Market review: This week, the pharmaceutical and biological index fell 2.13%, underperforming the CSI 300 index by 1.99 percentage points, ranking 14th in the industry. Since the beginning of 2024, the pharmaceutical industry has fallen by 10.62%, underperforming the CSI 300 Index by 25.1 percentage points, ranking 32nd in the industry. This week, the valuation level of the pharmaceutical industry (PE-TTM) is 27.31 times, with a premium of 79.55% (-2.87pp) over all A-shares, 34.3% (-3.11pp) over all A-shares excluding banks, and 125.91% (-6.49pp) over the CSI 300. The relative best-performing sub-sector this week was Traditional Chinese Medicine III., down 0.6%, and the top three best-performing sectors since the beginning of the year were pharmaceutical circulation, chemical preparations, and APIs, with gains and losses of +3.8%, -0.6%, and -1.9%, respectively.

Innovative drugs have added blockbuster products to the market, and we continue to be optimistic about the export of innovative drugs. On December 18, Hansoh Pharmaceuticals licensed the global rights to its oral GLP-1R agonist HS-10535 to Merck, which will make an upfront payment of US$110 million and milestone payments of up to US$1.9 billion, subject to which Hansoh can be marketed in China. HS-10535 is currently in preclinical studies. The successful overseas launch of this product with Merck is another blockbuster transaction of domestic weight loss drugs since Hengrui authorized Kailera at the beginning of this year.

Recommended combination: Sino Medical (688108), Nhwa Pharmaceutical (002262), Shanghai RAAS (002252), Jardine Jiaye (301367), Meihao Medical (301363), Yifan Pharmaceutical (002019).

Hong Kong stock portfolio: Remegen Biopharma (9995), Chi-Med (0013), Kelunbotai Biopharma-B (6990), Simcere Pharmaceuticals (2096), Ascentage Pharma-B (6855), Akeso Biopharma (9926).

Stable portfolio: Hengrui Pharmaceutical (600276), New Industry (300832), Huadong Pharmaceutical (000963), Gan & Lee Pharmaceutical (603087), Jichuan Pharmaceutical (600566), Betta Pharmaceutical (300558), Ma Yinglong (600993).

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.