Core Viewpoint - The innovative drug sector is experiencing significant growth, driven by favorable policies, internationalization, and technological breakthroughs, with the Hong Kong Stock Connect Innovative Drug ETF (159570) showing a remarkable increase of over 109% year-to-date, outperforming other pharmaceutical indices [1][5][10]. Group 1: ETF and Index Changes - The Hong Kong Stock Connect Innovative Drug Index will undergo a revision to exclude contract research organizations (CXO), ensuring a 100% purity in innovative drug representation [1][2]. - The revision changes the sample selection criteria from "companies involved in innovative drug development" to "companies whose main business involves innovative drug development, excluding CXO" [2]. - The sample stock adjustment frequency will shift from semi-annual to quarterly, effective August 12, 2025 [2]. Group 2: Importance of 100% Innovative Drug Index - The purity of the index is crucial for maximizing industry gains and avoiding dilution effects from unrelated components, allowing for a more direct capture of returns [3]. - CXO's business model differs fundamentally from innovative drugs, as CXOs provide outsourced services and do not share in the patent revenues from successful drug commercialization [3]. Group 3: Growth Drivers for Innovative Drugs - The rise of Chinese innovative drugs is characterized by a transition from "Me-too" and "Me-better" strategies to achieving "Best-in-Class" (BIC) and "First-in-Class" (FIC) innovations [4]. - The innovative drug sector is propelled by three main drivers: accelerated internationalization, supportive policies, and technological advancements [5][10]. - Internationalization is evidenced by increasing participation of domestic innovative drug data in international conferences and rising transaction volumes in out-bound business development (BD) [5]. - Policy support includes a series of measures aimed at enhancing the innovative drug industry, with significant potential for growth in the reimbursement space [10][12]. - Technological breakthroughs in areas such as ADC, GLP-1, and immunotherapy are leading the industry innovation [10][12]. Group 4: Market Outlook - The innovative drug sector is expected to enter a profitability phase in 2025, marking a transition to a stage of business model validation and systematic valuation increase [6]. - The market perception of innovative drug companies is shifting from continuous financing to a focus on profitability, indicating a positive outlook for the sector [6].

Core Insights - The Hong Kong innovative drug ETF (513120) has gained significant attention, with its net asset value reaching a historical high of over 14 billion yuan and a one-year return exceeding 109%, ranking first among all stock funds in the market [1][2] - The performance is attributed to the anticipated interest rate cuts by the Federal Reserve, which have improved the financing environment for the innovative drug sector, alongside notable advancements in Chinese innovative pharmaceutical companies [1] - The innovative drug industry, characterized by high R&D costs and long development cycles, is highly dependent on the financing environment, which has recently improved due to the Fed's easing policies [1][2] Industry Analysis - Chinese innovative pharmaceutical companies are increasingly competitive globally, with their share of multinational pharmaceutical companies' upfront payments in business development transactions rising from less than 5% four years ago to 40% [1][2] - Recent successful Phase III clinical trials for dual-antibody ADC drugs indicate that Chinese companies are developing "First In Class" capabilities, marking a significant milestone in the industry [1] - The Hong Kong Monetary Authority's liquidity injections have provided essential support for the innovative drug sector, despite recent marginal tightening of liquidity [2] ETF Performance - The Hong Kong innovative drug ETF closely tracks the CSI Hong Kong Innovative Drug Index (CNY), which focuses on no more than 50 listed companies involved in innovative drug R&D [3] - The index has shown a one-year return of 109.8% with a price-to-earnings ratio (PE TTM) of 38, placing it in the 41st percentile of valuation since its inception [3] - The ETF is recommended for investors looking to gain exposure to the innovative drug sector, with specific connection fund codes provided for further investment options [2]