CITIC SEC has released a research report stating that in the inaugural year of the "15th Five-Year Plan," the pharmaceutical industry has been designated as a national emerging pillar industry for the first time. Following this, incremental reform policy trends such as the optimization of pricing mechanisms (procurement optimization), support for high pricing of innovative drugs and devices, and the promotion of commercial health insurance development are emerging. Driven by these factors, coupled with internal and external industry catalysts like the concentrated realization of domestic pharmaceutical innovation, a performance recovery and reversal in the domestic pharmaceutical sector is observed starting from Q1 2026, particularly in emerging industry segments like innovative drugs and medical devices. From a macro perspective, medical insurance fund and pharmaceutical industry operations remain stable, and pharmaceutical reforms are entering an intensive period. Domestic pharmaceutical policies are increasingly tilting towards supporting innovation. Simultaneously, commercial insurance and long-term care insurance are beginning their implementation phase this year, bringing a relatively certain incremental boost to industry payments. Regarding market performance and valuations, the healthcare sector has started to bottom out and recover since 2025, but the scale of heavy holdings in healthcare funds remains at historically low levels. Catalysts both internal and external to the healthcare industry are expected to initiate a new upswing after the first quarter. The most prominent factor, the concentrated realization of innovation, is expected to continue exceeding expectations. Furthermore, starting in May, with the release of key product data at international medical conferences such as ASCO and ESMO, the international competitiveness of China's innovative pharmaceutical products will be further demonstrated. Concurrently, major policy reforms are gradually returning to a market pricing system oriented towards clinical value and demand, fostering a stable and sustainable domestic pharmaceutical market environment and a long-term, robust development trajectory, thereby enhancing the sector's growth certainty and potential for alpha and beta returns. It is recommended to focus on investment opportunities in the healthcare industry after the Q1 reports and increase allocations to leading innovative pharmaceutical and device companies. CITIC SEC's main views are as follows:
Pharma: Innovation transformation has become the core driver for revenue and profitability improvement. In 2025, the segment's revenue and non-GAAP net profit attributable to parent grew by +2.77% and +5.76%, respectively; in Q1 2026, these figures were +4.74% and +5.10%, respectively. Leading Pharma companies are rapidly shifting their business structures from traditional pharmaceuticals to innovative drugs, with the scale-up of innovative drugs gradually becoming the core driver of revenue growth. Companies with a high proportion of innovative drugs show favorable growth trends, while some Pharma firms heavily reliant on traditional businesses like generics face pressure on revenue and profits: Hengrui Pharmaceuticals' 2025 revenue and net profit attributable to parent grew by 13.0% and 21.7%, respectively, with the innovative drug revenue share rising to 51.7%; Hansoh Pharmaceutical's 2025 revenue grew by 22.6%, net profit attributable to parent by 27.1%, with innovative drugs accounting for 82.2%; Simcere Pharmaceutical Group's 2025 revenue grew by 16.5%, net profit attributable to parent by 86.2%; Sino Biopharmaceutical's 2025 revenue grew by 10.3%, with the innovative drug share increasing to 47.8%. Continuous increases in R&D investment are expected to support accelerated innovation transformation. In 2025, the Pharma segment's R&D expense ratio was 13.47%, up 4.55 percentage points from 2024; in Q1 2026, the segment's R&D expense ratio was 13.03%, up 4.11 percentage points from Q1 2025. The high growth in R&D expenses against a high revenue base reflects that the overall innovation transformation trend of the segment will continue to accelerate. As pipelines of leading, faster-transforming Pharma companies gradually enter the harvest period, multiple key Phase III pipeline data readouts and indication approvals are anticipated in 2026, which is expected to further increase the overall share of innovative business in the segment. Risks such as generic drug procurement price reductions are gradually dissipating. BD out-licensing and royalty income are also expected to enter a period of stable revenue starting this year, further boosting the performance returns of leading Pharma companies.
Biotech/Biopharma: Many companies are reaching profitability inflection points, with domestic commercial scale-up and global value realization being the core growth drivers. In 2025, the segment's revenue grew by approximately 27.8%, maintaining a rapid growth trend. The launch of innovative drugs/expansion of indications and BD licensing drove rapid revenue growth, with more Biotech/Biopharma companies reaching profitability inflection points: BeiGene achieved annual GAAP profitability in 2025, with net profit attributable to parent reaching RMB 2.017 billion; Innovent Biologics, RemeGen, and InnoCare Pharma all successfully achieved annual profitability, while several unprofitable innovative drug companies also narrowed their losses. Innovative products are achieving rapid commercial scale-up. The dual-path strategy of domestic commercial scale-up aided by national reimbursement and global value realization through overseas expansion for innovative drugs with BIC/FIC value is the core growth driver: inclusion of core blockbuster products' first or new indications into national reimbursement catalogs aids scale-up, global commercialization capabilities continue to strengthen, and FIC/BIC products validate market demand and value. Improved operational capabilities drive continuous optimization of expense structures, while thickened cash reserves support sustained R&D investment. In 2025, the average year-end cash reserves for the Biotech segment increased by 54.74% year-on-year, and R&D expenses grew by 22.50% year-on-year. With rapid revenue growth, the R&D expense ratio decreased from 47.34% in 2024 to 32.45%, reflecting the continuous enhancement of domestic biotech companies' self-sustaining capabilities. Revenue from launched product scale-up and BD licensing milestone payments bring cash flow improvement, rapidly strengthening support for R&D investment. An increasing number of biotech companies are expected to achieve a positive cycle where R&D and commercialization/BD reinforce each other. The path from R&D to commercialization to profitability for Biotech is gradually being paved, and more innovative drug companies are expected to reach profitability inflection points in 2026.
Innovative Drug Overseas Expansion: The global value of Chinese innovative drugs is continuously being validated, with 2026 expected to enter a period of intensive data catalysts. Since 2026, the transaction value of Chinese innovative drug BD deals has grown beyond expectations, validating the increased value of Chinese innovative drug pipelines: In Q1 2026, upfront payments for License-out deals reached $3.85 billion (up 1066.7% from Q1 2024, up 229.1% from Q1 2025), with total deal value reaching $52.53 billion (up 449.1% from Q1 2024, up 43.8% from Q1 2025); using full-year 2025 data as a baseline, the Q1 2026 figures for deal count, upfront payments, and total value accounted for 26.7%, 49.7%, and 37.9% of the full-year 2025 totals, respectively. Looking ahead to 2026, multiple international academic conferences are approaching: ASCO/WCLC/ESMO in oncology, and ADA/ENDO/ACR/ASH covering metabolism, autoimmune diseases, etc. The number and quality of Chinese innovative drug presentations at the 2026 ASCO Annual Meeting reached new highs, with 94 original research results selected for oral presentations, a 29% increase from 73 in 2025 and a 68% increase from 56 in 2024; moreover, a Chinese study entered the Plenary Session for the first time (Akeso's ivonescimab HARMONi-6 trial). Catalyzed by key events like data readouts at international academic conferences, the Chinese innovative drug industry is expected to witness validation and value enhancement of pipeline potential. In summary, the global value of the innovative drug industry is prominent, and it is entering a period of intensive data catalysts. It is recommended to focus on: ① Leading innovative drug companies expected to see performance release; ② Core pipelines approaching key data readout catalysts; ③ Acceleration in the internationalization of pipeline assets with global potential.
Medical Devices: Innovation and overseas expansion become two main themes; focus on high-value consumables and equipment. In 2025, the Medical Device segment's revenue and net profit grew by -0.51% and -17.29%, respectively. Factors such as industry anti-corruption measures, gradual implementation of procurement policies, and delays in healthcare procurement funding led to overall growth below the average domestic economic growth rate. Looking forward, innovative products and device overseas expansion are expected to remain the two main themes for segment development. Specifically: 1) IVD & ICL: The effects of procurement policies are materializing; performance may bottom out and recover in 2026, with leading companies continuing to increase market share post-procurement. 2) High-value consumables segment: Revenue shows steady growth, overseas expansion continues to scale, and profitability gradually improves. 3) Low-value consumables segment: Post-pandemic inventory destocking has been good, gradually entering an upward cycle; performance is stable, with a high proportion of overseas business, necessitating close attention to foreign exchange gains/losses. 4) Medical Equipment & Upstream segment: Equipment renewal policies ensure steady industry development, but high inventory requires time to digest, and net profit margins are affected by procurement policies.
Essential Generics/Hospital Preparations: Performance is undergoing rapid recovery. In 2025, as the impact of medical anti-corruption normalized and the essential nature of medication drove a recovery in诊疗 volumes, segment performance recovered rapidly—2025 segment revenue and profit grew by 10.32% and 37.69% year-on-year, respectively; the segment's R&D expense ratio remains high, and valuation uplift is expected under innovation transformation. In 2025, demand for infusion products declined. The large infusion segment's 2025 revenue grew by 1.20% year-on-year, while net profit attributable to parent/non-GAAP net profit attributable to parent grew by -17.79%/-19.90% year-on-year, mainly due to a decline in market demand in H2 2025 + a high base in the same period last year + price reductions for basic infusion products due to volume-based procurement + changes in market competition landscape. In 2026, with the implementation of the strictest anti-corruption regulations in the pharmaceutical industry, leading companies are expected to gain more market share by relying on early marketing compliance reforms.
CRO: Innovation BD drives financing recovery; the domestic CRO industry is expected to usher in a golden decade. In 2025, the CRO segment's revenue grew by 13.00%, and net profit attributable to parent/non-GAAP net profit attributable to parent grew by 87.50%/30.15%, respectively. With the rapid recovery of global biopharmaceutical financing, global pharmaceutical R&D demand is gradually recovering. Combined with China's excellent and efficient CRO service capabilities, overall segment performance growth is expected to gradually accelerate starting from Q1 2026. Driven by domestic innovation BD in 2025, the proportion of upfront payments in the funding sources for Chinese innovative drug companies has gradually increased, while the proportion of equity financing has continued to decline, showing structural improvement on the financing side in 2025. Looking ahead to 2026, domestic financing is expected to recover further on one hand, and on the other hand, as the high demand for early-stage research from 2025 gradually translates downstream, sustained optimism exists for volume and price increases in preclinical CRO and stabilization/recovery in clinical CRO in 2026.
CDMO: New molecular modalities drive strong demand; orders/performance grow rapidly. The CDMO segment's 2025 revenue grew by 9.35% year-on-year, and net profit attributable to parent/non-GAAP net profit attributable to parent increased by 34.26%/15.47% year-on-year, respectively. On one hand, geopolitical disturbances in recent years have not altered the continuous increase in the share of Chinese companies, especially in small molecule CDMO, with comparative advantages becoming increasingly evident globally (according to Eli Lilly's announcement, Lilly plans to invest $3 billion in expanding production capacity in China over the next 10 years), and orders for leading companies are growing steadily. On the other hand, against the backdrop of rapid growth in downstream drug R&D demand/commercial scale-up, CDMO companies with peptide and ADC-related businesses have shown outstanding performance. In the medium to long term, new blockbuster drugs/new molecular entities/new technologies raise requirements for process development and experimental design capabilities, and the industry's long-term outsourcing rate and demand are also expected to increase.
APIs and Intermediates: Supply-demand dynamics still need improvement; Middle East conflicts may push prices higher. Affected by downstream procurement price reductions, intensifying industry competition, and foreign exchange gains/losses, the API and Intermediates segment's revenue growth in 2025 and Q1 2026 was -1.27%/-0.19%, respectively, and net profit attributable to parent growth was -23.63%/-4.75%, respectively, with non-GAAP net profit attributable to parent growth at -42.50%/-44.68%, respectively. Additionally, ongoing Middle East conflicts continue to affect commodity prices, and cost-driven increases in API prices are expected. In the medium term, China's energy supply is relatively stable. If Middle East conflicts prolong beyond expectations, a phenomenon similar to the回流 of some orders to China during the pandemic period might be replicated.
Life Science Upstream Supply Chain: The industry shows a gradual recovery trend;看好 demand shifting from partial to comprehensive recovery. With the recovery of biopharmaceutical industry investment and financing and some easing of price competition in certain areas, the segment is showing a gradual recovery trend. Looking ahead to 2026, on one hand, under the domestic innovation BD boom, the domestic biopharmaceutical investment and financing environment is expected to recover further. Moreover, with the continued recovery of the Hong Kong stock market and the recent restart of the fifth set of listing criteria on the domestic STAR Market,看好 domestic early-stage R&D demand shifting from partial to comprehensive recovery. Additionally, domestic companies are accelerating their overseas market布局, expected to continuously capture overseas share. In the medium to long term, recent national policies have consistently encouraged scientific research innovation and emphasized supply chain autonomy and controllability,看好 development opportunities for domestic companies under rigid scientific research demand. Simultaneously, many small-cap companies in the segment's细分 industries possess strong beta attributes.
Blood Products: Performance pressured under multiple factors; supply and demand expected to趋于平衡 subsequently. Affected by medical insurance cost control, DRG/DIP payment reforms, procurement expansion, and key drug monitoring, market demand faced short-term pressure. On the supply side, according to listed company announcements, China's plasma collection in 2025 grew by 5.6% year-on-year. With the slowdown in plasma collection growth and a year-on-year decrease in批签发 of imported products, industry supply and demand are expected to趋于平衡. In the medium to long term, plasma is a scarce resource. Currently, China's per capita usage of blood products is relatively low. With the future expansion of indications for products like intravenous immunoglobulin, continuous improvement in evidence-based医学 evidence, increased clinical普及率, and the background of population aging, the blood products market is expected to grow steadily.
Medical Services: Revenue and profits同步转好, bottom established,有望开启全年复苏态势. In Q1 2026, the Medical Services segment overall showed a weak recovery trend, with revenue, net profit, and non-GAAP net profit growth at 5%/11%/10%, respectively. The positive growth is预计 mainly due to ① continuous introduction of消费 promotion policies boosting overall consumer sentiment; ② manifestation of医疗本身的经营韧性. With rising诊疗 demand and optimized supply格局, the industry is expected to maintain a recovery trend in 2026. Among them,迭代升级 of refractive surgery techniques drives significant increases in customer unit price. The ophthalmic medical services segment's performance in Q1 2026 exceeded market expectations, with Q1 2026 revenue and net profit growth at +6.4%/+15.5%, respectively. Full-year ophthalmic service segment performance is expected to maintain relatively rapid growth, becoming a leading role in the消费 medical services segment.
Homecare Devices: Domestic channel adjustments continue; overseas market expands rapidly. In Q1 2026, the Homecare Devices segment's revenue, net profit, and non-GAAP net profit growth were +4%/-12%/+7%, respectively, indicating relatively平稳 performance. With the ongoing integration of offline teams and diversified channel布局 by leading companies, the homecare device industry is expected to maintain a recovery trend in 2026. Leading listed companies are strategically开拓 overseas markets. As overseas operations mature, relevant financial indicators are expected to gradually stabilize, and the segment's growth空间 and profitability will significantly improve. Additionally, with the implementation of long-term care insurance expected in the second half of the year, a new医保 payment increment on the scale of hundreds of billions is anticipated to bring about a revaluation of the overall sub-segment.
Medical Aesthetics Segment: Segment faces阶段性 pressure;有望呈现全年复苏态势. Affected by weak宏观消费, segment performance faced阶段性 pressure. Q1 2026 segment revenue and net profit growth were -4.1%/-26.2%, respectively. With continuous introduction of消费 promotion policies, overall consumer sentiment is expected to be提振. In 2026, the medical aesthetics segment有望呈现复苏态势. In the future, with宏观消费 recovery, the segment有望恢复较快速增长.
Pharmaceutical Retail: Revenue pressured, profits改善; industry reversal trend emerging. In 2025, the Pharmaceutical Retail segment's revenue, net profit, and non-GAAP net profit attributable to parent grew by 1.72%, 27.91%, and 18.39%, respectively. In Q1 2026, segment revenue, net profit, and net profit attributable to parent grew by -0.14%, 8.76%, and 10.00%, respectively. Revenue端 faced some pressure, mainly due to stricter regulatory policies since 2025 and intensified industry competition leading to slower store openings and increased closures. Starting from Q2 2026, with regulation normalization and leading companies resuming expansion, the逐季向好 trend for segment performance is clear.
Internet Healthcare: Benefiting from multiple利好, entering harvest period. In 2025, the Internet Healthcare segment's revenue grew by 18.59%, with an加速 trend in H2 2025, mainly due to the溢出 of innovative drug demand from院内 to院外 markets and online channels becoming an important首发 channel for pharmaceutical companies' new drugs. Benefiting from rapid revenue规模 growth, various financial indicators of the internet healthcare segment reflect scale effects. In 2025, gross margin reached 22.91%, up 1.82 percentage points year-on-year; sales expense ratio was 7.39%, down 0.28 percentage points year-on-year; management expense ratio was 3.01%, down 1.83 percentage points year-on-year; net profit margin reached 5.32%, up 2.35 percentage points year-on-year; net profit attributable to parent/non-GAAP net profit attributable to parent grew by 108.88%/102.28%, respectively. With the显现 of scale effects, application of AI, development of commercial insurance, and other factors resonating, internet healthcare's advantages in traffic端 and payment端 are becoming increasingly显著, granting strong议价权.
AI Healthcare: Commercialization capabilities提升, accelerating the重构 of the trillion-yuan pharmaceutical market. The AI Healthcare segment's 2025 revenue grew by 27.66%, benefiting from industry development trends and achieving持续高速增长 in recent years. In 2025, net profit attributable to parent grew by -61.88%, with losses大幅收窄, benefiting from持续提升 of AI healthcare industry revenue while costs remained relatively刚性, leading to continuous利润率修复. With the提升 of AI healthcare commercialization capabilities, future segment revenue and profit are expected to maintain good growth trends. Medical AI will accelerate the重构 of the trillion-yuan pharmaceutical market, and 2026 is expected to be a year with stronger certainty for AI healthcare commercialization. Simultaneously, as more AI healthcare companies enter the product兑现 and上市收获期, the overall资金稳定性 of the AI healthcare segment will be further强化, bringing higher certainty to industry growth beta attributes.
Traditional Chinese Medicine (TCM) & Health: Profitability of non-state-owned enterprises (non-SOEs)显著改善;期待 subsequent "15th Five-Year Plan"宏伟篇章 from various companies in the industry. Profitability of TCM state-owned enterprises (SOEs) is relatively pressured. The TCM SOE segment's 2025 and Q1 2026 revenue grew by -1.02% and 0.03%, respectively, and net profit grew by -2.46% and -11.25%, respectively, with期待 for the subsequent "15th Five-Year Plan." The TCM non-SOE segment's 2025 and Q1 2026 revenue grew by -9.91% and 1.10%, respectively, and net profit grew by 4.29% and 7.68%, respectively, with毛利率改善显著 and profitability提升显著.
TCM Consumer Products: Segment faces阶段性 pressure;即将迎来 inflection point. Affected by宏观消费 and终端 price control for片仔癀, the TCM consumer products segment performance is pressured. In 2025, segment revenue, net profit, and non-GAAP net profit attributable to parent grew by -6.08%, -16.84%, and -21.44%, respectively. In Q1 2026, segment revenue, net profit, and net profit attributable to parent grew by -6.25%, -17.25%, and -17.84%, respectively. It is judged that the end of片仔癀's inventory and price control in 2026 and the opening of牛黄 imports will improve毛利率, driving an upward inflection point for the TCM consumer products segment's revenue and profit.
Biological Vaccines: Segment undergoing结构性调整;期待 turnaround. The Biological Vaccines segment's 2025 and Q1 2026 revenue grew by -47.39% and -1.15%, respectively, and net profit grew by -578.77% and saw亏损收窄, respectively. The overall decline in vaccine segment revenue in 2025 and Q1 2026 is mainly attributed to declining新生儿 numbers, inventory destocking for重磅品种, and日益加剧 competition for some traditional products. Focus on重磅 product scale-up and vaccine overseas expansion.
Risk Factors: Risks of intensified geopolitical摩擦; risks of macroeconomic复苏不及预期; risks of volume-based采购 price reduction幅度 and力度超预期; risks of declining financing热度 for一级市场生物制药企业; risks of high-value consumables降价力度 and采购进度超预期; risks of clinical研发 failure for innovative drugs; risks related to medical services医保 policies; risks of医疗事故; risks of产业政策变化不及预期; risks of医疗AI发展不及预期; risks of商保 policy进展 and商保 product development不及预期; risks of intensifying industry competition, etc.
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