Goldman Sachs: China's innovative drugs are facing a structural revaluation, with overseas licensing as a key breakthrough path. A buying opportunity is expected this summer?

Compared to the "copying-oriented" image of a decade ago, Chinese pharmaceutical companies have now entered a new stage of "original innovation + overseas licensing."

According to the latest news from the Chase Trading Desk, Goldman Sachs earlier released a research report indicating that the core driving force behind the recent surge in the innovative drug sector is the wave of globalization of Chinese innovative drugs represented by "overseas licensing." In the first half of 2025, the Chinese biotechnology sector recorded a strong increase of 78%, significantly outperforming the Hang Seng Medical Index (+41%), MSCI China (+18%), and the U.S. biotech sector XBI (-6%).

Goldman Sachs believes that the Chinese biotechnology industry is undergoing a structural revaluation, and this round of significant increases is not a short-term rebound. As of now, the overall market capitalization of Chinese biotechnology companies is still only 14%-15% of their American counterparts, while their contribution to global innovation is approaching 33%. This means that the Chinese innovative drug sector is still in a "value gap" stage, and the global capital revaluation has just begun.

With the continuous increase in the share of Chinese pharmaceutical companies in the global innovative drug pipeline and their in-depth layout of cutting-edge technology models, the industry is expected to continue to release long-term value.

Chinese innovative drugs are being exported globally, but still trapped in a "value gap"

China's role in the global innovative drug system is accelerating its evolution from "local innovation" to "global output."

Goldman Sachs data shows that by the first half of 2025, China contributed 50% of the new drug molecules entering human clinical trials globally and has about one-third of the global innovative drug pipelines under research. A decade ago, this proportion was only in the single digits. Especially in new drug forms such as ADC (antibody-drug conjugates) and BsAb (bispecific antibodies), China has become one of the most important sources of innovation globally.

At the same time, the activity of Chinese pharmaceutical companies in global business development (BD) transactions has also significantly increased, accounting for 27% and 32% of the global transaction volume and value in the first half of 2025. The recent $1.25 billion upfront licensing deal between 3SBio and Pfizer has become a milestone event, also sparking capital market attention on the "global value revaluation" of Chinese pharmaceutical companies. In just the first half of 2025, the total value of overseas transactions by Chinese pharmaceutical companies reached $48 billion, accounting for 32% of the global drug licensing transaction "wallet share."

The report points out that as of now, the overall market capitalization of Chinese biotechnology companies is still only 14%-15% of their American counterparts, while their contribution to global innovation is approaching 33%. This means that the Chinese innovative drug sector is still in a "value gap" stage, and the global capital revaluation has just begun.

Goldman Sachs wrote in the report:

China has become an important source of global innovative drugs, especially in terms of contributions to cutting-edge technology models, which will prompt global pharmaceutical companies to incorporate Chinese assets as a necessary component of their external introduction strategies.

Chinese innovative drug pipeline: Dominated by oncology, with ADC/bispecific antibodies as differentiated advantages

In terms of technical models, Chinese pharmaceutical companies are forming a global advantage in the fields of ADC (antibody-drug conjugates) and BsAb (bispecific antibodies), with these two types of assets accounting for nearly one-third of outbound licensing transactions in the past year.

Goldman Sachs pointed out that since 2023, the number of ADCs developed in China entering clinical trials has accounted for 70% of the global total, becoming a backbone force in the globalization of this sector. The report stated:

The Chinese biotechnology industry has become an important contributor to emerging technological models such as ADCs/bispecific antibodies, and it is expected that the first wave of global Phase III data for ADC assets originating from China will be released starting in mid-2026.

From a therapeutic perspective, oncology remains the main focus of outbound licensing for innovative drugs from China, contributing over 60% of transactions in the past three years. With the increase in R&D of biologics for autoimmune diseases and metabolic diseases (especially GLP-1) by Chinese companies, the number of transactions in immunology and cardiovascular metabolism is also on the rise.

Is Summer a Low-Buy Window?

Considering that major conferences such as ASCO have concluded in the second quarter and clinical data is relatively scarce in the third quarter, Goldman Sachs believes that the "summer market" provides a window for long-term investors to accumulate high-quality innovative drug targets at low prices. The report stated:

Although Chinese biotechnology stocks have performed strongly this year, considering the changes in the risk-return ratio of the industry, we believe that the summer period may be an opportunity to accumulate high-quality biotechnology stocks, as relatively few data releases may cause stock prices to hover at current levels.

Investors have doubts about the sustainability of the recent significant rise in innovative drugs, but Goldman Sachs believes that a series of key catalysts will emerge in the next 6-12 months, including important clinical data releases and potential licensing transactions, which will provide new upward momentum for the sector.

To more scientifically assess the investment value of outbound licensing, Goldman Sachs has introduced the "PoLS" framework for the first time. This model evaluates the probability of successful licensing of innovative drugs based on three dimensions:

1. Product competitiveness and differentiation;

2. Maturity and international translatability of clinical data;

3. Potential transaction heat and depth of engagement with international pharmaceutical companies.

In the current market, Goldman Sachs believes that although the globalization value of leading pharmaceutical companies has been partially reflected in valuations, many medium-sized and even small companies have not been fully priced. Future valuation upside will mainly come from three aspects:

• The realization of substantial licensing transactions (PoLS increasing from 0-80% to 100%);

• Clinical data releases driving up success probabilities;

• New projects in the pipeline entering the global spotlight, initiating a second round of valuation reassessment