China Remains Key Source for New Drugs Despite Geopolitical Tensions

Rising Innovation in China Drives Cross-Border Dealmaking

The pharmaceutical industry continues to rely heavily on Chinese innovation for new drug candidates, despite growing geopolitical tensions and policy uncertainties. According to GlobalData, large pharma companies in-licensed 28% of innovative drugs from Chinese biopharma firms in 2024, reaching a record high. The total value of these transactions rose 66% from $16.6 billion in 2023 to $41.5 billion in 2024.

This trend is exemplified by deals such as Summit Therapeutics' licensing of ivonescimab, an oncology asset from China's Akeso, which has been dubbed a potential "Keytruda slayer." The drug was recently approved in China for lung cancer and is set to undergo testing in the U.S. for regulatory clearance.

Pharmaceutical executives appear undeterred by political pressures, with Gilead CFO Andrew Dickinson stating, "Science doesn't know any boundaries." A survey conducted by Bloomberg Intelligence suggests that the number of deals for drugs sourced from China is expected to increase by 5% in 2025, with upfront fees potentially rising by 2.5%.

Symbiotic Relationship Between China and Global Pharma

The uptick in biopharma deals involving China comes amid a downturn in pharma M&A activity, with companies turning to Chinese biotechs to bolster their pipelines. This trend persists despite initiatives like the BIOSECURE Act, which aimed to reduce manufacturing and contracting exposure to China but was never passed.

Experts suggest that China needs these deals as much as global pharma companies. Jeroen Groenewegen-Lau, head of the science, technology and innovation program at the Mercator Institute for China Studies, explains that the Chinese government is encouraging foreign investment to support the growth of its innovative drugs sector, as it faces constraints on increasing healthcare expenditure.

The arrangement benefits firms in China, the U.S., and the EU, with Chinese companies seeking out-licensing or new company formations to advance promising treatments through later trial stages. However, the escalating China-U.S. trade war could potentially disrupt this symbiotic relationship.

European Companies Embrace Chinese Innovation Amid Domestic Challenges

European pharmaceutical companies are increasingly turning to Chinese assets to boost innovation, as the continent faces challenges in its own pharma sector. A European Commission report highlighted the bloc's fading pharmaceutical industry due to low R&D investment and regulatory fragmentation.

AstraZeneca CEO Pascal Soriot emphasized the importance of boosting medical innovation in Europe, likening it to defense spending. The company recently announced a $10 billion investment in China, contrasting with peers who have focused on U.S. manufacturing investments.

In 2024, European companies outspent their U.S. counterparts on China-originated assets, closing 23 licensing deals valued at $4.6 billion in upfront payments, compared to 22 deals with U.S. companies totaling $3.5 billion upfront. Groenewegen-Lau notes that Europe appears more comfortable with the idea of a multipolar world in pharmaceutical innovation.

U.S. Biotech Sector Faces Challenges and Potential Policy Shifts

As Chinese biotechs progress "with the speed of light," according to Pfizer CEO Albert Bourla, concerns are rising about the U.S. biotech sector's ability to maintain its competitive edge. A congressional commission has warned that China's industry is poised to eclipse American innovation, recommending a national biotechnology strategy and a $15 billion investment over the next five years.

The Trump administration's America First Investment Policy and potential tariffs on the pharmaceutical industry have raised questions about the future of U.S.-China collaborations in drug development. Some analysts suggest that regulatory and political uncertainty could drive investors towards U.S. biotechs, potentially ushering in an "America-first" era in the industry.

As pharmaceutical companies navigate this complex landscape, they face a world of uncertainty. The industry must balance the pursuit of innovative therapies with the evolving geopolitical climate, all while striving to address global health challenges and maintain competitiveness in a rapidly changing market.