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【Introduction】Four pharmaceutical fund managers discuss investment opportunities in the innovative drug sector

China Fund Reporter Fang Li Sun Xiaohui

Recently, innovative drugs are once again all the rage.

Just as the second quarter has started, the innovative drug sector has reversed its slump and is seeing a positive rebound. Data show that the Wind Innovative Drugs Index recorded a cumulative gain of 6.22% over the first two trading days in April. The gains for innovative drugs in Hong Kong stocks are even more pronounced: the Hang Seng Hong Kong Stock Connect Innovative Drugs Index has risen cumulatively by more than 9%.

Is this rally a short-term rebound or the start of—or a continuation of—a longer-term trend? After sustained adjustments since September 2025, is this currently an appropriate window for allocation?

To this end, China Fund Reporter interviewed:

Li Xie, fund manager at GF Fund’s Index Investment Department

Wang Fangzhou, fund manager of the BOC Hong Kong Stock Connect pharmaceutical fund

Zhou Sicon, fund manager of Ping An Healthcare and Wellness Hybrid Fund

Liang Furu i, fund manager of Great Wall Pharmaceutical Industry Select Fund

The above fund managers believe that, catalyzed by multiple positive factors, the innovative drug sector has been seeing sustained rebounds recently. This rally represents the continuation of the innovative drug sector’s long-term trend since 2025. After earlier adjustments, the sector’s valuation has entered a reasonably low range.

Fund managers generally believe that the current period is an important allocation window jointly driven by “valuation + earnings + events.” Hong Kong stocks remain the main battlefield for deployment. ADC, bispecific antibodies, and overseas expansion (going global) have become key highlights. However, investing in innovative drugs also requires vigilance regarding multiple risks, including R&D, financing, and policy risks.

Catalyzed by multiple positive factors

A continuation of the long-term trend for this rally

China Fund Reporter: Recently, the innovative drug sector has performed strongly. What are the main drivers? Is this rally a short-term rebound or the beginning/continuation of a long-term trend?

Liu Jie: Recently, the innovative drug sector has shown a sustained rebound trend, mainly catalyzed by multiple positive factors.

First, the industry fundamentals have continued to improve, and China’s global competitiveness in innovative drugs is being validated. In the first quarter of 2026, China’s external licensing (BD) transaction total for innovative drugs has already exceeded $60 billion, approaching half of 2025’s full-year total. Moreover, both transaction quality and upfront payment amounts have hit record highs. This indicates that international pharmaceutical giants are willing to pay premium prices for China’s innovative achievements—providing the hardest-core fundamental support for the sector.

Second, the AACR (American Association for Cancer Research) annual meeting, scheduled for April 17, will become an important market catalyst. As a major global data release window for oncology innovative drugs, the AACR annual meeting is expected to become a key catalyst for the sector’s next phase. In addition, the ASCO (American Society of Clinical Oncology) annual meeting will be held from May 29 to June 2, and China’s innovative drug companies will also bring major research results, further strengthening market recognition of China’s global competitiveness in innovative drugs.

Moreover, at the policy level, the newly issued National Reimbursement Drug List has officially been implemented. The updated drug list added 114 drugs, including 50 innovative drugs classified as Category 1. More importantly, reimbursement rates for cancer outpatient services have increased significantly, and the “dual-channel” reimbursement has been opened up, directly addressing the core pain points of innovative drugs being “difficult to get into hospitals” and “difficult to get reimbursed,” and significantly boosting expectations for market volume expansion of innovative drugs.

Liang Furu i: The innovative drug sector’s rebound can be traced back to early March, when the two sessions’ work report upgraded biopharmaceuticals’ position from “emerging industry” to “emerging pillar industry.” Against the backdrop of deep pullbacks in the sector, rapid development of domestic innovative drug R&D, the continuation of the overseas expansion trend, and improved financial performance of major companies, the upgrade in industrial positioning has driven the sector’s strong performance.

In addition to the sector’s deep pullback as a short-term factor, the fact that domestic innovative drug R&D project approval and authorization-for-overseas expansion trends are improving, company operating reports are improving, and the industrial positioning has been upgraded are long-term changes. Therefore, this rally is a continuation of the innovative drug sector’s long-term trend since 2025.

Wang Fangzhou: This rally appears to have short-term rebound characteristics, but in fact it may be the continuation of the long-term upward big trend. On one hand, in the innovative drug space, the demand for multinational pharma companies to address the patent cliff may still be strong. More importantly, innovation across multiple fields and technological platforms on the supply side has opened up market scale that has not yet been met by clinical needs, and changes on the supply side have become the primary contradiction. On the other hand, China’s companies’ R&D capabilities are also rising rapidly. Overseas authorization amounts have grown faster year-to-date compared with last year. Therefore, over a longer horizon, in recent years the innovative drug sector likely has strong growth momentum.

Recently, several important academic conferences are approaching, and some major clinical data will also be released in sequence, which could significantly increase the value of pipelines for some pharmaceutical companies. At the same time, some potential R&D pipeline collaboration plans are expected to make progress, bringing positive incremental contributions to both the industry and companies. Additionally, after some pullback in the innovative drug sector earlier, according to holdings disclosed by public mutual funds in the fourth quarter of 2025, innovative drugs were under-allocated by a fairly large margin. Combined with multiple upcoming potential catalysts, this has driven the return of capital allocation, which is one of the factors behind the sector’s strength in the near term.

Strategic position achieves a historical leap

The industry shifts toward pursuing quality and creating value

China Fund Reporter: In the 2026 Government Work Report for the first time, biopharmaceuticals were classified as “emerging pillar industries.” What does this mean for the strategic positioning and development of the innovative drug industry?

Liu Jie: In the 2026 Government Work Report, biopharmaceuticals are listed as “emerging pillar industries” for the first time. This marks a historical leap in the national strategic position of innovative drugs in China. Its meaning goes far beyond simple policy support; it is a reshaping of the industry’s strategic positioning, development logic, and future pathways.

First, there is a fundamental shift in strategic positioning. Biopharmaceuticals, which previously focused on the “strategic emerging industries” supporting people’s livelihood, have been officially upgraded to become a core engine driving the national economy. Second, the industry will move from pursuing expansion in quantity and scale to pursuing quality and value creation. Third, the whole chain of policy support is strengthened. The positioning as “emerging pillar industries” will bring a series of precise policy supports aimed at addressing the long-standing pain points in the industry. These include promoting the establishment of a diversified payment system combining “basic medical insurance + commercial health insurance,” encouraging the development of long-cycle “patient capital” to match the characteristics of innovative drug R&D, and continuously optimizing the review and approval process to speed up the listing of innovative products.

Wang Fangzhou: Over the past decade, the policy level has done a great deal of systematic building—ecological development and policy support—promoting the rapid growth of the biopharmaceutical industry. This positioning means that the biopharmaceutical industry is not only a key move for implementing the “Healthy China” strategy and safeguarding people’s health, but also the main sequence for smoothing domestic and international circulation and driving economic growth; it is also an important support for cultivating and strengthening new quality productive forces and for cross-domain technological spillover coordination. The upward shift in positioning is expected to further strengthen whole-chain policy support tools targeting the industry.

Liang Furu i: Compared with 2025, in the 2026 two sessions Government Work Report, the positioning for biopharmaceuticals has been clearly raised. The industrial positioning moves from “emerging industry” to “emerging pillar industry.” The policy objectives for biopharmaceuticals move from nurturing new driving forces and promoting industrial upgrading adjustments to making it one of the core engines for economic growth. The background is that after years of rapid development and accumulation, China’s innovative drug industry has gradually shifted from a follower in global innovative drug R&D to an important participant in global innovative drug development. With policies such as accelerated development of commercial health insurance, innovative drug companies are expected to continue developing in a high-quality manner.

Reasonable but relatively low valuation

The overall picture is attractive

China Fund Reporter: After the innovative drug sector’s sustained adjustments since September 2025, what level is its valuation at today? Is it attractive?

Wang Fangzhou: Currently, the valuation level of the innovative drug sector is relatively low. After a quick rebound by a small number of companies, some may be approaching reasonable levels. Overall, the sector remains somewhat attractive. As pipeline values are validated and sales are validated, the value of many innovative drug companies is expected to keep growing. If you consider a series of positive fundamental changes that may occur next, the appeal of potential opportunities becomes even greater.

Liu Jie: At present, the valuation of the Hong Kong innovative drug index is below its levels for more than 60% of the past 5 years, placing it in the mid-to-low range. After sustained adjustments since September 2025, the earlier accumulated valuation bubble has been digested more sufficiently, and many leading Biotech companies have turned profitable. The logic of overseas expansion (going global) is still being兑现 (delivered/realized). Therefore, the current valuation level offers a relatively high margin of safety and is attractive for allocation.

Liang Furu i: In the first half of 2025, the innovative drug sector’s valuation quickly repaired with support from the macro market environment. After September 2025, the sector saw a deep pullback. Although there has been some rebound in the short term, the sector’s valuation is still at a reasonably low level. From a medium-to-long-term perspective, valuation may still be attractive.

Zhou Sicon: The second quarter is highly likely to be the most important observation and deployment window for the innovative drug industry in the whole year. The full year is more likely to unfold as a “structural rally under a strong industry trend” rather than a simple, indiscriminate broad-based rise across the entire sector. The investment logic shifts from “valuation repair” in 2025 to validation through data, BD, commercialization, and earnings.

A new stage driven jointly by “valuation + earnings + events”

The long-term allocation window for the innovative drug sector

China Fund Reporter: Compared with last year, what notable improvements in the fundamentals of domestic innovative drugs have occurred? Is this currently the right time to allocate to the innovative drug sector?

Zhou Sicon: The 2026 innovative drug market, especially the stage beginning in the second quarter, is no longer simply “valuation repair from extreme undervaluation to reasonable valuation.” Instead, it has entered a new stage jointly driven by “valuation + earnings + events.”

In the second half of 2026, the overseas Phase 3 results of the first batch of innovative drugs based on original targets presented in China’s first batch of original target demonstrations will be read out. If successful, China’s first batch of fully independently innovated overseas drug candidates may be born. More China innovative drug companies are expected to enter the era of earning overseas commercial revenue-share in 2027. At that point, China’s innovative drug sector could see a reshaping of valuations. The core characteristic of this stage is that both upside and downside depend more on the quality of execution at the individual stock level, and differentiation will become significantly more pronounced.

Wang Fangzhou: This year, many oncology sub-sectors may enter the later-stage clinical validation phase, which could contribute a number of incremental additions to the pattern and potential space in the related areas. In addition, with progress in research and clinical work, as well as advances in many technology platforms and tools like AI, non-oncology areas such as autoimmune diseases, metabolic diseases, and the central nervous system have huge prospects in addressing many unmet clinical needs. In 2026, there are many key milestone events in clinical progress across the above areas. From a medium-to-long-term perspective, the current time may indeed be a relatively suitable moment to allocate to the innovative drug sector.

Liang Furu i: Compared with 2025’s mainly trade-authorization-for-overseas-expansion expectations for domestic innovative drugs, in 2026, the domestic innovative drug sector’s story has more than just trade authorization-for-overseas expansion expectations. It also includes: after overseas authorization, partners’ R&D advancement for innovative drug products; the project initiation and early R&D of innovative drug companies’ early new products; and the commercialization sales of mature products.

At present, the valuation of the innovative drug sector as a whole is reasonably low. The trend of industrial development and major high-quality innovative drug companies are both moving positively. Although there has been some rebound recently in the innovative drug sector, from a medium-to-long-term perspective the sector is still worth watching.

Liu Jie: China’s global competitiveness in innovative drugs is being validated. Meanwhile, in 2026, China has approved 10 innovative drugs, of which 8 are domestic. Under the logic of “independent innovation + global execution,” the Hong Kong innovative drug sector may be seeing an opportunity for sentiment to recover and for valuation to be repaired. Investment opportunities in the sector are therefore worth paying attention to.

Potentially significant differentiation from within

Hong Kong innovative drugs remain the main battlefield

China Fund Reporter: Which sub-sectors of the innovative drug sector do you like more? When selecting innovative drug companies, what core metrics do you care about most?

Liang Furu i: In terms of sub-directions for innovative drugs, at the indication level, we currently favor global oncology medicines—especially the global alternatives dominated by three pathways: IO, ADC, and TCE. In the next five years, during the cycle of replacement and evolution of innovative drugs in global solid tumors, China’s innovative drugs will participate in global sequences from zero to existence, and from existence to strength. In addition, metabolic diseases such as weight loss and autoimmune conditions are also drawing a lot of attention.

When selecting targets, on the pipeline level we anchor to clinical data, the global competitive landscape, an “indication combination punch,” and whether BD overseas expansion has been completed. We also attach great importance to the management team’s systematic capabilities, the global competitiveness of the R&D platform, and the rapid growth in domestic sales volume.

Zhou Sicon: Innovative drugs remain one of the main lines the pharmaceutical industry focuses on tracking. The industry beta remains, but differentiation will be significant: returns will be more concentrated in the leading leaders, strong platform-type companies, overseas realized assets, and companies with clearly defined key clinical milestones. Hong Kong innovative drugs remain the main battlefield for innovative drug investment opportunities in 2026. First, Hong Kong brings together the most core set of China innovative drug assets. Second, after valuation repairs, they still haven’t entered overvalued territory. Third, in 2026, the vast majority of sector catalysts will be concentrated in Hong Kong leading assets.

China Fund Reporter: What risk factors should investors focus on when investing in the innovative drug sector, and what would you advise investors?

Liu Jie: Generally speaking, investing in the innovative drug sector mainly faces three major risks: clinical failure risk, financing environment risk, and policy plus overseas expansion risk. For ordinary investors, rather than spending effort trying to pick individual stocks and betting on the success or failure of a single pipeline, it is better to directly allocate to index funds, capturing the industry’s long-term growth dividends through low-cost, highly diversified exposure.

Liang Furu i: When investing in the innovative drug sector, besides macro market liquidity risks and policy risks from an industry perspective, you also need to pay attention to risks related to the company management team, risks of deterioration in the competitive landscape for in-development products, and risks of research and development failure for the company’s products-in-progress. Because investing in innovative drugs requires a relatively clear understanding of corporate governance, the market space of the innovative drug products, and pipeline valuations, we suggest that ordinary investors choose individual stocks cautiously and actively capture high-quality targets.

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