Core Viewpoint - The pharmaceutical sector is experiencing a recovery with improved profit growth and increased fund allocation, indicating potential for continued outperformance in the market [1][2]. Market Overview - As of August 29, 2025, the CITIC Pharmaceutical Index rose by 26.28%, outperforming the CSI 300 Index by 12.01 percentage points, ranking 9th among 30 CITIC primary industries [1]. - The proportion of public funds heavily invested in pharmaceuticals increased in Q2 2025, with a total public fund pharmaceutical heavy position of 9.8%, up by 0.7 percentage points from the previous quarter [1]. Macro Situation - Profit growth in the pharmaceutical industry showed significant improvement in June 2025, with Q2 profits rising by 4.5% year-on-year [2]. - The number of bidding activities accelerated in Q1 2025, indicating a positive demand outlook for the year [2]. - License-out transactions surged in H1 2025, with 72 deals completed, exceeding half of the total transactions in 2024, and the total transaction amount was 16% higher than the entire 2024 [2]. Subsector Performance - Chemical Pharmaceuticals: Q2 2025 revenue was 967 billion yuan, a year-on-year decrease of 0.9%, but net profit increased by 8.3% [3]. - A-share Innovative Drugs: Q2 2025 revenue grew by 31.6% year-on-year, with net losses narrowing by 61% [3]. - Hong Kong Innovative Drugs: H1 2025 revenue reached 735.6 billion yuan, up 12.4% year-on-year, with net profit increasing by 239.9% [3]. Specific Sector Insights - Vaccines: Q2 2025 revenue fell by 37.5% year-on-year, with net profit down 94.8%, indicating industry growth challenges [4]. - Blood Products: H1 2025 revenue was 114 billion yuan, a slight increase of 0.6%, but net profit decreased by 13.1% [4]. - Traditional Chinese Medicine: H1 2025 revenue was 1775 billion yuan, down 5.5%, but net profit increased by 0.4% [4]. - Medical Devices: H1 2025 revenue decreased by 5.0%, with a net profit decline of 17.6% [4]. Chain Performance - Specialty Chains: H1 2025 revenue was 315 billion yuan, down 3.9%, with net profit decreasing by 9.7% [5]. - General Hospitals: H1 2025 revenue was 89 billion yuan, down 9%, with a significant net profit drop of 38.2% [6]. - Pharmacies: H1 2025 revenue was 578 billion yuan, slightly up by 0.1%, with net profit increasing by 0.9% [6]. - Pharmaceutical Distribution: H1 2025 revenue was 4681 billion yuan, nearly flat, but net profit increased by 8.1% [6]. - Raw Materials: Q2 2025 revenue was 355 billion yuan, down 5.3%, with net profit decreasing by 13.6% [7]. Life Sciences and CXO - Life Sciences Services: H1 2025 revenue was 79 billion yuan, up 6.6%, with net profit increasing by 18.1% [7]. - CXO: H1 2025 revenue reached 447 billion yuan, up 12.7%, with net profit rising by 61.7% [7].

Group 1 - The Chinese innovative drug industry is transitioning from "follow-up innovation" to "global leadership," with a record number of innovative drugs approved in the first half of the year [1][2] - In the first half of 2023, 43 innovative drugs were approved in China, representing a 59% year-on-year increase, compared to only 48 approvals for the entire year of 2024 [2][3] - China's innovative drug R&D pipeline accounts for about one-fourth of the global total, with approximately 3,000 clinical trials conducted annually, placing China at the forefront of global innovative drug development [2][3] Group 2 - Companies like Fosun Pharma and Hengrui Medicine have successfully launched multiple innovative drugs, with Hengrui having 23 first-class innovative drugs and 4 second-class innovative drugs approved domestically [3][4] - The commercialization of innovative drugs is leading to a recovery in performance for domestic pharmaceutical companies, with companies like Luoxin Pharma and MicuRx reporting significant profit increases [3][4] - The trend of Chinese pharmaceutical companies expanding internationally is accelerating, with a shift from license-in to explosive growth in license-out transactions, contributing nearly 50% of the total transaction value globally [4][5] Group 3 - Notable license-out deals include a partnership between 3SBio and Pfizer, with an upfront payment of $1.25 billion and a potential total deal value of $6.05 billion, setting a record for Chinese innovative drugs [5][6] - The rapid growth of license-out transactions is providing substantial cash flow for domestic innovative drug companies, supporting their core pipelines overseas and creating more collaboration opportunities with multinational pharmaceutical companies [6]