Core Viewpoint - The article discusses the fragility of the current boom in innovative pharmaceuticals, highlighting the impact of geopolitical risks, particularly the U.S. government's potential restrictions on Chinese innovative drug collaborations [2][3][5]. Group 1: Market Dynamics - The innovative drug sector has experienced a significant boom, but recent signs indicate a halt in capital inflow, with the Hong Kong Stock Connect innovative drug ETF reaching a peak of 20 billion but seeing no increase in shares since September 2 [2][3]. - The trading volume of the Hang Seng Biotechnology Index dropped sharply, falling below 20 billion on September 10, marking a new low since August 4 [2]. Group 2: Geopolitical Risks - The U.S. is considering an executive order that would impose stricter scrutiny on drug rights transactions involving Chinese companies, potentially disrupting the flow of innovative drugs from China [6][8]. - The Committee on Foreign Investment in the United States (CFIUS) will play a crucial role in reviewing these transactions, which could significantly impact the U.S. pharmaceutical industry's access to innovative sources [6][7]. Group 3: Chinese Innovative Drug Landscape - Chinese innovative drug business development (BD) transactions account for half of the global total, with 540 deals worth $163.41 billion since 2025, indicating China's growing importance in the global pharmaceutical landscape [8]. - Major multinational pharmaceutical companies are facing a patent cliff and will need to acquire new pipelines worth over $240 billion in the next decade, which may lead them to lobby against decoupling measures [8]. Group 4: Financial Performance and Expectations - Despite the overall growth in the innovative drug sector, many companies are overestimating their BD expectations and domestic sales, with average revenue growth of only 1.6% and a net profit decline of 3.2% among listed pharmaceutical companies [15][16]. - The article highlights the high failure rate of biotech companies, with only 53.1% of those that went public between 2004 and 2018 still in operation, emphasizing the risks associated with the sector [16]. Group 5: Future Outlook - The article suggests that external pressures may accelerate the growth of Chinese innovative drugs, as companies will need to adapt to international standards and increase R&D costs [17][20]. - The potential decoupling could ultimately harm U.S. patients, who may face delays in accessing innovative treatments developed by Chinese companies [17][20].

Core Viewpoint - The innovation drug sector in China has experienced a significant bull market this year, leading to a wave of "value re-evaluation" among listed companies in this field [3][4]. Group 1: Market Performance - As of July 31, 2025, major indices in the innovation drug sector have shown remarkable rebounds, with the Hong Kong Stock Connect Innovation Drug Index rising over 100% from its low at the beginning of the year, and the Shanghai Stock Exchange STAR Market Innovation Drug Index increasing by over 80% [4]. - Sixteen innovation drug funds have doubled their returns this year, with the leading fund, managed by Zhang Wei, achieving a return of 139% [6][10]. - The total scale of the aforementioned 16 funds increased from 11.1 billion to 36.6 billion, representing a growth of over 200% [10]. Group 2: Investment Trends - The surge in stock prices of innovation drug companies has attracted significant investor interest, leading to a substantial increase in the scale of medical ETFs, which grew by 37.4 billion this year, with innovation drug ETFs alone increasing by 31.5 billion [11]. - The scale of the Hong Kong Stock Connect Innovation Drug ETF skyrocketed from less than 700 million to nearly 12 billion [12]. Group 3: Industry Dynamics - The rise of China's innovation drug sector is attributed to a decade-long industrial upgrade initiated in 2015, supported by policy incentives and an increase in overseas orders for innovative drugs [14]. - The market is witnessing a divergence in opinions regarding the future development of innovation drugs, with concerns about excessive speculation and inflated valuations for many individual stocks [15][17].

Core Viewpoint - The innovative drug sector has rebounded significantly within six months, indicating a completed valuation repair and a shift towards event-driven phases in business development and clinical trials [3][4]. Group 1: Market Dynamics - The price-to-sales ratio (PS) for innovative drugs is currently at 14 times, close to the five-year average, suggesting a recovery in valuations [3]. - The Hong Kong market has become a primary venue for innovative drugs and new consumer products, with 28 new listings raising HKD 77.36 billion in the first five months of the year, a 707% increase year-on-year [7]. - Southbound capital has been a major force in driving up the stock prices of innovative drugs and new consumer sectors, with net inflows of HKD 55.14 billion and HKD 18.32 billion respectively throughout the year [9]. Group 2: Investment Sentiment - The innovative drug sector is experiencing a bubble, characterized by unrealistic expectations for companies lacking overseas expansion plans or self-research capabilities [3][4]. - Despite the risks associated with bubbles, they can stimulate investment in the sector, as the original innovation capabilities are strengthening, with China leading in the number of research pipelines [4][5]. - The trading congestion in the innovative drug sector has reached a high point, with trading volume nearing 4.8%, indicating a potentially overheated market [11]. Group 3: Future Outlook - The Chinese market is expected to see a surge in innovative drug supply, driven by regulatory changes that expedite clinical trial reviews, with timelines reduced from 60 days to 30 days for certain drugs [16]. - The potential for large business development (BD) opportunities in the second half of the year is significant, with a focus on companies that have demonstrated strong BD capabilities in the past [28]. - The innovative drug sector is projected to continue its growth trajectory, with major academic conferences scheduled for the latter half of the year, which will likely showcase new clinical data and further stimulate interest [28].

Group 1 - The core viewpoint of the article highlights the significant rebound of innovative drug funds in 2023, with many top-performing funds heavily invested in innovative drugs, despite ongoing discussions about potential "bubbles" in the sector [1][4][10] - As of June 6, 2023, eight out of the top ten performing public funds had their largest holdings in innovative drug stocks, indicating a strong market trend towards this sector [6][9] - The WanDe Innovative Drug Index has increased by 24.87% this year, while the Hong Kong Innovative Drug Index has surged by 69.30%, reflecting robust market performance [5][4] Group 2 - Fund managers express optimism about the innovative drug sector, citing supportive policy environments, accelerated overseas licensing, and leading companies entering profitable cycles as key drivers of growth [7][8] - Concerns about a potential bubble in the innovative drug market have been raised, with some fund managers noting that many companies may never achieve profitability, leading to inflated valuations [11][12] - The recent trend of large redemptions from Hong Kong innovative drug ETFs suggests a shift in investor sentiment, with significant declines in fund sizes observed [13][14] Group 3 - The article discusses the contrasting views among fund managers regarding the sustainability of the innovative drug rally, with some advocating for caution due to high valuations and potential market corrections [16][17] - A comparison is made between the current innovative drug market and the previous CXO bubble, with some managers suggesting that the current situation may present even greater risks [11][16] - The article concludes with insights on the relative valuation of A-share and Hong Kong innovative drug stocks, indicating that A-shares may offer better value and safety margins compared to their Hong Kong counterparts [16][17]