Overall market sentiment and positioning show that the China healthcare sector has declined by an average of 11% year-to-date in 2026, following a 42% gain during the same period in 2025. This persistent divergence between stock prices and fundamentals—such as clinical data readouts and active business development (BD) deals—is compounded by capital rotation into AI/semiconductors, regulatory uncertainties between the US and China, and profit concerns stemming from domestic anti-corruption efforts. Consequently, overall investor positioning remains cautious.
However, the recent pullback has prompted a market reassessment. Global pharmaceutical companies widely acknowledge the strategic importance of China's innovative drug sector in global R&D. Investor focus is shifting towards short-term catalysts that could narrow the "fundamentals-valuation" gap. These include upcoming clinical data, BD licensing announcements, and Q2 earnings reports. Additionally, strong post-IPO pipeline performance and share buybacks by listed companies following the sector correction are beginning to attract incremental attention.
Goldman Sachs believes that while short-term sentiment remains weak, the risk-reward ratio is improving in the second half of the year. With fundamental resilience and increased visibility of catalysts, the current correction presents a window to invest in companies with high earnings visibility, validated assets, and ongoing commercial progress.
Key Views by Segment
Innovative Drugs/Biotech: China's Innovation is Now a Global Strategic Core
Global pharmaceutical giants clearly identify China as a key source of innovation. Gilead has indicated that nearly half of its priority BD opportunities are related to original Chinese innovation. Pfizer assesses that while Chinese biotechs currently rely on US and European partners for global clinical development and commercialization, they are expected to build end-to-end independent capabilities around 2030, a path already outlined in Innovent Biologics' "Vision 2030." Both AstraZeneca and Novartis have emphasized their commitment to deepening collaborations in China, focusing on next-generation therapies like radiopharmaceuticals, cell therapies, and multi-specific antibodies.
Out-licensing remains the clearest path for global expansion. The BD demand from large pharmaceutical companies has not diminished; they prefer assets that can be seamlessly integrated into their global development pipelines, particularly in areas where China has established clear clinical and platform advantages, such as oncology, ADCs, and bispecific antibodies/T-cell engagers. Recent discussions about stricter bilateral regulations have focused more on Chinese-side policies, where US policy visibility is relatively higher. If regulations target platform-type authorizations rather than single assets, the probability of structural change is extremely low. The short-term licensing trend is a key observation metric.
The global translatability of clinical data has become central to valuation. Investors are no longer applying a blanket discount to Chinese data but are evaluating each case individually. Trials that adopt global standard control groups, have balanced patient populations, use endpoints that meet international norms, and involve early and sufficient communication with the FDA/EMA are more likely to gain global recognition. The next phase of the market will shift away from broad sector gains towards stock-specific differentiation. Companies with high-quality global assets, clear BD optionality, and rigorous trial design will command a premium, while valuations for assets with homogeneous targets or questionable translatability will remain under pressure.
Key recommendations include Kelun-Biotech (sac-TMT data sets an industry benchmark; global partner Merck has initiated 17 Phase III trials), BeiGene (its "fast-track" clinical development capability is validated, with a rapidly expanding solid tumor pipeline), and Innovent Biologics (strong pipeline delivery capability, with an estimated five assets entering global Phase III MRCT trials before 2030).
CXO/CDMO: Strong Fundamentals, Revaluation Expected in H2
While positioning within the sector is differentiated, marginal improvements are evident. Some investors have begun bottom-fishing based on "fundamentals not materially impacted, technological and capacity advantages remain solid, and valuations are at a significant discount to global peers." Execution capability and earnings visibility at the company level have become the core drivers for revaluation.
For WuXi AppTec, although being added to the US Section 1260H list caused short-term volatility, the company has filed a lawsuit in response. Investor focus has returned to sustainable growth. Order diversification beyond GLP-1 peptides and potential upward revisions to Q2 guidance are near-term catalysts. For WuXi Biologics, royalty income supports medium-term profits, but modeling visibility is relatively low. WuXi XDC shows strong order momentum with attractive valuations; the landing of commercial orders at its Singapore base is a key future observation point, and the BioDlink integration will directly enhance operational capabilities and customer networks, with the Singapore base positioned as a long-term, large-scale commercial production site.
For Asymchem, GLP-1 capacity expansion remains a key focus, with market debate shifting towards post-expansion capacity utilization ramp-up and gross margin trends. Goldman Sachs is optimistic that expansion into new platforms like peptides, ADCs, and oligonucleotides will support both growth and profitability, with a core focus on commercial order structure and GLP-1 demand visibility.
For Tigermed, sentiment is cautious due to recent earnings misses, pricing pressure, AI investment drag, and a CSRC investigation. However, order intake has shown signs of recovery, and the conclusion of the investigation will be a clear signal for stock price recovery.
For Samsung Biologics, short-term volatility stems from labor negotiations and quarterly order cadence, but long-term fundamentals are solid (high capacity utilization, diverse global client base, ample room for expansion). Resolution of labor issues, new order announcements, and clarity on capital expenditure for Plant 6 are key catalysts.
Medical Devices and Services: Stock Selection, Global Expansion as Key Differentiator
Overall sector attention is relatively low, with capital focused only on stocks with independent growth logic and validated overseas execution. Weak domestic hospital demand, tightening cost controls, and the impact of the anti-corruption campaign on short-term activities are broadly suppressing sentiment.
For Angelalign Technology, market focus has shifted from domestic to overseas execution quality, gross margin trends, and pricing discipline. Clear shipment guidance and faster-than-expected overseas breakeven have boosted investor confidence. The company's overseas expansion is not solely based on low prices but is supported by product strength, digital design efficiency, and brand power. Align Technology, the parent company of Invisalign, has clearly stated it will focus on incremental opportunities in underpenetrated markets, improving penetration through GP channel expansion and product line stratification (launching lower-cost, zero-refinement products), confirming ample industry space.
For MicroPort MedBot, overseas investors place greater value on differentiated technology and clinical value rather than just low-price advantages. Global commercial orders for the Toumai laparoscopic robot have exceeded 300 units (with about 240 overseas, up from 170 at the end of March 2026). Continued order disclosures will validate global competitiveness and support valuation re-rating. Investors generally acknowledge the platform-like nature of the surgical robotics sector; early overseas breakthroughs have solidified the investment thesis, and high valuations are expected to be digested as earnings visibility improves.
Global Healthcare Industry Context and AI Theme
Overall sentiment in the US healthcare sector is cautious, with short interest at high levels and a negative correlation with AI. Capital allocation is highly dependent on earnings delivery, narrative clarity, and the pace of interest rate cuts. Goldman Sachs expects no Fed rate cuts in 2026, with one cut each in June and December 2027. Some investors are even pricing in rate hike risks, exacerbating short-term uncertainty. Among sub-sectors, only biotech sentiment is relatively positive, while hospital stocks are viewed cautiously, leading to highly selective capital flows.
Medical AI remains in the early stages of monetization. Current applications are primarily efficiency-focused (optimizing pharma R&D processes, improving clinical workflow efficiency, reducing operational costs) and have not yet contributed directly to revenue. Large pharmaceutical companies are already factoring AI-driven cost savings into profit support, with gradual extension into revenue-generating scenarios expected from the second half of 2026. Investors generally view AI as a complementary tool rather than a replacement, requiring clearer data on value validation before increasing allocations.
Current State of China BD Deals in 2026
Since the beginning of the year, China-originated BD deals have remained active, with quarterly deal volume stable above 50 since Q4 2025, and total deal value continuing its upward trend. Therapeutic areas are expanding from oncology to include autoimmune diseases, metabolism, and others. The modalities covered include ADC, bispecific antibodies, cell therapy, and radiopharmaceuticals—areas where China has established advantages. China-originated out-licensing deals now account for approximately one-quarter of global deal volume, with the share of global deal value also rising significantly, confirming the rising status of Chinese innovation in the global BD landscape.
Goldman Sachs' Key Recommendations for H2
CXO: WuXi AppTec, Samsung Biologics, Asymchem, WuXi XDC
Innovative Drugs/Biotech: Kelun-Biotech, BeiGene, Innovent Biologics, Hansoh Pharma
Medical Devices: MicroPort MedBot, Aikang Healthcare, Angelalign Technology
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