CMB International released a research report stating that the MSCI China Healthcare Index has surged 62.8% year-to-date (as of November 21, 2025), outperforming the MSCI China Index by 32.2%. However, the sector recently experienced a pullback (the index declined 8% from early October to November 21), attributed to year-end profit-taking and elevated valuations coupled with unmet expectations for business development (BD) deals among some innovative drugmakers.

The report suggests that after significant valuation recovery, broad-based gains in the pharmaceutical sector may be limited in 2026. However, select stocks—particularly in medical services, pharmaceuticals, and CXO (contract research, development, and manufacturing organizations)—could see valuation and earnings upside. Key insights include:

**Innovative Drug BD Deals Surge, Pipeline Progress to Drive Value** By October 2025, China’s outbound license-out deals for innovative drugs reached $6.3 billion in upfront payments (+53% YoY), surpassing the full-year 2024 total. Multinational corporations (MNCs) are increasingly eyeing Chinese pipelines, with deals involving Chinese assets accounting for 20% of volume and 39% of value in the first nine months of 2025. With MNCs holding robust cash reserves ($10.8 billion on average as of Q3 2025) and strong free cash flow, sustained M&A or asset acquisitions are expected. While the BD trend is likely to continue in 2026, CMB International emphasizes tracking overseas clinical progress of licensed pipelines, as clinical milestones offer higher certainty as stock catalysts and long-tail value (milestone payments + royalties) far exceeds upfront payments.

**CXO Sector Revives on Rebounding R&D Demand** Global pharmaceutical R&D demand showed signs of recovery in 2025, with China’s innovative drug financing soaring 444% YoY in Q3, while global funding returned to growth (+8.6%). The report anticipates further recovery as the Fed’s rate cuts and MNC R&D spending rebound (+5.3% in H1 2025) bolster sentiment. Chinese CXO players integrated into global supply chains, such as WUXI APPTEC (02359) (backlog up 41.2% YoY by September) and PHARMARON (03759) (new orders up over 13% in Q1-Q3), are already benefiting from this uptick.

**Medical Device Sector: Mixed Performance Amid Volume-Based Procurement (VBP)** Since 2023, VBP expansion has accelerated across medical device segments, driving divergent performance: 1) **High-Value Consumables**: The impact of VBP is tapering, with orthopedics entering a post-VBP recovery phase. For expanding segments like vascular intervention, profitability hinges on "revival rules" and anti-overcapacity policies. 2) **Medical Equipment**: Equipment renewal demand fueled a 30% YoY surge in Q3 2025 tenders. While delayed revenue recognition may support Q4 recovery, 2026 growth could moderate due to high comparables. 3) **IVD**: Hit by VBP and DRG/DIP 2.0 cost controls, the sector faced "volume-price declines" (China’s IVD market shrank 5% YoY in H1 2025). Though base effects may ease 2026 pressure, a turnaround remains uncertain, leaving overseas expansion as a key growth lever for globalized leaders.