Summary of Expert Call on China's Preclinical CRO Industry Trends Industry Overview - **Industry**: China's preclinical Contract Research Organization (CRO) industry - **Current Trends**: Significant recovery in industry demand observed in Q4 2025, continuing into Q1 2026 with expectations of strong growth for the full year 2026 [1][10] Key Insights Demand and Order Volume - **Order Volume Growth**: Anticipated increase of approximately 15% quarter-over-quarter (QoQ) in Q1 2026 and over 25% year-over-year (YoY); full-year growth forecasted between 15% and 30% YoY, largely dependent on the non-human primate (NHP) supply situation [1][10] - **Execution of Orders**: Most new orders in H1 2026 are scheduled for execution in H2 2026, indicating a backlog due to tight NHP supply [3][10] Pricing Trends - **Service Fees**: Service fees have rebounded to about 80% of standard quotes in late 2025, with expectations to return to 100% for medium- to long-term orders [1][12] - **NHP Prices**: Current NHP prices have risen to Rmb150,000-160,000 in Q1 2026 from Rmb130,000-140,000 at the end of Q4 2025, with projections to reach Rmb170,000-180,000 in 2026 and potentially surpass Rmb190,000 in 2027 if supply remains constrained [2][8] Supply Constraints - **NHP Supply Issues**: The supply of age-appropriate NHPs is critically low, estimated at less than 20,000 nationwide, while demand is around 20,000 annually. The expert noted that the NHP base has not been replenished effectively after previous high demand cycles [2][7] - **Import Challenges**: Increasing imports from Southeast Asia are constrained by regulatory approvals and quarantine processes, limiting shipments to 1,000-2,000 NHPs at a time [2][9] Market Dynamics - **Industry Concentration**: The tightening of preclinical research qualifications by the government is expected to increase industry concentration, as larger firms secure NHP resources early [3][17] - **Demand from Drug Types**: Current demand is primarily driven by biologics, particularly antibodies and antibody-drug conjugates (ADCs), with some demand from small nucleic acids and oligopeptides [14] Capacity and Competition - **CRO Capacity**: Overall capacity is aligned with demand, with only a few firms expanding facilities. Major companies are securing NHP resources through early contracts [3][15] - **Emerging Companies**: New firms, often backed by investment institutions, are entering the market with significant incremental demand, focusing on innovative drug development [16][17] Risks and Considerations - **Market Risks**: Potential risks include unexpected price cuts from government programs, intensified competition, and regulatory changes that could impact operations and profitability [18] Conclusion The expert call highlighted a recovering preclinical CRO industry in China, driven by increasing demand for NHPs and biologics, but also underscored significant supply constraints and rising prices that could impact future growth and profitability. The tightening of regulations may lead to greater industry concentration, favoring established players.

Group 1 - Evercore ISI analyst Elizabeth Anderson raised the price target on Charles River (CRL) to $200 from $190, maintaining an Outperform rating on the shares [1] - The firm's survey indicates a positive outlook for preclinical CROs, with rising budgets and declining cancellations [1] - There is stable demand for discovery and toxicology services projected into 2025 and 2026 [1]

Group 1 - Evercore ISI raised the price target on Labcorp (LH) to $305 from $300 while maintaining an Outperform rating on the shares [1] - The firm's survey indicates a positive outlook for preclinical CROs, with rising budgets and declining cancellations [1] - There is stable demand for discovery and toxicology services projected into 2025 and 2026 [1]

Summary of Key Takeaways from China Healthcare Preclinical CRO Expert Call Industry Overview - **Industry**: China's preclinical Contract Research Organization (CRO) industry - **Current Status**: Slight recovery observed in the industry with overall order inflow increasing modestly year-over-year (YoY) for both volume (up <10%) and price (up 5-10%) year-to-date (YTD) [1][7] Core Insights - **Pharmaceutical R&D**: Benefiting from policy support and a recovering capital market, particularly in modalities like multi-specific antibodies and antibody-drug conjugates [1][7] - **Profitability**: Despite the recovery in orders, profits remain low, indicating a challenging environment for CROs [1][7] - **Future Outlook**: The tipping point for significant recovery may not occur until 2026, with moderate growth expected to continue into H225 [1][17] Market Dynamics - **Overseas Market Preference**: Chinese preclinical CRO firms are focusing on overseas markets due to higher pricing (over 50% higher than domestic orders) and better earnings performance compared to those focused on the domestic market [2][11] - **NHP Pricing**: Natural Health Products (NHP) prices have increased from approximately Rmb80,000 to Rmb95,000-100,000 YTD, driven by tight supply and recovering demand. However, potential normalization of imports could exert downward pressure on prices [3][9] Regulatory and Competitive Landscape - **CRO Entities**: Over 70 registered entities for drug safety evaluation exist, with about half being non-profit research institutes. The industry has seen exits but no new entrants recently [10] - **Concentration of Industry**: The concentration of leading enterprises is increasing, with customers preferring top CROs due to price pressures [16] Challenges and Risks - **Customer Acquisition**: Challenges in acquiring overseas customers include adapting to different regulations and successfully promoting services at academic conferences [18] - **Regulatory Risks**: Potential risks include worse-than-expected price cuts from government programs, intensified competition, and stricter regulatory announcements [22] Financial Dynamics - **Revenue Recognition**: Listed CROs recognize revenue after completing specialized trials, with an average order-to-revenue cycle of six to nine months [20] - **Price Differences**: Significant price differences exist between early drug discovery and regulatory application stages, with costs ranging from hundreds of thousands to several million renminbi depending on the project type [19] Conclusion - The China preclinical CRO industry is experiencing a slight recovery, driven by pharmaceutical R&D demand and overseas market opportunities. However, challenges remain in profitability, regulatory compliance, and customer acquisition, with a cautious outlook for the near future.