Industry Rating - The report rates the pharmaceutical industry as "Leading" [1] Core Insights - The adjustment of medical insurance and commercial insurance directories is accelerating, suggesting a favorable environment for undervalued quality stocks during market corrections [4][5] - The report emphasizes the importance of timing and stock selection in the current market, particularly after a broad rally in innovative drug stocks [4] - The upcoming ESMO conference in October is highlighted as a key event, with specific companies recommended for attention due to potential significant data releases [4] Summary by Sections Market Performance - The Hang Seng Index fell by 1.1% and the Hang Seng Healthcare Index decreased by 1.4% during the week of September 16-23, 2025, ranking 5th among 12 industry indices [4][6] - Sub-industry performance varied, with Internet medicine showing a slight increase of 0.9%, while sectors like medical devices and hospitals saw declines of 5.2% and 8.2%, respectively [4][6] Valuation Overview - The report provides a detailed valuation summary for various companies, with notable price-to-earnings (P/E) ratios for the pharmaceutical sector, such as 31.0x for prescription drugs and 14.1x for biopharmaceuticals [15] - The average P/E ratio across the sector is reported at 57.0, indicating a diverse valuation landscape [3] Institutional Holdings - As of September 23, 2025, domestic institutional holdings through Hong Kong Stock Connect remained stable at 22.2%, while foreign holdings slightly decreased to 38.7% [34][38] - The report notes a trend of increased foreign investment in innovative drug companies, with specific companies like InnoCare and Legend Biotech seeing significant increases in holdings [38][40] Regulatory Developments - The report discusses the recent adjustments to the national basic medical insurance directory and commercial insurance innovative drug directory, with a low approval rate for submitted drugs [5] - The 11th batch of national drug procurement has been announced, with new rules aimed at stabilizing clinical practices and ensuring quality [5]

Core Viewpoint - The CXO sector is experiencing increased attention due to the recognition of the value of innovative drugs, with CDMO showing strong global demand and domestic leading companies seeing significant order growth driven by commercialization projects [1] Group 1: CDMO Sector - CDMO has confirmed high global demand, with leading domestic companies experiencing a substantial increase in new orders [1] - Some leading companies have already seen improvement trends in orders for 2024 [1] - As projects are delivered, CDMO companies are expected to continue their performance recovery into 2025 [1] Group 2: CRO Sector - The preclinical and clinical CROs primarily focus on domestic business, which has faced temporary pressure from both domestic and international demand [1] - Looking ahead, the CRO sector is anticipated to recover, with some companies showing signs of order inflection in Q2 2025 [1] Group 3: Market Influences - The Federal Reserve's announcement of the first interest rate cut in 2023 on September 17 is expected to lower financing costs for biotech companies, encouraging increased R&D investment and driving new drug development pipelines [1] - This environment is likely to bring more orders to CXO companies that possess strong global competitiveness and order acquisition capabilities [1] Group 4: Investment Opportunities - The Hong Kong Stock Connect Medical ETF (520510) focuses on CXO and AI medical concepts, with holdings in companies like WuXi Biologics, WuXi AppTec, and JD Health, which are expected to benefit from the monetization of CXO commercial orders and the AI technology revolution [1]

Core Viewpoint - The Chinese innovative drug industry is gradually catching up with Europe and the United States in terms of technology, with some targets and technical pathways already leading globally. The number and value of new drugs authorized for overseas markets continue to increase, leading to world-class pricing and non-linear investment elasticity. The domestic market is experiencing strong demand, resulting in sustained high growth in sales of domestic new drugs, with several innovative pharmaceutical companies turning losses into profits and entering a stable growth phase [2]. Pharmaceutical Industry Overview - Innovative Drugs: The industry is witnessing a significant increase in the sales of domestic new drugs driven by strong demand, with several companies achieving profitability [2]. - Medical Devices: The high-value consumables sector is seeing mild price reductions, with ongoing domestic substitution and accelerated overseas business progress. The collection and procurement in neurosurgery and neurointervention fields are stabilizing, and new products are expected to drive growth [2]. - Blood Products: The market share is increasingly concentrated among state-owned enterprises, leading to a clearer competitive landscape. Demand is expected to upgrade towards new products, enhancing industry prosperity [3]. - API (Active Pharmaceutical Ingredients): The end of the capital expenditure peak, combined with three growth drivers, indicates a clear upward turning point for the industry, with leading companies expected to see significant revenue and profit growth [3]. - CXO (Contract Research Organization): The CDMO sector is stabilizing in core business profitability while emerging fields like peptides and ADCs are rapidly growing, enhancing corporate profitability [3]. - Traditional Chinese Medicine and Retail: The hospital sector is recovering, while the retail sector is expected to gradually improve in performance as inventory is digested [3]. Research and Development Trends - The domestic innovative drug business development (BD) is heating up, likely boosting downstream demand recovery. Domestic companies are improving their technology, products, and services, establishing brand effects, and benefiting from the ongoing tariff war with the U.S. [4]. - The research service sector is expected to see improved financial indicators for leading companies due to supply-demand improvements and an upward cycle [4]. Investment Strategy and Market Dynamics - The pharmaceutical industry has published a total of 260 research reports since October 1 of last year, indicating a robust analytical framework and ongoing market engagement [5]. - The medical device sector is expected to see a recovery in performance in the second half of 2025, with ongoing upgrades in product offerings and expansion into overseas markets [2][3]. Summary of Reports and Meetings - The company has conducted numerous offline strategy meetings and expert discussions, indicating active engagement with industry stakeholders and investors [15].

Core Viewpoint - Haijia Medical (6078.HK) experienced a significant increase in stock price, rising by 11.92% to HKD 15.4, recovering losses from earlier in the month, with a market capitalization of HKD 9.5 billion [1] Company Summary - The founder, controlling shareholder, and CEO, Zhu Yiwen, purchased 1.6648 million shares at an average price of HKD 13.8284 on September 18, investing approximately HKD 23.0215 million. His ownership stake increased from 46.01% to 46.28% [1] - Zhu Yiwen has never sold any shares since the company's listing and has made 22 purchases in the secondary market, indicating strong confidence in the company's long-term development [1] Industry Summary - According to Zhongtai International, leading companies in the innovative drug sector are expected to show strong performance in the first half of 2025, with increasing orders for leading CXO companies. The demand for innovative drugs in oncology, metabolism, and autoimmune fields is anticipated to grow steadily [1] - The introduction of commercial insurance innovative drug catalogs is expected to benefit the sales of high-priced innovative drugs, and the rising demand for innovative drug research and development will improve the operating environment for leading CXO companies [1]

Group 1 - The pharmaceutical sector experienced fluctuations and a pullback on September 19, with the Tianhong Innovation Drug ETF (517380) dropping by 2.39% and trading volume exceeding 540 million yuan [1] - The Tianhong Innovation Drug ETF has seen a net inflow of 270 million yuan over the past nine trading days, indicating strong investor interest [1] - The Tianhong Innovation Drug ETF is the largest in the market, covering both A-shares and Hong Kong stocks, and tracks the Hang Seng-Hushen-Hong Kong Innovation Drug Selected 50 Index [1] Group 2 - The Biopharmaceutical ETF (159859) closely tracks the Biopharmaceutical Index, which includes the top 30 stocks in the biopharmaceutical sector based on market capitalization and liquidity [2] - The Hong Kong market has become a significant financing hub for biopharmaceutical companies, with 13 mainland biotech firms successfully listing in Hong Kong since 2025, surpassing the total for the previous year [2] - According to Jiyin International, the importance of stock selection has increased following a prior surge in the innovation drug sector, suggesting gradual positioning during market pullbacks [2]

Market Overview - On September 15, the Hong Kong stock market experienced narrow fluctuations, with the Hang Seng Index rising by 58 points or 0.2% to close at 26,446 points. The Hang Seng Tech Index increased by 0.9% to 6,043 points. The market turnover decreased to over HKD 290.2 billion, with a net inflow of HKD 14.47 billion from the Stock Connect, continuing to support the market [1] - Economic data from China in August indicated a slowdown in growth momentum, with moderate consumption growth, significant investment slowdown, and ongoing downward pressure in the real estate sector. Notably, the credit pulse index in August declined for the first time in nine months, which may exert pressure on the Hong Kong stock market [1] Macroeconomic Dynamics - In August, China's retail sales growth slowed significantly, with a year-on-year increase of only 3.4%, the lowest since November of the previous year. Fixed asset investment growth from January to August was only 0.5%, with real estate investment declining by 12.9% [2] - The new housing transaction volume in major cities showed a mixed performance, with a year-on-year decline of 6.3% in the last week, contrasting with a rise in first-tier cities [2] Industry Dynamics - The Hong Kong automotive sector saw a rebound after a period of stagnation, with companies like BYD and NIO experiencing stock price increases. NIO is set to launch its new E8 model on September 20 [4] - The healthcare index in Hong Kong rose by 0.2%, driven by the CXO sector. Recent government meetings emphasized the promotion of biomedical technology innovation and the upgrading of the biopharmaceutical industry [4] Pharmaceutical Sector Insights - The innovative drug and CXO sectors are expected to maintain robust growth, with leading companies in these areas showing strong performance in the first half of 2025. The demand for innovative drugs in oncology, metabolism, and autoimmune diseases is anticipated to grow steadily [6][7] - Traditional medical service sectors are expected to recover gradually, although the impact of medical insurance cost control remains a concern. Government policies aimed at alleviating financial issues for medical institutions are expected to improve the operating environment over time [8] Key Company Recommendations - China Biologic Products (1177 HK) reported a 10.7% increase in revenue to RMB 17.57 billion in the first half of 2025, with a net profit increase of 12.3% to RMB 3.39 billion. The company is expected to achieve double-digit growth in product sales revenue [10] - Hansoh Pharmaceutical (3692 HK) saw a 14.3% increase in revenue to RMB 7.43 billion, with a net profit increase of 15.0% to RMB 3.14 billion, driven by strong performance in its oncology products [10] - WuXi AppTec (2359 HK) reported a 20.6% increase in revenue to RMB 20.80 billion, with a net profit increase of 95.5% to RMB 8.29 billion, reflecting strong core business performance [11] Environmental Sector Insights - Gree Power (1330 HK) reported a 24.5% increase in net profit to RMB 380 million in the first half of 2025, driven by increased waste processing and electricity generation [12] - The company has rationally expanded its capacity, with waste processing capacity growing from 33,710 tons/day in FY21 to 40,310 tons/day in FY24, indicating a compound annual growth rate of 6.1% [13]

Group 1 - The core viewpoint of the news is that the innovative drug industry in China is experiencing significant policy support, which is expected to enhance the international competitiveness of domestic innovative drugs [1][2] - The National Medical Products Administration (NMPA) has officially launched a 30-day review and approval channel for innovative drug clinical trials, which will expedite the approval process for eligible applications [1][2] - The new policies are expected to shorten the clinical trial initiation cycle by approximately 30%-50%, particularly benefiting high-investment fields such as cell and gene therapy [2] Group 2 - As of September 12, 2025, the innovative drug ETF tracking major companies in the sector has shown a significant increase in value, with a PE-TTM of 27.5 times, indicating over 60% potential for recovery from historical peaks [3] - The innovative drug sector in China has seen a rise in the number of drugs under development, accounting for over 20% of the global total, positioning China as the second-largest in new drug research and development [2] - The core competitive advantages of Chinese innovative drugs include a significant engineer dividend and efficient implementation capabilities in advanced fields such as ADC, cell therapy, and gene therapy [2]

Group 1 - CRO concept stocks experienced a significant rise, with 康龙化成 (03759) up 8.11% to HKD 25.58, 昭衍新药 (06127) up 6.27% to HKD 24.76, 药明生物 (02269) up 4.88% to HKD 38.26, and 凯莱英 (06821) up 4.33% to HKD 101.3 [1] - On September 12, the National Medical Products Administration announced a new policy to complete the review and approval of clinical trial applications for innovative drugs within 30 working days after acceptance, effective immediately [1] - The new policy applies to innovative drug clinical trials that meet one of three criteria: traditional Chinese medicine, chemical drugs, and biological products of Class 1 [1] Group 2 - Concerns have arisen in the market regarding the U.S. administrative draft, with 华福证券 noting that the "Biosafety Act" has undergone 10 changes since the end of 2023 [2] - The stock price response of representative CXO companies to the progress of the "Biosafety Act" has become desensitized, with current stock prices recovering and reaching new highs [2] - The ongoing BD wave in China's innovative drug sector reflects the advantages of talent resources, research efficiency, and research costs, indicating that U.S. policies will not significantly impact the globally competitive Chinese innovative drug industry [2]

Core Viewpoint - The CXO industry is experiencing a recovery with a positive trend in revenue growth, driven by large orders and capital expenditures, indicating an optimistic outlook for capacity expansion [1][3][5] Group 1: Financial Analysis - Revenue growth for CXO leaders is expected to show a quarter-on-quarter increase from Q1 2024 to Q2 2025, with a projected average year-on-year growth of 8.2% in Q1 2025 and 11.6% in Q2 2025 [1][3] - The average gross margin for Q2 2025 is projected to be 32.45%, reflecting a year-on-year increase of 0.18 percentage points, although some companies like Tigermed and WuXi AppTec have seen significant declines in their margins [3] - The average net profit margin excluding non-recurring items is expected to be 10.24% in Q2 2025, with notable improvements from companies like Boteng and Medpace [3] Group 2: Operational Efficiency - Inventory turnover rate is expected to improve from an average of 1.56 in H1 2024 to 1.81 in H1 2025, indicating enhanced operational efficiency [4] - Fixed asset turnover rate is projected to increase to 0.95 in H1 2025, reflecting a positive trend in asset utilization among leading CXO companies [4] Group 3: Market Outlook - The global healthcare investment landscape is stabilizing, with a notable recovery in IPO financing in the Hong Kong market, reaching 20.7 billion HKD in 2025 [5] - CXO companies are maintaining high levels of construction projects, indicating a continued optimistic outlook for capacity expansion and new business directions [5] - The industry is expected to see growth opportunities in CDMO services for small and large molecules, as well as in new areas such as ADC, peptides, and oligonucleotides [7]

Industry Overview - The report highlights the upcoming World Lung Cancer Conference (WCLC) from September 6-9, 2025, in Barcelona, Spain, suggesting a focus on related corporate data updates and outcomes [11] - The report maintains a "positive" rating for the pharmaceutical and biotechnology industry, emphasizing opportunities in innovative drug and medical device sectors, particularly in light of expected interest rate cuts and optimized procurement rules [11][74] Industry News - In August, the National Medical Insurance Administration issued the "Interim Measures for Disease-Specific Payment Management," which clarifies policies related to disease-specific payments and aims to enhance transparency in budget management [18] - The report notes that 535 drug generic names passed the formal review for inclusion in the 2025 National Basic Medical Insurance and commercial health insurance innovative drug directories, indicating ongoing regulatory support for the industry [19] Industry Data - The Consumer Price Index (CPI) for healthcare in July was 100.5, reflecting a year-on-year increase of 0.5% and a month-on-month increase of 0.2% [20] - The Producer Price Index (PPI) for pharmaceutical manufacturing in July was 97.6, showing a year-on-year decrease of 2.4% and a month-on-month decrease of 0.5% [29] - Cumulative revenue for the pharmaceutical manufacturing industry from January to July was 1,401.07 billion, a year-on-year decrease of 1.7%, while cumulative profit totaled 194.82 billion, down 2.6% [31] Company Announcements - Heng Rui Medicine reported a 15.88% year-on-year increase in revenue for the first half of 2025, totaling approximately 15.76 billion, with a net profit of approximately 4.45 billion, reflecting a 29.67% increase [57] - The company received orphan drug designation from the FDA for its product, indicating strong potential for market support and development [58] Market Review - In August 2025, the Shanghai Composite Index rose by 7.97%, while the Shenzhen Component Index increased by 15.32%. The pharmaceutical and biotechnology sector saw a 2.61% increase, with most sub-sectors performing positively [59] - As of August 31, 2025, the price-to-earnings (P/E) ratio for the pharmaceutical and biotechnology industry was 31.18, with a valuation premium of 147% compared to the CSI 300 index [63]