Snakes and Ladders: why Biopharma needs China
Daniel Mathews
Global & Europe, Middle East, India and Africa Life Science Market Lead at EY
The Chinese Year of the Snake, which “represents wisdom and agility,”[1] began in January 2025 with the launch of the DeepSeek R1 model showcasing China’s strengths in both of these areas. Displaying cutting-edge AI performance but using a fraction of the number of hi-tech chips deployed by big-name western competitors like OpenAI and Google, DeepSeek was a dramatic announcement of China’s innovative capabilities.
Chinese innovation in biopharma has not yet caused a shocking “Sputnik moment” of this kind, but in recent years Chinese companies have steadily climbed the rungs of the industry’s value chain. Long established as a source of APIs and raw materials and a site for clinical trials and affordable manufacturing, China is now rapidly establishing itself as a serious innovator in its own right. In 2024, Beigene, the US- and China-based multinational, and Betta Pharma of Hangzhou, both won FDA approvals for novel cancer drugs, adding to a growing list of approved drugs originating in Chinese laboratories. Western big pharma companies are taking note.
As highlighted in EY’s 2025 Firepower report, while overall industry M&A investment has been restrained over the past year the flow of capital into the Chinese biotech sector has risen steeply, with nearly US$34 billion in potential alliance value invested in 2024 alone. Out-licensing of Chinese drugs overtook in-licensing to China for the first time only in 2021, but the trend is accelerating, with over US$100 billion in potential value poured into partnerships with China-based companies in the past four years.
One of the big attractions of Chinese innovation is the relatively low financial outlay for Western partners. While the potential value of these deals is significant, the actual upfront spend is just a small fraction, and the opportunity to access high-quality R&D at low price is enticing to the industry as it wrestles with surging costs and margin pressure. Licensing agreements offer companies a relatively low-risk way of doing business, with big pharma acquiring international rights to biotech innovations and leaving the domestic market to their Chinese partners. This arm’s-length approach reduces the visibility challenges around regulatory uncertainty and due diligence complexities within China itself.
Until now, these opportunities have outweighed the looming challenges of partnering in China amid an unstable geopolitical environment. In December 2024, the US government veered away from passing the Biosecure Act which explicitly sought to block future US funding to named Chinese “foreign adversary biotech companies”[2] – but the direction of travel in US policy has clearly pointed away from the People’s Republic in recent years. President Trump’s “Liberation Day”, and the subsequent series of spiraling tariffs, counter-measures and escalating rhetoric have emphatically confirmed that the administration does not intend to make it easy for companies to do business in China. As noted in EY’s Pharma supply chains of the future study, these ratcheting tensions are already pushing the industry away from assuming that business models can depend on frictionless globalized operating models. Pharma companies may need to embrace some elements of onshoring or localized manufacturing and supply to negotiate the shifting trade landscape over the next few years. As the antagonism between the two nations intensifies, companies operating in China face increasing exposure to cost pressures, uncertainties and risks.
Rolling the dice on China’s risks and rewards
Despite the risk that a misstep in this market could send a Big Pharma player plunging down the leaderboard, companies cannot win in the global market without rolling the dice on the opportunities China also presents. The Chinese domestic pharma market alone is projected to reach US$186 billion by the end of 2028[3], driven by increased government spending as the administration works towards the increased access and equity goals of the Healthy China 2030 plan. That’s too much money to leave on the table and innovating for China remains a necessary priority – while innovating for the global market will increasingly depend on the industry’s ability to leverage Chinese R&D to fill the product pipelines.
As a fundamentally R&D-driven industry, biopharma depends on the ability to constantly reinvent itself: the industry always needs new ideas, directions and targets to keep growing and improving. Crucially to China’s strategic importance, the “new modality” biotech platforms, projected to do the heavy lifting for the industry’s future growth prospects, feature prominently in dealmaking within the country. The largest out-licensing China investment of 2024 targeted RNA interference drugs and the first two months of 2025 have seen alliance deals focused on, among other assets, novel antibody-drug conjugates and next-generation tri-specific antibodies. The presence of Chinese companies on these new frontiers of biotech innovation signal the key role the country will play in advancing the next generation of novel medicines.
As the breakout success of DeepSeek suggests, China’s rise to prominence in biotech R&D is just one aspect of the country’s emergence as a major tech innovator across the board. From synthetic biology and genomics, to robotics, quantum computing, AI and beyond, the “Middle Kingdom” is set to remain at the centre of innovation. As biopharma seeks to shed some skin and reshape its products, business models and strategies for future growth, China-based innovation, both within and beyond the life sciences, will be critical to support the industry’s ongoing progress. As we are seeing, as the Year of the Snake unfurls, China is building the ladders biopharma will need to climb to reach the next level of its transformation.
Grasping these opportunities – and dodging the business risks that China simultaneously presents – will involve new deal models and constructs that can limit financial contagion from geopolitical unrest. This may include building new companies around innovations originating from China, structuring IP and situating assets geographically to reduce exposure to regulatory and trade tensions. Ultimately, the leading multinationals may need to shift their mindset from “Big Pharma” to “Networked Pharma”: delivering results in a high-friction global environment could require companies to position themselves within a more flexible, evolving ecosystem of collaborators. As a trusted partner with deep experience in cross-border collaborations and innovative deal structures, EY is ideally placed to help biopharma companies navigate the challenges of China today.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.
[2] Bill to Ban Foreign Adversary Biotech Companies, including BGI Group | Select Committee on the CCP
[3] IQVIA Market Prognosis 2024-2028 China and Hong Kong.pdf