Europe’s narrow path between the U.S. and China in biotech

Europe has an opening to become biotech’s third pole, but only if it engages China while anchoring IP, manufacturing, and development at home

While participating in the recent Bio€quity Europe conference in Prague, I was struck by how China has become one of the most discussed topics among investors and biotech entrepreneurs. Across panels and private conversations, one reality stood out clearly: European players have begun to internalize the disruptive impact of China and its broader Asia-Pacific biotech orbit — particularly South Korea, Singapore, and Australia — on the global landscape. They see speed, frugality, execution power, and scale reshaping pipelines, capital flows, deal structures, and competitive dynamics. Yet alongside this heightened awareness lies a palpable uncertainty: how to leverage or compete in the new order.

In November, I called China the “Oktagon”— the mixed martial arts cage where you step in, win, or else. The arena is now multipolar: more fighters, higher stakes. But the competition doesn’t have to be zero-sum. As I argued in a March follow-up commentary, a stronger China need not doom a strong U.S. biopharma sector — a genuinely multipolar world, in which Europe also plays a stronger role, could raise productivity and patient access for everyone.

Three months later, the dynamics have accelerated. U.S.-China tensions are intensifying: the Biosecure Act is being implemented (enacted in late 2025 as part of the FY2026 NDAA, with phased implementation underway), investment screening is tightening, and China hawks in Congress are pressing the Trump administration to expand the Comprehensive Outbound Investment National Security (COINS) Act to biotechnology. As detailed in BioCentury’s May 22 article and a recent provocative RA Capital commentary, the latest push explicitly targets licensing of pharmaceutical IP, drug discovery platforms, clinical R&D capabilities, biologics manufacturing know-how, and joint ventures — citing the $15.2 billion BMS–Hengrui partnership as precisely the kind of deal that should be curtailed.

China, through the Ministry of Commerce and the National Development and Reform Commission, is not standing still, as evidenced by the recent Meta/Manus deal cancellation (an AI-focused deal, but a warning of what could come more broadly for everything “tech”).

As Peter Kolchinsky of RA Capital warned, such restrictions risk a scenario in which “China and Europe win,” in part by triggering what he terms “Eurowashing”: European companies rerouting China-invented molecules through European licensing, trials, and manufacturing, and using that footprint to preserve access to the lucrative U.S. market. Chinese innovators and their Asian partners are therefore actively seeking alternative bridges to global markets and capital.

For a brief window, Europe has a strategic opening to become the pragmatic third pole — but only if it gets out of its own way, confronts sovereignty concerns head-on, and moves with urgency.

A weakening hand

The need for urgency should be clear from Europe’s weakening position. According to the latest EFPIA data, Europe’s share of global pharmaceutical sales has slipped to ~23% while North America commands 55%. Europe’s share of global clinical trials has fallen from 22% to around 12%. At the same time, the Trump administration’s reshoring push is drawing the vast majority of capex and R&D commitments toward the U.S., while China’s out-licensing activity hit record levels in 2025 and continues at pace to reach an estimated 40% of global deal flow. A recent McKinsey analysis points to the structural advantage behind the momentum: China can move 2-3x faster from target validation to clinical candidate, with significantly lower costs driven by vast talent pools, policy support, integrated supply chains, and intense execution focus.

Europe still possesses formidable strengths. World-class universities, a deep industrial base anchored by global players (Novartis, Roche, AstraZeneca, Sanofi, GSK, BI), manufacturing excellence, and a combined population base exceeding 450 million that could support the larger-volume/moderate-price models the multipolar world will reward. European regulators and quality standards remain respected globally.

Yet the weaknesses are structural and largely self-inflicted. Capital markets are fragmented and inward-looking: French, Spanish, or Scandinavian early-stage VCs largely back “home” assets, even German funds stay Germany focused, and truly pan-EU or EU-U.K. venture vehicles remain rare. The IPO market is effectively non-existent for most European biotechs — and they still must cross the Atlantic to realize value. Entrepreneurship and cultural awareness lag; too many leaders still view global developments through a regional lens. Even within countries, regional rivalries slow decision-making. Regulators are seen as too conservative, following rather than leading. Cross-border collaboration inside Europe remains the exception.

The result is a crippling dependency on U.S. capital and U.S. markets to monetize home-grown innovation. And an ever-greater shift of resources, across the value chain, toward the U.S.

Europe should not wait for these structural problems to be solved before acting. The EU and U.K. have debated fragmented capital markets, weak IPO pathways and slow regulatory systems for years. The EU Biotech Act and Pharma Package show a continent finally trying to fix them, but those repairs point inward and are the work of a decade. The more immediate lever is one that companies and investors can pull within today’s imperfect system: structure engagement with China so that speed, capital efficiency, and clinical execution are converted into durable European capability.

But companies cannot pull that lever at scale without political cover. Europe’s choice is between dependence it can’t control and engagement on its own terms. Policymakers therefore need to define the terms under which China engagement is acceptable — and then support those models with the rules, capital and procurement needed to make them viable.

The Perils of Isolation: Risks of walling off China

The alternative — a purely defensive posture that walls off China altogether — would not solve Europe’s dependency problem. It would likely deepen it.

Sovereignty concerns are legitimate, rooted in past experiences with EVs, rare earths, and other asymmetric dependencies. But complete disengagement could prove self-defeating, especially in biopharma where decades of offshoring have already hollowed out parts of Europe’s manufacturing, such as in active pharmaceutical ingredients (APIs) and key starting materials, where reliance on China and India is high.

Reshoring efforts face steep hurdles: long lead times, higher energy and labor costs, eroded institutional expertise, and the need for substantial public subsidies. Without access to Asia’s integrated supply chains, Europe risks further erosion of its own biomanufacturing base, making it harder to rebuild strategic autonomy even in a friend-shoring scenario.

Moreover, shutting out China innovation leaves Europe increasingly hostage to U.S. policy volatility. As the U.S. advances most favored nation (MFN) referencing, European markets — already price-sensitive— face delayed, if not outright bypassed, launches. Some countries have already seen promising therapies deprioritized or postponed due to reference pricing dynamics, reducing patient access and diminishing Europe’s appeal as a launch market. Without collaborative pipelines, Europe could lag in accessing best-in-class assets, further ceding ground in high-prevalence diseases and volume-driven portfolios suited to its demographics.

In short, walling off China would leave Europe with fewer options, weaker leverage, and less ability to shape its place in a multipolar industry.

Engagement on Europe’s terms

Pragmatic, sovereignty-first engagement — for example, via JVs with IP and production anchored in Europe — offers a superior path to competitiveness, diversification, and patient benefit.

That means moving beyond simple licensing deals toward joint ventures and other structures in which IP is owned or controlled in Europe, manufacturing is anchored on European soil, and development plans are built for global markets. Such models would allow Europe to import China’s speed and capital efficiency without deepening asymmetric dependency — and to export its own strengths in quality, regulatory credibility, IP discipline, and clinical development.

Done this way, engagement with China becomes more than a workaround for U.S. restrictions. Early-stage EU and U.K. biotechs can move faster and cheaper, testing many more compounds, by leveraging China’s trial ecosystem. Promising molecules discovered in China can be sourced and incubated by experienced European teams, creating winning global clinical development plans that combine the best of both worlds.

Europe’s deep experience in translating breakthrough academic science into robust clinical and commercial development can help China and other Asian countries elevate their capabilities from best-in-class to true first-in-class innovation. For China, the appeal is symmetric: a large second market to monetize that innovation and a hedge against a U.S. market that policy is making less predictable — the mutual interest, not U.S. pressure alone, that makes engagement on Europe’s terms durable.

Real-world examples already point the way. Belgian biotech EsoBiotec leveraged the China ecosystem for rapid, capital-efficient clinical data before its ~$1 billion acquisition by AstraZeneca. European VCs are actively incubating new companies built around Chinese-sourced assets, including Forbion-backed Verdiva Bio, which built its pipeline around Chinese assets from Sciwind Biosciences.

Turning those examples into European strategy will require a shift in mindset as much as policy. Europe does not need to copy China’s model, nor should it become a passive conduit for China-originated assets seeking access to the U.S. market. The task is to import China’s execution culture without sacrificing Europe’s strengths in quality, regulatory credibility and translational science — and to ensure that engagement builds durable European capability.

The demand side reinforces the case. Washington wants Europe to pay more for innovation — the explicit aim of MFN referencing, and a line some industry leaders have pressed directly. But Europe has neither the appetite nor the budget to pay meaningfully more; if anything, its payers are hunting for ways to spend less. That turns affordable innovation from a threat into something European governments would welcome. Portfolios co-developed for high-prevalence diseases and priced for volume would reach a far larger market than the premium model does today — not the few hundred million people in the high-price economies, but well over a billion across Europe, parts of China, Southeast Asia and the Middle East. Framed this way, moving away from U.S.-centric high-price, low-volume economics is less a sacrifice than a more durable global model, one that complements existing franchises rather than merely cannibalizing them.

This will not be easy. Many big pharma leaders have a great deal to lose in the short term if pricing power in the U.S. is diluted and new affordable portfolios cannibalize existing high-margin franchises. This shift requires dedicated capital allocation and new business unit structures, with potentially lower short-term margins as Europe builds out volume-driven portfolios. It will require courage from executives, boards, and European policymakers to prioritize long-term industry health and patient access over near-term P&L protection.

Europe has complained for years about being squeezed between the U.S. and China. The multipolar Oktagon has now handed it a rare opening. The question is no longer whether Europe can compete — it is whether it will break inward-looking habits, insist on sovereignty safeguards, and have the courage to co-create the next generation of globally accessible innovation.

Done right, Europe does not merely survive the multipolar world. It helps shape a more productive, more balanced industry that ultimately serves patients everywhere.

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Franck Le Deu is founder and managing partner of KerZheng Ventures, a venture partner at Aulis Capital, and a senior partner emeritus with McKinsey & Company. He has been based in China for over 20 years.

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