Huafu Securities: A multitude of new targets for combating depression are about to be catalyzed, optimistic about the 5-10 year industry trend of innovative drugs.

Huafu Securities released a research report stating that Chinese innovative drugs are undergoing a "quantitative change leading to a qualitative change." They are optimistic about the industry trend of innovative drugs in the next 5-10 years. The rise of innovative drugs will be driven by BD going overseas, continuous data catalysis, and a surge in new product sales. In terms of specific investment strategies: 1. It is recommended to focus on Biopharma and Pharma leading companies that have both BD realization expectations and strong commercial support for new product sales. 2. For Biotech and imitation-to-innovation companies, it is recommended to focus on those with potential for significant data or BD catalyst expectations. The main points of Huafu Securities are as follows: Bi-weekly events and market review of innovative drugs + industry investment recommendations In-depth analysis of CNS series of innovative drugs: The market potential for antidepressants is huge, and many new targets are about to receive catalysis. 1) The market for antidepressants is vast: According to the Global Disease Burden Study in 2021, the global number of people suffering from depression exceeds 350 million, with over 90 million patients in China alone (2019 data), leading to a huge disease burden. According to the Drug Forum's analysis of the research and development progress of antidepressants from target mechanism to clinical application, the global antidepressant market is expected to reach about $17.1 billion by 2024. 2) There is a huge unmet demand for drugs: However, existing antidepressants still have shortcomings in terms of efficacy and safety, with room for improvement in patient response rates. Monoamine oxidase inhibitors (MAOIs) and tricyclic antidepressants (TCAs) have non-selective multi-target properties that lead to a combination of efficacy and risks. SSRIs and SNRIs are currently the most commonly used monoamine antidepressants, but they also have clinical limitations (such as slow onset of action and potential drug interactions). The development of new generations of antidepressants needs to balance between "rapid onset of action" and "long-term safety." Most new drug developments focus on "deepening monoamines + multiple mechanism combinations." 3) Overseas leading new drug developments, breakthroughs in China as well: Traditional monoamine antidepressants (such as SSRIs) take 2-4 weeks to take effect, while GABA/glutamate drugs (such as ketamine) can achieve rapid (within hours) antidepressant effects by modulating glutamatergic synaptic plasticity in clinical practice. Therefore, overseas companies such as Johnson & Johnson's esketamine and Axsome's axvelity, based on NMDA receptor antagonists, have made breakthroughs. SAGE was the first to develop Zuranolone for treating PPD based on GABA-positive allosteric modulators. Focus on domestic listed companies with similar pipeline layouts, and pay attention to companies such as Chengdu Kanghong Pharmaceutical Group, Hunan Warrant Pharmaceutical, Shenzhen Salubris Pharmaceuticals, Jiangsu Jibeier Pharmaceutical Co., Ltd. Review and industry catalysts Review: With the completion of the third-quarter reports, the market has entered a period of earnings vacuum, and with the influx of technology funds, the innovative drugs sector, which had been adjusting for two months, has begun to rebound. Considering the return of the market's expectations for BD, the bank believes that the ability of innovative drug companies to deliver solid fundamentals may be more important in the future. The core of the innovative drug market is shifting from broad valuation recovery to focusing on companies' ability to deliver on their fundamentals. Companies with outstanding clinical data, strong commercial capabilities, and successful overseas potential will be the future winners. Industry catalysts: 1) medical insurance negotiations: starting in November and launching the first edition of the commercial health insurance innovative drug catalog; 2) industry conferences: ASH, ESMO ASIA/IO and other industry conferences may have data releases or clinical progression catalysis. Risk warning: Industry demand lower than expected risk, company performance lower than expected risk, increased market competition risk.