Three generational leaps in the pharmaceutical industry: AI drug discovery accelerates the process, and China's pipeline overtakes on a new track!
The pharmaceutical industry is undergoing its third competitive paradigm shift:
- Chemical drugs compete on sales channels
- Biologics compete on target selection and business development (BD) out-licensing
- Entering personalized treatment, competing on healthcare terminal binding capabilities
AI drug discovery further lowers R&D barriers and accelerates this process. What are the current investment trends? $Yinhua CNI HK Connect Innovative Drugs ETF(159567.SZ) $Health Care Select Sector SPDR(XLV.US) $VanEck Biotech ETF(BBH.US)
The Third Paradigm Shift in the Pharmaceutical Industry: China's Innovative Drugs at an Inflection Point
The pharmaceutical industry is undergoing its third competitive paradigm shift. What truly changes with each shift is not the drug, but the way to make money.
(1) In the era of traditional chemical drugs (small molecules)
The core competitiveness actually lay not in R&D, but in sales. It takes over a decade from molecule identification to approval for a new drug, often leaving only five to six years of patent protection post-launch. Once this window closes, generic drugs from China and India flood in at a fraction of the original price, quickly eroding the innovator's profits. Those who can maximize sales during these few years are large pharmaceutical companies with mature sales networks. Therefore, the moat for chemical drugs, besides patenting a single small molecule, is the sales channel.
(2) Moving to biologics (large molecules)
Essentially a protein complex, their complex molecular structure makes patenting difficult. In other words, competitors can slightly adjust the molecular structure to achieve the same target and efficacy, potentially even better. Without patent barriers, the competitive factor shifts from "being able to sell" to "accurately selecting targets and successfully negotiating BD out-licensing deals."
This is precisely China's opportunity. For the past two decades, China was largely absent in original drug development, with artemisinin being the only Class 1 new drug for a period. Once the rules are reset, having no historical burden becomes an advantage for a fresh start. Coupled with a large pool of returnee talent and AI-driven cost reduction in the R&D process, domestic innovative drugs have their first chance to move from following to running alongside global players.
The most direct signal is the surge in out-licensing deals in recent years. For example, the recent deal where Baili Tianheng licensed a bispecific ADC to BMS, with an upfront payment of about $800 million and a potential total of up to $8.4 billion, sets a record for the value of China's license-out deals. There's also $AKESO(09926.HK)'s ivonescimab licensed to Summit, $HUTCHMED(00013.HK)'s fruquintinib licensed to Takeda, and $Legend Biotech(LEGN.US)'s CAR-T collaboration with Johnson & Johnson, all moving forward...
Domestically, there's price pressure from national reimbursement negotiations and centralized procurement; going overseas means earning higher profits abroad, bypassing domestic price cuts. An upfront payment from an overseas licensing deal can often revalue a Biotech company and sustain it for years.
(3) Looking further ahead, it's personalized biological therapy.
Represented by CAR-T, which involves extracting cells from a patient for gene editing and reinfusion after modification, this business resembles medical devices more: it's not about drug companies sending salespeople to promote drugs to doctors, but about co-building with most healthcare institutions and providing technology and consumables long-term.
At this stage, the advantages of traditional sales channels are significantly diminished, reopening the industry landscape. AI drug discovery is the accelerating variable running through all three generations.
$Proshares Ultra Nasdaq Biotech(BIB.US)
$Direxion S&P Biotech Bull 3X(LABU.US)
The copyright of this article belongs to the original author/organization.
The views expressed herein are solely those of the author and do not reflect the stance of the platform. The content is intended for investment reference purposes only and shall not be considered as investment advice. Please contact us if you have any questions or suggestions regarding the content services provided by the platform.
