According to a research report from China Securities Co., Ltd., the pharmaceutical industry is expected to bottom out and recover in the first half of 2026. Multiple innovative drug companies are projected to turn losses into profits, driven by both commercialization and internationalization, with a significant enhancement in global academic influence. Domestically, the combination of national medical insurance negotiations and commercial insurance catalogues will jointly support genuine innovation. Innovative companies are anticipated to break through via differentiation and realize their global value. Looking ahead to the second half of 2026, the firm's investment outlook suggests that existing pressures will gradually clear, and the industry as a whole will return to growth. The bank is optimistic about themes centered on innovation, globalization, marginal improvements, and industry consolidation. China Securities' key views are as follows: Pharmaceutical Industry in Q1 2026: Operations Stabilize at a Bottom, Industry Returns to Overall Growth In Q1 2026, both revenue and non-GAAP net profit in the pharmaceutical sector resumed positive growth. Segments such as CRO/CMO and biopharmaceutical upstream performed notably well. Medical services, home-use medical devices, and high-value consumables also achieved growth in both revenue and profit. Innovative Drugs: Dual-Driven by Commercialization and Internationalization, Academic Influence Goes Global Innovative drugs are entering a period of profit realization, with domestic commercialization and overseas licensing jointly driving performance growth. In Q1 2026, the total value of out-licensing deals exceeded $60 billion, with active transactions continuing in cutting-edge fields like ADCs and bispecific antibodies. At the 2026 ASCO annual meeting, 94 Chinese studies were selected for oral presentations, and the drug ivonescimab was featured in the plenary session, marking a new level of global academic influence for China's innovative drugs. CXO and Upstream: Resonance of Domestic and International Demand, Return to an Upward Cycle Benefiting from steady overseas demand and a bottoming-out recovery in domestic investment and financing, the CXO industry has returned to a growth trajectory. Leading companies hold strong order backlogs, with new molecules driving high prosperity in the CDMO sector. Preclinical CROs are seeing increases in both the volume and value of new orders. The biopharmaceutical upstream sector is advancing with both import substitution and overseas expansion, leading to a continuous recovery in profitability. Medical Devices and Services: Impact of Volume-Based Procurement Clears, Innovation Drives Growth The medical device segment has seen positive revenue growth for three consecutive quarters, with policy impacts gradually clearing. In the short term, focus is on performance recovery opportunities brought by the renewal of volume-based procurement agreements. Long-term prospects are favorable for innovative medical devices with global competitiveness and new medical technologies such as surgical robots and brain-computer interfaces. The medical services sector is experiencing a mild recovery in consumer healthcare, while policy impacts on serious medical care are stabilizing at the margin, with its long-term essential-demand nature unchanged. Pharmaceutical Consumption and Biologics: Awaiting Recovery, Focusing on Bottoming Out and Transformation Traditional Chinese medicine is expected to see marginal improvement following channel adjustments, potentially catalyzed by inclusion in the essential medicine list. The blood products sector awaits a recovery in supply and demand alongside plasma station expansion. Vaccines are expected to return to their innovative value in the long term. Pharmaceutical retail is accelerating its transformation and upgrade towards "health stations." Risk Analysis Risks include drug and medical device procurement and cost-control policies being stricter than expected; industry competition being more intense than anticipated; approval progress for innovative drugs and devices falling short of expectations; and unpredictable changes in the external environment.
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