Not long ago, a letter from U.S. House Select Committee on China Chairman John Moolenaar landed on the desk of Treasury Secretary Scott Bessent.

 

Moolenaar's letter was sharply worded, demanding that biotechnology be included within the prohibited investment scope of the COINS Act, restricting the flow of U.S. capital and intellectual property into China's biotech sector. He specifically emphasized that the Treasury Department has the authority to include biotechnology within the restriction without going through a cumbersome legislative process.

 

This has, to some extent, intensified concerns about cross-border industry collaboration between China and the U.S. – earlier in April, the U.S. House Appropriations Committee, in its budget report for the FDA for fiscal year 2027, proposed prohibiting the FDA from accepting clinical data generated in China when reviewing new drug clinical trial applications.

 

But for those who are truly "making drugs," the decision-making process has always followed a different logic.

 

On the global innovative drug R&D map, China is rapidly transforming from a "marginal participant" into a "core player." After record-high out-licensing deals in 2025, the total value of Chinese innovative drug out-licensing transactions exceeded US$60 billion in the first quarter of 2026, approaching half of the total for 2025. At the same time, China's pipeline of drugs in development accounts for approximately 30% of the global total, ranking second in the world.

 

Behind these figures lies a transformation that is profoundly reshaping the landscape of the global biopharmaceutical industry. Returning to the industry level is perhaps the best way to understand it.

 

Recently, the CEO of a small biotech company from the U.S. industry wrote an article specifically discussing the balance of risks and rewards of developing new drugs in China. Following this line of thought, a more nuanced understanding and grasp of Chinese innovation begins to take shape.

 

TONACEA 01: An Overseas Perspective

 

Jonathan Montagu is the co-founder and CEO of HotSpot Therapeutics. His article stems from a response to current realities.

 

Regarding drug R&D, China has become a particularly prominent and controversial topic. Overseas perceptions vary widely – some see China as a vast land of opportunity, only beginning to reveal its surface, while others view China as the single biggest threat to the development of the U.S. and European biotech industries.

 

Montagu did not rush to pick a side. Instead, he sought to offer a perspective from a small U.S. biotech company, especially the real-world experiences and considerations of dealing with China in early clinical development.

 

The dramatic changes in China's biomedical innovation over the past few years are no secret. In the 2024 Nature Index of scientific papers, China significantly outpaced the United States by a 17% margin.

 

In 2025, Chinese-origin assets accounted for 49% of out-licensing transactions in the global biopharmaceutical sector. Moreover, a series of blockbuster deals – Roche with Qyuns, GSK with Rapt, AstraZeneca with CSPC Pharmaceutical Group – all had their core assets originating from China.

 

Montagu admits that views seeing China as a threat are understandable. After all, China is a relatively new player in the development of innovative therapies. With the achievements mentioned above, it is reasonable to believe that more differentiated, novel, and even first-in-class drugs will emerge from China in the future, becoming direct competitors to American or European products.

 

However, he then offers a more constructive perspective: even for a small biotech, framing China solely as a threat is highly limiting.

 

Looking from a different angle, China offers enormous opportunities at every stage of the drug development process. For a long time, U.S. and European companies have relied on China for chemistry and biology support. However, there are still many unexplored opportunities in the broader drug development cycle, including early clinical trial enrollment and execution in China.

 

Montagu cited the views of Peter Kolchinsky, a managing partner at RA Capital Management. Kolchinsky believes that China can serve as a source of innovation and human proof-of-concept, while later stages such as global registrational trials and local manufacturing will ultimately provide safeguards for the global industry and drug accessibility.

 

The core idea behind this is that China's role is not to replace the global biopharmaceutical industry, but to integrate into it, becoming a key link in the innovation value chain.

 

TONACEA 02: China Speed

 

In Montagu's analytical framework, the opportunities and challenges of clinical development in China are like an iceberg – the surface is clear, but a much more complex reality lies hidden beneath.

 

First, China has a vast patient population, extremely fast enrollment, and significantly better cost efficiency than the U.S. or Europe. These advantages attract global pharmaceutical companies. Data shows that for some indications, clinical trial enrollment in China can be 5 to 10 times faster than in the U.S., averaging one patient per month.

 

But the challenges are equally significant. China's regulatory environment is still evolving. Differences in background medications, differences in patient-reported outcomes, difficulties in trial execution oversight due to distance, and cultural differences are all real issues that need to be carefully addressed.

 

For a small biotech without an existing presence in China, the operational hurdles are even greater. Constrained by resources, a small biotech's primary task is ensuring high-quality clinical trial management without substantial on-the-ground infrastructure. While small biotechs are accustomed to contracting with global CROs to conduct clinical studies in countries where they have no physical presence, this "arm's-length" model is difficult to execute in China.

Montagu specifically highlighted the reality of competition.

 

China does have a large pool of eligible patients, but competition from local biotech companies is intense, putting foreign small biotechs at a distinct disadvantage.

 

Western companies not only face stricter scrutiny, but also the potential public relations implications of an adverse event in a clinical trial conducted in China. This makes many of China's top-tier hospitals reluctant to take on these risks.

 

However, the environment is changing rapidly. Montagu noted that in recent years, China has implemented regulatory reforms to stimulate biomedical innovation, making the environment for bringing innovative therapies to patients easier and faster. The framework for investigator-initiated trials (IITs) has become an important accelerator for cell and gene therapies, and for innovative drugs meeting specific criteria, the regulatory review timeline has been shortened to 30 working days.

 

Indeed, China's drug review and approval system reforms are continuing to deepen.

 

In early 2026, the NMPA issued the "Implementation Opinions on 'AI + Drug Regulation'," marking the official transition of China's drug regulation from informatization and networking toward intelligence. The newly revised "Implementation Regulations for the Drug Administration Law" further established an efficient review and approval pathway centered on clinical value, creating a modern drug review and approval system that provides clear accelerated pathways for innovative drugs.

 

It is against this backdrop that Montagu poses a seemingly contrarian question: can a high-growth biotech afford not to enroll patients in China? If not, how should smaller overseas companies consider operating in China?

 

TONACEA 03: Two Pathways

 

Confronting the choice of entering the Chinese market, Montagu presents two existing models for consideration.

 

The first model is to establish a local entity in China. While still relatively rare among small biotechs, a few companies can already be seen setting up Chinese subsidiaries – Candid Therapeutics is one example.

 

These companies are building local teams with the necessary CRO project management, medical monitoring, and physician engagement capabilities to succeed locally.

 

Candid's case is quite compelling. Founded in the U.S., this company's core R&D assets all originated from Chinese biotech companies, forming a unique development model of "Chinese innovation + global capital + U.S. operations."

 

In March 2026, Candid achieved public listing through a merger with Rallybio, raising over US$505 million. Just two months later, in May 2026, UCB announced the acquisition of Candid at a valuation of up to US$2.2 billion – US$2 billion upfront plus up to US$200 million in milestones.

 

From inception to acquisition by a multinational pharmaceutical giant, Candid's trajectory is a textbook case of the "Chinese innovation source + overseas capital operation" model.

 

However, this full local presence pathway faces fundamental challenges. Montagu analyzed that building a team and infrastructure in a completely unfamiliar region requires significant investments of both time and money, especially when the region is so far from the company's headquarters.

 

More critically, finding excellent local talent remains a major obstacle, as the vast majority of top-tier talent is already employed by established Chinese biopharmaceutical companies or CROs.

 

The second model is co-development. Some companies reach agreements with local Chinese biopharma companies, exchanging cash and joint development and commercialization rights in China for access to clinical development infrastructure. It is important to note that this model has its own complexities.

 

Montagu stated that stakeholders have differing views on the value and cost of rights to Chinese products. Against the current backdrop of geopolitical friction, the actual value of these rights may be limited. However, given the sheer size of the Chinese patient population, relinquishing these rights and potential future profits at such an early stage of the development cycle carries fundamental risks.

 

Between these two options, a small biotech needs to weigh significant short-term benefits against long-term interests.

 

"Is three-times faster enrollment and obtaining key human data a year earlier worth it? In many cases, yes," Montagu remarked. However, he cautioned that finding the right Chinese co-development partner is a long, complex, and extremely time-consuming process – many deals take over 12 months to close.

 

TONACEA 04: The Bigger Picture

 

From a broader perspective, China's role in the global clinical trial landscape is undergoing a structural shift.

 

Based on analysis of Chinese clinical trial registration data from 2015 to 2025, China's share of global innovative drug clinical research activity rose from 13% in 2015 to 50% in 2025. Behind this shift is the rapid maturation and structural transformation of China's clinical trial ecosystem.

 

Particularly noteworthy is China's leading position in global Phase I clinical trials.

 

In 2025, China accounted for 47% of global Phase I clinical trial activity, while the U.S. accounted for only 25%. This marks China's transition from a location primarily used for late-stage "bridging studies" to a comprehensive, globally integrated hub for innovative therapy development.

 

Another significant change is the increasing maturity of the phase distribution of clinical trials initiated by Chinese companies.

 

Between 2015 and 2025, the proportion of Phase I trials among innovative drug trials initiated by Chinese companies fell from 64% to 48%, while the proportion of Phase III trials rose from 9% to 14%. This indicates that Chinese companies' R&D capabilities are extending to later-stage, higher-value phases.

 

In terms of therapeutic areas, trials by Chinese companies are more concentrated in oncology, accounting for 49% of total trials, with particular emphasis on locally endemic diseases such as gastric cancer and hepatocellular carcinoma.

 

Regarding technology pathways, Chinese companies are rapidly transitioning from small-molecule drugs to antibody-based modalities. In 2025, the proportion of trials initiated by Chinese companies involving monoclonal antibodies, bispecific antibodies, and ADCs reached 32%, compared to only 7% in 2015.

 

Arthur Tzianabos, CEO of Lifordi Immunotherapeutics, also noted the aforementioned changes. He mentioned that China's relative share of clinical trials grew by 57% between 2019 and 2023, and by 2024, it had become the world's third-largest clinical trial destination, primarily due to its large patient population, technological capabilities, cost-effectiveness, and favorable regulatory policies.

 

Tzianabos also pointed out that while this growth has been primarily driven by the explosion of clinical activity from local Chinese companies, enrollment in Chinese clinical studies can indeed be 5 to 10 times faster than in the U.S., averaging one patient per month for some indications.

 

It is for these reasons that Western companies are increasingly discussing conducting first-in-human trials in China.

 

TONACEA 05: Variables and Decisions

 

Standing at the 2026 juncture, whether a small U.S. biotech should incorporate China into its clinical development strategy is no longer a simple yes-or-no question. It involves multiple trade-offs: speed versus quality, cost versus risk, short-term gains versus long-term positioning.

 

On the positive side, China's vast patient base, increasingly sophisticated clinical trial infrastructure, continuously improving regulatory environment, and accelerating innovative drug R&D capabilities provide irreplaceable value for global drug development.

 

In 2025, 7 of the top 10 global pharma licensing deals involved Chinese companies as licensors, with partners all being multinational pharmaceutical companies. China's share of the global innovative drug R&D pipeline has reached 30%, second only to the United States. These figures indicate that China has moved from a "follower" to a "runner alongside," and in some areas, even a "leader."

 

On the challenge side, the uncertainty of U.S.-China geopolitical dynamics, potential regulatory risks, and operational complexities arising from cultural and managerial distances all require new entrants to be fully prepared.

 

The proposal made in April by the U.S. House Appropriations Committee to restrict Chinese clinical data, while still having a long way to go in the legislative process, has already impacted market expectations. Even if the legislation ultimately does not materialize, the market may have already begun pricing in this risk.

 

For a small biotech CEO like Montagu, the decision whether to enter or wait may ultimately come back to the most fundamental question: what is the original purpose of making drugs?

 

Montagu's answer is that the core of the biopharmaceutical industry is to improve lives by delivering medicines to patients in need. A strategy that opens the door to clinical development in China benefits not only drug developers but also the global patient population.

 

In this sense, China is neither just a market opportunity nor merely a competitive challenge.

 

The decision still rests with each company's management team. But one thing has become consensus: those pioneers who are building solutions and serving the entire ecosystem will occupy a more advantageous position in the future global drug development landscape. And China is deeply embedded in that landscape.

 

For any company aspiring to bring innovative therapies to patients worldwide, understanding the Chinese market, participating in it, and even embracing it is rapidly shifting from an "option" to a "necessity."

 

References:

• Balancing the Risks and Rewards of Drug Development in China: A Small Biotech CEO Perspective

• Ex-US Clinical Trials: Tribulations, Preparations, and Expectations

• When the FDA Wants to "Block" Chinese Clinical Data