Past few years, the financing environment for the innovative drug industry has endured a long winter. Raising funds has been a Damoclean sword hanging over the head of every biotech founder. As the winter chill recedes and the industry gradually recovers, a previously low-key type of capital provider has begun to clearly and actively appear on the stage.

 

Chen Jie, Deputy General Manager of the Technology Finance Department at Bank of Communications Shanghai Branch, told TONACEA that before 2021, the Shanghai Branch's credit extended to the innovative drug industry was nearly zero. By 2025, this figure had surged to nearly RMB 3 billion, serving over 60 clients. For the broader biomedical industry, the supporting credit line exceeded RMB 40 billion.

 

Similarly, Zhang Feng, President of Bank of Beijing Shanghai Yangpu Technology Sub-branch, stated that the number of biopharmaceutical companies his branch serves grew rapidly to over 30 in 2025, with total approved credit exceeding RMB 3 billion.

 

The banking system is rushing into the innovative drug track  at an unprecedented pace. However, compared to the financing methods more familiar to biotechs, this money operates on a completely different logic.

 

 

01、Banks Step In to Fill the Gap

 

Compared to traditional industries, the financing channels for biopharma have historically been relatively narrow and concentrated, heavily reliant on VC, PE, and IPOs, with capital returns also dependent on IPOs, successful M&A, or BD deals. However, amid heightened capital market volatility, the fragility of this single-path approach has become apparent. Some companies find themselves in a predicament of "expensive and difficult financing," unable to sustain lengthy R&D cycles. Especially in the past few years, with IPO channels clogged, exits have become increasingly difficult, and primary market investors have grown more cautious. Meanwhile, changes are occurring on the other side as well. As growth peaks in traditional manufacturing, real estate, and other sectors, banks are also seeking new growth poles. Biopharma, as a representative of new productive forces, has naturally entered their field of vision.

 

In short, innovative drug companies "in need of money" and banks "looking to deploy capital" have aligned needs. Especially when equity financing faces a chill, bank credit is gradually becoming an important supplement to fill the "funding gap" for biotechs.

 

Zhang Feng noted: "When the market environment is good, companies prefer equity financing. But during a 'winter' period, when IPO channels narrow and equity financing becomes difficult, companies turn more to banks for support. In fact, from the company's perspective, especially in early stages, they would prefer equity financing. But equity and debt are not an either-or choice; they are complementary. Most companies value both highly."

 

In 2024, an innovative drug R&D company not yet profitable encountered financing difficulties, as the entire biotech investment environment was at a low point. Bank of Beijing provided it with RMB 50 million in comprehensive credit support through a "debt-equity combination, investment-loan linkage" model, while simultaneously coordinating with investment institutions to lock in RMB 100 million in warrants. This combined "debt + equity" approach, to some extent, balances the high-risk characteristics of tech companies with the bank's own risk control requirements, while also providing more financial support for early-stage R&D.

 

For biotechs, the most direct benefit of bank financing is less dilution of the team's equity. Chen Jie did the math: a company that has just completed an angel round could secure several million to over ten million RMB in credit for daily operations, thereby reducing dilution by one to two percentage points or more. For early-stage valuations, this represents tangible value. The company obtains much-needed cash flow for R&D while preserving the founding team's ownership stake.

 

He suggested that companies could plan to cover 10% to 20% of their funding needs for the coming year through bank loans. This allows them to effectively use financial leverage while maintaining a safe debt service margin. The entry of bank credit often also signifies another form of value: recognition of the company's fundamentals.

 

Zhang Feng mentioned that Bank of Beijing once provided tens of millions of RMB in credit support to an innovative drug company at a critical R&D stage, later increasing it to over RMB 100 million. Subsequently, other banks followed suit, broadening the company's financing channels and providing greater financial flexibility. During critical R&D periods, such bank endorsements can often leverage more financial resources, creating a positive cycle and buying the company more time and financial security.

 

 

02、Matching the R&D Pace

 

While bank money is beneficial, it is not a "panacea." The key is whether it matches the company's stage of development. For a biotech, the most rational financing strategy is to dynamically adjust the ratio of equity to debt as the R&D pipeline advances.

 

From the bank's perspective, how does it view the credit value of a pipeline at different stages? Chen Jie shared a clear logic.

 

In the preclinical and Phase I stages, banks prefer a "follow strategy." Chen Jie explained that results at this stage mainly consist of pharmacological and toxicological data, as well as data on side effects and dosing safety windows in healthy populations. "These are only basic data, with high uncertainty. Therefore, the amount of bank involvement should not be too large. Around RMB 5 million for preclinical, and RMB 10-20 million for Phase I, primarily used for daily rent, personnel salaries, or small CRO expenses." The credit logic here is not to bear the primary R&D risk, but to "follow" strong investment institutions and provide small-scale liquidity support to quality companies.

 

By Phase II and beyond, the situation begins to change. If interim or final Phase II data are promising, the bank's strategy becomes noticeably more active. Credit limits can increase to RMB 20-50 million or even higher, and terms can extend from one-year short-term working capital loans to two or three years. When a drug enters late Phase III or receives market approval, the company's certainty increases significantly, and credit limits can be further expanded.

 

In response to the long R&D cycles of innovative drugs, some banks have recently introduced more tailored products. For example, Industrial Bank offers "Tech Enterprise R&D Loans," with working capital loans of up to five years and fixed-asset loans of up to ten years for tech companies' R&D needs. Bank of Communications Suzhou Branch offers the "OPC Entrepreneur Talent Loan," which requires no guarantee and has a term of up to three years.

 

Bank of Beijing is currently experimenting with providing medium- to long-term working capital loan support for innovative drug companies, such as customizing loans for a single pipeline's R&D.

 

"We assess the total funds needed for that pipeline from molecule discovery to clinical completion. Assume the total is RMB 1 billion. The company raises RMB 100 million itself, we provide a matching loan, and VCs cover another portion. The loan term can match the pipeline's R&D cycle. Future commercial sales revenue from the pipeline will serve as the repayment source," Zhang Feng said.

 

 

03、How to Leverage Bank Funding

 

When a biotech begins to seriously consider bank loans, the first thing it needs to understand is how a bank assesses whether a company is worth lending to. A bank's evaluation logic differs from that of a VC. It doesn't simply "bet on the track or the team." Instead, it has its own unique "data-driven" assessment system.

 

Chen Jie breaks this down into several core dimensions: First, comparison of the company's own data—the competitive advantage of its clinical data compared to marketed drugs and other drugs in development for the same indication. Second, benchmarking against global data—comparing with data from other drugs targeting the same target and indication globally to determine global competitiveness.

 

The most critical factor is head-to-head data. "If a company conducts a head-to-head trial in Phase II or III, we rate its data an order of magnitude higher. Head-to-head trials effectively eliminate patient selection bias and are the most direct proof of a drug's clinical value."

 

The team's background is also an important foundation of trust. Zhang Feng pointed out that a core team with experience at big pharma and a track record of successful projects naturally gains bank trust more easily. Based on knowledge of their past projects, a bank might even provide small startup funding before the angel round.

 

At the same time, the endorsement of venture capital is another key reference. "VCs often conduct deeper research into niche areas than we do. Their endorsement itself constitutes a value judgment," Zhang Feng said. On that basis, he further examines the institution's overall investment success rate in the biopharma field. But the ultimate criteria still come back to the company itself: whether its R&D direction is at the industry's leading edge, whether it is best-in-class, or merely me-too.

 

Of course, banks also have their own "red lines." Chen Jie advises against using bank loans for long-term, large-scale fixed-asset investments like building factories, as this fundamentally conflicts with the nature of bank funds. "Using working capital to build a factory is a severe mismatch of risk and return. Bank funds naturally seek safety and liquidity, which is incompatible with ten-year infrastructure investments." He added that only when a company is sufficiently mature—for example, with excellent Phase III data, successful product launch, and a highly regarded follow-up pipeline—might a bank consider providing a medium- to long-term project loan.

 

Bank enthusiasm for supporting innovative drugs is heating up. However, to achieve sustainable investment, a core bottleneck must be broken: clearly defining the boundaries of "duty exemption" so that systems truly match the high-risk nature of innovation.

 

Chen Jie introduced Bank of Communications' practical experience. First, a principle is set: for biotech companies without commercialized products, medium- to long-term project loans are not recommended. Amounts should be controlled within reasonable limits, so the bank does not bear the primary risk. "We already have practical precedents in this area. This has freed up frontline staff, making them more willing to engage with early-stage companies. But the prerequisite is having a professional team in place," Chen Jie said.

 

Zhang Feng pointed out that true "patient capital" requires supportive systems. The innovative drug cycle is as long as 8 to 10 years. It is unrealistic for equity investments to have only a 3 to 5-year exit period. "Regulatory policies need to fully accommodate the capital cycle. Moreover, the risk of equity investment failure is far higher than credit. Being disrupted by new technologies during the investment process is common. Duty exemption measures are also needed."

 

Banks are transforming from "bystanders" to "deep participants" in innovative drugs. Behind this "two-way奔赴" is the inevitable trend of restructuring the financing landscape for China's innovative drug industry.

 

When bank capital intervenes in the long cycle of innovative drugs, it brings not only liquidity to fill equity gaps but also a certain confirmation of the industry's logic. Clinical data, team background, and pipeline value are becoming more quantifiable credit assets than one might imagine.

 

For biotechs, this represents one more financing tool to choose from. For the entire innovative drug ecosystem, it means the capital structure is moving from a single "risk appetite" to a diversified "risk stratification." In the cycle alternating between winter and recovery, this change itself embodies a form of resilience.