The rise in the Hong Kong stock market's Innovative Drugs Sector continues.

At the beginning of today's Hong Kong stock market, the Innovative Drugs Sector surged again. $QYUNS-B (02509.HK)$ Increased by more than 9%, $KINTOR PHARMA-B (09939.HK)$ Rising over 5%, $ALPHAMAB-B (09966.HK)$ 、 $JACOBIO-B (01167.HK)$ 、 $ASCLETIS-B (01672.HK)$ The market is following the upward trend. With the recent market rally, the Hong Kong stock market has seen the emergence of its first innovative drug theme with a market cap of over 10 billion.Index Fund。

Market analysts point out that the current wave of innovative drug market trends is due to a combination of factors including market sentiment, policies, and the realization of the commercial value of companies. More importantly, as the valuation of innovative drugs gradually recovers, the logic behind valuations of innovative drug companies in the capital markets is also changing; the product strength and commercial capabilities of innovative drug companies have become key factors for the market to "pay up".

The innovative drug sector in the Hong Kong stock market is showing promising momentum, with frequent good news about domestic innovative drugs.

Recently, domestic innovative pharmaceutical companies have shown promising performance in the Capital Markets. According to statistics by Securities Times reporters based on Wind data, as of the close on March 12, nearly 60% of stocks in the Hong Kong innovative drugs Sector recorded positive growth since 2025.

$ANTENGENE-B (06996.HK)$ 、 $HBM HOLDINGS-B (02142.HK)$ 、 $TRANSCENTA-B (06628.HK)$ 、 $ASCLETIS-B (01672.HK)$ 、 $BRII-B (02137.HK)$ 、 $MEDBOT-B (02252.HK)$ 、 $JACOBIO-B (01167.HK)$ The increases are all above 100%. $ANTENGENE-B (06996.HK)$ 、 $HBM HOLDINGS-B (02142.HK)$ The increase exceeded 300%.

In addition, several Hong Kong-listed Innovative Drugs ETFs have also recorded varying degrees of increase. Among them, the GF CSI Hong Kong Innovative Drugs ETF (513120) and the Yinhua Guozheng Hong Kong Stock Connect Innovative Drugs ETF (159567) have seen their maximum increase exceed 30% from the low this year, and the latest circulation scale and shares are at a new high in nearly half a year. According to Wind data, the circulation shares of GF CSI Hong Kong Innovative Drugs ETF have remained above 10 billion since breaking through 10 billion at the end of last year, with a peak surpassing 15 billion.

However, reporters noticed that while the overall sector of Innovative Drugs is strong, there is also significant differentiation within the sector. While pharmaceutical companies with a high proportion of Innovative Drugs have surged, those with a high proportion of generic drugs have only slightly risen or even fallen, such as$CSPC PHARMA (01093.HK)$which saw its stock price decline slightly during the same period.

In the past year, there have been frequent good news reports about domestic Innovative Drugs.$AKESO (09926.HK)$The PD1/VEGF dual antibody has defeated Keytruda in an international multi-center head-to-head phase III trial. $Sichuan Biokin Pharmaceutical (688506.SH)$ SKB BIO-B achieved a hundred billion BD; $SKB BIO-B (06990.HK)$ The Lupanib monoclonal antibody has been approved for listing by the National Medical Products Administration, becoming the first domestically produced TROP2-targeted ADC.$Jiangsu Hengrui Pharmaceuticals (600276.SH)$The Fuzhizhu monoclonal antibody injection (brand name: Andazhong) has been approved for listing, among others.

The breakthroughs achieved by the aforementioned companies have also been somewhat reflected in their stock prices. Since 2025, $SKB BIO-B (06990.HK)$ the stock price has increased nearly 50%, $AKESO (09926.HK)$ with an increase of nearly 20%.

The challenges in Innovative Drugs payment are expected to be solved, opening up the profitability space for pharmaceutical companies.

On the policy front, the release of the Category C drug list and the restructuring of the Innovative Drugs payment system, among other new measures, have drawn significant attention in the Innovative Drugs field, allowing previously dormant Innovative Drugs companies to attract more investors to bet on them.

On January 17 this year, Huang Xinyu, Director of the Pharmaceutical Service Management Department of the National Healthcare Security Administration, stated that the first version of the Category C drug list is planned to be released within this year. So-called Category C drugs, are those that cannot be temporarily included in the medical insurance catalog due to exceeding the "basic guarantee" functionality, but have a high degree of innovation, significant clinical application value, and substantial patient benefits.

The establishment of the Class C Medical Insurance Directory will increase the proportion of high-value innovative drugs in medical usage." Bao Jinguang, a fund manager and senior researcher at Rongzhi Investment, pointed out in an interview with the Securities Times that currently the coverage of China's medical insurance directory is limited and cannot meet the payment demands for high-priced innovative drugs (such as cell therapy, gene therapy), special drugs, and personalized medical services. By establishing the Class C Directory, dynamically incorporating high-value medications can effectively fill the gap of medications not covered by the medical insurance directory.

The payment difficulties for innovative drugs has long been a significant issue in the development of China's biomedical sector. The "White Paper on Diverse Payments for Innovative Drugs and Medical Devices in China (2025)" (hereinafter referred to as the "White Paper") shows that by 2024, the market scale for innovative drug sales is expected to reach 162 billion yuan, but the payment structure is imbalanced: Medical insurance funds will cover about 71 billion yuan, accounting for 44%; personal cash payments will be about 78.6 billion yuan, accounting for 49%. The "White Paper" also points out that among the expected market scale for these innovative drugs, commercial health insurance expenditures will be about 12.4 billion yuan, contributing only 7.7%.

To address the payment challenges for innovative drugs, this year's "Government Work Report" for the first time mentioned the innovative drug directory, stating, "Improve the pricing formation mechanism for drugs, formulate an innovative drug directory, and support the development of innovative drugs and medical devices." During this year's two sessions, national committee members also discussed this matter.$Betta Pharmaceuticals (300558.SZ)$Chairman Ding Lieming also suggested encouraging commercial medical insurance and other funding to jointly build a multi-tiered medical insurance payment system to broaden the development space for innovative drugs, better meeting the diverse medical insurance needs of the public.

Relevant measures to break the development challenges faced by innovative drugs due to the single payment system are already lined up, which means that there is greater motivation for innovative drug research and development in the country. Future commercialization will also have more commercial value, significantly improving the profitability of pharmaceutical companies, leading to a positive cycle in the development of innovative drugs and medical devices.

$HBM HOLDINGS-B (02142.HK)$ Founder, Chairman, and CEO Wang Jinsong stated in a media interview that the current changes in the capital market reflect the market's renewed confidence in the biomedical industry, especially in the innovative drug sector. With changes in the policy environment and increased market enthusiasm, valuations and allocations have ushered in new opportunities.

The profitability of pharmaceutical companies continues to improve, and the valuation logic of innovative drug companies is quietly shifting.

Policy-driven market sentiment is heating up, but the fundamental improvement of the innovative drug industry is needed to truly support a steady recovery of its valuation. As of February 2025, over 20 innovative drug companies have announced profit forecasts, and several others have reported warnings of reduced losses, indicating that the industry is gradually shaking off its long-term loss status and beginning to deliver commercial value to investors.

The most typical example is A+H shares. $BEIGENE (06160.HK)$ According to its 2024 performance forecast, the company's revenue is expected to grow by 56.2% year-on-year to 27.214 billion yuan. Although the net income still shows a loss of 4.978 billion yuan, it has significantly reduced the losses by 26% year-on-year. More importantly, its adjusted operating profit turned positive for the first time, reaching 0.528 billion yuan. The company's chairman, O Lei Qiang, boldly stated at the JPMorgan Healthcare Conference, 'We will achieve a positive operating profit for the entire year in 2025!'

Similarly, the Hong Kong-listed company. $ZAI LAB (09688.HK)$ The earnings forecast shows a 50% year-on-year revenue increase in 2024, amounting to approximately 0.399 billion USD. Additionally, the company's report mentioned an improvement in its financial situation, reducing operating losses, with an annual operating loss of 0.282 billion USD, a decrease of 23% year-on-year.

$JUNSHI BIO (01877.HK)$The recently released 2024 performance report also shows that while revenue grew by 29.67% year-on-year during the reporting period, the loss narrowed to 1.282 billion yuan, the lowest level in nearly three years. JUNSHI BIO attributed the increase in revenue to the sales growth of its pharmaceuticals.

It is not difficult to find that the valuation logic of the Capital Markets for innovative pharmaceutical companies is quietly changing from these companies whose stock prices are supported by fundamentals. On one hand, in recent years, many companies obtained high valuations based on imitative innovation, but now, investors are more willing to ‘pay the price’ for a company’s short to mid-term operational performance.

On the other hand, China’s innovative drug achievements are entering an explosive period. Data shows that since the beginning of 2025, there have been frequent good news in the field of innovative drugs, with multiple domestically produced class 1 innovative drugs approved for market launch. In the past 2024 alone, a total of 40 domestically produced class 1 innovative drugs were approved, an increase of seven compared to 2023.

He Li, General Manager of Zhi Yu Zhi Shan Investment, stated in an interview: 'With the improvement of the domestic environment and the expansion into overseas markets, it is expected that there will be greater potential for the peak sales of domestic innovative drug companies’ products, thus further enhancing the valuation of innovative pharmaceutical enterprises.'

From the perspective of Li Yifeng, a fund manager at Yuan Shi Investment, the factors influencing the mid to long-term valuations of innovative pharmaceutical companies are undergoing structural changes. The traditional valuation framework, which primarily focuses on pipeline quantity and clinical stages, is facing collapse, and a new value system has many variables, creating a complex valuation model due to the interaction of these variables.

The overseas licensing transaction volume has reached new highs, and industry experts suggest retaining domestic innovative achievements.

The 'overseas potential' is also a value anchor point for the current Capital Markets pricing of innovative pharmaceutical companies. Influenced by various factors such as the domestic payment environment and financing environment, many pharmaceutical companies seek diversified financing methods to find avenues for their innovative drug assets, such as overseas licensing transactions.

On January 2,$INNOVENT BIO (01801.HK)$announced a billion-dollar level overseas licensing deal. Specifically, INNOVENT BIO granted Roche exclusive global rights for the development, production, and commercialization of IBI3009 (a next-generation ADC candidate targeting DLL3). INNOVENT BIO will receive an upfront payment of 80 million dollars, along with potential milestone payments of up to 1 billion dollars for development and commercialization.

According to the Insight database, from the perspective of transactions involving domestic enterprises, in 2024, the total amount of overseas licensing deals by China's innovative pharmaceutical companies reached 63.5 billion dollars. Since the beginning of 2025, there have been nearly 10 large-scale licensing transactions involving major pharmaceutical companies. Bao Jingang believes that the excellent performance of China's innovative drugs in overseas licensing deals further enhances global market recognition of Chinese innovative drugs.

In addition, the overseas licensing deals for Chinese innovative drugs are gradually shifting toward early-stage pipelines, and this trend will drive the valuation of early-stage pipelines for Chinese innovative drugs upward.

From multiple overseas licensing cases of innovative drugs, it can be found that the total contract amount for overseas business development usually exceeds the existing valuation/market cap of the company by several times. Moreover, the U.S. market, which has the most overseas licenses, only accounts for 50% of the global scale. "From this perspective, if we do not consider the uncertainties of future clinical risks, the current value of innovative pharmaceutical companies with globally leading pipelines domestically is underestimated," said Lu Gang, a partner at Oriental Venture Capital, which focuses on innovative drug investments. Innovative pharmaceutical companies with real overseas capabilities deserve more support, and they are better positioned to represent China in global competition.

However, despite the advantages of cash payments received in advance, opening up global visibility for companies, and gaining valuable development experience through international reviews and approvals in overseas licensing deals for domestically produced innovative drugs, the China Pharmaceutical Innovation Promotion Association has publicly stated that if domestic innovative pharmaceutical companies excessively license out high-quality research and development pipelines, it may lead to a loss of high-quality domestic innovative achievements in the medium to long term.

Therefore, to alleviate the financing pressure on domestic innovative pharmaceutical companies, Ding Lieming suggested strengthening the guiding role of government industrial funds, increasing support for research and development enterprises and high-quality projects, creating a favorable investment environment to reassure investors, and allowing innovators to focus on innovation.

According to reporters, government industrial funds have already collaborated with large innovative pharmaceutical companies to establish related innovative drug investment funds. This fund is not limited to capital injection but can also facilitate long-term development for innovative pharmaceutical companies through the acquisition of research and development pipelines or equity investment in potential enterprises. On March 3, the Sanofi-Kaiwei Pharmaceutical Innovative Fund was signed in Shanghai, and informed sources revealed that this fund is a collaboration between the Fortune 500 pharmaceutical company Sanofi and local state-owned assets, with Kaiwei Fund acting as the fund manager. This fund may focus on innovative drug pipelines that have entered clinical stages.

Editor/rice