Summary of the Conference Call on the Pharmaceutical Industry Investment Strategy for 2026 Industry Overview - The pharmaceutical market in 2025 is characterized by a "one rises, five remain stable" trend, with innovative drugs benefiting from valuation recovery, policy support, overseas business development (BD) transactions, and improved domestic data [1][3] - The Chinese innovative drug sector has cost and efficiency advantages in global competition, with significantly lower R&D labor costs, clinical research costs, and drug procurement costs compared to the US [1][6] Key Insights and Arguments - **Growth of Innovative Drugs**: The significant growth of innovative drugs in 2025 is attributed to low historical valuations, favorable policy changes, and substantial overseas BD transactions that have stimulated market sentiment and improved cash flow and pipeline valuations [4][5] - **Future of Medical Reform**: Continued deepening of medical reform is expected, with potential advancements in the Diagnosis-Related Group (DRG) reforms and more supportive policies for the innovative industry chain [7] - **Changes in Procurement Rules**: Future procurement rules are anticipated to gradually optimize, reducing extreme price suppression phenomena and promoting the overseas expansion of Chinese companies [8] Notable Trends in 2026 - **Focus Areas for Innovative Drugs**: Key areas to watch in the biopharmaceutical sector include bispecific antibodies, antibody-drug conjugates (ADC), small nucleic acid drugs, and precision therapies (cell and gene therapy) [10][12] - **CRO Industry Growth**: The CRO (Contract Research Organization) sector is experiencing accelerated order growth, with leading companies like WuXi AppTec and Tigermed seeing upward revisions in profit forecasts [11] - **Medical Device Industry**: The medical device sector is recovering, with high-end imaging products growing faster than the industry average, and companies expanding their overseas revenue significantly [15] Challenges and Opportunities - **Challenges in the Pharmaceutical Commercial Sector**: The pharmaceutical commercial sector faces extended accounts receivable cycles, impacting profitability despite stable revenues. However, leading companies with low valuations present buying opportunities for conservative investors [21] - **Impact of US Policies**: Recent restrictive US government policies pose challenges for the Chinese pharmaceutical industry, but the overall impact is expected to be manageable due to improved US-China relations [9] Future Investment Strategies - **Investment Focus for 2026**: The investment strategy for 2026 emphasizes identifying segments with predictable growth, including innovative drugs, innovative devices, and overseas expansion. Specific attention is given to "best in class" and "first in class" pipeline leaders in innovative drugs [24] - **Long-term Value Areas**: Areas such as pharmaceutical consumption, medical aesthetics, beauty brands, traditional Chinese medicine, and ophthalmology are highlighted as having long-term investment value [24] Additional Insights - **Synthetic Biology**: As a key focus of the 14th Five-Year Plan, synthetic biology is expected to achieve revolutionary breakthroughs in the coming years [2][14] - **Medical AI Development**: The development of medical AI is gaining traction, with applications in diagnostics, health check-ups, and industrial upgrades, expected to see significant advancements in 2026 [22][23]

Group 1 - The core viewpoint of the investment strategy report highlights the potential new main lines driven by policies and events, emphasizing the role of ETFs as a key investment tool in a "slow bull" market [2] - The report suggests that the 2025 surge in the innovative drug sector is a result of the resonance between policy, industry, demand, and globalization, indicating that "new" assets in the pharmaceutical sector remain a long-term investment direction [4] - The analysis focuses on five key areas for macroeconomic and investment outlooks for 2026, including supply-demand contradictions, price assessments, financial conditions, economic transformation, and overseas stock-bond allocation experiences [7][8] Group 2 - The pharmaceutical industry is expected to see investment opportunities in 2026, with recent adjustments leading to relatively low valuations, which may restart an upward trend in 2026 [4] - The report recommends focusing on hard technology in pharmaceuticals and specific sub-sectors, including innovative drugs (leading BIC and FIC pipelines), innovative medical devices (imaging, high-value consumables, consumer devices), and medical AI [4] - Tuniu's performance dialogue will explore strategies for recovering outbound tourism, including product upgrades, channel optimization, and private domain operations to reshape competitiveness [11]

Core Viewpoint - The report from China Galaxy Securities highlights optimism for investment opportunities in the pharmaceutical industry by 2026, suggesting that after recent fluctuations, valuations have returned to relatively low levels, with a potential for a resurgence in growth [1] Investment Outlook - The pharmaceutical sector is expected to see significant differentiation in 2025, with various factors driving rapid growth in the innovative drug segment, particularly in the Hong Kong market [2] - China's innovative drug development is gaining a competitive edge globally due to cost advantages and efficient conversion capabilities, transitioning from a "technology follower" to a "leading participant" in the global pharmaceutical innovation landscape [2] Policy Outlook for 2026 - The 14th Five-Year Plan marks a year of deepening collaboration in the healthcare system, with policies expected to enhance the efficiency of medical insurance funds and support for innovative drugs and devices [3] - The focus will be on optimizing procurement rules to balance quality and innovation, driving domestic alternatives, and improving public health capabilities [3] Sector-Specific Investment Insights - **Innovative Drugs**: Anticipated breakthroughs in domestic innovative drugs, with several promising candidates entering late-stage clinical trials [4] - **Life Sciences and CXO Sector**: A structural recovery is expected as global financing conditions improve and domestic innovation ecosystems stabilize [4] - **Medical Devices**: Growth opportunities in the domestic medical device sector are anticipated, particularly in aging-related markets and overseas exports [4] - **Traditional Chinese Medicine and Biologics**: Market dynamics may shift due to clinical re-evaluations, with potential changes in profit margins for traditional Chinese medicine [4] Healthcare Services - The aging population presents a reliable opportunity in the healthcare services sector, emphasizing the importance of maintaining a strong position in this area [5] Aesthetic Medicine - Upgrades in ingredient formulations and the rise of domestic brands in aesthetic medicine are noteworthy, with a focus on specific segments like collagen and botulinum toxin [6] Pharmaceutical Commerce - Attention is drawn to accounts receivable turnover, with a positive outlook on new business models in Contract Sales Organizations (CSO) [7] Medical AI - The acceleration of artificial intelligence in healthcare is expected to significantly enhance clinical service capabilities and efficiency, particularly in medical diagnostics [7]

Core Insights - The report by Galaxy Securities highlights that the strong rise of the innovative drug sector in 2025 is a result of the synergy between policy, industry, demand, and globalization [1] - The pharmaceutical "new" assets remain a long-term investment direction, encompassing innovative drugs, innovative devices, and medical AI [1] - The policy environment is expected to continue driving innovation and transformation in the pharmaceutical industry in 2026 [1] Investment Opportunities - The pharmaceutical industry is anticipated to see a rebound in 2026 after recent adjustments, with valuations having returned to relatively low levels [1] - Investment strategies should focus on hard technology in pharmaceuticals and incremental opportunities in niche segments [1] - Recommended areas for investment include innovative drugs (leading BIC and FIC pipelines), innovative devices (imaging, high-value consumables, consumer devices), and medical AI [1] Market Trends - There is an expectation of recovery in pharmaceutical consumption and growth in independent third-party ICL [1]