News

A new balance of power is emerging in the global pharmaceutical industry: China is rapidly catching up and challenging the US. “Innovation is now definitively global – but access, prices and markets could become more political,” says Thorsten Fischer, Managing Director and Head of Portfolio Management at Moventum AM. The pharmaceutical sector is becoming a model for the new era.

The global pharmaceutical industry is facing a historic transformation. For decades, the US and Europe dominated the development of new medicines. “But this unipolar system is a thing of the past,” says Fischer. Instead, a bipolar structure is emerging: China is rising as a second innovation powerhouse alongside the US.

In recent years, the People’s Republic has not only caught up in quantitative terms but is also increasingly setting new qualitative benchmarks. The number of clinical trials is now on a par with the US, and in certain areas the country is already taking the lead. At the same time, the pipeline of new active ingredients is growing rapidly, particularly in early stages of development.

This momentum is having clear consequences for global capital allocation. “Money follows opportunity,” Fischer explains. International pharmaceutical companies are investing billions in Chinese biotech firms and are securing targeted access to active ingredients through licensing deals and partnerships. China is therefore evolving from a pure production location into a central innovation hub for the industry.

This rise is being driven to a significant extent by state industrial policy. The government in Beijing is promoting research and development strategically and over the long term. According to the OECD, China’s expenditure in this area now exceeds that of the US. “While Washington is discussing budget cuts, China is systematically scaling its innovation base further,” says Fischer.

Structural competitive advantages are reinforcing this trend: a large patient pool enables China to conduct clinical trials more quickly and cost-effectively, regulatory processes have been significantly accelerated, and internationally trained scientists are returning to China – a “reverse brain drain”.

The quality of innovation is also catching up. According to data from analytics firm Citeline, China now brings more new medicines to market than any other country. While the US remains the leader in so-called innovation leaps and first-in-class therapies, its lead is visibly narrowing.

According to Fischer, this development has far-reaching consequences for markets and patients. Medicines are likely to become cheaper and more widely available. At the same time, margin pressure on established Western pharmaceutical companies is increasing – further intensified by India, which, as a generics powerhouse, is increasingly acting as a global price dampener and playing a major role in shaping access to medicines.

However, the People’s Republic still faces obstacles. Clinical trials in China are often based on comparatively homogeneous populations, which can delay the global approval process. Regulatory requirements for international markets also remain high. In addition, the geopolitical dimension is growing: supply chains for active ingredients and precursors could become politicised, and trade restrictions on medicines and biotechnology are conceivable. Instead of global integration, markets could face fragmentation.

“Both systems therefore face strategic challenges,” Fischer explains. China must scale its innovative strength without further exacerbating geopolitical tensions. The US, in turn, is under pressure to strengthen its industrial and technological base in the pharmaceutical sector.

“For investors, pharma is therefore becoming a key sector in global systemic competition,” says Fischer. Platforms and companies with access to both innovation spheres are particularly attractive. At the same time, risks are increasing due to regulatory complexity and fragmented markets. For the industry as a whole, this means that the next generation of medical breakthroughs will emerge more globally than ever before. But access to them could become more regional, political and strategic.