China Securities Co., Ltd. Mid-term Investment Strategy for the Healthcare and Biotechnology Industry in 2026: Differentiated Breakthroughs and Globalization Realization.

China Securities Co., Ltd. released a research report stating that the pharmaceutical industry in the first half of 2026 has hit bottom and started to recover, with many companies turning losses around under the dual drive of commercialization and internationalization of innovative drugs, and their global academic influence has significantly increased. Domestic payment-side medical insurance negotiations and commercial insurance directory jointly support real innovation. Innovative enterprises break through differentiation, realizing global value. Looking ahead to the second half of 2026, the bank's investment outlook: the gradual clearance of stock pressure, the industry as a whole returning to growth. Innovative enterprises break through differentiation, realizing global value. Looking ahead to the second half of 2026, the bank is optimistic about the main themes of innovation, going global, marginal changes, and integration. Key points of China Securities Co., Ltd. are as follows: Pharmaceutical Industry in 26Q1: Operations have stabilized, and the industry as a whole is returning to growth In Q1 2026, the pharmaceutical industry's revenue and non-deductible net profit have both resumed positive growth, with outstanding performance in sectors such as CRO/CMO, upstream biopharmaceuticals. Medical services, home medical devices, and high-value consumables also achieved double revenue and profit growth. Innovative Drugs: Dual drive of commercialization and internationalization, academic influence stepping into the global arena Innovative drugs are entering a period of profit realization, with performance growth driven by domestic commercialization and overseas authorization, with total external authorizations in Q1 2026 exceeding 60 billion U.S. dollars, and transactions in leading-edge tracks such as ADCs and bispecific antibodies continuing to be hot. 94 Chinese studies were selected for oral presentations at the 2026 ASCO Annual Meeting, with the approval of anti-PD1 drug Ivozoban for a global conference presentation, marking a new milestone in the global academic influence of Chinese innovative drugs. CXO and Upstream: Internal and external demand resonate, returning to an upward cycle Benefiting from steady overseas demand and bottoming out of domestic investment and financing, the CXO industry is back on a growth track. Top companies have strong order backlogs, new molecules driving a high boom in CDMO, and new orders for pre-clinical CROs rising in both quantity and price. Domestic substitutes in the upstream biopharmaceutical sector are expanding overseas, and profitability continues to improve. Medical Devices and Services: Impact of centralized procurement cleared, growth driven by innovation The medical device sector has seen positive revenue growth for three consecutive quarters, with policy impacts gradually clearing up. In the short term, attention is focused on opportunities for performance recovery brought by the renewal of centralized procurement contracts; in the long term, promising innovative medical devices and technologies such as Siasun Robot & Automation and brain-computer interface with global competitiveness are favored. The medical services sector is experiencing a mild recovery in consumer medical services, with policy impacts stabilizing marginally, and its long-term essential attributes remain unchanged. Pharmaceutical Consumption and Bioproducts: Waiting for flowers to bloom, focusing on bottoming out and transformational upgrades Traditional Chinese medicine is expected to see marginal improvements with the catalyst of essential medicine lists after channel adjustments; blood products await the recovery of supply and demand, and expansion of plasma stations; vaccines are expected to return to their long-term innovative value; and pharmaceutical retail is accelerating its transformation and upgrade to "health stations". Risk Analysis Procurement and cost control policies in the pharmaceutical and medical device sectors may be stricter than expected; industry competition may be stronger than expected; approvals for innovative drugs and devices may be slower than expected; and external environmental changes may be difficult to predict.