The industry profit turning point is fully confirmed, and innovative drugs are set for a major surge—leading to a long-awaited “20CM” limit-up for the major stock Shou Tai Shen.

Ask AI · How can the confirmation of a profit inflection point reshape the investment logic for innovative drug companies?

On March 27, the innovative drug sector surged across the board. Last year’s 10-bagger bull stock Sutai Shen (300204.SZ) hit the long-awaited “20CM” limit-up in the afternoon. In addition, MennoHua (603538.SH) achieved 11 consecutive limit-ups, while Shuanglu Pharmaceutical (002038.SZ), Lianhuan Pharmaceutical (600513.SH), Wanbangde (002082.SZ), Zhaoyan New Drugs (603127.SH), Xintai (002294.SZ), and other stocks also saw multiple limit-ups.

As for the news, from April 17 to 22, the American Association for Cancer Research (AACR) annual meeting will be held in San Diego. A total of 104 Chinese pharmaceutical companies will bring more than 250 innovative drug candidates to the event. Among them, 92 are ADC drugs, covering popular targets such as Claudin18.2, HER2, and Nectin-4; another 66 small-molecule drug candidates focus on cutting-edge targets such as KRAS and PRMT5. New technology platforms including nuclear medicine, DAC, cell therapy, and mRNA will also concentrate on disclosing preclinical data.

Since this year began, the BD business of innovative drugs has remained in a high-heat cycle. As of March 21, 2026, the total BD package value for China’s innovative drug outbound deals in 2026 has already reached 57.1 billion USD, with an upfront payment of 3.3 billion USD and a number of 53 deals. The package value is equivalent to 41% of the full year in 2025, already exceeding the level of the full year of 2024. The upfront payment is 3.3 billion USD, equivalent to 46% of the full year in 2025.

The number of innovative drugs in R&D in China is also ranked first globally. According to data from Guosheng Securities, as of December 31, 2025, there were 14,088 innovative drugs worldwide that are in active R&D status, and Chinese companies have 4,751 original drug candidates (accounting for 33.7%), exceeding the United States (4,019, 28.5%), ranking first. Since 2020, the number of innovative drugs newly entering clinical trials in China has grown rapidly. In 2025, 827 original innovative drugs entered clinical trials for the first time, accounting for 47.4% globally.

In addition, the confirmation of the profit inflection point brought by domestic leading companies delivering results beyond expectations, along with the continued positive trend in policy and industry fundamentals. On the industrial side, multiple favorable catalysts are converging, and the sector’s profit inflection point has been comprehensively confirmed.

On the one hand, the growth logic of leading enterprises continues to be validated. The 2025 annual report of Hengrui Medicine (01276.HK) shows that innovative drug revenue increased 26% year over year and its share has already approached nearly 60%. BD authorization revenue has contributed an incremental performance gain of more than 3 billion yuan, and it also clearly provides an acceleration guidance that innovative drug revenue growth will exceed 30% in 2026, indicating that its “innovative drugs + internationalization” dual-engine business model has successfully been proven and is operating well.

On the other hand, the industry is undergoing a qualitative change. In 2025, Nuocheng Jianhua (09969.HK), Yunding New Light (01952.HK), and Jingti Holdings (02228.HK) achieved net profits of 2.38 billion yuan, 1.71 billion yuan, and 0.64 billion yuan respectively, with all of them turning from loss to profit year over year—validating that the industry has officially moved from the stage of “burning money on R&D” to a new phase of “profit realization.”

Postal Securities stated that domestically developed innovative drugs are gradually catching up to, and even surpassing, Europe and the United States at the early R&D stage, and that in the medium term they will inevitably enter a harvest period. It continues to remain optimistic about investment opportunities in the sector. Morgan Stanley believes that internationalization of China’s innovative drugs is accelerating. Multinational pharmaceutical companies are stepping up their layout of local innovative assets, and the sector’s cash flow and valuation framework will continue to be reshaped. The sector is currently in a left-side allocation window.