Lepu Biopharmaceuticals rose over 8% after earnings release, turning profitable last year! Hansoh Pharmaceutical's revenue and net profit hit new highs again! Hong Kong Stock Connect Innovative Drug ETF(159570) surged then pulled back, down over 1%!

Today (3/26), the international situation remains uncertain. Hong Kong pharmaceutical stocks surged in the afternoon but then pulled back. The Hong Kong Stock Connect Innovation Drug ETF (159570), which tracks 100% innovative drugs, fell over 1%, with intraday trading volume quickly surpassing 1.4 billion yuan! Over the past five days, there have been two days of net capital inflows, totaling nearly 20 million yuan. Its latest size exceeds 22.3 billion yuan, far ahead of its peers.

Recently, Hong Kong pharmaceutical companies have been releasing a flurry of earnings reports, boosting the sector on strong performance.

Lepu Biopharma’s stock once rose more than 14% after earnings, turning profitable last year with revenue increasing 1.54 times year-over-year. On March 25, Lepu Biopharma announced its 2025 performance, reporting revenue of 935 million yuan, up 154.19% YoY; attributable net profit of 261 million yuan, turning profitable; and basic earnings per share of 0.15 yuan.

Hengrui Medicine’s 2025 revenue is projected at 31.629 billion yuan, with record-high net profit and revenue. On March 25, Hengrui released its annual report for 2025, achieving total revenue of 31.629 billion yuan, up 13.02% YoY; net profit attributable to shareholders of 7.711 billion yuan, up 21.69%; and net profit excluding non-recurring gains and losses of 7.413 billion yuan, up 20.00%. Sales of innovative drugs reached 16.342 billion yuan, accounting for 58.34% of drug sales, with external licensing income of 3.392 billion yuan, up 25.62%.

CSPC Pharmaceutical Group’s 2025 revenue is 26.006 billion yuan, with external licensing deals totaling $28.21 billion. On March 25, CSPC announced its 2025 full-year results, with total revenue of 26.006 billion yuan, down 10.4% from 2024’s 29.009 billion yuan. The attributable net profit was 3.882 billion yuan, down 10.3%. Basic earnings per share were 33.98 cents, down 7.8%. Despite revenue decline, the company increased its final dividend to 15 HK cents per share, a 50% increase from last year.

As of March 25, out of the 32 constituent stocks in the Hong Kong Stock Connect Innovation Drug ETF (159570) index, 18 have disclosed 2025 earnings, with 10 showing positive growth in net profit attributable to parent.

Note: The constituent stocks of the index are for display only and do not constitute stock recommendations.

Most of the top stocks in the ETF’s index are in the red: CSPC Group down over 5%, Rongchang Biotech and Sihuan Pharmaceutical down over 3%, Cinda Biotech and BeiGene down over 2%. Lepu Biopharma-B rose over 8% against the trend, Kangfang Biotech up over 1%, and Kelun Biotech saw slight gains.

Note: The index weightings are for display only and do not constitute stock recommendations.

【Institutional View on Hengrui: Steady Growth and Continuous Innovation】

Huatai Securities notes that Hengrui’s innovative achievements continue to deliver, with a rising proportion of revenue from innovative drugs. The company’s innovative drug revenue is expected to grow rapidly, with projected proportions of 64%, 71%, and 77% in 2026/27/28 respectively. Key reasons include: 1) In 2025, the company’s 8 innovative drugs and 6 new indications were approved, with 10 new products and 5 new indications included in the national insurance scheme, including key products like HER2 ADC Trastuzumab Deruxtecan and JAK1 inhibitor Elmatinib, which are expected to drive over 30% growth in innovative drug revenue in 2026-27. 2) In 2026, the company expects approval of 5 new products and 7 new indications, with over 20 submissions for marketing approval. In 2027/28, approvals are expected for 8/8 new products and 14/11 new indications, including molecules like HRS9531 (GLP-1/GIP) and HRS7535 (GLP-1 small molecule).

In 2025, the expense ratio decreased YoY, and net profit margin significantly improved. Hengrui continues to optimize efficiency. In 2025, sales, management, and R&D expense ratios were 28.8%, 8.9%, and 22.0%, respectively, down 1.0, 0.2, and 1.5 percentage points YoY. In Q4 2025, these ratios were 27.6%, 8.0%, and 23.9%, respectively, down 1.0, 0.7, and 2.2 percentage points YoY. The net profit margin attributable to shareholders was 24.4%, up 1.8 percentage points YoY; Q4 net profit margin was 23.2%, up 1.2 points. Looking ahead to 2026, as innovative drug revenue share increases, the company’s net profit margin is expected to continue rising.

BD (Business Development) continues to generate cash flow, and overseas valuation offers new growth opportunities. 1) From 2023 to 2025, the company completed 12 BD deals totaling nearly $28 billion, with future milestones likely to bring sustained cash flow. 2) Besides products with external licensing, Hengrui has over 30 products in clinical development at the top three global levels for their targets, with potential for double-digit growth in BD revenue in the coming years. Potential future BD products include Amylin, HSR4597 (inhaled IL-4R ADC), and bispecific antibodies (IL-23p19/IL36R). 3) HRS9531 (GLP-1/GIP injection) started three global Phase III trials in December 2025, with significant BD potential. As previous BD products progress, the company’s overseas valuation has considerable room for growth.

(Source: Huatai Securities, 20260326 “Steady Growth and Continuous Innovation”)

【Policy Highlights: Biopharmaceuticals Named as a New Pillar Industry, Clear Benefits for Innovative Drugs】

The 2026 key work report proposes “building emerging pillar industries such as integrated circuits, aerospace, biopharmaceuticals, and low-altitude economy.” Compared to the 2025 report’s mention of “cultivating and expanding emerging and future industries,” the positioning of biopharmaceuticals has been elevated, being officially classified as a “new pillar industry,” further strengthening its strategic importance.

Guosheng Securities believes that for the pharmaceutical sector, this indicates a policy shift from “nurturing emerging tracks” to “an important pillar for economic growth and industrial upgrading,” with innovative drugs as the most high-value segment within biopharmaceuticals, benefiting most clearly.

【Data Speaks! Chinese Companies Lead Global Innovation Drug Development】

Data shows that by the end of 2025, Chinese companies lead globally in the number of ongoing innovative drug R&D projects, accounting for 33.7%. As of 2025, there are 14,088 active R&D-stage innovative drugs worldwide, with Chinese companies developing 4,751 original drugs (33.7%), surpassing the US (4,019, 28.5%) for the first time. About 76% of Chinese original drugs are in early development stages, mainly cell therapies and small molecules, with radiopharmaceuticals, bispecific/multispecific antibodies, and antibody-drug conjugates making up about 5%.

From 2018 to 2025, the number of new innovative drugs entering clinical trials in China has grown rapidly. During this period, 11,698 new clinical-stage innovative drugs were launched globally, with China accounting for 4,639 (40%), and the US 3,601 (31%). After 2020, China’s new clinical-stage innovative drugs increased sharply, with 827 original drugs entering clinical trials in 2025, ranking first worldwide with a 47.4% share.

In 2025, global pharmaceutical transactions remained active, with Chinese license-out deals exploding. The total number of transactions reached 1,021 (+19%), approaching 2020-2021 levels; total transaction value rose to $275.1 billion (+31%), with upfront payments of $18.8 billion (+45%), both hitting record highs. Chinese transactions followed global trends, with 336 deals (+42%) and total value soaring to $138.8 billion (+135%), with upfront payments of $7.5 billion (+63%). In 2025, Chinese pharma transactions accounted for about 50% of global deal value, almost all license-out deals.

In 2025, China’s top 10 pharma deals included seven from Chinese companies.

(Source: Guosheng Securities, 20260325 “Q2 Investment Strategy for Pharma & Biotech”)

【Focus on China’s Hardcore Innovation Power in Drugs, a New Force in High-Quality Production, Recognize the Hong Kong Stock Connect Innovation Drug ETF (159570)】

The Hong Kong Stock Connect Innovation Drug ETF (159570) is 100% allocated to innovative drugs! As of February 27, the top ten constituent stocks account for 73.54% of the index, encapsulating the essence of Hong Kong Stock Connect’s innovative pharmaceutical sector.

Source: China Securities Index Co., Ltd., 2026/2/27. Constituents are for display only and do not constitute stock recommendations.