A：We review the performance of the CRE Innovation Drug Index over the past few years and find that the index typically yields positive returns in April each year, which is related to the catalytic effect of some of the blockbuster academic conferences in the second quarter on the sector. The recent ACR academic conference in April and the Eco academic conference that may be held at the end of May may disclose new clinical data of domestic innovative drugs, bringing further catalysis to the plate. Although the short-term market in the relevant academic conference report catalog may appear after the release of funds, but in the long run, the follow-up clinical data results are still expected to support and catalyze the plate market.

A：After the 924 market in 2024, with the domestic and foreign monetary and fiscal policies leading to the improvement of the liquidity environment in the domestic A- share market, the innovative drug sector in the context of increased liquidity to follow the market a significant rise. The innovative pharmaceutical sector was more sensitive to logic such as interest rate cuts, so it achieved more significant outperformance in the context of the time. Since the second half of last year, the market has been constantly gaming the expectation of domestic innovative drugs going to sea, and the share prices of related pipelines and companies with potential to go to sea have risen sharply in the third and fourth quarters. However, with some BD events and the landing of external authorization, due to the down payment is not as expected or the strength of the partner is not strong enough, the market reaction is relatively flat, the plate chips have been digested and adjusted.

A：In May 25, an important external authorization (BD) event occurred in domestic innovative drug companies. The down payment reached a new high of US $1 billion, which triggered a significant increase in the market's attention to domestic innovative drugs going overseas.

A：At present, the PS (market sales rate) valuation of the CRE Innovation Drug Index has returned to the level near May 25, close to the valuation level when the important BD event catalyzed in May last year, which means that the valuation and chips of the current sector have undergone a more full adjustment.

A：At this stage, the layout of innovative medicine plate has a certain cost-effective advantage. From the long-term demand-side logic, innovative drugs out to sea is the biggest catalyst, overseas multinational pharmaceutical companies face patent cliff problems, need to supplement revenue growth through global acquisitions of best-selling pipelines. At the same time, the domestic health insurance support for innovative drugs continued, the approval rate increased, the success rate of negotiations is also higher, especially some innovative drugs are included in the health insurance catalog, by commercial health insurance to further support the payment.

A：The pricing of innovative drugs in the Category C catalogue is dominated by commercial insurance companies and is also regulated by the Health and Wellness Commission. Insurance companies negotiate pricing directly with pharmaceutical companies. The domestic health insurance policy clearly supports the attitude of innovative drugs, helping patients to pay high medical expenses through commercial health insurance, and including some innovative drugs with high value and high treatment costs into the catalogue.

A：Generic drug collection in the past few years on the demand side of the pharmaceutical sector to form a greater suppression, but by 2025, after multiple rounds of collection, generic drug varieties coverage is more complete, which promotes the transformation of domestic pharmaceutical companies from generic drugs to innovative drugs.

A：Large domestic pharmaceutical enterprises are actively transforming innovative drugs, the proportion of generic drug revenue is gradually decreasing, the revenue growth momentum brought by innovative drugs is gradually emerging, the overall performance is positive growth, the proportion of generic drug revenue has dropped to less than 50%.

A：Domestic innovative drugs have significant efficiency and cost advantages, the pre-clinical research cycle is short, the clinical trial application policy supports the pressure drop of the innovative drug research and development cycle, while the research and development cost is only 1/3 to 1/2 of the global average, and the recruitment of patients is faster, so it shows obvious advantages in the whole process.

A：As of the first three quarters of 2025, China has contributed about 30% of the world's innovative drug pipeline, of which about one-third are cutting-edge next-generation therapies, showing the gradual emergence of the competitiveness of domestic innovative drugs.

A：The policy side has intensively introduced a number of measures to support the high-quality development of innovative drugs, and the biomedical industry, together with integrated circuits, aerospace and other industries, has been included in the emerging pillar industries. The State Council also issued opinions on improving the drug price formation mechanism, emphasizing the establishment of a tiered pricing system with clinical value and innovation as the core, and providing substantial support for high-level innovation.

A：Since the fourth quarter of last year, the domestic A- share pharmaceutical sector has undergone a continuous adjustment, and the current position in all funds is about 8.4 per cent, compared to the high in 2021 (14.5 per cent), which is currently at a historically low position and there is room for additional positions.

A：We believe that the potential catalytic event may be the performance of innovative pharmaceutical companies, including some future heavy academic conferences and the disclosure of clinical data. In addition, the sea of domestic innovative pharmaceutical enterprises is the most important industrial catalytic direction in the future, because the pressure of medical insurance payment capacity and the low penetration rate of commercial health insurance, and the sea can bring important performance growth momentum. Short-term catalytic events mainly come from major academic conferences in the second quarter, such as the annual meeting of the American Association for Cancer Research (ACR) at the end of April and the annual meeting of the American Society of Clinical Oncology (ECOG) in May. These meetings will disclose a large number of updated data on candidate drugs, some of which are based on Chinese population research may become the focus of market attention, highlighting the domestic innovative drug research and development iteration speed and competitive strength.

A：According to the data, 7 of the top 10 global pharmaceutical transactions in 2025 will be participated by domestic enterprises, and the BD down payment of domestic innovative pharmaceutical enterprises reached more than US $1 billion in May last year, a new high. In the first quarter of this year, the total amount of BD for domestic innovative drugs to go to sea was close to US $60 billion, with a down payment of more than US $3 billion, showing a high growth trend compared with about 40% for the whole year of 2025. At the same time, the amount of external authorization has increased significantly, with an average total amount of more than 2.7 billion US dollars, a record high, reflecting the enhanced competitiveness of domestic innovative drugs.

A：This year, investment in the pharmaceutical sector returned to a high level, and the company set up a growth layer to support the listing of unprofitable innovative pharmaceutical companies. The activity of innovative drug financing in Hong Kong stocks has increased significantly, and the amount of biopharmaceutical investment is also growing. Domestic biomedical investment reached $0.75 billion billion in March, up 7%-99% year-on-year, totaling $2.46 billion in the first quarter, the highest in a single quarter since the second quarter of 2022. With the investment repair, the number of clinical trials and pipelines of innovative drugs in China is expected to rise significantly in the future.

A：This year, 13 studies from 12 innovative drug companies in China were selected into the LBA, a record high. In the next SO meeting, there may be some important clinical data catalysis, especially for the median generation period and no progress PFS data of PDYVGF double-resistant varieties, which will support the whole plate if it exceeds expectations.

A：Investors can focus on the innovative drug ETF Cathay Pacific and the innovative drug ETF Cathay Pacific and other varieties. The CRO Innovation Drug Index focuses on small and medium-cap biotech companies on the CRO board, while the CRO sector has also been catalyzed by recent performance, with strong growth in orders on hand by leading companies, showing potential growth potential for future growth.

A：From September 24, 2024 to September 3, 2025, the CRE Innovative Drugs Index outpaced the Hong Kong Innovative Drugs and Hong Kong Stock Connect Innovative Drugs Index to a 141 per cent increase. In the case of plate market catalysis and sea events, heavy BD and clinical experimental data disclosure exceeded expectations, the company's innovative drug index and related ETFs such as Cathay Pacific related varieties may be the direction of market focus. At present, the market is in the high volatility stage above 4000 points, it is recommended to pay attention to the growth attribute of the strong innovative drug track, because its chip congestion is not high, and the pharmaceutical investment environment activity gradually repair. Against the backdrop of better-than-expected performance of leading companies, we can focus on the innovative drug sector at this stage, with core targets including the CRE Innovation Drug Index Cathay Pacific and the Innovation Drug ETF Cathay Pacific.