China Biotech Licensing Surge Threatens the XBI's 2026 Rally

A rally that has stopped climbing

US biotech stocks have had one of their best runs in years, and that run has now stalled. RBC Capital Markets analyst Brian Abrahams said the XBI rose about 80% over the year to late September, with much of the gain coming after early June.20 He credited the move mainly to mergers and acquisitions. Cumulative deal value reached about $78 billion by mid-year, close to double the total for all of 2025.20 In August the index came close to $170 a share, more than twice its price a year earlier.5

Since then it has drifted lower. On October 13 the XBI closed at $146.80, down about 3% that day.3 BioPharma Dive linked the slide to weak clinical trial results, rising interest rates, worry about the midterm elections and fewer takeovers of public companies.5 A Raymond James survey found investors more cautious than earlier in the year, with some now expecting the index to fall further.5

The argument here is that China matters to this rally in a way that is easy to misread. Most attention goes to Washington and whether it will block deals with Chinese biotech companies. That risk appears to be shrinking. The larger risk is that China is quietly replacing the US small-cap biotech as the place where big drugmakers buy new drugs, and takeover premiums for those small caps are what drove the rally.

The size of the shift

The numbers are large, and different trackers broadly agree on them. PharmCube counted $137.7 billion in cross-border licensing deals between Greater China biotech companies and global drugmakers in 2025, almost ten times the 2021 figure.27 Representative John Moolenaar cites a similar figure: about $136 billion last year, up from roughly $5 billion in 2020. In 2026 the pace has picked up. Nomura, citing data from China's drug regulator (the NMPA), counted a record 81 deals worth $110 billion in the first half alone.24 China's state news agency Xinhua has since put this year's out-licensing value at $120 billion, up 36% from a year earlier.13

The deals are also getting bigger. Early in 2026 the average deal reached $1.3 billion, 76% above the 2025 average, and average upfront payments roughly doubled.21 AstraZeneca's obesity deal with CSPC is worth up to $18.5 billion. AbbVie's oncology deal with RemeGen is worth up to $5.6 billion.27 Bristol Myers Squibb agreed a $15.2 billion co-development deal with Hengrui, and Pfizer a partnership with Innovent worth up to $10.5 billion.2324 On September 29, Novo Nordisk licensed an oral GLP-1/GIP drug from Hengrui for $300 million upfront and up to $2.6 billion in total.29

For US startups, the most important figure is market share. Evaluate expects Chinese assets to account for more than two-thirds of total licensing deal value this year, compared with less than 5% five years ago.31 GlobalData found that nearly half of US deals to license drugs from abroad in 2025 involved Chinese companies.24 Big drugmakers are not just adding a new supplier. They are moving where they buy.

Why the policy threat is fading

The most visible threat to this trade is legislation. In June, Moolenaar and Representative Debbie Dingell introduced the Biotech Investment National Security Act (BINSA). It would add biotech to the outbound-investment screening created by the COINS Act, which would put licensing deals, joint ventures and equity stakes involving Chinese companies under Treasury Department review.23 The sponsors pointed to the BMS–Hengrui deal as the kind of transaction that should be reviewed.23 The bill is with the House Financial Services Committee.

The executive branch appears to be taking a softer line. Reuters reported, citing people briefed on the process, that Treasury is drafting rules that would let most pharmaceutical licensing with China continue. The exceptions would be work involving pathogens or biotechnology that could be used as a weapon.24 The rules have not been finalized.24 Macquarie's Tony Ren called the approach "substantially softer" than investors had feared and said heavy lobbying by the industry had paid off.13 Hong Kong investors reacted quickly. The Hang Seng Biotech Index rose more than 5% in one session, and Akeso gained 8%.24 Nomura said US–China licensing would "ride on a high tide."15

The sources broadly agree that a sweeping ban is now unlikely. Commentary in Singapore noted that the drawn-out history of the earlier Biosecure Act suggests Congress does not treat biotech as urgently as chips or AI.35 Some risks remain. A Washington lawyer at Foley Hoag says the tougher rhetoric could lead companies to look harder at China-origin assets even without new rules.18 Moolenaar has asked the FDA to stop accepting Chinese trial data from sites that have not been audited. He cited three deaths in investigator-initiated trials, which are studies led by doctors rather than run under the regulator's standard sign-off. Those are real costs, but they would slow deals rather than stop them.

Where the competition bites

If Washington will not stop the flow, the question is what the flow does to US biotech companies. In this year's rally, investors bid up small US developers expecting big drugmakers to buy them. The more of those drugmakers' business development budgets go to Shanghai and Suzhou, the less is left for Boston and San Diego.

The cost gap explains why. Boston Consulting Group data from 2025 show a Phase I trial in China costing about $3.3 million and taking 6.2 months, compared with $5.8 million and 13.2 months in the US.35 RBC's analysts said more M&A and business development is turning to China because buyers can get competitive assets more cheaply.20 Deal terms are changing too. Upfront payments are rising, royalty rates are falling, and licenses for single drugs are giving way to deals covering whole portfolios or technology platforms.28

The effects on US companies are starting to show. In BioPharma Dive's count, more private biotech companies than public ones have been acquired this year, and the outlet pointed to a slowdown in public-company takeovers as one reason the XBI has weakened.5 On the Biotech Hangout podcast, analysts said the index's 27% year-to-date gain hides a split: stocks that specialist funds own heavily have been "getting hammered," while heavily shorted names have held the index up.8 No source directly links that split to China. But the timing fits the idea that investors are paying less of a takeover premium for ordinary early-stage US assets.

At the venture stage, the concern is stated outright. Earli CEO Cyriac Roeding argues that money spent licensing Chinese drugs is money not spent on early US research. He says this comes as AI is taking most venture funding, and he puts AI's share at 87.5%.3631 Reporting from a Jefferies conference in Shanghai, STAT's Jason Mast described a "gold rush" for molecules. One Chinese biotech CEO told him US companies "cannot compete" on speed.12 Pfizer CEO Albert Bourla said in June that by 2030 his main competitors would be Chinese companies rather than Merck and Lilly.

Where the reporting diverges

Not every source sees this as a zero-sum contest. Jefferies' Cui Cui argues that China's licensing boom pushes US biotech companies toward newer, more cutting-edge mechanisms, which would leave the industry healthier overall.35 RBC points out that the US is still the market that matters most, so Chinese assets must still clear US regulators to make serious money.20 BioCentury goes further. It argues that Chinese science is valued as globally competitive mainly so it can be sold in the US under Western brands, and that this is not the same as Chinese companies going global.

The reporting also shows a workaround that blurs the line between the two sides. Venture firms increasingly set up new US companies around Chinese molecules and pay the Chinese originator partly in equity, so the asset is easier to sell to an American drugmaker.12 Haisco's deal with Sentivera, a startup formed by ARCH Venture Partners and Population Health Partners, followed this model. Haisco received a 17.5% stake in the new company as part of its payment.29 Kailera, built on Hengrui drugs, had one of the largest biotech IPOs on record.26 Some US-listed biotech companies are therefore Chinese drugs inside an American corporate shell. That helps the companies and their backers, but it does not help the US research base Roeding worries about.

The quality test ahead

One more risk is starting to appear: whether Chinese assets work as well in global trials as they did at home. On October 6, ArriVent BioPharma lost nearly 47% of its value after its lung cancer drug firmonertinib, licensed from Shanghai Allist, failed a Phase 3 trial against chemotherapy as a first-line treatment.17 The drug is approved in China and brought in about $468 million there in the first half of 2026.17 Ren said many Chinese drugs licensed abroad are now reaching their "moments of truth" under stricter global standards. Trivium China's David Zhang expects more visible failures alongside the successes.17

The overall picture is mixed. The China trade is not a passing fad, and a political crackdown now looks unlikely. But it changes how money flows in biotech. When big drugmakers can get proof-of-concept data from China for roughly half the cost and in half the time, US small caps lose some of their pricing power as takeover targets. Roeding's case is that the US answer has to be cheaper, faster early-stage development at home, not trade barriers.31 Until that happens, the bigger threat to the rally is the competition from Chinese drug developers, not the Washington legislation.