The innovative drug sector is gaining increased market focus due to multiple positive factors. Investors are evaluating how to best capture opportunities through specialized ETFs.
Multiple positive catalysts are converging, drawing market attention to the innovative drug sector. First, innovative drug companies have begun generating profits. In Hong Kong markets, a selection of 66 innovative drug firms reported combined revenue of 299 billion yuan for 2025, representing 17% year-over-year growth. Their aggregate net profit reached 29.4 billion yuan, surging 462% compared to the previous year. On mainland exchanges, 28 STAR Market innovative drug companies recently disclosed 2025 performance forecasts. These companies collectively achieved approximately 74 billion yuan in revenue, marking nearly 30% growth and setting a historical record. They reported a combined net profit of about 1.6 billion yuan, successfully reversing previous losses. Analysis indicates that innovative drug companies now benefit from a dual-driver revenue structure: pharmaceutical sales revenue from commercialized core products providing internal growth momentum, and upfront payments from overseas business development deals reflecting international recognition of their R&D capabilities.
Second, supportive local policies for innovative drugs are being introduced intensively. Since April, multiple regions have rolled out favorable measures. Beijing released 32 measures supporting high-quality innovative drug development on April 7. Hunan province introduced 17 new policies to stimulate biomedical industry innovation on April 8. Haikou National High-Tech Zone announced support measures for its biomedical cluster on April 11. Anhui province's supportive policies will take effect starting May 1.
Third, China's innovative drug research continues to achieve breakthroughs. Recently, the country's first self-developed Class 1 nuclear medicine radiopharmaceutical received market approval, signaling a transition from following international trends to achieving original innovations. Meanwhile, another Class 1 innovative drug obtained regulatory approval for myocardial ischemia diagnosis. On April 10, a domestic innovative drug received approval, offering new targeted immunotherapy mechanisms for solid tumor treatment. According to regulatory records, 14 Class 1 innovative drugs received approval in the first quarter of 2026.
Utilizing ETF instruments to focus on the industrial chain presents a strategy for capturing sector opportunities. Two innovative drug ETFs offer different focuses, covering A-shares and Hong Kong-listed innovative drug产业链 respectively, allowing investors to choose based on their preferences.
The first ETF tracks the CSI Innovative Drug Industry Index, concentrating on A-share innovative drug产业链. Its portfolio includes established generic drug manufacturers, pure innovative drug companies listed on the STAR Market, CXO service providers benefiting from industry growth, and upstream scientific service segments, providing comprehensive exposure.
The second ETF follows the CNI Hong Kong Stock Connect Innovative Drug Index, focusing specifically on Hong Kong-listed innovative drug产业链. It emphasizes downstream innovative pharmaceutical manufacturers, with significant weights in biological products and chemical preparations sectors, while excluding all CXO enterprises for sharper focus.
Regarding component distribution, both indices feature concentrated holdings in leading companies. The Hong Kong-focused index demonstrates higher concentration in large-cap stocks, while the A-share index shows more balanced market capitalization distribution.
Historically, both indices have demonstrated significant growth since their base dates, outperforming broader market indices. The Hong Kong innovative drug index gained 96.96% since December 31, 2018, compared to modest gains in broader Hong Kong indices. The A-share innovative drug index rose 88.14% since December 31, 2014, substantially exceeding returns of major mainland indices.
Currently, the innovative drug sector benefits from simultaneous positive developments in earnings, policy support, and research breakthroughs, indicating clear long-term investment value. Investors can consider corresponding ETF tools based on their risk preferences and allocation needs to potentially capture long-term opportunities in the innovative drug sector.
Investment risks should be carefully considered. Past performance doesn't guarantee future results. Fund investments carry risks including market volatility, management risks, and liquidity concerns. Investors should review fund documents thoroughly and assess their risk tolerance before investing.
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