The pharmaceutical industry is quickly approaching the largest patent cliff in history. Between $236 billion and $400 billion in annual revenue is at risk by 2030 as hundreds of drugs lose exclusivity. There’s also a growing concern that the industry is nearing an innovation plateau.
But opportunities exist to both accelerate innovation and minimize the impact of the patent cliff. One place for pharmaceutical companies to look is China, which is showcasing increasing capabilities in basic research and scientific attractiveness as it transitions from generics production and contract manufacturing to pioneering novel drug discovery.
We’ve identified five areas where China is rapidly evolving and what that means for drug innovation. This article also explores strategies that Western pharmaceutical companies should consider to capitalize on these dynamics.
1. China is leading global growth in scientific research output
In recent years, China has rapidly enhanced its innovation capabilities, emerging as a leading hub for basic research and surpassing countries such as Germany, the UK, and the US. China’s share of high-quality research output, based on fractional authorship contributions measured by the Nature Index, grew at a compound annual growth rate (CAGR) of 22.5% between 2000 and 2004, while Germany, the UK, and the US grew by just 1.3%, 0.4%, and 1.7%, respectively, with Japan declining by -0.7%. Notably, China’s share in biological sciences rose by nearly one-fifth in 2024, while the US saw a 2.7% decline.
This momentum is reflected in the soaring number of patent applications, with China now exceeding the US, Japan, Korea, and the European Patent Office, boasting a 16% CAGR compared to the US's 3.4%, Korea's 3.7%, the EPO's 2.9%, and Japan's -1.5%, based on our analysis of data from the World Intellectual Property Organization.
A key driver of this growth is China’s efforts to bolster its biotechnology sector through various policies since 2006. Initiatives such as the Medium to Long-Term Plan for Science and Technology have focused on genetically modified organisms, drug development, and vaccines. The 2010 Strategic Emerging Industries Plan aimed to support the development of innovative drugs, and the Made in China 2025 strategy emphasized the development of new target chemical drugs and antibody drugs. A five-year plan launched in 2016 identified biotechnology as essential to a modern industrial technology system, and this was further supported by the Health China 2030 plan, which prioritizes frontier medical technologies. Guidelines for human genome editing were established in 2024 to regulate genetic research.
While the US leads the globe in research and development expenditures, spending more than $820 billion annually when adjusted for purchasing power, China is rapidly closing the gap, spending more than $780 billion and rising. Between 2013 and 2023, China’s government funding for overall R&D surged by 90%, compared to the US's modest 12% increase.
2. China clinical trial expansion boosts global drug development
China’s role in hosting clinical trials is expanding. Between 2019 and 2024, China’s relative country usage — its share of the total global clinical trial market — surged by 66%, while North America, Asia-Pacific, and Central and South America saw modest increases of just 7%, 5%, and 12%, respectively, according to our analysis of IQVIA data. Interestingly, country usage in Western Europe decreased by 12% during the same period, despite starting from a higher baseline.
As of 2024, companies headquartered in China sponsored 30% for global clinical trial starts, trailing only US-based companies, which accounted for 35% of the total. Europe's share has declined to 21%, while Japan and South Korea each contribute 3%.
Although obtaining official approvals takes about 25 weeks, which is longer than Germany's 12 weeks, China's extensive public hospital network reduces patient recruitment time and costs, attracting multinational corporations.
A significant portion of clinical research focuses on domestically developed treatments. Recently, over half of new trial registrations in China have involved local sponsors targeting Chinese market drugs. Still, a growing number of innovations are reaching international markets through Western companies that commercialize drugs outside China. Merck, for instance, secured global rights from Shanghai-based Abbisko Therapeutics in 2025 for Pimicotinib, a drug targeting tumors affecting the tissue lining for joints and tendons.
3. China improves data quality and regulations to drive pharma innovation
Regulatory improvements over the past few years are also positively affecting the quality of innovation in China.
In 2015–2016, regulators cracked down on clinical trial data fraud by requiring a self-audit of pending drug applications, leading to roughly 73% of applications either being voluntarily withdrawn or rejected by regulators.
At the same time, the National Medical Products Administration (NMPA) implemented a priority review system in 2016 to expedite approval pathways for novel drugs addressing unmet needs, akin to the US Food and Drug Administration’s breakthrough therapy designation. As a result, approval times in China decreased from two to three years post-global approval to under one year.
Since joining the International Council for Harmonization (ICH) and establishing Harmonization Standards in 2017, the NMPA has committed to adopting international Good Clinical Practice standards. This enables data from Chinese trials to be accepted by regulators in the US, EU, and Japan, facilitating simultaneous global drug development and approval. China was elected to the ICH management committee in 2018, 2021, and 2024, underscoring that its clinical trial and R&D data standards are now aligned with global norms.
And this year, updates to the Drug Administration Law introduced data and market exclusivity for pediatric and orphan drugs, marking a notable commitment to these areas. For the first time, market exclusivity has been integrated into China's regulatory framework. The law also provides a protection period of up to six years for undisclosed trial data pertaining to drugs with new chemical components and other eligible drugs.
4. Venture capital funding is evolving, supporting more mature innovation
Early-stage venture capital funding in China mirrors broader trends, surging in 2021 before correcting. From 2025 onward, VC activity has modestly rebounded, with 224 deals totaling $3.2 billion, compared to 214 deals in 2024 with a similar value. However, the share of VC investments from overseas has declined from 23% in 2020 to 10% in 2024, partly due to geopolitical concerns. Domestic funding has increased self-sufficiency in innovation financing, with the government playing a crucial role through major grants, initiatives, and joint investment with private VCs. In 2023, public funding in China rose to nearly $3 billion.
Additionally, the State Development and Investment Corporation (SDIC) in 2024 pledged an initial outlay of more than $840 million for the Biomanufacturing Innovation Academy in Tianjin, and the Shanghai Government pledged $4 billion in subsidies for companies conducting clinical trials in the Shanghai area. Over the past decade, the Chinese Government Guidance Funds have distributed over $1 trillion to scale up technologies, compared with the US National Institutes of Health budget of $481 billion from 2014 to 2024.
Capital providers are shifting their focus toward funding next-generation therapeutics, with VC counts shares for emerging and advancing modalities reaching 50% in 2025. From 2016 to 2025, capital allocation for emerging modalities increased by 11%, and VC deal count share for advancing modalities grew by 16%, while mature modalities saw a 27% decline in volume during the same period.
5. China biopharma ecosystem matures with CRO/CDMO and global deals
Historically, China focused on manufacturing active pharmaceutical ingredients (API) and offering contract research organizations (CRO) and contract development and manufacturing organizations (CDMO) services, creating “me too” and “me better” products at lower prices. Chinese biotechnology companies are increasingly moving up the biopharma value chain toward differentiated assets, evidenced by a rise in cross-border mergers and acquisitions and in-licensing deals. In 2025, China-focused licensing deals accounted for 50% of global licensing deal value and 26% of deal volume, with antibodies and antibody-drug conjugates being the primary modalities outsourced. Most licensing deals occur early in the development pipeline, including pre-clinical or phase 1 trials, reflecting trust in Chinese innovation and allowing investors to acquire de-risked assets at lower costs.
Chinese companies are also producing high-cost pharmaceuticals, such as Belief Bio Med's recently approved gene therapy for hemophilia B, marking China's first domestically developed gene therapy for this condition. Growing interest among Western companies in licensing Chinese assets is matched by local biotechnology firms seeking global commercialization options to develop advanced products and avoid price-sensitive markets. Additionally, domestic innovation capabilities exceed market demand, constrained by prices set by the National Reimbursable Drug List (NRDL), often necessitating cuts of 50%-65% and limiting profitability.
It’s notable that Chinese-based biopharma companies are also establishing a presence in the Association of Southeast Asian Nations (ASEAN). Companies are turning to Malaysia, for instance, because its regulations are recognized across multiple markets, making it easier to operate internationally while also reducing reliance on the US and risks around policy changes. Companies are also exploring options in Thailand and further afield in the Middle East, all aimed at broadening their reach.
Based on conversations with regional biopharma leaders, companies are also exploring options in Thailand. Increasingly, ASEAN seems relatively open to Chinese players working with local clinical data.
Backed by government funds and private capital, over 200 research clusters have emerged to promote the shift from “Made in China” to “Innovated in China,” established through top-down planning in the 14th Five-Year Plan and 2035 vision. Key hubs include Beijing’s Zhongguancun Life Science Park, home to over 600 companies, including BeiGene and InnoCare Pharma, focused on AI-driven drug discovery, and the Shanghai Zhangjiang Pharma Valley, known for innovative biopharma and CRO/CDMO services. Other notable locations include Shenzhen, Suzhou, Chengdu, Guangzhou, and Hangzhou. Given this transition in the Biotech ecosystem in China, the arrival of a first Chinese‑origin blockbuster on global markets appears likely in the mid- term.
Strategies for Western pharmaceutical companies to engage in China
Uncertainties remain in China surrounding sustained investment; the environment for high-risk, high-reward research; geopolitical challenges, including the Biosecure Act, which prohibits the US government from buying biotechnology services or equipment from “companies of concern,” deeper integration into global clinical trials; and the ability of the Chinese model to foster creativity and openness in the future.
Still, China’s emergence as a center for pharmaceutical innovation necessitates action. Western drugmakers should act swiftly to fill their innovation pipelines ahead of the impending patent cliff. Establishing a China-based business development and innovation hub is critical to sourcing, evaluating and integrating local assets into global strategy. Pursuing ecosystem partnerships through minority equity investments in VC funds can secure essential early innovation. Additionally, adopting an incubator model can allow companies to host and develop startups, de-risking assets despite the necessary upfront investment. Finally, establishing dedicated local R&D hubs offers the full value capture — enabling end-to-end discovery and translational research in China — but also requires the highest investment and long-term commitment.
Additional contributor: Ben Simpfendorfer, partner, Oliver Wyman.