On June 30, the Hang Seng Stock Connect Hong Kong Innovative Drug Index announced a revision to its compilation methodology, explicitly excluding CXO companies (Contract X Organization, pharmaceutical contract outsourcing service providers), making it one of the first indices to clearly exclude CXOs and focus solely on innovative drugs. CXO companies primarily provide R&D, production, and commercialization outsourcing services to pharmaceutical and biotech firms. They do not directly acquire core intellectual property rights for innovative drugs, generally do not bear the risks of new drug development, and do not participate in the patent licensing revenue generated from the successful R&D and commercialization of innovative drugs.

Due to the significant differences in business models and value distribution within the industry chain between CXOs and innovative drug companies, the exclusion of CXOs from the Hang Seng Stock Connect Hong Kong Innovative Drug Index allows for a purer focus on core innovative drug companies. It is now the first innovative drug index tracked by ETFs with a "purity" of 100%, effectively reflecting the current development trends in the innovative drug industry.

Currently, the Hang Seng Innovative Drug ETF (159316, Link A/C: 024328/024329) is the only product in the market tracking the Hang Seng Stock Connect Hong Kong Innovative Drug Index, helping investors conveniently invest in cutting-edge innovative drug companies in Hong Kong stocks.

According to the new compilation methodology, five CXO companies will be excluded from the index. After the revision, all constituent stocks will be innovative drug companies, making the Hang Seng Stock Connect Hong Kong Innovative Drug Index the first among ETF-tracked indices to achieve 100% "purity."

The five excluded CXO stocks originally accounted for about 20% of the index's weight, and their year-to-date performance has been weaker than the overall index. The revised constituents will focus more on innovative drug companies whose primary business model revolves around external patent licensing, thus better reflecting the current development trends in the innovative drug industry.

Backtesting based on the revised index constituents (excluding CXOs) shows improved performance since the index's launch in 2023, as well as in 2024 and year-to-date 2025, with an annualized return exceeding 30% and a higher Sharpe ratio.