Core Viewpoint - The domestic innovative drug sector has shifted from a previous upward trend to a phase of volatility, with market participants showing a tendency to buy more as prices drop, indicating a potential long-term investment interest despite short-term fluctuations [1][2]. Group 1: Market Trends - From June 16 to June 25, medical-themed ETFs saw a net inflow of over 6.4 billion yuan, with several leading innovative drug ETFs attracting more than 1.5 billion yuan [1][2]. - The Hong Kong innovative drug index experienced a significant drop of 8.51% from June 16 to June 20, yet funds continued to flow into innovative drug ETFs during this period [2]. - The recent performance of innovative drug stocks has been influenced by the high valuations already priced in, leading to increased sensitivity to any negative news [3][4]. Group 2: Business Development (BD) Impact - On June 26, the announcement from Rongchang Biopharmaceuticals regarding a licensing deal with Vor Bio led to a sharp decline in its stock price, with A-shares dropping over 18% and H-shares over 11% [3][4]. - The market's reaction to the BD announcement was notably negative, attributed to the lower-than-expected upfront payment and the nature of the partner company, which lacks commercialized products [4]. - Analysts suggest that the current market dynamics reflect a disconnect between actual BD outcomes and optimistic market expectations, contributing to volatility in the sector [4][5]. Group 3: Investment Considerations - The innovative drug sector's high volatility necessitates a longer-term investment perspective, as short-term trading strategies may not yield favorable returns [5][6]. - Companies with robust competitive positions and comprehensive business logic are viewed as more favorable investment targets amidst the current market conditions [5][6]. - The potential for significant market value remains in overseas markets, particularly in Europe and the U.S., despite short-term fluctuations in the domestic market [6].

Investment Rating - The report maintains an "Accumulate" rating for the pharmaceutical and biotechnology sector [8] Core Insights - The report highlights that the pharmaceutical sector, particularly the innovative drug segment, is experiencing a significant bull market, with the innovation drug index outperforming other indices [2][13] - The report emphasizes the strong liquidity in the market, which has led to increased investment in innovative drugs, particularly those related to PD1 and weight loss drugs [2][15] - Future outlook remains optimistic for 2025, focusing on innovative drugs, new technologies, and restructuring of the supply chain [3][16] Summary by Sections 1. Pharmaceutical Core Insights - The pharmaceutical index increased by 1.40% during the week of June 9-13, outperforming both the ChiNext and CSI 300 indices [13] - The innovative drug index rose by 3.07%, indicating strong market performance [50] 2. MNC Cash and Potential Layouts - MNCs have substantial cash reserves, with major companies like Johnson & Johnson and Merck holding over $10 billion in cash, indicating strong purchasing power for potential business development (BD) opportunities [27][25] - The report analyzes MNC revenue sources, highlighting a focus on oncology, metabolism, and mental health, which are areas of high market potential [25][27] 3. Investment Strategies and Thoughts 3.1 Broad Pharmaceuticals - Innovative drugs are a key focus, with a recommendation to explore opportunities in core stocks and those with BD expectations [3][16] - The report identifies specific companies for investment, including major players in the innovative drug space and smaller market cap stocks with promising pipelines [17][18] 3.2 Generic Drugs - The generic drug sector showed a weekly increase of 5.24%, outperforming the broader pharmaceutical index [59] - Top-performing stocks in the generic sector include Yiming Pharmaceutical and Sai Sheng Pharmaceutical, indicating strong market activity [62] 4. Market Review and Hotspot Tracking - The report notes that innovative drugs are becoming the most attractive sector, with significant price increases observed in several companies due to market catalysts [2][15] - Key events, such as the NMPA's inclusion of a new treatment for cardiovascular disease, are highlighted as important developments in the sector [57]