According to analysis, GF Securities released a research report stating that in the first half of 2025, the pharmaceutical industry's operating revenue year-over-year growth rate was -2.3%, with the industry's overall adjusted net profit margin at 13.7%; revenue faced short-term pressure but profitability continued to improve. Among 16 Hong Kong-listed pharmaceutical companies, 9 achieved positive year-over-year operating revenue growth in H1 2025, while 11 companies recorded positive year-over-year growth in adjusted net profit. In H1 2025, biotech companies' revenue increased 24.6% year-over-year, and adjusted net profit losses decreased by 600 million yuan year-over-year, mainly benefiting from rapid commercial expansion following new product/indication launches and accelerated internationalization through upfront and milestone payments from licensing deals.

GF Securities noted that licensing deals can improve corporate cash flow in the short term to support continued R&D investment, while in the medium to long term, domestic companies can learn R&D experience from partnerships and enhance their clinical operational capabilities. Therefore, licensing deals will remain the preferred approach for innovative drug companies going global. BD deals are merely the starting point of this round of innovative drug value revaluation. Looking ahead to the second half of the year, continued monitoring of medical insurance and commercial insurance negotiation progress is warranted, with attention to major data catalysts from international academic conferences such as WCLC and ESMO.

**Operational Efficiency Improvement, Industry's Medium to Long-term Positive Trend Established**

Based on GF Securities' analysis of 56 A-share chemical pharmaceutical companies, the industry's overall operating revenue growth rate in H1 2025 was -2.3%, with an overall adjusted net profit margin of 13.7%; revenue faced short-term pressure but profitability continued to improve. Among 16 Hong Kong-listed pharmaceutical companies, 9 achieved positive year-over-year operating revenue growth in H1 2025, while 11 recorded positive year-over-year growth in adjusted net profit.

Additionally, GF Securities analyzed the commercial drug revenue of 18 A-share biotech companies, showing H1 2025 revenue increased 24.6% year-over-year, with adjusted net profit losses decreasing by 600 million yuan year-over-year, mainly due to rapid commercial expansion following new product/indication launches and accelerated internationalization through upfront and milestone payments from licensing deals. With innovative products entering a new cycle, continuous improvement in product structure, and accelerated "going global" initiatives for innovative drugs, the industry's medium to long-term positive trend has been established.

**Domestic New Drugs in Harvest Period, Internationalization Is Essential Path for Innovation Upgrade**

Under policy support across the entire "R&D-access-clinical-payment-coverage" chain, domestic new drugs have experienced explosive growth. Against the backdrop of continuous industry innovation upgrades, domestic pharmaceutical companies have cultivated a batch of high-quality pipelines with global competitiveness and welcomed a peak in licensing transaction activities, with significantly increased transaction volumes and amounts, becoming the main driving factor for this round of innovative drug market performance.

Licensing deals can improve corporate cash flow in the short term to support continued R&D investment, while in the medium to long term, domestic companies can learn R&D experience from partnerships and enhance their clinical operational capabilities. Therefore, licensing deals will remain the preferred approach for innovative drug companies going global. However, BD deals are merely the starting point of this round of innovative drug value revaluation; the future focus should still be on finding the best drugs globally in each therapeutic area to realize the clinical value of overseas varieties.

Looking ahead to the second half of the year, continued monitoring of medical insurance and commercial insurance negotiation progress is warranted, with attention to major data catalysts from international academic conferences such as WCLC and ESMO.

**Investment Recommendations**

Under the backdrop of innovation upgrades and internationalization in China's pharmaceutical industry, domestic new drugs are gradually transitioning from follow-on innovation to leading innovation. We remain optimistic about medium to long-term investment opportunities brought by the new product cycle in the domestic market. Assets should be screened from a global perspective, focusing on blockbuster products with global competitiveness.

We recommend attention to two categories of targets:

(1) Traditional pharma transformation: Hengrui Medicine (600276.SH), Hansoh Pharma (03692), 3SBio (01530), Simcere Pharmaceutical (02096), CSPC Pharmaceutical Group (01093), Changchun High & New Technology Industries (000661.SZ), Haisco Pharmaceutical Group (002653.SZ), Kelun Pharmaceutical (002422.SZ), China Biologic Products Holdings (01177), Aucstar Pharmaceutical (603369.SH), Jointown Pharmaceutical Group (002317.SZ), Sinphar Pharmaceutical (002294.SZ), Sinqi Medicine (300573.SZ), and Yipinhong Pharmaceutical (300723.SZ).

(2) Biotech: Baili-Bio (688506.SH), SKB Bio-B (06990), Innovent Bio (01801), Cstone Pharmaceuticals (09926), Dizal Pharmaceutical-U (688192.SH), BeiGene-U (688235.SH), Henlius (02696), Zai Lab (09688), GenScript Biotech (01548), ContraFect-B (02162), Macrogenics-U (688062.SH), RemeGen (09995), Junshi Biosciences (01877), Ascentage Pharma-B (06855), Engitix-B (09606), Zai Lab Pharmaceutical-U (688266.SH), Hutchmed (00013), Hevogen-B (02256), Alphamab Oncology-B (09966), Lepu Biopharma-B (02157), CStone Pharmaceuticals-B (02616), CAReST Bio (02171), and Eddie Pharmaceutical (688488.SH).

**Risk Warnings**

Risks include generic drug procurement and new drug negotiation price reductions exceeding expectations, new drug development failure risks, post-launch innovative drug volume falling short of expectations, and intensified market competition risks.