(Source: Caiwen)

The innovative drugs sector has entered an earnings verification period. Policy dividends and industry cyclical momentum are moving in sync, with internationalization and commercialization delivering the reversal for the industry.

At the close on August 18, the Shanghai Composite Index rose 0.19%, the Shenzhen Component Index fell 0.56%, and the ChiNext Index fell 0.93%.

In the ETF sector, the Hang Seng Biotech ETF by E Fund (159105) rose 1.08%. Constituent stocks such as WuXi Biologics-related stocks (02268.HK), GenScript Biotech (01548.HK), and WuXi Biologics (02269.HK) rose more than 5%. Other gainers included Kelun-Biotech (06990.HK), BeiGene (06160.HK), Hutchmed (00013.HK), MicroPort Robotics-B (02252.HK), United Laboratories (03933.HK), Simcere Pharmaceutical (02096.HK), and Xinda Bio (01801.HK), among others.

Everbright Securities says that policy tailwinds and industry cycle momentum are converging. During the interim report period, the innovation drug sector is entering an earnings verification phase. It is recommended to focus on the commercialization sales performance of leading innovation drug companies, and the sector’s fundamentals will shift from “valuation-driven” to “earnings realization-driven.” On the policy side, the revised National Essential Drug (基药) catalog will be implemented in September, with innovative drugs being included in bulk for the first time, opening up room in primary-level markets. On the industry side, international conferences such as WCLC in September and ESMO in October will be held. Key clinical data for domestically developed new drugs will be read out intensively, validating global competitiveness and lifting valuations. Combined with active BD transactions, the industry’s reversal trend has been firmly established.

According to China Post Securities, on valuation, we suggest setting the odds from the perspective of mid-term growth. Looking at 2027–2028, the innovation drug sector will enter a new round of global-perspective valuation framework after BD. Many key outbound projects, such as IO bispecific antibodies and ADCs, will be read out in turn with global Phase III trial data or approved for commercialization, and related companies’ profit-sharing expectations will become clearer. In addition, some companies’ second growth curves will also reach PoC stages, and valuations have strong potential to further open up.

According to Industrial Securities, in terms of sector strategy, “Innovation + internationalization” will remain the core medical theme for 2026. In the innovation drug industry chain, CDMO new contract orders will maintain high growth, and new molecules will become the main driver. Peptide, ADC, bispecific antibody platforms, and oligonucleotide CDMO will enter a phase of rapid volume expansion. Domestic demand for early-stage R&D will continue to recover and then transmit into later-stage needs; appraisal and clinical CRO quotations, as well as the prices of laboratory monkeys used in experiments, are expected to rebound. CRO performance in 2026 is expected to reverse, and AI + CRO as well as upstream domestic substitution are also worth watching. In the innovation drug segment, Chinese companies’ global competitiveness will keep strengthening, and the high-gear continuation of outbound BD remains favorable. The increasing number of Co-Co models reflects the industry’s growing right to speak. As domestic policies continue to encourage innovation, the sector is gradually shifting from a “valuation-driven” approach to an “earnings + global execution-driven” approach. After BD-related products, the ongoing realization of overseas key clinical development, approvals, and commercialization-related profit sharing is expected to continue. Key events such as WCLC and ESMO in 2026 will be held intensively in September–October; clinical data, major BD deals, and breakthroughs in new technologies will remain the core catalysts. For medical devices, the recovery in in-hospital equipment procurement is expected to continue, and procurement/centralized tender policies are becoming more moderate. Support for payments for innovative technologies and internationalization are expected to contribute additional incremental volume. For consumer healthcare, demand is expected to gradually recover; improvements in the fundamentals of medical services, OTC products, and chain pharmacies are likely to drive valuation repair. For the traditional Chinese medicine sector, fundamentals are expected to see a marginal recovery. Focus should be on improvements in operating cycles, expansion of essential-drug and innovative drug volumes, state-owned enterprise reforms, and directions related to high dividend yield.

The Hang Seng Biotech Technology ETF (159105.SZ) tracks the Hang Seng Biotech Technology Index, which includes the 30 largest biotech companies by market capitalization within the Stock Connect (Southbound Trading) eligible universe in Hong Kong. It can better reflect the overall performance of the leading biotech sector in Hong Kong. It supports T+0 trading, helping enable efficient allocation of biotech assets in Hong Kong. The top five holdings by weight include Innovent Biologics, Kangfang Bio, BeiGene, WuXi Biologics, and CSPC Pharmaceutical Group.