The ascendancy of Chinese pharmaceuticals on the global stage, combined with professional stewardship that deeply understands industry dynamics, may be the key to commanding this fertile investment landscape. According to Wind data, as of July 31, the SW Level-1 Pharmaceutical and Biotechnology Index surged 22.31% year-to-date, ranking second among 31 industries, after experiencing maximum declines exceeding 50% in the previous four years. This rally is no coincidence—it reflects the fundamental logic of the industry.
The pharmaceutical industry's development has always been intricately intertwined with humanity's pursuit of health. From ancient explorations of medicinal herbs to the accidental discovery of penicillin that ushered in the antibiotic era, and gene editing technologies reshaping genetic disease treatment paradigms, each technological leap has redefined the boundaries of life. This millennia-spanning progress curve reveals that pharmaceutical investment's ultimate direction has always been humanity's most fundamental need: achieving continuous extension of healthy lifespan through relentless breakthroughs in life sciences and revolutionary improvements in health quality.
According to Wind data, A-share pharmaceutical and biotechnology sector currently comprises over 490 listed companies, ranking second by quantity among all industries. Over the past 20 years, among 106 stocks achieving "20-fold returns in 20 years" (calculated on comparable basis), this sector contributed 20 companies—the highest among all industries. During the same period, the pharmaceutical and biotechnology industry index gained 13.02 times, ranking third among industries. This dual excellence in quantity and quality validates the sector's cycle-resilient nature and suitability for long-term allocation.
**Pharmaceutical Track: "Long Slope, Thick Snow"**
The pharmaceutical industry's demand-side growth demonstrates strong certainty, with demographic structural changes serving as a core driver. By end-2024, the global population aged 65 and above reached 10.2%, while China's proportion rose to 15.6%. As massive baby boomer and Generation X cohorts gradually enter elderly stages, this trend may drive multi-layered demand for healthcare products and services, supporting sustained growth in China's healthcare industry.
With increasing life expectancy, China's disease spectrum and health needs are evolving. Chronic diseases like malignant tumors and diabetes show rising incidence rates, driving continuous growth in prevention and treatment demand. Simultaneously, people's health definition has expanded from "disease prevention and treatment" to "confidence and beauty," with medical aesthetics demand growing daily, further broadening industry growth boundaries.
Validating continuously growing health needs, China's total health expenditure as a percentage of GDP rose from 4.9% in 2010 to 7.1% in 2022, though gaps remain versus developed countries like the United States (18.81%) and Germany (12.7%). As economic levels improve and the middle-income class expands, disposable income for healthcare will increase substantially, with health spending expected to gradually narrow gaps with developed countries, injecting robust growth momentum into the healthcare sector.
From a global perspective, health resource distribution imbalances remain significant. Low-income countries' vaccination rates are less than one-third of developed countries, while cancer targeted drug accessibility differs by dozens of times, providing vast space for Chinese pharmaceutical companies to expand overseas markets.
The pharmaceutical industry's value lies not only in demand—its high barriers and scarcity construct solid moats from the supply side. At the policy level, directly relating to public life safety, the pharmaceutical industry faces the world's strictest regulation, from drug clinical trial approvals and production quality management to medical institution establishment permits and practitioner qualification certifications—every step has stringent standards. Under high standards, total medical supply cannot grow rapidly, with tight quality medical resources and phenomena like "difficult medical access" and "difficult hospitalization" essentially reflecting scarcity.
Technologically, pharmaceuticals represent rare tracks combining "technological brilliance" with "consumption reality." Core competitiveness lies not only in products themselves but in underlying R&D systems, patent layouts, and clinical data accumulation. For innovative drug companies, core assets are R&D pipelines, with each investigational product requiring decades of technological accumulation and data validation, creating barriers that make short-term threats from new entrants difficult.
Demand-side rigid growth intertwining with supply-side high barriers jointly forge pharmaceuticals as a rare "long slope, thick snow" track in capital markets.
However, industry tides never rise monotonously. Some investors may wonder: as a "long slope, thick snow" track, why did A-share pharmaceutical and biotechnology industry indices fall for four consecutive years from 2021-2024, with cumulative declines exceeding 40%?
Regarding this, Tan Donghan, fund manager of ICBC Credit Suisse's pharmaceutical team—which demonstrated sustained leading advantages in Morningstar China's 2024 public fund annual report—indicated in recent interviews that this resulted from multiple overlapping factors: globally, innovative drug cycles entered troughs with diminishing returns from blockbuster targets like PD-1, overlaid with Federal Reserve rate hikes suppressing valuations; domestically, innovative drugs somewhat prematurely discounted fundamentals during pre-2021 rallies, with early-stage pipeline company valuation systems under pressure; industry-wide simultaneous contraction with CRO segment overcapacity and tail-end companies reducing pipelines further intensified adjustments; markets also worried that medical insurance cost controls and drug centralized procurement pricing would weaken pharmaceutical industry profitability.
Addressing medical insurance cost control concerns, Tan Donghan noted this represents short-term interpretations during capital market downturns, requiring no excessive long-term worry. He referenced neighboring examples: Japan faced similar environments post-2000, with nearly 30% of annual social security expenditures relying on government transfers, yet pharmaceutical industries continued developing due to rigid demand.
Regarding medical insurance price negotiation concerns, Tan Donghan explained that medical insurance bureau operations adhere to market principles through negotiations or bidding, not mandatory pricing. Moreover, medical insurance bureaus support commercial insurance development, with new drugs first covering partial populations through commercial insurance before entering medical insurance, creating complementary incremental funding.
**China's Pharmaceutical Industry Global Influence Enhancement**
When night reaches its end, dawn must follow. After four years of adjustment, consolidation, and improvement, the pharmaceutical industry—particularly innovative drug subsectors—has experienced warming trends this year, with development contours gradually clarifying.
Systematic policy-level support injects robust momentum into the industry. Early 2025, the State Council General Office released "Opinions on Comprehensively Deepening Drug and Medical Device Regulatory Reform to Promote High-Quality Development of the Pharmaceutical Industry," explicitly proposing strategic goals of "creating globally competitive innovation ecosystems"; the Medical Insurance Bureau plans to release Category C directories within the year, providing new support for innovative drug payment systems.
Since June, multiple departments including drug regulatory authorities, medical insurance bureaus, and securities regulators have intensively introduced favorable policies covering optimized review and approval processes, restarting unprofitable company listing channels, and other full-chain support measures. Particularly, "Several Measures Supporting High-Quality Development of Innovative Drugs" proposes 16 specific measures across five aspects including R&D support and medical insurance-commercial insurance integration, creating excellent policy environments for industry development.
The pharmaceutical industry's internationalization process achieved milestone breakthroughs. In 2024, Chinese BD transactions with upfront payments exceeding $50 million accounted for 22% globally, rising to 25.5% in first half 2025.
Behind this lies comprehensive leaps in Chinese pharmaceutical R&D capabilities. Quantitatively, China has jumped to global leadership in innovative drug R&D. According to Pharmcube data, based on innovative drugs first entering clinical trials, by end-2024, domestic companies' original innovative drugs accumulated 3,575 products, with 704 new innovative drugs added in 2024, ranking globally first.
Qualitatively, China's source innovation capabilities strengthened significantly, with FIC (First-in-Class) drug proportions rising from under 10% in 2015 to 31% in 2024. From 2015-2024, cumulative FIC new drug R&D exceeded 600 products, accounting for nearly one-quarter globally, ranking second globally.
Technologically, within same technology tracks, China-US new drug listing time gaps shortened dramatically from approximately 12 years previously to under 3 years, with FIC new drugs like PD-1/VEGF launching first in China, greatly improving innovative drug accessibility.
Robust industrial chains and abundant talent dividends construct competitive barrier moats. China's nucleotide production capacity shows significant growth trends, with complete industrial chains formed in peptide drug sectors and enormous domestic substitution potential for upstream key raw materials like culture media.
In R&D services, benefiting from rich engineer resources, global R&D outsourcing demand continues transferring to China. Some leading companies have established key positions in global pharmaceutical R&D service markets with remarkable capabilities.
Additionally, AI technology's deep applications quietly ignite R&D paradigm revolutions, dramatically reducing costs and increasing efficiency in key segments like target discovery and molecular design, significantly shortening R&D cycles and driving overall innovation efficiency quantum leaps.
Overall, under resonance from multiple forces including policy, R&D, overseas expansion, and technological innovation, Chinese pharmaceutical industries complete value leaps from imitation to innovation, with global influence enhancement trends continuing to deepen.
**Leading Companies Build Investment Foundations Through Deep Industry Research**
The pharmaceutical and biotechnology industry encompasses multiple professionally high-barrier subdivisions including innovative drugs, medical devices, medical services, and pharmaceutical distribution, with vastly different development logic, life cycles, and technological drivers across sectors, imposing extremely high requirements on investment professionalism and foundation.
ICBC Credit Suisse's pharmaceutical investment and research team represents this "professionalism and foundation." As early as around 2010, the company began carefully assembling specialized pharmaceutical teams. Team's first core member Zhao Bei combines solid pharmaceutical backgrounds with deep financial foundations, deeply cultivating pharmaceutical research since entering securities industry in 2008.
In 2013, Tan Donghan, holding Clinical Medicine Ph.D. from Tsinghua University Beijing Union Medical College, joined, shouldering research responsibilities alongside Zhao Bei. Eight years of continuous undergraduate-graduate-doctoral education forged high starting points, accumulating professional depth and breadth far exceeding peers.
Actions speak louder than words. In 2014, after four years of careful preparation, ICBC Credit Suisse launched its first pharmaceutical industry fund "ICBC Medical Healthcare," sounding the charge for track deployment. Subsequently, ICBC Pension Industry, ICBC Frontier Medical, ICBC Pharmaceutical Health, ICBC Healthy Living, and ICBC Health Industry were established successively, with increasingly comprehensive product line layouts.
Today, ICBC Credit Suisse's pharmaceutical team has assembled expert research teams graduating from renowned domestic and international universities, constructing industry-leading "top-tier" lineups. More importantly, through rigorous "mentoring and succession," smooth talent pipeline inheritance and experience accumulation were achieved. For example, University of Pennsylvania Biology Ph.D. Ding Yang, who joined in 2017, after 6 years as researcher, co-managed "ICBC Medical Healthcare" with Zhao Bei in 2023—vivid demonstration of efficient talent system operations.
Performance data validates team capabilities. Morningstar China's 2024 public fund annual report shows ICBC Credit Suisse's pharmaceutical funds maintain sustained leadership, with ICBC Medical Healthcare ranking first among pharmaceutical industry equity funds over ten years, earning ten-year five-star ratings; over seven years, ICBC Frontier Medical Stock A and multiple products ranked among top ten in categories; over five years, ICBC Frontier Medical Stock A and ICBC Pension Industry Stock A ranked among top ten, both earning five-year five-star ratings.
According to Securities Times Fund Research Institute statistics, as of July 31, five of the six aforementioned products achieved returns exceeding 29% year-to-date, significantly outperforming performance benchmarks.
Tracking these outstanding funds reveals ICBC Credit Suisse pharmaceutical investment team's framework clearly presents: they both sensitively capture industry trend fluctuations while emphasizing deep research into corporate core competitiveness moats. Stock selection cores revolve around "quality factors," focusing on R&D efficiency and output, commercialization capabilities, and globalization expansion potential rather than blindly chasing market hotspots.
Taking ICBC Health Industry as an example, as of July 31, the product achieved 69.60% net value growth year-to-date, exceeding benchmark returns by 53.71%. Co-managed by Tan Donghan and Ding Yang, this fund's investment "compass" precisely targets health industry themes, centering on innovative drugs and industrial chains, covering four types of innovative drug companies: globally leading innovative drug companies, domestic innovative drug companies with large product launches, emerging innovative drug leaders, and traditional large pharmaceutical companies transitioning from generic to innovative drugs.
Analyzing second quarter-end top ten holdings clearly reveals strategy implementation: prominent Hong Kong innovative drug sector allocations, with 5 of top ten holdings being Hong Kong stocks (including 3 18A biotech stocks), demonstrating "innovative drug leadership, Hong Kong stocks as core, four-dimensional stock selection framework" investment philosophy.
Risk control equally represents winning keys. Teams carefully deploy different types and development stage companies while utilizing relatively undervalued opportunities in quality Hong Kong market targets, pursuing construction of investment portfolios combining growth explosive power with portfolio stability, striving to effectively diversify individual risks.
Simultaneously, teams maintain dynamic tracking and assessment of corporate operational quality and core competitiveness, closely monitoring key indicators like clinical progress, product sales, technological iterations, and competitive landscape changes, dynamically optimizing portfolio adjustments.
Wind data shows as of July 31, the product's maximum drawdown year-to-date reached 11.83%, significantly below peer average levels of 15.18%. Risk control capabilities are evident.
The company's index products also performed brilliantly year-to-date. As of July 31, ICBC CSI Hong Kong Stock Connect Innovative Drug ETF and ICBC CSI Innovative Drug ETF tracked indices with year-to-date gains of 106.67% and 32.29% respectively, declining 1.38% and 40.96% over five years respectively.
From active equity to index products, from A-share cultivation to Hong Kong stock excavation, ICBC Credit Suisse pharmaceutical teams consistently use deep industry research as foundational bases and keen innovation trend insights as driving engines, continuously leading in pharmaceutical sector structural opportunities.
Accompanying demographic structural changes and accelerating Chinese innovative drug globalization paces, this experienced team systematically deploys innovative drug full industrial chain quality targets through diversified strategies optimizing portfolio resilience and dynamic tracking with position adjustments to lock in enterprise capability values, striving to continuously expand broad boundaries for creating excess returns for investors.
Looking forward, ICBC Credit Suisse pharmaceutical teams believe current innovative drug industry trends improve, with the next five years potentially welcoming rapid revenue and profit growth periods. The next six months to one year may still see overseas licensing transactions landing, continuously supporting fundamentals and bringing catalysts.
Under geopolitical easing and Federal Reserve rate cut cycle backgrounds, global innovative drug R&D activity increases, overlaid with domestic policy support and industry prosperity recovery, CXO sectors expect comprehensive recovery.
Scientific research upstream industry prosperity also shows clear recovery, with 2025 interim report previews showing export-dominated companies, though disrupted by China-US trade friction, achieving performance meeting or exceeding expectations through overseas pricing adjustments; domestic demand-dominated companies benefit from active BD transaction capital injections and increased R&D investments after pipeline adjustments, with industry prosperity potentially beginning repairs.
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