A first-half earnings report from the pharmaceutical sector in early August stunned the market, showing revenue of 28.9 billion yuan, up 38.9% year-on-year, and net profit attributable to shareholders of 11.1 billion yuan, the first time the half-year figure has surpassed the 10 billion yuan mark. Buoyed by this robust growth, the company raised its full-year 2026 revenue guidance significantly from 51.3 billion to 53 billion yuan to between 58.5 billion and 60.5 billion yuan. The market quickly identified the source of this impressive performance. On the first trading day after the results (August 4), the same name appeared at the top of the gainers list for A-share and H-share pharmaceutical stocks—WuXi AppTec—with its A-shares hitting the daily limit up and H-shares surging 14%. On August 5, WuXi AppTec's A-shares saw a single-day turnover of 19.7 billion yuan, a record volume; on August 7, its H-shares jumped 7% to an all-time high, while A-shares rose 8.49% to a five-year high. That week, WuXi AppTec's A-shares and H-shares gained 20.55% and 19.66%, respectively.

With the leader paving the way, the entire innovative drug chain surged. On August 7, nearly 20 A-share and H-share stocks rose over 10%, and popular on-exchange ETFs with high CXO exposure, such as the Hong Kong Stock Connect Medical ETF (159137) and the Medical ETF (512170), as well as high-innovation-drug ETFs like the Hong Kong Stock Connect Innovation Drug ETF (520880) and the Drug ETF (562050), saw broad gains. Is this short-term sentiment or a long-term trend? For a company with a total market cap of around 400 billion yuan, a daily limit, record trading volume, and new highs cannot be driven purely by short-term speculative sentiment—there must be more solid support behind it. Re-examining the earnings report, what excited the market more than profits already earned was the future revenue guarantee: as of the end of June 2026, WuXi AppTec had 66.4 billion yuan in orders on hand, up 25.2% year-on-year. Note that the 66.4 billion yuan in orders on hand already exceeds the full-year new revenue guidance of 58.5 billion to 60.5 billion yuan, meaning revenue for the upcoming year may already be locked in.

A single flower does not make spring, but a hundred flowers in bloom bring spring to the garden. Several other CXO listed companies had already released positive signals, validating the industry's improving trend: JOINN Lab forecasted net profit attributable to shareholders for the first half of the year could grow by up to 1,377.4%; Pharmaron saw new orders signed in the first half increase by over 30% year-on-year; and Medicilon expected to turn a profit in the first half of the year. Industry resonance is often felt first by those closest to the front lines. It is well known that CXO companies are often called the "shovel sellers" of the innovative drug industry—when global pharmaceutical companies develop new drugs, from molecular design, preclinical research, and clinical trials to production, they almost always rely on CXO services. Therefore, the order book of CXO companies acts as a "thermometer" for the innovative drug industry, instantly revealing whether it is heating up or cooling down. Leading CXO companies like WuXi AppTec have used performance and orders to demonstrate industry prosperity, and the question is whether innovative drug companies can reciprocate with equally strong earnings to complete the industry's two-way validation.

As expected, innovative drug companies did not disappoint the market. On the evening of August 5, BeiGene announced that its first-half 2026 total operating revenue reached 22.2 billion yuan, up 26.8% year-on-year, with net profit attributable to shareholders of 3.3 billion yuan, a surge of 627.1%. The company simultaneously raised its full-year performance guidance, forecasting total revenue of 44.9 billion to 46.2 billion yuan. On the same day, Innovent Biologics also reported good news: first-half product revenue exceeded 8.2 billion yuan, up over 55% year-on-year; second-quarter product revenue alone surpassed 4.3 billion yuan, up about 60% year-on-year. Additionally, RemeGen and Keymed Biosciences forecasted profits of 4.7 billion yuan and 1.2 billion yuan, respectively, successfully reversing losses; CSPC Pharmaceutical Group guided a net profit increase of up to 143% to 6.2 billion yuan; and Simcere Pharmaceutical expected a profit of over 800 million yuan, up to 43% year-on-year. Zai Lab reported second-quarter net product revenue of $105.8 million, up 11% quarter-on-quarter, with sales of efgartigimod surging 36% quarter-on-quarter to $23.9 million.

Beyond individual companies, broader industry data also supports a fully optimistic view of innovative drugs and their supply chains. Global financing for innovative drug R&D is recovering. According to data from PharmaCube, global financing in the first half of 2026 reached $20.2 billion, up 58.5% year-on-year. Domestic financing was $5.8 billion, up 79.1%, while overseas financing was $20.9 billion, up 53.6%. Active primary market financing will provide ample funds for innovative drug companies and generate orders for CXO firms. Capital expenditure by multinational pharmaceutical companies is also surging. According to statistics from Guojin Securities, starting from 2023, the top 15 multinational pharmaceutical companies have invested approximately $200 billion annually in external collaborations. As of July 10, 2026, these companies' external capital expenditure for the year had already reached $200.3 billion, close to 73.5% of the total for 2025, establishing a high-prosperity landscape for global pharmaceutical M&A. China's innovative drug BD (business development) activity continues to explode. According to the National Medical Products Administration, in the first half of 2026, China's innovative drugs achieved 81 out-licensing deals, with a total transaction value of approximately $110 billion, reaching 80% of the full-year 2025 total and setting a new record for the same period. Globally, among the top 10 BD deals in the first half of the year, Chinese innovative drug companies acted as sellers in eight of them, gaining widespread recognition in the global market.

Despite the strong industry fundamentals, this high level of prosperity has not been fully reflected in stock prices. Since peaking around September last year, the A-share and H-share innovative drug chain has been on a volatile downtrend, with valuations of several core heavyweight stocks falling back to levels seen at the end of 2024. It is predictable that this mismatch between high prosperity and low valuations will not last long. A reversal has been quietly brewing. On June 22, the on-exchange prices of the Hong Kong Stock Connect Innovation Drug ETF (520880), which is 100% invested in innovative drugs, and the Hong Kong Stock Connect Medical ETF (159137), with nearly 50% CXO exposure, both hit historical lows. Subsequently, they staged a strong rebound, showing remarkable resilience compared to the broader market during the tech turmoil. On August 7, led by the strength of CXO stocks, the Hong Kong Stock Connect Medical ETF (159137) achieved a milestone victory, with its on-exchange price hitting a three-month high. Many institutions believe that the innovative drug chain currently has limited downside risk and ample upside potential, offering high cost-performance for allocation. CICC Strategy recently noted that the current odds and win rate for Hong Kong-listed innovative drug stocks are relatively favorable. However, realizing the odds ultimately depends on fundamentals; only concrete improvement in fundamentals can truly enhance the win rate and open up sustained upward space. The previous section has already provided the answer regarding the fundamentals of the innovative drug chain.

On a medium-to-short-term basis, catalysts are dense. Upcoming semi-annual reports this month may continue to validate that innovative drugs are transitioning from the "storytelling phase" to the "delivery phase." In the second half of the year, data readouts at international academic conferences could serve as key windows. The progress of Phase III clinical development for already BD'd assets and the data delivery of high-quality assets will be revealed, with events like ESMO (European Society for Medical Oncology) and WCLC (World Conference on Lung Cancer) worth watching closely. Related ETFs include the Hong Kong Stock Connect Medical ETF (159137): heavily weighted in the innovative drug supply chain, with 48% CXO and 20% innovative drugs, and WuXi companies accounting for over 35%. The underlying assets are Hong Kong stocks, offering high volatility and T+0 trading. The off-exchange feeder fund is 026922. The Hong Kong Stock Connect Innovation Drug ETF (520880): 100% allocated to innovative drug R&D companies, with 70% of positions in innovative drug R&D leaders. The underlying assets are Hong Kong stocks, offering high volatility and T+0. The off-exchange feeder fund is 025221. The Medical ETF (512170): the largest medical and healthcare ETF in the market by scale, focusing on medical devices and medical services, covering eight A-share CXO leaders with a combined weight of nearly 30%, and also includes AI medical concepts. The off-exchange feeder fund is 012323. The Drug ETF (562050): the only ETF in the market tracking the pharmaceutical index, with over 70% positions in A-share innovative drugs and over 20% in traditional Chinese medicine, combining the high growth of innovative drugs with the high dividends of traditional Chinese medicine. The off-exchange feeder fund is 024986. Data sourced from the Shanghai, Shenzhen, and Hong Kong stock exchanges, the CSI Index Company, the Hang Seng Index Company, and PharmaCube. Fund size and weight data as of July 31, 2026. The Medical ETF (512170) has a size of 26.0 billion yuan, making it the largest medical and healthcare ETF in the market. Institutional views sourced from Haitong Securities on July 15, 2026, and CICC Strategy on July 29, 2026. Note: ETF funds do not charge sales service fees. When investors subscribe or redeem fund shares, the subscription/redemption agent broker may charge a commission of up to 0.5%, including fees charged by the stock exchange, registration institution, etc. Fund fee rates are detailed in the respective fund legal documents. Risk Warning: The constituent stocks shown in the index are for display purposes only, and descriptions of individual stocks do not constitute investment advice in any form, nor do they represent the holdings or trading activities of any fund managed by the management company. The management company rates the risk level of the Medical ETF, Drug ETF, and their feeder funds as R3-Medium Risk, suitable for investors with a balanced (C3) risk profile or above. The Hong Kong Stock Connect Innovation Drug ETF and the Hong Kong Stock Connect Medical ETF are rated as R4-Medium-High Risk, suitable for investors with an aggressive (C4) risk profile or above. Any information appearing in this article (including but not limited to individual stocks, comments, forecasts, charts, indicators, theories, and any form of expression) is for reference only. Investors are solely responsible for any investment decisions made. Additionally, any views, analyses, or forecasts in this article do not constitute investment advice to readers, and the author is not liable for any direct or indirect losses arising from the use of this content. The performance of other funds managed by the management company does not guarantee the performance of the fund; past performance does not predict future returns, and fund investment carries risks.