Pfizer will pay $1.25 billion upfront to license an experimental cancer drug out of China, in a deal that underscores multinational drugmakers’ growing enthusiasm for Chinese biotech innovation.

The deal grants Pfizer rights to develop and commercialize a drug from Shenyang-based 3SBio Inc. currently in clinical testing for multiple tumor types, according to a press release. In addition to the upfront payment — which sets a new record for China licensing deals — 3SBio is eligible for up to $4.8 billion in downstream fees if the drug hits all milestones.

Shares of 3SBio jumped as much as 38.28% in Hong Kong.

The deal lifted health-care peers on Tuesday, including ApicHope Pharmaceutical Group Co. and Zhejiang Huahai Pharmaceutical Co., whose shares rose by the 20% and 10% onshore daily limits, respectively.

A health-care subgauge was the top performer among Hang Seng Composite Index, jumping as much as 3.8%. CSPC Pharmaceutical Group Ltd. and Innovent Biologics Inc. gained as much as 9.6% and 8.9%, respectively, in Hong Kong.

Betting on China

The pact with Pfizer was a record outbound deal for a Chinese biotech firm, according to Rebecca Liang, a pharmaceutical and biotechnology senior analyst at Bernstein.

“From the market reactions we see investors take this as a testament to the increasingly innovative quality of the sector as a whole,” she said.

US pharmaceutical giant Pfizer will also make a $100 million equity investment in Hong Kong-listed 3SBio, which sells a range of medicines in China for cancer, autoimmune diseases, kidney conditions, skin disorders and more.

Many of Pfizer’s peers have bet on China-originated drugs to refill their pipelines over the past year. Novo Nordisk A/S and Merck & Co. Inc. both shelled out $200 million upfront in recent months for an obesity drug and a heart medicine, respectively.

With this new deal, Pfizer is joining a small club of challengers going after Merck’s Keytruda, the world’s top-selling medicine. 3SBio’s drug works in the same way as a therapy from China’s Akeso Inc. that outperformed Keytruda in one trial. Notably, Merck also picked up a similar drug from Chinese biotech LaNova Medicines.

3SBio plans to start the first late-stage study for the drug in China this year. While Pfizer did not outline its own clinical plans, it said in a statement that it will manufacture the drug in the US.