Xiangcai Securities: Maintaining the “Buy” Rating in the Pharmaceutical Industry and Focus on Investment Opportunities in Chemical Formulations and CXO

The Zhitong Finance App learned that Xiangcai Securities released a research report saying that domestic pharmaceutical companies and others are gradually retaining value in domestic players through upgrades such as Co-Co and NewCo. The bank believes that in the future, more global pharmaceutical companies will be born to establish a “base”, and under its impetus, promote a systematic revaluation of the sector and maintain the “buy” rating of the pharmaceutical industry. It is recommended to focus on three main lines: (1) deploying specific innovative drug technology platforms, Biotech companies, such as small nucleic acid frontier organisms; (2) comprehensive pharmaceutical companies; and (3) CXO and research reagents upstream of the innovative drug industry chain.

The main views of Xiangcai Securities are as follows:

The performance of Chinese and US pharmaceutical stocks was poor, and value retention became a core contradiction

There is a marked divergence between XBI and A-share pharmaceutical trends: According to Wind data, the US biotech index XBI has risen by about 35.4% for the full year of 2025, and has risen by 39.2% since the beginning of the year (as of August 19, 2026); during the same period, A-share Pharmaceuticals has only risen 11.9% in 2025 and has fallen 0.9% since the beginning of 2026, forming a sharp gap between the two.

Fundamental contradiction: External circulation vs. internal circulation: The bank believes that the foundation of the rise in US pharmaceutical stocks is the formation of a complete domestic circulation driven by financing, with value remaining in a closed loop; while China's innovative drugs mainly rely on external circulation driven by BD (license-out), intellectual property and global commercialization have spilled large amounts overseas, more like a “guerrilla war” rather than a “base base” battle.

Changes in capital market pricing logic: The license-out down payment is mostly a one-time cash inflow, and the final price of the capital market is continuous cash flow and reinvestment capacity. The core of the pressure on A-share pharmaceuticals is not a weak ability to innovate; rather, the victory of China's innovative drugs has yet to be systematically settled into a victory for the local pharmaceutical industry.

Innovative drug achievements: Leading pharmaceutical companies have increased their share of innovative drugs, and the overseas model upgrade and innovation have achieved remarkable results

The share of innovative drug revenue among leading pharmaceutical companies has changed qualitatively: In recent years, with the booming development of China's innovative drug industry, domestic innovative pharmaceutical company BD has set a historical record when it has gone overseas. At the same time, the revenue structure of leading domestic pharmaceutical companies has changed qualitatively, and innovative drugs have become an important impetus. According to the annual reports and performance presentations of various companies, Hengrui Pharmaceutical's innovative drug revenue in 2025 accounted for 58.34% of drug sales revenue; Hanson Pharmaceutical's innovative drugs and cooperative products accounted for 82.2% of the revenue; pure innovative pharmaceutical companies such as BeiGene, Alice, and Cinda Biotech accounted for more than 90%.

BeiGene became a benchmark for overseas travel: According to Wind data, BeiGene's total revenue in 2025 was 38.225 billion yuan (+40.46%), and net profit to mother was 1,461 billion yuan, achieving full-year profit for the first time; the core product zebutinib had revenue of US$2,831 billion (+45%) in the US market in 2025, and the global commercialization rights remained within the company, and the valuation logic switched from Biotech asset package to a global Biopharma platform.

The offshore model evolved from License-out to CO/NewCo: According to Pharmaceutical Rubik's Cube and various company announcements, Cinda Biotech and Pfizer reached a $10.5 billion Co-Co cooperation in May 2026; Hengrui Pharmaceuticals and BMS reached a $15.2 billion cooperation on 13 early projects during the same period, and Hengrui reserved the right to co-develop and commercialize globally; Hengrui established Kailera through NewCo and held 19.9% of shares, moving from a front-end supplier to a global partner. Therefore, judging from the “guerrilla warfare vs. base” framework, Co-Co and NewCo are closer to the “base” logic.

Academic status improved significantly: According to data from PharmacoIntelligence Network, Chinese scholars contributed 94 oral reports at the 2026 ASCO Annual Conference, 13 studies from 12 innovative Chinese pharmaceutical companies were selected for the LBA, and Kang Fang Biotech won tickets to the blockbuster conference.

Investment outlook: the right side gradually develops, optimistic about innovation and its industrial chain

Although the overall performance of pharmaceuticals has been strong recently, there is still a significant retreat from the high point in 2025, and the pharmaceutical industry is gradually exiting a right-wing pattern driven by CXO's interim results. At the level of innovative small-molecule drugs, we can focus on opportunities such as Pan-Ras and small nucleic acid drugs. The CXO industry trend continues to improve. As the global innovative drug financing trend continues to improve, industry demand continues to recover. Leading companies have abundant order reserves, and growth momentum is particularly strong in segments such as biopharmaceuticals, pre-clinical safety assessment and core CDMO. The outstanding overall performance of CXO is a global trend where industry fundamentals continue to improve under the recovery of global pharmaceutical financing. Chinese CXO related companies with engineer dividends will fully enjoy the industry dividends. Continuity is expected to be strong under the positive trend of the global industry.

Risk Alerts

The risk that the implementation of health insurance fee control exceeds expectations; the risk that pharmaceutical companies' R&D investment will decline; and geopolitical and supply chain risks.