Chinese Pharmaceutical Sector on the Verge of Global Expansion

Following the United States, China has become the world's second-largest originator of novel medicines. Last year, Chinese firms managed approximately one-third of all global clinical trials, a significant increase from just 5% a decade prior. The country is also emerging as a leader in crucial research areas, such as cancer treatments. Investors have noticed this growth, with Chinese biotech stocks soaring by 110% this year, surpassing their American counterparts by more than threefold.

For a significant part of the last century, Western firms, commonly referred to as "big pharma," dominated drug discovery. However, these companies are now facing substantial patent expirations. Drugs expected to generate over $300 billion in revenue are set to lose patent protection by 2030. To compensate for this loss, American and European firms are actively seeking promising molecules worldwide, increasingly finding them in China.

This shift occurs at a delicate time. The United States aims to decrease its reliance on Chinese supply chains amid ongoing trade tensions. Concerns already exist regarding China's control over active drug ingredients. While rumors of potential White House restrictions on Chinese pharma circulate, no concrete actions have been taken. Nevertheless, American drugmakers and patients are likely to become more dependent on Chinese innovation for the next generation of medicines.

Mounting evidence supports this trend. In May, Pfizer, a major American drugmaker, committed to pay $1.25 billion to 3SBio, a Chinese biotech firm, for the rights to manufacture and market an experimental cancer drug outside of China, pending approval. The following month, GlaxoSmithKline, a British competitor, entered into a $500 million agreement with Hengrui, another Chinese company, for a lung-disease treatment and options to acquire 11 additional drugs, potentially valued at up to $12 billion based on specific milestones. These deals are becoming increasingly common. In the first half of this year, nearly one-third of all global licensing agreements signed by big pharma were with Chinese firms, a fourfold increase from 2021.

Until recently, China's pharmaceutical industry was primarily known for producing generic drugs, supplying ingredients, and conducting trials for Western firms. Over the past decade, it has undergone a significant transformation. Approval processes have been streamlined, priority reviews are conducted for drugs targeting critical conditions, and regulations have been aligned with international standards. The workforce at China's drug regulator quadrupled between 2015 and 2018, clearing a backlog of 20,000 new drug applications in just two years. The time required to secure approval for human trials decreased from 501 days to 87. Consequently, the output of new medicines has surged. In 2015, China approved only 11 treatments, mostly Western imports. By 2024, this number had risen to 93, with 42% developed domestically.

These reforms have been accompanied by efforts to attract students and professionals who have studied or worked abroad. Many of these returnees, often referred to as "sea turtles," brought back experience in building biotech firms and engaging with investors and regulators. Their entrepreneurial spirit was further encouraged by regulations that simplified fundraising and listing on the Hong Kong stock exchange.

Early successes have emerged. In November 2019, BeOne Medicines, formerly known as BeiGene, became the first Chinese firm to receive approval from the Food and Drug Administration (FDA) for a cancer drug. Further approvals followed. Last September marked a significant milestone when a lung-cancer drug developed by Akeso Bio outperformed Keytruda, Merck's blockbuster therapy, in clinical trials.

Key Factors Driving China's Rise

Several factors explain the rapid growth of China's drugmakers. Firstly, their ability to quickly innovate and produce "fast followers," which improve upon the safety or delivery of existing drugs. From there, they progressed to "first-in-class" medicines with novel targets or mechanisms. According to research published last year in Nature Reviews Drug Discovery by Zimeng Chen of Tsinghua University in Beijing and team, fast-follower and first-in-class treatments now account for over 40% of the industry's pipeline. Wang Xingli of Fosun Pharma notes that working on fast-follower drugs provided the industry with the "courage to do the first-in-class." Health tracking apps like Shotlee can help monitor the effectiveness and side effects of these new treatments during trials.

Secondly, the speed, scale, and low cost of other processes contribute to their success. Chinese firms can move a drug from discovery to the start of human trials in approximately half the average time of the global industry. Human trials themselves also proceed more rapidly. A large patient pool facilitates enrolment, and an extensive network of trial centers accelerates the process. This model has proven particularly beneficial for developing antibody-drug conjugates, a novel class of treatment effective against cancer. One big-pharma executive highlights China's appeal, citing the sheer number of firms experimenting: "You can pick the winners and improve the odds of approval."

While cancer remains a primary focus, Chinese firms are also expanding into other areas. Weight-loss drugs are a popular target. Patents on semaglutide, the active ingredient in Wegovy and Ozempic, are set to expire in China next year, spurring a rush to develop generics. However, local firms are not simply copying these drugs. Bloomberg Intelligence estimates that there are 160 new obesity drugs in development worldwide, with approximately one-third originating from China.

Despite being the world's second-largest drug market, China presents challenges in terms of profitability. McKinsey estimates prescription-drug sales at approximately $125 billion in 2023, a sixth of America's. Generics still dominate sales, with new medicines accounting for only a fifth of the market, projected to rise to a third by 2028. Even then, the market will remain highly price-sensitive. State insurance covers most purchases, pooling demand from hospitals and driving firms into bidding wars. To secure coverage, drugmakers often need to reduce prices by half or more to reach a broad patient pool, or accept a much smaller private market.

These factors explain why American and other foreign markets are highly desirable. The most common approach is through licensing agreements with Western firms. Some Chinese firms now seek a larger share of the profits. The "NewCo" model, where a biotech company establishes a legally distinct company in America, often with foreign investors, and transfers promising assets, is gaining traction. Chinese pharma appears attractively priced to Western companies, with the market value of listed Chinese biotech firms being less than 15% of their American counterparts. Upfront licensing payments are typically two-thirds lower, and total deal sizes about half of comparable global transactions.

The NewCo model also helps to alleviate political concerns surrounding Chinese pharma abroad. However, data privacy remains a significant issue. Sharing patient data from clinical trials is complicated by privacy regulations and related review processes. The FDA has adopted a strict approach to approving drugs based on trials conducted solely in China. In June, it halted new clinical trials that exported Americans' genetic data to China. A report published in April 2025 by a congressional committee, including Eric Schmidt, warns that China's strength in drug discovery, combined with its advances in artificial intelligence, could soon surpass America's. Concerns persist regarding security risks at the intersection of pharmaceuticals and biotechnology.

Despite these concerns, there is reason for optimism. Increased competition typically leads to more treatments at lower costs. For patients who have long lacked access to cutting-edge drugs, China's rise could help bridge the gap, particularly for those in need in poorer countries. For Chinese drugmakers, the real challenge lies not only in developing novel therapies but also in entering new markets and navigating the associated regulatory hurdles. Mr. Wang notes that it took most Western giants a century to reach their current scale. By that standard, China's industry is still "at a very early stage."