When we talk about innovative drugs, we can't just look at innovative drugs alone. BD out-licensing, the scientific research services and CXO opportunities brought by AI-driven drug development, and the medium-to-long-term value of medical devices are all unavoidable topics within the current innovative drug and device landscape. From the discovery of a new molecular entity to its true global commercialization, an entire industrial chain is undergoing transformation: the front-end R&D is progressively empowered by AI, the BD data of innovative drug companies is thriving, and the terminal commercialization, overseas expansion, and device breakthroughs are all advancing. Therefore, when we talk about the "innovative drug market rally," we are actually discussing the cyclical resonance of multiple links across this chain. Next, let's dive into the hottest topics in innovative drugs right now.

Out-Licensing and Going Global: The Global Repricing of Chinese Innovative Drug Value

The globalization of Chinese innovative drugs is one of the most certain industrial trends of the past two years. According to NextPharma statistics, in 2025 Chinese innovative drug companies completed 157 out-licensing (BD) transactions, with a disclosed total transaction value of $135.655 billion, roughly 2.6 times that of 2024, and aggregate upfront payments of approximately $7 billion. Out-licensing not only monetizes R&D outcomes ahead of time but also shifts overseas clinical and commercialization risks to more experienced partners, serving as a direct reflection of global recognition for the value of Chinese innovative drugs.

Another example is the strong capability of the domestic innovative drug and industrial chain, which gives us an advantage in overseas geopolitical games. Recently, the U.S. District Court for the District of Columbia ruled in favor of granting a temporary injunction (PI Granted) for a CXO leader, during which the U.S. Department of Defense cannot impose restrictions on it as a 1260H military-related enterprise. The 1260H list was established under the National Defense Authorization Act for Fiscal Year 2021, and companies on the list face risks such as losing overseas clients and federal procurement bans, driven by the U.S. BIOSECURE Act. Although this ruling is only a temporary suspension of enforcement, it demonstrates from the side that leading companies in the domestic innovative drug industrial chain are now winning a stronger voice in overseas markets through their own strength.

Therefore, despite the game-playing, many pharmaceutical companies remain resilient in performance under continuous U.S. policy pressure. Taking this company as an example, its on-hand orders stand at RMB 66.43 billion, a year-on-year increase of 25.2%, hitting a record high. In fact, this is a microcosm of the development of Chinese innovative drug companies going global, where independent commercialization has become an industrial trend.

We selected 23 Hong Kong-listed innovative drug companies (excluding BeiGene) that were listed before the end of 2021, primarily engaged in innovative drug R&D and commercialization, with continuously comparable financial data for observation. Over three years, their total revenue grew from RMB 14.81 billion to RMB 43.68 billion, an increase of 195%; the net loss attributable to the parent narrowed from RMB 21.09 billion to RMB 3.46 billion, and the net margin narrowed from negative 142.5% to negative 7.9%. More importantly, their combined operating cash flow swung from a net outflow of RMB 10.31 billion in 2022 to a net inflow of RMB 8.58 billion in 2025. A portion of Hong Kong-listed innovative drug companies has moved beyond the stage of "having only pipelines, no business," with approved products beginning to generate sales and cash collection.

Policy is also tilting towards innovation. In 2025, the overall success rate of medical insurance negotiations and bidding reached 88%, with 114 new drugs added to the updated catalog, 50 of which were Class 1 innovative drugs. In 2026, the new version of the National Essential Medicines List expanded from 685 to 794 drugs, including 16 innovative drugs for the first time. The explosive growth of BD transactions and the realization of commercialization capabilities indicate that the story of Chinese innovative drugs has advanced from "whether we have good molecules" to "whether we can sell them at a good price." Supporting all of this is the efficiency revolution in the upstream R&D sector—this is precisely the backdrop for the emergence of AI-driven drug development.

CXO Opportunities from AI-Driven Drug Development: How the R&D Efficiency Revolution Transmits

AI-driven drug development, often referred to in the industry as AIDD (AI-driven drug discovery), embeds machine learning, generative models, multi-omics data, and automated experiments throughout the entire drug R&D process. As we know, after identifying a target disease, traditional new drug R&D searches for molecular compounds in a "needle-in-a-haystack" manner, like trying keys one after another in the dark. The first thing AI does is prioritize the "most likely to open the door" keys.

Firstly, AI uses computing power far beyond human capability to expand the search boundary and find more novel molecular compounds. Although it is still a "needle-in-a-haystack" search, it is as if countless "underwater robots" are doing the "fishing." Secondly, AI can close the loop between synthesis, testing, and data feedback, making the entire R&D chain smoother and more time-efficient. Compared with traditional methods, AI-driven drug development can initiate more projects, iterate faster on each project, and produce higher-quality experiments and data.

Currently, AIDD is in the early stage of transitioning from 2.0 (generative platforms) to 3.0 (experimental closed-loop plus clinical validation). Technical usability and commercial collaborations have been verified, but whether it can systematically improve the success rate of mid-to-late-stage clinical trials remains to be seen. Therefore, following this logic, if AI-driven drug development continues to break through, the development dividends are expected to transmit layer by layer along three levels to CXO companies.

Following this logic, the dividends of AI-driven drug development will transmit layer by layer to scientific research services, CXO, and innovative drugs at three levels. The first layer is that scientific research services and experimental infrastructure benefit first. Gene and protein synthesis, recombinant proteins and antibody reagents, high-throughput screening, organoid models, and automated experimental equipment are the first stops for "model outputs becoming verifiable data," i.e., the "finding drugs" stage. The second layer is that integrated CXO takes on the overflow of pipelines. Once new molecules are found, the next steps involve efficacy, pharmacokinetics, toxicology, safety evaluation, and CMC. These steps are highly process-oriented and repetitive, yet indispensable. Currently, CXOs often can only handle them in a "single-threaded" manner, one or two projects at a time. With AI empowerment, these routine processes are expected to become intelligent, allowing multiple projects to be conducted simultaneously, significantly improving R&D efficiency. The third layer is that innovative drugs and AI platforms share the highest upside. AI can help companies connect disease understanding, proprietary data, algorithms, automated experiments, and clinical development into a closed loop, further enhancing the efficiency of the entire R&D chain.

Therefore, to judge whether a CRO or CXO is truly benefiting from the AI dividend, one can watch four indicators: whether AI-related revenue and repeat purchases are visible, whether experimental data can form a proprietary closed loop, whether PCC, IND, and clinical milestones are continuously delivered, and whether the platform can deliver across different stages.

Beyond CXO: Medical Devices Also Deserve Attention

Beyond CXO, there is another sector gradually rising: medical devices. Compared with innovative drugs, the globalization path for medical devices is more challenging, as it often cannot be completed through a single licensing agreement for overseas expansion. Instead, it must sequentially clear three hurdles: registration, procurement, and physician training. However, progress is equally tangible.

The number of innovative medical devices approved by the National Medical Products Administration increased from 19 in 2019 to 76 in 2025, with another 42 approved in the first half of 2026, bringing the cumulative total to approximately 433 since the implementation of the special review procedure in 2014. The technological boundaries of approved products are extending outward, with cutting-edge products such as implantable brain-computer interfaces and biodegradable occluders emerging. Domestic devices have gradually entered fields where there are no ready-made answers.

Overseas data is equally impressive. Over the past five years, the combined overseas revenue of four major orthopedic implant companies increased from RMB 398 million to RMB 1.363 billion, a compound annual growth rate of 36.0%. The overseas revenue of five cardiovascular interventional companies grew from RMB 288 million to RMB 1.186 billion, a compound annual growth rate of 42.4%. The 17 pre-revenue device companies listed under the 18A channel saw their combined revenue rise from RMB 595 million in 2019 to RMB 4.984 billion in 2025, growing more than sevenfold in six years. Although these companies are not yet profitable overall, they already have revenue and cash flow sufficient to support long-term investments in overseas registration, channel construction, and physician training.

In the medium-to-long term, the investment logic for medical devices lies in the dual drivers of "domestic substitution" and "globalization." Domestically, innovative devices are being approved at an accelerated pace, with technological boundaries moving outward, and the space for import substitution remains. Overseas, a group of companies has proven with revenue and cash flow that they can withstand the high barriers of registration and channels, and the globalization narrative is beginning to shift from theme to delivery. This main line moves at a slower pace with flatter fluctuations, yet it may be one of the segments within the innovative drug industrial chain most worth tracking from a long-term perspective.

Three Index Tools with Different Risk-Return Expressions

AI-driven drug development, CRO industry dividends, innovative drug out-licensing, and device breakthroughs—these industrial changes can be accessed through index investing using three ETFs under GF Fund. The Innovative Drug ETF GF (515120) and its feeder funds A/C (012737/012738) track the CSI Innovative Drug Industry Index (931152.CSI), focusing on A-share innovative drug R&D leaders, with top ten constituents including WuXi AppTec, Hengrui Medicine, Kelun Pharmaceutical, Pharmaron, Asymchem, Allist, BeiGene, Fosun Pharma, Changchun High-Tech, and Tigermed.

The Hong Kong Innovative Drug ETF GF (513120) and its feeder funds A/C (019670/019671) track the CSI Hong Kong Innovative Drug Index (931787.CSI), offering T+0 trading of Hong Kong stocks plus innovative drugs, with top ten constituents including BeiGene, Innovent Biologics, WuXi Biologics, WuXi AppTec, Akeso, CSPC Pharmaceutical, Hansoh Pharma, Sino Biopharmaceutical, 3SBio, and Kelun-Biotech.

The Hang Seng Biotech ETF GF (159169) tracks the Hang Seng Biotech Index, covering core biotech assets and focusing on cutting-edge biotech technologies, with top ten constituents including WuXi Biologics, BeiGene, Innovent Biologics, WuXi AppTec, Akeso, CSPC Pharmaceutical, Sino Biopharmaceutical, Hansoh Pharma, 3SBio, and GenScript Biotech.

Data sources: Wind, NextPharma, National Healthcare Security Administration, National Medical Products Administration, and other public materials. The financial data for Hong Kong innovative drug companies in the article comes from the Wind Hong Kong stock financial database and company annual reports, with the sample being Hong Kong-listed innovative drug companies listed before the end of 2021, primarily engaged in innovative drug R&D and commercialization, with continuously comparable financial data from 2022 to 2025 (excluding BeiGene). Out-licensing data comes from NextPharma, with the total transaction amount being the total contract amount of disclosed transactions, typically including upfront payments, milestones, and other contingent payments.

The above index constituent data is only point-in-time data as of August 13, 2026. The index provider may subsequently adjust the index methodology and sample stocks, and the index constituents and their weights will change accordingly. Investors should be aware of the risks associated with such adjustments. The above individual stocks are only examples of index constituents and do not constitute investment advice.

Funds involve risks, and investment should be made with caution. For the Innovative Drug ETF GF, sales fees are as follows: when investors subscribe or redeem fund shares, the subscription/redemption agency securities firms may charge commissions at a standard of no more than 0.50%, and on-exchange trading fees are subject to actual charges by securities companies. For the GF Innovative Drug ETF Feeder Fund, sales fees are as follows: the feeder fund has Class A and Class C shares. Class A shares charge subscription fees but do not accrue sales service fees from fund assets; Class C shares do not charge subscription fees but accrue sales service fees from fund assets at a rate of 0.20% per year. Class A subscription amount (M) and subscription fee rates are as follows: M < RMB 1 million at 1.20%; RMB 1 million ≤ M < RMB 5 million at 0.80%; M ≥ RMB 5 million at RMB 1,000 per transaction. Class A holding period (D) and redemption fee rates are as follows: D < 7 days at 1.50%; 7 days ≤ D < 30 days at 0.50%; D ≥ 30 days at 0.00%. Class C holding period (D) and redemption fee rates are as follows: D < 7 days at 1.50%; D ≥ 7 days at 0.00%. For details, please refer to the prospectus and other legal documents and fund announcements.

For the Hong Kong Innovative Drug ETF GF, sales fees are as follows: when investors subscribe or redeem fund shares, the subscription/redemption agency securities firms may charge commissions at a standard of no more than 0.50%, and on-exchange trading fees are subject to actual charges by securities companies. For the GF CSI Hong Kong Innovative Drug ETF Feeder Fund (QDII), sales fees are as follows: the feeder fund has Class A and Class C shares. Class A shares charge subscription fees but do not accrue sales service fees from fund assets; Class C shares do not charge subscription fees but accrue sales service fees from fund assets at a rate of 0.30% per year. Class A subscription amount (M) and subscription fee rates are as follows: M < RMB 1 million at 1.20%; RMB 1 million ≤ M < RMB 5 million at 0.80%; M ≥ RMB 5 million at RMB 1,000 per transaction. Class A holding period (D) and redemption fee rates are as follows: D < 7 days at 1.50%; 7 days ≤ D < 30 days at 0.50%; D ≥ 30 days at 0.00%. Class C holding period (D) and redemption fee rates are as follows: D < 7 days at 1.50%; D ≥ 7 days at 0.00%. For details, please refer to the prospectus and other legal documents and fund announcements.

For the Hang Seng Biotech ETF GF, sales fees are as follows: when investors subscribe for fund shares, the subscription/redemption agency securities firms may charge commissions at a standard of no more than 0.30%; when redeeming fund shares, they may charge commissions at a standard of no more than 0.50%; on-exchange trading fees are subject to actual charges by securities companies. For details, please refer to the prospectus and other legal documents and fund announcements.

The above funds invest in the securities market. Before investing, investors need to fully understand the product characteristics of the above funds and bear various risks arising from fund investment. The above funds invest in overseas securities markets. In addition to general investment risks similar to domestic securities investment funds, such as market volatility, the above funds also face special investment risks in overseas securities markets, including exchange rate risks and differences in trading rules. The above funds are issued and managed by GF Fund Management Co., Ltd., and distribution institutions do not bear the responsibility for product investment and payment. Before investing, please carefully read the fund contracts and prospectuses and other legal documents of the above funds to fully understand the details and risk characteristics of the above funds. The above funds are equity funds, with risks and returns higher than hybrid funds, bond funds, and money market funds. The specific risk rating results are subject to the ratings provided by fund managers and sales institutions. Please choose products that match your risk tolerance and investment objectives. Funds involve risks, and investment should be made with caution.