Guosheng: The rebound trend of the pharmaceutical and biotechnology sector has been established. We are optimistic about the innovative drug industry chain and medical technology.

Guosheng released a research report stating that in the first half of 2026, China Meheco Group's total outbound transactions reached $99.7 billion, exceeding the full year total of 2024 ($52.2 billion) and approaching 73% of the full year total for 2025. It is expected that the total for the year will reach a new high. Several innovative drugs have recently been approved, and the 2026 version of the essential drugs list has been released, with four domestic innovative drugs being included for the first time. In the future, the time it takes for innovative drugs to enter the essential drugs list after being approved for market will be shortened. The field of brain-machine interfaces has transitioned from cutting-edge technology exploration to being supported by national industrial policies. Guosheng's main points are as follows: The pharmaceutical sector is developing steadily, with BD outbound transactions reaching new highs. In the first half of 2026, the pharmaceutical and biotechnology index dropped by 10%. Since Q2, the pharmaceutical industry has been actively repurchasing shares, demonstrating confidence in its development. According to data from PharmaNet, from early April to mid-June, over a hundred pharmaceutical companies listed on A-shares and H-shares announced or implemented share repurchases. In the manufacturing sector, the cumulative operating income of pharmaceutical manufacturing companies with annual revenue exceeding RMB 20 million reached RMB 944.57 billion from January to May, a slight decrease of 1.5% year-on-year. In the first half of 2026, China Meheco Group's total outbound transactions reached $99.7 billion, exceeding the full year of 2024 ($52.2 billion) and approaching 73% of the full year of 2025. The total for the year is expected to reach a new high. The approval process for innovative drugs is accelerating, and the release of the new essential drugs list sends multiple positive signals. The innovative drug industry chain is developing rapidly. In terms of clinical trials, in 2025, China had the highest number of Phase I clinical trials for innovative drugs in the world, demonstrating domestic original innovation capabilities from "0" to "1." Recently, several innovative drugs have been approved, covering areas such as dual-specific ADCs and solid tumor CAR-T therapies. From a commercial perspective, the 2026 version of the essential drugs list has been released, with four domestic innovative drugs being included for the first time, which will shorten the time it takes for innovative drugs to enter the essential drugs list after being approved for market. Medical technology is accelerating its layout to expand capability boundaries. Subdivided fields such as brain-machine interfaces, AI healthcare, Siasun Robot & Automation, new materials, and new equipment in the medical technology industry are benefiting from the demand for industrial chain layout and developing rapidly. The company sees that this year, brain-machine interfaces were mentioned for the first time in the government work report and were explicitly included in the key areas for future industrial cultivation, indicating that the field has transitioned from cutting-edge technology exploration to being supported by national industrial policies. Related targets: 1) Innovative drugs: AKESO, HANSOH PHARMA, CSPC PHARMA, SKB BIO, INNOVENT BIO, 3SBIO, Jiangsu Hengrui Pharmaceuticals, SBP GROUP, Sichuan Biokin Pharmaceutical, Shanghai Allist Pharmaceuticals Co., Ltd., JUNSHI BIO, Deqi Medicine, Hepu Medicine, Guangdong Zhongsheng Pharmaceutical, LEPU BIO, Hualing Medicine; 2) CXO: WuXi AppTec, Pharmaron Beijing, WUXI BIO, WUXI XDC; 3) Medical devices: Qingdao Novelbeam Technology, Wuhan Huakang Century Clean Technology, iRay Group, Shandong Weigao Blood Purification Products, Shandong Linuo Pharmaceutical Packaging, Cofoe Medical Technology, AK MEDICAL, Minimally Invasive Siasun Robot&Automation; 4) AI pharmaceuticals: INSILICO, XTALPI, Jitai Technology, Jiangsu Hualan New Pharmaceutical Material. Risk warning: 1) Unexpectedly negative pharmaceutical policies; 2) Slower industry growth than expected; 3) Increased industry competition risks.