China Securities Co., Ltd.: The CXO sector Beta is stable and improving, individual stock orders are accelerating delivery.

China Securities Co., Ltd. released a research report stating that after a 22-24 year adjustment period in the domestic CXO industry, benefiting from the recovery of overseas investment and financing rates, the top domestic CXO companies in 24 years have shown a trend of recovery in overseas orders. With the massive external authorization of domestic innovative drug assets in 25 years, it has driven the continuous recovery of domestic investment and financing in 25H2, and the industry demand is also stabilizing and rising. From 26 year onwards, the long-term structural opportunities in the domestic innovative drug industry continue to be realized, domestic investment and financing continue to improve, the new drug form race remains hot and continues to expand. The bank believes that the new contracts and performance of the domestic CRO/CDMO industry will accelerate in 26 years, driving the CXO industry chain into a new phase of development. The main points of China Securities Co., Ltd. are as follows: Foreign demand and domestic demand resonate, and industry prosperity and valuation enter a recovery channel The demand for CXO is fundamentally driven by research and development funds of pharmaceutical companies. In 2026H1, global innovative drug financing was $ 20.177 billion, domestic financing was $ 4.233 billion, accounting for 82% of the total for the entire year of 2025; MNC research and development investment remained high, and since 25H2, domestic BD, IPO, and primary market financing have all improved simultaneously. As funds are gradually transmitted from the financing end to CXO, combined with sector valuations still at historically low levels, industry performance and valuation are expected to continue to recover. Acceleration of global innovation drug globalization, establishing a long-term industry trend in the supply-demand structure Global new drug approvals remain high, with rising research and development costs driving a continuous increase in outsourcing penetration, expected to increase from 52% in 2024 to 57% in 2026; China's innovative drugs are becoming more competitive in advanced areas such as ADC, bispecific antibodies, new generation small molecule drugs, with license-out transactions in 2025 accounting for about 44% and 49% of the global total in terms of number and amount, with BD upfront payments becoming important sources of funding. In recent years, the patent cliff has driven MNCs to continue to supplement pipelines through acquisitions. FDA accelerated reviews and new method policies are expected to further incentivize research, improve efficiency, and expand global outsourcing demand. Industry adjustments are basically completed, beta repair and individual stock alpha enter the realization period In 2025, sector revenue and profit returned to growth, and the trend is expected to continue in 26 years; pre-clinical CRO/clinical CRO new contract orders grew steadily, with order prices rebounding to varying degrees. CDMO benefits from continued growth in late-stage and commercialization demand, and overall maintains fast growth, with sub-directions such as ADCs and peptides remaining highly prosperous, further driving industry capital expenditure back on a growth trend; at the same time, as the top companies continue to advance orders and pipelines towards late-stage and commercialization, the scale effects brought about by improved utilization combined with internal cost reduction measures are expected to drive continuous profit margin recovery and improve operational efficiency for enterprises. Mild recovery in overseas CROs, strong resilience in CDMOs, and demand recovery in structural differentiation In 2026Q1, most overseas CXO companies saw improved revenue compared to the same period last year, with high levels of orders in hand, but the recovery pace varies between preclinical and clinical CROs, with overall CRL stabilization on the margins, IQVIA accelerating growth, and Medpace maintaining high growth but order revenue falling in the short term. On the CDMO side, Lonza's focus on its main business has led to a recovery in revenue and profit margins, while Samsung Biologics has rapidly climbed with commercialization capacity, maintaining rapid growth. Investment advice From a certainty perspective, bullish on WuXi AppTec; from a growth perspective, bullish on WUXI BIO, WUXI XDC, Pharmaron Beijing, Biocytogen Pharmaceuticals, and leading companies in the AI pharmaceutical field such as INSILICO and Jetta Technology; from a resilience perspective, bullish on Kingsley, Joinn Laboratories, Asymchem Laboratories, Beidu, Shanghai Haoyuan Chemexpress, etc.; marginal repair, focus on Hangzhou Tigermed Consulting, R&G PharmaStudies, etc. Risk Warning: Industry policy risks, risks of research and development falling short of expectations, risks of approval falling short of expectations, risks of macroeconomic fluctuations.