Innovative drug sector surges! Collective profitability, industry turning point fully established

On March 27, the A-shares of innovative pharmaceuticals rose, with multiple constituent stocks such as Shutai Shen (300204.SZ), Rejing Biology (688068.SH), Ketaobio (300858.SZ), Wanbangde (002082.SZ), Xinlitai (002294.SZ), Lianhuan Pharmaceutical (600513.SH), and Zhaoyan New Drug (503127.SH) hitting the daily limit.

On the news front, Hengrui Medicine reported innovative drug revenue of 16.3 billion yuan in its 2025 annual report, up 26% year-on-year, accounting for nearly 60% of total revenue, and provided guidance for over 30% growth in 2026, confirming a profit inflection point. Meanwhile, several innovative pharmaceutical companies, including Nuocheng Jianhua, Yunding Xinyao, and Jingtai Holdings, collectively turned profitable in 2025, marking the industry’s official entry into a phase of profit realization.

Multiple Innovative Pharmaceutical Companies Achieve Profitability

As a “barometer” of the domestic innovative pharmaceutical industry, Hengrui Medicine’s 2025 annual report undoubtedly became a catalyst for the sector’s rally.

Annual report data shows that the company achieved operating revenue of 31.629 billion yuan in 2025, a year-on-year increase of 13.02%, with the innovative drug business performing exceptionally well, generating sales revenue of 16.342 billion yuan, a year-on-year increase of 26.09%, and the proportion of pharmaceutical sales revenue rising to 58.34%, just a step away from 60%, completely breaking free from reliance on generic drug business and achieving a fundamental transformation from “combining generic and innovative” to “innovation-led.”

It is worth noting that the high growth of Hengrui Medicine’s innovative drug revenue is not dependent on a single product but presents a “multiple blooming” pattern. The revenue from anti-tumor products reached 13.24 billion yuan for the year, an 18.52% year-on-year increase, while non-tumor product revenue surged to 3.102 billion yuan, a staggering 73.36% increase, with continuous releases of commercialization results from its pipeline.

More significantly for the industry, Hengrui Medicine has clearly provided guidance for over 30% growth in innovative drug revenue for 2026, and this optimistic expectation is supported by the company’s strong pipeline reserves and commercialization capabilities. By the end of 2025, Hengrui Medicine had already received approvals for 7 new drugs within the year, with its pipeline covering multiple core therapeutic areas such as oncology, autoimmune diseases, and metabolic diseases, and several products are in critical Phase III clinical stages, expected to achieve commercialization in the next 1-2 years. At the same time, the company’s innovative drug licensing business has shown significant results, achieving licensing revenue of 3.392 billion yuan in 2025, reaching licensing cooperation with several multinational companies like MSD and GSK, which not only brought stable cash flow but also validated the global competitiveness of domestic innovative drugs.

The confirmation of Hengrui Medicine’s profit inflection point is not an isolated case but a reflection of the entire innovative pharmaceutical industry’s recovery. Today, several innovative pharmaceutical companies, including Nuocheng Jianhua, Yunding Xinyao, and Jingtai Holdings, which disclosed their performance simultaneously, all presented impressive “turnaround reports,” collectively announcing the arrival of the industry’s profit era. Among them, Nuocheng Jianhua achieved a net profit of 120 million yuan in 2025, a significant turnaround from a loss of 380 million yuan in the same period last year; Yunding Xinyao ended years of losses, achieving a net profit of 80 million yuan thanks to the commercialization ramp-up of a core ADC drug; Jingtai Holdings, relying on breakthroughs in AI pharmaceutical technology and the expansion of its CDMO business, achieved a net profit of 75.609 million yuan in its 2025 mid-term report, with a stable profit trend for the full year, becoming one of the first companies in the AI innovative drug field to achieve profitability.

Leading Enterprises Expected to Increase Market Share

From industry data, the recovery of the innovative drug sector is not coincidental but a necessary result of the resonance of three major factors: policy, capital, and technology.

Looking back at the development history of China’s innovative pharmaceutical industry, the past decade has undergone three phases: “wild growth—bubble squeezing—rational return.” During the period from 2018 to 2022, affected by multiple factors such as price reductions from centralized procurement, R&D failures, and capital withdrawal, many innovative pharmaceutical companies fell into loss-making situations and even faced delisting risks, with sector valuations remaining low. However, since 2023, the industry has begun to see marginal improvements, with continuous policy benefits being released, optimized drug centralized procurement mechanisms, and accelerated new drug approvals, significantly shortening the cycle for converting R&D results, while the normalization of medical insurance negotiations coupled with the expansion of commercial insurance catalogs has provided diverse payment pathways for innovative drugs, alleviating the pressure on companies to “exchange price for volume.”

On the capital front, the financing environment for the innovative drug sector continued to improve in 2025, with frequent large transactions in overseas licensing (BD). As of March 21, 2026, the total amount of Chinese innovative drugs going overseas for BD had reached 57.1 billion USD, with initial payments of 3.3 billion USD and a total of 53 deals, which equates to 41% of the total package for the entire year of 2025, exceeding the total level of 2024, with the initial payment amounting to 3.3 billion USD, equivalent to 46% of the entire year’s amount for 2025. This high prosperity in BD overseas activities not only brings ample cash flow to innovative pharmaceutical companies but also proves that the technological strength of domestic innovative drugs has gained recognition in the global market.

In the future, leading enterprises with core technologies, rich pipeline reserves, and strong commercialization capabilities will continue to seize market share, achieving both performance and valuation improvements; while small and medium-sized pharmaceutical companies lacking core competitiveness, with disordered pipeline layouts and weak commercialization capabilities, will gradually be eliminated from the market, leading the industry to transition from a “hundred flowers blooming” to a healthy development pattern of “removing the false and retaining the true.”

Among them, Innovent Biologics achieved profitability in 2025 with revenue growth of 38.42%, as its core product Sintilimab continued to expand in indications, while also laying out potential products like Ma Shidu peptide, with continuous improvement in commercialization capabilities and steady increases in market capitalization.

BeiGene, on the other hand, possesses core technological advantages in hematologic tumors and solid tumors. In 2025, the R&D pipeline continues to break through, expected to yield multiple data readouts in ADCs and bispecific antibodies within the year, and the commercialization advancement of its products in the global market has sustained long-term growth of stock prices in A-shares, Hong Kong stocks, and U.S. stocks, becoming a leading entity with both technological strength and commercialization potential.

Rongchang Biologics is expected to achieve a net profit of about 716 million yuan in 2025, turning around from a loss of 1.468 billion yuan in the same period last year, with the core driving force coming from the rapid growth of domestic sales of Tai’ta Xipu and Vidilizumab, as well as significant technical licensing revenue from the exclusive overseas authorization of Tai’ta Xipu.

(Author: Wang Zhiqiang HF013)

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