Guosen Securities has released a research report stating that China's innovative drug sector is not only consistently presenting strong clinical data at major international academic conferences but is also making progress in overseas clinical development, approaching the global commercialization phase.

Chinese CXO (Contract Research, Development and Manufacturing Organization) companies possess comprehensive advantages in talent dividends, chemical capabilities, compliant production capacity, and intellectual property protection. The firm believes that the core industry position of Chinese enterprises in the chemical CDMO (Contract Development and Manufacturing Organization) field is strongly irreplaceable for the next five years.

Additionally, the firm is focusing on the pharmacy sector, which offers reasonable valuations and improving fundamentals.

Key Points from Guosen Securities:

Smooth Global Advancement of Innovative Drugs

On June 1st, Professor Lu Shun presented the HARMONi-6 clinical results at the ASCO annual meeting's plenary session. The combination of ivonescimab and chemotherapy demonstrated a statistically significant overall survival (OS) benefit compared to tislelizumab plus chemotherapy in first-line treatment for sqNSCLC patients. This marks the first global Phase 3 trial in lung cancer where a PD-1 antibody combination therapy achieved positive results for both progression-free survival (PFS) and OS against a comparator of PD-1 antibody plus chemotherapy. The ivonescimab-chemotherapy combination achieved an OS hazard ratio (HR) of 0.66, representing a statistically significant and clinically meaningful survival benefit.

The final PFS analysis for the global multi-center Phase 3 trial HARMONi-3 SQ is expected in the second half of the year. The success of the HARMONi-6 trial holds strong indicative significance for HARMONi-3.

On another front, Kelun-Biotech's partner Merck announced that the global Phase 3 trial TroFuse-005 for sacituzumab tirumotecan (sac-TMT) met its primary clinical endpoint. A regulatory submission to the FDA is anticipated in the latter half of the year.

Chinese innovative drugs are not only consistently showcasing excellent clinical data at international conferences but are also advancing in overseas clinical development, nearing the stage of global commercialization.

Global Competitive Edge of China's CXO Industry

Biopharmaceutical capacity build-out in Europe involves long cycles, while Indian companies still face significant shortcomings in areas like intellectual property protection strength and the stability of supplying high-standard compliant capacity. Chinese CXO firms hold integrated advantages in talent dividends, chemical capabilities, compliant production capacity, and IP protection.

The firm asserts that the core industry status of Chinese companies in the chemical CDMO sector is largely irreplaceable for the next five years. Recommended stocks to watch include: Asymchem Laboratories (favorable earnings trajectory over the next three years, with impressive growth in chemical and biological macromolecules) and WuXi AppTec (geopolitical risks have been cleared for now, with solid near-term earnings visibility and mid-term order certainty).

Focus on the Pharmacy Sector with Reasonable Valuations and Improving Fundamentals

Offline pharmacy chains have shown excellent same-store sales data for two consecutive months, gradually validating the short-term improvement thesis. Increasing regulatory compliance requirements are expected to further catalyze industry consolidation and place higher demands on corporate operational capabilities. From a long-term perspective, leading companies with strong compliance advantages are poised to increase their market share. Stocks recommended for attention include: Yifeng Pharmacy Chain, Dasanlin, and LBX Pharmacy Chain JSC.

June 2024 Investment Portfolio

A-Shares: Mindray Medical, United Imaging Healthcare, WuXi AppTec, Asymchem Laboratories, Shenzhen New Industries Biomedical Engineering, Mehow Innovative, Amoy Diagnostics, GemPharmatech, Aier Eye Hospital Group, Yuwell Medical, Yifeng Pharmacy Chain, Dasanlin.

H-Shares: Akeso, Kelun-Biotech, Hutchmed, KeyMed Biosciences, 3SBio, AK Medical.

Risk Warnings: R&D failure risk; commercialization falling short of expectations risk; geopolitical risk; policy exceeding expectations risk.