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Innovative drugs: resonance between BD transaction explosion and payment breakthrough

 

The field of innovative drugs is undergoing a critical turning point from breakthroughs in research and development to commercial monetization. In the first half of 2025, the number of innovative drug BD transactions in China exceeded 50, with a total amount exceeding 48 billion US dollars, of which 18 transactions exceeded 1 billion US dollars. The cooperation between Hengrui Pharmaceutical and GlaxoSmithKline can be regarded as a milestone event - the transaction structure of $500 million down payment and potential $12 billion milestone payment not only sets a record for domestic innovative drugs going global, but also marks the shift of Chinese innovative drugs from single project authorization to platform based international cooperation. This cooperation model enables domestic enterprises to focus on early research and development advantages, while leveraging the global network of multinational leaders to achieve commercial breakthroughs.

 

The breakthrough policies on the payment side provide key support for the valuation enhancement of innovative drugs. For the first time, the National Healthcare Security Administration has simultaneously developed a list of innovative drugs for both basic medical insurance and commercial insurance. The commercial insurance list specifically includes innovative drugs that are temporarily unable to enter medical insurance but have significant clinical value. This mechanism not only solves the dilemma of innovative drugs' rapid price reduction after entering medical insurance and difficulty in increasing quantity without entering medical insurance, but also improves patient accessibility through collaborative settlement between medical insurance and commercial insurance. Of particular note is that new drugs and rare disease drugs approved after 2020 are prioritized for inclusion in the commercial insurance catalog, matching the clinical progress of innovative drugs such as Hengrui HRS-9821. The release pace of policy dividends is highly in line with the company's research and development cycle.

 

CXO industry: increased certainty from order recovery to profitability turning point

 

The research and development boom of innovative drugs is spreading upstream along the industry chain, and the CXO industry is experiencing a positive cycle of "orders performance valuation". WuXi AppTec's net profit in the first half of the year surged by 101.92% year-on-year, and the revenue growth rate was raised to 13-17%, confirming the substantial recovery of the industry's prosperity. This kind of growth is not an isolated case. Boteng Biotechnology has achieved a turnaround from losses to profits, and top companies such as Kailaiying and Kanglong Huacheng have seen a year-on-year increase of over 20% in their orders, indicating the universality of industry recovery.

 

The recovery momentum of the CXO industry comes from both internal and external factors. At the domestic level, more than 60% of the funds obtained by innovative pharmaceutical companies through BD transactions are invested in clinical research and development, and 80% of these research and development activities need to be outsourced to CXO institutions.

 

At the international level, the easing pressure of the US dollar interest rate hike has led to a rebound in overseas research and development demand, and the overseas business growth of companies such as WuXi AppTec has been significantly faster than that in China. At the valuation level, the current P/E ratio of the CXO sector is about 33 times, which is not only lower than the average level of the domestic pharmaceutical industry, but also significantly lower than the range of 45-50 times for overseas leaders. This valuation difference provides a safety margin for the sector.

 

Medical devices: demand release driven by policies and acceleration of domestic substitution

 

The bottoming out and rebound of the medical device sector has been clearly validated by bidding data. In the first quarter of 2025, the scale of the national medical equipment bidding market surged by 67.49% year-on-year, CT、 High end equipment such as ultrasound is showing a trend of both quantity and price increase. This recovery is not a short-term fluctuation, but the result of sustained policy efforts - the rebound in the issuance of medical special bonds and the continuation of equipment renewal policies until 2027, providing medium - to long-term support for market demand. Leading companies such as Mindray Medical have clearly stated that they expect a significant turning point in domestic business in the third quarter, reflecting the industry's confidence in the sustainability of the recovery.

 

Domestic substitution has become a distinctive feature of equipment recovery. Under the dual promotion of policy guidance and technological progress, the proportion of domestically produced high-end equipment in bidding continues to increase. After optimizing the centralized procurement rules for high-value consumables, the focus is no longer simply on "anchoring the lowest price", but on price rationality. This change not only ensures the innovation drive of enterprises, but also avoids the damage of vicious competition to product quality. The development trajectory of enterprises such as Lianying Medical shows that domestic medical equipment has shifted from low-end market penetration to high-end market breakthrough, and this industrial upgrading will reshape the competitive landscape of the industry.

 

Looking ahead, the structural repair of the pharmaceutical sector is expected to develop in depth. The internationalization of innovative drugs, the release of CXO production capacity, and the domestic substitution of medical devices will constitute the three pillars of the long-term growth of the sector. With the return of public fund holdings to historical averages and the gradual improvement of the commercial insurance payment system, the valuation repair space of the pharmaceutical sector will be further opened up. For investors, the industry believes that it is necessary to pay attention to the subsequent milestone realization of BD transactions, the conversion rate of CXO orders, and the sustainability of instrument bidding, and seize the investment mainline with strong certainty in structural opportunities.