Western pharma firms strategically license assets from Chinese biotechs while leaving China rights with the local partner. This leverages China's faster, cheaper clinical development, as the partner tests the molecule in new indications, generating valuable data that de-risks the asset for the global firm at no extra cost.

A disconnect exists between the public rhetoric of U.S. pharma leaders, who frame China's growing biotech sector as a threat, and their corporate actions. These same companies are investing heavily in Chinese R&D and manufacturing, revealing a dual strategy of public caution and private commitment to integrating China into the global biopharma ecosystem.

BeiGene's success demonstrates a new model for biotech growth. It started in China and expanded globally, but critically maintains China as a core hub for innovation. This challenges the traditional view that biotech innovation flows primarily from the West and must be built from a US headquarters.

Driven by significant government investment, China is rapidly becoming a leader in biotech R&D, licensing, and outsourcing. This shift is a top-of-mind concern for US biotech and pharma executives, with China now involved in a majority of top R&D licensing deals.

According to investor Joe Edelman, China's main strength is developing new molecules. This means US and European firms will increasingly in-license drugs from China, creating fierce competition for the small US biotechs that traditionally filled this pipeline role for larger pharmaceutical companies.

An expert analogy suggests China's biotech industry faces the same risks as its EV market: overcapacity, intense price wars driven by procurement policies, and limited global access due to geopolitics. This "octagon" of competition could lead to an unsustainable ecosystem despite rapid innovation, making it the world's toughest arena for drug development.

The narrative of China as an innovation 'threat' in biopharma may be a deliberate strategy to spur action in the U.S. By creating a sense of urgency and competition, reminiscent of the U.S.-Soviet superpower struggle, the industry may be attempting to mobilize investment and political will, even if the framing is seen as unfortunate.

The increasing innovation and speed from China puts pressure on the U.S. biotech ecosystem. To remain competitive, the U.S. must focus on collaboration and address its own systemic issues, such as slow trial execution and the high cost of getting a drug to the IND stage.

Despite US-China tensions threatening innovation, the likely outcome is 'coopetition'—a blend of competition and collaboration—as global pharmaceutical firms navigate the dual imperatives of advancing innovation and ensuring supply chain resilience.