Tianfeng: The trend of China's innovative pharmaceutical industry is becoming clear and rapidly strengthening, with the potential to share the global pharmaceutical sales market.

Tianfeng released a research report stating that, at the current point in time, the industrial trend of China's innovative drug industry is becoming clearer and rapidly strengthening. According to DealForma data, approximately 31% of the innovative drug candidates introduced by large multinational pharmaceutical companies in 2024 are from China. As these pipelines progress and receive approval for listing, Chinese innovative drugs are expected to share the global $1.6 trillion (2023 data) pharmaceutical sales market. The share and scale of Chinese innovative drugs are worth looking forward to. Why innovative drugs? From the perspective of industry development, Tianfeng believes that the current situation is a resonance of two commercial monetization models - the revenue from the rapid growth of innovative products combined with BIC potential product output. One is the revenue and profits brought about by innovative varieties being approved for listing in China; the other is the strengthened innovation capability, overseas equity transfer of BIC potential pipelines bringing revenue and profits. Why now? In terms of pace, Tianfeng believes that both logics are in a strengthening phase. 1) The commercial logic of product listing sales is expected to accelerate over the next 25 years. The innovative drug sector may be in a phase of business model optimization, moving towards overall industry profitability. Taking A-share innovative pharmaceutical companies as an example, overall revenue growth is expected to accelerate starting from 2023 (YOY +51%), with revenue growth rates likely to remain in the 25-40% range from 2024 to 2026. More importantly, as revenue volume increases, operating leverage significantly improves, leading to a substantial acceleration in profit reduction, with a consensus expectation for overall net profit improvement rates in 2023-2025E being 34%, 42%, 87% (from wind). 2) The commercial logic of overseas equity transfer of BIC potential research varieties is also rapidly strengthening, laying the foundation for Chinese innovative pharmaceutical companies to share the global market. According to DealForma data, approximately 31% of the innovative drug candidates introduced by large multinational pharmaceutical companies in 2024 are from China. As these pipelines progress and receive approval for listing, Chinese innovative drugs are expected to share the global $1.6 trillion (2023 data) market. In 2024, in deals where large US pharmaceutical companies made upfront payments exceeding $50 million, 30% involved Chinese companies or Chinese research assets, a proportion that was almost zero five years ago. China has significant cost and efficiency advantages, with early clinical trial costs in China being only a third of those in the US, and faster patient enrollment speeds, causing US companies to prefer completing proof of concept (POC) in China before bringing assets to the US for later-stage development. According to the Insight database, the total transaction amount for China's pharmaceutical enterprises in 2024 is approximately $63.5 billion. This actually reflects the industry's shift from extensive development to focusing on global BIC and FIC development strategies after the release of the 2021 "Clinical Value-Oriented Antitumor Drug Clinical Development Guidelines," as well as promoting the concentrated release of results. Tianfeng recommends focusing on multiple main lines: (1) Global blockbuster drugs: BEIGENE (688235.SH), CoronBio (06990), AKESO (09926), BaLibertianheng (688506.SH) (2) Global products with BIC potential: Yifang Biotech (688382.SH), ZEJUN Pharmaceuticals (688266.SH), Geli Pharmaceuticals (01672), Keji Pharmaceuticals (02171), ZAI LAB (09688), HUTCHMED (00013), Lai Kai Pharma (02105), Heyu (02256), HENLIUS (02696), Foundation Medicine (02616) (3) Chinese blockbuster drugs: Shanghai Allist Pharmaceuticals Co., Ltd. (688578.SH), INNOVENT BIO (01801), Yundingxinyao (01952), HANSOH PHARMA (03692), Beijing Aosaikang Pharmaceutical (002755.SZ), Jiangsu Hengrui Pharmaceuticals (600276.SH), Betta Pharmaceuticals (300558.SZ), Hualing Pharmaceutical (02552) (4) Asset value: Hebo Pharmaceutical (02142), Heyu