Since 2025, the Hong Kong stock market's innovative drug sector has been on fire! The Hang Seng Stock Connect Innovative Drug Index has surged 66% year-to-date, far outperforming the broader market. The popular Hong Kong Stock Connect Innovative Drug ETF (159570) also rose sharply by 62.78%, with its latest scale exceeding 7.8 billion yuan, firmly securing the top spot among similar products. Both price and scale have hit record highs. This rally is not a flash in the pan but driven by three forces: policy support, overseas breakthroughs, and improved corporate performance.

1. Policy Green Light: The National Healthcare Security Administration and the National Health Commission issued the "Several Measures to Support the High-Quality Development of Innovative Drugs," explicitly supporting the use of healthcare data for innovative drug R&D. This is equivalent to giving innovative drug companies a green light throughout the entire process, from the lab to commercialization, pushing the industry from "imitation innovation" to "global first-in-class." This is the most solid foundation for the rally.
2. International Breakthroughs: The R&D capabilities of Chinese innovative drug companies are now being recognized by international giants (MNCs) with real money, leading to a surge in overseas licensing deals. Since 2020, the number of outbound licensing deals by domestic pharmaceutical companies has increased significantly, accounting for 51% of the global total by Q1 2025. Given that 30%-50% of MNCs' licensing deals originated from China in recent years, it is estimated that by 2033, global revenue from Chinese innovative drugs could reach $210 billion to $350 billion.
3. Pharma Companies Start Profiting: Innovative drug companies listed in Hong Kong are finally seeing the fruits of their years of hard R&D turn into real profits, with significantly improved performance. In 2025, innovative drug companies will usher in a wave of profitability, officially entering a new phase of business model validation. Taking some Hong Kong-listed 18A pharmaceutical companies as a sample, their total revenue in 2024 reached 72.3 billion yuan, with a net loss attributable to shareholders of 19.3 billion yuan. Revenue grew 36.5% year-on-year, while net profit attributable to shareholders increased by 27.6%, with 41% of companies achieving positive profit growth.

Looking ahead to the second half of the year, short-term market fluctuations are possible, but the reasons for medium-term optimism are solid. With major industry events like the ASCO Annual Meeting (the world's top oncology conference) and the continued impact of favorable policies, the Hong Kong innovative drug sector, driven by "valuation recovery + strong growth potential," is expected to maintain its strong performance. With improving market liquidity and rising risk appetite, the innovative drug sector, catalyzed by positive data and BD activities, could become a year-long investment theme.

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