Market review: This week, the pharmaceutical and biological index rose 1.04%, outperforming the CSI 300 index by 0.06 percentage points, ranking 18th in the industry. Since the beginning of 2024, the pharmaceutical industry has fallen by 11.85%, underperforming the CSI 300 Index by 26.25 percentage points, ranking 28th in the industry. This week, the valuation level of the pharmaceutical industry (PE-TTM) is 27 times, with a premium of 76.56% (-2.31pp) over all A-shares, 31.5% (-1.67pp) over all A-shares excluding banks, and 115% (+0.08pp) over the CSI 300. The relative best performing sub-sector this week was hospitals, up 3.6%, and the top three sectors with the smallest declines since the beginning of the year were chemical preparations, APIs, and pharmaceutical circulation, with declines of 0.5%, 0.5%, and 3.4%, respectively.

The national joint procurement of vascular interventional consumables is about to begin. On October 16, 2024, the Hebei Provincial Medical Insurance Bureau issued the "Notice on the Public Solicitation of Opinions on the Centralized Procurement Documents of the Inter-Provincial Alliance of Vascular Interventional Medical Consumables", which determined that a total of 5 varieties of embolic microspheres, blood flow-oriented dense mesh stents, intracranial balloon dilation catheters, peripheral vascular balloon dilation catheters, and peripheral vascular interventional diversion pathways will be procured centrally, with a procurement cycle of 2 years. At the same time, from next week, the third quarterly report will usher in the peak period of disclosure, and it is recommended to pay attention to performance expectations.

Reiterating the medium-term strategy for 2024, we are optimistic about the market of the pharmaceutical sector in the second half of the year, focusing on the three main lines of low valuation, going overseas, and rigid demand in hospitals. 1) One of the directions - the dividend sector includes high-dividend OTC stocks; Sectors related to the expected reform of state-owned enterprises are worth paying attention to. 2) Direction 2 - Instruments going overseas include IVD, ventilators and respiratory testing products, gloves, coronary stents, etc. Innovative drugs and analogues continue to go overseas. 3) Direction 3 - After medical anti-corruption, pay attention to the rigid needs of medical care in the hospital, such as blood products, orthopedics, anesthetics, insulin, IVD, electrophysiology and other fields. Consumer medical attributes, as well as upstream and other sectors are worth tracking in the medium and long term. In addition, investment opportunities in weight loss pills and AI healthcare themes in the first half of the year were in line with our expectations.

Hong Kong stock portfolio: Remegen (9995), Chi-Med (0013), Akeso Biopharma (9926), Kelumbotai Biopharma-B (6990), Simcere Pharmaceuticals (2096), Ascentage Pharma-B (6855), Zai Lab (9688), InnoCare (9969), AK Medical (1789).

Recommended combination: Betta Pharmaceuticals (300558), Sino Medical (688108), Shanghai RAAS (002252), Remegen Biopharma (688331), Jardine Jiaye (301367), Ma Yinglong (600993), Meimei Medical (301363).

Stable portfolio: Hengrui Pharmaceutical (600276), New Industry (300832), Huadong Pharmaceutical (000963), Gan & Lee Pharmaceutical (603087), Nhwa Pharmaceutical (002262), Jichuan Pharmaceutical (600566), Sunflower Pharmaceutical (002737), Yifan Pharmaceutical (002019).

Portfolio of Science and Technology Innovation Board: First Pharma Holdings-U (688197), Zelgen Pharmaceutical-U (688266), Shengxiang Biotech (688289), Borui Pharmaceutical (688166), Pumen Technology (688389), Aohua Endoscopy (688212).

Risk warning: the policy risk of the pharmaceutical industry exceeds expectations; the risk that R&D progress is not as expected; Risk of performance falling short of expectations.