China Securities Co., Ltd.: The performance of the innovation drug industry chain in the third quarter was outstanding, and the non-GAAP growth rate of each sector has seen some changes in ranking.

China Securities Co., Ltd. released a research report stating that listed pharmaceutical companies have completed their performance disclosure for the third quarter of 2025. Overall, in the first three quarters of 2025, the pharmaceutical industry saw a year-on-year decline of 1.98% in overall revenue and 11.60% in non-recurring net profit, still under pressure, but the decline has narrowed compared to the first half of the year. In terms of sub-sectors, the non-recurring net profit growth rate of the upstream bio-pharmaceutical, medical information technology, CRO/CMO, and research reagent sectors ranks at the top; the upstream bio-pharmaceutical, CRO/CMO, medical equipment, and household appliance sectors show dual growth in revenue and non-recurring net profit. Main points from China Securities Co., Ltd.: Overall revenue and non-recurring net profit of all sectors are still declining year-on-year, but the decline has narrowed compared to the first half of the year. Overall, all sectors saw a year-on-year decline of 1.98% in revenue and 11.60% in non-recurring net profit, still under pressure, but the decline has narrowed compared to the first half of the year. The innovative drug industry chain performed well, with changes in the ranking of the non-recurring growth rate of various sectors. In the first three quarters of 2025, the upstream bio-pharmaceutical, CRO/CMO, medical equipment, and household appliance sectors showed dual growth in revenue and non-recurring net profit. The upstream bio-pharmaceutical, medical information technology, research reagent, medical equipment, and pharmaceutical distribution sectors saw an increase in growth rate, with medical information technology and research reagent showing faster growth. Key sector situation: Pharmaceuticals and innovative drugs: the revenue decline in the chemical pharmaceutical sector narrowed, with profits under pressure; innovative drug companies continued to commercialize and internationalize, with substantial revenue growth and reduced losses, and leading companies showed stable performance. CXO: The industry returned to positive growth in the first half of 2025, with the Q3 trend continuing; the CDMO sector showed steady demand. The CRO sector saw a significant improvement in order quantity, with expectations of gradual recovery in order prices. The upstream pharmaceutical industry chain: 2025Q3 showed signs of recovery, with significant improvements in profits and gross profit margins. The industry will benefit in the long term from domestic substitution and recovering demand. Medical equipment: Revenue growth turned positive in 2025Q3, with a noticeable shrink in the year-on-year profit decline. The performance of several companies is expected to continue to improve, with performance accelerating in 2026 compared to 2025. Medical services: Revenue in 2025Q3 slightly declined year-on-year, with some consumer medical service companies showing stabilization and recovery in average customer spending. Traditional Chinese medicine: Revenue performance in 2025Q3 showed a narrower decline from the previous quarter. Optimistic about the demand rebound in the peak season at the end of the year; future attention to the progress of the essential drug list and the pace of implementation of the 15th Five-Year Plan. Vaccines: Sector revenue and profit significantly fell year-on-year in the first three quarters. Subsequent attention to product sales improvements and progress in innovative pipelines. Blood products: Sector revenue remained stable in the first three quarters, with profits continuously under pressure. Expecting a return to a tight supply-demand balance, focusing on expansion of plasma stations and industry mergers and acquisitions. Pharmaceutical retail: Revenue growth improved in 2025Q3, with rapidly growing profits; attention needed due to previous stock price reactions and multiple catalysts. Pharmaceutical distribution: Revenue growth in the sector improved in 2025Q3, with profitability affected by impairment provisions. Leading companies are gradually stabilizing operations, potential for improved payment and long-term stable growth expectations brought by the 15th Five-Year Plan. Investment outlook for the second half of 2025: Continue to seek new opportunities and industry consolidation. Looking ahead to the second half of 2025, the bank continues to be positive about: Innovation theme: Global liquidity is expected to continue to improve, favoring the pricing of innovative assets; national policies encourage industry innovation; and suggest active attention to the development of cutting-edge technologies. Innovative drugs and pharmaceutical companies (bi-specific and multi-specific, TCE, nuclear medicine, etc.), devices (AI, brain-machine interfaces, etc.). Going global theme: China Meheco Group's industry gradually gains global competitiveness, long-term outlook for the pharmaceutical industry to produce global companies, but investors also need to have sufficient expectations for the challenges brought by going global, which will undoubtedly be a long and tortuous process. Representative sub-industries are innovative drugs and device companies, with the assessment of the international competitive capabilities of company products and teams being the most core basis for stock selection. Margin change theme: (1) Policy improvement: including medical distribution and medical equipment update themes, relevant companies in the distribution field; equipment update themes. (2) Improvement in supply-demand relationship: CXO industry, previous adjustments have been sufficient, global investment recovery is expected to drive gradual recovery in global customer demand; life sciences and upstream bio-pharmaceuticals. Integration theme: Suggest focusing on device and traditional Chinese medicine sub-sectors, some pharmaceutical companies, and central state-owned enterprises. Risk warning: Industry policy risks; R&D underperformance risks; approval delays risks; macro-environmental volatility risks.