CITIC SEC: Innovative drugs entering intensive data catalysis period, focus on recommendation

CITIC SEC released a research report stating that since 2026, the transaction amount of innovative drugs BD in China has exceeded expectations, and the global competitiveness of the industry has further improved; the domestic market is rapidly expanding, with top innovative drug companies showing rapid growth in innovative drug revenue driven by new products, and biopharmaceutical companies are gradually entering profitability turning points; several international academic conferences are approaching, with numerous innovative drug pipelines entering a period of intensive data catalysis. In summary, the bank suggests focusing on: 1) Top innovative drug companies are expected to see performance releases; 2) Core pipelines are about to see key data readouts catalysis; 3) The internationalization of pipeline assets with global potential is expected to accelerate. The bank maintains a rating of "stronger than the overall market" for the innovative drug industry. The main points of CITIC SEC are as follows: In the past three years, the quality of China's innovative drug pipeline has been rapidly recognized internationally, driving the unexpected growth in License-out amounts, validating the value of China's innovative drug pipeline. In 2026 Q1, the upfront payment for China's innovative drug License-out transactions has reached 3.85 billion US dollars (an increase of 1066.7% over 2024 Q1, and 229.1% over 2025 Q1), with a total amount of 52.53 billion US dollars (an increase of 449.1% over 2024 Q1, and 43.8% over 2025 Q1) (only transactions with disclosed amounts are included in the statistics). At the same time, the quality and quantity of transactions from 2026 onwards have significantly improved. The optimization of transaction structures reflects further improvements in pipeline quality and certainty, with License-out in 2025 already exceeding 138 billion US dollars, setting a new record. Based on the data for the full year of 2025, the proportions of transactions in 2026 Q1 for the number of transactions, upfront payments, and total amounts already account for 26.7%, 49.7%, and 37.9% of the full year of 2025, respectively. In just the first quarter of 2026, the upfront payments are close to half of the full year of 2025. The bank believes that the significant increase in the proportion of upfront payments reflects the acquirer's recognition of the pipeline value and provides cash flow support for the research and development of Chinese innovative drug companies, creating a positive cycle to further support the development/promotion of more innovative drug pipelines. The increase in innovative drug products drives revenue growth, and top biopharmaceutical companies are gradually entering profit turning points. From 2023 to 2025, the innovative drug revenue of BEONE MEDICINES increased from 17.4 billion yuan to 37.6 billion yuan, Jiangsu Hengrui Pharmaceuticals increased from 10 billion yuan to 16.3 billion yuan, HANSOH PHARMA increased from 6.9 billion yuan to 12.4 billion yuan, INNOVENT BIO increased from 5.7 billion yuan to 11.9 billion yuan, and SBP GROUP increased from 9.9 billion yuan to 15.2 billion yuan. The scale of innovative drug revenue for top companies continues to expand. The proportion of innovative drugs continues to increase, with Jiangsu Hengrui Pharmaceuticals' innovative drug revenue proportion increasing from 44.4% in 2023 to 57.9% in 2025, surpassing half of the revenue; HANSOH PHARMA increased from 67.9% to 82.2%, making innovative drugs the absolute mainstay; SBP GROUP increased from 37.7% to 47.8%, also rapidly transitioning to innovation-driven transformation. Overall, the bank believes that the business structure of China's top pharmaceutical companies is rapidly transitioning from traditional pharmaceuticals to innovative drugs, with innovative drug production gradually becoming the core driver of revenue growth, and top biopharmaceutical companies are gradually entering profit turning points. International academic conferences such as AACR/ASCO are approaching, and China's innovative drug pipelines are about to face a period of intensive data readouts. AACR 2026 will be held in San Diego from April 17 to 22. According to the AACR conference official website, Chinese pharmaceutical companies will have a significant presence with over 100 companies and nearly 400 research results. The participation and innovation quality have both increased significantly. ADC drugs are still a focus, with over 90 innovative drug pipelines expected to have data readouts. The trend of technological iteration is significant. Suggestions to focus on include: new generation CDK4/2 dual-target inhibitors; BCL-2 small molecule inhibitors; Triple-specific co-stimulated TCE, dual-target/dual-toxin ADC; the world's first Pan RAS ADC; EGFR/HER3, SSTR2/DLL3 and other dual-antibody ADC, etc. Overall, China's innovative drugs in ADC, dual antibodies, small molecule targeted drugs, and other multiple sub-raceways have shown a trend of leading the world. ASCO 2026 will be an important stage for Chinese innovative drug companies to announce key data. The value of related assets is expected to be further released, driving the global value realization of the innovative drug industry. Important timeline arrangements: Abstract titles announced on April 21; Abstract disclosures on May 21; Conference date from May 29 to June 2. Key iterative directions to focus on include: 1) Combination therapy based on ADC, dual antibodies/multi-antibodies, and immunotherapy; 2) ADC is transitioning from single targets and traditional payloads to a new stage that emphasizes optimizing the treatment window, including better payload/linker design, dual-specific targeting, and stronger platform development capabilities; 3) Early clinical breakthroughs of new therapies such as cell therapy and gene therapy in solid tumors; 4) Key clinical data readouts with global value pipelines, including SKB264 combined with K medicine for first-line treatment of PD-L1 positive NSCLC, HARMONi-6, etc. Risk factors: The risk of new drug development progress failing to meet expectations or failing; the risk of new drug approval progress failing to meet expectations or not passing; the risk of post-market efficacy and safety of new drugs not meeting expectations; the risk of commercialization of products not meeting expectations and poor sales performance; the risk of changes in market competition patterns; the risk of unexpected changes in pharmaceutical policies; the risk of statistical data deviation.