Recent data disclosed by the National Medical Products Administration (NMPA) reveals that from January to June of this year, China's innovative drug sector achieved a total of 81 out-licensing deals, with a cumulative transaction value of approximately $110 billion. This figure already represents 80% of the total value for the entire year of 2025, setting a new historical record.

Simultaneously, the NMPA reported that in the first half of the year, China approved 38 Class I innovative drugs for marketing. Among these, 11 feature novel targets and mechanisms, all of which are domestically developed. Driven by the continued surge in overseas Business Development (BD) transactions and expectations for earnings realization, the Hong Kong-listed innovative drug sector has shown strong momentum, experiencing another rally on the 16th. At the close, IMMUNOTECH-B (06978) surged over 11%, while Zai Lab Limited (09688) and several other stocks followed with gains exceeding 5%.

Policy Developments

Recently, the National Health Commission, the National Administration of Traditional Chinese Medicine, and the National Disease Control and Prevention Administration jointly issued the "National Essential Medicines List (2026 Edition)", which will take effect on September 1, 2026. This revision marks the first systematic update since the 2018 edition, eight years ago. The market views this update as a landmark shift in the policy environment for the innovative drug industry.

At a press conference on July 9, Gong Xiangguang, Director of the Drug Policy Department of the National Health Commission, explained that this revision attempted to include innovative drugs in the selection process. Following rigorous expert technical consultation and review, a total of 16 innovative drugs were ultimately included in the new list, including 4 domestically developed Class I innovative drugs. Gong stated that these drugs possess high clinical value, serve a broad patient population, and are suitable for use across various levels of healthcare institutions.

CITIC Securities notes that the most significant highlight of this adjustment is the first-time inclusion of high-priced innovative therapies, such as domestic Class I innovative drugs, GLP-1 drugs, monoclonal antibodies, and targeted anti-tumor drugs, breaking the previous convention of excluding them from the essential medicines list. This move sends a strong policy signal supporting innovative drug development, further broadens the channels for innovative drugs to enter primary care and the essential medicine system, and provides clear policy support and market space for the high-quality development of the domestic innovative drug industry.

Earnings Season Focus

Coinciding with the interim reporting season, market preference is also tilting towards industries with robust fundamentals. On July 14, Joinn Laboratories (China) Co., Ltd. (06127) released its 2026 interim results forecast. The company expects first-half revenue to be between RMB 6.69 billion and RMB 7.39 billion, representing a year-on-year increase of 0% to 10.5%. Net profit attributable to shareholders is projected to reach RMB 6 billion to RMB 9 billion, a staggering increase of 884.9% to 1377.4% year-on-year. The company attributed the performance change primarily to the positive fair value adjustment of its biological assets, driven by rising market prices and natural growth appreciation. The biological assets refer to experimental monkeys used in drug R&D.

An earnings preview from Tasly Pharmaceutical Group Co., Ltd. showed a net profit of RMB 8.93 billion for the first half of 2026, a year-on-year increase of 15.23%. As of the end of 2025, the company had 31 innovative drugs in its R&D pipeline, with 4 at the NDA/Pre-NDA stage and 17 in Phase II/III clinical trials.

Haisco Pharmaceutical Group Co., Ltd. expects its first-half 2026 net profit to be between RMB 7.9 billion and RMB 8.7 billion, a year-on-year increase of 513.25% to 575.35%. During the reporting period, the company signed several product out-licensing agreements and received upfront payments and other fees as per the contracts, realizing significant licensing revenue.

Convergence of Positive Factors

With multiple positive catalysts converging, the long-term growth thesis for innovative drugs is undergoing sustained repair. The certainty of valuation recovery and earnings realization in the second half of the year continues to rise, bolstering market confidence in the sector's long-term growth prospects.

A research report from Sinolink Securities dated July 15th stated that on the industry front, the momentum for innovative drug out-licensing (BD) remains strong, with Chinese companies leading in global frontier fields like ADCs and bispecific antibodies, deeply embedded in the global supply chain. On the earnings front, the expansion of late-stage domestic pipelines, coupled with empowerment from both National Reimbursement Drug List (NRDL) negotiations and the expanded Essential Medicines List, is ushering the industry into a golden period of earnings delivery. On the capital front, Hong Kong stock valuations are at a bottom, foreign selling is nearing its end, southbound capital is increasing allocations, and global sentiment towards the pharmaceutical sector is warming.

The institution believes that regarding investment strategy, it remains optimistic about the sustainability of the upward beta trend for domestic innovative drug out-licensing. It highlights the investment opportunities arising from the new commercialization cycle for numerous molecules with previously secured BD deals that will commence overseas starting in 2027. It continues to be bullish on domestic innovative drugs entering a golden window for earnings realization. It also maintains a positive outlook on the potential valuation recovery for the overall Hong Kong-listed innovative drug sector due to structural shifts in capital flows, suggesting attention to potential price gap convergence opportunities for some A/H share dual-listed companies.

Notable Company Updates

Carsgen Therapeutics Holdings Limited (02171): On July 16, Carsgen announced that, according to a notice from the National Healthcare Security Administration, its product Kaimeili® (satricabtagene autoleucel injection, R&D code: CT041, a Claudin18.2-targeting autologous CAR-T cell therapy candidate) has successfully passed the preliminary formal review for the 2026 National Commercial Health Insurance Innovative Drug List adjustment. As the world's first approved CAR-T therapy for solid tumors, this product marks a historic leap from hematologic to solid tumor immunotherapy, precisely addressing the clinical gap in advanced gastric cancer treatment.

WuXi Biologics (Cayman) Inc. (02269): In early July, UBS released a research report raising its revenue forecasts for WuXi Biologics for the 2027 to 2029 fiscal years. It increased the target price from HK$49.3 to HK$51.1 based on a DCF valuation and maintained a "Buy" rating. During an online healthcare roadshow hosted by UBS, the company's management reiterated its 2026 revenue growth guidance of 13% to 17% year-on-year, demonstrating confidence in potential demand and operational execution. Following strong performance from January to April, new order momentum remained healthy in May and June, with continued growth in European and American markets and a steady recovery trend in China. New technology platforms, especially bispecific antibodies, remain key drivers. Pricing trends are becoming more favorable, with new contract prices rising 5% to 15%, higher than the historical 3% to 5% increase. Higher-priced orders signed earlier this year are expected to support next year's revenue growth and underpin the target of a 20% revenue CAGR over the next three years, with manufacturing business projected to grow 30%. Capacity in China may approach full utilization next year, while overseas capacity construction in places like Singapore and Ireland is progressing smoothly.

Tigermed Consulting Co., Ltd. (03347): In early July, Daiwa Capital Markets released a report upgrading Tigermed from "Hold" to "Buy", though it slightly lowered the target price from HK$45 to HK$44. Tigermed's new order and backlog momentum remains robust, with an expectation that the conversion of higher-priced orders will accelerate in the second half of the year. Management reiterated a new order conversion cycle of 6 to 9 months. Under the double-digit revenue growth guidance for the 2026 fiscal year, the firm forecasts first-half and second-half revenues of approximately RMB 3.6 billion and RMB 4.0 billion, respectively. However, due to increased investment in artificial intelligence, management lowered the full-year net profit guidance by about RMB 100 million (originally between RMB 600 million and RMB 700 million). The company now expects full-year AI-related expenditure to reach RMB 300-400 million, with new AI applications to be launched in the second half. Given that the adjusted net profit for the first quarter was only RMB 120 million, the updated profit guidance is considered more achievable. The report stated that benefiting from solid order conversion rates and continuously improving order mix, Tigermed's adjusted non-IFRS EPS for 2026-2028 is forecast to grow year-on-year by 52%, 36%, and 31%, respectively.