Summary of CXO Industry Conference Call Industry Overview - The CXO industry is expected to recover in 2024 after rapid growth from 2020 to 2023, with leading companies seeing a resurgence in overseas orders, indicating a turning point in operations [1] - The Hong Kong stock market's activity and the reform of the Sci-Tech Innovation Board are providing new growth momentum for the CXO industry [1] Key Insights - **Overseas Biopharmaceutical Investment**: After two years of decline, overseas biopharmaceutical investment is stabilizing and expected to rebound in 2024, although growth slowed in the first half of the year [1][4] - **R&D Investment Growth**: Global pharmaceutical companies are increasing R&D investments, with the proportion of R&D spending to revenue reaching a ten-year high of 25.2%, totaling over $190 billion in 2024, a 73% increase from five years ago [4] - **Domestic Investment Trends**: Domestic biopharmaceutical investment has been declining, with a projected 21% decrease in 2024. However, a recovery is anticipated in the second half of the year due to increased activity in the Hong Kong market and reforms in the Sci-Tech Innovation Board [5] - **Emerging Trends**: The trend of innovative drugs going overseas is becoming clearer, with upfront payments becoming a significant funding source for innovative drug companies [2][6] Geopolitical Impact - Geopolitical factors are highlighting the importance of China's CXO industry in the global supply chain, with cost control needs driving overseas orders to China [1][8] - Chinese companies are actively expanding overseas production capacity to mitigate geopolitical risks [8] Market Dynamics - The penetration rate of global pharmaceutical R&D outsourcing is expected to reach 50% in 2024 and may exceed 60% in the future, driven by cost reduction and efficiency improvements [1][9] - The small molecule chemical drugs continue to dominate the market, with significant demand for drug research outsourcing [9] Company Performance - **CRO Industry**: The CRO industry is expected to stabilize by 2025, benefiting from a recovery in demand. WuXi AppTec reported a 37% year-on-year increase in orders, indicating a trend towards consolidation among leading companies [13] - **CDMO Sector**: The multi-peptide CDMO sector is experiencing high demand, with WuXi AppTec's multi-peptide business revenue growing by 112% year-on-year [16] - **ADC and CGMO Performance**: ADC's CGMO maintained high growth in the first half of 2025, with revenue exceeding expectations and a year-on-year increase of over 60% [11] Financial Metrics - Some companies are reporting positive growth in revenue and profits, with certain firms achieving year-on-year revenue growth of 14%, 118%, and 28.1% [10] - WuXi Biologics reported a 16% year-on-year revenue increase in the first half of 2025, exceeding previous guidance [12] Conclusion - The CXO industry is at a pivotal moment, with signs of recovery in overseas demand and domestic investment. The geopolitical landscape and ongoing reforms are likely to shape the future trajectory of the industry, presenting both opportunities and challenges for companies involved in this sector [1][2][8]

Core Viewpoint - The CXO industry in China is entering an adjustment phase due to a cooling in pharmaceutical market investments and the high base effect from COVID-related orders, with performance under pressure in 2023-2024 [1] Group 1: Industry Trends - The overseas market demand is expected to show signs of recovery starting at the end of 2023, leading to a rebound in overseas orders for leading domestic companies in 2024 [1] - Many innovative drug assets in China have entered late-stage clinical trials, with clinical data increasingly validated, indicating a clear trend towards internationalization [1] Group 2: Financial Opportunities - The confirmation of various upfront payments and potential milestone payments is becoming an important source of funding for domestic innovative pharmaceutical companies [1] - The active Hong Kong stock market in the first half of this year and the reopening of listing channels for unprofitable companies on the Sci-Tech Innovation Board are expected to further boost domestic demand [1]

Investment Rating - The report maintains an "Accumulate" rating for the Hong Kong innovative drug sector [1]. Core Insights - The current bull market for innovative drugs is driven by the potential for overseas business development (BD), marking a shift from domestic commercialization to international expansion, which is crucial for the industry's growth [6][15]. - The valuation of the Hong Kong innovative drug sector is at a historically low level, with the China Securities Hong Kong Innovative Drug Index's price-to-earnings (PE) ratio at 36.93, significantly lower than the industry average [16][21]. - The innovative drug industry in China has reached a turning point, with substantial improvements in both policy support and research capabilities, leading to increased global recognition of Chinese innovative drugs [6][54]. Summary by Sections 1. Hong Kong Innovative Drug Investment Value Analysis - The current bull market is characterized by a focus on overseas BD, with small-cap stocks showing significant gains [11]. - The Hong Kong innovative drug sector's PE ratio is at a historical low, enhancing its investment appeal [16]. - The sector's cost structure is aligning with that of A-share innovative drugs, and liquidity is improving, suggesting potential for higher valuations [25][28]. 2. Hong Kong Innovative Drug Industry Analysis - The innovative drug industry is entering a new phase, transitioning from generic to innovative drug development [46]. - Research capabilities have significantly improved, with a notable increase in the number of first-in-class (FIC) drugs being developed [51]. - The Chinese regulatory environment is increasingly aligning with international standards, enhancing the credibility of domestic clinical trials [54]. 3. Product Introduction: Hong Kong Innovative Drug ETF (513120) - The ETF closely tracks the China Securities Hong Kong Innovative Drug Index, which includes leading innovative drug companies [3]. - The ETF has shown superior performance compared to its peers, with a higher return rate and lower volatility [3][22]. - The ETF's top holdings are concentrated in leading pharmaceutical companies, providing a high degree of purity in its composition [3][24]. 4. Company Profiles - **BeiGene**: In a commercialization acceleration phase, with significant revenue growth and a robust pipeline [38]. - **Innovent Biologics**: Mature in commercialization, with a diverse product portfolio and strong global partnerships [39]. - **CSPC Pharmaceutical Group**: Transitioning from generics to innovative drugs, with several products expected to be approved soon [42]. - **Sihuan Pharmaceutical**: Deepening its innovative transformation, focusing on oncology and autoimmune diseases [45].

Core Insights - Chinese pharmaceutical companies are transitioning from "followers" to "leaders" in the global market, particularly focusing on Southeast Asia as a new growth area [1][3] - The recent secondary listing of Kangzhe Pharmaceutical on the Singapore Exchange marks a significant step in its internationalization strategy, aiming to leverage Southeast Asia's vast market potential [1][3][10] Market Expansion Strategies - Kangzhe Pharmaceutical is utilizing Singapore as a strategic hub to access the Southeast Asian pharmaceutical market, which has over 600 million people [3][10] - The company has established a comprehensive business ecosystem in Singapore, covering research, production, and sales, to enhance operational efficiency and market responsiveness [8][10][12] Challenges and Solutions - The company faces challenges such as fragmented regulations in emerging markets, varying payment capabilities, and differing healthcare needs across countries [5][6] - To address these challenges, Kangzhe Pharmaceutical has implemented localized registration strategies and established dedicated teams with extensive local experience [5][8] Product Focus and Innovation - Kangzhe Pharmaceutical is concentrating on specialized fields such as dermatology and ophthalmology, aiming to become a leader in niche markets rather than competing in saturated areas like oncology [13][14] - The company has a robust pipeline of approximately 40 innovative products, with a focus on high-quality, cost-effective solutions tailored to local market needs [14][17] Future Outlook - The company has invested over $100 million in the Southeast Asian and Middle Eastern markets over the past three years, indicating a strong commitment to expanding its footprint in these regions [10] - Kangzhe Pharmaceutical aims to leverage its established R&D capabilities and cost advantages from the Chinese market to enhance its product offerings in Southeast Asia [16][17]

Investment Rating - The report maintains a "Recommended" investment rating for the pharmaceutical industry [1] Core Views - The global GLP-1 market is expanding steadily, presenting strategic opportunities for Chinese companies [3] - Chinese pharmaceutical companies are increasingly recognized in global innovative drug transactions, contributing nearly 50% of total transaction value and over 30% of transaction volume [2] - The CXO industry is expected to gradually recover, with a notable increase in orders anticipated in Q3 [7] - The 2025 medical insurance negotiation and commercial insurance innovative drug directory work has commenced, with a focus on orphan drugs and breakthrough treatment varieties [8] Summary by Sections 1. Pharmaceutical Market Tracking - The pharmaceutical industry outperformed the CSI 300 index by 0.7% in the past week, with a weekly increase of 3.08% [22] - Over the past month, the pharmaceutical industry index increased by 11.07%, surpassing the CSI 300 index by 6.51% [25] 2. Pharmaceutical Sector Trends and Valuation - The current PE (TTM) for the pharmaceutical industry index is 39.94, above the 5-year historical average of 31.83 [44] 3. Recent Research Achievements - The report highlights various research achievements, including the deepening understanding of the GLP-1 drug market and its implications for innovative drug development [46] 4. Recent Industry Policies and News - The National Medical Insurance Administration has initiated the preliminary review of the 2025 medical insurance drug directory, with 121 drug names passing the initial review [8][49] - Significant clinical trial approvals and new drug applications have been reported, indicating active development in the pharmaceutical sector [49][50] 5. Stock Recommendations - The report recommends stocks in the weight loss field, CAR-T technology, and CXO companies, highlighting specific companies such as Zhongsheng Pharmaceutical and Anke Biotechnology [9]

Core Insights - China's innovative drug development is transitioning from imitation to independent innovation, with significant achievements in international markets [1][4] - The number of new drugs under research in China is projected to rank second globally by 2024, indicating a growing industry scale [1][3] Group 1: R&D and Market Growth - Over 110 domestic innovative drugs have been approved since the 14th Five-Year Plan, with a market size reaching 100 billion yuan [3] - The number of domestic innovative drugs in clinical trials has surpassed 50%, showcasing the rapid development of local pharmaceutical companies [1][2] Group 2: International Expansion - In 2024, Chinese pharmaceutical companies completed over 90 overseas licensing transactions, with a total transaction value exceeding 50 billion USD [5][7] - The trend of Chinese innovative drugs entering international markets is primarily through licensing agreements, with significant deals such as a 6 billion USD agreement between 3SBio and Pfizer [6][7] Group 3: Regulatory and Financial Support - The Chinese government has implemented policies to expedite the approval process for innovative drugs, reducing review times to 30 working days [9] - A new fund has been established to support private enterprises in the pharmaceutical sector, with investments totaling 10 billion yuan [10] - The National Healthcare Security Administration has introduced measures to support innovative drug development, encouraging long-term investments from commercial insurance [11]

Core Insights - China's innovative drug development is transitioning from imitation to independent innovation, with significant achievements in international markets [1][5][7] - The number of new drugs under research in China is projected to rank second globally by 2024, indicating a growing industry scale [3][6] - The domestic innovative drug market has seen over 110 new drugs approved since the 14th Five-Year Plan, with a market size reaching 100 billion yuan [6][12] R&D Advancements - Domestic innovative drugs now account for over half of the clinical trials at Beijing University Cancer Hospital, showcasing rapid development in this sector [1][3] - Multiple innovative drugs have been approved in the first half of this year, including treatments for rare diseases and other conditions, marking breakthroughs in previously unmet clinical needs [5][6] International Expansion - Chinese pharmaceutical companies are increasingly engaging in overseas licensing agreements, with over 90 transactions completed in 2024, totaling more than 50 billion USD [7][9] - Notable licensing deals include a 60 billion USD agreement between 3SBio and Pfizer, and a 125 billion USD deal between Hengrui Medicine and GlaxoSmithKline [9][10] Policy Support - The Chinese government is implementing policies to support the entire lifecycle of innovative drugs, including expedited approval processes and financial investments [11][14] - Recent measures include a 30-day approval timeline for innovative drugs and the establishment of funds to support research and development in the pharmaceutical sector [12][15] Market Dynamics - The innovative drug market is experiencing a surge in both quantity and quality, with a notable increase in the approval of new drugs that cater to both domestic and international patients [7][8] - The market is evolving to include a diverse range of biopharmaceuticals, including monoclonal antibodies and CAR-T cell therapies, reflecting a shift towards cutting-edge technologies [10][11]

Group 1 - The core viewpoint is that the Hong Kong stock market is currently undervalued globally, with a continuing upward trend expected, particularly in the areas of dividends, technology (internet), and innovative pharmaceuticals [1][2] - The Hong Kong stock market has shown clear signs of bottoming out since the beginning of 2024, with significant changes observed across fundamentals, technicals, liquidity, and policy dimensions [1] - Liquidity in the Hong Kong market is abundant, supported by both southbound capital and increased local liquidity, which is further enhanced by external US dollar liquidity, providing a catalyst for the market [1] Group 2 - Despite a recent rapid increase, there are no concerns regarding valuation bubbles in the Hong Kong stock market, which remains undervalued compared to global markets [2] - The company maintains a long-term positive outlook on dividend assets and internet technology, emphasizing the importance of core technology assets in the new technology cycle [2] - The Hong Kong market has become the second-largest biotech financing hub globally since the Hong Kong Stock Exchange allowed unprofitable and revenue-less biotech companies to list in 2018, indicating a strong focus on innovative pharmaceuticals [2]

Group 1 - The A-share market experienced a slight increase, while the Hong Kong Hang Seng Index fell by 1.29%, with the biotechnology sector showing strong performance [1] - Long-term expectations of global liquidity easing and potential interest rate cuts by the Federal Reserve are likely to reduce financing costs for innovative pharmaceutical companies, accelerating the advancement of R&D pipelines [1] - The integration of AI technology with biotechnology, such as AI drug screening and gene editing optimization, is reshaping industry R&D efficiency and opening up long-term growth opportunities [1] Group 2 - Domestic policies are accelerating the approval of innovative drugs and medical devices, along with deepening healthcare payment reforms, driving the industry towards high-quality innovation [1] - The aging population and consumption upgrades are driving rigid growth in medical demand, while the global industrial chain shift strengthens the logic of Chinese innovative drugs going abroad [1] - After experiencing valuation adjustments, biotechnology companies with technological innovation capabilities and internationalization potential present attractive investment opportunities, particularly in the Hang Seng Biotechnology ETF [1]

Core Insights - 2025 marks a significant year for Chinese innovative drugs, with over 120 business development (BD) transactions and a total transaction value exceeding $600 billion, reflecting the rapid growth and global recognition of China's innovative drug capabilities [1] - The Chinese government is actively supporting the global expansion of innovative drugs through favorable policies, including the recent measures aimed at promoting the development of innovative drugs in international markets [2][5] Group 1: Policy Support and Strategic Shifts - The National Healthcare Security Administration and the National Health Commission released measures to support the high-quality development of innovative drugs, emphasizing the goal of promoting their global market development [2] - Huajian Medical is transforming from a traditional medical testing service provider to a global digital trading platform operator for innovative drug assets, leveraging Web3 technology to reshape the capital circulation system in the pharmaceutical industry [5][6] Group 2: Innovative Trading Platform - Huajian Medical's platform, "ivd.xyz," aligns with government policies to facilitate global innovative drug transactions, utilizing Hong Kong's financial advantages to create efficient and secure cross-border trading channels [6][7] - The company is establishing the world's first "innovative drug intellectual property tokenization fund" in collaboration with BGI, allowing high-value medical assets to be converted into tradable digital certificates, thus broadening financing channels for innovative drug companies [7] Group 3: National and Public Benefits - The strategic initiatives of Huajian Medical support China's innovation-driven development strategy and enhance the country's position in the global pharmaceutical value chain, potentially increasing its influence in global health [9] - The export of innovative drugs is expected to improve domestic access to advanced medical technologies, enriching treatment options for patients and potentially leading to more innovative drugs being included in health insurance coverage [10]