China Securities Co., Ltd.: The CXO sector's Beta is steadily improving, and the new orders and performance of domestic CRO/CDMO are accelerating growth in 2026.

China Securities Co., Ltd. published a research report stating that after the adjustment phase of the domestic CXO industry from 2022 to 2024, it has benefited from the recovery of overseas investment and financing. In 2024, leading domestic CXO companies are showing signs of recovering overseas orders. With large-scale external licensing of domestic innovative drug assets set to be realized in 2025, this will drive continuous recovery of domestic investment and financing in the second half of 2025, while the industry's domestic demand is also stabilizing and rebounding. Since 2026, the long-term structural opportunities in the domestic innovative drug industry have continued to be realized, with ongoing improvement in domestic investment and financing, the persistence of new drug formats in the market, and further expansion. The firm believes that new signed orders and performance in the domestic CRO/CDMO industry will accelerate growth in 2026, leading the CXO industrial chain into a new development phase. The main points from China Securities Co., Ltd. are as follows: External and internal demand resonate, and the industrys prosperity and valuation are entering a repair channel. CXO demand is fundamentally driven by pharmaceutical companies' R&D funding. In the first half of 2026, global innovative drug financing reached $20.177 billion, with domestic financing at $4.233 billion, achieving 82% of the total in 2025. MNC R&D expenditures remain high, and since the second half of 2025, domestic BD, IPO, and primary market financing have improved simultaneously. As funds gradually flow from the financing end to CXO, and with the sector's valuation still at historically low levels, the industry's performance and valuation are likely to continue to recover. The globalization of innovative drugs is accelerating, establishing a long-term industrial trend in the supply and demand landscape. The approval of new global drugs remains high, and rising R&D costs are driving the continuous increase in outsourcing penetration, expected to rise from 52% in 2024 to 57% in 2026. Chinese innovative drugs are enhancing their competitive edge in cutting-edge areas such as ADCs, bispecific antibodies, and next-generation small-molecule drugs. In 2025, the number and value of significant license-out transactions from China will account for approximately 44% and 49% of the global total, with initial payments from BD becoming an important source of funding. In recent years, the patent cliff has pushed MNCs to continue to replenish their pipelines through acquisitions, while expedited FDA reviews and new methodological policies are likely to further stimulate R&D, improve efficiency, and expand global outsourcing demand. The potential of AI in pharmaceuticals is being unleashed, promising to reshape the future of the industry. The AI pharmaceutical field is undergoing rapid iterations and transformations, with algorithm updates and computational support laying a solid foundation for the application of AI in pharmaceuticals. The traditional drug development process is time-consuming, costly, and has a low success rate, and as new drugs for existing targets continue to be approved, the difficulty of drug development is gradually increasing. In recent years, the development of AI, especially deep learning, has facilitated its application in various aspects such as target screening, molecular generation and optimization, ADMET prediction, polymorph prediction, and synthetic route screening, promising to redefine early drug discovery processes and significantly accelerate the efficiency and success rate of early drug screening. Investment suggestions From a determinism perspective, WuXi AppTec is viewed favorably; from a growth perspective, WUXI BIO, WUXI XDC, Pharmaron Beijing, Biocytogen Pharmaceuticals, and AI pharmaceutical leaders such as INSILICO and Jitai Technology are promising; from an elasticity perspective, Kings Ray, Joinn Laboratories, Asymchem Laboratories, Bidai, and Shanghai Haoyuan Chemexpress are recommended; and for marginal repairs, attention is suggested for Hangzhou Tigermed Consulting and R&G PharmaStudies. Risk warning: industry policy risk, R&D underperformance risk, approval underperformance risk, macroeconomic environment fluctuation risk.