Investment Rating - The report indicates a positive outlook for the biopharmaceutical industry, highlighting the approval of approximately 101 innovative drugs in 2025, marking a significant growth in the sector [3]. Core Insights - The innovative drug sector in China is experiencing robust growth, with 63 domestic innovative drugs (62% of total approvals) and 38 imported innovative drugs (38% of total approvals) approved in 2025 [3]. - The report suggests several companies to watch, including those with high certainty for overseas expansion and those with potential overseas data catalysts [2][20]. - The report emphasizes the importance of upcoming catalysts such as academic conferences and data releases that could impact the sector positively [2]. Summary by Sections Weekly New Drug Market Review - From December 29, 2025, to January 4, 2026, the top five gainers in the new drug sector were Youzhiyou (+12.45%), Aidi Pharmaceutical (+8.07%), Yongtai Biological (+6.72%), Kaituo Pharmaceutical (+6.25%), and Yahong Pharmaceutical (+4.07%). The top five losers were Jakes (+-15.53%), Yunding Xinyao (-15.06%), Kedi (-11.73%), Gelei Pharmaceutical (-8.64%), and Kangning Jere (-8.06%) [1][16]. Weekly Focused Stocks - The report recommends focusing on companies with MNC certification and high certainty for overseas volume, such as Sanofi Pharmaceutical, Lianbang Pharmaceutical, and Kelun Biotech. It also highlights companies with potential overseas data catalysts like Betta Pharmaceuticals and Hengrui Medicine [2][20]. Weekly New Drug Industry Analysis - The report notes that 2025 saw a record high in the number of approved innovative drugs in China, with a total of approximately 101 drugs approved by NMPA, excluding new indications, modified new drugs, biosimilars, traditional Chinese medicine, and vaccines [3][21]. Weekly New Drug Application Approval & Acceptance - No new drug or new indication applications were approved this week, but four new drug or new indication applications were accepted [4][27]. Weekly New Drug Clinical Application Approval & Acceptance - This week, 18 new drug clinical applications were approved, and 52 new drug clinical applications were accepted [5][30].

Investment Rating - The report maintains an investment rating of "Outperform" [5] Core Insights - The innovative drug sector is experiencing rapid growth, with several new drugs being quickly incorporated into the medical insurance directory as of October 2025 [3][20] - The report highlights significant increases in the number of drugs entering hospitals, particularly those newly included in the insurance directory, indicating strong market demand [3][19] Weekly New Drug Market Review - From November 24 to November 30, 2025, the top five performing new drug companies were: Frontline Bio (+23.12%), Yifang Bio (+15.74%), Rongchang Bio (+15.39%), Kangfang Bio (+14.86%), and Jakes (+14.18%). The five companies with the largest declines were: Yongtai Bio (-4.11%), Nothland (-3.33%), Junshengtai (-2.78%), Boan Bio (-2.09%), and Dongyao Pharma (-1.11%) [1][14] Suggested Focus Stocks - The report suggests focusing on several companies with promising catalysts, including: 1. Companies with MNC certification and high overseas sales potential: Sanofi, Lianbang Pharma, and Kelun Biotech 2. Companies with overseas data catalysts: Betta Pharma, Hutchison China MediTech, and Yimeng Bio 3. Potential heavyweights for overseas MNC licensing: Fuhong Hanlin, Shiyao Group, and Yifang Bio 4. New innovative drug technology breakthroughs: small nucleic acids, in vivo CAR-T, fat reduction and muscle gain, autoimmune CAR-T/bispecific antibodies, and gene therapy [2][18] New Drug Industry Key Analysis - The National Healthcare Security Administration updated the data on innovative drugs included in the insurance directory as of October 2025, showing rapid hospital entry for several newly included domestic innovative drugs. Notable drugs with fast entry rates include: - Hengrui Medicine's Tazobactam - Innovent Biologics' Toripalimab - Haisco's Alogliptin and Clopidogrel - Sinopharm's Aliskiren and Amlodipine - Shanghai Yizhong's Paclitaxel polymer micelles - Kangfang Bio's Ivoris monoclonal antibody [3][19] New Drug Approval and Acceptance Status - This week, 11 new drugs or new indications received approval for market entry, while 13 new drugs or new indications were accepted for review [4][24] New Drug Clinical Application Approval and Acceptance Status - This week, 54 new drug clinical applications were approved, and 44 new drug clinical applications were accepted [8][27]

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]