The biotech sector in Hong Kong lit the fuse for a bull run in May 2025. A year later, business development (BD) deals are setting monthly records, yet the sector's performance has been crawling along the ground. The juxtaposition of these two facts is puzzling enough. Even more perplexing is the market's common refrain—"the leaders have fallen back to where the bull market started"—which doesn't hold up under a simple check of market capitalizations. So, if this past year wasn't a broad decline, what actually happened?

Initial Steps

The notion of a broad decline is an illusion; revaluation and consolidation are happening simultaneously. Let's examine the data. Comparing the period around "now" (near June 17, 2026) with "late April 2025" (using April 30 as a proxy for pre-bull market, as Hong Kong markets were closed on May 1, 2025), the figures are in billions of Hong Kong dollars. The data reveals a clear story: the Hong Kong biotech sector has not moved on a uniform trajectory this past year.

The combined market cap for 20 representative companies rose from approximately HKD 116.5 billion to about HKD 131.5 billion, an increase of 12.9%. This average, however, masks a significant internal divergence. Core assets like Innovent Biologics (+38.3%), RemeGen Co., Ltd. (+79.8%), Shanghai Henlius Biotech (+53.7%), 3SBio Inc. (+37.8%), Kelun-Biotech (+27.8%), and Hansoh Pharmaceutical (+23.6%) have undergone substantial revaluation.

On the other hand, companies such as Zai Lab Limited (-43.0%), Everest Medicines (-46.6%), and Ascentage Pharma (-32.6%) have given back almost all their bull market gains. AKESO Inc. (-1.9%) has essentially returned to its starting point. Can we say the fundamentals of these underperformers have deteriorated? Zai Lab has found a new narrative with its zoci asset becoming a benchmark in global SCLC ADC therapy, transitioning from a Chinese biopharma to a global player. Everest has been active in BD deals, building a platform to become a leading Asian biopharma by 2030, with its chronic disease portfolio bearing fruit. Ascentage's Bcl-2 inhibitor is also making significant progress.

Thus, the "return to the starting point" is real, but it applies only to a subset of companies—specifically, those reliant on a single asset or a narrative-driven story. The more pertinent question is: if core assets are being revalued, why has the sector underperformed the broader market by nearly 7 percentage points year-to-date?

The downward pressure on prices comes from external factors unrelated to fundamentals. The macro environment is the most significant headwind. May's US CPI came in at 4.2% year-on-year, a three-year high, with core CPI at 2.9%, driven by oil price shocks. While the Fed held rates steady at 3.50%–3.75% on June 16-17, market bets now favor a rate hike this year over a cut. For long-duration assets like biotech stocks, where cash flows are far in the future, the prospect of "higher for longer" rates, or even renewed hikes, is a direct weight on valuations.

Policy noise adds to the pressure. On June 2, the US House introduced the BINSA Act (H.R.9102), aiming to include biotechnology within the COINS foreign investment review framework. This would subject licensing, joint ventures, and equity transactions between US pharmaceutical companies and Chinese "entities of concern" to dual review by the Treasury and Defense Departments. It's important to note this proposal is currently with the House Financial Services Committee, involves review (not prohibition), and the current version is not retroactive. Its impact is on incremental expectations and market sentiment. The mistaken inclusion of WuXi AppTec on the Defense Department's 1260H "Chinese military company" list on June 8 further fueled decoupling narratives.

Ironically, the very things these policies target—global partnerships and out-licensing—are among the strongest validations of Chinese biotech's value. The numbers speak for themselves. According to data, the total value of China's innovative drug license-out deals in 2025 reached $135.655 billion, with upfront payments totaling $7 billion across 157 transactions, accounting for roughly 49% of global licensing value. This figure surpassed the US for the first time and was 2.5 times the 2024 total. The momentum accelerated in 2026: Q1 BD deal value hit approximately $61.4 billion, up 66.4% year-on-year, with 98 deals signed—nearly half of the full-year 2025 total in just one quarter.

Examining the structure of large deals is crucial, as aggregate "total value" figures can be misleading. Three landmark deals in 2026 illustrate the point: CSPC Pharmaceutical Group's licensing of its GLP-1/GIP pipeline to AstraZeneca for a $1.2 billion upfront and a potential total of ~$18.5 billion; the two-way collaboration between Jiangsu Hengrui Pharmaceuticals and Bristol Myers Squibb, with a $600 million upfront, up to $950 million in near-term cash, and a potential total of $15.2 billion, setting a new record for a single Chinese BD deal; and Innovent Biologics' licensing of 12 early-stage oncology programs to Pfizer for a $650 million upfront, up to $9.85 billion in milestones, and a total potential value of $10.5 billion.

Clinical progress has kept pace. At the 2026 ASCO meeting, overall survival data for ivonescimab's HARMONi-6 trial was featured in the Plenary Session, while Kelun-Biotech's sac-TMT and Baili Biopharmaceuticals' DLL3 ADC secured oral presentations. On the financial front, Innovent Biologics achieved its first full-year profit in 2025 (IFRS net profit of RMB 814 million), and Hengrui's innovative drug revenue grew 26% year-on-year to RMB 16.3 billion.

The transition from cash-burning story stocks to profit-generating businesses is a development the market only dared to hope for, but couldn't confirm, when the bull market began in May 2025. The fact that the sector continues to trend lower despite a surge in BD deals indicates a fundamental shift in market pricing logic: the era when a single major deal could lift the entire sector is over.

Why Limit to 10 ASX 200 Shares?

Share buybacks represent a vote of confidence from industry capital, but they cannot single-handedly establish a market bottom. With prices languishing, industry players are putting real money on the line. Aggregating buybacks in Hong Kong-listed biotech stocks since May 1 reveals the scale is genuine. However, a crucial detail must be noted: most of these Hong Kong buybacks are held as treasury shares, not canceled. This does little to boost earnings per share and carries weaker signaling power.

Can buybacks create a bottom? A recent comparable sector-wide buyback wave provides the answer. From late 2023 to early 2024, the CXO sector was hammered by a triple whammy: WuXi Biologics guidance cut, draft US Biosecure Act concerns, and Fed rate hikes. Leading companies launched buyback plans to stem the bleeding. This history is worth revisiting frame by frame, as the parallels to today are striking.

Analysis shows that after WuXi AppTec completed its first HKD 1 billion buyback in early 2024, its stock surged 8.34% the next day and gained 18.60% over the following month, only to give back all those gains within three months. The sector's genuine collective rebound occurred in late September 2024, a full seven to nine months after the buyback wave began. That rebound was ignited by a confluence of factors: the Fed's 50-basis-point rate cut in September, confirmation of an industry order recovery, and valuations falling below the 5th percentile historically. The role of buybacks was more akin to cooling panic sentiment.

It's noteworthy that the 2024 CXO buybacks involved share cancellations—a stronger form that can boost EPS. Even that failed to establish a definitive bottom. So, why should today's weaker treasury share buybacks be considered a bottom signal?

Simply waiting "seven to nine months for a rebound" based on past patterns would be a mistake, as there are three key differences this time, one of which is critical. The critical difference is the macro backdrop. The starting pistol for the 2024 rebound was the Fed pivoting to rate cuts. In 2026, the market is betting on the Fed's next move being a hike. The tailwind that came to the rescue last time is now a headwind.

The second difference lies in the state of fundamentals. During the 2024 CXO buybacks, the leading indicator (orders) had not yet materialized, forcing the market to wait. In 2026, the leading indicators for biotech—BD deals, clinical data, and commercialization financials—are already being delivered. The leg that needed support last time is already standing firm this time.

Therefore, the true inflection point signals for this cycle were never about the size of buybacks. They lie in the 2026 equivalents of the two rescue variables from 2024: when macro headwinds ease (oil prices and CPI fall, rate hike expectations cool), and how policy risks (BINSA, 1260H) evolve. Once these pressures show signs of abating, combined with the already-solid fundamentals, the rebound's force could be even stronger than in 2024. Buybacks can buy time, but they cannot buy an inflection point. That requires the return of a positive narrative.

Key Considerations for Investors

The market has already priced in the process of consolidation. It doesn't require an official announcement; the price action is executing it. Some companies, propped up by narratives, have seen those stories unravel as BD deals failed to materialize or clinical data readouts disappointed. Historically, the "return rate" for China's license-out deals is around 40%. Stories must eventually be validated or face consolidation.

On the other side are three models demonstrating resilience across cycles. The first is independent global development, exemplified by Baili Biopharmaceuticals. It's crucial to distinguish its assets: the bispecific ADC sold to BMS for $8.4 billion is BL-B01D1 (iza-bren, EGFR×HER3). The asset for independent global development is BL-M14D1, a DLL3 ADC. On June 5, Baili's US subsidiary, SystImmune, independently initiated the first global Phase III trial for BL-M14D1, evaluating it in combination with atezolizumab for first-line extensive-stage small cell lung cancer, making it the world's second DLL3 ADC to enter Phase III. The key is "independent operation"—this is Baili's first self-managed global Phase III registration study.

The data is compelling. In a 2026 ASCO oral presentation, BL-M14D1 showed a confirmed objective response rate of 61.8%, an ORR of 73.5%, and a median progression-free survival of 7.1 months in second-line SCLC, with a low discontinuation rate of 2.4%. The DLL3 target, which once led to the failure of Roche's Rova-T, is being reignited, this time by a Chinese company.

The second model combines clinical data validation with long-term, certain cash flows from multinational partners, as seen with Kelun-Biotech. Its sac-TMT (lucansatuzumab, SKB264/MK-2870) follows a different path. The OptiTROP-Lung05 study—combining the drug with pembrolizumab for first-line PD-L1 positive non-small cell lung cancer—was presented as an oral report at 2026 ASCO and simultaneously published in The Lancet. This is a registration study primarily in a Chinese population; its presentation at a top international conference and publication carries significant weight. Coupled with the May 21 announcement that the OptiTROP-Breast03 trial met its PFS endpoint with a positive OS trend, and Merck's global registration efforts for MK-2870, Kelun-Biotech is propelling "Chinese data" into the mainstream of global drug development.

The third model involves deep strategic partnerships with overseas collaborators, illustrated by InnoCare Pharma. It is positioning itself as a first-mover in next-generation oncology combination therapies. Its B7-H3 ADC (DB-1311/BNT324) is being combined with BioNTech's BNT327—a PD-L1/VEGF bispecific antibody. InnoCare and BioNTech have four global combination trials scheduled to read out data densely in Q2, Q3, and Q4 of 2026. DB-1311's most advanced registration pathway is for castration-resistant prostate cancer, with expansion into larger indications like NSCLC planned through the combination strategy.

It must be said that InnoCare's market cap has declined 12.4% over the past year, and it is a relatively new listing. It occupies a different position from Innovent and Kelun-Biotech, which have already been revalued: InnoCare is betting on whether its upcoming combination therapy data will deliver; it's a card yet to be flipped.

Connecting these three companies reveals a common profile: they have BD-derived cash flow as a foundation, overseas partners driving development forward, and are advancing assets into global Phase III trials. Possessing all three attributes is what configuration capital is willing to pay a premium for today. Those missing even one are likely to remain on the side facing consolidation.

Final Remarks

Two years ago, the narrative was how the CXO sector progressed from "using real money to support prices" to "bottoming and rebounding." A year later, the biotech sector finds itself at the beginning of a similar script: policy threats, rate hike headwinds, and buyback support align almost perfectly. There is only one major difference. The Federal Reserve, which pulled the trigger for the CXO rebound last time, is now positioned on the opposite side of the field.