Summary of the Conference Call for WuXi AppTec Company Overview - **Company**: WuXi AppTec - **Industry**: Contract Research, Development, and Manufacturing Organization (CRDMO) focusing on Antibody-Drug Conjugates (ADC) Key Points Industry and Market Trends - The financing environment for innovative drugs in China improved significantly in 2025, with positive policy signals from the China Securities Regulatory Commission (CSRC) [2][4] - The establishment of a growth tier on the Sci-Tech Innovation Board and the revival of IPOs for unprofitable companies in Hong Kong provide more financing opportunities for innovative drug companies, benefiting the CXO industry [2][5] - The ADC market is expected to reach $14.2 billion in 2024, growing nearly 25% year-over-year, with a projected compound annual growth rate (CAGR) of 30% by 2030 [4][13] - The global bioconjugate drug industry is entering a new golden development cycle, with market size expected to exceed $11 billion by 2030, growing at a CAGR of 28.4% [4][15] Company Performance and Financials - WuXi AppTec's revenue for 2024 is projected to reach 4.05 billion yuan, a 91% increase year-over-year, with a net profit of 1.07 billion yuan, up 277% [2][9] - The company’s backlog of unfulfilled orders is close to $1 billion, representing a 71% year-over-year increase, expected to convert into revenue within 1 to 5 years [20] - The company’s revenue structure is shifting, with post-IND service revenue nearing 60% and overseas business accounting for 74%, with North American clients making up 50% [11][20] Competitive Advantages - WuXi AppTec is a leader in the ADC CRDMO space, benefiting from the technological and talent support of WuXi Biologics and WuXi AppTec [3][9] - The company has a comprehensive one-stop service platform, capable of shortening the development timeline from concept to clinical candidate to as little as 8-10 months [17] - The integration of CMC strategies has allowed the company to reduce supply chain complexity and accelerate ADC drug development, achieving IND submissions in just 15 months [18] ADC Development and Trends - ADCs are gaining traction as a promising cancer treatment strategy, combining chemotherapy with targeted antibody delivery, potentially replacing traditional chemotherapy [6][12] - Current trends in ADC development include advancements in frontline treatments, combination therapies with immunotherapy, and innovations in new targets and mechanisms [14] - The company is positioned to capitalize on the growing ADC market, with a strong pipeline of projects and a significant number of clinical candidates [8][21] Future Outlook - The company’s commercial order potential is robust, with a focus on high-quality clients in the biotech and multinational sectors, many of which are pioneers in the ADC/XDC fields [21] - The company maintains a high client retention rate, having collaborated with nearly all clients advancing candidates to development stages since its inception [20] - Profitability forecasts are based on assumptions of rapid growth in post-IND service revenue and improving gross margins over the next few years [22] Conclusion - WuXi AppTec is well-positioned in the ADC market with strong growth prospects, supported by favorable industry trends, a solid financial outlook, and a competitive edge in technology and service offerings [2][9][22]

Core Viewpoint - The innovation drug sector is experiencing a resurgence, driven by supportive policies and a favorable investment environment, marking a significant shift from "squeezing out excess" to "promoting innovation" in the pharmaceutical industry [2][3]. Group 1: Market Performance - In the first half of 2025, the pharmaceutical sector showed strong performance, with the CITIC Pharmaceutical Index rising by 8.11%, outperforming major indices like the Shanghai Composite Index (+5.98%) and the ChiNext Index (+4.25%) [3]. - The A-share innovation drug index increased by 21.84%, while the Hong Kong Hang Seng Innovation Drug Index surged by 60.27% during the same period [4]. Group 2: Policy Support and Industry Trends - The recent policy document titled "Several Measures to Support the High-Quality Development of Innovative Drugs" outlines 16 measures to support the entire chain of innovative drug development, indicating a systemic shift in policy support [2][7]. - The domestic pharmaceutical industry has undergone a transformation since the "4+7" procurement policy was implemented in 2018, leading to a fruitful period for innovative drugs in 2025 as the results of this transformation begin to materialize [7]. Group 3: Future Outlook - The innovation drug sector is expected to remain a key investment focus in the third quarter, with core innovative drug assets requiring attention despite potential short-term fluctuations [8]. - The CDMO (Contract Development and Manufacturing Organization) sector is anticipated to see a revenue recovery trend continuing into the second quarter of 2025, as the industry has established an order inflection point [9]. - The CRO (Contract Research Organization) and front-end innovative drug sectors are set to benefit from overseas licensing deals, which will bring incremental revenue expectations from upfront payments [10].

Summary of Conference Call Records Industry Overview - The innovative drug industry chain is gradually stabilizing and recovering, with CXO orders rebounding since last year, leading to strong mid-year performance in key segments [1][2][3] - The overall trend for the pharmaceutical sector in Q2 2025 is positive, particularly in innovative drugs and their supply chains, despite recent market fluctuations [2][3] Key Companies and Performance - **Hengrui, Huadong, and China Biopharmaceutical** are expected to achieve double-digit growth in Q2 and for the entire year [1][6] - **WuXi AppTec** aims for a revenue target of 43 billion, with an expected growth of over 15% and faster net profit growth; **WuXi AppTec's** revenue growth is projected at over 35% for the year [1][11] - **Kelaiying** anticipates a revenue growth of over 15% for the year, while **Kanglong Huacheng** expects around 10% growth in revenue and profit for Q2 [1][11][13] - **BaiPuSi and Haoyuan Pharmaceutical** are performing well, with most companies expecting revenue growth of over 20% [1][15] Market Catalysts - Recent adjustments in medical insurance policies and industry conferences (WCLC, ESMO, Ash) are seen as potential catalysts for growth in the innovative drug sector [1][7][9] - The upcoming medical insurance negotiations and directory adjustments are expected to be significant driving forces in the second half of the year [9][10] Investment Opportunities - Despite a recent decline in market sentiment, large-cap companies like **BaiJi, Hengrui, XinDa, Kangfang, and Shiyao** are recommended for investment, along with smaller companies like **Dizhe and Yifangzejin** [10] - The CXO and upstream sectors are highlighted as key investment areas, with strong performance expected due to improved orders and geopolitical factors [19][20] Sector Performance - The medical device sector is still in a clearing inventory phase, with some companies showing good growth, particularly in overseas markets [17][18] - The OTC and traditional Chinese medicine sectors have not shown significant improvement but may see recovery in the second half of the year [5][18] Future Outlook - The overall outlook for the second half of 2025 remains optimistic, with expectations of continued growth in the innovative drug sector and supportive external factors [9][24] - The domestic financing environment is expected to improve, with a notable increase in activity anticipated in the latter half of the year [26][38] Conclusion - The innovative drug industry chain, particularly the CXO segment, is positioned for strong growth, supported by favorable market conditions and strategic company performances. Investors are encouraged to focus on key players within this sector for potential opportunities.

Core Insights - The Hang Seng Hong Kong Stock Connect Innovative Drug Index has seen a remarkable increase of over 60% year-to-date, highlighting the significant development of China's innovative drug sector and attracting interest from overseas pharmaceutical companies [1][8] - The index has revised its compilation scheme to exclude CXO companies, focusing solely on innovative drug companies, thus becoming the first index with a "purity" of 100% in tracking innovative drugs [1][2] Index Revision Details - Five CXO companies will be removed from the Hang Seng Hong Kong Stock Connect Innovative Drug Index, resulting in a composition entirely made up of innovative drug firms [2] - The previous weight of the excluded CXO companies was approximately 20%, and their performance lagged behind the overall index [3][5] Performance Metrics - The revised index has shown better performance since its announcement, with an annualized return exceeding 30% and a higher Sharpe ratio compared to the original index [5][7] - The annualized volatility of the revised index is 37.7%, while the original index had a volatility of 40.0% [7] Market Trends - Multinational pharmaceutical companies have significantly increased their procurement of innovative drug patents from China, with procurement amounts nearing the total for the entire year of 2024 within the first five months of this year [8] - The trend of multinational companies sourcing innovative drug patents from China is expected to continue, driven by pressures such as drug price reductions and patent expirations [8] Investment Opportunities - The Hang Seng Innovative Drug ETF (159316) is currently the only product tracking the Hang Seng Hong Kong Stock Connect Innovative Drug Index, providing investors with a convenient way to access leading innovative drug companies in Hong Kong [9] - Other investment products, such as the E Fund Innovative Drug ETF (516080), also cover the entire innovative drug industry chain, including major players like Hengrui Medicine and Fosun Pharma [9][10]

创新药走强，恒生港股通创新药指数年内涨幅60%。 恒生指数公司今日宣布，将对该指数编制方案进 行修订，明确剔除CXO公司，即包括委托研究机构（CRO）、委托生产机构（CMO）、和委托研发生 产机构（CDMO），成为一只聚焦创新药的指数，相关成份股变动将于今年9月8日实施。易方达基金指 数研究部总经理庞亚平表示，剔除CXO后，恒生港股通创新药指数能够聚焦创新药核心公司，更纯粹 地表征本轮创新药产业发展趋势。（记者 闫军） ...

Group 1 - The core viewpoint is that by 2025, domestic PFA brands are expected to enter a rapid commercialization phase, gradually replacing traditional radiofrequency and cryoablation technologies due to their non-thermal ablation characteristics, shorter operation times, lower complication risks, and better long-term efficacy [1] - Six domestic brands have already been approved, indicating a growing market presence [1] - The National Medical Products Administration has approved measures to optimize the lifecycle regulation to support the innovation and development of high-end medical devices, which includes ten initiatives aimed at promoting the development of medical robots, high-end medical imaging equipment, AI medical devices, and new biological materials [1] Group 2 - The medical device sector is currently valued at historical lows, with policy benefits expected to materialize starting from Q2 2025, particularly in the AI + imaging/surgery direction [1] - The innovative drug sector is experiencing short-term fluctuations but is viewed positively in the long term, driven by accelerated overseas expansion and changes in payment systems [1] - The traditional Chinese medicine sector is seeing reduced impacts from centralized procurement, with improved gross margins for OTC products; the blood products industry is experiencing increased concentration and favorable demand for immunoglobulin [1] Group 3 - The retail pharmacy industry is undergoing accelerated clearing, with AI empowerment enhancing operational efficiency and outpatient coordination creating incremental opportunities [1] - The CXO sector is gradually stabilizing in performance, with a recovery in overseas investment and financing driving industry growth [1] Group 4 - The ChiNext Medical ETF tracks the ChiNext Medical Index, which is compiled by China Securities Index Co., Ltd., selecting listed companies in the medical and health industry from the ChiNext market to reflect the overall performance of the medical and biological sector [2] - This index focuses on high-growth and innovative sub-sectors such as biomedicine, medical devices, and medical services, effectively showcasing the investment value and development potential of the ChiNext medical industry [2]

Investment Rating - The report maintains a "Buy" rating for multiple companies in the pharmaceutical sector, including Junshi Bioscience, Hualing Pharmaceutical-B, and others [2]. Core Insights - The report emphasizes the broad market for lipid-lowering treatments, particularly focusing on the competitive landscape of PCSK9-targeted drugs, with approximately 500 million adults in China suffering from dyslipidemia, including 120 million with high cholesterol [3][15]. - The pharmaceutical sector saw a 1.60% increase this week, underperforming the CSI 300 index by 0.35 percentage points, with sub-sectors like medical infrastructure and life sciences performing better than generics and innovative drugs [4][31]. Summary by Sections 1. Industry Perspective and Investment Recommendations - The lipid-lowering market is vast, with intense competition in PCSK9-targeted drugs [15]. - Investment strategies should focus on innovative drugs, particularly in the context of increased liquidity and risk appetite in the market [4][31]. 2. Pharmaceutical Sector Performance - The pharmaceutical sector's performance was mixed, with medical infrastructure and life sciences leading, while generics and innovative drugs lagged [4][37]. - The overall P/E ratio for the pharmaceutical industry is 27.69, with a premium of 35.26% compared to the broader A-share market [37]. 3. Company Dynamics - Notable company announcements include Baiyoutai's licensing agreement for BAT2406 in Latin America and Yifan Pharmaceutical's approval for clinical trials of a growth hormone injection [38][40]. - Companies like WuXi AppTec and Lijun Group have made significant moves, including share buybacks and new product approvals [39][41]. 4. Industry Trends - The report highlights the upcoming patent expirations for major small molecule drugs, which could lead to increased demand for raw materials [5][32]. - The report also notes the expected recovery in overseas demand, which may improve the performance of CXO companies [34]. 5. Research and Development Focus - The report discusses the clinical progress of various PCSK9-targeted therapies, including monoclonal antibodies and gene editing approaches, indicating a strong pipeline in this area [3][23][25]. - The competitive landscape for PCSK9 drugs in China is characterized by pricing and adherence challenges, with several products already on the market [27].

Investment Rating - The report maintains an "Overweight" rating for the pharmaceutical and biotechnology industry, expecting the industry index to outperform the market index by over 10% in the next six months [6][26]. Core Insights - The SW pharmaceutical and biotechnology industry underperformed the CSI 300 index, declining by 5.05% from June 13 to June 26, 2025, which is approximately 6.43 percentage points lower than the index [13][26]. - All sub-sectors within the industry recorded negative returns during the same period, with medical consumables and hospital sectors experiencing the least decline at 0.17% and 0.4%, respectively. In contrast, chemical preparations and offline pharmacy sectors saw larger declines of 6.12% and 6.11% [14][26]. - Approximately 16% of stocks in the industry recorded positive returns, while around 84% experienced negative returns during the reporting period [15][18]. - The overall price-to-earnings (PE) ratio for the SW pharmaceutical and biotechnology industry was approximately 47.76 times as of June 26, 2025, which is 3.83 times relative to the CSI 300 index. The industry valuation has decreased and is currently at a relatively low level compared to recent years [19][26]. Summary by Sections 1. Market Review - The SW pharmaceutical and biotechnology industry underperformed the CSI 300 index, with a decline of 5.05% from June 13 to June 26, 2025 [13]. - All sub-sectors recorded negative returns, with the least affected being medical consumables and hospitals [14]. - About 16% of stocks in the industry had positive returns, with the highest gainers and losers identified [15][18]. 2. Industry News - The report highlights significant developments in the industry, including the implementation of centralized procurement for traditional Chinese medicine across 25 provinces, set to take effect from July 1, 2025 [24]. 3. Company Announcements - Notable announcements include a licensing agreement by Rongchang Biopharmaceuticals, which will receive $125 million in cash and potential milestone payments up to $4.105 billion from Vor Biopharma for the development and commercialization of a product [25]. 4. Weekly Industry Perspective - The report suggests continued focus on investment opportunities within the innovative drug sector, particularly as domestic companies begin to reap the benefits of years of research and development [26][28].

Investment Rating - The report maintains an "Accumulate" rating for the pharmaceutical and biotechnology industry [6]. Core Viewpoints - The acceleration of innovative drug reviews is expected to enhance the market's risk appetite for the innovative drug sector, with a focus on companies capable of rapid research, internationalization, and commercialization [3][24]. - The report suggests that the approval efficiency improvements will shorten product launch cycles, benefiting companies like Heng Rui Medicine, BeiGene, and Rongchang Biologics [3][27]. - The 2025 investment strategy emphasizes structural selection of investment opportunities based on payment willingness and ability, focusing on three payment channels: hospital payments, out-of-pocket payments, and overseas payments [3][28]. Summary by Sections Market Review - Last week, the A-share pharmaceutical and biotechnology index fell by 4.35%, underperforming the CSI 300 index by 3.90 percentage points [1][18]. - The Hong Kong Hang Seng Medical Health Index dropped by 7.72%, lagging behind the Hang Seng Index by 6.24 percentage points [1][18]. Company R&D Progress Tracking - Recent IND applications include ABSK043 by He Yu Pharmaceutical and clinical applications for BGB-B455 by BeiGene and SA102-CAR-T by Sanofi [2][31]. - RAY1225 by Zhongsheng Pharmaceutical and HRS-1893 by Heng Rui Medicine are in Phase III clinical trials, while HS-10370 by Hansoh Pharmaceutical and SSGJ-612 by Sanofi are in Phase I [2][31]. Policy and Regulatory Updates - The National Medical Products Administration has proposed a draft to optimize the clinical trial review process, aiming to shorten approval times to 30 working days for eligible innovative drugs [3][26]. - The policy is expected to support key areas such as pediatric drugs and rare disease treatments, enhancing the commercialization speed of innovative drugs [3][26]. Key Company Profit Forecasts and Valuation - Heng Rui Medicine: 2024 EPS forecast at 0.99 CNY, with a PE ratio of 52, rated as "Accumulate" [5]. - Fish Leap Medical: 2024 EPS forecast at 1.80 CNY, with a PE ratio of 20, rated as "Buy" [5]. - Mindray Medical: 2024 EPS forecast at 9.62 CNY, with a PE ratio of 24, rated as "Buy" [5]. - United Imaging Healthcare: 2024 EPS forecast at 1.53 CNY, with a PE ratio of 84, rated as "Buy" [5].

Industry Investment Rating - The industry investment rating is maintained at "Outperform the Market" [1] Core Insights - The report highlights that the domestic PFA brands are expected to enter a commercialization fast track in 2025, driven by their non-thermal ablation characteristics, shorter operation times, lower complication risks, and better long-term efficacy [5][6] - The pharmaceutical and biotechnology sector experienced a decline of 4.35% this week, underperforming the CSI 300 index by 3.9 percentage points, ranking 29th among 31 sub-industries [6][18] - The report emphasizes the importance of high-end medical device innovation, supported by recent regulatory measures aimed at optimizing lifecycle management [13][14] Summary by Sections Industry Overview - The closing index for the pharmaceutical and biotechnology sector is 7552.12, with a 52-week high of 8490.25 and a low of 6070.89 [1] Recent Developments - Johnson & Johnson announced significant progress in PFA research at the HRS2025 conference, showcasing three key PFA products with excellent safety and efficacy profiles [4][5] - The report notes that six domestic brands have received approval for PFA technology, marking a significant step towards commercialization [5] Subsector Performance - All sub-sectors within the pharmaceutical and biotechnology industry experienced declines this week, with the largest drop in the other biological products sector at 6.7% [6][23] - The report provides a detailed breakdown of weekly performance across various sub-sectors, indicating a general trend of retraction [6][24] Recommended and Beneficiary Stocks - Recommended stocks include innovative pharmaceutical companies such as Xinda Biopharma and Kangfang Biopharma, as well as medical device firms like Yingke Medical and Maipu Medical [7][29] - Beneficiary stocks in the innovative drug sector include Zai Lab, Yifan Biopharma, and others, while the medical device sector includes companies like Mindray Medical and Aohua Endoscopy [7][29] Regulatory Insights - The report discusses the approval of measures to support high-end medical device innovation, which includes optimizing special approval processes and enhancing communication mechanisms [13][14] - The report suggests that the implementation of these measures will significantly benefit high-tech medical devices, including AI-assisted diagnostic tools [14][28]