In recent years, the global pharmaceutical industry has undergone a profound shift as U.S. investors and major drug companies increasingly turn to China for innovative medicines. This trend marks a significant departure from the industry’s traditional reliance on American biotech startups. Today, nearly 30% of Big Pharma deals worth at least $50 million involve Chinese firms—a dramatic increase from just a few years ago when such collaborations were virtually nonexistent.

Why is this shift happening?

China’s biotech industry has rapidly emerged as a leader in developing groundbreaking drugs at a lower cost and faster pace. U.S. pharmaceutical giants, including Merck, and leading investors such as Bain Capital Life Sciences are taking advantage of this momentum through licensing agreements with Chinese drugmakers. These deals allow them to access promising treatments without the need to acquire or invest in domestic startups.

A clear example of this growing trend is Summit Therapeutics’ decision to secure rights to an innovative cancer treatment from Akeso Inc., a Chinese firm. This drug outperformed Merck’s widely used Keytruda in clinical trials. Similarly, Kailera Therapeutics has raised $400 million to develop obesity treatments based on drugs from Jiangsu Hengrui Pharmaceuticals. Perhaps the most notable deal came in late 2024, when Merck agreed to license an experimental weight-loss pill from Hansoh in a transaction valued at up to $2 billion.

Industry reactions and implications

Experts see this shift as a defining moment for the pharmaceutical industry. Tim Opler, Managing Director at Stifel Global Healthcare, described it as a “watershed moment” that could reshape how major pharmaceutical companies approach drug discovery. According to Adam Koppel of Bain Capital, the Chinese biotech sector has moved beyond simply replicating Western medicines and is now developing original, competitive treatments.

The long-term impact of this change, however, is a subject of debate. Some industry leaders worry that U.S.-based biotech startups may face financial difficulties as Big Pharma increasingly looks to China for drug development. Others argue that heightened global competition will ultimately lead to better and more cost-effective treatments for patients worldwide.

Regulatory and geopolitical roadblocks

Despite the potential benefits, U.S. pharmaceutical firms relying on Chinese companies for drug innovation face several challenges. Regulatory hurdles remain a major concern. In 2022, for instance, the FDA rejected an application from Eli Lilly for a Chinese-developed drug, citing a lack of U.S.-based clinical trials. This policy complication could make it harder for Chinese drugs to gain approval in the U.S. market.

The political landscape also poses risks. Lawmakers in Washington are considering measures such as the Biosecure Act, which would impose new restrictions on collaborations between U.S. pharmaceutical firms and Chinese drug manufacturers. Rising tensions between the two nations in industries like artificial intelligence and semiconductors suggest that biotech partnerships could soon face similar scrutiny.

Investor confidence is already feeling the impact. When Merck announced its licensing deal with Hansoh for a weight-loss drug, the stock price of Viking Therapeutics, a U.S.-based obesity drugmaker, fell by 18%. This reaction underscores how cross-border agreements are reshaping investor sentiment about domestic biotech firms.

Looking ahead

As U.S. pharmaceutical giants continue turning to Chinese firms for drug innovation, the American biotech industry faces an uncertain future. Will this shift lead to a decline in U.S.-based startups, or will it inspire greater innovation to compete on a global scale?

For now, pharmaceutical leaders and investors are betting on China’s ability to deliver cutting-edge treatments. However, regulatory developments and geopolitical tensions will play a crucial role in determining whether this trend can continue. The biotech industry is at a turning point, and the coming years will reveal whether these new patterns of collaboration will endure or face significant obstacles.