Northeast: Innovative drug BD and commercialization continue to meet expectations, CXO exceeds expectations, traditional sectors are reaching a bottoming turning point.

Northeast recently published a report stating that the overseas innovative drug industry continues to thrive, and domestic pharmaceutical companies are expected to benefit from this trend. Several innovative drug companies are projected to exceed performance expectations during the first half of 2026, which aligns with the semi-annual results of companies in the CXO sector, further confirming the medium-term industry trend within this segment. In terms of pharmaceutical retail, the sector is currently in a phase where supply is clearing and weak recovery is underway, with leading companies leveraging their scale advantages to continue capturing market share, while their high dividend yield provides a certain level of defensive value. The phase of traditional Chinese medicine group procurement is characterized by a combination of digestion and cost improvement, where leading brand OTC companies demonstrate resilience, with their high dividend yield offering some defensive value. Key points from Northeast are as follows: Innovative Drug Sector: The overseas innovative drug industry continues to thrive, and domestic pharmaceutical companies are expected to capture the benefits. Pharma is achieving stable revenue growth through multiple pathways, while Biotech is showing performance flexibility through business development and commercialization. From 2023 to the first half of 2026, major Pharma companies primarily rely on three pathwaystransforming generics into innovations, overseas product launches, and the scaling up of core productsto achieve stable revenue growth. Companies such as Jiangsu Hengrui Pharmaceuticals, CSPC PHARMA, and SBP GROUP are continuously expanding their revenue scale. The revenue flexibility for Biotech primarily comes from recognizing upfront payments from business development agreements and scaling up product commercialization. Companies like INNOVENT BIO and REMEGEN have seen a significant acceleration in revenue growth in recent years, with some having successfully transitioned from research-focused Biotech to commercial entities. CXO Sector: Orders are growing rapidly, and the industry is entering a new upward cycle. Currently, both domestic and international investments in the biopharmaceutical sector continue to recover, with significant growth in financing for domestic innovative drugs, supported by comprehensive policies to foster the development of the innovative drug industry. The CXO sector is entering a new upward cycle. The demand in niche markets such as GLP-1 and ADC is robust, and qualified production capacity is becoming increasingly scarce. Several innovative drug companies are projected to see performance exceed expectations in the first half of 2026, corroborating the semi-annual results of CXO companies, further confirming the medium-term industry trend. Innovative Medical Devices Sector: Innovation leads the way with accelerated access and breakthroughs in core technology platforms. After a prolonged period of adjustment, the sector is approaching a bottoming out. The medical device sector experienced peaks in 2015 and again in 2020-2021 and has undergone years of deep adjustment, currently presenting a low valuation point with a continued bottoming process since 2024. Risks have been sufficiently released, with marginal improvements in fundamentals and established space for valuation recovery, along with a clean shareholding structure in the sector. Attention is drawn to the structural recovery trend in the medical devices sector. Healthcare Services Sector: Single-hospital operating models stabilize; capital expenditure returns to the forefront. Leading companies exhibit strong operational resilience, and the current internal growth rate of ophthalmological medical services has stabilized in the low single digits. To maintain business expansion momentum, some companies have initiated a new round of capital expenditures, with overseas business expansion expected to become a core growth line for subsequent company development. It is currently recommended to focus on companies with overseas expansion plans. Pharmaceutical Retail Sector: Revenue growth continues to recover, with profit disparity emerging. The pharmaceutical retail sector exhibits a pattern of "continuous recovery in revenue growth, with profit divergence" for the first half of 2026. At the revenue level, leading companies maintain positive growth, while the trend of increasing industry concentration is evident; however, there is significant variability in profit performance, reflecting differences in store operational efficiency and product category structures. In Q2, most companies saw a slight rebound in revenue compared to the previous quarter, and the sector is currently in a phase of supply clearing amid weak recovery, with leading companies consistently capturing market share due to scale advantages, while their high dividend attributes offer certain defensive value. Traditional Chinese Medicine Sector: Revenue growth under pressure; profits show significant divergence. The traditional Chinese medicine sector shows a pattern of "revenue growth under pressure, significant profit divergence" for the first half of 2026. On the revenue front, companies with in-hospital varieties are under obvious pressure. In Q2 2026, most companies' profits were under pressure sequentially, significantly affected by the comprehensive coverage of the fourth batch of essential Chinese medicine procurement policies. The sector is currently navigating through the interplay of procurement digestion and cost improvement, with leading brand OTC companies demonstrating resilience, and their high dividend yield providing a degree of defensive value. Risk Warning: Policy risks, research and competition risks, product risks, and overseas expansion risks, among others.