BOC International released a research report stating that in 2025, performance across healthcare sub-sectors varied significantly, with CXO and innovative drug-related segments showing notable gains. For 2026, the firm remains optimistic about "product-driven" companies, as their industry trends remain favorable, and these firms are expected to gradually enter profitability cycles. Additionally, BOC International recommends focusing on opportunities in the healthcare services sector, which underperformed in 2025 but maintains strong long-term fundamentals and resilience. With a low base effect from 2025, the sector is poised for gradual recovery in 2026.
Key insights from BOC International are as follows:
**Divergent Performance in 2025, Chemical Pharmaceuticals See Valuation Expansion** In 2025, the A-share market performed well overall, with all 31 Shenwan primary sectors posting positive returns as of October 31, 2025. The healthcare sector ranked 10th, rising 34.95%. Among sub-sectors, pharmaceutical R&D outsourcing (CXO) led with a 58.71% gain, followed by biologics (57.59%) and chemical drugs (52.17%). In contrast, brick-and-mortar pharmacies and blood products lagged, rising just 7.56% and 0.87%, respectively.
As of October 31, 2025, the healthcare sector's average P/E ratio stood at 30.82x, still near historical lows compared to 2020. Valuation expansion in biologics and CXO correlated with earnings growth, while vaccines and in-vitro diagnostics saw declining net profits, driving their valuation increases. Chemical drugs' gains were largely valuation-driven rather than earnings-based, whereas brick-and-mortar pharmacies and medical distribution saw earnings improve but valuations decline.
**Bullish on "Product-Driven" Companies in 2026** "Product-driven" firms have gradually overcome centralized procurement impacts by increasing R&D investments and launching new products. Policy improvements, such as anti-internal competition measures and innovation incentives, further support the sector's shift toward innovation. As new products commercialize, these companies are entering new profit cycles, reinforcing their long-term growth logic.
For innovative drugs, the industry trend remains intact. In 2025, overseas business development (BD) deals were a market focus, highlighting Chinese innovators' global competitiveness and marking a key pathway for international expansion. Future catalysts include earnings delivery and clinical progress of key pipeline assets.
Medical devices, similarly positioned at a cyclical low, are expected to see valuation expansion due to channel barriers and other structural advantages.
**Healthcare Services Show Resilience, Poised for Recovery in 2026** Despite underperformance in 2025, healthcare services exhibit signs of recovery, evidenced by rising patient volumes in ophthalmology. Long-term resilience stems from: 1. Accelerating aging demographics, driving higher disease incidence and sustained demand. 2. Industry consolidation under centralized procurement and cost controls, benefiting leading players. 3. Untapped opportunities in areas like pathological myopia and glaucoma, with new technologies expanding growth potential. With a low 2025 base, the sector is expected to recover gradually in 2026.
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