Investment Rating - The report maintains an "Accumulate" rating for the pharmaceutical and biotechnology sector, highlighting significant undervaluation in H-shares of innovative and generic drugs [1]. Core Insights - The current market conditions in Hong Kong provide a favorable entry point for investors, with a focus on undervalued stocks in the innovative and generic drug sector, particularly companies like 3SBio, Kangzhe Pharmaceutical, and Yuan Da Pharmaceutical [4][16]. - The report emphasizes the strong performance of small-cap stocks and the adjustments in innovative drugs, indicating a shift in market dynamics [7]. Summary by Sections Industry Performance - The A-share pharmaceutical index has increased by 1.77% this week and 3.99% year-to-date, outperforming the CSI 300 by 0.18% and 2.17% respectively. The H-share biotechnology index has seen a rise of 2.04% this week and 23.06% year-to-date, outperforming the Hang Seng Technology Index by 5.14% [4][7]. - Notable stock performances include Jin Cheng Pharmaceutical (+42.43%), Zhongke Meiling (+39.09%), and Saily Medical (+34.47%) in A-shares, while in H-shares, Jin Xin Reproductive (+41.67%) and Weiya Biological (+18.88%) led the gains [7]. Investment Opportunities - The report identifies three key companies in the H-share market: 1. **3SBio**: Strong existing business with positive data from SSGJ707 Phase II trials, expected to contribute significantly to market value [18]. 2. **Kangzhe Pharmaceutical**: Three innovative products are anticipated to see rapid market uptake [4][8]. 3. **Yuan Da Pharmaceutical**: The first nuclear medicine product for liver cancer treatment is entering a rapid growth phase [4][8]. Sector Insights - The report ranks preferred sub-sectors as follows: Innovative drugs > CXO > Traditional Chinese medicine > Medical devices > Pharmacies > Pharmaceutical commerce [8]. - It suggests stock selection strategies based on valuation, growth potential, and dividend yield, with specific recommendations for various categories of companies [8]. Regulatory Developments - The report notes significant regulatory advancements, including the approval of the first IGF-1R monoclonal antibody for thyroid eye disease in China, marking a milestone in the treatment landscape [4][8]. Market Trends - The report highlights the growing market for nicotine pouches, with global sales expected to reach 83.417 billion pouches by 2028, corresponding to a market size of $46.713 billion [4][8]. Valuation Metrics - The report indicates that the pharmaceutical index's price-to-earnings ratio is currently at 31.76, which is 7.34 lower than the historical average, suggesting potential for upward adjustment [4][7]. Company-Specific Developments - **3SBio**: The company is advancing multiple Phase II clinical trials for SSGJ-707, showing promising anti-tumor activity and safety, with potential peak sales in China estimated at 6 billion RMB and 4.5 billion USD in overseas markets [19][18]. This structured summary encapsulates the key insights and recommendations from the report, providing a comprehensive overview of the current state and future outlook of the pharmaceutical and biotechnology industry.