China Merchants Securities International released a research report stating that Sino-US innovation cooperation is expected to continue, with domestic innovation R&D demand in China showing signs of recovery. The MSCI China Healthcare Index has gained 74.0% year-to-date as of early 2025, outperforming the MSCI China Index by 37.3%. Due to capital market financing recovery and increased scale of innovative drug overseas transactions, domestic innovative drug R&D demand has shown recovery signs. The firm noted that the winning bid prices for experimental monkeys required for innovative drug research have rebounded from approximately 85,000 yuan in mid-2024 to around 90,000 yuan. Combined with US interest rate cuts, the CXO industry is expected to see earnings recovery in the second half of the year.
The report indicates that while different voices have emerged in the US, Sino-US innovation cooperation is expected to continue. On September 10, The New York Times published an article titled "Trump Weighs Crackdown on Medicines From China," mentioning that the Trump administration currently has a draft executive order proposal that could potentially cut off channels for introducing experimental therapeutic drugs from China. However, this draft order has triggered intense lobbying activities from two groups with completely opposing positions. The firm believes that US major pharmaceutical companies have much larger revenue and profit scales compared to US biotech companies, potentially giving them greater influence in lobbying efforts. As ultimately seen in the Biosecure Act, the pharmaceutical industry chains of China and the US are closely interconnected, and forced decoupling would harm the interests of both sides.
The firm believes that China's abundant engineering and scientific talent, along with efficient and cost-effective clinical trial and drug manufacturing capabilities, constitute the core competitive advantages of China's pharmaceutical innovation. It expects that China's drug innovation R&D and manufacturing capabilities will continue to empower global pharmaceutical companies. Regarding US tariffs on innovative drugs, the impact on CXO companies is expected to be limited. Trump announced on September 25 that starting October 1, patented drugs will face 100% tariffs unless pharmaceutical companies are building factories in the US. Since multiple multinational pharmaceutical companies already have US factory construction plans, they may not be affected.
Looking ahead, the firm believes that the continued upward momentum for innovative drugs will mainly come from overseas partners' clinical advancement of licensed pipelines. Additionally, it is optimistic about valuation recovery opportunities in consumer healthcare. The firm recommends buying 3SBIO (01530), GIANT BIOGENE (02367), WUXI XDC (02268), GUSHENGTANG (02273), SINO BIOPHARM (01177), and INNOVENT BIO (01801).