China's Innovative Drug Sector Shows Stark Divergence in H1 2026: Top Players Thrive as 60% of Biotechs Struggle to Survive

As the first-half 2026 earnings season concludes, China’s innovative drug industry has delivered a watershed performance. The sector is bidding farewell to the era of cash-burning storytelling and entering a phase of value realization, where profitability is the ultimate imperative.

This shift is not a broad-based industry rally, but rather a divergence driven by the triple forces of commercial scale-up, a surge in overseas licensing deals, and diversified funding sources. In this process, an industrial question that has long plagued the innovative drug sector is being validated: Has the value loop from R&D investment to commercial returns truly been closed?

Regarding the macro-industrial changes in the first half of the year, Jin Chunlin, Director of the Shanghai Health and Health Development Research Center, summarized four “historic inflection points.” First, the number of innovative drugs under development in China has surpassed that of the United States, ranking first globally. With the intensive approval of 38 globally innovative drugs, the concentrated realization of “First-in-Class” achievements marks a transition from quantitative accumulation to qualitative leap. Second, business development (BD) for overseas expansion has upgraded from sporadic transactions to normalized cooperation at the multi-billion-dollar level. The top 20 multinational pharmaceutical companies worldwide are purchasing Chinese self-developed assets in bulk, shifting China’s role from a participant in the global industrial chain to its source. Third, the industry’s positioning has been upgraded from a strategic emerging industry to an emerging pillar industry. The 2026 Government Work Report explicitly affirmed this status for the first time, driving a systematic revaluation of policies, capital, and industrial expectations. Fourth, the revenue structure of large pharmaceutical companies has reached a turning point, with innovative drugs replacing generics as the core growth engine.

Financial Inflection Point: From “Cash Burn” to “Self-Sustaining Revenue Generation”

The first hurdle in validating the value loop is whether a company can achieve self-sustaining revenue generation.

Financial report data from the first half of 2026 shows that a group of leading innovative pharmaceutical companies is crossing this threshold. BeOne, RemeGen, and other top innovative drug firms, which have long been operating at a loss, have achieved profitability for the first time or on a large scale. “Previously, most domestically produced innovative drugs still relied on financing to survive, with cash burn being the norm. However, survival ultimately depends on self-sustaining revenue generation; therefore, having drug sales revenue sufficient to cover R&D expenses is an urgent financial proof needed by innovative pharmaceutical enterprises,” said a senior pharmaceutical industry analyst to reporters.

In an interview with a reporter from National Business Daily, Jin Chunlin pointed out that this change is not merely a simple cyclical fluctuation in prosperity, but a landmark event marking the transition of the innovative drug industry from a phase of pure R&D investment to one of commercial value realization. “This represents the concentrated return on the large-scale R&D investments made since 2015, as core products enter the stage of commercial volume ramp-up. Coupled with the triple catalysts of accelerated medical insurance reimbursement access, expansion of indications, and overseas licensing, sunk costs are being transformed into quantifiable cash flows.”

BeOne is the most representative example of this trend. In the second quarter, the company’s global total revenue reached $1.7 billion, a year-on-year increase of 30%, with GAAP (Generally Accepted Accounting Principles) net profit amounting to $237 million, a year-on-year increase of 151%. Global sales of its core product, zanubrutinib, totaled $1.248 billion (approximately RMB 8.386 billion), of which the U.S. market contributed $893 million (approximately RMB 6 billion), representing a 31% year-on-year increase. The company has achieved profitability for multiple consecutive quarters and has significantly raised its full-year revenue guidance to a range of $6.6 billion to $6.8 billion, while raising its operating profit guidance to a range of $1 billion to $1.1 billion.

In the first half of 2026, product revenue accounted for over 98% of BeOne’s total revenue, marking a shift in its revenue driver from licensing income or non-recurring items to product sales. The global sales of zanubrutinib exceeded RMB 16 billion, demonstrating that high investment can yield high commercial returns, rather than resulting in critical acclaim but poor market performance.

RemeGen Offers Another Path to “Turning Losses into Profits.” In the first half of 2026, the company’s revenue reached RMB 5.853 billion, a year-on-year increase of 433%; net profit attributable to shareholders amounted to RMB 4.662 billion, compared to a loss of RMB 450 million in the same period last year. Net cash flow from operating activities surged from -RMB 246 million to RMB 4.214 billion, turning positive from negative.

The key variable driving this leap was the exclusive licensing agreement signed between RemeGen and AbbVie for RC148, a PD-1/VEGF bispecific antibody. The recognition of a $650 million upfront payment accounted for over 70% of its revenue. Additionally, commercial sales of its marketed products, telitacicept and disitamab vedotin, reached RMB 1.34 billion, representing a year-on-year increase of 22.3%, which demonstrates that its proprietary commercialization system is maturing.

The industrial significance of this financial turning point lies in the fact that leading companies have used financial data to prove that Chinese original innovative drugs can generate profits through sales, rather than relying on storytelling to secure financing for survival.

Qualitative Leap in Global Expansion: From “Selling Rights” to “Deep Integration”

From facing skepticism over “selling green crops” and “multinational pharmaceutical companies snapping up assets at low prices,” to earning recognition through strategies such as “trading time for space” and “exchanging high value for high prices,” business development (BD) transactions, while becoming a means of validating the value of domestically developed new drugs, are themselves undergoing a qualitative transformation.

In the first half of 2026, there were 81 outbound licensing deals for innovative drugs from China, with a total potential value of approximately $110 billion, surpassing 80% of the full-year total from the previous year. However, more critical than the monetary figures is the shift in collaboration models.

In the first half of the year, license-out deals were no longer limited to upfront payments but began to include sales royalties and joint commercialization. This signifies that innovative Chinese drugs can not only command premium prices in markets such as the United States but also substantively participate in profit distribution. A closed-loop model—ensuring volume domestically and profits overseas—is being successfully established from the outset.

For example, statistics show that 5 out of the 20 collaborative projects between Innovent Biologics and Pfizer adopted a deep cooperation model involving co-development and co-commercialization. Jiangsu Hengrui Medicine has established a global strategic partnership with Bristol Myers Squibb, under which five innovative projects are being jointly developed, with Hengrui participating in global commercialization.

Meanwhile, the buyer landscape has shifted from “selling to MNCs (multinational pharmaceutical companies)” to “diversified buyers.” Innovent Biologics entered into an exclusive licensing agreement with Spero Therapeutics for the CD40L antibody IBI355, with a total transaction value of approximately $1.1 billion. Notably, Spero is a U.S. biotech company with a market capitalization of only a few hundred million dollars that has just completed a strategic transformation. It secured $105 million in non-dilutive financing by pledging future milestone payments from GSK to lenders, thereby betting on the Phase II development of the drug.

Meanwhile, in August, Haisco Pharmaceutical announced that it had signed an exclusive license agreement with the U.S. startup Sentivera Therapeutics, Inc., granting the latter global rights (excluding China) for the development, manufacturing, and commercialization of a preclinical-stage oral small-molecule asset for autoimmune diseases. Sentivera was incubated by the same group of top-tier U.S. capital operators behind Metsera, which was acquired by Pfizer for a multibillion-dollar sum.

The rationale behind multinational pharmaceutical companies’ willingness to share profits and control, as well as to acquire early-stage pipelines at premium valuations, is that the global bargaining power of Chinese innovative drug pipelines has substantially increased.

Ecological Validation: Opening Exit Channels in the Primary Market

As aforementioned analysts argue, the ultimate validation of the value loop for domestically produced innovative drugs lies not in the sales volume of any specific product, but in whether early-stage capital can exit in an orderly manner—this is the prerequisite for the sustainable operation of the entire financing and investment ecosystem for innovative drugs. For unprofitable biotechnology companies, the endpoint of the R&D investment loop is not necessarily profitability; it may also be achieved through mergers and acquisitions or market cap revaluation.

Citing an example, she noted that Novartis’s acquisition of Myricx Bio in July this year serves as a typical case. This emerging ADC (antibody-drug conjugate) company, spun off from Imperial College London in 2019, was ultimately acquired for $1.5 billion after completing a seed round and a $114 million Series A financing in 2024. Early investor Brandon Capital achieved substantial returns for its investors.

“The significance of this case lies in its validation of the feasibility of a pathway that spans from academic discovery to early-stage incubation by venture capital (VC), through clinical data validation, and ultimately to exit via acquisition by multinational corporations (MNCs). Although this occurred in Europe, it offers clear reference value for China’s innovative drug ecosystem. Only when primary market investors see a clear exit path will ‘patient capital’ have reason to remain in this sector.”

Meanwhile, the valuation framework for innovative drugs in China is undergoing restructuring. In the first half of this year, major pharmaceutical companies such as Hengrui and Innovent acquired or licensed-in pipelines from smaller biotech firms through business development (BD) activities or mergers and acquisitions. As a representative of traditional pharmaceutical companies transitioning toward innovation, Hengrui Medicine reported revenue of RMB 15.456 billion in the first half of 2026, a year-on-year decrease of 1.94%, while its net profit attributable to shareholders after deducting non-recurring items declined by 12.71% year on year. Although revenue from innovative drugs increased by 16.38% year on year, this growth was not particularly standout compared to the high growth rates seen among peers. Meanwhile, revenue from generic drugs decreased by 16.07% year on year, significantly dragging down overall performance.

At the broader level of small and mid-sized biotech companies, enterprises lacking core cash-generating capabilities continue to struggle. The day after Northland’s first gene therapy drug received approval, its stock price plummeted, continuing to decline over the subsequent trading sessions, with its market capitalization shrinking by approximately 50%. This reflects that the capital market may be losing patience with the “pipeline-only, no-profit” business model. The aforementioned analyst believes that at least 60% of biotech firms are still fighting for survival, as their R&D investments have yet to show any signs of return.

This trend is also evident in the data from the Hong Kong Stock Exchange’s Chapter 18A sector: According to PharmaCube, as of May 2026, the number of Chapter 18A-listed companies with a market capitalization below HK$1 billion had risen to 12, effectively losing their ability to raise funds; those with a market capitalization between HK$1 billion and HK$2 billion increased to 15, nearing the loss of financing functionality. This indicates that a considerable number of listed biotech firms were no longer able to secure new funding through public markets at that time.

In the first half of 2026, China’s innovative drug industry achieved its first validation of a complete value loop—from R&D investment to commercial returns. Leading companies were the first to demonstrate the viability of a business model in which developing original innovative drugs in China can generate substantial profits.

However, this closed loop has currently only validated the survival logic of the top 20% of leading enterprises, but has yet to resolve the existential challenges facing the bottom 60%. Fei Fan, Co-Leading Partner for the Life Sciences and Healthcare Industry at EY Greater China, publicly stated that in 2026, China’s biotech sector is experiencing a three-tier stratification: leading companies with global deal-making capabilities are achieving pricing close to global standards; mid-tier companies focused on the domestic market are facing dual pressures on valuation and financing; and tail-end companies are facing breakup or market exit.

Jin Chunlin emphasized that the sustainability of profitability must be viewed in a stratified manner. Leading companies represented by BeOne and Innovent Biologics have established a positive cycle of “R&D—commercialization—sales—reinvestment in R&D,” with profitability driven by endogenous growth and economies of scale. In contrast, the profitability of some small and medium-sized enterprises relies on business development (BD) licensing or loss-reduction transitions, representing phased value realization, as their business model closed loop has not yet been formed. “For leading companies, profitability is a mark of sustainability; for laggard firms, it is more of a make-or-break phased test.”

Meanwhile, Jin Chunlin also cautioned that domestically produced innovative drugs still exhibit significant shortcomings in establishing a mature commercial closed loop. First, original innovation capability remains weak, with activities still dominated by fast-follow and incremental improvements; there is a generational gap compared to Europe and the United States in first-in-class global targets and basic translational research. Second, bargaining power in business development (BD) is insufficient, with domestic upfront payments accounting for only 5.8% of total transaction value, far below the global level of 15%–25%. Third, core equipment and materials, such as high-end bioreactors, culture media, and chromatography resins, remain dependent on imports. Fourth, challenges in hospital listing have not been fully resolved, with implicit barriers persisting, including infrequent Pharmacy and Therapeutics Committee meetings and significant pressure on hospitals to control costs. Fifth, the reimbursement system relies heavily on a single pillar, as the scale of commercial health insurance is far from sufficient to support reasonable pricing for innovative drugs.

He concluded that the wave of profitability in the first half of 2026 represents the “culminating showcase of a decade of honing China’s innovative drugs,” proving that the pathway from R&D to global recognition and then to commercial monetization has been successfully established. “However, this is merely the end of the first half. The core challenge of the second half is model validation—how to transform one-time gains from pipeline asset monetization into sustainable product sales revenue and stable operating profits.” He stated that this remains the ultimate and only viable path for innovative pharmaceutical companies, and that differentiation and market consolidation among enterprises are inevitable.

(Disclaimer: The content and data in this article are for reference only and do not constitute investment advice. Investors who act on this information do so at their own risk.)

Original Title: A Chinese Pharma Giant’s Drug Generates RMB 8.3 Billion in Sales in Three Months, with the U.S. Market Contributing RMB 6 Billion; H1 Results for Innovative Drugs Show a Stark Divide: 60% of Pharmaceutical Companies Are Still Struggling to Survive, “Drug Sales” Remain the Ultimate Imperative

This article is from the WeChat official account"National Business Daily", Author: Chen Xing, Editors: Duan Lian, Wei Guanhong, Du Hengfeng, Proofreader: Liang Luyue, Published by 36Kr with authorization.