its way and they hired enough lawyers, which I'm going to be pretty critical of the government, we haven't hired enough people, then you would see America catching up in this deregulation. And to some extent, there's like a knowledge problem where... There has been more deregulation than you think. There's extensive stem cell deregulation that's happened, but nobody knows about it. So the effort being put into it by companies is like not there. They can do more stuff right now. The Trump administration has been cutting down a lot of barriers, but nobody's aware of this fact. Might have something on that soon. They might be able to come back in like a week or so. Yeah, yeah, yeah. Fantastic. I mean, the takeaway, like, you know, just on a high level to me, it's like there's a political problem here. And there's an information problem, which is the people who say, if we take just what the administration, the current administration is doing really well in the space, it sounds to me like.
there's an awareness problem in the market, which is like, you want your pharmaceutical companies to know what's going on here. You want them to be able to take every little dereg that goes through. You want your greedy pharma execs to be absolutely optimizing the hell out of that little deregulation. or that change in the rules because you want new drugs coming through the pipeline, right? And on the other hand, it seems to me there's this long, a long list of learnings we could take from Chinese structural reform in this space or Chinese policy reform in this space and apply in a slightly different context of the US, of course. That seems to me, it seems politically, like you could pitch this to the left, you could pitch it to the right. It's like quite a bipartisan.
subject, right? Yeah, it should be. The only issue, though, is that ultimately you must have the funding element. That is crucial. There has to be money for this. Someone has to pay. In America, people don't pay enough. Honestly, it's kind of weird. The returns for pharmaceuticals are below the cost of capital. I mean, this last year, it's still, it's actually gotten worse since then. And there's a bigger issue with this current administration. This current administration can do all the regulation it wants. And it might have, it'll have marginal benefits. It will be good.
And it'll have great benefits after this administration is out and all that. But the issue is the MFN. The most favored nation pricing is a really huge problem. If you want to actually, and Trump loves this stuff, basically most favored nation pricing is where you try and make it so America's medications match the like peer country prices. So if Germany pays a hundred bucks for medication, America will not pay more than a hundred bucks for medication. That's the idea. If you do this comparison with a lot of different countries.
you can lower pharmaceutical profits a lot in the process. If you actually are committed to doing it properly, you will do that. You will hurt those profits. And the profits are already too low to make this stuff self-financing. And we have too many structural barriers. If you cut them all down, we still have the issue of the funding. So America faces a lot of...
A lot of headwinds, unfortunately. Very few tailwinds. The pharmaceutical problems are actually taking a hit from MFN. The regulators, like, at the CBER, they were just, like, approving designs and then going back and not approving the actual trial results when it got done. That's chaotic. It hurts the ability of companies to plan ahead and, like, actually schedule innovations and all that. You can't make a clinical trial. Why would you invest money in a clinical trial if the regulator is not going to stick to their word and actually approve it if the thing turns out good? Right, right, right, right. They're vested interests. They want you to stop, like, building manufacturing plants and stuff. It's actually hard to get, like, a plant set up in the U.S.
And there's more about plants that should be talked about too. Running clinical trials is hard. Paying for drugs is getting worse. China is, on the other hand, doing everything right. They're deregulating. They figured out a way to fund it. They've decided to lower prices while increasing corporate profits. And they're targeting the medicines that everybody knows are good ideas to target.
Can America catch up and get ahead is the big question. And the answer is, I honestly, I have no idea. I mean, like, it makes sense to me, Cram, that there'd be certain people, and maybe yourself included, who would take a kind of, there is a useful lens here, which is the kind of zero-sum lens of global competition, which is to say, the U.S. gets a bunch of strategic benefits from being at the cutting edge of medical research. The population of the U.S. gets a bunch of benefits. Americans benefit from being at the cutting edge here. They get the best treatment. They get it fastest. Maybe they pay a little bit more money for it. But, you know, people are willing to pay. When you're rich, you're willing to pay for an extra year of your life. So it seems like there's that.
angle, and that makes perfect sense. Stepping back, it seems to me like there's also a kind of positive something happening here. And you said at the start, right, you were like, the rest of the world is not pulling their weight in terms of innovation in this space. And China has rapidly come up to par. And in some ways, what you're suggesting seems to me, they're kind of pushing past the frontier of the US in terms of drug development here. And the flow on, the trickle down benefits, the trickle down benefits of Chinese drug development, that seems like it's going to be real to me.
Very naive. I think it'll be real for the foreseeable, like the short term, short to medium term future. I think they will continue selling the drugs to America and they will allow us to actually run a lot of our trials in China. This is increasingly happening. We're going to make all our trials Chinese because it's easier to run them there. Like there are good benefits. There are even benefits for drugs we want to improve in China because we can run those trials for cheaper over there. But if they stop us, if they cut us off, then China might just be able to keep pushing ahead because they run cheaper trials and they'll be able to cut us off entirely. And we might just lose an edge entirely and like not have any way to catch up.
And this is interesting. I mean, not to bring everything. I mean, Theo, you probably have a thought here. What's the Dario-pilled, AGI-pilled take here, Theo? Give it to us. The super AGI-pilled take on this is just like the way America catches up and gets ahead is we have lots of automated bio-researchers who figure all this shit out for us.
Within the next... But clinical trials, I mean, that's still... You can automate clinical trials, right? You can automate some things with simulations. This is what Chan Zuckerberg Initiative is working on. They're trying to figure out computational bio on the cell level and then on the organ level and then on the system level. So they'll be able to do some stuff. Yes, you still need to do clinical trials. Maybe we'll have offshore clinical trial shopping. Maybe you'll be able to send a bunch of people to the Cayman Islands to do your clinical trials or something.
or maybe reform for that too. Maybe America doesn't actually accept a lot of that. Yeah. Or maybe we'll just, you know, politicians will see, oh, we're so far behind China at this point. All right, it's time to switch gears. We need to start allowing clinical trials again. I mean, it just seems to me like what you might, like the obvious bottleneck here is, I mean, imagine we live in a world where a bunch of models get, it seems to me that there's a next step, which is very close, which is just like, can we get to the stage where useful targets are being developed by
kind of AI models. And I think once you get to that stage, you're probably going to have years in which the path to taking that target to market still involves going through a clinical trial process that looks pretty much like the clinical trial process today. It sounds like the world you're talking about, Graham, is a world in which America might be developing the models that identify the targets, and then they might take those to China to do the clinical trials. And that seems to me to be, I mean, you can imagine, you can come up with boomer scenarios where we need a strategic cancer drug reserve because China stays away from cutting us off from our GOP. We need like a strategic hot people drugs reserve so that we don't get fat when China cuts us off from the latest GOP ones. I think the optimistic take is like, it's just the same. It's a replay of the story of the technology in the hardware industry where something is designed by Apple in California and it's made by Foxconn in Shenzhen and everyone gets wealthy. Everyone gets a cheap iPhone.
That's like a kind of good story to me, Krem. This is a good smile on your face story. I think it'd be nice. I hope it works out that way. Krem, before we let you go, I have one last question. You tweeted like an hour ago about this drug, NA931, that causes more weight loss than a true tide without injections or muscle loss and greater gut tolerability. Like, is this real? What is your take on this? There's actually a lot of skepticism of that particular drug. I'm kind of skeptical of that drug, but it actually is real. Well, the things they've added onto it do actually work. Like, you could, basically, the last part is basically taking like steroids pretty much with the drug, which is...
Pretty awesome. Yeah, but are there bad side effects? You would expect that. They think they figured out a way to reduce side effects. We'll see if this is legit. They say they're going to publish the phase two results soon. And if they do, then I assume it'll be legitimate. It's hard to imagine them just like straight up doing fraud, especially, I don't know, if they are actually just doing fraud, it'd be really bad. I would hate to see that. How long? If it's legitimate? How long till, you know, the San Francisco people can get their hands on illicit gray market, any 931? That's a good question. Might have an alternative soon though.
Krem's got hit is here. Krem's got some deep knowledge. I will hit you up in a signal. It's critical MTS. Yeah, that's right. Drop it in the signal. It's critical MTS technology for us because the biggest feedback I got from day one was like, Gabe, you're a little too fat to host the show. They were calling us ugly, man. We need to get you on Retractor Tide. They said we're mogged by TBPN. And those are handsome boys. They're handsome. They're over six foot. I think I agree with them. I think the critical thing here is like, yeah, get me on the great market peptide plus steroid stack.
And you know what? We'll see if we can looks max. MTS looks maxing stack. Illegal gray market. MTS looks maxing stack. Maybe we'll put that behind the paywall. Yeah, we should. I am actually over six foot, but John Coogan is six foot eight and we can't hope to match that. He's an alien technology. He's a big boy. He's kind of stylish. Well, thank you so much for joining us. Thank you, Kremu. It's been so wonderful to have you on the show. Thank you for having me. I hope. Yeah, such a pleasure. I'm sure we'll talk to you again in the future. And farewell. Farewell.
Thanks for listening to this episode of the A16Z podcast. If you liked this episode, be sure to like, comment, subscribe, leave us a rating or review, and share it with your friends and family. For more episodes, go to YouTube, Apple Podcasts, and Spotify. Follow us on X and A16Z and subscribe to our Substack at a16z.substack.com. Thanks again for listening, and I'll see you in the next episode.
This information is for educational purposes only and is not a recommendation to buy, hold or sell any investment or financial product. This podcast has been produced by a third party and may include paid promotional advertisements, other company references and individuals unaffiliated with A16Z. Such advertisements, companies and individuals are not endorsed by AH Capital Management LLC, A16Z or any of its affiliates. Information is from sources deemed reliable on the date of publication, but A16Z does not guarantee its accuracy.