Summary of the Conference Call on the Innovative Drug Industry Chain Industry Overview - The innovative drug industry is expected to show signs of recovery in 2024 and 2025, with a significant increase in BD transaction amounts indicating a rebound in market activity [1][3] - The growth investment opportunities are primarily driven by the launch and commercialization of blockbuster drugs, leading to increased CDMO outsourcing orders, particularly in the expanding markets for peptide drugs (e.g., teriparatide) and GLP-1 weight loss medications [1][3] Key Companies and Growth Opportunities - **WuXi AppTec** is highlighted as a beneficiary due to its ample production capacity, particularly in the peptide sector [1][4] - **Zhaoyan New Drug** is noted for its improving profitability margins, driven by the rebound in the price of experimental monkeys [1][3] - **Tigermed** is expected to see improvements in profitability due to better order structures, which will manifest in 2026 [1][3] - **Boteng Co.** is set to improve its gross margin and capacity utilization due to the recovery of core orders from major clients [2][4] Market Trends and Projections - The peptide and ADC (antibody-drug conjugate) markets are identified as two critical growth segments, with the ADC market projected to maintain a compound annual growth rate (CAGR) of over 30% in the coming years [1][4] - The sales growth of teriparatide has exceeded expectations, positively impacting the performance of related CDMO companies [1][4] Investment Cycle Insights - The innovative drug industry is currently in a new upward cycle, with historical investment cycles averaging 3-4 years. The low point of the current cycle was in 2022, with a gradual recovery expected in 2024 and 2025 [3][4] - The total BD transaction amount in 2025 is anticipated to significantly exceed that of 2024, reflecting a warming market sentiment [3][4] Additional Considerations - The clinical CRO sector, represented by Zhaoyan New Drug, is showing signs of marginal improvement due to price rebounds, while Tigermed's order structure improvements are expected to enhance profitability [1][3][4] - The focus on companies with strong production capacity and stable supply capabilities is crucial for capitalizing on the upcoming growth in the innovative drug sector [1][4]

Investment Rating - The report maintains a positive outlook on the CXO sector, highlighting growth potential driven by new molecular developments and recovery in domestic market conditions [2]. Core Insights - The CXO sector is experiencing a recovery in demand due to increased research activities and funding from downstream pharmaceutical companies [3][15]. - The macroeconomic environment is improving, with a favorable investment climate for the pharmaceutical and biotechnology sectors as a result of the Federal Reserve's interest rate cuts [6][29]. - Domestic healthcare investment is showing significant growth, with a total investment amount of 93.54 billion yuan in 2025, reflecting an 83.7% year-on-year increase [22][24]. - The number of new drug IND applications in China is steadily increasing, indicating a robust pipeline for future drug development [34][37]. Summary by Sections Macroeconomic Dimension - The Federal Reserve's interest rate cuts are expected to enhance the investment environment for the pharmaceutical sector, benefiting outsourcing demand from pharmaceutical companies [6][29]. - Geopolitical uncertainties are gradually being alleviated, which is expected to positively impact leading CXO companies [3][12]. Industry Dimension - The demand for CXO services is closely linked to the research activities and funding of pharmaceutical companies, with a notable increase in domestic and global investment in healthcare [15][19]. - In 2025, the total investment in China's healthcare sector reached 93.54 billion yuan, with a significant increase in the number of investment events [22][24]. - The number of new drug IND applications in China reached 1,840 in 2025, marking a 15.0% year-on-year increase [34][37]. Company Performance - The CXO sector's revenue for the first three quarters of 2025 was 69.57 billion yuan, representing a 13.0% increase year-on-year, with a net profit of 16.54 billion yuan, up 60.0% [51][57]. - Major contributors to revenue include WuXi AppTec (47%), Kanglong Chemical (15%), and Tigermed (7%) [53][57]. - The overall gross margin for the sector improved to 40.3%, reflecting operational efficiencies and scale effects [51][58].

Group 1 - The core point of the news is the significant acquisition activity in the domestic CXO industry, specifically the voluntary conditional cash offer by WuXi AppTec's subsidiary, WuXi Biologics, to acquire all issued shares of Easton Biopharma at a premium of approximately 99% over its undisturbed closing price [1] - The offer price is set at 4 HKD per share, with a maximum total consideration of about 3.1 billion HKD if fully accepted [1] - Following the announcement, Easton Biopharma's stock surged over 78%, while WuXi Biologics' stock fell by more than 4.8% [1] Group 2 - WuXi Biologics is a leading player in the domestic CXO sector, holding a 50.82% stake in WuXi Biologics [1] - WuXi Biologics reported a financial performance forecast for 2025, expecting revenue growth of over 45%, gross profit growth exceeding 70%, and adjusted net profit growth of over 45%, with a projected growth rate exceeding 65% after excluding currency fluctuations [2] - The company plans to invest over 7 billion CNY from 2026 to 2029 to expand its ADC production capacity, significantly outpacing the industry average [2] Group 3 - Easton Biopharma, established in 2010 and listed in 2019, transitioned to the CXO sector in 2020, focusing on biopharmaceutical CDMO services [3] - In the first half of 2025, Easton Biopharma reported revenues of 489 million CNY and a net profit of 4.06 million CNY, with a total of 85 clients served [3] - The company has a flexible production capacity with multiple commercial production lines, including 30,000 liters annual capacity for antibody bulk and 530,000 bottles for ADC formulations [3] Group 4 - On the same day, Aopumai announced the completion of a share transfer with Pengli Biotech, marking the latter as a wholly-owned subsidiary for a transaction price of 1.45 billion CNY [4] - Aopumai, founded in 2013, specializes in cell culture solutions and end-to-end CDMO services, having been listed on the STAR Market in 2022 [4] - Pengli Biotech, established in 2008, is one of the earliest CRO companies focused on preclinical pharmacodynamic research in China [5]

Core Viewpoint - In 2025, the Hang Seng Healthcare Index achieved a remarkable annual increase of 56.95%, driven by a bull market in innovative drugs, with CXO stocks also performing exceptionally well, particularly WuXi Biologics, which saw a stock price increase of 79.04% during the year [1] Group 1: Company Performance - WuXi Biologics' stock price reached over 40 HKD per share by January 14, 2026, with a year-to-date increase exceeding 28%, reflecting market revaluation of the innovative drug supply chain and sustained investment interest in CXO leaders [1] - The company raised its full-year revenue guidance for 2025 to 14%-16%, indicating a return to a high-growth trajectory [1] - In 2025, WuXi Biologics added 209 new comprehensive projects, with two-thirds focused on dual antibodies and antibody-drug conjugates (ADCs), bringing the total to 945 projects [3] Group 2: Business Structure and Growth - The acceleration from research (R) to development (D) to manufacturing (M) is a key driver of WuXi Biologics' rapid growth, with clinical projects increasing significantly across all stages [3][5] - The number of clinical projects in the preclinical stage reached 463, a year-on-year increase of 15.17%, while early-stage clinical projects grew by 16.77% to 383 [3] - The dual antibody business is particularly noteworthy, with 196 projects in the pipeline, a 30% increase year-on-year, contributing nearly 20% of total revenue with over 120% year-on-year growth [5] Group 3: Technological Advancements - WuXi Biologics has developed several advanced technology platforms, including WuXiBody™ for dual antibodies and WuXiUP™ for high-efficiency continuous bioprocessing, enhancing its capabilities in drug development [10] - The introduction of the PatroLab™ digital twin platform allows for real-time monitoring of over 40 key process performance attributes, significantly improving efficiency and data insights [10] Group 4: Global Expansion and Market Position - The company has expanded its global service network, establishing a "global six-pole" strategy that includes locations in China, Ireland, Germany, the U.S., Singapore, and Qatar [11] - The "global dual factory" strategy enables WuXi Biologics to replicate successful production processes and management systems internationally, addressing diverse supply chain needs [13] Group 5: Investment Potential - The combination of strong internal growth potential from complex molecules and commercial production, along with a robust global network, enhances WuXi Biologics' investment certainty [14] - Despite a stock price increase of nearly 80% in 2025, the company's PE ratio remains at 33.76, lower than peers like Lonza and Samsung Biologics, indicating significant long-term investment value [15]

Core Insights - The Chinese innovative drug industry is entering a new prosperous era characterized by significant BD transactions and a focus on source innovation [1][10] - This revival not only leads to valuation recovery for innovative drug companies but also reshapes the entire innovative drug industry chain [1][10] - The CXO industry and internet distribution platforms are expected to benefit from this growth cycle, emerging as "invisible winners" in the innovative drug boom [1][10] CXO Industry - WuXi AppTec, as a leader in the CXO industry, possesses a unique logic of beta and alpha resonance during this innovative drug prosperity cycle [2][11] - WuXi AppTec is projected to achieve approximately 45.456 billion yuan in revenue for 2025, a year-on-year increase of about 15.84%, with adjusted net profit expected to reach approximately 14.957 billion yuan, up 41.33% [3][12] - The company's growth is attributed to its integrated CRDMO (Contract Research, Development, and Manufacturing) business model, which significantly reduces R&D costs and complexity [3][12] Innovative Drug Commercialization - The number and quality of innovative drugs approved in China are experiencing explosive growth, with 76 innovative drugs approved in 2025, a 58.3% increase from 48 in 2024 [5][15] - New commercial channels, particularly internet platforms like JD Health and Alibaba Health, are emerging as core strategic channels for innovative drug commercialization [5][15] - JD Health has established itself as the "first station for new specialty drugs," allowing innovative drugs to be launched online immediately after approval, enhancing accessibility for patients [5][15][16] Investment Opportunities - The industry’s growth is expanding from solely innovative drug R&D companies to the entire supply chain, creating significant investment opportunities [17] - Index theme funds are suggested as a means for ordinary investors to access the overall sector, with the Hong Kong Stock Connect Medical ETF (159137) covering about 70% of the core assets in the innovative drug supply chain [17][19] - The ETF includes leading companies in the medical AI sector and high-end medical devices, effectively covering industry hotspots [18][19]

Group 1 - The core viewpoint of the article is that the Hong Kong innovative drug sector has seen a significant recovery in liquidity since the beginning of 2026, leading to a positive market outlook [1] - The report highlights that the upcoming JPM Healthcare Conference is expected to further boost the Chinese biopharmaceutical (BD) transactions, which have already shown substantial growth compared to the same period last year [1] - Huatai Securities anticipates that the liquidity recovery at the start of the year will trigger a clear beta rally in innovative drugs, with expectations of breaking previous highs [1] Group 2 - The external demand-driven Contract Research Organization (CXO) sector is expected to continue exceeding performance expectations due to the demand for new molecules, potentially resonating with the innovative drug sector [1]

Core Viewpoint - The Hong Kong Stock Connect medical sector has experienced a significant rally, with the Hong Kong Stock Connect Medical Theme Index achieving a record nine consecutive days of gains as of January 14, 2026, marking the longest winning streak in history [1]. Group 1: ETF Performance - The Huabao Hong Kong Stock Connect Medical ETF (159137) has seen substantial growth since its listing on January 12, 2026, with daily increases of 4.7%, 3.44%, and 2.49%, and a total trading volume reaching 259 million yuan today [1][3]. - The ETF covers 50 leading stocks across various medical fields, with notable performances from Alibaba Health, which surged by 18.96%, and other stocks like Yimai Sunshine and MicroPort Scientific, which rose by 9.98% and 8.62% respectively [3][4]. Group 2: Market Catalysts - Three main catalysts are driving the momentum in the Hong Kong Stock Connect medical sector: 1. The brain-computer interface (BCI) industry is entering a rapid industrialization phase, with companies like Neuralink and Brain Tiger Technology making significant advancements and investments [5][6]. 2. Major players are entering the AI medical field, with partnerships such as NVIDIA and Eli Lilly committing $1 billion to AI drug development, indicating a shift towards AI-driven healthcare solutions [6][7]. 3. The CXO (Contract Research Organization) sector is showing signs of recovery, with WuXi AppTec forecasting a net profit of 19.151 billion yuan for 2025, reflecting a year-on-year increase of approximately 102.65% [7][8]. Group 3: Industry Trends - The demand for CRO and CDMO services is gradually recovering, supported by a reduction in supply over the past three years, which may lead to simultaneous profit and valuation increases in the sector [8].

Core Viewpoint - WuXi AppTec is expected to achieve a revenue of approximately 45.5 billion yuan in 2025, reflecting a year-on-year growth of about 15.84%, driven by strong performance in its chemical business and TIDES operations [1] Group 1: Financial Performance - The company anticipates a non-GAAP net profit of around 13.2 billion yuan in 2025, representing a year-on-year increase of approximately 32.56% [1] - The net profit attributable to shareholders is projected to be about 19.1 billion yuan, showing a year-on-year growth of approximately 102.65%, with a net profit margin exceeding 40% [1] - Multiple core profit indicators are growing significantly faster than revenue, indicating improved operational efficiency and profit quality alongside scale expansion [1] Group 2: Market Reaction - Following the earnings forecast announcement, both A-shares and H-shares of WuXi AppTec saw a substantial increase, leading the gains in the A-share pharmaceutical sector, with the CSI Medical Index rising by 2.85% and the CS Innovative Drug Index by 2.37% [1] - This market reaction reflects a revaluation of the company's earnings certainty and long-term value [1] Group 3: Structural Support for Growth - The current growth of WuXi AppTec is attributed to business structure optimization and the release of scale effects, rather than merely relying on cyclical recovery [2] - The revenue growth of the continuing operations exceeds overall revenue growth, indicating strengthened competitiveness in core business [2] - Profit margins and cash generation capabilities are improving, showcasing the company's systematic advantages in cost control, resource allocation, and project execution [2] Group 4: Governance and Long-term Value - The company has actively responded to regulatory guidance by completing mid-term dividends, with cumulative dividends and buybacks reaching 20 billion yuan since its listing, averaging a dividend payout ratio of about 44% [3] - WuXi AppTec's robust performance amidst complex external environments is supported by its mature governance system and long-term strategic focus [3] - The management's foresight regarding industry trends and deep understanding of global customer needs contribute to sustained order growth, reflecting the company's core competitiveness [3] Group 5: Market Assessment Post-Reduction - Following the completion of a recent share reduction, the company's stock price remained stable, with the average reduction price estimated at around 89 yuan, significantly lower than the market price of 106.50 yuan on January 13 [4] - Investors who bought shares after the reduction announcement generally achieved positive returns, validating the notion that "earnings are the best stabilizer" [4] - As uncertainties are gradually resolved, market evaluations are shifting focus back to operational quality, cash flow capabilities, and long-term growth potential [4]

Group 1 - The pharmaceutical sector is leading the market with significant gains, driven by multiple overseas innovative drug collaborations and catalysts [1] - Notable partnerships include Rongchang Biopharma's licensing agreement with AbbVie, which involves an upfront payment of $650 million and potential milestone payments of $4.95 billion, along with double-digit sales royalties [1] - WuXi AppTec has projected a revenue increase of 15.84% for 2025, with adjusted net profit expected to rise by 41.33%, exceeding market expectations [1] Group 2 - AI in healthcare is gaining momentum, with OpenAI integrating health dialogue features into ChatGPT, allowing users to share medical records and connect with various health applications [2] - Tempus AI reported a 111% year-over-year increase in diagnostic revenue, reaching $955 million, highlighting the rapid growth of AI in the medical field [2] - The pharmaceutical sector's global competitiveness is strengthening, with ongoing commercialization and profitability, particularly in innovative drug companies and CXO sectors [2]

Core Insights - The PD-1/VEGF dual antibody sector is experiencing a divergence, with Yiming Biotech facing setbacks due to the return of its PD-L1/VEGF dual antibody by partner Axion, while Rongchang Biotech secured a significant licensing deal worth $5.6 billion with AbbVie, highlighting the increasing differentiation within the dual antibody space and outlining the core investment theme for 2026: certainty [1][2] Group 1: Investment Trends - The investment landscape in the pharmaceutical sector is shifting from a focus on broad-based licensing deals to a preference for certainty in value, emphasizing three core anchors: expectation certainty, product certainty, and performance certainty [2][6] - The previous trend of "BD is king" in 2025 led to a surge in licensing deals, but the market is now recalibrating its valuation logic, moving away from blind enthusiasm towards a more rational assessment of the feasibility of these deals [1][2] Group 2: Expectation Certainty - Expectation certainty involves a rational evaluation of the feasibility of BD transactions rather than blind pursuit of total deal amounts, as the probability of new drugs progressing from early clinical stages to market approval is only 7.9% [3][4] - The competitive landscape in the PD-1/VEGF dual antibody sector shows that not all players can achieve their expected value due to overlapping targets and indications, mirroring past trends in the PD-1 monoclonal antibody market [3][4] Group 3: Product Certainty - Product certainty focuses on the potential for substantial sales post-launch, with products that have clear growth logic expected to command higher valuations [5][6] - WanTai Biotech's nine-valent HPV vaccine, priced at 499 yuan per dose (40% of imported vaccines), is positioned for significant market penetration, while Innovent Biologics' Ma Shidu peptide faces challenges due to increased competition and pricing pressures, leading to diminished commercial value [5][6] Group 4: Performance Certainty - Performance certainty seeks companies and sectors with clear growth or recovery expectations, as the essence of investment is capturing expectation differences [7][8] - WuXi AppTec's profit forecast for 2025 indicates a significant growth of 41.33% year-on-year, reflecting its foundational role in the global pharmaceutical supply chain and a potential recovery in valuation due to increased R&D investments [7][8] - The vaccine sector is also poised for recovery, with domestic companies expected to benefit from a broad replacement market and initial overseas expansion, indicating a favorable investment outlook [7][8]