Summary of Key Points
Over the past three decades, the position of "client" in China's innovative pharmaceutical industry has undergone three significant reversals: Initially, multinational pharmaceutical companies (MNCs) held absolute power due to patent monopolies; today, in the Chinese market, medical insurance and centralized procurement policies have turned them into parties that must accept pricing decisions set by others; in overseas licensing agreements, Chinese pharmaceutical companies have evolved from being mere sellers of early-stage research pipelines at low prices to partners in joint development with MNCs. At the level of original innovation, both sides are interdependent—MNCs rely on China's research and development efficiency and pipeline capabilities to bridge their patent gaps, while Chinese companies depend on the global commercialization capabilities and funding of these multinational firms. However, for China to truly become the "client," it still needs to overcome three major hurdles: developing its own commercialization capabilities, improving domestic payment systems, and advancing in the research and development of breakthrough drugs.
I. The Past: Multinational Pharmaceutical Companies as the "Absolute Dominants"
From the 1990s until 2015, MNCs such as Pfizer and Roche dominated China's innovative pharmaceutical market through global patent monopolies. At that time, imported drugs were synonymous with high efficacy; for example, Pfizer's Lipitor and Roche's Herceptin accounted for over 70% of the market share in China, with some cancer medications reaching even 90%. Imported drugs in China were more expensive than those available domestically, leaving local pharmaceutical companies with no choice but to produce generic versions or act as contract manufacturers, earning meager profits.
The reason was simple: Before 2015, a new drug in China was defined as one that had not yet been launched globally, so there was little incentive for domestic companies to invest in research and development. Additionally, the medical insurance system did not provide incentives for innovation. MNCs could profit heavily from a few key drugs, while Chinese patients paid high prices, and local companies were trapped in a competitive market dominated by low-cost generics.
II. Selling Drugs in China: Medical Insurance and Centralized Procurement Change the Game
After the pharmaceutical review reforms in 2015, the new "clients" in the Chinese market became medical insurance providers and hospitals. The most significant impact came from centralized procurement policies: In the first nine rounds of such auctions, the winning rate for imported original drugs was only 3.7%, and in the tenth round, none were awarded. By 2024, the share of imported cancer medications in top-tier hospitals had dropped to 34%, with domestic products accounting for 66%. For instance, Merck's revenue in China plummeted by 66% in 2025 due to the replacement of its nine-valent HPV vaccine with a domestic alternative and its failure to win bids in diabetes drug procurement. In plain terms, the Medical Insurance Bureau stated, "Regardless of your country of origin, you must follow our rules when selling drugs in China—clinical value and reasonable pricing are key considerations." MNCs have thus shifted from being the ones who set prices to those who must comply with them.
III. Overseas Transactions: Chinese Pharmaceutical Companies Evolve from Sellers to Partners
In the first half of 2026, the value of overseas licensing agreements for Chinese innovative drugs reached $99.7 billion, doubling compared to 2024, with China accounting for eight of the top ten global deals. Initially, Chinese companies lacked funds and had to sell their early-stage research pipelines to MNCs at low prices. However, this situation has changed: Now, when research pipelines become more scarce, Chinese companies are more selective in their partners. For example, BeiGene did not fully license its Zebrutinib but decided to commercialize it in the U.S. itself, achieving annual sales of $2.8 billion and occupying 33.8% of the U.S. BTK inhibitor market (the highest share). In 2026, more deals involved joint development, with companies like Hengrui collaborating with Bristol-Myers Squibb, giving Chinese firms a say in global clinical decisions and profit distribution. Although Chinese companies have gained more influence, MNCs still hold the financial leverage, as the upfront payments for these transactions are five times lower than those in the top ten global markets.
IV. Original Innovation: Mutual Dependence
MNCs are facing a "patent cliff" as the patents for many of their blockbuster drugs expire, urgently needing new research pipelines to fill this gap. China's high R&D efficiency and low costs—particularly the speed from pre-clinical to phase II trials, which is several times faster than in the U.S.—make it an attractive partner. As a result, companies like AstraZeneca's CEO has visited China six times in 15 months, and Merck has established its only global R&D center outside the U.S. in China. However, China also relies on MNCs for funding, as the upfront payments for overseas licenses exceed the total investment and financing in the entire industry. Additionally, domestic prescription drug sales in China are only one-sixth of those in the U.S., and commercial insurance coverage for innovative drugs is low (7.8% in 2025), meaning Chinese companies need access to the global market and capital.
Interestingly, despite political tensions between the U.S. and China, their economic ties are strengthening, as evidenced by the record-breaking agreements signed between Pfizer, Merck, and other MNCs with Chinese firms. This mutual dependence indicates that the old order is declining while a new one is taking shape.
V. Three Barriers to Becoming the True "Client"
For Chinese innovative drugs to transition from being participants to the dominant players, they must overcome three major challenges:
1. Independent Commercialization Capabilities: Most companies still rely on licensing agreements to enter overseas markets; BeiGene is a rare example of success in independent commercialization, but most lack the capability to build global sales networks.
2. Insufficient Domestic Payment Support: Medical insurance covers 46.4% of innovative drug expenses, compared to only 7.8% by commercial insurance, indicating a significant gap in purchasing power that is difficult to bridge in the short term.
3. Moving from Follow-up Innovation to Breakthrough Development: Current drugs often target already validated targets; true innovation requires the ability to discover new targets from scratch, which involves leading global clinical trials and registration processes.
Conclusion: Who Really Determines the Power?
Being the "client" is not about status but about influence and economic value. The Chinese market is now more crucial for MNCs than the U.S. market is for Chinese companies. MNCs cannot afford to lose this market, while Chinese firms still need access to American capital and markets. However, the trend is clear: As China's research pipelines become more valuable and its commercialization capabilities strengthen, the balance of power will shift in China's favor.
This analysis explains the shifting dynamics in the innovative pharmaceutical industry in simple terms, from past monopolies to mutual dependence, and outlines the challenges ahead, making it understandable even for non-experts.