China's biotech companies are booming. How to capitalize on it?

In 2025, biotech companies from China are likely to renew the record for the sixth consecutive year in terms of the volume of deals with Western pharma giants actively buying up the rights to develop and sell Chinese drugs. Ilya Zubkov, Freedom Broker's senior analyst for the healthcare sector, has selected seven companies that investors looking to capitalize on the growth of Chinese biotech should pay attention to.

Over the past decade, China's biotechnology sector has made a quantum leap forward. There are three reasons for this: radical regulatory reforms, strong government support and the creation of a unique R&D ecosystem in China.

In 2017, China's National Medicines Administration (NMPA) joined ICH's international standards for drug quality, safety and efficacy. That is, since then, Chinese players have been developing drugs to the same standards as Europe, the US and Japan. In addition, the NMPA has reduced the review time for clinical trial applications from 9-12 months to 60 days. This fundamental change, supported by government support, tax incentives and the creation of biotech clusters, has turned China into one of the most efficient countries for research in the world.

According to a report by the American company IQVIA, the huge number of patients (with a population of over 1.4 billion people) and relatively low costs have allowed the country to become a global center for clinical trials. Thus, in 2023, China accounted for 29% of all new clinical trials in the world, although back in 2013 it amounted to 8%. And the Financial TImes newspaper, citing data from the Chinese analytical agency PharmCube, reported that in the first eight months of 2025, Chinese pharmaceutical companies entered into 93 license agreements with foreign partners for $85 billion - they sold international rights to drugs developed by them. The total value of the deals is expected to reach a record level for the sixth consecutive year.

Chinese companies thus have the advantage of being able to move drugs from the lab to clinical phase trials faster and cheaper, which is critical in the highly competitive global pharma industry.

The most significant evidence of the maturity of China's biotech sector is the change in the innovation vector from a pure importer of intellectual property to a key exporter. Faced with the loss of hundreds of billions of dollars in revenue due to expiring patents, Western pharmaceutical giants are increasingly turning to Chinese developments to replenish their portfolios. According to Stifel, about 31% of all Big Pharma molecules licensed by Big Pharma in 2024 came from developments from China, up from just 3% in 2015.

Large-scale strategic alliances are indicative, such as GSK's $12.5 billion deal with Jiangsu Hengrui to work on a dozen Chinese drugs or Pfizer's partnership with 3SBio for potentially more than $6 billion to produce and commercialize the Chinese company's anticancer drug.

Such deals are recognition in the West of the level of Chinese science and mean that the R&D platforms of local companies have reached a level that allows them to compete and collaborate with the leaders of the global pharma industry on an equal footing.

But, of course, not everything is cloudless in the Chinese market. Despite the prospects, investors need to soberly assess the significant risks.

First, there are regulatory barriers in the West. An illustrative example is the story of the lung cancer drug Tyvyt from the Chinese company Innovent. In partnership with Ely Lilly, it planned to bring it to the American market. But the US Food and Drug Administration (FDA) refused to approve the drug in 2022 after the regulator's advisory committee recommended that Ely Lilly and Innovent conduct additional trials in the US. Lilly eventually withdrew from this development.

This case demonstrated that expensive international multicenter clinical trials are required for approval in the US and EU, and that data from Chinese patients alone is not enough for Western regulators.

Second, geopolitical tensions between the U.S. and China introduce unpredictable political risk by threatening stricter deal vetting and restrictions.

Finally, the third factor is the low profitability of the domestic market. China has a strict policy of centralized state procurement. During negotiations on inclusion of drugs in the national list with state reimbursement, their price may decrease by 60-70% or more compared to the manufacturer's price. The profitability of Chinese companies suffers from this. This makes entering lucrative Western markets not just an ambitious goal, but a prerequisite for commercial success and return on investment.

Since 2023, Chinese biotech companies (Global X China Biotech ETF) have traded with a forward-looking EV/Sales multiple between 3 and 5, while the iShares Biotechnology ETF, which tracks U.S. companies, has barely dipped below 5 over the past decade. But now their valuations have leveled off, which could be seen as a sign of growing investor interest in Chinese pharmaceuticals

Considering all the pros and cons, which companies from China should an investor pay attention to?

- Jiangsu Hengrui Medicine

It is China's largest innovative company, which has successfully brought 19 original drugs to the domestic market. It has also entered into major agreements with Merck and GSK, already mentioned earlier.

Hengrui represents a model of successful transformation from generics manufacturer to R&D giant. Its extensive domestic portfolio provides stable cash flow to fund research, and partnerships with Big Pharma companies serve as proof of the global competitiveness of their science. It is the most mature and diversified player, a blue chip Chinese biotech.

The company's average target price for the stock is 83 yuan, according to FactSet, with an upside potential of nearly 36% to the closing price on Nov. 11. Buy rating

- Akeso, Inc.

It is a pioneer in the development of bispecific antibodies for cancer treatment, being the first company in the world to get approval for the anti-cancer drug Cadonilimab. It has struck a deal with US-based Summit Therapeutics for up to $5 billion for the rights to develop and commercialize its other asset, Ivonescimab. The company demonstrates scientific leadership in one of the most advanced and complex segments of immuno-oncology. A deal of enormous scale finally confirms that its R&D platform is rated in the West as one of the best and has tremendous commercial potential. It has an average target price of HK$178 with a Buy rating and a potential upside of 55.6% to close on Nov. 11.

- Legend Biotech

This company with Chinese roots, a manufacturing site in China and a Nasdaq listing. In partnership with JNJ, it has developed the CAR-T cancer therapy Carvykti, which has been approved by US and European regulators (FDA and EMA) and is successfully marketed in Western markets.

Legend Biotech has proven that a Chinese company can create a breakthrough, ultra-complex and personalized drug that has passed the most stringent regulatory review in the world and become commercially successful. This is an example of Chinese innovation being able to compete at the highest technological level. The average target price is $75, implying a potential upside of 2.3 times the closing price on Nov. 11. Buy rating.

- 3SBio, Inc.

Has a profitable and stable domestic business with dominant products. Signed a record licensing deal with Pfizer in 2025: $1.25 billion upfront and up to $4.8 billion in milestone payments for clinical and commercial advances and royalties.

It has a "hybrid" operating model: a mature and profitable home-based business reduces investment risks, while the Pfizer deal paves the way for global growth. It has an average target price of HK$39, upside potential of 33.7% to the closing price on Nov. 11, and a Buy rating.

- BeOne Medicines

It is the most globalized Chinese biopharmaceutical company, building its own infrastructure for R&D and sales in the US and Europe and directly competing with Western players. BeOne (formerly BeiGene) has chosen the most ambitious and capital-intensive strategy: not just to license assets, but to become a full-fledged international pharma company. The goal involves billions of dollars of investment in commercial and manufacturing infrastructure. It's a high-risk, high-reward potential bet on building the "new Amgen." The average target price is $390, with a potential upside of 13.5% to the closing price on Nov. 11. Buy rating.

- Innovent Biologics, Inc.

Known for its strategic alliances with global leaders including Eli Lilly and Sanofi. Innovent is a master of the partner model. Rather than bearing all the costs and risks alone, it leverages the capital and expertise of global partners to co-develop and co-promote its drugs. The company does not simply sell a license to sell an already developed drug approved in China, but shares development costs and profits or losses in overseas markets with partners. It's a more pragmatic approach to growth. The average target price is HK$112, implying a potential upside of 31.4%. Average Buy rating.

- Hutchmed (China) Ltd.

This company was one of the first to independently develop an oral oncology drug (Fruquintinib) and get it approved by the US FDA. Hutchmed's success demonstrated that Chinese companies can navigate the complex path of R&D and regulatory approval in the US on their own. This has set an important precedent for less difficult-to-manufacture small molecules and paved the way for other similar projects. The average target price is $22, which implies an upside of about 44% to the Nov. 11 close, Buy rating.

This article was AI-translated and verified by a human editor