China’s Biopharma Mirrors EV Success

2024 marked a significant shift in the global pharmaceutical landscape, with China establishing itself as a major player, challenging existing power structures and fundamentally altering industry dynamics.  This year saw escalating geopolitical tensions, particularly the intensifying Sino-U.S. technological competition, which significantly impacted the biopharmaceutical sector.

The U.S. response, embodied by the BIOSECURE Act (early 2024), aimed to restrict collaborations between U.S. and certain Chinese biotechnology firms by limiting federal funding. However, this intended strategy to curb China’s influence instantly backfired, inadvertently revealing that 75% of U.S. companies, including pharmaceutical giants, rely on Chinese contract research organizations (CROs) for preclinical and clinical services. The BIOSECURE Act’s potential to disrupt supply chains and increase costs raises serious concerns in US pharmaceutical industry.

The subsequent formation of a Biopharmaceutical Alliance, comprising India, South Korea, Japan, and the EU, under U.S. leadership, further underscores this vulnerability.  This initiative mirrors attempts to decouple from China in the semiconductor industry, positioning India as a replacement manufacturing hub, combining Western technology with lower Indian labor costs.  However, this strategy overlooks a critical flaw: India’s heavy reliance on Chinese pharmaceutical imports (approximately 43% of total imports).  This dependence is exemplified by major Indian pharmaceutical companies, such as Aurobindo Pharma, which sources roughly 55% of its raw materials from China.  

Moreover, the value and volume of bulk drug imports from China to India have steadily increased, with imports rising from 64% and 62% in FY14 to 71% and 75% in FY23, respectively. This trend underscores the growing dependency on Chinese suppliers for essential pharmaceutical components.

On the other hand, China’s pharmaceutical prowess continued its meteoric rise throughout the year. By August 2024, an astonishing 910 newly approved drugs propelled China to the position of the world’s second-largest pharmaceutical market, a testament to its burgeoning innovation capabilities. While the U.S. currently leads the world in newly approved drugs (1865, double the number of China’s), the future is likely to see intensified competition. China’s current drug development pipeline of 5,380 drugs is nearly on par with that of the US (5397).  

This growth extends beyond generic manufacturing; China’s significant advancements in first-in-class drug development—medicines employing entirely novel mechanisms of action—demonstrate its commitment to and success in achieving breakthrough innovation. This growth is reflected in the expanding market capitalization of the sector. China’s biopharma market has reached 13.6 billion RMB in 2019 and is projected to grow to 24.6 billion RMB by 2024, a compound annual growth rate (CAGR) of 13.8%.  By 2028, the market is expected to reach a substantial 2.7 trillion RMB.

Investment in the sector further underscores this growth:  Fixed asset investment in China’s pharmaceutical manufacturing industry increased by 8.5% year-on-year in the first quarter of 2024.  This represents a 6.7 percentage point increase compared to December 2023 and a 10.4 percentage point increase compared to the same period in 2023.

In 2024, a pivotal moment emerges in the global pharmaceutical landscape as Chinese biopharma steps into a new era of enhanced innovation and international presence. This dramatic shift underscores China’s remarkable transformation from a largely manufacturing-centric pharmaceutical sector to a significant innovator on the world stage.  The country’s rapidly closing gap with the United States in both approved drugs and the depth of its drug development pipeline highlights the scale of this achievement.  This progress is a direct result of strategic investments and policy decisions made over the past decade.  

Clinical Trials Arena · Chokniti-Studio / Shutterstock.

2015-2024: the golden decade for China Biopharma

China’s pharmaceutical landscape has undergone a dramatic transformation, shifting from a system burdened by lengthy delays and a massive backlog of drug applications to one characterized by significantly accelerated innovation.  

Between 2007 and 2015, China approved just over 30 innovative drugs, a stark contrast to the United States, which approved roughly 35 annually during the same period.  This highlights a significant disparity: eight years of progress in China fell short of a single year’s progress in the US. The lengthy process of approval also created a staggering backlog of over 20,000 new drug applications awaiting review.

However, 2015 marks a watershed moment signifying a fundamental shift. In this year, the Marketing Authorization Holder (MAH) system was introduced by Chinese authority, which makes it easier for scientists to develop new drugs. Before, researchers had to handle everything – research, manufacturing, and selling the drug. This new system, called the Marketing Authorization Holder (MAH) system, separates these tasks.

Now, researchers can focus on discovering new drugs.  They get the approval to sell their drug, but they don’t have to build a factory or sell it themselves. They can hire other companies to do the manufacturing and marketing. This saves money and lets them concentrate on what they do best: research.

This change has also led to the growth of companies that specialize in making drugs (CDMOs) and selling them (CSOs) for other companies.  Smaller research teams especially benefit because they can now outsource the manufacturing, allowing them to focus on innovation rather than building and running their own factories.

This crucial reform has unleashed the potential of research-focused companies, allowing them to concentrate on developing innovative drugs without the constraints of managing manufacturing facilities. This specialization has energized the industry, fostering a more efficient and competitive market.

Further accelerating this progress is China’s 2017 entry into the International Council for Harmonisation (ICH). Before the formation of ICH, pharmaceutical registration applicants around the world faced significant redundant work when submitting applications to different regions due to varying requirements and formats. To avoid this unnecessary duplication and to promote international trade and technological exchange, the ICH was established.

The ICH’s mission is to achieve greater harmonization globally to ensure that safe, effective, and high-quality medicines are developed, registered, and maintained in the most resource-efficient manner while upholding high standards. This includes avoiding the repetition of clinical trials on humans and minimizing animal testing as much as possible without compromising safety and efficacy.

China’s inclusion in the ICH signifies its embrace and active involvement in setting and enforcing global standards within the pharmaceutical realm. For Chinese pharmaceutical companies engaged in global drug development and international registration, China’s participation in ICH has deepened their understanding of international technical requirements for drug registration.

Companies can now apply for registration with multiple national or regional regulatory agencies using harmonized technical requirements and application formats, reducing research workload, significantly lowering R&D and registration costs, and increasing the success rate of international registrations.

In addition, adhering to the ICH standard also spurred Chinese companies to elevate their R&D capabilities, making them globally competitive. Simultaneously, significant reforms to the clinical trial process have streamlined the path to market. The acceptance of overseas clinical trial data further accelerates approvals, leveraging global research efforts. This also accelerates the entry of innovative drugs developed by multinationals into Chinese market, as the approval process of Chinese authority now aligns with international standard.

Finally, improved communication between regulators and applicants, facilitated by clearer guidelines and enhanced dialogue, has reduced uncertainty and accelerated the review process. This open approach fosters collaboration and helps companies navigate the regulatory landscape more efficiently. As a result of these measures, China’s approval of innovative drug surged from 40 in 2017 to a record high of 68 in 2021.  

Breakthrough Therapy Designation

Perhaps the most disruptive effect in driving pharmaceutical innovations came from the Breakthrough Therapy Designation program. In 2020, China’s National Medical Products Administration (NMPA) launched a Breakthrough Therapy Designation (BTD) program, mirroring its counterpart in the US, to accelerate the development of drugs for life-threatening or severely debilitating diseases lacking effective treatments.  The program prioritizes innovative or improved drugs demonstrating significant clinical advantages over existing therapies, accepting applications during Phase I or II clinical trials.  

As expected, these BTD drugs are designed to cure the deadliest diseases in a completely new way. For example, Chinese researchers have pioneered an advanced approach harnessing the body’s immune system to combat cancer more effectively, resulting in complete remission of the disease in select women with advanced cervical cancer. Additionally, remarkable strides have been made by Chinese researchers in utilizing stem cells to facilitate self-healing in individuals with type 1 diabetes, potentially heralding a future where daily insulin injections may become unnecessary for certain individuals.

The Center for Drug Evaluation (CDE) provides expedited review and support, including early communication opportunities.  By December 31, 2023, 203 drugs held BTD, with 70 (34.48%) added that year.  Analysis of these 2023 approvals reveals an average processing time of 64 days (range: 21-176 days).  By the end of October, 2024 sees a record-high 76 drugs being added to this category. By comparison, 24 drugs are granted with BTD in the US as of September 30. Chinese innovation in BTD is set to outpace that of the US in 2024. While average processing time slightly increased compared to previous years, remaining consistently within the 59-64 day range, this stability suggests efficient review despite increased application volume.  The NMPA’s streamlined process continues to effectively support the development of urgently needed therapies.

The change doesn’t just happen in numbers, but also in the applicants. In 2024, the landscape of approved breakthrough therapies has shifted away from being dominated by multinational corporations (MNCs) towards a growing presence of Chinese biotech firms. Notably, key players such as Hengrui Medicine, Baili Pharmaceuticals, and Innovent Biologics have made significant strides in the realm of breakthrough therapies, garnering 7, 4, and 3 breakthrough therapy designations respectively. Taking Hengrui Medicine as an exemplary case, the company secured the highest number of breakthrough therapy approvals in 2024, with 7 indications spanning across 6 drugs including SHR-A1811, SHRA-1921, Fluorouracil, Apatinib Mesylate, SHR-1918, and HR19042. The initial four drugs primarily focus on oncology, comprising both robust ADC products and novel small molecule inhibitors. ADC drugs, or Antibody-Drug Conjugate, are designed to deliver chemotherapy directly to cancer cells. Noteworthy advancements in the ADC domain, a strategic focus for Hengrui in recent times, are evidenced by over 8 clinical-stage ADC products in their pipeline.

Particularly, SHR-A1811, the flagship ADC in Hengrui’s pipeline, now advancing to Phase 3 trials with 6 indications recognized as breakthrough therapies by the CDE. The subsequent two breakthrough therapy pipelines have veered away from oncology, redirecting their focus towards metabolic and immune domains, possibly reflecting a strategic shift towards high-growth non-oncology sectors or responding to escalating competition in oncology. Regardless, Hengrui’s diversified product strategy is poised to establish formidable competitive barriers characteristic of a major pharmaceutical entity like Hengrui Medicine. In contrast, breakthrough therapies from MNCs have shown a decline this year, with approved products and innovative indications displaying deviations from previous years.

The Returnees and Reverse Brain-Drain

For decades, China has made strides in advancing its scientific research, with areas such as engineering and computer science almost on par with, if not already ahead of, its western peers. However, life science stands out as one of few remaining areas where China still lags behind the West, and the US in particular. This creates an enormous demand for talents with oversea experience in the biopharma industry.

Liu Mingyao, born in the southern province of Hunan, journeyed to the U.S. in 1987 for over 20 years of study and research. After earning a Ph.D. in Cell Biology from the University of Maryland in 1992, he conducted postdoctoral research at Johns Hopkins University and Caltech before joining East China Normal University in 2007. Liu established the Institute of Life Medical Research, fostering talent and pioneering advancements in life sciences. In 2012, he became Dean of the School of Life Sciences, elevating ECNU’s standing in life medicine. Liu’s vision extends to translating lab research into life-saving products, aiming to lessen China’s reliance on foreign innovations and bolster domestic medical advancements.

On July 15, 2024, ECNU’s research team—Du Bing, Liu Mingyao, and Li Dali from the School of Life Sciences—published the first global report on using allogeneic universal CAR-T to treat rheumatic immune diseases in Cell.

Not long after, Liu Mingyao embarked on a remarkable journey of patriotic entrepreneurship. His tryst with entrepreneurship dates back to 2013 when his team’s groundbreaking research, published in Nature Biotechnology, showcased the pioneering use of CRISPR-Cas9 gene editing technology on rodents, marking a global first in this field.

The reverberations of this achievement led to the inception of BRL Biotech, a venture that sprang from Liu Mingyao’s exceptional research team. This marked the beginning of a transformative period where science and innovation converged to create products with the potential to revolutionize healthcare and benefit society at large.

Blending gene editing with cell therapy, BRL Biotech’s journey since 2016 has been marked by a relentless pursuit of translating cutting-edge laboratory findings into tangible solutions. With over 100 patented achievements and multiple projects advancing into clinical trials across esteemed medical institutions, the company stands at the vanguard of cell gene therapy drug development.

Professor Liu Mingyao, with his diverse research interests spanning cell and gene therapy, antibodies, and small molecule drugs, recognized the need to channel these varied pursuits into distinct platforms. This vision led to the establishment of two additional companies: SYMRAY Biotech, focusing on advanced bio-pharmaceutical R&D through digital and intelligent means, and Yuyao Biotech, dedicated to developing AI-driven small molecule targeted drugs for a range of prevalent health conditions.

Liu’s story is typical of China’s tens of thousands of returnees, who have extensive experience studying and doing research overseas, before coming back to China to contribute to the exceptional growth of Chinese biopharma industry.

Bruce Lahn, a Harvard graduate with a PhD from MIT, became the youngest tenured professor at the University of Chicago by 37. His research in genetic and stem cell has been recognized with listings in Science’s “Breakthrough of the Year 2005” and Discovery’s “Top 100 Scientific Discoveries of 2005.”  He is also an MIT Technology Review “Innovator Under 35”.  

However, by 2006, Lahn’s fortune took a dramatic turn. His research in the genetic basis of human intelligence faced significant backlash as it diverged from the political correctness of the US mainstream. This led to difficulties securing funding and publishing, even jeopardizing his tenured professorship. Ironically, Lahn, now a naturalized US citizen, could have never expected this when he left China during the late 1980s to the US, with the hope of freely conducting scientific inquiries into the mystery of living creatures.

With academic freedom under threat, Lahn decided to resign from University of Chicago and found new home in Guangzhou, China, to start his new carreer as a tech enpreneur. He has since founded Cyagen Biosciences, focusing on stem cell technology, and VectorBuilder, specialized in gene delivery solutions. Gene delivery is the process of introducing new or modified genes into cells to treat or prevent diseases such as cancer and genetic disorders. VectorBuilder is currently a unicorn valued at 1 billion USD, serving over 4,500 research institutions and pharmaceutical companies in more than 90 countries while delivered over 1,200,000 gene delivery projects, with several resulting gene drugs already securing FDA Investigational New Drug (IND) approval. The startup, which generates 90% of its annual revenue from overseas markets, represents a new breed of Chinese biotechs that are “born global,” meaning they have had global ambitions since their inception.

Lahn and Liu are pioneering an emerging trend. According to China’s Ministry of Education, from 1978 to 2019, approximately 6.56 million people studied abroad, with around 4.23 million returning to China, which accounts for about 86.28% of those who completed their studies during that period. In 2019 alone, around 580,300 Chinese students returned to China after studying abroad, up from 134,800 in 2010.

The rising geopolitical tension between China and the US has only accelerated this trend. The China Initiative established by Trump administration has been identified as a significant push factor. Following its launch, departures among U.S.-based Chinese scientists increased by 75%. Notably, the life sciences field, closely related to biopharma industry, has experienced the most substantial impact, with over 1,000 life scientists leaving the US in 2021 alone. By that year, approximately 67% of those leaving chose to relocate back to China, up from 48% in 2010.  

Sun Shao-Cong is one of them. In the world of cancer research, few names carry as much weight as Sun Shao-Cong. He served as the director of the Centre for Inflammation and Cancer at the University of Texas MD Anderson Cancer Center from 2014 to 2022. His work focused on T cells, which play a crucial role in the body’s immune defense against cancer. His research has not only pushed the boundaries of what we know about cancer but has also paved the way for innovative treatments.

However, in 2018, the US government launched the “China Initiative”, a program that ensnared many Chinese-American scientists, including Sun Shao-Cong, who found himself under investigation. The U.S. authorities scrutinized collaborations and research outcomes, creating an atmosphere of uncertainty and anxiety among the scientific community.

Despite no substantial issues being uncovered, the ordeal had a profound impact on Sun Shao-Cong. His research was severely disrupted, and by 2022, he had lost his job. For someone who had dedicated his life to scientific research, this setback was devastating. Yet, Sun Shao-Cong remained undeterred. During his suspension, he continued to pursue his research, collaborating with international peers and publishing several significant papers.

Finally, in 2024, Sun returned to China and took a role at the Chinese Institutes for Medical Research (CIMR) in Beijing. He has begun establishing a new immunology laboratory focusing on the mechanisms of anti-cancer immunity, autoimmunity, and inflammatory diseases. This move aligns with China’s growing investment in research infrastructure and government support for life science and biopharmaceutical industry.

The termination of the Justice Department’s China Initiative in 2022 did little to alleviate the climate of suspicion around China-born researchers. This persistent scrutiny has contributed to a brain drain from U.S. institutions, as eminent scientists like Sun choose to leave America under the pressure of investigations.

Sun Shao-Cong’s move back to China highlights a pivotal shift in scientific research dynamics between the U.S. and China. As more scientists follow suit, the repercussions for international collaboration, research innovation, and the scientific landscape become increasingly significant.

The Rise of Chinese CROs

The vast and growing talent pool has also elevated the competitiveness of Chinese CROs, or Contract Research Organizations. In fact, China’s CROs are rapidly transforming the global pharmaceutical landscape, leveraging significant competitive advantages to attract international clients and fuel impressive growth.  This surge isn’t simply numerical; it reflects a fundamental shift in industry dynamics.  A key attraction for pharmaceutical companies is the substantial cost savings offered by Chinese CROs, with operational expenses often 40% lower than Western counterparts due to reduced labor and infrastructure costs, with abundant R & D personnel.  This translates to potential cost reductions of up to 30% compared to U.S. trials, a crucial factor for companies with limited budgets, especially given the rising complexity and escalating costs of global drug development.

While price remains a significant factor, Chinese CROs are increasingly emphasizing quality, recognizing that a balance of cost and quality is essential for long-term success; this reflects a maturing market where quality is becoming a key differentiator.

Simultaneously, Chinese CROs are actively expanding their international presence through strategic partnerships with global pharmaceutical firms, participating in overseas clinical trials and research projects to enhance their global reputation and expertise.  

Companies like WuXi AppTec exemplify this trend, offering a comprehensive suite of services.  WuXi AppTec, a leading global enterprise specializing in pharmaceutical and medical device services, offers a wide array of research and development (R&D) and manufacturing capabilities. Established in December 2000 in Shanghai, the company has undergone substantial growth through strategic acquisitions and expansions, notably acquiring the US company AppTec Laboratory Services in 2008, leading to its current nomenclature. Operating across Asia, Europe, and North America, WuXi AppTec serves a diverse clientele of over 6,000 customers spanning more than 30 countries. With a core mission to propel discoveries and deliver innovative treatments to patients worldwide, the company provides integrated services including chemistry R&D and manufacturing, biology discovery support, seamless preclinical and clinical testing, and specialized development in advanced therapies. WuXi AppTec stands out as a vital partner in the pharmaceutical landscape, driving innovation through its extensive service offerings.

CROs such as WuXi AppTec also leverage China’s vast and booming domestic market, which further fuels their growth. The dramatic increase in R&D spending by Chinese pharmaceutical companies—from $900 million in 2000 to nearly $10 billion by 2014—has created a surge in demand for local CRO services, with this domestic growth expected to eventually surpass international revenue.  

Many leading Chinese CROs have proactively adopted “go-global” strategies, leveraging the international experience and connections of their founders to build strong relationships with global clients, positioning them for continued success in the increasingly competitive global market.  In conclusion, Chinese CROs are uniquely positioned to capitalize on their cost-efficiency and growing reputation for quality.  As they continue to expand their international collaborations and respond to robust domestic demand, their influence on the global CRO landscape will undoubtedly increase, and their ability to adapt and innovate will be critical as they compete with established players from North America and Europe.

Challenges Remain

China’s pharmaceutical industry faces a critical juncture. While significant strides have been made, several key challenges hinder the nation’s ambition to become a global leader in innovative drug development.  

A fundamental weakness lies in the country’s capacity for original innovation. This is especially apparent when it comes to small molecule drug development. Compared to Western counterparts and Japan, China lags significantly in this area, with estimates placing the gap at 20 to 40 years behind in traditional.  This deficiency becomes apparent in the lagging development of vital technologies such as advanced compound library screening. This process is instrumental in assisting researchers to pinpoint potential therapeutic candidates from extensive collections of chemical compounds, serving as a fundamental aspect of contemporary drug discovery. In this realm, major Chinese corporations frequently face a shortfall in the advanced resources and expertise that are commonly found among their Western counterparts.

The overwhelming dominance of generic drug production further underscores this issue: over 90% of China’s pharmaceutical companies and 95% of its drug approvals are for generic medications, highlighting a heavy reliance on “me-too” innovation. This approach often involves shortcuts and a lack of in-depth research, a stark contrast to the exhaustive optimization strategies employed in the West, where research teams might explore all possible structural modifications of a drug candidate.  This difference isn’t merely about resources; it reflects a fundamental difference in research philosophy and methodology. The achievements in BTD drugs might represent an exception to this, but they are insufficient to change the entire mindset of Chinese biopharma.

The downstream industry also presents considerable challenges. Low consumer purchasing power results in low market penetration rates for even effective drugs, creating a vicious cycle where insufficient market feedback hinders the development of a robust and self-sustaining pharmaceutical ecosystem.  

Perhaps more importantly, insufficient patent protection may discourage companies from investing in developing innovative drugs. Intellectual property (IP) rights are critical to the success of China’s innovative pharmaceutical sector. The core of any novel drug lies in its unique chemical structure, which, while susceptible to modification, is the very element protected by patents. Modifications that don’t compromise efficacy or safety can lead to generic drug development. Patent protection safeguards these modifications from imitation, differentiating innovative pharmaceutical companies from simple chemical manufacturers. The latter’s profit margins are insufficient to sustain the substantial investment required for innovative drug research and development.

A key challenge is the “patent cliff,” where high profits during the patent protection period sharply decline after expiry due to generic drug competition. A significant disparity exists between the US and China regarding patent protection. The US system is generally more lenient, granting protection for a higher proportion of claimed modifications. China’s stricter system often protects fewer modifications, leaving others open to circumvention. For example, in the United States, when you apply for a patent for something with 10 changes or improvements, you usually get full protection for all 10. This means your invention is well guarded against others copying or using it without permission.

In contrast, in China, if you apply for a patent for something with 10 changes, you might only get protection for 3 of them. This leaves the other 7 changes exposed, which could make it easier for others to copy your invention without breaking the law.

This deficiency in patent protection sets the stage for a scenario where a recently introduced original new drug might swiftly encounter competition from 4-5 generic alternatives with comparable efficacy within one to two years, often priced significantly lower. Consequently, original drug manufacturers find themselves embroiled in fierce pricing battles, ultimately leading to substantial pricing divergences compared to international markets.

This discrepancy results in rapid market entry of numerous generic drugs with similar efficacy and significantly lower prices soon after a new drug’s launch. This forces original drug manufacturers into intense price competition, creating a substantial price difference compared to international markets.

For example, the first domestically developed and produced innovative biologic from China approved by the FDA, a PD-1 anti-cancer drug, illustrates this issue. Its price in China is drastically lower than in the US.

A key question remains: What are the potential consequences of aligning China’s patent protection system completely with the US model, establishing significantly higher barriers to entry? Such a change could negatively impact domestic companies primarily focused on generic drugs, potentially leading to business failures. Conversely, it would likely increase medication costs for consumers. Therefore, a balanced approach that encourages innovation while ensuring affordable access to medicines is crucial for the long-term health of China’s pharmaceutical industry.

These weaknesses, coupled with a slow market response to ineffective drugs, create a significant barrier to the development of a truly world-class pharmaceutical industry.  Addressing these multifaceted challenges requires a concerted effort involving technological advancement, increased investment in research and development, improved regulatory oversight, and a cultural shift towards a more rigorous and innovative approach to drug discovery.  Only then can China fully realize its potential in this vital sector.

The Double-Edged Sword of Centralized Drug Procurement

While some industrial policies may have encouraged innovation among Chinese pharmaceutical companies, the impact of others is more nuanced. Nowadays, China’s pharmaceutical industry is navigating a complex landscape shaped by its increasingly stringent centralized drug procurement (CDP) policies.

The CDP, also known as the drug centralized quantity-based procurement mechanism, represents a state-organized drug procurement model designed to drive down drug prices, ease the financial strain on patients and medical insurance funds, and uphold drug quality and availability. This system encompasses several key facets:

1. Centralized Procurement: By consolidating the purchase of a significant volume of drugs, buyers can secure more favorable procurement rates.

2. Quantity-Based Bargaining: Purchasers commit to procuring a set quantity of drugs in exchange for discounted prices.

3. Emphasis on Quality: Procured drugs undergo rigorous assessments for quality and uniform efficacy to ensure safety and effectiveness.

4. Market Competition: Transparent market competition mechanisms guide enterprises to compete fairly based on cost-efficiency and quality standards.

This mechanism plays a pivotal role in regulating the distribution of pharmaceuticals, addressing issues such as unethical sales practices, and fostering the sustainable growth of the healthcare industry. Moreover, by driving down drug prices, the centralized procurement system effectively alleviates the financial burden on patients and enhances the overall level of medical care accessibility and affordability.

While these policies aim to make essential medicines more affordable and accessible to a wider population, they’ve also created a significant challenge for innovation. The dramatic compression of profit margins is forcing difficult choices on pharmaceutical companies, potentially stifling the very research and development that fuels advancements in healthcare.

The impact is particularly acute for innovative new drugs and medical devices. The lengthy and often uncertain path to hospital approval means many promising treatments remain out of reach for patients, both those paying out-of-pocket and those with commercial insurance. This creates a frustrating situation where cutting-edge therapies developed with significant investment and years of research struggle to reach the market.

The financial burden on pharmaceutical companies is immense. Developing a new drug is a costly and time-consuming endeavor, requiring substantial investment in research, clinical trials, and top-tier scientific talent. When profits are severely constrained, the incentive to invest in future innovation diminishes, potentially leading to a slowdown in the development of life-saving treatments. This is particularly ironic given the government’s recent push to support the biotech sector, raising concerns that a lack of domestic market access could force promising Chinese innovations to seek overseas markets for commercialization, creating a new type of dependence.

Innovative medicines are essential for addressing challenging diseases and improving healthcare outcomes. They represent hope for patients suffering from conditions with limited treatment options. If the current CDP policies inadvertently stifle innovation, the long-term consequences could be detrimental to both the industry and the health of the Chinese population. The ability to develop and deploy advanced therapies is also crucial for the growth of commercial health insurance and the overall improvement of healthcare services.

The solution isn’t to abandon the goal of affordable medicines, but to find a better balance. Experts suggest exploring policy adjustments, such as offering protected periods or special incentives for innovative drugs (allowing these drugs to charge relatively higher price for a certain period within the CDP framework), to encourage continued investment in R&D. A more nuanced approach might involve creating a multi-tiered system for distributing new and innovative drugs, effectively separate these drugs from the generic alternatives, providing a clearer pathway for these treatments to reach patients while still maintaining cost controls.

Going Global

Facing intense pressure from the CDP policy, which has driven down average drug prices by 50% or more, Chinese pharmaceutical companies are increasingly turning their attention to international markets. The government’s continued expansion of CDP, aiming for 90% of public hospital drug purchases to be made through centralized platforms by 2025, is squeezing profit margins, forcing a strategic shift towards global expansion.

This move is supported by a wave of government initiatives. The 2024 Government Work Report and several “14th Five-Year Plan” documents explicitly encourage Chinese pharmaceutical companies to establish overseas R&D centers, conduct international clinical trials, and build global sales and distribution networks. The government is also actively promoting collaborations with Belt and Road Initiative (BRI) countries, while providing support to navigate international trade challenges.

The appeal of overseas markets is clear. Wealthy nations like the US, Europe, and Japan offer significantly higher prices for innovative drugs, creating a lucrative opportunity for Chinese companies. The US Food and Drug Administration (FDA) alone approved 302 new molecular entities between 2018 and 2023. This contrasts sharply with the intense price competition in the Chinese market.

The Belt and Road Initiative, encompassing a vast network of countries, also presents a significant growth opportunity. Many BRI nations have large populations, rapidly expanding healthcare spending, and a high dependence on imported pharmaceuticals, creating substantial untapped market potential. While 2023 saw a slight dip in exports to BRI countries, the overall trend remains positive, with strong potential for growth fueled by strengthening free trade agreements.

Several recent high-profile deals highlight the success of this strategy. The licensing agreement between Systimmune (a subsidiary of the Chinese Sichuan Biokin) and Bristol Myers Squibb for a new drug candidate generated a massive upfront payment and potential milestone payments totaling billions of dollars, dramatically boosting Sichuan Biokin’s stock price. Similarly, the international success of HLX02, a biosimilar drug from Pharmaron, has resulted in a significant increase in overseas sales. The FDA approval of fruquintinib, a cancer drug developed by Hutchison China MediTech, exemplifies the potential for significantly higher pricing in international markets compared to China.

Analysts suggest that this outward expansion isn’t just about revenue; it’s also about demonstrating R&D capabilities, commercialization strength, and ultimately, enhancing company valuations in a global context. As the domestic market becomes increasingly competitive, the international stage offers Chinese pharmaceutical companies a crucial opportunity for growth and long-term sustainability.

Emerging Opportunities

Besides expanding to the global market, the ongoing technological revolution also presents enormous opportunities. The introduction of AlphaFold 3 by Google DeepMind signals a groundbreaking advancement in pharmaceutical research, with the potential to transform drug discovery, particularly benefiting smaller pharmaceutical companies, including those in China, often constrained by financial limitations and expertise gaps. AlphaFold 3’s impact lies in its significantly improved predictive capabilities and enhanced cost and time efficiency. Its ability to model complex interactions among proteins, DNA, RNA, and ligands elevates drug design precision, boasting a reported 50% increase in accuracy over traditional methods, enhancing the success rate of drug development.
Moreover, AlphaFold 3 streamlines processes, reducing time and expenses associated with conventional methods like X-ray crystallography. This accelerated pace enables smaller firms to focus resources strategically on promising drug candidates, overcoming traditional delays. The tool’s open-source nature levels the competitive field, granting smaller companies and academic researchers access to cutting-edge technology once exclusive to larger enterprises. AlphaFold 3’s comprehensive analysis of existing drug-target interactions not only expedites drug development but also facilitates the discovery of novel therapeutic applications, paving the way for personalized medicine tailored to niche markets and specific patient needs, without the usual upfront investments in experimental validation.

As AlphaFold 3 is now open-source, it is poised to revolutionize drug discovery. Its powerful predictive capabilities, coupled with its accessibility and cost-effectiveness, represent a significant leap forward. For Chinese biopharma, this technology offers a transformative opportunity to compete effectively, fostering innovation and accelerating the development of life-saving therapeutics. The democratization of advanced computational biology tools, thanks to AlphaFold 3, promises a brighter future for drug discovery and patient care.

Conclusion

China’s biopharmaceutical industry is charting a course strikingly similar to its electric vehicle (EV) sector. Just as Chinese EV manufacturers disrupted the global automotive landscape, China’s biopharma companies are rapidly challenging established players, leveraging government support, a burgeoning talent pool (fueled by a “reverse brain drain”), and cost advantages to achieve remarkable growth.  The parallels are striking: just as prescient industrial policy focusing on EVs fifteen years ago kickstarted the rapid progress of the Chinese EV industry, meticulously designed policies in the pharmaceutical sector are working wonders, driving innovation and accelerating market expansion. While challenges remain, particularly regarding original innovation and patent protection, the strategic investments in R&D, the adoption of advanced technologies like AlphaFold 3, and the aggressive pursuit of international markets suggest a trajectory mirroring the explosive success of the Chinese EV industry. The future likely holds intensified global competition, with China poised to become a dominant force in biopharmaceutical innovation and manufacturing. The question isn’t if China will replicate the EV success story in biopharma, but rather how quickly and to what extent. As an increasing number of Chinese pharmaceutical companies choose to go global, their impact will be felt worldwide.