Group 1: CD73 and Cancer Immunotherapy - CD73 is a promising target for cancer immunotherapy, acting as a rate-limiting enzyme in the production of extracellular adenosine, which has immunosuppressive effects in various diseases [1] - CD73 is overexpressed in the tumor microenvironment (TME) of several cancer types, including breast cancer, melanoma, and lung cancer, and plays a significant role in immune regulation [1] - Several products targeting CD73 are in clinical research, with leading small molecule inhibitors being Arcus's AB680 and Deqi's ATG-037, while monoclonal antibodies like AstraZeneca's Oleclumab and Tianjing's Uliledlimab have entered Phase 3 trials [1] Group 2: Pharmaceutical Sector Performance - The pharmaceutical sector rose by 1.13%, outperforming the CSI 300 index by 0.25 percentage points, with innovative drugs, vaccines, and medical packaging performing relatively well [1] - The investment strategy suggests focusing on the impact of market pricing power and capital changes, particularly in AI healthcare and innovative drugs [1] - The domestic dual-antibody ADCs, TYK2 inhibitors, GKA agonists, and pan-KRAS inhibitors are considered globally leading pipelines, with recommended companies including Innovent Biologics, Baiyi Tianheng, and others [1] Group 3: API Market Dynamics - From 2025 to 2030, the sales impact of expiring formulation patents is projected to be $390 billion, a 124% increase compared to the total from 2019 to 2024, indicating a significant demand for APIs [2] - In 2024, the output of APIs in large-scale industrial enterprises is expected to reach 3.583 million tons, a 4.6% year-on-year increase, with Q2 and Q3 showing substantial growth [2] - India's imports of APIs and intermediates from China are projected to reach 3.4 billion yuan in 2024, with a rapid growth in import volume, indicating a recovery in the API industry [2] Group 4: CXO Sector Insights - The Federal Reserve's dovish stance is expected to lead to increased liquidity, with predictions of rate cuts in 2025 and 2026, which may shift investment preferences towards undervalued sectors like pharmaceuticals [3] - The recovery in overseas investment and domestic innovative drug performance is anticipated to improve local financing conditions, with a projected $58.2 billion in global healthcare financing in 2024 [3] - The demand for CXO services is expected to improve as overseas orders recover, positively impacting performance in the sector [3] Group 5: Company Recommendations - Companies benefiting from domestic innovative drug support policies include clinical CROs like Sunshine Nuohe and Nuosige, while life science upstream companies like Haoyuan Pharmaceutical are expected to benefit from overseas business recovery [4] - The generics sector is poised for growth due to policy changes, with recommendations for companies with rich pipelines and high efficiency, such as Kelun Pharmaceutical and Yifan Pharmaceutical [4]

Investment Rating - The report maintains an "Overweight" (OW) rating for the healthcare sector, particularly favoring innovative drug-related companies such as Akeso and Innovent Biologics [17][20]. Core Insights - The Hang Seng Healthcare Index (HSHCI) has shown resilience, recovering 32% from its lows after the announcement of tariffs, outperforming the Hang Seng Index (HSI) which only recovered 19% [3]. - The report highlights the increasing confidence of investors in China's innovative drug R&D capabilities, supported by significant out-licensing deals to developed countries [3][4]. - The HSHCI is expected to potentially reach or exceed its 2023 and 2022 highs in the coming years, driven by strong sales growth and ongoing out-licensing deals [4][8]. Summary by Sections Historical Context - Recent news, including a ruling against President Trump's tariff authority, positively impacted the HSHCI, which rose by 4.2% on May 29, 2025 [2]. - The HSHCI has surpassed its highest point in 2024 but remains below its 2023 peak of approximately 4,400 and 2022 peak of around 4,600 [2]. Market Performance - The HSHCI's performance has been bolstered by key deals, such as the 3Sbio-Pfizer agreement worth US$1.25 billion, and clinical data presentations from China at ASCO'25 [3]. - The report notes that the number and value of out-licensing deals have reached record levels in 2023 and 2024, continuing into 2025 [4]. Future Outlook - The report anticipates that the current momentum in the China healthcare sector will drive the HSHCI higher, with expectations of reaching its highest point from 2023 [8]. - Concerns about potential corrections post-ASCO are downplayed, as there is strong interest from overseas investors in China's innovative drug companies [9].

Core Viewpoint - The innovative pharmaceutical sector, particularly the Hong Kong Stock Connect innovative drug segment, is experiencing significant growth, with the index and major stocks showing strong upward trends [1][3]. Group 1: Market Performance - The Hong Kong Stock Connect innovative drug index (987018) has risen by 1.38%, with key stocks like Tigermed (03347) increasing over 7% and others like Kanglong Chemical (03759) and 3SBio rising over 5% [1]. - The Hong Kong Stock Connect innovative drug ETF (159570) has seen a 2.7% increase, with trading volume surpassing 700 million yuan, marking a historical high [1][3]. - Over the past five days, the Hong Kong Stock Connect innovative drug ETF has attracted a total net inflow of 736 million yuan, averaging 147 million yuan daily [3]. Group 2: Investment Trends - Leverage funds are increasingly being utilized, with the latest financing buy-in for the Hong Kong Stock Connect innovative drug ETF reaching 222 million yuan [3]. - The upcoming American Society of Clinical Oncology (ASCO) annual meeting is expected to showcase a growing number of Chinese pharmaceutical companies, with 73 studies selected for oral presentations in 2025 [3]. Group 3: Sector Analysis - Domestic innovative drugs are gaining competitive strength in the global market, with international investors showing increasing confidence in Chinese pharmaceutical companies [3]. - The Hong Kong Stock Connect innovative drug ETF (159570) has a significant focus on the innovative drug industry, with the top ten holdings accounting for nearly 72% of the total weight [4][5]. - The ETF is characterized by a high concentration in innovative drugs, with an 85% weight in this category, and is considered undervalued compared to historical sales ratios [5].

Group 1 - The report emphasizes the active overseas commercialization of innovative drugs, with several domestic innovative drugs presenting excellent data at the ASCO conference, highlighting ongoing business development (BD) opportunities and clinical progress of key pipelines [3][39]. - Key companies such as BeiGene, Innovent Biologics, and others are expected to achieve significant milestones, including BeiGene's projected non-GAAP operating profit of $45 million in 2024 and a positive cash flow in 2025 [3][4]. - The report notes that the Hong Kong pharmaceutical sector has shown strong performance, with the Hang Seng Healthcare Index rising approximately 42% year-to-date, driven by the successful execution of BD transactions and the internationalization of domestic innovative drugs [14][39]. Group 2 - The report outlines the financial forecasts for key companies, indicating that BeiGene's revenue is expected to grow from 36.69 billion HKD in 2025 to 44.36 billion HKD in 2026, with a significant increase in net profit from 1.25 billion HKD to 4.56 billion HKD [4]. - The innovative drug sector is projected to see a revenue increase of 30% year-on-year in 2024, with total revenue reaching 71.88 billion HKD, while the overall loss for innovative drug companies is expected to narrow by 29% [35][36]. - The report highlights the increasing number of license-out transactions, with 81 transactions in 2024 totaling $45 billion, reflecting a 28% year-on-year growth, and a notable deal between 3SBio and Pfizer involving a $1.25 billion upfront payment [43][44]. Group 3 - The report indicates that the pharmaceutical sector is undergoing a transformation, with leading companies like Hansoh Pharmaceutical and China National Pharmaceutical Group achieving revenue growth rates of 21% and 10% respectively in 2024 [35]. - The medical services sector is facing pressure due to the impact of healthcare insurance policies and macroeconomic conditions, which may affect growth in consumer medical services [39]. - The CXO sector is showing signs of improvement, with a focus on the recovery of orders, indicating a potential rebound in performance [39]. Group 4 - The report provides a comparative analysis of valuations, noting that the overall valuation of Hong Kong pharmaceuticals is lower than that of A-share and overseas pharmaceuticals, with a median PE of 15x for Hong Kong compared to 24.7x for A-share [12][14]. - The report highlights the significant performance disparity among sub-sectors, with innovative drugs and pharma benefiting from ongoing BD transactions and a favorable valuation correction, while medical services are under pressure [18][39]. - The report also mentions the increasing trend of dual-listed pharmaceutical companies, with the number rising from 5 in 2017 to 20 currently, indicating a growing interest in the Hong Kong market [23].

Investment Rating - The industry investment rating is "Positive" (maintained) [1] Core Viewpoints - The report highlights the significant progress in the Protac self-immune track, particularly with Kymera's STAT6 degrader molecule KT-621, which has shown complete degradation of the STAT6 target in both blood and skin at doses of ≥50mg. This molecule has the potential to treat Th2 inflammatory diseases and has demonstrated safety and efficacy comparable or superior to Dupilumab [4][11] - The pharmaceutical and biotechnology sector saw a 1.13% increase in the first week of June 2025, outperforming the CSI 300 index by 0.25 percentage points, ranking 17th among 31 sub-industries [5][14] Summary by Relevant Sections Protac Self-Immune Track Progress - Kymera's KT-621 has achieved complete degradation of the STAT6 target, which is crucial for treating Th2 type inflammatory diseases. The early efficacy and safety data are promising, and further data from patient populations are expected in the next 6-12 months [4][11][12] Market Performance - In the first week of June 2025, the pharmaceutical sector increased by 1.13%, with the raw material drug sector showing the highest growth at 2.89%. Other sectors such as blood products and in vitro diagnostics also performed well, while other biological products experienced a slight decline [5][18][20] - The report indicates that the overall market has been on a downward trend since the beginning of 2025, but the pharmaceutical sector has managed to maintain a positive trajectory [14][22] Recommended and Benefiting Stocks - Recommended stocks in the pharmaceutical and biotechnology sectors include: Heng Rui Medicine, East China Medicine, Sanofi Pharmaceutical, and others. In the CXO category, companies like WuXi AppTec and Tigermed are highlighted. The report also lists various companies across different sub-sectors such as traditional Chinese medicine, raw materials, medical devices, and retail pharmacies [5][24]

Investment Rating - The industry investment rating is "Positive" (maintained) [1] Core Viewpoints - The report highlights the significant progress in the Protac self-immune track, particularly with Kymera's STAT6 degrader molecule KT-621, which has shown complete degradation of the STAT6 target in both blood and skin at doses of ≥50mg. This molecule has the potential to treat Th2 inflammatory diseases and has demonstrated safety and efficacy comparable or superior to Dupilumab [4][11] - The pharmaceutical and biotechnology sector saw a 1.13% increase in the first week of June 2025, outperforming the CSI 300 index by 0.25 percentage points, ranking 17th among 31 sub-industries [5][14] Summary by Relevant Sections 1. Protac Self-Immune Track Progress - Kymera's KT-621 has achieved complete degradation of the STAT6 target, which is crucial for treating Th2 type inflammatory diseases. The early efficacy and safety data are promising, with further data expected in the coming 6-12 months [4][11][12] 2. Market Performance - In the first week of June 2025, the pharmaceutical sector rose by 1.13%, with the raw material drug sector showing the highest increase of 2.89%. Other sectors such as blood products and in vitro diagnostics also performed well, while other biological products saw a slight decline [5][18][20] 3. Recommended and Benefiting Stocks - Recommended stocks include major pharmaceutical and biotechnology companies such as Heng Rui Medicine, Huadong Medicine, and others across various segments including CXO, research services, traditional Chinese medicine, raw materials, medical devices, and retail pharmacies [5][24]

Investment Rating - The report does not explicitly state an investment rating for the healthcare sector in China, but it indicates a positive sentiment towards the sector due to recent stock price increases and license-out deals [1][2]. Core Insights - The surge in China biotech and pharma stock prices, with the Hang Seng Healthcare Index (HSHI) rising approximately 40% year-to-date, is attributed to significant license-out deals and external macroeconomic factors rather than internal improvements [1][2]. - Investors have polarized views on the sustainability of the recent rally, with some attributing it to external changes in the macro environment, particularly in the US healthcare policy landscape [2][3]. - There is a divergence in investor sentiment regarding license-out deals, with some viewing them as one-off events while others are optimistic about continuous outbound deals from Chinese biotech and pharma companies [3][4]. Summary by Sections Industry Overview - The healthcare sector in China has experienced a notable increase in stock prices since the beginning of 2025, driven by significant license-out deals and macroeconomic shifts [1]. Investor Sentiment - Investors are divided on the reasons behind the stock price rally, with many attributing it to external macroeconomic factors rather than improvements within the Chinese healthcare sector [2]. - Concerns exist regarding the sustainability of license-out deals, with some investors cautious about potential equity financing and the consistency of license income [3]. Fund Manager Perspectives - Generalist fund managers who missed the recent rally are now looking to participate, viewing biotech and pharma firms as a safe haven amid changing macro dynamics [4]. - There is a contrast between bullish investors, who are not concerned about current elevated valuations, and bearish investors, who prefer healthcare laggards with stable revenue growth and dividend payouts [4].

Core Insights - The CXO industry appears to have emerged from a downturn in 2025, with notable profit growth among key players such as WuXi AppTec (89.06%), Hangzhou Tigermed Consulting (32.54%), and Kelun Pharmaceutical (15.83%) [2] - However, Tigermed stands out as the only major player in the CXO sector experiencing a decline, with a 29.61% year-on-year drop in Q1 2025 following a 79.99% decline in 2024 [2][3] Financial Performance - In Q1 2025, Tigermed reported revenue of 1.564 billion yuan, a decrease of 5.79% year-on-year, and a net profit of 165 million yuan, down 29.61% [3] - The gross margin fell from 37.83% in Q1 2024 to 30.03% in Q1 2025, indicating significant challenges in profitability [3] - For the full year 2024, Tigermed's revenue was 6.603 billion yuan, a decline of 10.58%, with net profit plummeting to 405 million yuan, a drop of 79.99% [4][7] Profitability Metrics - Tigermed's profitability has sharply declined, with gross margin decreasing from 47.43% in 2020 to 33.95% in 2024, and further to 30.03% in Q1 2025 [5] - The net profit margin also fell from 63.56% in 2020 to 6.78% in 2024, highlighting a severe reduction in profitability [5] Market Dynamics - The decline in Tigermed's performance is attributed to increased competition and a reduction in financing for innovative drug companies, which impacts order volumes [8][9] - In 2024, the domestic innovative drug financing dropped to approximately 4.2 billion USD, a nearly 20% decrease, affecting cash flow for many companies [9] Strategic Positioning - Tigermed operates as both a CRO service provider and an investment entity, which has created challenges during industry downturns [10] - As of the end of 2024, Tigermed held non-current financial assets worth 10.1 billion yuan, including equity investments in several medical companies [10] - The company reported a significant loss of 502 million yuan in fair value changes in 2024, which heavily impacted its net profit [10] Contractual Developments - Despite the challenges, Tigermed secured new contracts worth 10.12 billion yuan in 2024, with a net increase of 8.42 billion yuan after cancellations, indicating some resilience [10] - In Q1 2025, the net new contract amount exceeded 2 billion yuan, reflecting a 20% year-on-year growth, primarily driven by demand from multinational pharmaceutical companies [11] Expansion Efforts - Tigermed has also completed the acquisition of Japanese CRO Medical Edge to accelerate its overseas expansion [12] - The effectiveness of these measures in mitigating the impact of investment volatility remains uncertain [12]

Core Viewpoint - The recent surge in the Hong Kong stock market, particularly in the innovative drug sector, is attributed to significant inflows of capital and positive developments in clinical research, indicating a robust growth trajectory for the industry [1][3][4]. Group 1: Market Performance - The Hong Kong stock market showed slight gains, with the Hong Kong Stock Connect innovative drug ETF (159570) rising by 3.88% and achieving a trading volume exceeding 5 billion yuan [1]. - The ETF experienced a net inflow of over 21 million yuan during the trading session, following a substantial inflow of over 91 million yuan the previous day [1]. Group 2: Company Developments - The constituent stocks of the Hong Kong Stock Connect innovative drug ETF saw collective gains, with notable increases such as over 15% for Innovent Biologics and over 3% for both CSPC Pharmaceutical Group and CanSino Biologics [3]. - Innovent Biologics presented promising clinical data at the 2025 ASCO annual meeting, showcasing its first-in-class PD-1/IL-2α-bias bispecific antibody IBI363 for treating advanced non-small cell lung cancer [3]. - Morgan Stanley has raised its sales forecasts for Innovent's products, indicating strong potential for IBI363 and IBI343 in both domestic and international markets [3]. Group 3: Industry Trends - The current wave of innovation in the pharmaceutical sector is seen as a natural progression of China's pharmaceutical industry, with a significant increase in the number of innovative drugs entering the market [4]. - The period from 2025 to 2028 is projected to be critical for Chinese innovative drug companies as they are expected to collectively enter a profitability phase, marking a significant shift in the industry [4]. - The ASCO conference highlighted a record number of 73 oral presentations for Chinese innovative drug assets, reflecting the growing international recognition and demand for these products [5]. Group 4: Investment Opportunities - The Hong Kong Stock Connect innovative drug ETF (159570) is noted for its high concentration in innovative drug companies, with over 72% of its top ten holdings in leading firms [9]. - The ETF is characterized by a high weight of innovative drugs (up to 85%) and a relatively low valuation compared to the market, making it an attractive investment option [9]. - The Chinese innovative drug sector is experiencing a surge in business development (BD) activities, with increasing recognition and transaction values for innovative drug assets [6][7].

Group 1 - The company is a global leader in the one-stop CRDMO service platform, providing comprehensive services for drug discovery, preclinical and clinical development, and commercial production for various therapies since its IPO in 2019 [1] - The company's revenue is expected to grow at a CAGR of 27.13% from 2018 to 2024, while net profit attributable to the parent company is projected to grow at a CAGR of 32.39% during the same period [1] - The number of projects and new order amounts continue to increase, with new orders expected to grow over 20% year-on-year in 2024, ensuring stable performance for the company [1] Group 2 - The global pharmaceutical R&D market remains robust, with strong outsourcing demand for CXO services [1] - According to Frost & Sullivan, the global market sizes for drug discovery CRO, clinical CRO, and CDMO in 2022 were $180 billion, $547 billion, and $749 billion, respectively, and are projected to grow to $359 billion, $818 billion, and $1,573 billion by 2027, with respective 5-year CAGRs of 14.8%, 8.4%, and 16.0% [1] - China's CXO companies are expected to increase their market share in global drug discovery CRO, clinical CRO, and CDMO from 17.7%, 10.8%, and 13.2% in 2022 to 25.3%, 22.2%, and 21.2% by 2027 [1] Group 3 - The company maintains a customer-oriented approach, with 74.84% of revenue in 2024 coming from clients using multiple services [2] - The company introduced over 900 new clients in 2024, contributing to 5.34% of revenue [2] - The company has established 21 operational entities globally, including 11 overseas, enhancing customer communication and reducing geopolitical risks [2] Group 4 - The company is expected to achieve revenues of 136.38 billion, 154.47 billion, and 176.27 billion yuan from 2025 to 2027, with growth rates of 11.10%, 13.26%, and 14.12% respectively [2] - Net profit attributable to the parent company is projected to be 18.15 billion, 21.18 billion, and 25.41 billion yuan for the same period, with growth rates of 1.20%, 16.69%, and 19.98% respectively [2] - The company is rated as a "buy" due to its unique integrated CRDMO capabilities and sufficient order backlog [2]