China Securities Co., Ltd.: Policy encouragement + new technology promotion + opportunities for going global, continue to be optimistic about the innovative pharmaceutical industry.

China Securities Co.,Ltd. released a research report stating that innovative pharmaceutical companies saw year-on-year growth in revenue in Q3 2024, narrowing losses, and maintaining steady research and development expenses. In terms of policies, centralized procurement and medical insurance negotiations have become normalized, commercial insurance brings potential incremental revenue, and support for innovative drugs is expected to increase further. In terms of technology, global sales of ADC drugs reached $10.4 billion in 2023, Chinese related companies are accelerating their layout and promotion of ADC, ushering in a period of gains; the GLP-1 weight loss track has matured, competition has shifted from single-weight loss to multiple benefits, and new targets offer potential opportunities for international expansion; the IO multi-antibody track AK112 has achieved a breakthrough, and TCE technology is moving from blood tumors to solid tumors and self-immune. China's innovative pharmaceutical industry's global competitiveness continues to strengthen, and the NewCo model has become a new choice for innovative drug internationalization. National policies encourage the development of innovative drugs, new technologies drive rapid industry growth, international expansion brings new opportunities, and the outlook for the innovative drug industry remains positive. Key points from China Securities Co.,Ltd.: Innovative pharmaceutical companies: Revenue growth year-on-year, narrowing losses. A-share innovative pharmaceutical companies saw revenue growth in Q1-Q3 2024, narrowed losses, and maintained steady research and development expenses. Overall, affected by performance, industry policies, and macroeconomic conditions, the average stock price of innovative pharmaceutical companies fell by around 20%, with a decrease in cash on hand. It is also expected that under the trend of industry compliance improvement, the sales expense ratio of A-share innovative pharmaceutical companies will continue to gradually decrease. Policy outlook: Centralized procurement and national negotiations normalized, commercial insurance brings potential incremental revenue. Volume-based procurement has become normalized, evolving from 2-3 batches per year to 1-2 national centralized procurement batches per year. National centralized procurement continues to expand the coverage of drug procurement, with a stable increase in the number of varieties. The success rate of drug negotiations under national medical insurance negotiations continues to be high, with a negotiation success rate for innovative drugs exceeding 90% and domestic products accounting for over 70%. In recent years, various departments have repeatedly issued policy documents related to commercial insurance, and the importance of commercial insurance in policies has been enhanced with more specific content, and the level of support policy has increased. Policies in the field of precision anesthesia drugs have been improved in recent years, and control over anesthetic drugs and certain psychoactive drugs remains strict. Technical outlook: Positive outlook for the development of ADC, GLP-1, IO multi-antibody, and TCE. Global sales of ADC drugs reached $10.4 billion in 2023, with Enhertu sales of $2.456 billion ranking first. Domestic companies such as KELUN-BIO, Jiangsu Hengrui Pharmaceuticals, Bailingtianheng, INNOVENT BIO, CSPC Innovation Pharmaceutical are accelerating the layout and promotion of ADC, gradually entering a period of gains. ADC new targets such as DLL3, PSMA, ROR1 show great potential. The GLP-1 weight loss track has matured, with diversified oral and subcutaneous drugs, shifting from single-weight loss to multifaceted benefits, and new targets offer potential opportunities for international expansion. The IO multi-antibody track AK112 was the first to achieve a breakthrough, showing potential in IO drug resistance and IO cold tumors, and TCE technology is moving from blood tumors to solid tumors and self-immune. Outlook for innovative drug internationalization. China's innovative pharmaceutical industry's global competitiveness continues to strengthen, and the NewCo model has become a new choice for innovative drug internationalization. The international potential of excellent products continues to be highly regarded. China Securities Co.,Ltd. believes that, compared to down payments, total transaction amounts, and model selection, the progress, recommendation willingness, and follow-up pace of partners are more important.