According to a recent comprehensive industry analysis, the A-share innovative drug sector is currently experiencing a convergence of three positive trends: an upward industrial trajectory, accelerating earnings realization, and a reshaping of capital flows. The period from the second half of 2026 through 2027 is identified as a crucial window for strategic positioning in the sector. From the start of 2026 to early July, Chinese innovative drug companies secured a total of 82 outbound licensing deals with a combined transaction value approaching one hundred billion US dollars, signaling robust industrial momentum. However, the sector index has experienced a sustained correction, influenced by shifts in capital allocation preferences, creating a notable divergence between strong fundamentals and share price performance. As the logic of regularized outbound licensing is validated, domestic commercialization enters a harvest period, and incremental capital continues to flow back, the reversal rally for the innovative drug sector has officially commenced.
Outbound Licensing Becomes Routine, Reinforcing Long-Term Growth Narrative
China's innovative drug industry is now deeply integrated into the global biopharmaceutical supply chain. Business development collaborations have evolved from sporadic events to a source of regularized growth, underpinned by dual advantages in technological capability and operational efficiency. By 2026, China's pipeline of Antibody-Drug Conjugates under development ranked first globally, with its overall biotech pipeline accounting for approximately one-third of the world's total. Concurrently, the country holds significant advantages in regulatory review efficiency, clinical trial recruitment speed, and per-patient trial costs. These factors have supported a rapid increase in China's share of global BD deals with multinational pharmaceutical companies, rising from 2% in 2017 to 32% in 2026. Leading multinational pharma firms maintain an annual external collaboration capital expenditure of around $200 billion, providing a continuous source of incremental earnings for domestic innovative drug companies. More notably, starting in 2027, numerous Chinese innovative drugs are expected to gain approval for the US market. This will mark the industry's transition from a phase reliant on upfront licensing revenue to one benefiting from global sales royalties, fundamentally unlocking long-term growth potential.
Jiangsu Hengrui Pharmaceuticals Co., Ltd. stands as the undisputed leader in China's innovative drug space, boasting the industry's deepest R&D pipeline and strongest commercialization capabilities. Its core pipelines in areas like ADC, oncology, and autoimmune diseases possess global competitiveness, with overseas clinical development and BD partnerships advancing steadily. The company is a primary beneficiary of the industry's outbound wave, with vast long-term international growth prospects.
RemeGen Co., Ltd. is a global frontrunner in the domestic ADC field. Its core products have achieved multiple high-value overseas licensing deals, with its technological prowess gaining recognition from global pharmaceutical firms, leading to a continuous reassessment of its outbound value.
Shanghai Junshi Biosciences Co., Ltd. is at the forefront of the industry in the outbound progress of its PD-1 product. It is advancing the global clinical development of multiple innovative pipelines in parallel, with BD collaborations achieving continuous breakthroughs. Clear expectations for overseas commercialization by 2027 provide substantial growth elasticity.
Shanghai Fosun Pharmaceutical (Group) Co., Ltd. has demonstrated significant results from its innovation transformation. Several core innovative products have entered a phase of rapid sales ramp-up, while its outbound BD activities and international layout continue to deepen, combining earnings stability with growth elasticity from overseas expansion.
Commercialization Enters Golden Era, Accelerating Earnings Realization
Domestic innovative drug companies maintain a robust pipeline of late-stage assets. Coupled with the normalization of National Reimbursement Drug List negotiations and the first-time inclusion of domestic innovative drugs in the new edition of the National Essential Medicines List, the industry has formally entered a golden window for commercial earnings realization. The number of new chemical entities and new indications included in the NRDL annually continues to climb. In 2026, approximately 40 first-in-class new drugs participated in the NRDL negotiations for the first time. If included at reasonable prices, these are expected to rapidly drive prescription volume growth in 2027. The inclusion of several domestic innovative varieties in the NEML will steadily increase penetration in primary healthcare institutions, further broadening the end-market potential for innovative drugs. Leading companies, leveraging their comprehensive pipeline portfolios and formidable sales capabilities, will be the first to capture the benefits of industry-wide volume expansion, with revenue and profit growth rates set to rise continuously.
Several blockbuster innovative drugs from Jiangsu Hengrui Pharmaceuticals Co., Ltd. have entered the post-NRDL volume expansion cycle. Continuous expansion into new indications, combined with accelerated penetration into primary markets and industry-leading depth of sales channel coverage, positions the company as a benchmark for earnings growth certainty and sustainability.
The core product of InnoCare Pharma Ltd. is experiencing sustained volume growth in the autoimmune and oncology fields, with new indication expansions progressing smoothly. Its commercialization capabilities are improving rapidly, and earnings growth is gradually entering an acceleration phase.
Tasly Pharmaceutical Group Co., Ltd. is steadily advancing its dual-track strategy in traditional Chinese medicine innovation and biopharmaceutical innovation. Multiple innovative pipelines are successively entering the harvest stage. The company's years of focus on primary markets provide a significant channel advantage, allowing it to fully benefit from the volume expansion in primary care driven by the NEML expansion.
Haisco Pharmaceutical Group Co., Ltd. has shown significant results from its transition to innovative drugs. Core pipelines are successively entering the commercialization stage, with a clear earnings inflection point in sight, positioning it to fully enjoy the industry's commercialization红利.
Capital Structure Reshaping Fuels Comprehensive Valuation Rebound
In the first half of the year, influenced by foreign capital outflows and capital being siphoned into the AI sector, Hong Kong-listed innovative drug valuations retreated to a cyclical low, creating significant valuation mismatches for high-quality companies. Currently, foreign selling pressure is nearing its end, while southbound capital continues to flow in. Sector trading activity has notably warmed, and the pricing logic is shifting from a global valuation framework dominated by overseas institutions to a system centered on local industrial fundamentals, promising a more robust valuation foundation. Simultaneously, stocks with significant A-H share discounts, previously suppressed by foreign outflows from H-shares, are poised for a narrowing discount rally as capital flows shift.
The H-shares of RemeGen Co., Ltd. were previously significantly pressured by foreign outflows, with its A-H discount at historically elevated levels. As southbound capital continues to increase its allocation and the company's fundamentals keep delivering, there is substantial room for the discount to narrow, highlighting its valuation repair elasticity.
The H-share valuation of InnoCare Pharma Ltd. is significantly lower than its A-shares. With its core product's commercial volume exceeding expectations, the A-H share gap is expected to continue converging amid shifting capital flows, while also benefiting from the sector's broader beta recovery.
The H-share valuation of Shanghai Junshi Biosciences Co., Ltd. is at a historical low, with the global value of its innovative pipelines not yet fully priced in. Continued southbound capital inflows, coupled with approaching catalysts from overseas clinical developments, provide strong momentum for valuation repair.
Shanghai Fosun Pharmaceutical (Group) Co., Ltd. exhibits a significant A-H share discount. The company boasts strong earnings stability and is steadily advancing its innovation transformation, offering ample room for valuation recovery as capital returns.
In summary, the innovative drug sector is currently at a bottom inflection point, supported by the resonance of three key factors: industrial trends, earnings release, and capital flows. The normalization of outbound BD provides sustained growth momentum, domestic commercialization entering a concentrated harvest period underpins earnings growth, and marginal improvements in capital conditions drive valuation repair, setting the stage for a dual boost from both valuation and earnings. With the opening of the overseas commercialization window in 2027, the industry's long-term growth potential will be further unlocked, making the present moment an optimal time for strategic positioning in this golden sector.
Comments