China's Biopharma Powerhouse: Europe's Innovation Challenge

The ascent of China as a hub for biopharmaceutical innovation has been nothing short of spectacular. Through manufacturing specialisation, targeted government support, top science programmes and recent regulatory changes, the country has become a major hub for innovation and even surpasses the US in some areas, as evidenced by the percentage of clinical trials that now start in the country. While this tells us nothing about the quality of clinical trials started in China, which is often debated, R&D expenditure data from the EFPIA shows that Chinese investments in fundamental research have been substantial. From 2010 to 2022, Chinese pharmaceutical R&D spending grew by 20.7% per year on average. Whereas, US spending grew by 5.5% per year and EU spending grew by 4.4% in the same period. We do not expect a similar growth rate from Chinese R&D spending until 2030, but forecast an 8% compound annual growth rate (CAGR) in this time period, which is significantly higher than our forecasts for American (5.0%) and European (4.0%) spending. We therefore believe that the next Pfizer will be Chinese, especially if the country enacts a few more regulatory changes. This development has come at the expense of Europe, which suffers from its relative lack of scale, shallow capital markets and slower innovation. However, recent budget cuts at the National Institutes of Health (NIH) and Food and Drug Administration (FDA) could threaten the leading position of the US in the medium term (roughly 10 years). This has the potential to further accelerate the rise of China, but is also a golden opportunity for Europe and its policymakers to regain importance for pharmaceutical innovation. The US is by far the world’s most important pharmaceutical market: brand-name drugs are generally approved fastest in America, and they launch years earlier than in Europe, but they also cost roughly three times as much as the OECD average (while the US accounts for roughly a third of OECD GDP). As a result, the US accounts for roughly 70% of pharmaceutical profits globally. The swift and overwhelming response of pharmaceutical companies to the tariff threat underscores this importance. The announced investments do not just include investment in manufacturing but also R&D spending and M&A, which is good for the innovative capacity of the US, which mainly comes at the expense of Europe. Furthermore, the US biotech industry is still best in class and produces high-quality new molecules at significant volumes. Before recent regulatory changes, we expected low double-digit growth until 2030. However, the Trump administration has recently enacted budget cuts at the FDA and NIH, which may hamper US innovation and growth. First, the cuts at the FDA may threaten time to market in the US, as well as drug safety (in therapeutic areas such as psychiatric drugs), but most importantly, they threaten the predictability of the FDA, thereby adding volatility for drugmakers. This, in turn, is bad for investment in a risky sector such as biotech and could hamper innovation in the medium run. Second, the cuts at the NIH affect the ability of scientists to do fundamental research into areas that the industry deems too risky. These cuts are significant: by mid-2025, 2,000 NIH research grants had been terminated (approximately $3.8bn in funding). This disrupted 383 clinical trials and 74,000 patients. These cancelled NIH grants are roughly 6.5% of the $57bn in total private funding last year (LPBI), which is not enormous. However, NIH grants are generally for commercially non-viable research projects which have shown to deliver very uneven returns (a lot fail but a select few produce blockbuster drugs). This means the distribution is skewed. In addition, much of NIH research is very early stage and total venture investment in seed through growth stages was around 16.5 billion dollars last year (Crunchbase). This means that cancelled NIH grants are roughly 23% of venture through growth funding last year, which is much more significant. Moreover, the Trump Administration has cut research funding for many universities more broadly. These reforms will significantly hamper the innovative capacity of US biotech in the medium term. The cuts at the CDC are not material for innovation but underline the different stance of this administration towards science and public health. The Trump Administration has also started levying $100,000 fees on H-1B visas, which hampers the ability of the US to attract and maintain top foreign scientists on which its industry heavily relies. Our outlook for US biotech has therefore declined, and we would not be surprised if US biotech growth rates drop from 2027 onwards: we forecast a 6% CAGR until 2030, which is significantly lower than before these reforms. Europe’s declining importance is the result of several European weaknesses: the continent lags China and the US in scale, speed and translational efficiency (i.e. how effectively a cell turns an mRNA molecule into a protein). Furthermore, Europe suffers from fragmented regulatory practices, differing evidence and health technology assessment (HTA) requirements, a lack of common procurement and crucially, fiscal pressure on healthcare systems due to ageing populations. This cost pressure prevents higher prices for medicines and encourages clawback taxes which are commonplace in Europe. These subdued prices and relatively high taxes take away incentives for R&D spending in Europe. As mentioned, the US currently accounts for 70% of pharmaceutical profits and the country has a uniform set of rules, which makes it more appealing to invest there. Return on investment is key, as biopharmaceutical innovation is a very costly and risky investment: on average, it takes $2bn and 10 years to take a medicine to market. Yet, Europe has all the fundamentals to become a leader in pharmaceutical innovation once again. Its researchers are cited 2.5 and 1.5 times more in top journals than their American and Chinese counterparts.