Why China Biotech is getting a DeepSeek moment, too

Shuli Ren, Bloomberg

From artificial intelligence to military defense, China has offered a few DeepSeek moments this year, showcasing that the country is more than just the world’s biggest factory, and that it also can compete with the US on the technology front. Now biotech is having its own.

In late May, Pfizer Inc. agreed to pay a record $1.25 billion upfront to license an experimental cancer drug from Shenyang-based 3SBio Inc., as well as making a $100 million equity investment in the Hong Kong-listed biotech company. Two weeks later, Bristol-Myers Squibb Co. said it would pay BioNTech SE $1.5 billion guaranteed to license a similar cancer asset. It was a win for BioNTech, which bought Biotheus Inc., the Chinese company that developed the drug, late last year for $800 million.

Increasingly, big pharmaceutical companies are seeing Chinese biotech as the disruptors. These two deals will allow Pfizer and Bristol-Myers Squib to go after Merck & Co.’s Keytruda, the world’s top-selling medicine. 3SBio’s drug works in the same way as a therapy from China’s Akeso Inc., which outperformed Keytruda in one trial. US-based Summit Therapeutics Inc. licensed Akeso’s assets for $500 million upfront in late 2022.

These billion-dollar deals got bankers and investors excited. The Hang Seng Biotech Index is up about 60% this year. By comparison, the S&P biotech index is down 6.5%.

There are good reasons to believe this rapid pace of dealmaking and enthusiasm for China biotech will last, with US President Donald Trump’s economic policies serving as a major catalyst.

Trump’s threats to slash US prescription drug costs by “59%, PLUS,” as well as Medicaid and Medicare cuts in his big, beautiful tax and spending bill, will inevitably dent Big Pharma’s bottom line. To cut in-house R&D expenses, these multinationals might have to come to China, where early-stage human tests are much cheaper and easier to run, despite comparable safety protocols.

So far, the biotech industry is relatively insulated from Trump’s tariffs, providing a meaningful safe haven for global investors. Rare earths materials and Boeing plane deliveries might be used as negotiation tools, but Beijing is making an exception for public health. It continues to welcome American-made medical supplies, including Pfizer’s lung cancer drug Lorbrena and Merck’s Gardasil, a HPV vaccine that protects against cervical cancer. Being in Beijing’s good books allows Big Pharma to seal licensing deals with local partners.

What is innovation without human talent? China’s “engineer dividend” is likely to pay off big time in the next few years, propelled by a hostile White House that vows to “aggressively revoke” visas of Chinese studying in “critical fields.”

Between 2000 and 2020, the number of engineers in China ballooned from 5.2 million to 17.7 million, according to the State Council. The discipline and medicine are among the most popular fields for graduate studies.

Those under the age of 30 account for 44% of the total engineering pool, versus 20% in the US, according to data compiled by Kaiyuan Securities. As a result, compensation for researchers is only about one-eighth that in the US. In other words, Chinese engineers are young, cheap and abundant.

So what we’ve got are a lot of tailwinds: A group of strategic buyers eager to cut expenses and outsource research, a relatively benign local authority, and competitive talents. China’s biotech industry is starting to dazzle.

[Abridged]

Courtesy Bloomberg/Shuli Ren