Sinolink Securities has released a research report stating that, amid multiple favorable factors, the innovative drug sector is entering a golden period for strategic positioning, characterized by the convergence of performance, valuation, and event-driven cycles. The firm recommends focusing on leading companies, biotech firms turning profitable, and catalysts from academic conferences such as ASCO to capture medium- to long-term growth opportunities in innovative drugs. From a fundamental improvement perspective, attention should be paid to innovative drug companies expected to achieve historic milestones of profitability in 2025–2026. Regarding clinical data catalysts, key clinical data disclosures in major areas such as potential PD-1/VEGF bispecific antibodies, ADCs, small nucleic acids, and TCEs should be monitored, as these data are likely to serve as catalysts for valuation recovery.

Key viewpoints from Sinolink Securities are as follows:

**Pharmaceutical Sector: Steady Overall Performance with Accelerated Profit Growth** The pharmaceutical sector (based on 132 sample companies classified under the Shenwan industry system) reported overall revenue growth as flat and net profit attributable to shareholders growth of +8% in 2025, indicating stable performance. In Q1 2026, revenue and net profit growth were +2% and +29%, respectively, with the profit side receiving a significant boost from factors such as out-licensing of innovative drugs and improved operational efficiency. The sales expense ratio and management expense ratio changed by -1% and +2% in 2025, and by +1% and flat in Q1 2026, reflecting overall stable operating expenses. R&D expenses grew by +5% in 2025 and remained flat in Q1 2026, indicating continued increases in innovation investment.

**Key Pharma Stocks: Performance Divergence with Leading Large Companies Showing Better Results** Representative pharma companies (17 selected) saw overall revenue and net profit growth of +1.1% and +4.5% in 2025, with an average net profit margin of about 12% (up 0.4 percentage points year-on-year). Among these, seven pharma companies with annual revenue exceeding RMB 10 billion reported revenue and profit growth of +0.5% and +5.3%, with an average net profit margin of about 11% (up 0.5 percentage points year-on-year), demonstrating steady growth. Ten pharma companies with annual revenue below RMB 10 billion reported growth of +4.6% and +0.8%, with an average net profit margin of about 15% (down 0.6 percentage points year-on-year), maintaining overall stable revenue and profit, though some companies such as Haisco, Kelun, and Tainoc experienced short-term profit pressure. Thus, leading pharma companies with advanced innovation transformation and high-barrier products performed better on an individual stock basis.

**Key Biotech Stocks: Rapid Revenue Growth with Some Companies Turning Profitable** Biotech companies remain in a phase of rapid sales expansion. Twenty-two representative biotech companies reported total operating revenue of RMB 94.3 billion in 2025, up 36% year-on-year, with cumulative product revenue (excluding milestone income) of approximately RMB 81.3 billion, up 34% year-on-year. Multiple factors are driving rapid growth in core products and overall revenue for biotech companies. The rapid sales expansion is attributed to out-licensing, therapeutic advantages, favorable reimbursement policies for innovative drugs, and strong moats from exclusive indications. With the global competitiveness of clinical pipelines of domestic innovative drug companies continuously improving, and supportive medical insurance and commercial insurance policies, many domestic innovative drug companies are expected to enter a phase of performance harvest, with several likely to achieve profitability over the next 2–3 years.

**Biological Products: Vaccine and Blood Product Segments Remain in Downtrend with Leading Sub-Sector Companies Maintaining Growth** Representative biological product companies (14 selected) reported overall revenue and net profit growth of -22% and -174% in 2025, and -8% and -45% in Q1 2026, indicating continued performance pressure. Most vaccine companies turned loss-making due to external factors and impairment provisions. Excluding M&A and subsidiary consolidation factors, the blood product segment saw declining gross margins for key products, leading to a drop in endogenous profitability. Quarterly data shows sector-wide revenue and net profit growth of -9% and a turn to loss in Q4 2025, and -8% and -45% in Q1 2026. The declining revenue trend slowed sequentially from Q4 2025 to Q1 2026, with the Q4 2025 loss mainly due to impairment provisions by individual companies, and the Q1 2026 profit decline primarily resulting from an increase in the VAT rate for some biological products to 13%. On an individual stock basis, leading companies in sub-sectors with favorable competitive landscapes and high barriers continued their previous strong growth trends.

**Risk Warnings:** Exchange rate risk; domestic and international policy risks; clinical trial progress falling short of expectations; delays in product approval reviews.