BOCOM International's latest analysis maintains a bullish stance on Hong Kong's innovative drug sector, citing valuation re-rating as the primary market driver. Current valuations retain significant appeal despite recent gains. Three key observations support this position: First, leading drugmakers' forward 12-month price-to-sales ratios align with historical bear-market averages, trading modestly above U.S. peers but with substantially stronger revenue growth projections. Second, at peak revenue potential, Hong Kong innovators average just 3x sales multiples - below the U.S. sector's 4x benchmark and as low as 2x for select firms. Third, divergent investor behavior emerges with mainland capital steadily accumulating via Stock Connect while global funds maintain underweight positions, likely favoring fundamentally robust, value-driven opportunities.
The sector's globalization trajectory reveals noteworthy developments. Novel transaction structures like NewCo models gain rapid adoption, while antibody-drug conjugates (ADCs) dominate licensing interest. Emerging opportunities surface in bispecific/multispecific antibodies, RNA therapies, and next-generation technologies. Medium-term prospects favor autoimmune disorders, metabolic diseases with aging-demographic tailwinds, and differentiated platforms benefiting from favorable international reimbursement environments. With abundant Chinese innovation assets, attractive deal terms, patent-cliff pressures facing multinationals, and improving global financing conditions, robust outbound transaction activity should persist through late 2025-2026.
A pivotal development looms with China's inaugural commercial insurance drug catalog expected this year. Co-created by private insurers, this framework targets premium-priced therapies excluded from national reimbursement schemes. The initiative promises more flexible pricing than government negotiations while granting equivalent market access privileges including hospital procurement pathways and special reimbursement mechanisms. Commercial health insurance represents explosive growth potential, with premiums and innovative drug reimbursements projected to expand multifold long-term.
Post-rebound stock selection demands discrimination given widening valuation dispersions and divergent business trajectories. BOCOM prioritizes firms combining durable fundamentals, near-term catalysts, and significant re-rating potential. Top recommendations include Akeso Inc. (09926.HK) in biotech and Simcere Pharmaceutical (02096.HK), Legend Biotech (LEGN.US), Hutchmed (00013.HK), and Antengene Corporation (06996.HK) among innovative drug developers.