Biotech’s DeepSeek Moment: How America Can Recover Its Edge

In late 2024, news spread among the attendees of the World Conference on Lung Cancer in San Diego. Keytruda, a blockbuster drug owned by Merck and used in cancer immunotherapy, had been beaten in a head-to-head trial by a drug developed in China and licensed by U.S. company Summit Therapeutics.¹ The drug, called ivonescimab, had been invented by Chinese company Akeso, which also conducted most of the clinical trials.² Summit has applied for approval of ivonescimab by the Food and Drug Administration (FDA) to be able to sell it in the United States; Akeso already sells it in China.³

This occurrence was news not just because ivonescimab was unseating a blockbuster drug, but also because ivonescimab had been almost wholly developed by a Chinese company. For the last two decades, China has been a primary site of manufacturing generic drugs that eventually reach the U.S. market. But the country has been working hard to move up the value chain, taking knowledge learned from its success in manufacturing and from partnerships with U.S. and global pharmaceutical companies. As China grows its biotech prowess, its companies are becoming formidable competitors with U.S. companies.

By February 2025, this growing competition had become what the Wall Street Journal declared a biotech “DeepSeek moment,” or a sudden realization in the industry that China is not an inferior manufacturing partner but a powerhouse rival trying to take over the global biotech market.⁴ Increasingly, China is succeeding. In 2020, global pharmaceutical companies spent about $9 billion on deals with Chinese biotech firms.⁵ In 2025, that number shot up to almost $138 billion, with 2026 on pace to surpass even that.

This mass offshoring of a high-innovation sector in which the United States has been a global leader for decades has been happening with the knowledge and approval of pharmaceutical executives looking to make short-term profits. Naturally, it would have disastrous consequences for the United States. Beyond the national security concerns associated with losing biotech to a peer strategic adversary, biotech has become a valuable industry that provides patients with lifesaving drugs, scientists and lab technicians with high-quality jobs, and formerly deindustrialized cities with hubs of innovation. The loss of biotech to China is imminent, and it is essential for national leaders and policymakers to stem the flow with an industrial policy for biotech.

The Initial Loss of U.S. Pharmaceutical Dominance

In 2001, after entering the World Trade Organization and normalizing trade with the United States, China began aggressively “pumping and dumping” its own pharmaceuticals into the global market. It successfully manufactured drugs at low prices, undercut the existing suppliers, and then became the effective sole source of medications as critical as vitamin C and penicillin.⁶

At the same time, the U.S. generic pharmaceutical market was restructured around short-term profiteering in a way that decimated domestic manufacturing capacity. In 1984, the Drug Price Competition and Patent Term Restoration Act, also known as the Hatch-Waxman Act, was signed into law by President Ronald Reagan. This law effectively created the generic pharmaceutical market by conveying limited periods of market exclusivity to the first company to file when a drug’s existing patent expired. Generic drugs have been a boon to U.S. consumers, driving down the cost of many critical drugs. But a side effect of turning these drugs into commodities was the unraveling of the U.S. market.

In the United States, just three corporations control 98 percent of the wholesaler market, acting as middlemen between pharmaceutical manufacturers and purchasers of those drugs.⁷ These “Big Three,” Cencora, McKesson, and Cardinal, maintain constant price pressure on manufacturers, requiring them to submit daily tenders and choosing the lowest.⁸ Through most favored nation clauses in their contracts, the lowest prices are extended to all three wholesalers.

This pricing pressure has driven manufacturers to find the cheapest sources for their drugs; between China’s more relaxed environmental and labor protections and its economies of scale, the country became an increasingly powerful exporter of generic pharmaceuticals to the U.S. market.⁹

This status quo represents a serious national security risk, with even the Department of Defense dependent on China for sourcing many key medications used to treat active service members.¹⁰ There are a variety of scenarios in which China could restrict or otherwise control the export of generic pharmaceuticals in a way that would seriously impact the American population, including the military.¹¹ To date, policymakers have shied away from taking definitive actions to incentivize or create domestic or allied production capacity, leaving the United States dependent on China indefinitely.

But while the U.S. government continues to debate the best action forward, the Chinese government has continued an inexorable rise up the pharmaceutical value chain, progressively taking over parts of the high-tech, high-innovation biotech sector in a way that threatens the continued viability of the U.S. market.

China’s Move Up the Value Chain

The Chinese Communist Party has made dominance in pharmaceutical manufacturing a cornerstone of its industrial policy. Beginning in 2006, the Chinese government began prioritizing biopharmaceutical industry development.¹² In 2015, the country announced in its Made in China 2025 plan the intention to become not just a producer of generic medications but an R&D powerhouse and manufacturer of cutting-edge drugs.¹³

To encourage faster development, Beijing sped up its regulatory process dramatically. From its founding in 1998 until 2015, the Chinese Food and Drug Administration suffered from corruption and incompetence.¹⁴ Starting in 2015, the agency (now called the National Medical Products Administration, or NMPA) began a hiring wave, cleared a massive backlog of new drug applications, and adopted clearer regulations.¹⁵ Part of this process was a 2018 shift to an “implied license” system, meaning that Chinese regulators allowed investigational new drug (IND) applications to move forward if regulators did not raise objections within sixty days.¹⁶

Western commentators observing China’s system are often shocked by how fast it results in first-in-human trials. In the United States, it typically takes two years to complete a Phase I trial, which tests for safety and side effects in humans for the first time.¹⁷ In China, it usually takes nine months. In a sector defined by expensive gambles on drugs that may or may not ultimately be approved, speed is vital.

China also strategically invested in growing its biotechnology sector over years. In 2008, the Chinese government began subsidizing new drug development, kickstarting the pipeline.¹⁸ That year, the Chinese government also began the “Thousand Talents” program, incentivizing Chinese-born scientists to return or remain and attracting foreign-born scientists to move to China.¹⁹ Scientists born in China and trained in the United States are increasingly finding incentives to return to China; the phenomenon is prevalent enough to have earned these individuals the moniker of “sea turtles,” having gone elsewhere as adults before returning to their homeland.²⁰

At the same time, Chinese companies that helped multinational pharmaceutical companies conduct research, called contract research, development, and manufacturing organizations (crdmos), began popping up.²¹ These crdmos initially connected pharmaceutical companies with Chinese hospitals willing to conduct clinical trials. Over time, crdmos have continually upskilled, now assisting everything from developing synthetic DNA sequences for outside companies to helping compile the data needed to file with the FDA. By taking on this work, these companies gained invaluable process knowledge, training untold numbers of scientists and lab technicians in techniques that are difficult to come by at scale in the United States. In early May 2024, the trade organization BIO shocked the American biotech community by releasing the results of a survey that it conducted with 124 biotech companies. The survey found that 79 percent were contracted with Chinese crdmos for at least one product.²² The survey also found that these companies would need at least eight years to switch manufacturing partners, with drugs further along the development pathway taking the longest.

Clinical trial offshoring has also played an important role in offshoring American process knowledge to Chinese companies. It is very expensive to get a drug through clinical trials, a step costing nearly $200 million according to one estimate, by far the most expensive part of the drug development process.²³ At the same time, a successful drug generates revenue in the billions of dollars. The faster and cheaper a pharmaceutical company can get a drug candidate through clinical trials, the more money is available. And China has begun to offer a compelling ecosystem for faster, cheaper clinical trials, between the streamlined NMPA and a large pool of healthy volunteers who aren’t always given the opportunity for informed consent.²⁴ As it is possible to complete clinical trials in about half the time required in the United States, China overtook the U.S. market in clinical trial volume in 2021 and continues to grow its clinical trial business.²⁵ (As of this writing, the China Select Committee of the House of Representatives has launched an investigation into Merck and AbbVie’s due diligence processes regarding clinical trials, particularly at sites in sensitive regions like Xinjiang and military hospitals, but this is unlikely to slow the massive offshoring of clinical trials already taking place.²⁶)

China’s streamlined regulatory regime, national investment in sector development, and skill development have all begun to bear fruit. Until very recently, U.S. observers were able to dismiss the rapid growth of the Chinese biotech industry as copycatting. Many of the drugs were “me betters,” playing on the industry term “me too,” meaning a drug that closely resembles another existing drug. As several industry leaders told a reporter in early 2025, Chinese companies are paying close attention to the scientific research being published and patents being filed.²⁷ One biotech investor warned U.S.-based scientists to keep their discoveries close to the chest: “Do not publish. Do not present at a scientific meeting. Do not put out a poster. Try to make your initial patent filing as obtuse as possible. The second that paper comes out, or poster at any scientific meeting, or talk or patent, assume it has launched a thousand ships.”²⁸

But Chinese biopharma companies are not simply looking to copy U.S. research. Increasingly, these scientists are developing new-in-class drugs. In 2024, there were over 1,250 novel Chinese drugs entering development, compared with 1,440 in the United States.²⁹ In January 2025, one U.S. industry leader told a reporter: “We’ve been warning people for a while, we’re losing our edge. Innovation is now showing up on our doorstep.”³⁰ Another biotech leader based in Boston noted that nearly every target that his biotech explored already had a Chinese competitor asset.³¹ An investment bank report compared the Chinese biotech sector to watching a five-year-old child mature: just a few months have made the difference.³² The Australian Strategic Policy Institute’s Critical Technology Tracker ranks China as the global leader in biological manufacturing, genomic sequencing and analysis, genetic engineering, novel antibiotics and antivirals, and synthetic biology—nearly all the categories that ASPI tracks for biotech.³³

The Offshoring of American Biotech

Meanwhile, American pharmaceutical companies have been pursuing a path of financialization that is far from the state-supported development model that the Chinese sector is pursuing. While the total amount of research and development spending at pharmaceutical companies has remained flat or has only slightly risen, the money is increasingly allocated to later-stage clinical trials, acquisitions, and licensing.³⁴ In other words, many large pharmaceutical companies are acting as investment bankers, using their R&D budgets to place bets on a portfolio of assets. As of 2021, small drug companies (with annual revenues of less than $500 million) accounted for more than 70 percent of the drugs in late-stage clinical trials.³⁵

This isn’t an entirely new phenomenon. In 2012, three MIT professors published a paper in Nature Biotechnology arguing that biotech research was best funded through securitization.³⁶ One of the authors, Andrew Lo, went on to give a 2016 TED Talk arguing the same principles.³⁷ Increasingly, it seems as though major pharmaceutical companies are listening. Compounding the dilemma, some of the biggest companies, including Merck and Pfizer, are facing an unusually large patent cliff beginning in 2026, when some of their highest grossing drugs will lose patent protection. These companies have an estimated $230 billion in revenue at stake.³⁸

Prior to 2020, the assets comprising pharmaceutical companies’ portfolios were largely coming from U.S.-based biotech start-ups. These companies, often founded by a scientist or recent PhD graduate with an idea, took venture capital and other funding to develop their drug idea. Because clinical trials, distribution, and marketing are so expensive, these biotech start-ups rarely actually went public with their drugs themselves—instead, they would sell promising assets or be acquired by the large pharmaceutical companies looking to expand their portfolio.³⁹ Investors began to favor companies with a drug candidate ready for clinical trials.⁴⁰ Since 2020, however, the most intriguing (and cheapest) assets are coming from Chinese companies. In 2024, one-third of new compounds at U.S. pharmaceutical companies were coming from Chinese biotech.⁴¹

Other companies in other industries have been down this path. Apple notably began contracting with Chinese companies in the early 2000s to build the iMac and iPhone.⁴² At first, the components produced in China were of inferior quality; Apple’s engineers spent weeks at a time in the manufacturing facilities training workers. Quickly, though, the trainees learned and began producing at a much higher quality. Some employees used their knowledge to help grow Huawei and other companies that began competing directly with Apple, especially in global markets. Now Apple’s supply chains are mired in China; the corporation is struggling to diversify. Patrick McGee, the author of Apple in China, analogized this knowledge transfer as “Apple . . . playing the role of Prometheus handing the Chinese the gift of fire.” China has pursued a policy of learning, perfecting, copying, and innovating upon high-tech industries.⁴³ Non-Chinese companies have learned that, while Chinese partner companies may at first produce commodities quickly and cheaply, they lose process knowledge and intellectual property in the trade.

China has explicitly set its sights on biotech as an industry and committed untold amounts of financing to its goals; according to the Office of the Director of National Intelligence’s Annual Threat Assessment for 2025, China intended to grow its domestic biotech economy to $3.3 trillion by the end of that year, and it has oriented its national policy toward dominance in biotech. Much like Apple, U.S. pharmaceutical companies are going along willingly.⁴⁴

So far, these deals are taking different forms. One of the more popular structures to date is licensure, where U.S. companies license the U.S. rights for a potential drug from a Chinese company.⁴⁵ Usually, the Chinese company retains the rights to test, market, and distribute the drug candidate within China, while the U.S. company shoulders clinical trials, marketing, and distribution for the U.S. market. As Chinese drug developers become more sophisticated and respond to the greater interest from the United States, however, these deals are increasingly “massive multi-drug alliances,” partnering a U.S. company directly with a Chinese company.⁴⁶ These deal structures are complex and cover a large portfolio of drugs that each company will codevelop: the multiyear, multibillion-dollar partnership between Bristol Myers Squibb and Hengrui Pharma announced in May is one prominent example of this.⁴⁷

In June 2026, RA Capital piloted a new deal structure for partnering with a Chinese biotech: the venture firm announced that it was funding a Series A for Serapha, a Chinese company that would also begin trading on Nasdaq through a reverse merger with a “zombie biotech,” or a shell company that was publicly listed but struggling to stay afloat.⁴⁸ The shell company, formerly called Boundless Bio, would give up all its assets and its name, and Serapha would be a public biotech without having to endure the scrutiny of a formal listing. Serapha will be directly competing with several U.S.-based biotech companies. This kind of more integrated deal may become more common; U.S. pharmaceutical companies are increasingly looking upstream to the university level, seeking to partner with promising Chinese scientists even before they have an asset that can be licensed.⁴⁹

If these deals continue, U.S. biotech is likely to weaken substantially even as U.S. companies support the growth of Chinese biotechs. This would represent a devastating loss of a dynamic, high-growth industry that has provided quality jobs in labs and manufacturing, much of it in deindustrialized cities like Boston and Pittsburgh.

The pain of competition with Chinese companies is made even greater by the Trump administration’s broad cuts to basic research funding. After President Trump’s inauguration in early 2025, administration officials began canceling National Institutes of Health and National Science Foundation grants, including those that funded clinical trials and cancer centers.⁵⁰ The administration also reduced the number of grants that would be available, representing the loss of billions of dollars of research funding. The administration continues to seek to cut the NIH’s funding in proposed budgets submitted to Congress. Although it is difficult to measure how these NIH cuts will affect future science—many of the cuts targeted programs anathema to the Trump administration, including vaccines and anything that might qualify as a DEI project—more than 99 percent of all new drugs from 2010 to 2019 relied on research funded by the NIH.⁵¹

As a general rule, it is near impossible to predict which research will result in an essential breakthrough; the science undergirding GLP-1s like Ozempic and Wegovy famously came from studies of Gila monster saliva. In short, these cuts are likely to reverberate throughout U.S. scientific progress for decades. And U.S. companies have been kneecapped and are expected to still race against Chinese companies that enjoy the support and subsidization of the party.

Beyond the economic argument, the loss of biotechnology to China represents a serious national security concern. China is not a neutral trading partner but an adversarial global superpower. Those in favor of the status quo often argue that occasional deals represent simply picking and supporting the best available therapeutic for American patients. But biotech is, in some respects, a game of chance. The most groundbreaking therapeutics can come from the most unexpected of places and often take decades to discover and develop. Losing a viable American biotech industry means losing valuable process knowledge and scientific experimentation, setting the United States back decades in science and ultimately harming American patients. Moreover, biotech may well be a frontier in future global conflicts; hostile powers may seek to leverage bioterrorism, target agriculture or livestock, or simply withhold lifesaving treatments that can be produced nowhere else. If America allows its biotech sector to atrophy in favor of short-term profits, the American people are less safe.

Those in favor of the status quo often argue that access to cutting-edge therapeutics, or therapeutics at a cheaper cost, outweigh the long-term, more abstract concerns of partnership with China. But those making this argument are typically investors or executives with budgets on the line, not foreign policy strategists familiar with China’s playbook in other industries. Yes, the American people should have access to life-saving drugs at affordable prices—but the pharmaceutical industry alone cannot be expected to provide that. The finances of the biotech market do not work on a purely free market principle. Instead, the government must take a role in funding and encouraging essential research, while protecting the American market from global powers that seek to override and, whether explicitly or implicitly, weaken it.

An Industrial Policy for Biotech

In recent years, U.S. policymakers have been increasingly aware of the domestic problems created by allowing the deindustrialization of large swaths of the United States: international dependency, a lack of resilience, lost jobs, and a loss of process knowledge. Biotech presents a unique situation. The industry represents a large portion of the innovative research and development happening in the United States. The process knowledge is critical to the ongoing development of not just cutting-edge therapeutics but other chemical and biological products, like those used in agriculture or scientific fields. And yet the financialization of the pharmaceutical industry and the nonchalance of policymakers is allowing this critical sector to be offshored before our eyes. Protecting the U.S. biotech market, and the patients that rely on it and its breakthroughs, requires a comprehensive industrial policy.

This issue has not gone entirely unnoticed by policymakers, although steps to date have been limited and largely ineffective. In October 2022, the Biden administration noted the need to promote a secure and thriving biotech and biomanufacturing base in its National Biodefense Strategy and Implementation Plan; furthermore, Executive Order 14081 ordered reports on biotech and biomanufacturing, although it is unclear if those reports were produced before the Trump administration took power.

In 2024, members of both the House and Senate introduced the Biosecure Act, which would have restricted U.S. companies receiving federal funding from working with Chinese biotech companies.  Despite expectations, and despite the support of BIO, the main trade association for biotech, the bill did not pass.⁵² In 2025, a weakened version passed in the National Defense Authorization Act of 2026; the narrower version prevented U.S. companies from contracting with Chinese companies for government contracts, but not for other business. Early reporting suggests that it has not done much to slow the outflow of U.S. dollars to Chinese biotech companies.⁵³

In June 2026, the FDA announced initial steps in potentially streamlining the clinical trial process in the United States, explicitly citing the China threat.⁵⁴ The FDA also requested that Congress legislatively clarify a permanent, faster process, although how these initiatives work out remains to be seen.

The biotech industry is a valuable industry and should be protected accordingly. In a perfect world, science is best accomplished through a mix of collaboration and healthy competition; the ideal status quo involves U.S. scientists working with Chinese scientists and other global partners to heal patients globally. But the current geopolitical reality leaves limited space for this. The Chinese government does not wish to collaborate with the United States so much as dominate it, and the path forward must contend with this reality. This requires several steps:

(1) Protecting U.S. biotech: At least in the short term, U.S. companies should be limited from outbound investment in Chinese companies. This can be accomplished in several ways. Perhaps the most nimble would be the Department of the Treasury adding biotech to the list of technologies covered under the coins Act, signed in early 2026 by President Trump. coins limits outbound investment in several sensitive technology areas, including semiconductors and nuclear technology. If, in the future, U.S. biotech is no longer threatened by Chinese biotech or the geopolitical situation changes, biotech can be removed from the list. Treasury is reportedly currently considering such an action.⁵⁵

Another option is restricting outbound investment legislatively. Representatives Moolenaar and Dingell recently introduced the Biotech Investment National Security Act of 2026, which would effectively encode biotech as part of the coins Act.⁵⁶

These options should be pursued selectively and carefully; they should apply to cutting-edge technology more than to existing “me too” drugs—and worded in such a way as to prevent U.S. companies from engaging in “eurowashing,” or using their European divisions to get around U.S. strictures. Further, pharmaceutical companies based in Europe should be dissuaded from continuing to license assets from China to sell into the U.S. market. Protecting U.S. biotech from China’s state industrial policy should not disadvantage American companies in competition within U.S. shores.

At the same time, domestic payment policies set by the Centers for Medicare and Medicaid Services should take an example from China’s approach and selectively reimburse drugs produced or coproduced with American companies. This would not prevent Chinese-developed drugs from entering the U.S. market, but it would encourage Chinese companies to partner with American companies to have access to the valuable U.S. market. This is not enough to protect American biotech singlehandedly, but it is a reasonable protectionist policy mirroring China’s own approach to the industry.

(2) Increasing the competitiveness of U.S. biotech: The United States can’t solely protect its biotech industry; the industry also must grow and be globally competitive. The market protections listed in the above section are only reasonable if the industry continues to deliver world-class quality and innovation; otherwise, protecting it would amount to sustaining a stagnant and out-of-date sector while patients suffer. To improve U.S. biotech competitiveness, policymakers must consider major clinical trial reform. The FDA’s process has long set the global standard for safety, but other models have shown significant promise while requiring much less red tape—most notably, Australia’s approach.

Australia has a bifurcated approach to clinical trials, with less risky clinical trials receiving an expedited process through the Clinical Trial Notification (CTN) system. The CTN pathway allows accredited Human Research Ethics Committees to review a proposed trial submission for ethical and patient safety concerns and approve it. This is a relatively quick and straightforward process compared to the FDA’s current investigational new drug (IND) application, which requires reams of paperwork, sometimes duplicative data, and even detailed information about how a company would plan to manufacture a drug if it is approved—a step far in the future when speed and safety are the critical factors for patients.

Australia’s CTN process has proved quite safe and popular. The FDA adopting a version of it would allow U.S. companies to conduct clinical trials domestically, gaining an important edge in speed that currently drives offshoring.

(3) Funding U.S. biotech: Finally, U.S. biotech is suffering from a lack of neutral and abundant capital; large pharmaceutical companies are necessarily more interested in profit than global health or national security. NIH funding cuts should be restored and targeted, as much as possible, toward broadening and deepening the scientific research base from which future therapeutics will spring.

Biotech infrastructure and workforce are also essential areas that require government capital. Much of the offshoring to date stems from the speed of research and clinical trials in China. Meanwhile, U.S. infrastructure is sorely lacking; if a company needs synthetic DNA or nucleotides to run its research (common inputs to therapeutics research), it has limited choices other than Chinese companies.⁵⁷ A true industrial policy for biotech would include an ambitious plan to build a national network of biomanufacturing nodes, placed around the country, with flexible and modular capabilities.⁵⁸ Simultaneously, a network of national manufacturing institutes does exist, but these institutes suffer from underfunding, a lack of clear mission, and a lack of integration into other institutes and workforce education programs.⁵⁹ Integrating these institutes into community colleges and manufacturers would allow a more end-to-end training model, helping address both America’s manufacturing and educational challenges.

In addition, the U.S. government should explore future-facing initiatives that would socialize scientific data and research, recognizing how lives can be changed by groundbreaking science. One example is with biological data, or biodata, a critical input into scientific research in this age of AI.⁶⁰ While national entities in the United States hold vast biodata sets intended for research purposes, access is balkanized, making translation into scientific breakthroughs difficult.⁶¹ In a true biotech industrial policy, biodata should be treated as a key component of national biotech infrastructure, which means according it the serious planning and funding it deserves.

Biotech is too valuable an industry to be offshored in the name of short-term financial gains. Maintaining America’s edge in biotech will require a national effort to prevent the continued erosion of the sector to China and to improve the global competitiveness of our biotech and pharmaceutical companies. Through careful policy and attention to both patients and the realities of foreign affairs, American biotech can continue to produce lifesaving therapeutics that benefit patients worldwide.

This article originally appeared in American Affairs Volume X, Number 3 (Fall 2026): 48–62.

Notes