Are the innovative drugs soaring continuously this time truly different?
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After a long period of silence, the innovative drug sector is ushering in a long-overdue strong recovery.
Policies, industry, and capital—all three main lines have recently improved simultaneously, driving the sustained strength of the innovative drug sector. The latest data from the National Medical Products Administration shows that in the first half of this year, China's innovative drug outbound licensing (BD) transaction volume hit a historic high; meanwhile, the approval rate for the 2026 medical insurance directory’s initial review also set a record, the innovative drug pricing mechanism was further optimized, and market expectations for the sector’s profitability model and valuation system began to change.
The secondary market responded quickly. On July 16, the innovative drug concept continued its strong momentum: Hayao Co., Ltd. achieved five consecutive limit-ups, Borui Pharma surged nearly 20%, Haichuang Pharma rose close to 10%, leading companies like Hengrui Medicine, BeiGene, and WuXi AppTec strengthened in tandem, linking A-share and Hong Kong stock markets in an upward trend.
However, after a period of deep adjustment, the market's biggest question remains unchanged: Is this round of upward movement just another phase rebound, or is it truly the start of a new cycle for the innovative drug sector?
A deep industry report released by GF Securities on July 13 believes that, compared to previous rebounds, the key difference in this round of pharmaceutical market is: The industry turning point is clear, policies are easing at the margin, performance continues to materialize, and capital is rapidly flowing in, marking a resonance between fundamentals and liquidity for innovative drugs. The window for bottom-fishing in the pharmaceutical sector may have already opened; a “Buy” rating is given.
Overseas expansion enters harvest phase, international competitiveness of innovative drugs rises
The most important catalyst of this round comes from continuing breakthroughs in the overseas expansion of innovative drugs. The National Medical Products Administration shows that in the first half of this year, China completed 81 overseas licensing cooperation deals for innovative drugs, totaling about $110 billion—a historic high, reaching about 80% of the 2025 annual transaction scale.
GF Securities, citing statistics from the Insight database, points out that as of July 7, domestic innovative drugs have completed 82 BD licensing deals this year, with total disclosed scale of $96.767 billion—already surpassing the whole of 2024.
Among them, several ten-billion-dollar deals landed consecutively. Innovent Biologics and Pfizer reached a global collaboration on 12 early-stage oncology pipelines, with a potential deal size of $10.5 billion; Hengrui Medicine and Bristol-Myers Squibb (BMS) globally collaborated on 13 innovative projects, with potential value up to $15.2 billion; BeiGene has also separately cooperated with Novartis for overseas collaboration on tislelizumab and TIGIT monoclonal antibody.
Meanwhile, the international academic presence of Chinese innovative drugs continues to rise. The just-concluded ASCO 2026 conference featured 94 Chinese studies in oral presentations, including 12 late-breaking abstracts, both record highs; for the first time, Chinese innovative drugs appeared on the main stage of ASCO's plenary session.
GF Securities believes that, as of July 2026, Chinese companies account for about 32% of global innovative drug BD transaction share, with global competitiveness rising rapidly.
Reshaping medical insurance rules, policy expectations change
If industrial breakthroughs are the long-term logic, policy changes become the direct catalyst this round.
For the initial review of the 2026 medical insurance directory, 818 application materials were received; of these, 557 drugs entered the basic medical insurance directory's initial review, and 54 drugs entered the commercial health insurance innovative drug directory. Excluding pre-declared products, the overall initial review pass rate reached 92%, marking a historic high since the medical insurance directory adjustments began.
More importantly, medical insurance pricing logic is systematically optimized. For globally first-in-class, filling domestic gaps, Category 1 innovative drugs, new regulations allow stable pricing in the early stage, offering years of price protection; For drugs negotiated into medical insurance, after eight years and sales surpassing 300 million yuan, only a unified price cut of 10% is required to enter the regular directory, significantly improving price expectations.
Meanwhile, the commercial insurance innovative drug directory is officially established, forming a dual payment system of “basic medical insurance + commercial insurance,” offering new payment channels for high-value innovative drugs.
Another key policy landed simultaneously. On July 9, the National Health Commission released the “National Essential Drug List (2026 Edition)”; the new list adds 109 drugs, to be implemented officially in September. GF Securities notes that, entry into the essential drug list means eligibility for widespread use in public medical institutions, which is significant for the volume growth of innovative drugs.
Industry shifts from “storytelling” to delivering profits
Compared to previous rounds of sentiment-driven rebounds, this round’s market focuses more on performance realization.
After continuous adjustments from 2021 to 2025, the innovative drug sector has experienced a thorough shakeout. GF Securities data shows, as of June 2026, the Hong Kong innovative drug index PE is only at 14.56% historical level over the past five years; the A-share CS innovative drug index PE (TTM) is about 40 times, corresponding to about 32% historical level, valuations are still near historical bottom.
Meanwhile, fundamentals are improving. In Q1 2026, overall revenue of the innovative drug sector grew over 40% year-on-year; parent net profit grew over 120% year-on-year; over 40% of previously loss-making biotech firms turned profitable.
Market focus is also shifting from R&D investment and clinical progress to commercialization capability, cash flow, and profit delivery. GF Securities believes, the industry is moving from “burning cash for R&D” to “performance commercialization,” and company valuation systems are changing.
Global M&A cycle starts, capital returns to innovative drugs
Improvements in capital also underpin the market upswing.
On one hand, after prolonged adjustment in Hong Kong innovative drugs, foreign reduction is near its end, southbound funds continue to increase positions, and pricing power is shifting to domestic capital. On the other hand, overseas innovative drug markets are rebounding at the same time.
Recently, the US XBI and biotech index (NBI) have strengthened, cross-border pharma M&A heats up, FDA new drug approval pace improves—driving global innovative drug risk appetite higher.
Over the long term, global demand is also changing. According to estimates, by around 2030, global multinational pharma will face about $236 billion in “patent cliffs,” continuing to drive demand for external purchases of innovative pipelines. As of July 2026, the top 15 global pharma companies’ external capex has reached $200.3 billion so far, nearly three-quarters of last year's total.
GF Securities expects, 2027 will likely be an important node for concentrated realization of China’s innovative drug overseas commercialization, shifting the sector from “license-out for royalty income” to “global commercialization sales driving profits.”
Based on the above, GF Securities suggests focusing on three key investment lines: First, innovative drug companies benefiting from sustained overseas expansion; second, leading companies entering performance realization cycles; third, opportunities from value gap between Hong Kong H/A share innovative drugs.
Risk Warning and DisclaimerThe market has risks, investment needs caution. This article does not constitute personal investment advice nor consider individual users’ specific investment goals, financial situation, or needs. Users should evaluate whether any opinions, viewpoints, or conclusions herein fit their own situations. Investment based on this content is at your own risk. ```