On January 26th, Hong Kong stocks fell into another adjustment phase, with the innovative drug sector declining once again. The Hong Kong Stock Connect Innovative Drug ETF (520880) dropped 1.5%, while maintaining a high premium in the secondary market, indicating strong buying interest. Last week, the 520880 fund accumulated a loss of 3.2%, yet attracted over 236 million yuan in capital inflows as investors bought the dip.
Among the constituent stocks, leading companies generally declined. Sino Biopharmaceutical fell 3%, Akeso dropped nearly 4%, while Sino Biopharmaceutical and Innovent Biologics both fell over 2%.
Despite the market downturn, capital has frequently increased positions, and on the industrial front, several innovative drug out-licensing deals were finalized at the beginning of the year, indicating a positive trend for Chinese innovative drugs going global. Key transactions include: 1) Rongchang Biopharm granted AbbVie the overseas rights for RC148 (a PD-1/VEGF bispecific antibody), receiving a $650 million upfront payment and up to $4.95 billion in potential milestone payments. 2) Haisco Pharmaceutical Group granted AirNexis (via a NewCo collaboration model) the overseas rights for HSK39004 (PDE3/4), receiving a $108 million upfront payment and up to $955 million in milestone payments. 3) Suzhou Zelgen Biopharmaceuticals granted AbbVie the overseas rights for ZG006 (a CD3xDLL3xDLL3 trispecific antibody), receiving a $100 million upfront payment, with near-term and milestone payments potentially reaching $1.135 billion (if AbbVie exercises its option). 4) YL-Biologics granted Roche the overseas rights for YL201 (a B7-H3 ADC), with upfront and near-term milestone payments totaling $570 million.
CMB International points out that most of these molecules are in Phase 2-3 clinical stages and have already been validated by early clinical data from China. Chinese companies may become more cautious about transferring pre-clinical molecules; future out-licensing deals for Chinese molecules will mostly be concluded based on early Chinese clinical trial data to achieve higher transaction value. Looking ahead to 2026, the long-term trend of innovative drugs going global is expected to continue, with a focus on the clinical progress and data readouts of already out-licensed pipelines as key catalysts.
To position in core innovative drug assets during dips, investors can utilize the high-flexibility T+0 tool—the Hong Kong Stock Connect Innovative Drug ETF (520880) and its corresponding feeder fund (025221). The underlying index (Hang Seng Hong Kong Stock Connect Innovative Drug Selection Index) possesses three distinct advantages, highlighting its strong allocation value: 1) 100% Purity. Excludes CXO companies, focusing purely on innovative drugs, and comprehensively covers innovative drug R&D companies. 2) High Leader Concentration. The top ten innovative drug leaders account for over 73% of the weight, representing the core strength of the sector. 3) More Controllable Risk. Imposes mandatory weight reductions on constituents with poor liquidity, effectively managing tail risks.
Want to also capture opportunities in A-share innovative drugs? Investors can consider the only on-exchange ETF tracking the pharmaceutical index, the Pharma ETF (562050), and its feeder fund (024986). It aggregates the top 50 A-share pharmaceutical leaders, with an innovative drug allocation exceeding 60%, while also including high-dividend traditional Chinese medicine leaders, offering strong resilience and the ability to perform well in both rising and falling markets.
Data source: Shanghai, Shenzhen, and Hong Kong Stock Exchanges, public information. For fund fee details, please refer to the respective fund legal documents.
Risk Warning: The index constituents mentioned are for illustrative purposes only. Descriptions of individual stocks are not intended as any form of investment advice and do not represent the holdings or trading动向 of any fund managed by the management company. The fund manager assesses the risk rating of the Hong Kong Stock Connect Innovative Drug ETF and its feeder fund as R4 (Medium-High Risk), suitable for aggressive (C4) and above investors. The risk rating of the Pharma ETF and its feeder fund is assessed as R3 (Medium Risk), suitable for balanced (C3) and above investors. Any information appearing in this article (including but not limited to individual stocks, commentary, forecasts, charts, indicators, theories, and any form of expression) is for reference only, and investors are solely responsible for any independent investment decisions. Furthermore, any views, analysis, or predictions herein do not constitute investment advice of any kind to the reader, and no liability is accepted for any direct or indirect losses arising from the use of this content. The performance of other funds managed by the fund manager does not guarantee the performance of this fund. Past performance of a fund is not indicative of its future performance. Fund investment carries risks, and caution is advised when investing in funds.
