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U.S. drugmakers turn to Chinese companies as they face

patent

expirations

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Licensing deals accelerate while traditional mergers

decline

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Chinese biotechs are challenging Western peers, analysts

say

By Sriparna Roy and Sneha S K

June 16 (Reuters) - U.S. drugmakers are licensing

molecules from China for potential new medicines at an

accelerating pace, according to new data, betting they can turn

upfront payments of as little as $80 million into

multibillion-dollar treatments.

Through June, U.S. drugmakers have signed 14 deals

potentially worth $18.3 billion to license drugs from

China-based companies. That compares with just two such deals in

the year-earlier period, according to data from GlobalData

provided exclusively to Reuters.

That increased pace is expected to continue as U.S.

drugmakers look to rebuild pipelines of future products to

replace $200 billion worth of medicines that will lose patent

protection by the end of the decade, analysts, investors, a

banker and a drug company executive told Reuters.

"They are finding very high-quality assets coming out of

China and at prices that are much more affordable relative to

perhaps the equivalent type of product that they might find in

the United States," said Mizuho analyst Graig Suvannavejh.

The total cost of licensing agreements, including low

upfront payments and subsequent larger payouts, averaged $84.8

billion in the U.S., compared with $31.3 billion in China over

the past five years, according to GlobalData.

A licensing agreement grants a company the rights to

develop, manufacture, and commercialize another company's

pharmaceutical products or technologies in exchange for future

target-based, or "milestone", payments while mitigating

development risks.

China's share of global drug development is now nearly 30%,

while the U.S. share of the world's research and development has

slipped 1% to about 48%, according to pharmaceutical data

provider Citeline's report in March.

Chinese companies have licensed experimental drugs to

U.S. drugmakers that could be used for obesity, heart disease

and cancer, reflecting abundant Chinese government investment in

pharmaceutical and biotech research and development.

While small molecules, like oral drugs, have been the most

commonly licensed, there has been a notable shift toward novel

treatments such as targeted cancer therapies and first-in-class

medicines, Jefferies analysts said in a note in May.

"Chinese biotechs are moving up the value chain by the

day. They are... challenging their Western peers," said

Macquarie Capital analyst Tony Ren.

The growth is happening even as the U.S. and China have

wrangled over tariffs and U.S. President Donald Trump pushes a

made in America agenda.

That has cut into traditional mergers and acquisitions,

which are down 20%, with only 50 such transactions so far this

year, according to data from DealForma.com database.

Roughly a third of the assets that large pharmaceutical

companies licensed in 2024 were from China, said Brian Gleason,

head of biotech investment banking at Raymond James, who

estimated such licensing deals would increase to between 40% and

50%.

"I think it's only accelerating," Gleason said.

The Trump administration is currently doing a national

security investigation as it weighs if it will impose tariffs on

the pharmaceutical sector.

But one healthcare analyst said licensing deals should

continue because the yet to be marketed products are not

impacted by tariffs.

"The law that gives the president the right to impose

tariffs applies to goods. It explicitly excludes intellectual

property," said Tim Opler, managing director in Stifel's global

healthcare group.

In May, Pfizer ( PFE ) spent $1.25 billion upfront for the

right to license an experimental cancer drug from China's 3SBio

. That is the largest such deal this year and could be

worth up to $6 billion in payments to 3SBio if the drug is

successful.

Regeneron Pharmaceuticals ( REGN ) in June paid $80 million

upfront in a potential $2 billion deal for an experimental

obesity drug from China's Hansoh Pharmaceuticals.

'WAKEUP CALL'

By licensing a drug in development, U.S. and European

drugmakers get very quick access to a molecule which would take

them longer and cost more to discover or design themselves,

analysts say.

U.S.-based drug developer Nuvation Bio ( NUVB ) bought

AnHeart Therapeutics in 2024, gaining access to the China-based

company's experimental cancer drug taletrectinib, which received

U.S. approval last week.

"We consider our presence in China not only a great avenue

for R&D, but we also view it as an inside track on obtaining

further assets to grow our company further and find new and

better therapies to offer patients," Nuvation CEO David Hung

told Reuters.

What makes China attractive, said EY analyst Arda Ural,

"a fraction of the cost and then multiples of time."

Analysts have pointed to large drugmakers strategically

securing rights to drugs at lower cost and running efficient

early-stage trials in China to obtain important data, paving the

way for global trials and potential earlier market entry.

"It's a little bit of a wakeup call to our industry," said

Chen Yu, Managing Partner at U.S.-based healthcare investment

firm TCGX.