Summary of Key Points
The U.S. biotechnology index XBI (which tracks small and medium-sized biopharmaceutical companies in the stock market) has seen a streak of 13 consecutive months of gains, with an annual increase of 27% approaching historical highs. This is driven by a wave of mergers and acquisitions by large pharmaceutical companies and relaxed FDA policies. In the comparison of innovative drugs between China and the U.S., China has advantages in clinical research and development speed and supply chain capabilities, while the U.S. leads in terms of capital, commercialization skills, talent, and the scientific research system supported by the NIH (National Institutes of Health). For China to catch up, it needs to establish an institution similar to the NIH, as the biopharmaceutical competition between the two countries is just beginning.
I. The Two Main Drivers Behind the XBI Index's Rise: Large Pharmaceutical Companies' Acquisitions + FDA's Acceleration of New Drug Approval Processes
The sharp rise in the XBI index can be attributed to two main factors:
1. Large pharmaceutical companies are eager to acquire smaller firms to replenish their drug pipelines: The patents for many of their existing drugs are about to expire (for example, U.S. pharmaceutical mergers and acquisitions totaled nearly $100 billion in the first half of 2026, with $54 billion alone in the second quarter). Without exclusive sales rights, their revenue will plummet, so they need to acquire new drugs from smaller companies to maintain growth, which naturally drives up the stock prices of these smaller firms.
2. The FDA is accelerating the new drug approval process: In June, the FDA introduced the "TrialBlazer" program, which reduces the time from drug screening to human trials by 6-12 months, and later trials can sometimes use a single key study in place of multiple tests. This means that new drugs developed by smaller companies can be brought to market more quickly, attracting more investment.
II. The Competition of Innovative Drugs between China and the U.S.: China Has "Hard Power," While the U.S. Has "Soft Advantages"
According to a report from Cure, both countries have their strengths:
- China's strengths: Fast clinical research and development speed (due to a large patient base, allowing for rapid trial progress) and a strong supply chain (leading pharmaceutical production capacity globally).
- The U.S.'s strengths: Abundant capital for research and development; a robust commercialization market (the largest in the world, with high drug prices and large sales volumes); strong talent attraction (top scientists from around the world are drawn here); and efficient technology transfer from laboratory findings to market-ready products.
- Equitable Factors: The ability to make scientific discoveries is roughly comparable between the two countries.
Experts conclude that China is like an "efficient factory," while the U.S. combines an innovative mindset with a strong commercialization capability.
III. The NIH: The Soul of U.S. Biotechnology
The NIH is the cornerstone of U.S. biotechnology, and its significance lies in:
1. Efficient and targeted funding: 80% of its annual budget is allocated through competition to 300,000 researchers at 2,500 universities and institutions, with strict evaluation processes (only 13% of proposals are funded in 2025), ensuring that funds are used for the most valuable projects.
2. Remarkable Achievements: Scientists funded by the NIH have won 104 Nobel Prizes, and 99.4% of the 356 drugs approved by the FDA between 2010-2019 were supported by the NIH. For every dollar invested in NIH funding, there is a return of $2.57 in economic benefits, and it also creates 410,000 jobs.
3. Controversial but Indispensable: Although its indirect costs (such as administrative expenses) are debated, attempts by former presidents to cut funding have been blocked by Congress because the NIH is a fundamental pillar of U.S. biotechnology.
IV. China's Challenge in Catching Up: The Need for a "Own NIH"
China has policy support and active business development (BD) activities in the biopharmaceutical sector, but why can't it catch up with the U.S.? The key issue is the lack of an institution similar to the NIH that can efficiently allocate funds to research and innovation projects.
- Rao Yi argues that China's lag in biomedical research funding is due to the absence of such an organization that can focus resources on foundational research and innovative initiatives.
- Changing the ecosystem takes time; Rao Yi estimates that it may take another 10-20 years for China to establish a complete innovation ecosystem.
- The U.S. is also taking steps to maintain its lead: It plans to invest $15 billion in 2025 to consolidate its biotechnology leadership, but China has advantages in industrialization and market presence, and the competition is just beginning.
Conclusion
The bull market in U.S. biotechnology is the result of a combination of capital, policy, and a robust scientific research system. For China's innovative drugs to catch up, they need to address weaknesses in their research infrastructure while leveraging their own industrial strengths. This competition between China and the U.S. is both a challenge and an opportunity, as the strength of the competitor also drives progress for one's own country.