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LESSONS LEARNED AND NEXT STEPS
Moderator:
Michael Borrus
X/Seed Capital Management
Michael Borrus of X/Seed Capital asked the speakers in the
previous panel how they set priorities in health and energy and how the
Chinese government selects sectors to support.
In medical research, U.S. funding decisions are “still driven by the
quality of science being done by individual investigators and teams of
investigators,” Dr. Barker replied. Institutions such as the Massachusetts
Institute of Technology, and many others, encourage the translation of
basic science into new commercial enterprises that are funded by the
private sector, she added. “Our priorities in medical research are focused
on research and development funded by organizations like the National
Institutes of Health, which invests approximately $27 billion in medical
research each year,” she said. “We invest that across a whole range of
medical research, from basic research to translational research to clinical
research. In the U.S. technology moves out of the laboratory into
translation.” Technology and intellectual property are transferred to
companies that are primarily funded through venture capital. “But we
still set our priorities based on the quality and importance of the
science,” Dr. Barker said.
To summarize, Mr. Bonvillian said, life sciences research is driven by
a basic research agency, and basic research drives what follows. He
asked how this works in energy research.
Dr. Newmark of NREL said energy “is further along the continuum”
that Dr. Barker outlined for medical research. “Energy research now is
driven more by national priorities, both for the development of new
options for traditional fossil and nuclear energy and for the development
and commercialization of renewable energy and energy efficiency
technologies,” she said.
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120 BUILDING THE 21ST CENTURY: U.S.-CHINA COOPERATION
Discussions are underway over how to achieve the goals and
benchmarks Energy Under Secretary Johnson explained, such as clean
energy attaining a certain percentage of energy usage by a certain date,
Dr. Newmark said. “The national priorities drive investment that span all
the way from basic to applied research to commercial scale deployment,”
she said. “That said, the innovations depend on venture capital to get to
commercial implementation.” The U.S. government focuses on
everything from very basic research in materials and separation science
to very large-scale, public-private investments for deployment of some of
these novel technologies.”
Of course, the market ultimately will determine which energy
technologies succeed, Dr. Newark noted. “In the energy sector,
innovation requires that market finance and risk be addressed.” But
public financial support is required because new energy technologies
require large-scale deployment to study and certify their performance,
she said.
Mr. Bonvillian noted that the energy sector represents a different
model of government involvement, one that mixes public and private
roles “and is more bottom-up rather than top-down. And it is driven by a
societal mission.”
Cathy Swain, assistant vice-chancellor for commercial development
at the University of Texas System, commented that there are a range of
public investment activities in Texas. She noted that the state legislature
set up a Cancer Prevention Research Fund several years ago. The $3
billion fund invests $300 million in cancer research each year. Texas also
has the Emerging Technology Fund, which does not distinguish among
industrial clusters, Ms. Swain explained. It focuses on early-stage
investment for commercialization opportunities, before companies seek
venture capital. The Fund also takes equity in start-ups.
Two other programs are part of the Emerging Technology Fund, Ms.
Swain added. One is the Research Superiority Fund, which establishes
centers of excellence at universities. The other is the Research Matching
Fund. The state is looking to turn that fund into a source of micro-
lending to support development of proofs of concept.
Texas’ activities highlight another feature of the U.S. public funding
model, Mr. Bonvillian noted. “There is a growing role by our states in
sponsoring innovation,” he said. “That has been nascent for a long time
but is starting to grow.”
He asked how Chinese institutions make decisions on what to fund.
The United States and China share many similarities, Mr. Yang said.
“We also have a competitive method,” he said. Recipients of funding go
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LESSONS LEARNED AND NEXT STEPS
through a “very careful and dedicated evaluation process. No single
individual or group can have a say.” Various experts assess the merits of
projects seeking funding.
Xu Bin, deputy division director of the high technology department of
the National Development and Reform Commission, noted that the
government provides very small funding, and wants more venture capital
to come into to the country to make investments.
Lou Jing of the Ministry of Education explained that a number of
national innovation policies are being developed. They include short-,
medium-, and long-term goals. The government has identified priority
industries that meet national priorities. There also are incubator activities
in industries with great growth potential.
These strategies are developed by commissions composed of experts
from different areas, Ms. Lou said. They include personnel from the
Chinese Academy of Engineering, the Institute of Social Scientists, and
the Chinese Academy of Science. Government institutions evaluate the
process. “We will listen to advice from the local level, and then evaluate
whether it is in line with the nation’s long, mid- and short-term
objectives to determine what kind of deployment timeline is needed,” she
said. “It is very comprehensive. Right now, we think our measures are
very systematic and scientific.”
Dr. Breznitz of Georgia Tech asked about China’s approach to
“investing in what society and the state see as critical infrastructure.” He
noted that the United States sees broadband as critical infrastructure for
many reasons. “While we have let the private market do the heavy
lifting, many rural communities have problems getting access,” he said.
“That is where government steps in, to allow every citizen in the U.S. to
have access to this critical infrastructure.”
Wang Xue, deputy head of the Chengdu High-Tech Zone, asked
about America’s health care reform. He said it seems that the reforms are
built on a solid foundation, and that China may be able to benefit from
the U.S. example.
She also asked Dr. Barker to share some of her insights on China’s
experience with cancer. He noted that the National Cancer Institute has a
great deal of knowledge about different cases of diseases in different
areas. Mr. Wang pointed out that in Sichuan Province lung cancer is the
No. 1 problem. However, half of these cancer patients do not smoke. “I
wonder if you have been following up and know what the situation is in
Sichuan,” he said.
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Mr. Wang also asked her opinion on drug costs. If a truck
manufacturer produces higher quantities of trucks, he observed, their
costs go down. “How do you make drugs more affordable?”
“I feel like I am sitting before Congress,” Dr. Barker quipped. “I have
to answer the same questions there.” Health care is a critical issue
because its share of the U.S. economy is nearly 18 percent and rising, she
noted. “I would like to say we have reformed our health care system, but
we have just begun. The health care reforms address some of the issues
but not all,” she said. The reform will provide coverage for some, but not
all, of the 40 million people who are uninsured, she explained.
Regarding China’s situation, Dr. Barker noted that migration from
rural areas to cities will create greater health-care issues. She observed
that most advanced treatments for cancer are performed in cities. In rural
areas, traditional Eastern medicine still is widely used. Urbanization,
therefore, will drive up health-care costs. “Cancer is a particular problem
because it is extraordinarily expensive to treat,” she said. “It also is an
area where an enormous amount of discovery is going on.”
Drug discovery also is very costly. Pharmaceutical companies invest
$1 billion on average for each new drug that actually gets to the market,
and the process can take around 15 years. “That is something that has to
change,” Dr. Barker said.
The high cost of research in the West, however, means there is
opportunity for substantial collaboration with China. “From what I see
occurring in China, I think you will have an opportunity to change this
with us or even before us,” she said. “You have not built yet built
infrastructure built that is driving costs. We are seeing a lot of your
enterprises develop very quickly now in health care. I think some of your
approaches have an opportunity to inform us here and result in very
dynamic partnerships. I think we will learn a lot from each other.”
The United States is struggling with the cost of drugs, Dr. Barker
noted. She said she favors the concept of formulary, in which health care
providers specify what they will pay for prescriptions in order to control
costs. It may be difficult for the United States to adopt such an approach
to public health care in “our free-market system,” she said, although the
formulary approach is starting to be used in health care for the elderly.
The government must take into account the financial requirements of
pharmaceutical makers, Dr. Barker suggested. “It is very difficult to
incentivize drug companies without a very substantial profit motive
because they have to invest a lot of money to develop a drug,” she said.
“So I think we are all in this together.”
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Regarding the question about cancer in China, Dr. Barker said she is
familiar with the problem but “that nobody actually knows the answer.”
She noted that not everyone who smokes develops cancer, due to genetic
differences. “However, we think there is something more going on
there,” she said. “Some of our scientists are working with your scientists
so we can better understand this complex outcome.”
Dr. Wessner offered some observations regarding venture capital.
Often, too much credit in the United States is given to the role of venture
capital in the innovation system. He held up a Blackberry and noted that
the company that developed it never received venture capital. Lithium-
ion battery maker A123, based in Watertown, Massachusetts, funded its
research with funds from the National Science Foundation and the
Department of Energy. It also received Small Business Innovation
Research loans to develop commercial products. The company received
venture capital after it already had developed its products. “It is claimed
to be a venture capital success,” he said.
Recently, Dr. Wessner added, A123 received $200 million from the
U.S. government to build a production facility. “So we have a free
market economy that is not always so free and not always so market,” he
said. “It also is not driven by the venture industry. There are many
sectors where venture companies just don’t go.” A good example is
medical research. If a company discovers an interesting molecule, “they
ask you to come back after you have finished Phase I trials,” he said. “If
you tell them you need money for the Phase I trials, they tell you to come
back when you have completed the Phase I trials.” Dr. Wessner said he
thinks there is an “obsession” with venture funding. “It is a much more
complex mosaic than that.”
Michael Borrus concluded the session by noting that he was struck at
how much China and the United States have in common, “whether it be
reducing dependence on fossil fuels or the fact we face rising cancer
rates.”
Based on the three decades of cooperation in health care between the
two countries, Mr. Borrus suggested three principles on what makes
collaboration successful. One is that “if cooperation is to work, it much
be based on an equal exchange,” Mr. Borrus said. “Each side must give
as well as get.” The second principle is that conflicts, misunderstandings,
and sensitive issues are inevitable. “But we need goodwill on both sides
to work through those problems in order to maintain progress toward
building a cooperative relationship.”
The third point is that “the only way to cooperate is to cooperate,”
Mr. Borrus said. To borrow a Chinese proverb, “We need to cross the
river between our countries by feeling for he stones,” he said. “We need
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to try some things together, demonstrate mutual gain, and then turn those
smaller-scale collaborations into larger collaborations.”
