ZhaoYin International: The expectation of increased tariffs on innovative drugs in the U.S. will have a limited impact on CXO. Recommend buying 3SBIO and others
Zhao Yin International released a research report, expecting that the U.S. tariffs on innovative drugs will have a limited impact on CXO, recommending to buy companies like 3SBIO. The report pointed out that Sino-U.S. innovative cooperation will continue, domestic demand for innovative drug research and development is recovering, and the MSCI China Healthcare Index outperformed the MSCI China Index. Although there are different voices in the U.S., the Sino-U.S. pharmaceutical industry chain is closely linked, and forced decoupling will harm the interests of both sides. Trump announced that starting from October 1, patented drugs will face a 100% tariff, but multinational pharmaceutical companies that already have plans to establish factories in the U.S. may not be affected
According to the Zhitong Finance APP, CMB International has released a research report stating that the expectation is for continued Sino-U.S. innovation cooperation, with a rebound in domestic innovation and R&D demand in China. The MSCI China Healthcare Index has risen 74.0% from the beginning of 2025 to date, outperforming the MSCI China Index by 37.3%. Due to the recovery of financing in the capital market and the increase in the scale of innovative drug transactions overseas, there has been a rebound in domestic innovative drug R&D demand. The bank noted that the bidding price for experimental monkeys required for innovative drug R&D has risen from about 85,000 yuan in mid-2024 to about 90,000 yuan. Coupled with the U.S. interest rate cuts, the CXO industry is expected to see performance recovery in the second half of the year.
The report indicates that there are differing voices in the U.S., but the expectation is for continued Sino-U.S. innovation cooperation. On September 10, The New York Times published an article titled "Trump Weighs Crackdown on Medicines From China," mentioning that the Trump administration currently has a proposed executive order draft that may cut off the introduction of experimental treatment drugs from China. However, this draft order has sparked intense lobbying activities from two opposing groups. The bank believes that the revenue and profit scale of large U.S. pharmaceutical companies far exceed that of U.S. biotech companies, thus they may have greater influence in lobbying. As seen in the final outcome of the Biosecure Act, the pharmaceutical supply chains of China and the U.S. are closely linked, and forced decoupling would harm the interests of both sides.
The bank believes that China's rich talent pool of engineers and scientists, along with efficient and cost-effective clinical trials and drug production capabilities, are the core competitive advantages of China's pharmaceutical innovation, and it is expected that China's drug innovation R&D and manufacturing capabilities will continue to empower global pharmaceutical companies. The U.S. is expected to impose tariffs on innovative drugs, but the impact on CXO is limited. Trump announced on September 25 that unless pharmaceutical companies are building factories in the U.S., starting October 1, patented drugs will face a 100% tariff. Since several multinational pharmaceutical companies already have plans to build factories in the U.S., they may not be affected.
Looking ahead, the bank believes that the continued upward momentum of innovative drugs will mainly come from overseas partners' clinical promotion of authorized pipelines. Additionally, it is optimistic about the valuation recovery opportunities in consumer healthcare. It recommends buying 3SBIO (01530), ZhiZhu Bio (02367), WuXi AppTec (02268), GuShengTang (02273), China Biologic Products (01177), and Innovent Biologics (01801)
