Group 1: Core Insights - The pharmaceutical industry is entering a clear upward cycle with significant growth opportunities in innovative drugs and the innovation chain, driven by supportive policies and a global expansion trend [3][10] - The Chinese innovative drug sector is increasingly favored by international capital, with a record high of 149 transactions in 2025, accounting for 11% of global transaction numbers and 29% of total transaction value [10][37] - The introduction of commercial health insurance into the medical insurance negotiation process in 2025 is expected to diversify the payment system for innovative drugs, enhancing their market accessibility [10][37] Group 2: Innovative Drugs - The upward policy cycle supports innovation, with the latest round of drug procurement entering a new phase of quality-price balance, as seen in the 11th batch of centralized procurement [10][30] - The global patent cliff from 2025 to 2037 is projected to create a gap exceeding $300 billion, prompting multinational corporations (MNCs) to pursue business development (BD) and acquisitions to fill this gap [10][45] - Chinese innovative drugs are positioned to capitalize on this trend, particularly in areas such as second-generation immune-oncology (IO) and next-generation antibody-drug conjugates (ADCs) [10][50] Group 3: Innovation Chain - The innovation chain, including Contract Development and Manufacturing Organizations (CDMO) and Contract Research Organizations (CRO), is benefiting from both domestic and international demand, with CDMO orders showing a positive growth trend [12][12] - The overseas biopharmaceutical investment environment is improving, with a notable increase in funding as interest rates decline, which is expected to enhance the overall industry cycle [12][12] - The life sciences service sector is witnessing a recovery, driven by increasing domestic research demand and improved conditions for innovative drug development [12][13] Group 4: Market Opportunities - The domestic market for innovative drugs is projected to grow significantly, with over 400 innovative drugs approved since 2020, indicating strong internal growth potential [62][66] - As innovative drug companies transition to profitability, there is a potential shift in valuation methods from P/Peak Sales to PE, attracting broader investment interest [66] - Key companies to watch include AiLisi, Yunding Xinyao, and Kangnuo Ya, which are expected to benefit from the commercialization of innovative products [66]

Core Viewpoint - Jefferies initiates coverage on Basilea Pharmaceutica B (02616) with a buy rating and a target price of HKD 20, highlighting the potential of CS2009 as a backbone therapy in the IO 2.0 era due to its unique three-specificity antibody design and commercial collaboration prospects [1] Group 1: Product and Pipeline - CS2009 is positioned to leverage advantages in overall survival and commercial collaboration potential, especially as PD-1 patents near expiration and global interest in OS-driven immuno-oncology assets increases [1] - Basilea has developed a unique and modular ADC platform, which serves as another key pillar of its 2.0 pipeline [1] Group 2: Business Development and Achievements - Basilea has an excellent track record in business development, having executed 9 collaboration deals for 5 products, making it one of the first biotech companies in China to generate royalty income through strategic partnerships [1] - The achievements during the "1.0 era" have provided critical funding to accelerate pipeline progress and support the transition to innovation-driven growth, laying a solid foundation for future global expansion [1]

Core Viewpoint - The significant increase in Hong Kong Stock Connect holdings of Hengrui Medicine, with a staggering 5879% rise, indicates strong investor interest and confidence in the company, marking it as a leading player in the pharmaceutical sector [1][3]. Group 1: Stock Performance - Hengrui Medicine's stock price surged from 45 HKD on its debut to 74 HKD by the end of September, reflecting a 113% increase, while its A-share counterpart only rose by 29% during the same period [3][4]. - The trading volume of Hengrui's H-shares increased dramatically from just over 700,000 shares to 42.87 million shares within three months, averaging a net increase of over 200,000 shares per trading day [3][4]. Group 2: Market Dynamics - The proportion of Hong Kong Stock Connect holdings in Hengrui's H-shares rose from 0.2% to 12%, equating to approximately 36 billion HKD, which is comparable to the market capitalization of a mid-sized pharmaceutical company [4]. - The market sentiment was further bolstered by a significant deal with GSK, involving a 5 billion USD upfront payment and potential milestones of up to 12 billion USD, which led to a 10% price increase on the day of the announcement [3][4]. Group 3: Investment Rationale - The influx of southbound funds is attributed to a narrowing of the interest rate differential between Hong Kong and the US, alleviating liquidity concerns, alongside Hengrui's high-quality pipeline of drugs that are in demand by multinational pharmaceutical companies [5]. - The valuation gap between Hengrui's A-shares and H-shares presents an arbitrage opportunity, with the H-shares being valued at 300 billion HKD compared to 350 billion RMB for the A-shares, making it an attractive investment [5].