Market Overview - The market experienced a strong upward trend, with the Shanghai Composite Index stabilizing above 3500 points. Real estate stocks surged in the afternoon, with several stocks such as Huaxia Happiness and Deep Deep Housing A hitting the daily limit. Major financial stocks continued to perform well, with the four major banks reaching historical highs. The photovoltaic sector also saw a rebound, particularly in the organic silicon segment, with multiple stocks hitting the daily limit. Overall, over 2800 stocks in the Shanghai and Shenzhen markets rose, with a total transaction volume of 1.51 trillion yuan [1]. Real Estate Sector - The real estate sector saw significant gains, with stocks like Sifang New Materials and Yucheng Development hitting the daily limit. The National Development and Reform Commission emphasized increasing investment in new urbanization, which catalyzed the market. Additionally, around 20 cities, including Chongqing and Shenyang, have supported and optimized the "commercial to public" policy this year [4][5]. - According to the China Index Academy, to alleviate insufficient effective demand, some cities may further relax purchase and loan restrictions, while also accelerating the construction of affordable housing and optimizing land supply structures to promote a stable and healthy real estate market [5]. Pharmaceutical Sector - The pharmaceutical sector remained active, with stocks like Saily Medical and Lianhuan Pharmaceutical hitting the daily limit. Merck announced a $10 billion acquisition of Verona Pharma to enhance its COPD treatment product line. The National Healthcare Security Administration and the National Health Commission issued measures to support the high-quality development of innovative drugs, which include 16 initiatives to strengthen support for innovative drug research and development [6][7]. - The trend of Chinese innovative drugs going global is expected to enhance profitability and market space, leading to improved industry valuation levels. The adjustment plan for the national medical insurance directory and commercial insurance innovative drug directory is anticipated to be implemented in November [8]. Hydrogen Energy Sector - The hydrogen energy sector showed strong performance, with stocks like Huaguang Huaneng and Tianwo Technology hitting the daily limit. The emphasis on developing hydrogen energy as part of a new energy system was highlighted during a recent inspection by the General Secretary in Shanxi [9][10]. - The strategic position of hydrogen energy has been established, with local policies supporting its development. The renewable energy green hydrogen production capacity is expected to reach over 400,000 tons by 2025 in the Sanbei region. The construction of hydrogen pipelines is also entering a capital-intensive phase, with major state-owned enterprises as primary investors [10]. Other Notable Sectors - Other sectors such as consumer goods and finance showed localized activity, while military and digital currency high-priced stocks experienced declines [11]. - The market is also witnessing a focus on performance as the mid-year reporting period approaches, with expectations for continued improvement in the performance of innovative drugs and their supply chains [8].

Group 1 - The core viewpoint highlights the significant growth and performance of the Kexin Pharmaceutical ETF managed by Jiashi, with a notable increase in trading volume and fund size [2] - As of July 9, the Kexin Pharmaceutical ETF achieved a daily average trading volume of 34.95 million yuan over the past month, ranking first among comparable funds [2] - The fund's size increased by 16.76 million yuan in the past two weeks, also ranking first among comparable funds [2] - The ETF saw a total inflow of 12.84 million yuan over the last ten trading days, indicating strong investor interest [2] - The net value of the Kexin Pharmaceutical ETF rose by 36.83% over the past year, showcasing its strong performance [2] Group 2 - The top ten weighted stocks in the Shanghai Stock Exchange Science and Technology Innovation Board Biopharmaceutical Index account for 50.3% of the index, with leading companies including United Imaging Healthcare and BeiGene [2][4] - On July 9, Shanghai Pharmaceuticals announced an expected net profit of 4.45 billion yuan for the first half of 2025, representing a year-on-year increase of approximately 52% [4] Group 3 - Short-term market expectations for overseas transactions in innovative drugs are high, leading to a continuous rise in valuations [5] - China's innovative drug research and development capabilities are competitive globally, and the trend of innovative drugs going overseas is expected to persist [5] - The commercial health insurance sector in China is anticipated to see significant growth in premium income and payout rates, becoming an important source of funding for innovative drugs [5]

Core Insights - The Chinese innovative pharmaceutical industry has transitioned from imitation to breakthrough innovation over the past decade, facing a critical transformation point influenced by policy, capital cycles, and global competition [1][2][4]. Policy Influence - Policies serve as a guiding force for the innovative pharmaceutical industry, directly impacting resource allocation and value evolution [4]. - Comprehensive policy support across drug development, insurance payment, regulatory approval, and financial backing is essential for the breakthrough development of innovative drugs [4]. Capital Dynamics - The capital landscape is undergoing significant changes, with trends of "internal acceleration" and "BD transformation" emerging in the innovative pharmaceutical sector [4]. - Despite challenges, the innovative drug sector is experiencing a surge in patent procurement by multinational pharmaceutical companies, indicating the competitiveness of Chinese innovative drugs [5][6]. - The current valuation environment in the capital market is complex, necessitating a balanced approach to maintain core competitiveness while adapting to market realities [4][6]. Globalization Trends - The trend of internationalization is becoming a critical factor for the innovative pharmaceutical industry, with significant improvements in molecular design diversity and global clinical trial activities [6]. - The Chinese innovative drug market has become the second largest globally, reflecting enhanced recognition of Chinese pharmaceutical companies in international markets [6][7]. Industry Consensus - The industry is currently in a cyclical adjustment phase, requiring differentiated strategies to overcome homogenized competition and effectively advance drug pipelines [7]. - A consensus emerged during the closed-door meeting that emphasizes the need for policy guidance, capital support, and a global perspective to navigate cyclical fluctuations and achieve value creation [7].

Market Overview - On July 9, A-shares showed mixed performance with the Shanghai Composite Index down 0.13%, Shenzhen Component Index down 0.06%, and the ChiNext Index up 0.16%, indicating narrow fluctuations in the market [1] - The overall market saw only about 1,800 stocks rising [1] Sector Performance - In the sector performance, Media (1.35%), Agriculture, Forestry, Animal Husbandry and Fishery (0.65%), and Commercial Trade (0.48%) were the top gainers, while Non-ferrous Metals (-2.26%), Chemicals (-0.85%), and Electronics (-0.82%) faced the largest declines [8] Hong Kong Market - On the same day, major indices in the Hong Kong market collectively declined, with the Hang Seng China Enterprises Index down 0.52%, reflecting a cautious market sentiment and a strong wait-and-see atmosphere among investors [6] Hot Topics Hong Kong Pharmaceuticals - A leading innovative pharmaceutical company recently received approval for multiple clinical trials, showcasing China's growing competitiveness in innovative drug development [8] - A series of policies aimed at expediting review and approval processes, optimizing medical insurance access, and facilitating overseas entry are paving the way for Chinese innovative drugs to enter global markets [8] - According to Aijian Securities, the trend of Chinese innovative drugs going global is expected to gain recognition in the capital market, with significant potential for profitability and market expansion over the next 3-5 years [8] Banking Sector - The banking sector showed strength, with some state-owned banks reaching new highs during the day [9] - CITIC Securities noted that the banking sector is expected to continue its upward trend in the third quarter, supported by stable financial indicators and long-term capital inflows [9] - The profitability outlook for listed banks is stabilizing, with expectations of year-on-year growth in the first half of the year due to the effects of loan repricing and a stable bond market [9]

Group 1 - The MSCI China Healthcare Index has increased by 41.4% year-to-date, outperforming the MSCI China Index which rose by 25.2% [1] - The upcoming implementation of commercial insurance for innovative drugs is expected to have limited short-term impact but will open up long-term payment opportunities for innovative drugs [1] - The National Healthcare Security Administration has introduced measures to support the high-quality development of innovative drugs, emphasizing comprehensive policy support [1] Group 2 - The commercial health insurance premium income in China is projected to reach CNY 9.773 billion in 2024, reflecting an 8.2% year-on-year growth [2] - The low claims ratio of commercial health insurance, with claims amounting to CNY 3.848 billion in 2023, indicates potential for significant growth in both premium income and claims ratio under supportive policies [2] - The consumption medical sector presents valuation recovery opportunities, with key companies such as Giant Bio, Guoshengtang, and Times Angel being highlighted for their strong product performance and growth potential [3] Group 3 - Recommended stocks for investment include 3SBio (01530), Giant Bio (02367), Guoshengtang (02273), Times Angel (06699), BeiGene (ONC.US), and Innovent Biologics (01801) [4]

Core Viewpoint - Chinese innovative pharmaceuticals are accelerating their international expansion, with significant licensing deals and supportive policies facilitating this trend [2][6][7]. Group 1: Market Activity - In the first half of the year, the upfront payments for innovative drug licensing exceeded $2.5 billion, with total transaction amounts nearing $50 billion, almost matching the total for the previous year [2]. - A notable licensing agreement was signed between 3SBio and Pfizer, valued at up to $60.5 billion, involving the exclusive rights for the PD-1/VEGF bispecific antibody SSGJ-707 outside of mainland China [3]. - Rongchang Bio announced a licensing deal with Vor Biopharma Inc. with a total transaction value of $4.23 billion, including an upfront payment of $45 million [3]. Group 2: Policy Support - The rapid development of the innovative drug industry is supported by policy reforms, including expedited drug review processes and dynamic adjustments to the medical insurance catalog [6][7]. - In the first half of the year, 43 innovative drugs and 45 innovative medical devices were approved, representing year-on-year increases of 59% and 87%, respectively [6]. - Recent measures have been introduced to support the internationalization of innovative drugs, encouraging companies to explore markets in Southeast Asia and Central Asia [7]. Group 3: Industry Trends - The internationalization strategies of Chinese pharmaceutical companies are diversifying, with four main models identified: independent internationalization, licensing, NewCo model, and mergers and acquisitions [5]. - The collaboration landscape is broadening, with partnerships not only with traditional pharmaceutical companies but also with emerging biotech firms [4]. - Despite the progress, challenges remain, including weaknesses in basic research, target homogeneity, regulatory alignment, and commercialization capabilities [7].

Group 1 - The A-share market for monoclonal antibody concepts is active, with companies like Sai Sheng Pharmaceutical and Hainan Hai Pharmaceutical seeing gains of over 9% [1] - Other stocks such as Yiling Pharmaceutical, Zhongyuan Qihua, and Fudan Zhangjiang also experienced upward movement [1] - The collaboration between Hong Kong's cornerstone pharmaceutical company and European firm Gentili regarding Sugli monoclonal antibody is expected to boost the innovative drug market [1]

Investment Rating - The report maintains a "Recommended" investment rating for the pharmaceutical industry [1] Core Insights - The value of innovative drugs going overseas is continuously validated, with an upward trend in valuations expected to persist. The collaboration between Chinese biotech firms and multinational corporations (MNCs) is increasing, particularly in the area of PD-1 and VEGF dual antibodies [2][3] - The recent approval of Vuxin Qibai monoclonal antibody marks the beginning of a new era in biological treatment for gout, highlighting the significant market potential for gout treatments in China and globally [4] - The trend towards more effective and scientific weight loss solutions is emerging, with new clinical data and partnerships in the GLP-1 and other related drug classes [5] - The focus on autoimmune diseases is growing, with significant breakthroughs in drug development and international collaborations [7] Summary by Sections 1. Pharmaceutical Market Tracking - The pharmaceutical industry index increased by 3.64% in the week from June 28 to July 4, 2025, outperforming the CSI 300 index by 2.10 percentage points, ranking 4th among 31 primary industry indices [20] 2. Pharmaceutical Sector Trends and Valuation - The pharmaceutical industry index's current PE (TTM) is 35.12, above the historical five-year average of 32.30 [46] 3. Recent Research Achievements - The report highlights various recent research outputs from the Huaxin pharmaceutical team, including deep reports on the growth trends in blood products and inhalation preparations [52] 4. Recent Industry Policies and News - A recent policy from the National Healthcare Security Administration supports the high-quality development of innovative drugs, emphasizing increased support for R&D and clinical applications [54] - Notable news includes the approval of new drug applications and significant clinical trial advancements by various companies, indicating a vibrant pipeline in the pharmaceutical sector [55][56]

Summary of Conference Call on Innovative Drugs and Industry Chain Update Industry Overview - The innovative drug industry in China is accelerating its international expansion, driven by increased investment banking projects, recognition of data from AACR/ASCO conferences, and the engineer dividend. The second-generation immuno-oncology (IO) market has significant potential, expected to reach $200 billion, with China accounting for approximately 40% and leading in R&D progress [1][5][17]. Key Insights - **Profitability through "Borrowing a Boat to Go to Sea" Model**: Innovative drug companies are leveraging this model to achieve profitability, which includes upfront payments, milestone payments for R&D and commercialization, and sales sharing. This provides a clear valuation anchor and allows for DCF cash flow calculations [1][6]. - **PS Valuation Adjustment**: The PS (Price to Sales) valuation for innovative drugs should be adjusted to 5 times, compared to the current 3 times in Hong Kong stocks and 3.5-4 times in A-shares. This indicates a potential valuation recovery space of at least 50% [1][7]. - **CXO Industry Growth**: The CXO (Contract Research Organization) industry is experiencing an upward trend, with significant order growth in CDMO (Contract Development and Manufacturing Organization) companies, with new and existing orders increasing by over 15-20% [1][9]. - **R&D Investment Recovery**: Domestic R&D investment in innovative drugs is gradually recovering, with business development (BD) activities generating upfront payments, becoming a crucial funding source. The large molecule sector, including ADC (Antibody-Drug Conjugates) and bispecific antibodies, is particularly active [1][11]. Additional Important Points - **Supply and Demand Dynamics in Experimental Monkeys**: The supply of experimental monkeys is declining due to aging breeding stock, while demand is closely tied to the innovative drug R&D climate. This creates a widening supply-demand gap, benefiting companies with monkey breeding resources [15][16]. - **Second-Generation IO Market Trends**: The second-generation IO market is a clear trend, with significant sales potential. The PD-1/L2 product from Innovent Biologics is highlighted for its promising performance across various indications, with a projected peak sales of $7 billion [3][18]. - **Investment Opportunities in CXO Sector**: Companies like Zhaoyan, Tigermed, and others in the CXO sector are recommended for investment due to their positive performance and market conditions [1][9]. - **Emerging Companies and Products**: Companies such as Pfizer and Zai Lab are noted for their strategic positioning in the ADC space, with potential for significant valuation increases based on clinical trial outcomes [19][20][21][22]. Conclusion The innovative drug sector in China is poised for growth, with favorable market conditions, strategic international expansion, and a recovery in R&D investments. The second-generation IO market, in particular, presents substantial opportunities for investors, supported by strong clinical data and a favorable regulatory environment.

Core Viewpoint - The successful FDA approval of ZEGFROVY (舒沃替尼片) marks a significant milestone for the company as it becomes the first independently developed innovative drug from China to enter the global market, with expectations of reaching over 10 billion yuan in global sales peak [4][6]. Group 1: Product Approval and Market Potential - ZEGFROVY has received accelerated approval from the FDA for treating adult patients with locally advanced or metastatic non-small cell lung cancer (NSCLC) with EGFR exon 20 insertion mutations [4]. - The drug is expected to achieve a global market sales peak of approximately 12.954 billion yuan, with the U.S. market presenting a higher pricing potential compared to China [6]. - The incidence of EGFR exon 20 insertion mutations in NSCLC patients is estimated to be around 4.8% to 5.1% in China, while in the U.S., it ranges from 9% to 12% [5][6]. Group 2: Commercial Strategy and Market Expansion - The company aims to maximize its long-term interests and shareholder returns by actively evaluating various overseas market expansion models, with a focus on the U.S. and European markets due to their stronger payment capabilities [6][11]. - The domestic market remains crucial, but the overseas market is anticipated to become a second growth curve for the company [6][11]. - The company has a commercial team nearing 500 members to enhance market coverage for its products [6]. Group 3: Research and Development Pipeline - The company has a robust pipeline with seven products in international multi-center clinical stages, including ZEGFROVY and three other drugs [7][9]. - ZEGFROVY has shown a confirmed objective response rate (ORR) of 78.6% in treating EGFR exon 20 insertion NSCLC, with a median progression-free survival (mPFS) of 12.4 months [9]. - The company is also developing DZD6008, a selective EGFR TKI, which aims to address unmet clinical needs in NSCLC [9][10]. Group 4: Financial Performance and Funding - The company reported a net loss of approximately 850 million yuan in 2024, a 24% reduction year-on-year, and a net loss of about 190 million yuan in Q1 2025, a 14% decrease [14]. - The company successfully completed a nearly 1.8 billion yuan private placement to support its R&D projects, particularly for ZEGFROVY, Golixty (高瑞哲), and DZD8586 [14][15]. - The annual R&D investment from 2020 to 2024 has shown a consistent increase, indicating a commitment to sustaining product pipeline development [13].