Recent analysis indicates that the biopharma sector in the first half of 2026 continues to be characterized by accelerating innovation-driven globalization and ongoing structural differentiation. On the supply side, innovation is advancing, while on the demand side, international markets remain robust and domestic policy support is becoming more pronounced. This is evidenced by the sector's upgraded positioning as an 'emerging pillar industry' and record-breaking business development deal values, which are driving sustained improvement in orders and performance for the innovation supply chain, including contract research and manufacturing organizations and upstream suppliers.
However, pressure on pharmaceutical consumption both inside and outside hospitals persists and requires improvement. The recent significant correction in the biopharma sector primarily reflects shifts in liquidity and market sentiment rather than a fundamental change in the innovation industry trend. Looking ahead to the second half of the year, the view is that the positive momentum for biopharma innovation remains intact, value is apparent at current levels, and capital conditions are favorable. Key areas of focus include innovative drug companies with strong global clinical data, proven capabilities in global expansion and commercialization, CXO and upstream supply chain firms witnessing order recovery and structural upgrades, as well as medical devices with strong overseas growth potential and technological attributes, pharmacies with improving operations resuming expansion, and undervalued healthcare services and traditional Chinese medicine stocks with positive catalysts.
Key Investment Areas: Pharmaceutical Sector
The pharmaceutical sector remains a core focus, with the analytical emphasis shifting from 'BD catalysts' to 'global competitiveness in clinical data and commercialization execution'. Business development collaboration models are evolving, moving from single-asset licensing to platform-based co-development. The scale of such deals surpassed $60 billion in Q1 2026, reaching half of the 2025 annual total, significantly enhancing the bargaining power of Chinese pharmaceutical companies in the global supply chain. The quality of clinical data for domestically developed innovative drugs presented at conferences like ASCO has improved, further validating the global competitiveness of Chinese firms in areas such as bispecific antibodies, ADCs, GLP-1 drugs, and small nucleic acids.
Recommended companies include those in second-generation immuno-oncology: Kintor Pharma, 3SBio, RemeGen; the ADC field: Kelun-Biotech, Baili Heng, Fosun Pharma (referencing subsidiary), Duality Biologics, Alphamab Oncology; and the small nucleic acid space: RiboBio, KeyMed Biosciences, BebetterMed, Frontier Biotechnologies. Also in focus are large pharma companies with multi-platform strategies: Jiangsu Hengrui Medicine, Hansoh Pharma, Sino Biopharmaceutical, CSPC Pharmaceutical Group, Innovent Biologics.
Innovation Supply Chain: CXO and Upstream Life Sciences
Opportunities arising from the momentum in CXO and life science tools are a key focus. For CXO, a recovery in 2025 and Q1 2026 has been uneven. A rebound in global biopharma investment and financing, coupled with high growth in Chinese innovative drug BD deals, is driving robust CDMO orders. While CRO revenue is recovering, profit restoration is pending, and performance among some small-to-mid-sized CDMOs is diverging. New modality orders (e.g., peptides, small nucleic acids) are rising, AI adoption is improving efficiency, and industry concentration is increasing.
Companies to watch include WuXi AppTec, WuXi Biologics, Asymchem, Pharmaron, Joinn Laboratories, Innostar, Huiyuan Pharmaceutical, Tigermed, Novotech. For life science tools, demand from downstream innovative drugs and CXO has rebounded noticeably. New modalities are driving demand for high-end consumables and reagents, leading to a sustained recovery in orders and performance, with steady revenue growth, high profit growth, and increasing divergence. Furthermore, import substitution in high-end segments is accelerating, led by industry leaders, and consolidation is quickening. Companies are extending downstream to build integrated reagent-plus-CDMO platforms. Watch Biocytogen, GemPharmatech, Sepax Technologies, OPM Biosciences, NanoMicro Technology, Bide Pharmatech.
Active Pharmaceutical Ingredients
The API sector as a whole is still bottoming out. Focus is on companies demonstrating incremental growth from new businesses or changes in product supply-demand dynamics. Favorable prospects are seen for Zhejiang Tianyu Pharmaceutical, Apeloa Pharmaceutical, Zhejiang Guobang Pharmaceutical.
Medical Devices
The sector is building a base, with attention on three main themes: overseas expansion realization, high-end import substitution, and innovation. Sector revenue turned positive in Q1 2026, but profits remain under pressure. Tender activity saw a short-term decline, but revenue recovery is lagging, with an inflection point approaching but not yet materialized. Growth drivers are shifting. Equipment exports show the most elasticity; high-end imaging and endoscopy are in a phase of breaking through barriers. High-value consumables are seeing volume growth for innovative categories post-centralized procurement, with significant overseas potential. Low-value consumables are stabilizing as overseas destocking eases. The decline in IVD is narrowing, with leading players showing resilience in overseas markets. Watch United Imaging Healthcare, Mindray Bio-Medical, SonoScape Medical, HTDK Medical, MicroPort EP MedTech, MicroPort CardioFlow Medtech, Intco Medical, Lepu Medical, MicroPort MedBot.
Pharmaceutical Consumption and Healthcare Services
Structural opportunities in undervalued segments are worth noting. For healthcare services, focus is on recovery growth in certain areas like orthodontics, penetration rate increases, and overseas expansion, alongside trends in longevity medicine: Aier Eye Hospital Group, Topchoice Medical, Angelalign Technology, Sinocare, Yuwell, Huabang Health. For TCM, short-term pressure exists, but high-dividend assets and companies innovating and transforming are viewed favorably. Watch Dong-E-E-Jiao, Yunnan Baiyao Group, Lingrui Pharmaceutical, Jichuan Pharmaceutical, China Resources Sanjiu Medical & Pharmaceutical, ZhongSheng Pharmaceutical. For pharmacies, policy improvements, better earnings, and leading players resuming expansion are positive drivers. Key focuses include Yifeng Pharmacy Chain, Dashenlin Pharmaceutical Group, LBX Pharmacy Chain.
Risks to consider include potential delays in research and development, international relations, foreign exchange volatility, intensifying competition, and environmental regulations.
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