Overall, the performance of domestically produced drugs overseas has become a focal point of industry attention.
According to Zhitong Finance APP, Orient Securities released a research report stating that due to the previous concentrated expectations and sentiment in the innovative drug sector, the sector has been experiencing continuous fluctuations since the beginning of this year. Recently, as investor sentiment cools, the volatility has further intensified. In the short term, due to ongoing market sentiment recovery and adjustments in capital structure, volatility may continue. However, the bank believes that the long-term trends of globalization acceleration, innovative technology breakthroughs, and industrial upgrading have not fundamentally changed, and the underlying logic supporting the mid-to-long term positive outlook for innovative drugs remains intact. Considering that valuations of high-quality leading enterprises have entered a reasonable range, it is recommended to actively focus on investment opportunities at lower positions after sentiment stabilizes, primarily concentrating on the following three main themes.
The key viewpoints of Orient Securities are as follows:
The focus has shifted from 'whether they can go global' to 'progress after going global.'
In the past period, the market paid more attention to upfront payments and total package amounts for out-licensing deals. When specific figures were hard to surpass market expectations, short-term trading opportunities had already been fully exploited. The bank believes that the core focus of innovative drug globalization has now shifted from 'whether they can go global' to the progress of clinical deployments overseas, key data reads, milestone achievements, and the extent of 'global realization,' which will become particularly crucial in the future. For example, Pfizer recently stated its commitment to advancing the global Phase III enrollment for SSGJ-707 and expanding multiple indications, including combination trials with ADC. Summit also updated the progress of the HARMONi-3 trial during its earnings call; the squamous subgroup is expected to complete enrollment in the second half of this year, with potential interim PFS analysis and final PFS data readout by the first half of next year. Overall, the realization of domestic drugs overseas has become a focal point in the industry.
Frontier technologies continue to achieve breakthroughs, with the potential to lead globally.
Chinese companies are gradually taking the lead in new therapeutic fields such as small nucleic acids and cell therapy, and are expected to become core assets in global transactions based on superior clinical data: a) This year marks a breakthrough year for small nucleic acids, which are no longer limited to rare diseases and metabolic disorders. Advances in delivery technology are systematically expanding their application to more chronic disease treatment scenarios, offering significant commercial value. For instance, companies like Hengrui, Bowang, and Ruibo are actively developing delivery technologies targeting fat, the central nervous system, and kidneys; b) Early clinical validation of in vivo CAR-T has proven effective, and the technical pathway's certainty has increased. With advantages such as simpler production and usage processes and lower costs, it is expected to become a mainstream direction. Amid strong demand from multinational corporations (MNCs), multiple deals are anticipated in the future.
Outstanding commercial performance, with profitability inflection points arriving ahead of schedule.
Leading innovative drug companies are entering a positive cycle of 'product ramp-up feeding back into R&D.' As core products of innovative drug companies gradually enter the commercialization phase, leveraging rapid scaling through medical insurance and commercial insurance, performance is expected to exceed market expectations. The bank believes this year could be a critical window for the sector to turn losses into profits, with the March-April earnings season serving as an important verification point. Leading companies demonstrate outstanding commercial capabilities, and some innovative drug companies exhibit high growth potential, warranting a potential revaluation of their value.
Investment advice and recommendations
Overall, the innovative drug sector is experiencing heightened volatility due to short-term external shocks, but the long-term industrial trend is clear. The current pullback has been relatively sufficient. After market fluctuations stabilize, it is recommended to focus on the three main themes of global realization, frontier technology breakthroughs, and profitability inflection points, positioning investments in high-quality innovative drug companies with global competitiveness. Relevant targets include: Kelun-Biotech-B, 3SBio, Akeso Biopharma, Frontier Biotech-U, Ruibo Biotech-B, CSPC Pharma, BeiGene U, Innovent Bio, and Aligos Therapeutics, among others.
Risk Warning
Risks associated with key clinical failures of new technologies, new targets, and new products in innovative drugs; risks of innovative drug sales revenue falling short of expectations; and risks of sustained low levels in global biopharmaceutical industry investment and financing.
