Orient Securities has released a research report indicating that the innovative drug sector has experienced ongoing fluctuations since the start of the year, following a period of concentrated market expectations and sentiment. Recently, as investor sentiment has cooled, volatility has further intensified. In the short term, due to ongoing market sentiment recovery and adjustments in capital structure, volatility is likely to continue. However, the firm believes that the long-term trends of globalization acceleration, breakthroughs in innovative technologies, and industrial upgrading remain fundamentally unchanged, and the underlying logic supporting the medium- to long-term growth of innovative drugs remains intact. Considering that the valuations of high-quality leading companies have entered a reasonable range, it is advisable to actively monitor investment opportunities for low-position allocation once sentiment-driven fluctuations stabilize, with a focus on the following three key themes. Orient Securities' main views are as follows:

The focus has shifted from "whether global expansion is possible" to "progress after expansion." In the recent past, the market paid more attention to upfront payments and total deal values of out-licensing agreements. When specific figures failed to exceed market expectations, short-term trading opportunities were largely exhausted. The firm believes that the core of innovative drug global expansion has now shifted to overseas clinical deployment progress, key data readouts, and milestone achievements. The extent of "expansion realization" will become increasingly critical in the future. For example, Pfizer recently stated that it will continue to advance global Phase III enrollment for SSGJ-707, expand multiple indications, and conduct clinical trials in combination with ADCs. Summit also provided updates on the HARMONi-3 trial progress during its earnings call, with the squamous subgroup expected to complete enrollment in the second half of this year, potentially allowing for interim progression-free survival (PFS) data analysis and final PFS data readout in the first half of next year. Overall, the performance of domestically developed drugs overseas has become a key focus for the industry.

Cutting-edge technologies continue to break through, with potential to lead globally. Chinese companies are gradually gaining leadership in novel therapeutic areas such as small nucleic acids and cell therapies, and are poised to become core assets in global transactions due to superior clinical data: a) Small nucleic acids are having a breakthrough year, no longer limited to rare and metabolic diseases. Advances in delivery technology are enabling their systematic application in more chronic disease treatment scenarios, offering significant commercial value. For instance, companies such as Hengrui, BOW, and Ruibo are actively developing delivery technologies for adipose tissue, the central nervous system, and the kidneys; b) In vivo CAR-T therapies have shown preliminary clinical efficacy, increasing confidence in the technological pathway. With advantages such as simpler production and administration processes and lower costs, they are expected to become a mainstream direction. Against the backdrop of strong demand from multinational corporations, multiple transactions are anticipated in the future.

Strong commercialization performance, leading to an earlier profitability inflection point. Leading innovative drug companies are entering a virtuous cycle of "product volume growth fueling R&D." As core products of these companies gradually reach their commercial lifecycle, rapid sales expansion supported by medical insurance and commercial insurance is expected to deliver results exceeding market expectations. The firm believes that this year could be a critical window for the sector to turn losses into profits, with the March-April earnings season serving as an important validation point. Leading companies with outstanding commercialization capabilities, along with certain innovative drug firms showing high growth potential, may see their values reassessed.

Investment recommendations and targets. Overall, while the innovative drug sector faces intensified short-term volatility due to external factors, its long-term industry trends remain clear. The current pullback has been relatively substantial. Once market fluctuations stabilize, it is advisable to focus on the three main themes of global expansion realization, breakthroughs in cutting-edge technologies, and the profitability inflection point, and allocate to high-quality innovative drug companies with global competitiveness. Relevant targets include: Kelun-B, Sansheng, Akeso, Frontier, Ruibo, CSPC, BeiGene, Innovent, and Allist.

Risk warnings include the potential failure of key clinical trials for new technologies, new targets, or new products in the innovative drug sector; the risk of innovative drug sales falling short of expectations; and the risk of continued low levels of investment and financing in the global biopharmaceutical industry.