Huayuan Securities: The potential of PD1/VEGF/IL-2 is promising, persist in innovative drugs as the main focus for the whole year.

Huayuan Securities released a research report stating that overall, the pharmaceutical industry is continuing to gradually improve in 2025, and operating performance is expected to further improve in 2026. Structural high-growth sub-sectors and individual stocks are worth looking forward to. Adhering to "innovation" as the main theme for the full year of 2025, attention should be paid to assets with relatively low valuations in the second half of the year, such as "going overseas and aging". Huayuan Securities' main points are as follows: The complementary mechanisms of PD1/VEGF/IL-2 triple antibody are obvious. It is recommended to pay attention to Shanghai Yizhong Pharmaceutical (688091.SH). Target mechanisms: 1) PD-(L)1: The PD-1 and its ligand PD-L1 pathway control the induction and maintenance of immune tolerance in the tumor microenvironment. The activity of PD-1/PD-L1 is responsible for the activation, proliferation, and cytotoxic secretion of T cells in cancer, thereby reducing the degenerative anti-tumor immune response; 2) VEGF(R): Vascular endothelial growth factor (VEGF) is a factor that regulates blood vessel formation. VEGF is expressed in many tumors and induces the formation of abnormal tumor blood vessels, stimulating the formation of tumor blood vessels, making them leaky, twisted, and immature. VEGF is involved in the entire process of tumor growth and is the most important angiogenic factor; 3) IL-2(R): In the tumor microenvironment (TME), the IL-2/IL-2R signaling pathway has a complex role. It can promote the expansion of Tregs to suppress anti-tumor immunity, and it can also enhance the infiltration of cytotoxic T lymphocytes and natural killer cells to enhance anti-tumor immunity. Due to the dual role of IL-2(R) in the tumor microenvironment, the development of IL-2(R) therapy requires a more precise strategy. The triple antibody YXC-001 being researched by Shanghai Yizhong Pharmaceutical integrates the PD-1, VEGF, and IL-2 triple targets into a single molecule, with a higher degree of mechanism integration and in vivo synergistic efficiency. The treatment strategy is highly feasible and is expected to demonstrate significant advantages in terms of efficacy consistency, pharmacokinetic coordination, and immune activation precision. Adhering to innovative drugs as the main theme for the full year, attention should be paid to assets with relatively low valuations in the second half of the year, such as manufacturing going overseas and aging consumer goods. The pharmaceutical industry rebounded significantly in 2025 under the leadership of innovative drugs. Chinese innovative drugs are the industry trend for the next 10 years, with clear investment opportunities. In addition, medical consumption and pharmaceutical manufacturing performance are expected to bottom out and rebound from 2025H2 to 2026H1, and valuations may further recover. Structural market trends may continue to evolve. China Meheco Group's industry has basically completed the transformation of old and new growth drivers (innovation replacing imitation, improving overseas capabilities). In particular, innovative drugs have significantly opened up a new growth curve for China Meheco Group enterprises, specifically: 1) Chinese innovative drugs such as ShenZhen New Industries Biomedical Engineering have already established a scale. Traditional pharmaceutical companies such as Jiangsu Hengrui Pharmaceuticals (600276.SH, 01276), HANSOH PHARMA (03692), SINO BIOPHARM, etc., have completed a magnificent transformation to innovation. Innovative drug companies such as Sichuan Biokin Pharmaceutical (688506.SH), SKB BIO-B (06990) are quickly rising globally in a "First-in-class" manner. 2) Overseas capabilities are accelerating, and Chinese pharmaceutical companies have become an important source of innovation transformation for MNCs. Medical equipment, supply chains, etc., have already established a prominent position globally, showing strong presence in developed markets in Europe, America, and emerging markets, such as Shanghai United Imaging Healthcare (688271.SH), MGI Tech Co., Ltd. (688114.SH), MeHow Innovative (301363.SZ), etc. 3) Demand and payment sides continue to drive growth: Aging continues to accelerate, with demand for chronic diseases such as cardiovascular, endocrine, orthopedics increasing continually, leading to sustained growth in silver economy. 4) On the payment side, medical insurance revenues and expenditures continue to grow steadily, while the medical insurance bureau actively promotes the development of commercial insurance, constructing a multi-level payment system. 5) Furthermore, new technologies are accelerating industry transformation: Under the wave of AI, pharmaceuticals are expected to unleash new growth logic. Looking ahead to Q4 2025, continuing to be optimistic about the theme of innovative drugs, focusing on the medical devices sector, especially medical equipment and household appliances which are expected to start rebounding in the third quarter of the year, as well as preparing for the reversal of aging and outpatient consumption (pharmacies, traditional Chinese medicine, etc.) in 2026. It is also recommended to pay attention to assets with lower valuations such as anesthesia and blood products. Risk Warning: Increased industry competition risk, policy change risks, and industry demand below expectations risks.