Investment Rating - The report maintains a "Neutral" rating for the pharmaceutical and biotechnology industry [7][49]. Core Insights - The pharmaceutical sector has experienced a decline of 0.68% recently, ranking 19th among 31 primary sub-industries. The chemical pharmaceuticals, biological products, medical devices, pharmaceutical commerce, traditional Chinese medicine, and medical services have shown varying performance, with the medical services sector increasing by 3.29% [12][26]. - The collaboration between NVIDIA and Eli Lilly to establish an AI joint innovation lab aims to address long-standing challenges in the pharmaceutical industry, with a projected investment of up to $1 billion over five years [13]. - Tempus AI reported a revenue of approximately $1.27 billion for 2025, marking an 83% year-on-year increase, driven by significant growth in diagnostic services [14]. Summary by Sections Recent Performance - The pharmaceutical sector's return since the beginning of 2026 is 7.08%, outperforming the CSI 300 index, which returned 2.20%. However, the pharmaceutical sector lagged behind the CSI 300 by 4.88 percentage points [26]. Market Dynamics - The pharmaceutical sector's valuation is currently at 34.5 times PE based on 2026 earnings forecasts, representing a 35% premium over the overall A-share market (excluding financials). The TTM valuation stands at 30.4 times PE, below the historical average of 35.0 times PE [29]. Individual Stock Performance - Notable stock performances include Baolait and Hualan Biological, which saw increases of 48.76% and 32.72%, respectively, while stocks like Xiangrikui and Luyuan Pharmaceutical experienced declines of 37.48% and 26.62% [35]. Key Companies to Watch - The report highlights companies such as Sanofi, Innovent Biologics, and others as key focuses for potential investment opportunities [40].

Core Viewpoint - Yuyuan Pharmaceutical (688658) has submitted an application for H-share listing on the Hong Kong Stock Exchange, marking a significant move following its 2020 debut on the STAR Market. This "A+H" strategy aims to broaden financing channels amid macro policy adjustments and pressure on core products due to regulatory price cuts [1]. Group 1: Core Product and Financial Performance - The company's core product, Ginkgo biloba extract injection (Yuyuan Tong), has historically supported its performance, holding approximately 94.1% market share in China. However, recent regulatory changes have exposed vulnerabilities in this concentrated product structure [2]. - In 2024, the National Healthcare Security Administration targeted the "one drug, two prices" phenomenon, leading to a price reduction of 38% to 53% for Yuyuan Tong. This adjustment resulted in a significant revenue decline, with a 41.20% year-on-year drop in revenue for the first nine months of 2025, totaling 1.759 billion yuan compared to 2.992 billion yuan in the same period last year [2]. - The company's net profit attributable to shareholders for the first three quarters of 2025 was -148 million yuan, a 170.56% decrease from 210 million yuan in the same period of 2024, indicating challenges in transitioning its core growth engine [2]. Group 2: Fundraising Efficiency and Project Management - The market is closely watching Yuyuan Pharmaceutical's management efficiency of previously raised funds, as the company raised approximately 2.018 billion yuan during its STAR Market IPO in 2020. However, the expected outcomes from these funds have not been fully realized, with project delays noted [3]. - By the end of 2024, the "R&D Center Construction" project had only achieved 69.28% of its planned investment progress, while the "High-end Pharmaceutical Formulation Industrialization Project" reached only 59.07%. Additionally, some projects have been postponed to 2025 or 2026 due to external environment changes [3]. Group 3: Cash Flow and R&D Investment - Yuyuan Pharmaceutical's cash flow is under pressure, with a net cash flow from operating activities of 170 million yuan for the first three quarters of 2025, down over 60% year-on-year. This decline is attributed to a significant drop in revenue, while fixed R&D expenditures and production costs have not decreased proportionately [5]. - Despite facing losses, the company has maintained its R&D investment, spending 329 million yuan in the first three quarters of 2025. It is advancing multiple cutting-edge technology platforms, including small nucleic acid drugs and mRNA vaccines, although competition in these areas is intense [6]. Group 4: Market Position and Future Outlook - Yuyuan Pharmaceutical's past compliance issues may increase the scrutiny of its H-share listing process. The company's ability to attract international institutional investors will depend on the quality of clinical data from its R&D pipeline by 2026 [7]. - The H-share listing represents a defensive expansion strategy, aiming to mitigate the impact of core product price cuts and secure funding for long-term, capital-intensive nucleic acid drug development. However, the shift in capital market logic from "expectations" to "certainty" poses challenges for the company [7].

The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission take no responsibility for the contents of this Application Proof, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Application Proof. Application Proof of Youcare Pharmaceutical Group Co., Ltd. 悅康藥業集團股份有限公司 (the "Company") (A joint stock company established in the Peopl ...