Industry analysts have released a report expressing continued optimism regarding the sustainability of the upward trend for Chinese biotech companies expanding overseas. The report advises investors to focus on the investment opportunities emerging from 2027 onwards, as numerous molecules from previously established business development deals commence new commercialization cycles in international markets.
The report maintains a positive outlook on the domestic biotech sector entering a prime window for earnings realization. It also highlights potential valuation recovery opportunities for the overall Hong Kong-listed biotech segment, driven by structural shifts in capital allocation, and notes the potential for price gap convergence between certain A-share and H-share listings.
In summary, the analysis is favorable towards investment opportunities in the domestic biotech industry from the second half of 2026 through 2027, assigning a buy rating. The key perspectives are outlined below.
Industry Perspective: Robust Business Development Activity and Current Valuation Mismatch Create Strategic Entry Point
Following periods of investment consolidation and technological iteration, China's biotech sector now holds a globally leading pipeline in advanced sub-fields such as antibody-drug conjugates, bispecific antibodies, and small nucleic acids. Coupled with the industry's high barriers in regulatory review efficiency, clinical trial speed, and development cost advantages, Chinese biotech firms are deeply integrated into the global pharmaceutical supply chain. The proportion of global clinical trials conducted in China continues to rise rapidly, and partnerships between local firms and multinational corporations show sustained momentum for deepening collaboration.
However, the current market fails to adequately value business development potential. The analysis posits that overseas pipeline expansion will underpin the long-term evolution of these companies. In the near to medium term, revenue from partnerships will significantly improve the financial fundamentals of domestic biotech firms. Over the long term, this trend will drive the integration of China's pharmaceutical industry with global standards, reshape R&D capabilities, and incentivize more simultaneous China-US clinical trial applications and accelerated development of first-in-class molecules.
The sustainability of the overseas expansion trend is viewed favorably, driven by a persistent pipeline gap from major drug patent expiries, which is compelling multinationals to increase external partnership investments over a long-term upward cycle. Statistics indicate that since 2023, the top 15 multinational corporations have allocated approximately $200 billion annually for external collaborations. As of July 10, 2026, their external capital expenditure for the year has already reached $200.3 billion, nearing 73.5% of the total for all of 2025, solidifying a high-activity landscape for global pharmaceutical mergers and acquisitions.
Furthermore, biopharmaceutical capital expenditure is seen as sustainable: mature business models can generate cash flow to support demand-side growth in spending, while continuous global technological advancements provide a diversified supply of opportunities for capital allocation. Starting in 2027, numerous molecules from secured deals will begin their commercialization cycles overseas.
Earnings Perspective: Late-Stage Pipeline Concentration and Policy Support Herald Golden Era for Profit Realization
The number of late-stage domestic biotech pipelines, including Phase III clinical trials, new drug applications, or approved products, continues to expand. This, combined with accelerated pathways like priority review and conditional approval for new indications, supports sustained market volume growth from the supply side.
The normalization of national reimbursement drug negotiations continues to incorporate innovative products, steadily expanding the addressable hospital market for novel therapies. Furthermore, the recent expansion of the essential medicines list has significantly broadened distribution channels for innovative drugs at the grassroots level.
The analysis suggests that leading domestic pharmaceutical companies are forming a virtuous cycle of "high R&D investment — rich pipeline — product commercialization — reinvestment in R&D." The proportion of revenue from innovative drugs is steadily increasing, the sector's overall profit elasticity is being released, and the industry is entering a multi-year window for earnings delivery.
Capital Perspective: Sector at Valuation Trough, Structural Reshaping to Provide Ample Recovery Room
Hong Kong-listed biotech stocks previously experienced sustained correction due to overseas liquidity pressures, with valuations retreating to cyclical lows. A structural shift is now evident in capital flows: foreign selling is nearing a bottom, while southbound capital's share of holdings is increasing. The sector's pricing logic is gradually shifting towards being driven by domestic fundamentals and the potential upside from overseas expansion. Concurrently, the U.S. Biotech Index has strengthened due to merger and acquisition activity and favorable FDA policy signals, indicating a recovery in global pharmaceutical sentiment.
Recent trading activity in the Hong Kong biotech sector has shown signs of bottoming out and recovery. There exists room for the valuation gap between A-shares and H-shares to narrow, presenting a configuration opportunity for high-quality companies with robust pipelines and commercialization barriers.
Risks highlighted include potential constraints on business development from overseas geopolitical policies, intensifying competition within the biotech industry, risks associated with drug price controls under national reimbursement failing to meet expectations, and risks from tightening overseas liquidity.