China Galaxy Securities: Review of the fifth set of standards for the Science and Technology Innovation Board significantly driving investment in the pharmaceutical industry.

China Galaxy Securities released a research report stating that the "Science Eight Measures" issued in June 2024 sent a positive signal for the restart of the fifth set of listing standards for the Science and Technology Innovation Board. The pharmaceutical sector has undergone a long period of adjustment, with valuations and institutional holdings at historical lows. Future reforms in diversified payment methods in commercial insurance are expected to bring marginal improvements from a policy perspective, and there are good long-term investment opportunities in pharmaceutical innovation and related industrial chains. China Galaxy Securities' main points are as follows: The fifth set of standards for the Science and Technology Innovation Board has driven investment and financing in the pharmaceutical sector, becoming an important channel for domestic pharmaceutical biotech financing and investment institutions to exit. The fifth set of standards for the Science and Technology Innovation Board focuses on "market value + research and development." From 2019 to date, 20 biopharmaceutical companies have landed on the Science and Technology Innovation Board through the fifth set of standards. The opening of the fifth set of standards has attracted a large amount of primary market capital into the biopharmaceutical field, significantly increasing the industry's investment and financing activity. According to data from Artery Orange, the total amount of investment and financing in the domestic biopharmaceutical industry reached $34 billion in 2021, reaching a peak in recent years. In the past two years, with the increase in IPO thresholds for the Science and Technology Innovation Board, the overall industry valuation correction in the secondary market, and the decline in investment return rates at high levels, investment and financing in the pharmaceutical industry has significantly decreased. After the listing of the 20th company, Zhixiang Jintai, in June 2023, the IPO approval process for unprofitable companies applying for the fifth set of standards entered a substantive pause stage, and the timing of resumption has been closely watched. The release of the "Science Eight Measures" in June 2024 marks the start of a new round of deepening reforms for the Science and Technology Innovation Board, releasing a positive signal for restarting the fifth set of listing standards. The fifth set of standards for the Science and Technology Innovation Board has facilitated the transformation of research and development achievements with significant results. Since the opening of the Science and Technology Innovation Board in 2019, with the help of the capital market, the number of research and development pipelines of companies has significantly increased. The 20 companies listed with the fifth set of standards have collectively received approval for 9 Class I new drugs, driving a total of 45 pipeline projects into the application for listing or registration clinical stages. They have completed more than 10 external licensing cooperation deals, with a total transaction amount of nearly $6.2 billion. Thanks to the realization of innovative pipelines and the volume of blockbuster products, the 20 companies achieved a total operating income of 6.435 billion yuan in the first half of 2024, a year-on-year increase of 54.25%. In terms of profitability, one-third of the companies listed with the fifth set of standards have achieved profitability and successfully removed the "U" label. Behind the emergence of achievements, the annual compound growth rate of R&D investment of the 20 companies reached 23%, consistently higher than other sectors of the A-share market. Investment viewpoint: From the perspective of long-term certainty growth, it is recommended to pay attention to companies listed with the fifth set of standards, such as Dizal Pharmaceutical (688192.SH), Shanghai Allist Pharmaceuticals Co., Ltd. (688578.SH), JUNSHI BIO-U (688180), Mabwell (688062.SH), Suzhou Zelgen Biopharmaceuticals (688266.SH), etc. Risk warning: Risks include the progress of innovative drug research and development being below expectations, delays in the approval process of innovative drugs and devices, excessive cost control and price reductions in medical insurance and centralized procurement, and difficulties in financing for innovative drug and device companies, among others.