From innovation to monetization: the next chapter in China pharma’s international expansion

China’s pharmaceutical market was historically a fast follower market. Companies could build on drug targets, mechanisms and clinical lessons already proven in the West, then adapt and commercialize them faster and often at a lower cost. The fast follower model was supported by a large domestic patient base, faster clinical development, regulatory reform and returning scientific talent.

Over time, that same ecosystem started producing more differentiated and original innovation. China is now not only the largest source of new clinical-stage assets but has also become a global leader in first-in-class programs and next-generation modalities such as antibody-drug conjugates and bispecific and multi-specific antibodies.

This surge in innovation has not gone unnoticed by international pharmaceutical companies. China has increasingly become a market from which global pharmaceutical companies source innovative assets to replenish their development pipelines. In 2025, China-originated out-licensing deals reached US$135 billion in aggregate total deal value. In the first six months of 2026, China-originated out-licensing already exceeded US$100 billion, equivalent to approximately 60% of global pharma licensing value recorded in that period.

However, China’s innovation and licensing activity has yet to translate into commensurate gains in stock market valuations. Over the past few years, China’s pharmaceutical sector has generally underperformed the global pharmaceutical sector, with its largest pharmaceutical company by market capitalization currently ranking around 30th globally.

This is partly explained by the commercial constraints facing drug assets in the Chinese market. Centralized volume-based procurement and reimbursement pressure have improved patient affordability but have also constrained drug pricing and sector profitability. Despite its large patient population, China accounts for only approximately 6% of the global prescription-drug market, compared with 55% for North America and 25% for Europe.

Meanwhile, relatively few Chinese pharmaceutical companies have established the clinical-development, regulatory and commercial infrastructure required to launch and scale products globally.

Although the negotiating leverage of Chinese pharmaceutical companies in licensing deals has improved, the royalty economics in such transactions still leaves most of the value with international licensees. Traditional licensing deals provide upfront cash and reduce risk, but they do not build the Chinese originator’s global capabilities or close the valuation gap.

Larger Chinese pharmaceutical players are increasingly responding by pursuing broader strategic partnerships rather than relying solely on traditional single-asset license transactions. Over the past 18 months, Chinese pharmaceutical companies have shown growing interest in transactions incorporating co-development and co-commercialization arrangements, profit-sharing structures, and multi-asset and technology-platform collaborations.

An increasing number of these partnerships have also been accompanied by strategic equity investments in the Chinese pharmaceutical originators. These investments can provide additional financial support, strengthen alignment between the partners, and serve as market validation of the underlying company and its pipeline.

One recent example is the partnership between Takeda and Innovent Biologics. This multi-asset collaboration includes a co-development and co-commercialization arrangement for cancer immunotherapy asset IBI363. Under the arrangement, Innovent is entitled to 40% of profits generated in the US market, enabling it to participate more directly in the product’s commercial upside rather than relying solely on royalty income. In addition to an upfront payment of US$1.1bn and potential milestone payments of up to US$10.2 billion, Takeda also made a US$100 million strategic equity investment in Innovent.

Another route for Chinese pharmaceutical originators to capture more economic value from their assets is the NewCo deal structure. Under this model, the Chinese originator transfers rights to a drug asset into a newly formed company backed by third-party investors in exchange for an equity stake in that company. This can provide greater upside than milestone payments and royalties alone. Since the first NewCo transaction in 2024, there have been approximately 30 such transactions.

China’s pharmaceutical innovation is expected to continue internationalizing. For global pharmaceutical companies, China offers not only lower-cost innovation, but also an increasingly proven source of globally competitive science. To improve the monetization and value creation of their innovative assets, Chinese pharmaceutical companies are likely to become more selective about the rights, risks and economics they retain. This may lead to more equity-backed strategic partnerships spanning asset portfolios and technology platforms with joint governance, shared asset development, as well as access to international clinical and commercial networks.