The surge in outbound licensing deals worth tens of billions signals robust momentum for the innovative drug sector. Investors can gain exposure to the core theme of "commercialization realization" for innovative drugs through products like the Huatai Bairui Hang Seng Innovation Drug ETF (520500) and the Innovation Drug ETF (517120).
Since 2026, the healthcare sector has undergone a period of valuation adjustment, yet the fundamental direction of industry improvement remains unchanged. The outbound expansion of China's innovative drugs is emerging as a clear industry trend, with overseas licensing deal values repeatedly hitting new highs. Concurrently, the U.S. FDA has signaled a more accommodative review stance, and domestic companies have presented numerous impressive clinical data sets at the ASCO conference. This convergence of positive factors has drawn market attention to the sector's value for allocation at its current lower range.
The Huatai Bairui Hang Seng Innovation Drug ETF (520500), currently the only ETF tracking the Hang Seng Innovation Drug Index, has seen its daily turnover exceed 20 billion yuan for two consecutive trading sessions, a significant increase from its average daily turnover of 9.15 billion yuan since 2026. Another popular product, the Innovation Drug ETF (517120), also maintains high investor interest, having attracted net inflows for five consecutive trading days. Last Friday alone, it recorded net subscriptions of 208 million units, bringing its total units outstanding to a record high of 795 million units.
The capital flowing into this sector is underpinned by the rapid expansion of overseas licensing business for domestic innovative drugs. Data from Pharmaceutical Intelligence shows that the total value of outbound licensing deals by domestic pharmaceutical companies reached $99.7 billion in the first half of 2026, approaching 73% of the full-year 2025 transaction volume. Furthermore, domestic projects accounted for eight of the top ten global licensing deals by size, indicating that domestic innovative drug assets have become key targets for overseas pharmaceutical companies, whose recognition of the clinical value of domestic R&D platforms and pipelines continues to rise.
The overall valuation of the healthcare sector currently sits at a historically low range. Industry capital has been actively engaged in share buybacks, with 39 new repurchase plans announced in the second quarter of this year alone. Innovative drug and CXO companies have been the main drivers of these buybacks, directly reflecting the industry's confidence in its own value. Looking ahead, with major international oncology conferences like WCLC in September and ESMO in October scheduled, the ADC and bispecific antibody fields are expected to see a wave of clinical data releases. Biotechnology companies that have not yet secured overseas partnerships but possess the potential for significant clinical data may encounter new opportunities for business development collaborations.
CITIC Securities suggests focusing on three types of companies when allocating to China's innovative drug sector in the second half of 2026. The first category includes leading Pharma/Biopharma companies with a steadily increasing proportion of innovative drug revenue and strong commercialization and profit realization capabilities. The second comprises innovative platforms whose core pipelines have global best-in-class or first-in-class potential, have entered global registration or late-stage clinical trials, and have a dense pipeline of upcoming data and business development catalysts. The third category consists of growth-stage biotech firms with clearly differentiated product mechanisms, growth potential, and upcoming catalysts.
It is reported that the Huatai Bairui Hang Seng Innovation Drug ETF (520500), which supports intraday T+0 trading, tracks the Hang Seng Innovation Drug Index. Through a QDII mechanism, it invests in 40 leading innovative drug companies listed in Hong Kong, primarily focused on mid-to-upstream segments like biopharmaceuticals, chemical pharmaceuticals, and active pharmaceutical ingredients, gathering a group of R&D-driven enterprises with strong capabilities and development potential. The Innovation Drug ETF (517120) closely tracks the CSI Shanghai-Hong Kong-Shenzhen Innovation Drug Industry Index, which focuses on 50 companies engaged in innovative drug R&D and commercialization across the Shanghai, Hong Kong, and Shenzhen markets.
The manager of these ETFs, Huatai Bairui Fund, is one of China's first ETF managers with over 19 years of experience in index investing. It has developed transparent, convenient, and low-cost index tools for investors, such as the Huatai Bairui CSI 300 ETF (510300) and the A500 ETF (563360). As of the end of March 2026, the company's ETFs had generated cumulative profits exceeding 223.4 billion yuan for holders over the previous two years, making it one of only three public fund companies in the A-share market to achieve cumulative profits over 200 billion yuan during that period.