The technology-driven bull market is intensifying, almost becoming the primary force steering this sustained, gradual uptrend. Since the beginning of last year, the six major investment themes I proposed have progressively emerged as the leading directions for this market cycle, gaining increasing recognition. Nowadays, when many discuss the tech bull market, they essentially refer to these six themes, which underscores that these are indeed the areas truly benefiting from the AI wave.

Today, let's discuss the sixth major theme: biopharmaceuticals. Biopharmaceuticals are fundamentally different from traditional generic drugs and active pharmaceutical ingredients. Due to the impact of centralized procurement policies, profits for many traditional pharmaceutical companies have seen significant declines, with related stock prices also experiencing substantial corrections. Biopharmaceuticals, however, differ greatly from the previous tech themes in one key aspect: they possess both technological and social welfare attributes. Where does the technological attribute manifest? Innovative R&D is a classic example of high-tech, requiring high investment and carrying high risk. And the social welfare attribute? It directly impacts public health and quality of life. Furthermore, the biopharmaceutical sector discussed here also includes the integration of AI and medicine, such as brain-computer interfaces. Neuralink, a brain-computer interface company under Elon Musk, has already achieved some technological breakthroughs. Musk even stated that brain-computer interface technology is an invention on the level of a creator—akin to something from Jesus—potentially restoring sight to many who are blind and enabling the paralyzed to walk again. This technology, by implanting a chip in the cerebral cortex, could allow many disabled individuals to regain a normal life.

Last year, I visited the Artificial Intelligence Town in Hangzhou with entrepreneur classmates from the Tsinghua PBCSF doctoral program and toured BrainCo. Founded jointly by Chinese and American scientists, BrainCo employs a non-invasive method—using brainwaves to control prosthetic limbs—without requiring a chip implant in the cortex. On-site, we witnessed individuals who had lost limbs in daily life using BrainCo's prosthetics to live normally, even engaging in activities like rock climbing, hiking, and somersaults, or using artificial arms to write calligraphy and play the piano. This truly exemplifies how AI technology is transforming the medical industry. The future applications of AI in healthcare are becoming increasingly broad, bringing new breakthroughs, including the potential use of AI to develop drugs for treating various cancers. In the future, targeted drugs for almost all difficult and complex diseases could be developed, indicating that biopharmaceuticals have already achieved breakthroughs within the AI field, possibly even critical ones.

When analyzing an industry, the first step is to identify its core driving forces. The drivers for biopharmaceuticals come from several areas: growing medical demand due to an aging population, changes in disease patterns, and continuous breakthroughs in biotechnology. AI is now deeply integrating into the pharmaceutical sector: using AI to assist drug development can significantly shorten the R&D cycle for new drugs, while using AI to optimize diagnostic equipment can improve diagnostic accuracy. The convergence of AI and pharmaceuticals is a crucial future industry trend. Generic drugs and innovative drugs represent two entirely different business models. Traditional generic drug companies face limited opportunities; the future lies in innovative drugs. After more than half a year of adjustment, the innovative drug sector is also showing signs of renewed activity.

The biopharmaceutical industry has a crucial classification: innovative drugs and generic drugs. What are generic drugs? They are drugs whose patents have expired, which many pharmaceutical companies can produce. What is their competition logic? It's about competing on cost, scale, and channels—whoever has stronger manufacturing capabilities and a broader sales network can capture market share. However, their profit margins are often directly impacted by policy. So what are innovative drugs? They are new drugs developed by companies with independent patents and core R&D capabilities. Their competition logic? It revolves around competing on R&D capability, professional barriers, and clinical data. Once a new drug is approved for market, due to patent protection, other companies cannot produce generic versions during that period.

On May 11 this year, relevant authorities also introduced policies providing price protection for patented drugs during their initial market launch. Traditional generic drugs have faced significant industry pressure in recent years, primarily due to centralized procurement policies. The logic of centralized procurement is to exchange volume for price, often resulting in substantial price reductions for generic drugs. Companies relying solely on generic drugs face objectively existing pressure. Innovative drugs, in contrast, are relatively less impacted because they have patent protection and no substitutes, thus avoiding pricing pressure. Moreover, there is protection for innovative drugs; the national plan explicitly mentions supporting their development and has introduced price protection policies specifically for them.

Therefore, a core differentiating factor when investing in the pharmaceutical industry is whether a company's core products are generic or innovative drugs. How many innovative drug pipelines are in its R&D portfolio? How long until its patents expire? These objective metrics determine the extent of its exposure to policy impacts. When analyzing innovative drug companies, there is a core framework: several objective indicators can be used to evaluate a company's technological barriers. The first indicator is clinical progress: how many products are in its pipeline, and at which stage—Phase I, II, or III clinical trials? Is there a core product nearing market approval? The later the clinical stage, the relatively higher the certainty, but one must also examine the clinical data and whether primary endpoints were met. The second indicator is patent protection period: how many years remain on the core product's patent? This determines the length of its exclusivity period. After patent expiration, generic drugs will flood the market, leading to price declines—a core aspect of analyzing an innovative drug's lifecycle. The third indicator is overseas licensing: has the company licensed its products to major international pharmaceutical firms? What is the licensing deal value, and who are the partners? If an innovative drug company can license its product to a top-tier global pharmaceutical firm, it indicates its R&D capability has gained international recognition. This data is publicly available for verification. These technical indicators can help establish an evaluation anchor for innovative drugs. You don't need to rely on narratives; just examine these data points, which are disclosed in each company's financial reports and announcements.

Regarding pharmaceutical industry policies, the most familiar is centralized procurement. Its essence is exchanging volume for price: for generic drugs with sufficient competition, centralized procurement drives down prices, reducing the public's medication burden. However, for innovative drugs, the state supports and protects them; they cannot be subjected to centralized procurement in the same way as generics, because innovative drugs require protection to maintain R&D incentives.

The national plan's description of biopharmaceuticals includes several key terms: innovative drugs, high-end medical devices, biotechnology, and AI-driven drug discovery. The policy direction is clear: encourage innovation and safeguard public welfare. From a global trend perspective, the overseas expansion of innovative drugs has been a significant direction in recent years. Previously, China mainly exported generic drugs, but in recent years, domestic innovative drug companies have begun licensing their self-developed new drugs to major international pharmaceutical firms and even directly filing for market approval in the United States. This indicates that China's innovative drug R&D capability has reached a new level. Reviewing the history of major adjustments in the pharmaceutical sector reveals a pattern: after each adjustment, companies with genuine innovation capabilities and those merely following trends in generic production show markedly divergent performance trajectories. What underlies this divergence? It is the shift in policy orientation and the survival of the fittest in market competition.

The purpose of reviewing these historical cases is not to predict the next market move, but to help establish an analytical framework: during an industry's experience with policy adjustments and market reshuffling, which business models are more adaptable to change, and which companies are more likely to survive under new plans and rules. The pharmaceutical industry also follows a special historical pattern: driven by blockbuster products. Historically, each major uptrend in the pharmaceutical sector has often been driven by one or several blockbuster new drugs. From oncology and immunotherapy to diabetes and weight-loss drugs, every technological breakthrough has spawned new industry opportunities. Currently, AI is changing the way drugs are developed. Traditional new drug R&D takes an average of 10 years and over $1 billion in investment. AI can significantly improve efficiency and reduce R&D costs in areas like target discovery, molecular design, and clinical trial design. AI-driven drug discovery is still in its early stages, functioning more as an efficiency tool than an independent product. However, its potential impact is profound. If AI can substantially shorten the new drug R&D cycle, the entire pharmaceutical industry's innovation pace would accelerate, potentially bringing revolutionary changes to the biopharmaceutical field. Currently, AI offers more marginal improvements, but it possesses the potential to become a revolutionary tool.