China’s biotechnology stocks have shaken off a four-year slump to be among the hottest performers in Asia this year and funds are tipping further gains.
The Hang Seng Biotech Index has surged more than 60 per cent since the start of January amid investor enthusiasm over a pair of billion-dollar deals involving foreign firms licensing Chinese drugs. Share gains at two highly anticipated listings of local producers have further burnished the sector’s appeal.
“China biotech is no longer just an emerging story – unlike 10 years ago – it is now a disruptive force reshaping global drug innovation,” said Yiqi Liu, senior investment analyst at Exome Asset Management in New York. “The science is real, the economics are compelling, and the pipeline is starting to deliver.”
The surge in China-listed biotech firms is further evidence that the mainland is becoming a centre for global innovation. The rally in the sector this year outpaces the 17 per cent gain in China’s tech stocks that was driven by the release of DeepSeek’s breakthrough artificial-intelligence app in January.
A major reason for the share gains were two mega-sized licensing deals. Pfizer said on May 19 that it had agreed to pay a record US$1.25 billion to license an experimental cancer drug from China’s 3SBio, and also invest US$100 million in the firm’s shares. Two weeks later, Bristol-Myers Squibb said it would pay Germany’s BioNTech as much as US$11.5 billion to license a cancer drug that BioNTech had itself licensed from China’s Biotheus in 2023.
Some of the gains in biotech shares this year have been stratospheric. 3SBio has surged 283 per cent, topping a Bloomberg gauge of global biotech stocks. RemeGen, which develops antibody drugs, has climbed more than 270 per cent after saying it was approached by multinational pharmaceutical firms for potential licensing deals.
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China’s growing influence through pharmaceutical mergers and acquisitions and deal-making is also causing investors to take note. In the first quarter alone, the value of such deals involving local players doubled from the year before to US$36.9 billion. That amount made up more than half the global total of US$67.5 billion.
Chinese biotech companies are having “their own DeepSeek moment”, said Dong Chen, chief Asia strategist at Pictet Wealth Management in Hong Kong. There is more upside from here, he said.
Investor interest in biotech – which involves the use of living organisms to make medicines and other products – can be seen in the big runup at recent initial public offerings.
Shares of Duality Biotherapeutics, which develops cancer treatments, more than doubled on their first day of trading in Hong Kong on Apr 15. Jiangsu Hengrui Pharmaceuticals, the nation’s largest drugmaker by market value, saw its stock jump 25 per cent on its May 23 debut, even after being issued at the top end of the marketed range. Duality has now risen 189 per cent since its IPO, while Jiangsu has gained 31 per cent.
Still, some say the rally may be getting stretched.
“Bears, mostly healthcare specialists, plan to take profit at this point, and some investors prefer the healthcare laggers with capability of constant dividend payout and stable revenue growth,” Bank of America analysts including Ethan Cui in Hong Kong wrote in a research note this month.
Some investors also said they viewed the rush of recent licensing deals as a one-off, and they were refusing to grant valuation multiples to the companies, the analysts wrote.
Talent returns
While the recent ratcheting up of trade tensions between the US and China has been a negative for many mainland firms, it’s also resulted in talent flowing back to China and creating more research-and-development capability, according to Nicholas Chui, a Chinese equity fund manager at Franklin Templeton in Hong Kong.
Jefferies is also bullish, saying the increase in US tariffs is unlikely to prove an obstacle to Chinese biotech firms.
Many of the Chinese biotech companies already have US partners and are therefore considered as service providers rather than product exporters, said Cui Cui, head of Asia healthcare research at the company in New York. BLOOMBERG
