Core Insights - The Hang Seng Innovation 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, before rebounding with a rise of 4.09% on October 31 [1] - China's pharmaceutical BD transaction scale has exceeded $100 billion this year, with domestic innovative drugs accounting for 46% of global pharmaceutical licensing transactions, marking China as the largest source of licensing transactions globally [4][10] - The difficulty and cost of expanding into the U.S. market for Chinese innovative drugs are expected to increase due to stricter regulations and higher fees imposed by the U.S. FDA [6][9] Market Dynamics - The U.S. government is implementing administrative measures to restrict drug imports from China, including stricter FDA reviews and higher regulatory fees [7] - The FDA's new guidelines emphasize overall survival (OS) in cancer drug approvals, potentially increasing costs by 1 to 2 times [8] - The frequency of FDA inspections is increasing, with a projected rise from 522 inspections in FY2022 to 972 in FY2024 [8] Outbound Strategies - Chinese pharmaceutical companies are evolving their outbound strategies from out-licensing to NewCo and Co-Co models, allowing for shared development and commercialization risks [12][13] - A notable transaction includes Innovent Biologics' deal with Takeda Pharmaceuticals, valued at up to $11.4 billion, utilizing the Co-Co model [11] Domestic Market Potential - The Chinese innovative drug market is currently underperforming compared to its potential, with a market share of only 8.6% compared to 81.8% in the U.S. [15][17] - 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 of U.S. prices [17] - Recent policy adjustments, including the introduction of commercial insurance and confidential price negotiations, are expected to gradually align domestic drug prices with international standards [17] Future Outlook - By 2035, China is projected to develop a number of leading pharmaceutical companies and become a global center for new drug creation [18] - The emergence of top global pharmaceutical companies from China is anticipated, with a focus on developing first-in-class (FIC) or best-in-class (BIC) drugs [20] - The innovative drug market is expected to continue its growth trajectory, driven by strong data presentation at major international conferences and the ability of Chinese companies to conduct international multi-center clinical trials [21]