CITIC SECURITIES points out that China's innovative drug BD transaction value has grown beyond expectations since 2026, further enhancing the industry's global competitiveness. The domestic market is scaling up rapidly; based on 2025 annual reports, leading innovative drug companies are seeing rapid revenue growth driven by new products, with biopharma firms successively reaching profitability inflection points. With several international academic conferences approaching, numerous innovative drug pipelines are entering a period of intensive data catalysts. Consequently, the firm believes the global value of the innovative drug industry is prominent and recommends focusing on: 1) leading innovative drug companies expected to see earnings releases; 2) core pipelines approaching significant data readout catalysts; and 3) global potential pipeline assets likely to see accelerated international validation. CITIC SECURITIES maintains an "Outperform" rating on the innovative drug sector.
Over the past three years, the quality of China's innovative drug pipelines has rapidly gained international recognition, driving out-licensing (License-out) deal values beyond expectations and validating the increased value of these pipelines. In Q1 2026, the upfront payments for China's innovative drug License-out deals reached $3.85 billion (up 1066.7% from Q1 2024 and 229.1% from Q1 2025), with total deal value hitting $52.53 billion (up 449.1% from Q1 2024 and 43.8% from Q1 2025). The quality and quantity of deals have improved significantly in 2026, with optimized deal structures reflecting higher pipeline quality and certainty. License-out deals in 2025 already exceeded $138 billion, setting a new record. Compared to full-year 2025 figures, Q1 2026 metrics for deal count, upfront payments, and total value accounted for 26.7%, 49.7%, and 37.9% respectively. The upfront payment in just Q1 2026 is close to half of the full-year 2025 total. The significant increase in the proportion of upfront payments indicates licensees' recognition of pipeline value and provides cash flow support for R&D, creating a positive cycle that further aids the development of more innovative drug pipelines.
Revenue growth is being driven by the scaling up of innovative drug products, with leading biopharma companies successively reaching profitability inflection points. From 2023 to 2025, innovative drug revenue increased significantly for major firms: BeiGene (from RMB 17.4 billion to RMB 37.6 billion), Hengrui Pharmaceuticals (from RMB 10 billion to RMB 16.3 billion), Hansoh Pharma (from RMB 6.9 billion to RMB 12.4 billion), Innovent Biologics (from RMB 5.7 billion to RMB 11.9 billion), and Sino Biopharmaceutical (from RMB 9.9 billion to RMB 15.2 billion). The proportion of revenue from innovative drugs is also rising. At Hengrui Pharmaceuticals, it increased from 44.4% in 2023 to 57.9% in 2025, now constituting over half of total revenue. At Hansoh Pharma, it rose from 67.9% to 82.2%, making innovative drugs the absolute core business. At Sino Biopharmaceutical, it grew from 37.7% to 47.8%, indicating a rapid transition towards innovation-driven operations. Overall, leading Chinese pharmaceutical companies are swiftly shifting their business structures from traditional drugs to innovative drugs, with the scaling of innovative drugs gradually becoming the core driver of revenue growth, and leading biopharma firms are successively reaching profitability inflection points.
Upcoming international academic conferences like AACR 2026 and ASCO 2026 will bring intensive data readouts for Chinese innovative drug pipelines. AACR 2026 is scheduled for April 17-22 in San Diego. According to the conference website, over 100 Chinese pharmaceutical companies will present nearly 400 research achievements, reflecting a significant leap in participation and innovation quality. ADC drugs remain a key focus, with data expected from over 90 innovative drug pipelines, highlighting significant technological iteration trends. Key areas to watch include: next-generation CDK4/2 dual-target inhibitors; BCL-2 small molecule inhibitors; trispecific co-stimulatory TCEs; dual-target/dual-toxin ADCs; the world's first Pan RAS ADC; and bispecific ADCs like EGFR/HER3 and SSTR2/DLL3. Overall, Chinese innovative drugs are showing leading global trends in various segments such as ADCs, bispecific antibodies, and small molecule targeted therapies.
ASCO 2026 will be a crucial platform for significant data readouts from Chinese innovative drug companies, potentially further releasing the value of related assets and promoting the global value realization of the innovative drug industry. Key timelines are: abstract titles released on April 21; abstract disclosures on May 21; and the conference held from May 29 to June 2. Key iterative directions to monitor include: 1) combination therapies based on ADCs, bispecific/multi-specific antibodies, and immunotherapy; 2) the evolution of ADCs from single-target, traditional payloads towards a new phase emphasizing optimized therapeutic windows, including better payload/linker designs, bispecific targeting, and stronger platform development capabilities; 3) early clinical breakthroughs for new therapies like cell and gene therapies in solid tumors; and 4) significant clinical data readouts from pipelines with global value, such as SKB264 combined with pembrolizumab for first-line treatment of PD-L1 positive NSCLC, and HARMONi-6.
Risk factors include potential delays or failures in new drug R&D progress; slower-than-expected or unsuccessful new drug approvals; post-market efficacy and safety falling short of expectations; suboptimal commercialization and sales performance; changes in competitive landscape; unexpected changes in healthcare policies; and statistical data deviations.
In terms of investment strategy, since 2026, China's innovative drug BD transaction value has grown beyond expectations, enhancing the industry's global competitiveness. The domestic market is scaling up rapidly, with leading companies showing strong revenue growth from new products and biopharma firms reaching profitability inflection points. With major international conferences approaching, numerous pipelines are entering an intensive data catalyst period. The recommendation is to focus on: 1) leading innovative drug companies poised for earnings releases; 2) core pipelines nearing significant data readout catalysts; and 3) global potential pipeline assets likely to see accelerated international validation. An "Outperform" rating is maintained on the innovative drug sector.
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