Chinese innovative pharmaceutical companies are ushering in a golden era: policy easing has lifted price suppression, technological breakthroughs have spawned globally first-in-class innovative drugs, and capital inflows have driven the sector to surge by 93%. Domestic PD-1 bispecific antibodies have outperformed international competitors in efficacy, overseas licensing transactions have exceeded 50 billion US dollars, and China is transforming from a "pharmaceutical outsourcing base" to an innovation hub.

The triple resonance of policy easing, technological breakthroughs, and capital inflows has enabled Chinese innovative pharmaceutical companies to leave a dazzling trail on the global pharmaceutical map. The Hang Seng Innovative Pharmaceutical Index has risen by over 93% within the year, and the stock prices of many individual stocks have doubled.

On July 18th, the Hong Kong innovative pharmaceutical sector soared again. Akeso Biopharma surged 25% in a single week, and 3SBio rose 30% in three days. Behind this capital boom lies a qualitative change in the innovative pharmaceutical industry from "generic imitation and following" to original innovation. In the first half of 2025, overseas licensing transactions of Chinese pharmaceutical companies approached 50 billion US dollars, with the down payment hitting a record of 1.25 billion US dollars.

More milestone-worthy is that the National Healthcare Security Administration (NHSA) has established the principle of "volume-based procurement (VBP) excludes new drugs, and new drugs are not subject to VBP" for the first time, completely removing the Sword of Damocles hanging over the industry. At the same time, clinical data of domestic innovative drugs released at the ASCO Oncology Annual Meeting amazed the world. A PD-1/VEGF bispecific antibody drug for lung cancer achieved an objective response rate (ORR) of 68%, significantly outperforming international competitors.

01 Policy Easing: Dismantling the Three Mountains Over Innovative Drugs

The strong rebound of the innovative pharmaceutical sector began with policymakers' precise "bomb disposal" for industry pain points. The 11th batch of national drug volume-based procurement launched on July 15th explicitly excluded innovative drugs for the first time, with all 55 included varieties being generic drugs. This policy completely relieved enterprises' fear of price halving.

A deeper-level reform has unfolded on the payment side. The Several Measures to Support the High-Quality Development of Innovative Drugs jointly issued by NHSA and the National Health Commission (NHC) covers the entire process of R&D, approval, hospital access, and payment with 16 new regulations. The most crucial breakthrough is the establishment of a "basic medical insurance + commercial insurance" dual-track payment system, with the first-time establishment of a commercial health insurance innovative drug catalog, opening up a survival channel for high-priced innovative drugs.

The revolution in approval efficiency is also remarkable. In the first half of 2025, the average approval time for innovative drugs was shortened to 8.8 months, almost catching up with the FDA's 7.9 months. Beijing piloted the "30-day clinical review" system, with an actual average time of only 23.8 working days, improving efficiency by 70% compared to the old process.

The fact that the price of old drugs increased instead of decreasing during renewal has sent a positive signal. 3SBio's PD-1 inhibitor successfully increased its price during renewal negotiations, whereas such drugs were previously cut by over 60%. When policies shifted from "price suppression" to "value recognition", innovative pharmaceutical companies finally dared to invest in R&D without hesitation.

02 Technological Outbreak: Qualitative Innovation Change from Following to Running Side by Side

Policy dividends are just a trigger; the real core is the technological transformation of Chinese innovative pharmaceutical companies. At the 2025 ASCO Oncology Annual Meeting, Chinese clinical data accounted for nearly half of the global total, with several key data outperforming international competitors.

In the field of ADC drugs, Kelun-Biotech reached cooperation with Merck on 7 projects, with a total transaction value exceeding 10 billion US dollars; Rongchang Bio's Disitamab Vedotin set an authorization record with a 2.6 billion US dollar down payment. Bispecific antibody technology has also made breakthroughs. Akeso's PD-1/CTLA-4 bispecific antibody reduced toxic and side effects by 30% and increased the response rate to 72%, and its AK112 even defeated the global "blockbuster drug king" Keytruda in head-to-head trials.

AI technology is deeply integrated into the entire R&D process. Shenzhen Jintai Technology's intelligent platform shortened the lead compound optimization cycle from 18 months to 4 months, reducing the error rate by 60%. Dongyangguang Pharmaceutical's AI-assisted designed drug candidates have entered clinical trials, significantly improving R&D efficiency.

A more far-reaching change is evident in the R&D paradigm. Baili Tianheng's EGFR×HER3 bispecific ADC drug BL-B01D1 achieved an ORR of over 50% in non-small cell lung cancer, triple-negative breast cancer, and other cancer types without interstitial lung disease events, becoming the only such drug in the world. This original innovation capability marks China's transformation from a "global innovation outsourcing base" to an innovation hub.

03 Capital Inflows: From "Break Issue Wave" to "Davis Double Click"

The shift in attitude in the capital market is also intriguing. The innovative pharmaceutical sector, which once experienced a "darkest hour", is now undergoing a valuation revaluation. The Hang Seng Innovative Pharmaceutical Index has risen by 93.46% within the year, and several related ETFs have increased by over 89%. This stands in stark contrast to the dismal performance from 2021 to 2024, when the Hang Seng Healthcare Index plummeted by 76%, and 60 Hong Kong-listed 18A companies saw an average break issue of 71%.

Capital flows reveal a fundamental shift in institutional attitudes:

Southbound funds have significantly increased their positions, with the scale of Hong Kong-listed innovative pharmaceutical ETFs doubling to 1.2 billion yuan within three months.

Foreign ownership has rebounded to 18.3%, with sovereign funds and long-term institutional investors repositioning.

Northbound funds increased their holdings of Hengrui Medicine by 7.357 billion yuan in the second quarter, and social security funds increased their holdings by 12 million shares.

Deeper confidence comes from the emergence of a profit inflection point. Among 50 innovative pharmaceutical companies that have disclosed annual reports, more than half have achieved positive net profits. BeiGene achieved an operating profit of 1.17 billion US dollars in the first quarter, ending a seven-year loss history; Akeso's core product "Cadonilimab" achieved sales exceeding 1 billion yuan, becoming a cash cow.

Goldman Sachs revealed a valuation depression in its research report: the overall market value of Chinese biotechnology companies is only 14%-15% of that of their U.S. counterparts, but their proportion in global innovation contributions is close to 33%. This huge value divergence is the underlying logic of capital inflows.

04 Overseas Expansion Upgrade: From License-out to NewCo Model

The internationalization path of Chinese innovative drugs is undergoing profound evolution. From January to May 2025, overseas licensing transactions of Chinese pharmaceutical companies reached 45.5 billion US dollars, far exceeding the full-year level of 2024. Three landmark transactions shook the industry:

3SBio licensed an oncology drug to Pfizer for 6.05 billion US dollars, with a record-breaking down payment of 1.25 billion US dollars.

Akeso granted overseas rights to its bispecific antibody AK112 to Merck, which directly took a stake and became a shareholder.

Merck spent over 10 billion US dollars to acquire overseas rights to SKB264.

Faced with geopolitical risks, an innovative model called NewCo is emerging. By the first quarter of 2025, Chinese pharmaceutical companies had completed 13 NewCo transactions, with a cumulative amount exceeding 10 billion US dollars. Hengrui Medicine licensed overseas rights to its GLP-1 project to Hercules, a newly established company in the United States, while holding a 19.9% stake in the company.

This "overseas localization" model not only avoids regulatory risks but also ensures that Chinese enterprises retain their right to speak. Dong Huihui, a partner at Grant Thornton Consulting, pointed out: "NewCo can lock sensitive information in local entities, and Chinese enterprises' control after retaining equity is far beyond that of traditional licensing."

BeiGene's Zanubrutinib has taken another path - its global sales reached 8.018 billion yuan in the first half of 2024, with overseas revenue accounting for over 50%, becoming China's first original drug to truly achieve global commercialization. This leap from "licensing overseas" to "independent overseas expansion" marks the maturity of Chinese innovative pharmaceutical companies.

05 Unhealed Pains: Seedling Dilemma and Ecosystem Construction

Behind the industrial prosperity, the proportion of "seedling-cutting" transactions has surged from 28% in 2020 to 61% in 2024, reflecting the financing dilemma of early-stage projects. The capital winter has lasted for three years - the number of IPOs of biomedical enterprises in 2024 dropped by 40% year-on-year, and the valuation of early-stage projects shrank by 50%.

This dilemma has led to a serious imbalance in value distribution. Local pharmaceutical companies only get 5%-8% of the global value chain, while multinational pharmaceutical companies lock in FIC/BIC projects in advance through BD, with down payments accounting for only 3%-5% of the potential value. Dong Huihui warned: "Chinese enterprises not only lose future sales shares but also lose the opportunity to define global pharmaceutical standards."

Building a sustainable innovation ecosystem requires the joint efforts of three parties:

Policy side: Establish a national-level early R&D fund, pilot a "national strategic project list", and establish "Chinese rights protection standards".

Enterprise side: Transform from "project companies" to "platform ecosystems" and build technical moats.

Capital side: Abandon "seedling-cutting" investments and practice long-termism.

Hengrui Medicine's transformation provides a successful example: cumulative R&D investment exceeds 46 billion yuan, with a layout of 147 research drugs (94% independently developed), and innovative drug revenue accounted for 61% in the first half of 2025. This transformation from a generic drug company to an innovation leader is an epitome of industrial upgrading.

06 Investment Map: Looking for Real Leaders in Differentiation

Faced with the general rise in the innovative pharmaceutical sector, investors need to be vigilant against differentiation risks. Combining policy dividends, technical barriers, and commercialization capabilities, core enterprises can be divided into four categories:

Full Industry Chain Leaders

Hengrui Medicine (600276): 12 innovative drug projects have entered global Phase III clinical trials, and its GLP-1/GIP dual-target agonist is more effective than Semaglutide.

BeiGene (688235): Zanubrutinib's overseas revenue accounts for over 50%, and it is expected to achieve positive net profits in 2025.

International Pioneers

Baili Tianheng (688506): The world's only EGFR×HER3 bispecific ADC, setting an 8.4 billion US dollar authorization record.

Rongchang Bio (688331): Its HER2 ADC drug authorization has a down payment of 2.6 billion US dollars, and Telitacicept has a domestic market share of over 70%.

Technical Platform-type Enterprises

Innovent Biologics (688180): Mazdutide has become the first domestic GLP-1 weight-loss innovative drug.

Aillis (688578): The first-line treatment market share of third-generation EGFR-TKI exceeds 25%.

Frontier Field Breakers

Honbo Pharma (301230): AI drug design platform supports 69 new drug projects.

Fosun Pharma (600196): A leader in CAR-T therapy commercialization.

Investors need to be alert to three major risks:

R&D failure: The failure rate of Phase III clinical trials is still as high as 30%.

Valuation bubble: The PE of some ADC drugs has exceeded 80 times.

Payment pressure: The growth rate of medical insurance funds has slowed to 8.2%.

From "cutting seedlings" to "growing forests", Chinese innovative drugs are completing a historic leap. When Hengrui Medicine's PD-1 inhibitor enters the U.S. market, when BeiGene's Zanubrutinib sells well in European and American pharmacies, and when Akeso's bispecific antibody outperforms international competitors at the ASCO Annual Meeting - Chinese pharmaceutical professionals have completed the innovation journey that multinational pharmaceutical companies took half a century in just 20 years.

The judgment in Goldman Sachs' research report is becoming a reality: the market value of Chinese biotechnology companies is only 14% of that of their U.S. counterparts, but their innovation contribution proportion is close to 33%. This nearly 20-percentage-point value gap is the underlying logic for continuous capital inflows. With the release of more clinical data at the ASCO Conference at the end of the month, this innovative drug revolution driven by policies, technology, and capital has just begun.