China Securities Co., Ltd.: CXO sector Beta stabilizing and improving, individual stock orders accelerating realization.

China Securities Co., Ltd. released a research report stating that after a 22-24 year adjustment phase in the domestic CXO industry, benefiting from the overseas investment and financing rebounded first. In 24 years, the top CXO companies in China showed signs of overseas order recovery. With the mass authorization of domestic innovative drug assets to foreign countries in 25 years, it drove the continuous recovery of domestic investment and financing in 25H2, and the industry demand also stabilized and rebounded. Since 26, the long-term structural opportunities in the domestic innovative drug industry have continued to be realized, with continuous improvement in domestic investment and financing. The race track for new drug forms continues to be hot and further expanded. In 26 years, the new signed orders and performance of the domestic CRO/CDMO industry will accelerate growth, driving the CXO industry chain into a new round of development stage. The main points of China Securities Co., Ltd. are as follows: The resonance of external and internal demand, the industry prosperity and valuation enter the repair channel. The demand for CXO is ultimately driven by pharmaceutical R&D funding. In 2026H1, global innovative drug financing reached US$20.177 billion, of which domestic financing reached US$4.233 billion, accounting for 82% of the total in 2025; MNC R&D investment remains high, and since 25H2, domestic BD, IPO, and primary market financing have improved simultaneously. As funds are gradually transmitted from the financing end to CXO, coupled with sector valuations still at historically low levels, industry performance and valuations are expected to continue to recover. The globalization of innovative drugs is accelerating, and the supply-demand pattern establishes long-term industry trends. The global approval rate for new drugs remains high, and rising research and development costs continue to drive the continuous increase in outsourcing penetration, expected to increase from 52% in 2024 to 57% in 2026. China's competitiveness in innovative drugs in areas such as ADC, bispecific antibodies, and new generation small molecule drugs has increased. In 2025, the number and amount of heavyweight license-out transactions accounted for approximately 44% and 49% globally, with upfront payments from BD becoming an important source of funds. Recent patent cliffs have driven MNCs to continue to supplement their pipelines through acquisitions, and the FDA's accelerated review and new method policies are expected to further incentivize research and development, improve efficiency, and expand global outsourcing demand. Industry adjustments are basically completed, beta repair and individual stock alpha enter the realization period. Sector revenue and profit growth rebounded in 2025, with the trend expected to continue in 26; steady growth in new signed orders for pre-clinical CRO/clinical CRO, with varying degrees of order price rebound. CDMO benefits from continued growth in late-stage and commercialization demand, maintaining overall rapid growth. Sub-directions such as ADC and peptides have remained highly prosperous, further driving industry CAPEX investments to return to growth trends; meanwhile, as leading companies continue to advance orders and pipelines into late-stage and commercialization, the combination of increasing utilization rates and internal cost reduction measures is expected to drive continuous profit margin repair and enhance operational efficiency. Overseas CROs are moderately warming, CDMOs remain strong, and demand recovery shows structural differentiation. In 2026Q1, most overseas CXO companies saw improved revenues year-on-year and maintained high order backlogs, but the recovery pace for pre-clinical and clinical CROs varies. Overall, CRL is stabilizing marginally, IQVIA is accelerating growth, and Medpace continues high growth but order revenues are falling in the short term; on the CDMO side, Lonza's revenue and profit margins are rebounding after focusing on core business, and Samsung Biologics is rapidly climbing with commercialization capacity, maintaining rapid growth. Risk warning: Industry policy risks: Risks arising from changes in research design requirements, price changes, volume-based procurement policy changes, and changes in medical insurance reimbursement scope and ratio due to industry policy adjustments. In particular, changes in centralized procurement and medical insurance payment policies have a significant impact on industry development expectations. R&D risks below expectations: Risks of clinical enrollment progress uncertainty and uncertain efficacy and safety outcome data in the research and development process of new drugs and devices. Approval risks below expectations: Risks of approval delays due to data supplementation and changes in approval processes during the approval process. Macro-environmental volatility risks: Further slowdown in global economic growth may affect downstream demand. Additionally, risks such as international relations, climate change, inflation, and currency and interest rates need to be considered.