China's innovative drug sector is swinging back to a market led by company fundamentals and stock-specific alpha, according to a research note from CLSA. The influence of particular company drivers—especially business development (BD) deals and Phase III clinical progress—is once again outweighing macro factors (beta) in shaping share performance.

The firm's attribution analysis shows that fundamental factors explained 82.7% of pharma stock price movements between 2015 and 2021. That figure fell to around 32.7% during the 2021–2024 period but has rebounded to over 54% since 2025, partly supported by BD milestones and pivotal overseas Phase III trials. CLSA expects fundamentals to carry increasing weight as market confidence in clinical execution and BD capabilities improves. In the near term, macro volatility may well present pullback-buying opportunities to test this thesis.

The industry is now entering a catalyst-rich phase, the broker notes. Historically, the fourth quarter accounts for roughly 35% of annual BD transaction volume. Meanwhile, China-related out-licensing deals in the first half of 2026 have already reached 81 transactions with a combined value of approximately US$99.7 billion—nearly double the full-year total for 2024—making Q4 2026 BD activity a key watch point.

The World Conference on Lung Cancer (WCLC), scheduled for September 12–15 in South Korea, will feature oral presentations of Phase III data for two China-originated B7-H3 ADC assets: HANSOH PHARMA (03692) with GSK, and MediLink with Roche, both evaluating the therapies against topotecan in relapsed small-cell lung cancer. Several other China-developed assets are also slated for oral sessions. The European Society for Medical Oncology (ESMO) annual meeting follows closely, running from October 23–27.

With significant clinical readouts and accelerating BD activity on the horizon, CLSA believes a window of positive catalysts is now opening for the sector.