China Securities Co., Ltd. (601066) has released a research report noting the following: For the pharmaceutical industry chain: 1) Prescription drugs: innovative market access drives performance growth, while internationalization 鈥?from business development to organizational expansion overseas and strategic alliances 鈥?has become a second growth curve; 2) Dense catalysts in 2026 are expected to further validate the industry's development logic, with major conferences such as ESMO set to deliver verification through a host of heavyweight data this year; 3) Domestic market demand is gradually recovering, and companies are actively expanding overseas footprints. Over the medium to long term, domestic substitution across the industry chain is imperative.
For medical devices and services: domestic bidding in the Q3 medical device sector continues to improve, and policy progress deserves ongoing attention. The robust overseas business growth of certain companies has become an important driver of steady earnings growth. Some upstream medical device companies are benefiting from new business expansion, with high earnings growth or improvement; investors should watch for key catalysts such as new product launches or business order wins. Pricing adjustments in certain high-value consumables centralized procurement programs and the IVD industry are about to land, with differentiated impacts across companies. If the policy impact proves limited, the sector is poised for a dual recovery in both earnings and valuation.
The main views of China Securities Co., Ltd. are as follows.
Performance Review
Revenue and non-recurring net profit attributable to parent both grew in H1 2026. In the first half of 2026, total operating revenue for the entire pharmaceutical sector rose 1.81% year on year, while non-recurring net profit attributable to parent grew 6.05% year on year. Overall, both revenue and non-recurring net profit for the pharmaceutical industry showed improvement in H1 2026. By sub-sector, biopharmaceutical upstream, low-value consumables, home medical devices, CRO/CMO, other devices, scientific research reagents, pharmaceutical retail, and pharmaceutical distribution all achieved dual growth in operating revenue and non-recurring net profit attributable to parent in 26H1, with biopharmaceutical upstream and low-value consumables posting particularly strong growth. In terms of changes in the ranking of 26H1 non-recurring profit growth rates, low-value consumables, home medical devices, other devices, scientific research reagents, vaccines, pharmaceutical distribution, and in vitro diagnostics all moved up, with scientific research reagents, low-value consumables, and vaccines rising the fastest.
Global Perspective: Innovative Value Stands Out, Chinese Strength Accelerates Penetration
China's pharmaceutical industry possesses the advantages of "innovation upgrading plus supply chain resilience." In 2025, upfront payments from overseas licensing of innovative drugs substantially exceeded the full-year total of the previous year, and medical devices are also actively exploring paths to go overseas. The United States leads in early-stage R&D and premium pricing, but with multinational pharmaceutical companies facing patent cliffs, demand remains strong, making Chinese assets highly cost-effective globally and creating broad room for domestic-international collaboration.
Domestic Value Reshaping: Focusing on High-Quality Development, Building a Solid Foundation of Innovation and Compliance
1) Policy: focusing on high-quality development, with optimization of centralized procurement, diversified payment mechanisms, and reform of medical service pricing being advanced; 2) Pharmaceutical chain: innovative drugs entering a phase of commercialized volume ramp-up, with attention to supply chain security; 3) Devices: domestic substitution extending toward the mid-to-high end, with a positive outlook on overseas expansion, new technologies (AI, brain-computer interfaces), and M&A integration; 4) Tracking opportunities in traditional Chinese medicine, pharmacies, and medical services for bottoming out, recovery, and transformation and upgrading.
Overseas Value Reshaping: Multi-Dimensional Breakthroughs, Building a New Global Landscape
1) Innovative drugs: BD becoming routine, entering the era of internationalization 2.0; 2) Industry chain: domestic and overseas demand recovering; 3) API: resolving short-term disruptions, transitioning toward specialty APIs/CDMO; 4) Devices: opening up overseas markets, with innovative device self-sales and BD proceeding in parallel; 5) Blood products/vaccines: overseas registration of IVIG, diversified vaccine overseas expansion models.
Risk Warnings
Industry policy risk: risks arising from changes in research and development design requirements, price changes, centralized volume-based procurement policy changes, and changes in medical insurance reimbursement scope and ratios due to industry policy adjustments. In particular, changes in centralized procurement and medical insurance payment policies have a significant impact on industry development expectations. R&D below-expectations risk: during the R&D process of new drugs and devices, there are risks of uncertain clinical enrollment progress and uncertain efficacy and safety data results. Approval below-expectations risk: during the approval process, there is a risk of extended approval cycles due to factors such as supplementary materials and changes in approval procedures. Macro environment volatility risk: a further slowdown in global economic growth could affect downstream demand; in addition, risks related to international relations, climate change, inflation, and exchange rates and interest rates need to be considered. Performance below-expectations risk: affected by the above factors and changes in company operating strategies, earnings forecasts may fall short of expectations.
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