Who is the real party A in the China-US innovative medicine sector?

In the business world, the "Party A" refers to the party that puts forward demands, holds the dominant position, and assumes the obligation of payment. However, in the innovative drug industry, the meaning of the term "Party A" has completely shifted at least three times over the past three decades.

In China's healthcare payment system, hospitals and medical insurance are the absolute Party A, a fact that has never changed. But in the upstream transactions of innovative drugs, who calls the shots depends on what the scarcest resource is at the moment — whether it is capital or high-quality drugs.

A seemingly contradictory situation has emerged: multinational pharmaceutical giants are still reaping huge profits from innovative drugs in the Chinese market; at the same time, Chinese innovative drugs are pouring into overseas markets at an unprecedented speed. Both sides are making money, and both sides are spending money.

Who Exactly Is the Real Party A in Sino-US Innovative Drug Collaboration?

01 The Old Market Makers

If we regard the global pharmaceutical industry chain as a card game, from the large-scale entry of foreign pharmaceutical companies into China in the 1990s to the early 2020s, the faces sitting in the dealer's seat have hardly changed: Pfizer, Roche, Novartis, AstraZeneca, Merck & Co., Eli Lilly, Johnson & Johnson, Sanofi, Bayer.

What qualified them to act as dealers? The global patents for original drugs in their hands. For a long time, this was an almost unbeatable hand.

From the late 1990s to the 2010s, in the inpatient departments of Class 3A hospitals, "imported drugs" were synonymous with guaranteed efficacy. Products like Pfizer's Lipitor and Norvasc, Roche's Herceptin and Avastin, AstraZeneca's Iressa, and Merck's Gardasil dominated the Chinese market. Around 2015, multinational giants held over 70% of the innovative drug market share in China's tiered hospitals, and even up to 90% in certain oncology sub-segments.

The Party A relationship back then was clear-cut and ruthless. Multinational pharmaceutical companies were the source of technology and holders of brands, while Chinese pharmaceutical companies played the role of generic drug manufacturers or import agents. Chinese patients paid top global prices for original drugs, and some imported drugs were priced even higher than in the U.S. after exchange rate conversion. After the patents of original drugs expired, multinational pharmaceutical companies used institutional tools such as patent linkage and patent term compensation to extend their exclusivity periods as much as possible.

For quite a long time, China's innovative drug industry was doing clinical outsourcing and contract manufacturing for multinational pharmaceutical companies, or conducting follow-on development along similar drug pathways, earning meager profits from the lower end of the industry chain.

This pattern was no accident. Before 2015, the definition of a new drug was "a drug not yet marketed in China" rather than "a globally new drug". Local companies had no incentive to conduct original innovation. The medical insurance payment side had long adopted extensive management categorized into Class A and Class B, and had not established a value compensation mechanism to incentivize original innovation. As a result, multinational pharmaceutical companies made huge profits in China with just a few blockbuster products, Chinese patients paid some of the highest prices in the world for original drugs, and local pharmaceutical companies were trapped in the red ocean of low-cost generic drugs, competing against each other.

The turning point came with the 2015 reform of the drug evaluation and approval system. That campaign known in the industry as the "722 Inspection", along with a series of subsequent policies, kicked off China's transition from generic drug development to original innovative drug research. It was from that moment that the dealer's chair began to wobble.

02 Who Calls the Shots When Selling Drugs in China

Back in the Chinese pharmaceutical market, the most direct battlefield, the identity of Party A has been redefined in recent years.

AstraZeneca serves as a great observation sample. In 2025, its total annual revenue reached 58.739 billion U.S. dollars, of which the Chinese market contributed 6.654 billion U.S. dollars, a year-on-year increase of 4%, ranking first in the regional performance of multinational pharmaceutical companies in China for two consecutive years. In the same year, its license-in cooperation deals with YuanSi Biotech, Harbour BioMed, CSPC Pharmaceutical, and Jacobio Pharmaceuticals involved a total down payment of about 330 million U.S. dollars, accounting for only 5% of its China region revenue. In other words, the money it earns from selling drugs in China is 20 times the amount it spends on acquiring Chinese technologies.

But AstraZeneca's comfortable days of "earning big from drug sales while spending little on technology acquisition" are being systematically dismantled.

The most fundamental impact comes from centralized volume-based procurement. In the first nine rounds of national centralized procurement, the bid-winning rate of imported original drugs was only 3.7%. The tenth round saw all imported original drugs fail to secure any bids. By 2024, the market share of imported original anti-cancer drugs in Class 3A hospitals had dropped from 68% three years prior to 34%. Domestic generic drugs and innovative drugs together captured the remaining 66%.

Merck & Co.'s experience is the most extreme footnote to this reversal. Its China region revenue plummeted from 5.394 billion U.S. dollars in 2024 to 1.816 billion U.S. dollars in 2025, a 66% decline. The core reasons were the suspension of 9-valent HPV vaccine supply due to weak Chinese market demand and domestic alternatives, as well as the loss of bids for its diabetes products in centralized procurement. This is an extreme manifestation of the payer exercising its right to choose.

Huang Xinyu, Director of the Medical Service Management Department at the National Healthcare Security Administration, once made a very straightforward statement: "We need to view innovation rationally", "the core lies in clinical value", "we hope enterprises can think from the payer's perspective". In plain terms, it means: no matter which country your company comes from, when selling drugs in China, the rules are set by China.

This reversal has pulled multinational pharmaceutical companies from the seller's position to that of Party B, which must accept pricing reviews. But this is only the first layer of the story.

03 Who Is the Payer in Out-Licensing Transactions

If selling drugs in China is a battle for Party A status in the stock market, then out-licensing transactions — that is, exporting China-developed molecules to overseas markets — is a power game in the incremental market. Here, Party A status is no longer determined by geography, but by a more fundamental question: which is scarcer, capital or products.

In the first half of 2026, the total value of Chinese innovative drug BD (Business Development) out-licensing transactions reached 99.7 billion U.S. dollars, roughly double the figure in 2024. Among the top 10 global out-licensing deals, Chinese enterprises took 8 seats: CSPC Pharma and AstraZeneca at 18.5 billion U.S. dollars, Hengrui Medicine and BMS at 15.2 billion U.S. dollars, Innovent Biologics and Pfizer at 10.5 billion U.S. dollars.

When Chinese pharmaceutical companies needed capital and lacked overseas clinical development and commercialization capabilities, multinational pharmaceutical companies were the ones who provided the funds. They set the transaction terms, and Chinese pharmaceutical companies, as product suppliers, accepted them. This is why the industry refers to early-stage out-licensing as "selling green seedlings": selling the most valuable innovative results in advance to a dominant Party A when capital is most needed.

The CFO of a large multinational pharmaceutical company once privately shared a telling remark: If the cost of acquiring the same pipeline in China is only 30% to 40% of that in the U.S., and potentially yields better data, there is no need to hesitate over the choice.

But things are changing. When assets are sufficiently scarce, sellers begin to gain the qualification to select their partners.

Wang Lai, President of BeiGene, once made a very candid summary: "One of the keys to BeiGene's success is that we did not successfully sell out the BTK project." The company insisted on not assigning full rights of zanubrutinib to a multinational pharmaceutical company, but instead conducted commercialization in the U.S. on its own. The result? This drug now generates annual sales of 2.8 billion U.S. dollars in the U.S. market, holding a 33.8% market share among BTK inhibitors, ranking first.

This case has profoundly influenced the negotiation strategies of later players. The most notable change in 2026 is that the co-development model is replacing simple buyer-seller relationships. The deal between Hengrui and Bristol Myers Squibb adopts a co-development and commercialization model, allowing Hengrui to deeply participate in global clinical decision-making and profit distribution. The collaboration between Innovent and Pfizer covers multiple dimensions including licensing, co-development, and commercialization. Legally speaking, Chinese pharmaceutical companies have transformed from sellers to partners, securing a share of decision-making power and revenue distribution rights in the global value chain.

However, we cannot ignore that the structural advantages of the buyer-side Party A still remain. Multinational pharmaceutical companies are well aware that transaction down payments are a matter of survival for biotech firms. Currently, the down payments for Chinese innovative drug transactions still have about a 5-fold gap compared to the world's top 10 deals. As long as capital remains in others' hands, the right to speak will not be fully transferred.

04 Original Innovation: Who Depends on Whom

This is the most fundamental dimension to understand the power reversal.

Multinational pharmaceutical companies are now facing a huge problem: a patent cliff worth hundreds of billions of dollars. A large number of blockbuster drugs are facing patent expiration, and they urgently need new molecules to fill the gap. In the race to find new molecules, China's efficiency and cost advantages are almost irreplaceable.

China's R&D efficiency from preclinical to Phase II clinical trials is several times that of the United States. For a Chinese company, the levelized cost of advancing a biopharmaceutical therapy from the discovery stage to successful development is only about one-third of that of a global company. Faster time-to-market contributes 40% of the cost difference — the discovery phase in China takes about 36 months, compared to a global average of 54 months.

This explains why AstraZeneca's global CEO flew to China six times in 15 months, and why Merck established its only independent global R&D center outside its U.S. headquarters. At this level, Chinese innovative pharmaceutical companies with high-quality pipelines have become the unavoidable technical Party A for multinational pharmaceutical companies.

But conversely, Chinese innovative pharmaceutical companies also rely heavily on multinational pharmaceutical companies' global commercial networks and huge down payments to sustain operations and enter overseas markets. In the first quarter of 2026, the total down payments from out-licensing deals exceeded the total investment and financing amount of China's entire biomedical industry. Domestic prescription drug sales are only one-sixth of that in the United States, and the development of commercial insurance is still far from sufficient. Under the title of "the world's second-largest pharmaceutical market", there is still a significant gap in actual purchasing power compared with developed countries.

Developments in the U.S. government are also influencing the strategies of multinational pharmaceutical companies. Trump has threatened to impose tariffs as high as 200% on imported drugs, the draft "Biosafety Act" restricts federal agencies from cooperating with Chinese pharmaceutical companies, and the U.S. Food and Drug Administration has launched a China-specific special review. The ironic situation is that while there is political intention to decouple, business ties are becoming increasingly close. U.S. pharma giants like Pfizer and Merck have been continuously breaking records with the innovative drug licensing agreements they sign with Chinese pharmaceutical companies.

Both sides are dependent on each other, and neither can do without the other. This is the most typical feature of a gradual power transfer: the old order has not yet collapsed, while the new order is already growing beneath the surface.

05 Three Thresholds for the Party A Narrative

It took Chinese innovative drugs a decade to rise from near invisibility to become the world's second-largest innovative drug developer. But to evolve from an "important participant" to a "real Party A", there are still three thresholds to cross.

The first threshold: Independent commercialization capabilities.

Most Chinese innovative drugs still go overseas through out-licensing, rather than being sold independently by local companies. BeiGene provides a positive inspiration: by not selling out the BTK project, it achieved 2.8 billion U.S. dollars in annual revenue in the U.S. market. But for the vast majority of Chinese biotech companies, the global network of multinational pharmaceutical companies remains the most practical channel for overseas expansion.

The second threshold: Insufficient domestic payment depth.

In 2025, the sales volume of the innovative drug market reached 195 billion yuan, of which basic medical insurance expenditure was about 90.5 billion yuan, accounting for 46.4%; commercial insurance payment for innovative drugs and devices reached 15.2 billion yuan, accounting for 7.8%. Although the "dual catalogs" of medical insurance and commercial insurance have entered a substantive stage for the first time, the proportion of commercial insurance is still low. China's prescription drug sales are only one-sixth of that in the United States, and this structural gap cannot be bridged in the short term.

The third threshold: The qualitative leap from rapid follow-on development to truly first-in-class innovation.

The number of first-in-class drugs does not equate to quality. Most drugs still follow targets that others have verified, and the ability to truly discover new targets from scratch is the ultimate foundation of Party A status. This means the capability to lead target discovery, clinical design, and global registration.

06 Conclusion

The term "Party A", in the final analysis, is not about identity, but about value.

Looking back over the past three decades, the global pharmaceutical industry chain is transforming from a one-way pipeline into a multi-polar network. China's position in this network has shifted three times in two decades: from a pure Party B, to an asset supplier, and then to a partial co-developer.

In the stock market, China's national medical insurance is already the undisputed Party A, and multinational pharmaceutical companies must accept this reality. In incremental transactions, multinational pharmaceutical companies are still the payers, but Chinese biotech firms holding scarce assets are evolving from the selected parties to the selectors. At the global game level, neither side can be regarded as a pure Party A. The U.S. relies on China's R&D efficiency and pipeline output, while China relies on the U.S. market and capital.

The party that cannot do without the other more is the real Party A.

Today, the answer to this truth is clearer than ever. The Chinese market is far more important to multinational pharmaceutical companies than the U.S. market is to today's Chinese innovative drug companies. This also means that Chinese innovative drug companies can adopt a more confident logic for overseas expansion: when others cannot do without you, the title of "Party A" is already yours.

This article is from the WeChat official account "YiYao", written by Yan Song, and authorized for release by 36Kr.