Southwest: In 2025, innovative drugs will usher in a trend. In 2026, the innovative drug market will enter the stage of selected individual stocks.

Southwest released a research report stating that by early 2025, Hong Kong-listed companies have successively achieved business development; innovation in Hong Kong-listed pharmaceutical companies has been leading to increases; in March, the "Government Work Report" proposed to "improve the drug pricing mechanism, establish a list of innovative drugs, support the development of innovative drugs and medical devices, with A-share innovative drugs following the rise. In May, with the signing of a $1.25 billion BD agreement for PD1/VEGR bispecific antibodies, innovative drugs ushered in an accelerated rise. As the third quarter ended, innovative drugs experienced a high-level adjustment. The bank predicts that the innovative drug sector in 2026 will transition from a general rise to focusing on selected individual stocks. In 2026, the bank is bullish on the three major directions of pharmaceuticals going global, brain-machine interface, and AI healthcare. Key points from Southwest include: Going Global By 2025, the pace of Chinese innovative drug companies going global has significantly accelerated. As of December 5th, the number of BD overseas projects has reached 166, an increase of 54 from the entire year of 2024; the total upfront payments have reached $6.3 billion, a growth of over 199% compared to the entire year of 2024; the total amount has reached $141.97 billion, a growth of over 136.8% compared to the entire year of 2024. Over 52% of the molecules were in early stages of clinical and preclinical trials, and areas such as ADC and bispecific antibodies are still hotspots for overseas investments, with GLP-1R drug targets showing potential in areas such as extended-release, oral administration, multi-target stimulation, and lipid reduction. In terms of medical devices going global, in July 2025, Sino Medical Sciences Technology Inc.'s coronary stent obtained FDA PMA approval, boosting market confidence. The focus in the future will be on domestic companies achieving PMA registration in the US for medical devices. Brain-Machine Interface On October 28, 2025, the Central Committee of the Communist Party of China officially released its proposal for formulating the fifteenth five-year plan for national economic and social development. Specifically, the plan explicitly proposes: 1) forward-looking layout of future industries, promoting brain-machine interfaces as new economic growth points. 2) Several provinces have successively introduced fee standards for brain-machine interfaces, with regions like Zhejiang and Hubei already including some projects in medical insurance. 3) In the medical health field, brain-machine interfaces are mainly applicable to diseases such as stroke, limb paralysis, spinal cord injury, hemiplegia, locked-in syndrome, amyotrophic lateral sclerosis, traumatic brain injury, Parkinson's disease, depression, and sleep disorders. The application of brain-machine interface technology will mainly focus on medical rehabilitation, especially in helping stroke and spinal cord injury patients regain mobility, with future potential expansion into education, entertainment, and industrial fields. AI Healthcare In November 2025, five government departments jointly issued the "Implementation Opinions on Promoting and Regulating the Development of "Artificial Intelligence + Healthcare," establishing clear short-term (2027) and long-term (2030) goals and systematically planning 24 key application scenarios covering grassroots diagnosis and treatment, clinical decision support systems, traditional Chinese medicine, drug research and development, and others. AI healthcare has now entered a new stage of technology integration and industry restructuring, with continuous focus on frontier progress and investment opportunities in key application areas: 1) AI health management; 2) AI healthcare informationization CDSS for clinical decision support; 3) AI medical imaging for diagnostic assistance; 4) AI integration with surgery like Siasun Robot&Automation; 5) AI gene sequencing; 6) AI pharmaceuticals. Portfolio Recommendations Jiangsu Hengrui Pharmaceuticals(600276.SH), BEONE MEDICINES-U(688235.SH), Shenzhen Mindray Bio-Medical Electronics(300760.SZ), Shanghai United Imaging Healthcare(688271.SH), Shouyao Holdings(688197.SH), Meinian Onehealth Healthcare Holdings(002044.SZ), Tonghua Dongbao Pharmaceutical(600867.SH), HUTCHMED(00013), EVEREST MED(01952), Yifan Pharmaceutical(002019.SZ), MeHow Innovative(301363.SZ), Tibet Rhodiola Pharmaceutical Holding(600211.SH), Jiangsu Nhwa Pharmaceutical(002262.SZ), Changchun High-Tech Industry(000661.SZ), Beijing Konruns Pharmaceutical(603590.SH), Pharmaron Beijing(300759.SZ), Asymchem Laboratories(002821.SZ), MEDBOT-B(02252). Risk Warning: Risks of overseas development falling short of expectations; risks of delays in research and commercialization of pharmaceutical products; uncertainties in pharmaceutical industry policies; risks of underperforming results, etc.