Alpha Showcase 2026

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Alpha Showcase 2026

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Pharmaceuticals: Innovative Drugs Approaching the "Strike Zone" –
Focus on De-risking & Improved Visibility

Pharmaceuticals: Innovative Drugs Approaching the "Strike Zone" –
Focus on De-risking & Improved Visibility

Pharmaceuticals: Innovative Drugs Approaching the “Strike Zone” –
Focus on De-risking & Improved Visibility

By: Rabbit Fund

Thesis

Risk more predictable, valuations still near historical lows

Position

Long innovative pharma, ~20% NAV

Horizon

18+ months

Target

$525–565 (35–45% upside)

Focus

De-risked assets with global data / License-out + differentiated platforms

01 · Executive summary

The pharmaceutical sector has come under share price pressure since the second quarter. However, the core logic driving industry development has not weakened. On the contrary, it has continued to strengthen amid the adjustment. In the CXO segment, earnings visibility for 2026–2027 is high, and valuations currently offer highly attractive risk-reward. The recent implementation of the U.S. 126H list has had minimal actual impact, removing a near-term valuation overhang. In addition, more than 100 pharmaceutical companies have collectively announced share buybacks exceeding RMB 10 billion. This intensive buyback activity sends a clear signal from corporate capital that the sector has reached a bottom. Meanwhile, the continued recovery in global pharmaceutical financing is generating incremental order flow for domestic CXO companies.


In innovative drugs, fundamentals and share prices have diverged significantly, and the sector has gradually approached an attractive entry point (“the strike zone”). Over the past month, the U.S. S&P Biotechnology Index has shown sustained strength. The key catalysts have been accelerating M&A activity among multinational corporations (MNCs) facing patent cliffs, as well as signals from the FDA indicating a more flexible and expedited review process for innovative drugs. Chinese innovative drug companies delivered their strongest-ever performance at the ASCO Annual Meeting, with 94 oral presentations and 13 Late-Breaking Abstracts. This further validates their growing global competitiveness. Following the systematic revaluation of asset values in 2025, we believe that de-risking and improved visibility will be the main investment theme for innovative drugs in the second half of 2026.

Interview

02 · Investment Thesis

1. CXO Segment: Clear Earnings Visibility and Valuation Recovery The CXO sector enjoys high earnings visibility for 2026–2027, with current valuations at highly attractive levels. The implementation of the U.S. 126H list has had minimal impact on actual business operations, removing short-term valuation pressure. The continued recovery in global pharmaceutical financing is generating sufficient incremental orders for domestic CXO companies. 


2. Innovative Drugs: Fundamentals Continue to Improve, Valuations at Historical Lows, Gradually Approaching the Strike Zone

  • Positive signals from overseas markets: The U.S. S&P Biotechnology Index has remained strong, driven by accelerating M&A activity among MNCs (as they address patent cliffs) and more flexible review signals from the FDA. Both factors are supportive of clinical development for innovative drugs.

  • China’s global competitiveness continues to be validated: At this year’s ASCO Annual Meeting, Chinese innovative drugs achieved a record 94 oral presentations and 13 Late-Breaking Abstracts. Akeso’s ivonescimab (HARMONi-6) delivered a statistically significant overall survival benefit (OS HR = 0.66), while Baili Tianheng’s BL-B1D1 was selected as a Late-Breaking Abstract. Chinese companies’ capabilities in bispecific antibodies, ADCs, and small nucleic acid drugs continue to gain global recognition.

  • Outbound licensing (License-out) activity has accelerated significantly: Recent notable transactions include deals by Deqi Pharma (TCE platform, ~USD 960 million), Insilico Medicine (AI-driven drug discovery, ~USD 2.5 billion), Fanli Bio (autoimmune antibody, ~USD 985 million), and deep collaborations between Heyu Pharma and Haisco with Eli Lilly (with potential deal values of up to USD 1.9 billion and USD 2.97 billion, respectively). These transactions directly validate the global commercial value of Chinese technology platforms and their standardized R&D service capabilities.


3. Supportive Global Industry Environment Faced with patent cliff pressures, MNCs have been actively pursuing large-scale acquisitions. Notable examples include GSK’s acquisition of Nuvalent (~USD 10.6 billion), AbbVie’s acquisition of Apogee (~USD 10.9 billion), and Merck KGaA’s acquisition of Bio-Techne (~USD 11.3 billion). These deals underscore the scarcity value of innovative pipelines and the strong deployment appetite of global industry capital.

03 · Valuation & Catalysts

Valuation While fundamentals in China’s innovative drug sector continue to improve, valuations remain at historically low levels. This has created a significant disconnect between fundamentals and valuations, offering substantial re-rating potential.


Near-term Catalysts

  1. Implementation of the 126H list — Removal of short-term valuation pressure.

  2. Intensive share buybacks — More than 100 pharmaceutical companies have announced cumulative buybacks exceeding RMB 10 billion, sending a clear bottom signal.

  3. Major clinical data readouts — Positive overall survival results from Akeso’s HARMONi-6 study provide strong read-through to the global Phase 3 HARMONI-3 trial (PFS final analysis expected in the second half of the year). Kelun-Biotech’s sac-TMT also met the primary endpoint in the global Phase 3 TroFuse-5 study and is expected to file for FDA approval in the second half of the year.

  4. Major medical conferences in the second half of the year — ESMO, WCLC, and ASH are expected to deliver additional data readouts, further validating China’s innovation capabilities.

  5. Overseas commercialization progress — Several Chinese innovative drugs are advancing in global clinical development and are approaching the commercial stage.

04 · Risks & Mitigation

Regulatory risk is the most immediate concern. The U.S. antitrust cases targeting search and ad-tech could impact default search agreements, ad-tech asset boundaries, and data usage practices. Should outcomes include forced divestiture of browser assets, mandatory sale of ad exchange operations, or material impairment of default search contracts, we would need to reassess search traffic share and long-term margin assumptions.


AI search monetization remains unproven. AI-generated answers enhance user experience but may compress certain off-site click-through rates and ad load density. We are actively monitoring Search & Other revenue growth, commercial query coverage, CPC, CTR, TAC rates, and advertiser adoption of AI-powered tools. If query volume growth fails to translate into incremental commercial budget capture, the investment thesis requires downward revision.


Capital expenditure risk governs near-term valuation elasticity. AI compute supply remains constrained, and technology infrastructure investment flows into the P&L through depreciation, energy, and data center operating costs. Our boundary condition is as follows: if Cloud revenue growth decelerates, operating margins sustain compression, RPO conversion lags expectations, and free cash flow generation is persistently squeezed, the market will re-examine AI investment returns.


Competitive risk is equally present. OpenAI, Anthropic, Meta, Amazon, and Microsoft are all contesting foundation models, enterprise clients, and developer ecosystems. Alphabet's defensibility derives from its entry points, proprietary data, advertising budget relationships, Workspace permissions, BigQuery data layer, and TPU cost curve. If these assets cannot be converted into paid AI agents, enterprise seats, and cloud contracts, Alphabet's AI platform narrative will weaken.



05 · Position Sizing & Portfolio Fit

Allocation Logic The pharmaceutical sector is currently in a favorable zone where fundamentals are improving while valuations remain depressed, with a dense pipeline of catalysts (clinical data readouts, licensing transactions, and M&A activity). We recommend overweighting the pharmaceutical sector as a key allocation.

06 · Manager Skill Highlight

1. Professional Background: Combined Medical and Financial Expertise The Rabbit Fund pharmaceutical investment team is led by Hao Lai, Co-Chief Investment Officer and Head of Pharmaceutical Investment. He holds a master’s degree from Peking University Health Science Center and has over 10 years of experience in securities investment and research. The team has built deep expertise across biologics, innovative drugs, and precision medicine. In addition, Rabbit Fund adopts an “industry-specialist fund manager model”, with professionals specializing in multiple high-growth sectors (technology, healthcare, consumer, cyclical, and value). The research team comprises nearly 30 professionals covering most major industries in the A-share market, ensuring both depth and independence in research.


2. Forward-Looking Judgment: Accurately Identifying the Inflection Point in Innovative Drugs In 2025, Hao Lai was among the first to highlight that “the spring for innovative drugs has arrived.” In 2026, he further clarified that the sector remains in the early stage of a bull market, transitioning from broad re-rating to a more discerning phase focused on identifying truly differentiated innovation. This view has aligned closely with subsequent market performance. The firm increased its allocation to growth sectors, including pharmaceuticals, in 2025 and has positioned innovative drugs as a key strategic focus.


3. Four-Season Investment Framework: Precise Cycle Positioning and Strategy Adaptation Rabbit Fund has developed its proprietary “Spring, Summer, Autumn, Winter” allocation framework — representing the phases of sowing in spring, growth in summer, harvest in autumn, and preservation in winter. The framework emphasizes that “every flower has its own season,” and the same principle applies to individual industries, each following its own distinct cycle. Based on strong bottom signals such as corporate buybacks exceeding RMB 10 billion and the implementation of the 126H list, the team believes innovative drugs are in the early stages of a sustained long-term upcycle.


4. DCF Valuation Discipline and Focus on Globalization The team adheres to a rigorous DCF-based valuation approach, with a strong emphasis on maintaining a margin of safety. It focuses on the globalization (“going overseas”) of Chinese innovative drugs as the key driver capable of expanding the industry’s long-term growth ceiling.

Hao Lai is Co-Chief Investment Officer and Head of Pharmaceutical Investment at Rabbit Fund. He holds a Master’s degree from Peking University Health Science Center and has over 10 years of experience in securities investment and research. He leads the pharmaceutical investment team with deep expertise across biologics, innovative drugs, and precision medicine. In 2025, he was among the first to highlight the turning point for China’s innovative drug sector, and in 2026 he further refined the view that the sector is in the early stage of a sustained bull market focused on true innovation. The Rabbit Fund pharmaceutical investment team is led by Hao Lai, Co-Chief Investment Officer and Head of Pharmaceutical Investment. He holds a master’s degree from Peking University Health Science Center and has over 10 years of experience in securities investment and research. The team has built deep expertise across biologics, innovative drugs, and precision medicine. In addition, Rabbit Fund adopts an “industry-specialist fund manager model”, with professionals specializing in multiple high-growth sectors (technology, healthcare, consumer, cyclical, and value). The research team comprises nearly 30 professionals covering most major industries in the A-share market, ensuring both depth and independence in research.


2. Forward-Looking Judgment: Accurately Identifying the Inflection Point in Innovative Drugs In 2025, Hao Lai was among the first to highlight that “the spring for innovative drugs has arrived.” In 2026, he further clarified that the sector remains in the early stage of a bull market, transitioning from broad re-rating to a more discerning phase focused on identifying truly differentiated innovation. This view has aligned closely with subsequent market performance. The firm increased its allocation to growth sectors, including pharmaceuticals, in 2025 and has positioned innovative drugs as a key strategic focus.


3. Four-Season Investment Framework: Precise Cycle Positioning and Strategy Adaptation Rabbit Fund has developed its proprietary “Spring, Summer, Autumn, Winter” allocation framework — representing the phases of sowing in spring, growth in summer, harvest in autumn, and preservation in winter. The framework emphasizes that “every flower has its own season,” and the same principle applies to individual industries, each following its own distinct cycle. Based on strong bottom signals such as corporate buybacks exceeding RMB 10 billion and the implementation of the 126H list, the team believes innovative drugs are in the early stages of a sustained long-term upcycle.


4. DCF Valuation Discipline and Focus on Globalization The team adheres to a rigorous DCF-based valuation approach, with a strong emphasis on maintaining a margin of safety. It focuses on the globalization (“going overseas”) of Chinese innovative drugs as the key driver capable of expanding the industry’s long-term growth ceiling.

Optional exhibit

GOOGL US Equity price and volume chart from supplied factsheet

May Social Retail Sales Update: Chinese and Western Medicines +4%, Sustaining Steady Recovery

GOOGL US Equity price and volume chart from supplied factsheet

A-share pharmaceutical listed companies have carried out intensive share buybacks.

Conflicts Disclosure

The information and data contained in this report are sourced from publicly available information. Zhong Ou Rabbit Fund makes no representation or warranty regarding their authenticity, accuracy, completeness or adequacy. Under no circumstances shall the information or opinions expressed in this report constitute investment advice or be regarded as a legal document. Zhong Ou Rabbit Fund accepts no responsibility or liability for any losses incurred by any person arising from the use of this report or any of its contents.

About Rabbit Fund & hao lai

About Rabbit Fund & hao lai

Rabbit Fund is a China-focused equity long-only asset manager founded in 2007, with over 19 years of track record. The firm is known for its deep fundamental research, industry-specialized fund manager system, and long-term investment philosophy of “growing together with great companies.” As of March 2026, it manages over RMB 20 billion with a 10-year annualized return of 14.48%, significantly outperforming major benchmarks. 

Hao Lai is Co-Chief Investment Officer and Head of Pharmaceutical Investment at Rabbit Fund. He holds a Master’s degree from Peking University Health Science Center and has over 10 years of experience in securities investment and research. He leads the pharmaceutical investment team with deep expertise across biologics, innovative drugs, and precision medicine. In 2025, he was among the first to highlight the turning point for China’s innovative drug sector, and in 2026 he further refined the view that the sector is in the early stage of a sustained bull market focused on true innovation.

COPFA Alpha Showcase 2026

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