Orient: Short-term volatility in the innovative drug sector may continue, suggesting active attention to low positions and investment opportunities.

Orient released a research report stating that due to the previous concentrated expectations and emotions in the innovative drug sector, the sector has been volatile since the beginning of the year. Recently, with the cooling of investor sentiment, the volatility has further increased. In the short term, as market sentiment is still recovering and fund structures are still adjusting, volatility may continue. However, the bank believes that the long-term trend of globalization acceleration, breakthrough in innovative technology, and industrial upgrading has not fundamentally changed, and the long-term positive logic of innovative drugs has not been shaken. Considering that the valuations of high-quality leading companies have entered a reasonable range, it is recommended to actively focus on investment opportunities for positions at low levels after the stabilization of market sentiment, focusing mainly on the following three major themes. Orient's main points are as follows: Focus shifts from "whether to go global" to "progress after going global" In the past period of time, the market has been more focused on the upfront payments and total package amounts for external licensing, and when specific numbers are difficult to exceed market expectations, short-term trading opportunities have been fully explored. The bank believes that the core of innovative drugs going global has shifted from "whether to go global" to the progress of product deployment in overseas clinical trials, key data reading, and milestone achievements. The extent of "going global realization" will be particularly critical in the future. For example, Pfizer recently announced that it will continue to advance the global Phase III entry of SSGJ-707 and expand to multiple indications, as well as clinical trials in conjunction with ADC; Summit also updated the progress of the HARMONi-3 trial at its earnings conference, with the scale subset expected to complete entry in the second half of this year, and is expected to conduct mid-term data analysis of PFS and read out the final PFS data in the first half of next year. Overall, the realization of domestic drugs overseas has become a focus of industry attention. Cutting-edge technology continues to break through, leading overseas Chinese companies are gradually leading in the field of new therapies such as small nucleic acids and cell therapy, and are expected to become core assets in global transactions with better clinical data: a) The year marks a breakthrough for small nucleic acids, no longer limited to rare and metabolic diseases, as delivery technology breakthroughs enable them to enter more chronic disease treatment scenarios on a systemic level, with huge commercial value. For example: Many companies such as Hengrui, BeiGene and Ribobio are actively deploying delivery technologies for fat, central nervous system, and kidney; b) In-body CAR-T has been preliminarily verified to be effective in clinical trials, with increased certainty in technology pathways, and with advantages of simpler production and usage processes and lower costs, it is expected to become a mainstream direction. Against the backdrop of strong demand from MNCs, it is expected to achieve multiple transactions in the future. Outstanding performance in commercialization, anticipating profit inflection point in advance Leading innovative drug companies are entering a positive cycle of "product volume-feed back to R&D". As the core products of innovative drug companies gradually enter the commercialization stage, leveraging rapid volume growth in medical insurance and commercial insurance, performance is expected to exceed market expectations. The bank believes that this year is likely to be a key window for the sector to turn losses around, with the March-April earnings season becoming an important validation point. Leading companies demonstrate outstanding commercialization capabilities, and some innovative drug companies possess high growth potential in terms of performance, with the value expected to be reassessed. Investment recommendations and investment targets Overall, the short-term impact of external factors has intensified volatility in the innovative drug sector, but the long-term industry trend is clear. The current correction has been relatively sufficient. After waiting for market volatility to stabilize, it is recommended to focus on the three major themes of "going global realization, breakthrough in cutting-edge technology, and profit inflection point," and to lay out high-quality innovative drug companies with global competitiveness. Related targets include: SKB BIO-B, 3SBIO, AKESO, Frontier Biotechnologies Inc., RIBOLIFE-B, CSPC PHARMA, BEONE MEDICINESU, INNOVENT BIO, Shanghai Allist Pharmaceuticals Co., Ltd., etc. Risk factors Risks of key clinical failures in innovative drug new technologies, new targets, and new products; Risks of lower than expected sales revenue for innovative drugs; Risks of continued low levels of investment and financing in the global biopharmaceutical industry, etc.