Another significant out-licensing agreement has been signed for a domestic innovative drug. China Biologic Products Holdings, Inc. has announced it has granted an exclusive license for its PDE3/4 inhibitor TQC3721 to AstraZeneca for territories outside of China. The deal includes an upfront payment of $200 million, with potential development, regulatory, and sales milestone payments totaling up to $1.9 billion, plus tiered royalties of up to a double-digit percentage.

The market responded swiftly. In early trading on July 9th, shares of China Biologic Products Holdings, Inc. opened higher and continued to rise, surging over 6% at one point. The broader Hong Kong Stock Connect innovative drug sector saw a widespread recovery. The HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (ETF Code: 520880), which is fully invested in leading innovative drug R&D companies, rose as much as 2.54% and was up 0.92% at the time of writing, with turnover exceeding 4 billion yuan.

Significance of the Latest Deal

Notably, this out-licensing deal by China Biologic Products Holdings, Inc. follows other major transactions earlier this year, such as the $18.5 billion deal between Shijiazhuang Pharmaceutical Group and AstraZeneca and the $8.85 billion deal between Innovent Biologics and Eli Lilly. These deals, all involving global pharmaceutical giants, reflect growing international recognition for China's innovative drug pipelines.

According to pharmaceutical data, the total value of Chinese innovative drug out-licensing deals in the first half of this year reached $99.7 billion, accounting for 73% of the full-year 2025 total and marking the strongest half-year period on record.

Analyst Perspective on the Sector

Analysts suggest the current overall valuations for the A-share and Hong Kong Stock Connect innovative drug sectors remain relatively low. However, factors such as the return of global capital, continuous breakthroughs in internationalization, and an upward industry cycle are jointly driving a valuation recovery. It is argued that Chinese innovative drugs may be at the starting point of a new round of value reassessment and could become the most growth-oriented and resilient core direction in global pharmaceutical investment in the coming years.

Investment Vehicles to Track the Rebound

For investors looking to follow the innovative drug rebound, two key exchange-traded funds are highlighted. The HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880) is fully allocated to innovative drug R&D companies, with its top ten holdings representing over 70% of the portfolio, emphasizing its focus on sector leaders. Its underlying assets are Hong Kong-listed stocks, offering high volatility and T+0 settlement.

Another option is the Pharmaceutical ETF (562050), which is described as the only ETF tracking a specific pharmaceutical index with a unique allocation of "75% innovative drugs + 25% traditional Chinese medicine," aiming to combine the high growth potential of innovative drugs with the high dividend appeal of traditional Chinese medicine companies.

Data is sourced from the Shanghai, Shenzhen, and Hong Kong stock exchanges, relevant index companies, and pharmaceutical data providers. Institutional views are based on a recent securities industry report.

It is noted that the mentioned ETFs do not charge a sales service fee. Brokerages may charge a commission of up to 0.5% for subscriptions or redemptions, which includes fees charged by exchanges and registration institutions. Full fund fee details are available in the respective legal documents.

Important Risk Disclosures

Index constituents mentioned are for illustrative purposes only. Descriptions of individual stocks are not intended as investment advice of any kind and do not represent the holdings or trading动向 of any fund managed by the asset manager. The risk rating for certain pharmaceutical and healthcare ETFs managed by the firm is assessed as R3-Medium Risk, suitable for Balanced (C3) and higher risk-tolerance investors. Other healthcare and innovative drug ETFs are assessed as R4-Medium to High Risk, suitable for Aggressive (C4) and higher risk-tolerance investors. All information presented is for reference only. Investors are solely responsible for their own investment decisions. The views, analysis, and forecasts herein do not constitute investment advice to any reader, and no liability is accepted for any direct or indirect losses arising from the use of this content. The past performance of other funds managed by the asset manager is not a guarantee of future results for these funds. Fund investment carries risks.

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