China Biotech Lights Up. U.S. Stocks Prepare For A New Powerhouse.
Long known for generic drugs and fast-follower copycats, China is quickly emerging as a biotech trailblazer. (© Chris Gash)
- ALLISON GATLIN
- 08:00 AM ET 02/06/2026
Washington and Wall Street have spent decades debating U.S. dependence on China for chips, consumer electronics and manufacturing. Now, China is poised to disrupt another major industry, one that is arguably more consequential, and could trigger a seismic shift for biotech stocks.
Long known for generic drugs and fast-follower copycats, China is quickly emerging as a biotech trailblazer. This has set off alarm bells in the U.S. and European biotech industries. The threat has prompted pharmaceutical giants to snap up Chinese assets or forge partnerships with their Asian counterparts.↑XNOW PLAYINGThese Three Catalysts Could Make Medical Stocks A Healthy Bet In 2026
Pharma and biotech companies are suiting up for a new playing field, says Petra Jantzer, a senior managing director at advisory firm Accenture.
“I do think there’s a window of opportunity right now because the Chinese are looking for development partners,” she said in an interview. “This might not be the case in five to 10 years.”
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China Is In Focus For Biotech Stocks
Recent deals, including major M&A moves, underscore the ascendancy of China.
Pfizer (PFE), Eli Lilly (LLY), AstraZeneca (AZN) and others have teed up billions to license or outright buy assets from China. There were $149 billion in pharma business deals announced for 2025, according to Arda Ural, a life sciences leader with advisory firm EY. Of that, $61 billion — more than 40% — was for drugs from China. That’s a far cry from 2020, when pharma companies spent just $1 billion licensing or buying drugs from China.
Western biotech companies have to step up their game, experts say. But they’re taking on a particularly nimble rival that benefits from flexible regulations and government funding. Both allow for incredibly fast drug development.
Dan Schmitt, chief executive of Actuate Therapeutics (ACTU), called China “a force to be reckoned with.” Even among fellow countrymen, competition in China is cutthroat, says Fangning Zhang, a life sciences partner with advisory firm McKinsey.
“I think we should recognize (that) in China the competition is fierce,” Zhang told Investor’s Business Daily. “For many of the companies, speed and efficiency will translate to your survival.”
China Biotech’s 10-Year Transformation
China’s biotech industry has undergone an impressive transformation in just a few years, EY’s Ural said.
In 2015, the country announced its “Made in China 2025” initiative, which aimed to propel China to a world leadership position in biotechnology and other markets. The country cut down the amount of money and time it takes to set up new biotech companies. It also made early-stage development easier.
“The biggest thing is the ability to move from an idea to early-phase clinical testing — I think that’s where China is probably moving at twice the speed of the U.S.,” Josh Smiley, chief operating officer of Zai Lab (ZLAB), said in an interview. Zai has headquarters in China and the U.S. and partners with several big biotech companies on drugs in China.
Several experts use a similar word to describe China’s role in the biotech industry: “formidable.”
Can U.S. Biotech Stocks Keep Up?
Bloomberg estimates that the number of novel drugs developed in China ballooned to north of 1,250 last year, far above Europe and nearly on par with the 1,440 in the U.S. In fact, according to EY’s Ural, China ran 39% of clinical trials for cancer drugs in 2025, beating the U.S.’ 32%.
Morgan Stanley predicts that by 2030 drugs from China could account for 35% of Food and Drug Administration approvals, a marked increase from just 5% now. By the same year, drugs from China could generate $34 billion in global sales, the investment bank estimates. That could skyrocket to $220 billion by 2040.
China’s growing dominance is not happening inside a vacuum. Biotech stocks are rising broadly as Big Pharma spends handsomely to fill product pipelines and portfolios. Estimates vary, but some hundreds of billions of dollars in sales are at risk over the next few years as patents protecting big drugs begin to expire.
Notable advancements in treating cancer and obesity are further bolstering biotech stocks.
Why Pharma Companies Are Eyeing China
Industry giants face a dilemma. China presents both an opportunity and a potential threat.
China-based Akeso Therapeutics developed a drug that could simultaneously block PD-1 and VEGF, two drivers of cancer, in one molecule. The drug is in development with Summit Therapeutics (SMMT) and could take on Merck‘s (MRK) Keytruda. Pfizer inked a deal for $1.2 billion upfront last May to license a similar drug from China’s 3SBio.
Pfizer, AstraZeneca, Roche (RHHBY) and Lilly have all licensed obesity drugs from China.
“There seems to be almost like a symbiotic relationship between the industriousness of innovation in China and large pharma in the U.S.,” Ethan Smith, a Norstella therapy area director, told IBD. “Many of the deals that we’re seeing at the moment are large pharma (partnering) with biotech in China.”
Zhang, of McKinsey, says U.S.-based companies can ill afford to ignore China’s biotech prowess. They should be — and are — asking: “How can we tap into that?”
Zai’s Smiley said the shift isn’t coming “at the expense of something else.” He said it’s “just adding to the pie of new medicines and good new modalities.”
China Biotech As Fast Follower
David Song, an investment partner with Tema ETFs, expects the pace of deals with China to continue. Historically, China has been incredibly good at “fast-follower approaches,” he said.
Martin Brenner, CEO of biotech iBio (IBIO), echoed that sentiment.
“I think what we’re seeing right now is if you want to have the 105th GLP-1, you look to China because you can actually get an asset like this very cheaply,” he told IBD. “If you are a leader in one area and you can easily be copied, that’s a danger.”
Zhang says China will always look for partnerships as a way to learn from other countries.
“Some of the executives would say that they believe that through partnership they can really learn and can really watch and see how the best practices can play out outside the home market,” she said. “I think in the coming years, we’ll continue to see a full range of pathways or different partnership ways that these companies are willing to take to expand or take their assets outside of China.”
But some experts believe that China’s ultimate goal is to shift to cutting-edge medicines, including first-in-class approaches. That means partnering with China’s biotech companies could also mean working with future rivals.
Economics For China Biotech
But for now, the focus will likely be on partnerships.
Arguably, China’s biotech companies will continue to seek out partners to branch into the more lucrative Western markets, says Zai’s Smiley. The economics of going it alone for the still-small biotechs of China simply don’t add up.
“The economic opportunities in China for even very innovative medicines are not enough to support the kind of long-term R&D budgets and risk-taking that the companies like Lilly and Argenx (ARGX) or others do,” Smiley said. “You have to find ways to get your products and innovation into the U.S. And, frankly, China needs to do more to make pricing better in their home market to help some of these smaller companies hold on to their innovation and reap the rewards of it.”
A number of licensing deals are shaped with Big Pharma taking the global rights to Chinese-grown drugs, with the exception of China. This means the China-based companies are responsible for marketing their drugs in China, and reap the financial rewards of sales in China. But the Western companies are getting the bigger piece of the pie by commercializing the drugs in global markets and taking in global sales.
“That’s just not going to be super-valuable on a one-product or two-product kind of company,” Smiley said. “Most of the companies, they’re going to need a whole bunch of out-licensing programs to be able to, on an ongoing basis, afford global development.”
Similarly, Tema’s Song says China’s biotech companies have some work to do to iron out the economics of these licensing deals.
“It’s probably best that you don’t slowly dish out the royalty streams or, you know, give up the economics,” he said.
National Security Concerns?
The deals also face another hurdle. The Trump administration could scrutinize these deals based on national security concerns, especially following the passage of the BIOSECURE Act in December 2025. The law prevents U.S. agencies from procuring biotechnology equipment or services from “companies of concern.” In essence, it restricts using federal funds to support firms linked to foreign adversaries, particularly China.
John Wu, a managing director with advisory firm Boston Consulting Group, noted worsening “tensions between China and the U.S. on the trade side.” That creates barriers to the exchange of innovation.
“You’re already seeing some restrictions on data transfer bilaterally,” he told IBD. “Would that exacerbate over time and create even stronger material barriers for licensing deals and partnerships across the board? So, I would say that’s another factor; that’s sort of a headwind.”
Manufacturing reliance on global players, including China, has been a thorny issue for the Trump administration. President Donald Trump is working to bring manufacturing back onshore, signing Most Favored Nation deals with U.S. drugmakers. These deals delay tariffs for several years while the companies build up their stateside manufacturing footprints. They also lower the prices of certain drugs.
But EY’s Ural argued that the government should study the market carefully and consider a likely scenario: China could outpace the U.S. in biotech innovation.
“If you are in a government office and you are looking at this as a national security concern, I think you should be very concerned for the innovation coming from China, not the U.S.,” he said. “The U.S. system is very, very complex. There will be winners and losers based on the emergence of China. And, of course, the winner is China, regardless of how you look at it.”
Biotech Stocks’ Playbook
China’s biotech companies also enjoy a key advantage over their counterparts in the U.S. and other Western countries: They don’t face the same hurdles to drug development.
“It’s very easy for them to start any clinical trial,” says Accenture’s Jantzer.
The country is very tech focused, running clinical studies with “almost like a digital-native platform approach,” she added.
China also has a deep talent pool thanks to an educational system focused on science, technology, engineering and mathematics, or STEM. Additionally, Beijing has made a big push to enable biopharma research.
“I know there have been policy changes within China over the past few years that have redirected a huge amount of R&D into the biotech space,” said Smith of Norstella.
McKinsey’s Zhang says China could offer “an alternative way” of developing drugs.
“The overall macro environment in China now created or fostered an innovation-conductive environment,” she said. “That’s ranging from having the right regulatory framework in place to the policies really encouraging building the industry parks. And certainly there’s a very large pool of talent, especially the STEM talents, that have been cultivated and educated from China.”
China Biotech’s Big 3: Oncology, Immunology, Neuro
In China, the big areas of biotech focus have been oncology, immunology and neuroscience, she says.
Smith pointed to antibody drug conjugates, or ADCs, as a notable area for China biotech. These drugs link a toxic payload, like chemotherapy, to an antibody. The antibody seeks out a specific target that shows up on cancer cells, allowing the poison to mostly hit the problematic players.
“We’re seeing lots of things with ADCs with sort of dual payloads, ADCs with dual targets, all sorts of things happening there,” he said. “I’m looking at things like (the American Association for Cancer Research conference) next year with a lot of early-stage data readouts and seeing what kind of crazy and wacky ADCs they’re putting together, and what might be the rationale behind some of those.”
Zhang said China is “leading the world” in generating new ADCs and bispecifics. Bispecific drugs use one molecule to block two troublesome proteins. The Merck-rivaling PD-1 and VEGF blockers from Akeso and 3SBio are bispecifics.
Based on a recent McKinsey analysis, China accounts for a third of the global pipeline when it comes to early- and midstage studies using ADCs, bispecifics, protein degraders, gene-silencing and radio-ligand technologies. All of these are being tested as cancer treatments.
Biotech Stocks: An Uncertain Future
China represents both an opportunity and a challenge for U.S. biotech stocks, iBio’s Brenner argues.
“I think it will drive innovation, but it will be painful,” he said. “There will be a lot of biotechs in the U.S. and Europe suffering from the (competition), but ultimately it will drive a new wave of innovation. It has to. And this is typically what you see in biotech. … There’s a lot of companies that are not set up well to resist that pressure that is coming at the moment from overseas.”
At Actuate Therapeutics, CEO Schmitt expects a “Darwinian” future.
There will be “those that thrive vs. those who just get washed under because they’re outresourced and outmaneuvered,” he said.
But Norstella’s Smith says it’s not a “zero-sum game.” Smart biotech companies in the U.S. and Europe will find ways to partner with their counterparts in China. Importantly, biotech stocks traded on Nasdaq and the NYSE are having their moment in the spotlight. Shares have climbed markedly for much of the past year amid something of an alliance with the Trump administration.
Smith expects more deals between biotech and pharma companies in the U.S. and China.
“There’s no saying that they’re all going to be a success, but (China) certainly seems to be where innovation is,” Smith said. “And a company that doesn’t have one of these (deals), people are asking, ‘Where is it going to come from?’ I think the answer probably will be another one of these Chinese biotechs.”
Follow Allison Gatlin on X/Twitter at @AGatlin_IBD.
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