The pharmaceutical sector was jolted awake in early August by a stunning half-year earnings report. The company posted a revenue of 288.97 billion yuan, a 38.93% year-on-year increase, and a net profit attributable to shareholders of 110.8 billion yuan, marking the first time it has surpassed the 100 billion yuan mark in a half-year period. Driven by this robust growth, the company significantly raised its full-year 2026 revenue guidance from 513-530 billion yuan to 585-605 billion yuan.

Who delivered such an impressive performance? The secondary market quickly provided the answer. On the first trading day after the results (August 4), the same name topped the gainers list for A-share and H-share pharmaceutical stocks. Wuxi Apptec Co.,Ltd. (A-share: 603259) hit its daily limit, while its H-share surged 14%. In the first week following the results, its A-shares and H-shares gained 20.55% and 19.66%, respectively.

On August 10, Wuxi Apptec Co.,Ltd. set multiple new historical records. Its H-shares continued to hit new highs, with its intraday market capitalization surpassing HK$600 billion for the first time. Its A-share price broke through the peak of the last bull market in pharmaceuticals, reaching a new high since its listing eight years ago. The full-day trading volume hit 204.25 billion yuan, a record high. Led by this industry bellwether, the entire A-share and H-share innovative drug supply chain saw active trading. A major new QDII fund focusing on the A+H innovative drug track is being launched. Starting August 10, the Huabao Pharmaceutical Select Mixed Fund (QDII) (Class A: 027755, Class C: 027756) is now open for subscription. The fund will primarily invest in pharmaceutical-related stocks listed on the mainland and in Hong Kong, with a stock position of 60%-95%, of which pharmaceutical-themed stocks will account for no less than 80% of non-cash assets, and Hong Kong stock exposure will be 0-50%.

Is this a short-term sentiment or a long-term trend? A share price hitting the daily limit, record trading volume, and new highs for a company with a total market capitalization of nearly 500 billion yuan cannot be driven by short-term speculative sentiment alone. There must be a more solid foundation. Looking back at the financial report, what excited the market more was not the profits already earned, but the future revenue security. As of the end of June 2026, Wuxi Apptec Co.,Ltd. had 664.3 billion yuan in orders on hand, a 25.2% year-on-year increase. Critically, the 664.3 billion yuan in orders on hand has already exceeded the new full-year revenue guidance of 585-605 billion yuan, suggesting that revenue for the coming year may already be secured.

A single flower does not make spring. Several other CXO listed companies have also released positive signals, continuously validating the improving industry trend. Joinn Laboratories (China) Co., Ltd. forecasted a net profit attributable to shareholders for the first half of the year with a maximum year-on-year increase of 1377.4%. Pharmaron Beijing Co., Ltd. saw over 30% year-on-year growth in new orders signed in the first half. Shanghai Medicilon Inc. is expected to turn a profit in the first half of the year.

The industry is resonating. It is well known that CXO has long been described as the "pick-and-shovel seller" for innovative drugs. Global pharmaceutical companies developing new drugs, from molecular design to preclinical research, clinical trials, and production, can hardly bypass CXO services. Therefore, the order book of CXO companies serves as a "thermometer" for the innovative drug industry, clearly indicating whether the market is hot or cold. The industry leader, Wuxi Apptec Co.,Ltd., along with several other CXO companies, has proven the industry's prosperity with their performance and orders. Can innovative drug companies similarly validate this industry resonance with their own earnings?

As expected, innovative drug companies did not disappoint the market. On the evening of August 5, BeiGene, Ltd. announced its results: total operating revenue for the first half of 2026 reached 222.2 billion yuan, a 26.8% year-on-year increase, with a net profit attributable to shareholders of 32.71 billion yuan, a 627.1% increase. The company also raised its full-year performance guidance, expecting total annual revenue to reach 449-462 billion yuan. On the same day, Innovent Biologics, Inc. also reported good news: product revenue for the first half exceeded 8.2 billion yuan, a year-on-year increase of over 55%, with Q2 product revenue exceeding 4.3 billion yuan, up about 60% year-on-year. Additionally, RemeGen Co., Ltd. and Keymed Biosciences Inc. reported pre-profits of 4.7 billion yuan and 1.2 billion yuan, respectively, successfully turning losses into profits. CSPC Pharmaceutical Group Limited forecasted a net profit increase of up to 143% to 6.2 billion yuan. Simeere Pharmaceutical Group is expected to make a profit of over 800 million yuan, a year-on-year increase of up to 43%. Zai Lab Limited reported Q2 net product revenue of $105.8 million, a sequential increase of 11%, with sales of Efgartigimod surging 36% sequentially to $23.9 million.

Looking beyond individual companies, the overall industry data allows for full optimism about innovative drugs and their supply chain. Global innovative drug financing is recovering. According to data from PharmaMagic, global financing in the first half of 2026 reached $201.77 billion, a 58.5% year-on-year increase. Domestic financing was $58.1 billion, up 79.1% year-on-year, while overseas financing was $209.4 billion, a 53.6% increase. Active financing in the primary market will bring ample funds to innovative drug companies and generate orders for CXO companies. Capital expenditure by multinational pharmaceutical companies is also high. According to statistics from Guojin Securities, starting from 2023, the top 15 multinational pharmaceutical companies have invested about $200 billion annually in external collaborations. As of July 10, 2026, their external capital expenditure has already reached $200.3 billion, nearly 73.5% of the total for 2025, establishing a high-prosperity landscape for global pharmaceutical M&A. China's innovative drug BD continues to surge. According to data from the National Medical Products Administration, in the first half of 2026, China's innovative drug companies completed 81 out-licensing deals, with a total transaction value of approximately $110 billion, reaching 80% of the 2025 full-year total and setting a new historical high for the same period. Globally, among the top 10 BD deals in the first half of the year, Chinese innovative drug companies occupied eight seats as sellers, gaining widespread recognition from the global market.

Despite the industry's high prosperity, this has not been fully reflected in stock prices. Since peaking in September last year, the A-share and H-share innovative drug supply chain has been in a sustained downtrend, with the valuations of many core heavyweight stocks falling back to levels seen at the end of 2024. It is foreseeable that this mismatch between high prosperity and low valuation will not last long. A reversal is quietly brewing. On June 22, the Stock Connect Hong Kong Innovative Drug ETF (520880), which holds 100% innovative drug stocks, and the Stock Connect Hong Kong Medical ETF (159137) from Huabao, which has nearly half CXO exposure, both hit all-time lows. They then staged a strong rebound, showing much greater resilience than the broader market during the recent tech stock turmoil. By August 10, both had achieved interim victories: the Stock Connect Hong Kong Innovative Drug ETF (520880) broke through the 200-day moving average, and the Stock Connect Hong Kong Medical ETF (159137) hit a 5-month high.

Many institutions believe that the innovative drug supply chain currently has limited downside but ample upside, offering high cost-effectiveness for allocation. CICC strategists recently noted that the odds and risk-reward ratio for Hong Kong-listed innovative drugs are relatively favorable. However, realizing the odds ultimately depends on fundamentals. Only with tangible improvements in fundamentals can the odds truly improve and open up sustained upward momentum. The fundamentals of the innovative drug supply chain have already been answered above. In the short to medium term, there is a dense catalyst schedule. Mid-year reports this month are likely to continue validating the shift of innovative drugs from the "story" phase to the "delivery" phase. The second half of the year, with data releases from international academic conferences, could be a key window to watch. The progress of Phase III clinical development for already BD'd assets and the data delivery for high-quality assets will be revealed, with conferences like ESMO (European Society for Medical Oncology) and WCLC (World Conference on Lung Cancer) being particularly noteworthy.

The Huabao Pharmaceutical Select Mixed Fund (QDII) (Class A: 027755, Class C: 027756) will primarily invest in pharmaceutical-themed stocks listed on the mainland and in Hong Kong. The fund's stock position will be 60%-95%, with pharmaceutical-themed stocks accounting for no less than 80% of non-cash assets and Hong Kong stocks accounting for 0-50%. The risk level is R4-Medium-High Risk. As an actively managed QDII fund, it will be co-managed by two fund managers: Zhang Jintao from Huabao Fund's Equity Investment Department and Yang Yang from the International Business Department. They bring extensive experience in innovative drug investment and overseas investment, respectively, with deep insights into their respective fields. Both have 16 years of securities industry experience and 11 years of investment management experience.

Why select pharmaceutical stocks across both A-shares and H-shares? The proposed fund managers, Zhang Jintao and Yang Yang, stated that a QDII fund offers broader market coverage for pharmaceutical investment. For example, Stock Connect funds can only trade stocks included in the Stock Connect program, missing out on many high-quality 18A innovative biotech companies. Under the framework of this fund, A-share investment focuses on domestic commercialization, while H-share investment can tap into the flexibility of global BD. Zhang Jintao and Yang Yang further noted that a high-prosperity beta is the foundation for alpha stock selection. The fund will focus on high-prosperity sub-sectors. On the other hand, innovative drugs differ from traditional manufacturing, as innovation and R&D vary greatly. Therefore, investment in innovative drugs cannot be generalized based on beta alone and should be based on research-driven alpha selection. The fund will follow two main investment ideas: first, R&D milestones, such as increased probability of drug success and upward revisions in peak sales; second, commercial scale-up, such as commercial sales exceeding expectations and non-linear profit release after reaching breakeven.

Data sources: Shanghai, Shenzhen, and Hong Kong stock exchanges, CSI Index Company, Hang Seng Index Company, PharmaMagic. Institutional viewpoints: Guotai Junan Hai Tong Pharmaceutical Report 20260715, "9 Innovative Drugs to Read Out Global Phase III Data in 2026, Innovative Drugs to Enter Global Sales Delivery Phase." CICC Strategy Report 20260729, "How Many Hong Kong Stocks Do Public Funds Still Hold? -- 2Q26 Public Fund Holdings Analysis." Note: ETFs do not charge sales service fees. When investors subscribe or redeem fund shares, the subscription/redemption agent may charge a commission of up to 0.5%, which includes fees charged by the stock exchange and registration institution. Fund fee rates are detailed in the fund's legal documents. Off-market fund fee rates are detailed in the fund issuance announcement. Risk Warning: The stocks mentioned in this article are for illustration only and do not constitute any form of investment advice, nor do they represent the holdings or trading intentions of any fund managed by the fund manager. Any information appearing in this article (including but not limited to stocks, comments, forecasts, charts, indicators, theories, any form of representation, etc.) is for reference only. Investors must be responsible for their own investment decisions. Additionally, any views, analyses, and forecasts in this article do not constitute any form of investment advice to readers and are not responsible for any direct or indirect losses arising from the use of this content. In addition to the general investment risks such as market volatility risk associated with domestic securities investment funds, the Huabao Pharmaceutical Select Mixed Fund (QDII) also faces special investment risks such as exchange rate risk associated with overseas securities market investment. Investors should carefully read the fund's legal documents, such as the "Fund Contract," "Prospectus," and "Fund Product Information Summary," to understand the fund's risk-return characteristics and choose products that match their risk tolerance. The fund manager assesses the risk rating of the Stock Connect Hong Kong Innovative Drug ETF, Stock Connect Hong Kong Medical ETF Huabao, and Huabao Pharmaceutical Select Mixed Fund as R4-Medium-High Risk, suitable for active (C4) and above investors. The suitability matching opinion is subject to the sales institution's decision. The performance of other funds managed by the fund manager does not guarantee the performance of these funds. Past fund performance does not imply future results. Fund investment requires caution! Sales institutions (including the fund manager's direct sales institutions and other sales institutions) assess the risk of the above funds according to relevant laws and regulations. Investors should promptly pay attention to the suitability opinions issued by the fund manager. The suitability opinions of various sales institutions may not be consistent, and the risk level evaluation results of fund products issued by fund sales institutions shall not be lower than the risk level evaluation results made by the fund manager. The fund's risk-return characteristics and risk level in the fund contract may differ due to different factors considered. Investors should understand the fund's risk-return situation, combine their own investment objectives, term, investment experience, and risk tolerance, carefully choose fund products, and bear their own risks. The registration of the above funds by the China Securities Regulatory Commission does not indicate a substantive judgment or guarantee of the fund's investment value, market prospects, or returns. MACD golden cross signal formed, these stocks are gaining momentum!