On March 16, the first global prescription for the domestically developed original drug, Libeiweita Monoclonal Antibody Injection, was issued. This drug is the world's first antibody-based therapy in the field of viral hepatitis, filling a gap in this area.

Analysis suggests that in recent years, with the rapid development of AI agents, modern biotechnology, and interdisciplinary integration, innovative drug technology routes are achieving breakthroughs at multiple points. China's innovative drug industry may be transitioning from "following innovation" to "pioneering innovation." Against this backdrop, how should we view the long-term investment value of innovative drugs?

**Industry Trend: Innovative Drugs Enter a New Cycle of Value Realization** At the beginning of the "16th Five-Year Plan" period, China's innovative drug industry is gradually shifting from "catching up" to "leading the way." Breakthroughs in R&D innovation and accelerated commercial realization are jointly opening up broad space for high-quality industrial development.

* **AI + Drug Development Enters the "Industrial Effectiveness Verification Period"** Currently, domestic AI in drug development is moving from "concept" to the "industrial effectiveness verification period." AI's penetration throughout the entire drug R&D process—including target discovery, molecule generation, and clinical trial design—continues to deepen, gradually becoming critical infrastructure for innovative drug R&D. Recent institutional research reports indicate that traditional drug R&D requires synthesizing and testing 3,000-5,000 compounds and takes 40-50 months to identify a pre-clinical candidate drug. In contrast, AI technology can reduce the number of molecules tested to fewer than 200 and shorten the R&D cycle to 12-18 months. Currently, industry financing and collaboration activity is rebounding, drug pipelines involving AI are accelerating into clinical trial stages, and leading domestic AI drug development companies are demonstrating strong platform capabilities and commercial potential.

* **Accelerated Translation of R&D Results, Release of Commercial Potential** Since 2026, the trend of domestically developed innovative drugs going global has continued. According to Pharmaceutical Intelligence statistics, as of March 6, 2026, the total deal value for outbound licensing (BD) transactions of Chinese innovative drugs reached $56.8 billion, with upfront payments totaling $3.3 billion. Compared to previous years, the total deal value in the first two months of this year has already surpassed the full-year total for 2024 and represents 41% of the full-year total for 2025; upfront payments have reached 46% of the 2025 full-year amount, indicating a clear acceleration in commercial realization.

**Policy Support Highlights Focus on "Independent Innovation" and "Policy Beneficiary" Themes** In this year's Government Work Report, biopharmaceuticals were included as an emerging pillar industry for the first time. Simultaneously, during the Two Sessions, numerous delegates proposed suggestions addressing industry bottlenecks, including strengthening basic research, removing barriers to hospital access for nationally negotiated drugs, establishing a multi-channel payment system for innovative drugs, and ensuring returns on corporate innovation. Analysis suggests that China's policy direction encouraging innovation remains steadfast. A large patient population and strong demand for precision medicine are the core logic for multinational companies to establish long-term roots in the Chinese market, and are also crucial support for the biopharmaceutical industry to navigate periods of industry adjustment. Institutions believe that, under the combined effect of upward industry trends and increased policy support, high-quality pharmaceutical assets with differentiated innovation capabilities and sustainable realization potential remain a key focus area at this stage. Specifically, attention can be focused on the two main directions of "independent innovation" and "policy beneficiary."

For investors with a long-term positive outlook on China's innovative drug sector, related ETF tools under Yinhua Fund can be considered: * Hong Kong Innovative Drug ETF (Code: 159567) and its feeder funds (Class A: 023929; Class C: 023930) * Innovative Drug ETF (Code: 159992) and its feeder funds (Class A: 012781; Class C: 012782)

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