Core Insights - The Hang Seng Innovative Drug Index experienced a maximum increase of 141.24% from January 1 to early September 2025, followed by a decline of 22.63% until October 30, 2025, before rebounding with a rise of 4.09% on October 31, 2025 [1][4]. Industry Overview - The scale of BD transactions for Chinese pharmaceutical companies has exceeded $100 billion this year, with Chinese innovative drugs accounting for 46% of global pharmaceutical licensing transactions, making China the largest source of such transactions globally [4]. - The future expansion into the U.S. market is expected to become increasingly challenging and costly due to regulatory changes [6][9]. Regulatory Environment - The U.S. government is implementing stricter regulations on drugs from China, including higher fees for FDA reviews and discouraging reliance on clinical trial data from Chinese patients [7]. - The FDA is enhancing its oversight, with an increase in the frequency of inspections from 522 in FY2022 to 972 in FY2024, indicating a shift towards a more rigorous compliance environment [8]. Market Dynamics - The average price of innovative drugs in China is significantly lower than in the U.S., with large molecule drugs priced at about 1/15 and small molecule drugs at 1/5 to 1/10 of U.S. prices, which is a major barrier to the domestic market's growth [15]. - The Chinese government is aware of these pricing issues and is making adjustments, including the introduction of commercial insurance and confidential price negotiations, which may lead to a gradual increase in drug prices towards U.S. levels over the next 3 to 5 years [15]. Future Outlook - By 2035, China is expected to develop significant core technologies in drug creation, potentially leading to the emergence of several top global pharmaceutical companies [16]. - The current trend indicates that China will likely see the emergence of at least one pharmaceutical company that surpasses major Japanese firms like Takeda and Daiichi Sankyo within the next 5 to 10 years [18]. Investment Trends - The surge in innovative drug interest this year is primarily driven by the increase in BD transactions, which reflects the high value placed on Chinese innovative drugs by multinational companies [19]. - Future investment strategies will focus on identifying products with BD potential earlier in the development process, as the market is expected to respond proactively to these opportunities [19].