After years of pouring billions into research and development, China's pharmaceutical sector is finally reaping the rewards. As the 2025 annual reporting season unfolds — from traditional pharmaceutical giants to emerging biotech firms and artificial intelligence-driven research players — companies are proving they can successfully translate heavy R&D investment into sustainable earnings.

The financial rebound is more than just a market correction. It is a validation of the sector's growing role in driving new quality productive forces. In the 2026 Government Work Report, biomedicine was identified for the first time as an emerging pillar industry, alongside integrated circuits, aviation and aerospace, and the low-altitude economy.

The numbers tell a story of an industry turning a corner. According to financial data provider Wind Info, among the 169 pharmaceutical and biotech companies that had disclosed their 2025 annual reports by late March, 121, or more than 70 percent, posted profits, with 20 of them seeing net profit more than double.

Analysts say this financial turnaround is a result of a maturing ecosystem, where supportive policies, accelerating commercialization of homegrown innovative products and booming cross-border out-licensing deals are aligning.

In 2025, the State Council and health authorities introduced a series of measures from expedited regulatory approvals to improved reimbursement mechanisms, aimed at fostering high-quality development of the pharmaceutical sector throughout the innovation chain.

On top of that, the most striking driver of this newfound profitability is the global appetite for Chinese innovation. Cross-border out-licensing deals, where Chinese drugmakers often sell the rights to develop and market their discoveries globally, have exploded.

According to industry database provider PharmCube, Chinese drugmakers signed more than 150 out-licensing agreements in 2025, with total deal value more than doubling from the previous year.

One of the largest transactions in 2025 was a staggering $11.4 billion global collaboration between Innovent Biologics and Japan's Takeda Pharmaceutical, setting a new record for the industry.

Industry insiders say the nature of such deals is also evolving.

"Early collaborations were mainly simple license-out deals where Chinese companies handed over drug candidates and multinational partners took over global development," Qian Lei, chief research and development officer of general biomedicine at Innovent Biologics, told Economic Information Daily. "Now, partnerships increasingly involve joint development and commercialization. It reflects a true global recognition of Chinese R&D capabilities."

The shift underscores the rapid growth of China's innovative drug industry.

The global validation is backed by domestic productivity and innovation. Regulators in China approved a record 76 innovative medicines in 2025, up from 48 in the previous year.

"China now ranks among the global leaders in both innovative drug pipelines and clinical research activity. We are moving from expansion in scale to improvement in quality," Qian added.

The momentum shows no signs of slowing. Preliminary data from the National Medical Products Administration showed that China's out-licensing deals for innovative drugs topped $60 billion in the first three months of 2026, nearly half of the value recorded for 2025.

This "harvest season" is being led by companies that dared to reinvent themselves.

Industry bellwether Jiangsu Hengrui Pharmaceuticals exemplifies this successful transition. The company reported a 2025 revenue of 31.63 billion yuan ($4.64 billion), up 13 percent from a year earlier, while net profit rose nearly 22 percent to 7.71 billion yuan.

Crucially, sales of innovative medicines reached 16.34 billion yuan, accounting for more than 58 percent of its pharmaceutical revenue. Out-licensing income also increased 25.6 percent as milestone payments from collaborations with multinational companies including Merck and GSK were recognized.

By investing a massive 8.72 billion yuan in R&D last year, equivalent to nearly 28 percent of its revenue, the company has set the stage to grow its innovative drug sales by more than 30 percent in 2026.

Another major player, Innovent Biologics, is also coming of age, reporting its first full-year profit since its founding. Driven by a dual strategy targeting both oncology and chronic diseases, its product revenue surpassed the 10-billion-yuan mark for the first time, helping to achieve net profit of 814 million yuan.

By the end of 2025, the company had 13 approved oncology drugs targeting major cancers including lung, liver, gastric and colorectal cancers. Its PD-1 inhibitor Sintilimab remains one of China's leading domestically developed immunotherapy drugs and continues to generate stable cash flow.

At the same time, Innovent has expanded into metabolic and autoimmune diseases, areas that Qian said represent a second growth engine.

Smaller biotech companies are also beginning to emerge from the shadows of long-term losses. Inno-Care Pharma reported its first annual profit in 2025, reversing a 441 million yuan loss to a 644 million yuan net gain.

Jasmine Cui, co-founder and CEO of InnoCare, called the milestone a "turning point" as the company's core product — the BTK inhibitor Orelabrutinib — saw sales climb 41 percent, following broader medical insurance coverage.

Meanwhile, the integration of "AI Plus" into healthcare is moving from concept to tangible commercial value. XtalPi Holdings Ltd, a pioneer in AI-driven drug discovery, posted its first annual profit in 2025, as its technology helps drugmakers drastically cut development times.

Despite the celebratory mood, insiders and analysts caution against blind optimism.

Some companies are still pursuing crowded drug targets and duplicating research, a dangerous game that risks wasting resources and intensifying competition, Qian said.

Brokerage analysts say the industry is entering a more selective phase in which companies with strong pipelines, differentiated technologies and global commercialization capabilities are likely to outperform.

"The industry is moving toward a K-shaped recovery," analysts at China International Capital Corp said in a recent note. The days of "high investment, low profitability" are ending, but only for the fittest.

"Companies with strong core products and established infrastructure for global commercialization are poised to lead the next phase of industry growth."