China's Innovative Drug Revolution: Decoding the 2025 Pharmaceutical Investment Gold Rush

Key Points

China’s innovative drug sector is experiencing a significant boom, with strong stock performance in both Hong Kong and A-share markets (e.g., JOINN Laboratories 昭衍新药 up over 16%).
Fund managers are highly bullish, seeing innovative drugs as the primary investment theme for 2025 and potentially the start of a three-year investment cycle or longer.
Growth is driven by improving fundamentals, attractive valuations, supportive government policies speeding up approvals, and increased overseas presence (China’s share of global innovative drug BD deals rose to 30% in 2024).
2025 is seen as the “three first years” for the industry: the first year of revenue volume growth, profit breakthrough, and valuation increase.

China’s innovative drug sector is absolutely buzzing, and if you’re not paying attention, you might be missing out on a pivotal shift in the pharmaceutical landscape.

Seriously, things are heating up.

On May 23rd, the Hong Kong stock pharmaceutical sector saw some major green.

JOINN Laboratories (Zhaoyan Xinyao 昭衍新药) skyrocketed over 16% at one point.

Tigermed (Taige Yiyao 泰格医药) jumped more than 12%.

And Luye Pharma (Luye Zhiyao 绿叶制药) climbed over 11%.

It wasn’t just Hong Kong; the A-share innovative drug sector also caught the wave.

Haichen Pharmaceutical (Haichen Yaoye 海辰药业) hit a 20cm limit up (that’s a 20% gain, folks!).

Joincare Pharmaceutical (Zhongcheng Yaoye 众生药业) also hit its daily limit.

Now, let’s get some perspective.

Since early 2021, the pharma sector, especially innovative drugs, took a bit of a breather after a peak.

But this year? It’s been a different story.

The industry has seen a steady stream of positive catalysts, pushing the CSI Hong Kong Innovative Pharmaceutical Index up by over 37%.

Market sentiment is definitely on the mend, fueled by these positive developments.

Fund managers are bullish.

They’re saying the fundamentals in the pharmaceutical sector are looking stronger, and innovative drugs are finally hitting their stride, thanks to a ton of R&D breakthroughs.

The consensus? Innovative drugs are shaping up to be
the main investment theme for the pharmaceutical sector in 2025.

Some are even whispering that 2025 could kick off an investment cycle lasting three years or more for these game-changing medicines.

Selected Hong Kong Innovative Drug Stock Performance (May 23rd)
Stock	Ticker	Maximum Gain
JOINN Laboratories	昭衍新药	>16%
Tigermed	泰格医药	>12%
Luye Pharma	绿叶制药	>11%

Selected A-Share Innovative Drug Stock Performance (May 23rd)
Stock	Ticker	Performance
Haichen Pharmaceutical	海辰药业	20cm Limit Up
Joincare Pharmaceutical	众生药业	Daily Limit Hit

Multiple Factors Igniting the Innovative Drug Engine

So, what’s behind this explosive growth in innovative drugs that’s leading the pharma pack this year?

Fund managers point to a perfect storm of improving fundamentals, attractive valuations, and supportive policies.

Shan Lin, manager of Yongying Fund Management’s (Yongying Yiyao Chuangxin Zhixian Jijin 永赢医药创新智选基金) Innovative Medicine Smart Selection Fund, breaks it down:

This surge is a natural step in China’s domestic pharmaceutical industry’s evolution.

Remember, R&D in innovative drugs is a long game, with hefty investments.

In the early days, countless projects fueled the massive growth of CXO (Contract Research Organization/Contract Development and Manufacturing Organization) companies. That led to a significant bull run for the CXO sector from 2018 to 2021.

Now, after 5-10 years of hard graft, the seeds are sprouting.

More innovative drugs are launching, getting included in national medical insurance, and seeing sales volumes climb.

This means the sector is set for a sustained boom, driven not just by clinical trial news but by solid financial growth. Show me the money!

Zheng Ning, manager of Bank of China (BOC) (Zhongyin Chuanyin Yiliao Jijin 中银创新医疗基金) Innovative Healthcare Fund, highlights the government’s role:

State policies encouraging innovative drugs have been a game-changer.

These policies have sped up approvals and cleared pathways for commercialization and scaling sales.

This allows profits to be plowed back into even more R&D – a virtuous cycle.

Plus, new optimization documents for centralized procurement (Jicai 集采) this year have shored up profits for traditional pharma companies, freeing them up to invest boldly in innovative drug R&D.

Right now, among pharma sub-sectors, innovative drugs have the strongest fundamentals.

Biotech (Shengwu Jishu 生物技术) companies are seeing revenues soar, and economies of scale are kicking in on the cost side, leading to a profit turnaround.

“Look at this current market wave,” Zheng Ning adds.

On one hand, some domestically developed innovative drugs are starting to sell big in overseas markets, especially the U.S.

On the other, China’s slice of global innovative drug BD (Business Development) deals – licensing and partnerships – has jumped from single digits in 2022 to 30% in 2024.

And it kept climbing in Q1 2025!

This is huge. It signals a quantum leap in the global competitiveness of China’s homegrown innovative drugs.

Zhou Sicong, manager of Ping An (Ping An Insurance) (Ping’an Yiyao Jingxuan Gupiao Jijin 平安医药精选股票基金) Pharmaceutical Select Stock Fund, sees a “dual uplift”: overseas expansion and domestic medical insurance inclusion.

“2025 is the ‘three first years’ for China’s innovative drug industry,” Zhou declares.

The first year of revenue volume growth.
The first year of profit breakthrough.
The first year of valuation increase.

The sector is gearing up for systemic investment opportunities.

Liang Furui, manager of Great Wall Fund Management’s (Changcheng Yiyao Chanye Jingxuan Jijin 长城医药产业精选基金) Pharmaceutical Industry Select Fund, agrees.

Against the backdrop of a “technology asset bull market,” the logic for innovative drugs is getting stronger and stronger.

Here’s why:

Many biotech or biopharma companies are keeping up impressive revenue growth this year, hitting quarterly or annual profit turnarounds. That’s a sectoral inflection point from a financial reporting view.
We’re seeing strong data readouts from key pipeline projects and a flurry of significant overseas BD deals, outpacing previous years.

Key Factors Driving Innovative Drug Growth
Factor	Impact Highlighted by Fund Managers
Improving Fundamentals	Significant R&D investment maturing, leading to more drug launches, insurance inclusion, and sales volume growth. Biotech seeing revenue soar & cost economies of scale.
Attractive Valuations	Relative undervaluation compared to high growth potential and other tech assets. PS valuation looks favorable.
Supportive Government Policies	Faster approvals, clearer commercialization pathways, reinvestment cycles, and Jicai optimization documents freeing up funds for R&D.
Increasing Overseas Presence	Domestically developed drugs selling in overseas markets (e.g., U.S.). China’s share of global innovative drug BD deals increased significantly to 30% in 2024.
Revenue/Profit Turnarounds	Many biopharma companies showing impressive revenue growth & hitting quarterly/annual profit turnarounds.
Key Data Readouts & BD Deals	Strong clinical data and significant overseas BD deals outpacing previous years validate pipeline strength.

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2025: Just the Start of a Multi-Year Innovative Drug Investment Cycle?

Fund managers acknowledge that innovative drugs can be a volatile sector. Corrections and swings are part of the game.

However, the fundamentals are so strong within the broader tech asset class that their stock performance is expected to be smoother this year.

Shan Lin is pretty clear:

In the medium term, innovative drugs have the best fundamentals and the clearest narrative within pharma.

Even using the common PS (Price-to-Sales) valuation, the whole sector looks relatively undervalued.

Over the next 2-3 years, as more new drug companies start showing profits on their balance sheets, the valuation system itself might shift.

Compared to the high growth potential, valuations still offer great bang for your buck.

“Innovative drug stocks are the tech stocks that actually have performance, potential, AND deliverable results,” Shan Lin notes.

“The current state might be similar to the CXO sector back in 2018-2019, and this market activity has legs for medium-term continuation.”

Zheng Ning echoes this sentiment.

Given the strong short-to-medium-to-long-term fundamentals and the current high risk-reward ratio, this innovative drug market rally is likely to stick around.

Looking ahead, Liang Furui suggests keeping an eye on a few things:

Actual performance in interim or annual reports. (The proof is in the pudding!)
Data readouts from key pipeline projects.
Realization of overseas BD deals.

“Overall, major conferences and medical insurance negotiations in the second half of the year should bring beta-driven (market-wide) gains to the innovative drug sector,” Liang comments.

“Combine that with individual stock (alpha) performance, and the future for innovative drugs looks very promising.”

Zhou Sicong reflects on the journey:

Despite twists and turns, innovative drug investment has been a rare bright spot in pharma over the past few years.

Now, the sector is getting more market attention, shareholding structures are changing, and value is being discovered.

The tough times for innovative drug investment are largely behind us.

“China has become an undeniable powerhouse in innovative drugs,” Zhou states confidently.

“2025 is the first year of an investment cycle for innovative drugs lasting three years or more. We’re still very optimistic about the long-term, large-scale investment opportunities here.”

Investment Strategy: “Guarding the Regular, Seeking the Unexpected” in Innovative Drugs

The smart money seems to agree: the “DeepSeek moment” for innovative drugs has arrived.

(For those not in the know, DeepSeek is a nod to significant breakthroughs and discoveries – a fitting analogy!)

Liang Furui believes China’s innovative drug industry is just getting started.

This year, expect domestic innovative drug companies to show major financial turnarounds.

Moving forward, they’re set for explosive growth, driven by both financial performance and R&D breakthroughs.

He’s very bullish on the industry trend and future stock performance.

A-Shares vs. Hong Kong Stocks: Where’s the Play?

Liang Furui offers some market-specific insights:

Hong Kong Stock Market: More tied to the macro environment and has a flexible short-selling mechanism. This means the valuation bubble for its innovative drug companies is smaller, and there’s a wider selection of high-quality assets. This leads to a stronger overall sector beta.
A-Share Market: Many companies here are transitioning from generic drugs to innovative drugs. Their future valuation upside could be even greater. Potential for bigger leaps.

Picking Your Winners: Fund Manager Approaches

Zheng Ning on stock selection:

Industry leaders generally offer more stable performance.

So, when expected returns are high, the priority is allocating to these leaders.

If rising stock prices shrink those expected returns significantly, then it might be time to look at second and third-tier stocks with higher payout potential, accepting a bit more risk.

“Our judgment criteria are consistent: compare risk and reward,” Zheng Ning explains.

“We weigh the uncertainty of future free cash flow realization against the implied return rate under DCF (Discounted Cash Flow).

Predicting free cash flow varies by sector and needs individual analysis.

Our framework is simple: returns come from the present value of a company’s future free cash flow. Analyze risk/return, and act boldly when risk is favorably priced.”

Shan Lin focuses on three types of innovative drug assets:

Hard Technology: Leading companies that can independently commercialize products overseas, especially in the U.S. Global reach is key.
High Growth: Companies with explosive product potential and policy tailwinds in the domestic market. Riding the local wave.
Industry Trends: Companies positioned early in the industry chain with high R&D efficiency. Smart and agile players.

Shan Lin’s investment mantra? “Guarding the regular, seeking the unexpected.“

“Guarding the regular” assets are about the medium-to-long-term view. Focus on identifying and solving core issues, and trade less frequently. Patience pays.
“Seeking the unexpected” (high payout assets) is more medium-term. Optimal entry is often “on the left side” – before the trend is obvious. But don’t go all-in too early. Calculated bets.

In portfolio construction, always consider risk-reward, maintaining a dynamic balance between certainty and the potential for high returns.

The bottom line? The innovative drug sector in China is not just experiencing a momentary blip; it’s undergoing a fundamental transformation with significant, long-term investment implications. Keep this space on your radar – the developments in Chinese innovative drugs are too compelling to ignore.

Key Investment Themes from Fund Managers

Innovate Drug Sector: Primary investment theme for 2025. Start of a three-year+ investment cycle.
Technology Asset Bull Market: Provides a supportive backdrop for innovative drug stocks.
Guarding the Regular, Seeking the Unexpected: A balanced strategy combining long-term value with calculated shorter-term bets.
Overseas Expansion & Domestic Inclusion: Dual drivers for growth.
PS Valuation: Currently suggests the sector is relatively undervalued.
Beta-Driven Gains: Expected from industry conferences and medical insurance negotiations in H2.
Alpha Performance: Opportunities in individual stocks with strong fundamentals and pipeline.
Hard Technology, High Growth, Industry Trends: Three types of assets Shan Lin focuses on.
Risk/Reward Balance: Fundamental to stock selection across volatility.