The eruption after biding its strength—Commentary on the sharp rise of ETFs related to innovative drugs

Ask AI · Will the surge in innovative drug licensing transaction volume signal an industry turning point?

Today, led by innovative drugs, pharmaceutical-related indices saw broad expansion and a push higher across the board. Among them, the Sci-Tech Innovation Drug ETF (589720) rose more than 7.5% intraday, the Innovative Drug ETF (517110) rose more than 6% intraday, and the Hang Seng Biotechnology ETF (520930) rose more than 5.5% intraday.

【Analysis of the reasons for the big rise】

On the geopolitical front, overnight, both the U.S. and Iran released ceasefire signals simultaneously. Investor panic sentiment was released, liquidity has somewhat improved, and this may drive a rebound from oversold levels in the 20cm high-elasticity Sci-Tech Innovation Drug ETF (589720), the Hang Seng Biotechnology ETF (520930), which tracks core leading innovative drug companies plus high elasticity & high Sharpe ratio, and the Innovative Drug ETF (517110), which enables one-click exposure to innovative drug companies across Shanghai, Shenzhen, and Hong Kong.

Fundamentally, according to data released by the National Medical Products Administration on March 28, in the first quarter of this year, the total value of innovative drug licensing transactions for China’s innovative drugs to overseas parties has already exceeded $60 billion, approaching half of the total $135.7 billion for all of 2025. As of March 27, 10 innovative drugs have been approved for market launch in 2026, including 8 domestically developed innovative drugs, setting a historical record high for the same period. In terms of performance, as the annual reports of major A+H innovative drug leaders are nearing the end of the reporting season, a number of performance highlights are emerging—some innovative drug companies have crossed the earnings turning point and achieved their first move into profitability, several companies’ net profits have doubled, core pipelines have successfully ramped up commercialization and delivered volume, and cash flow has continued to improve.

【Outlook】

Due to liquidity shocks caused by global geopolitical conflicts and the intensification of interest-rate-hike expectations earlier on, the A/H valuation of the sector still sits at a historically low level relative to the central range of early-April 2025, before the market breakout. The earnings turning point and cash flow improvement of leading companies may provide support from the left side of the valuation curve. Going forward, in late May, the ASCO conference will densely disclose clinical data progress related to core technical paths such as bispecific antibodies and ADCs, including PFS/OS/ORR/HR and other related metrics. If data readouts come in above expectations, a valuation-repair rally could be expected. Combined with the subsequent BD and commercialization expectations for early-stage platform assets on the FIC/BIC model—such as the TCE track—there may be an opportunity to lift industry sentiment on the right side. Previously, across the entire market, the allocation ratio of public funds to pharmaceuticals and biotech (especially innovative drugs) fell to historically low levels, leaving the sector’s “chips” clean. Since last Friday, funds have started flowing back into innovative drugs; during this week’s high market volatility, they have shown strong downside resistance. This indicates that the prior adjustment has already delivered value-for-money, and investors are willing to participate in this round of recovery driven by solid fundamentals and low valuations.

For specific positioning, while external conditions still carry uncertainty, in the short term the innovative drug sector may continue to move in a volatile upward trend. Investors who are interested may keep an eye on changes in liquidity and risk appetite, and consider staged buying on dips.

Related products: Hang Seng Biotechnology ETF Guotai (520930), Sci-Tech Innovation Drug ETF Guotai (589720), Innovative Drug ETF Guotai (517110)

Risk reminder: Mentioning individual stocks is only for industry-event analysis and does not constitute any stock recommendation or investment advice. Short-term index gains or losses are for reference only and do not represent their future performance, nor do they constitute any promise or guarantee of fund performance. Views may be adjusted as market conditions change and do not constitute investment advice or commitments. The risk and return characteristics of funds mentioned are different; investors are advised to carefully read the fund’s legal documents, fully understand product features, risk ratings, and the principles of profit distribution, choose products that match their own risk tolerance, and invest cautiously.

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