Guosen Securities released a research report stating that the U.S. Congress recently passed the fiscal year 2026 National Defense Authorization Act (2026 NDAA), which includes revised provisions of the Biosecurity Act. The long-term competitiveness of China's innovative pharmaceutical industry remains promising. The report recommends focusing on the CXO sector and monitoring overseas clinical progress of innovative drugs. Key points from Guosen Securities are as follows:
The Biosecurity Act was passed by both the Senate and the House, highlighting investment opportunities in the CXO sector. On December 17 (U.S. time), the U.S. Senate approved the 2026 NDAA with a vote of 77 in favor and 20 against. Earlier, on December 10, the House had passed the bill with 312 votes in favor and 112 against. The bill will now be submitted to the White House for the President's signature to take effect.
The revised Biosecurity Act was incorporated into the 2026 NDAA under Section 851, with its core provision prohibiting contracts with certain biotech companies. While this version does not explicitly name any companies, it mandates that the White House Office of Management and Budget, in consultation with the Department of Defense, will compile a restricted entity list within one year of the bill's enactment.
The legislation includes a transition period and exemptions, providing a five-year grace period for existing contracts to allow companies time to adjust their supply chains. Additionally, the bill clarifies that federal Medicare Part B and Medicaid programs are exempt from restrictions, alleviating opposition from major pharmaceutical companies and industry groups.
The short-term impact of the Biosecurity Act has been narrowed. As a critical part of the global innovative pharmaceutical supply chain, China's CXO sector maintains strong global competitiveness with solid long-term prospects. Key recommendations include leading CDMO players such as WuXi AppTec and WuXi Biologics, as well as preclinical CRO company Joinn Laboratories.
Investors should also monitor overseas clinical progress and data readouts for innovative drugs. China's innovative pharmaceutical industry has demonstrated sustained growth, reflected in the recent surge in business development (BD) transactions. Notably, for most domestic innovative drugs, out-licensing often marks the beginning of global development. Partners' overseas progress and subsequent global clinical data can further validate commercialization potential in international markets.
Investment Strategy: Focus on the CXO sector. December 2025 portfolio recommendations: A-shares: Mindray Medical, WuXi AppTec, Aier Eye Hospital, New Industries, HuiTai Medical, SonoScape Medical, Aohua Endoscopy, Amoy Diagnostics, Imeik Technology, KingMed Diagnostics, Yuwell Medical, MicroPort Scientific. H-shares: Akeso Inc., Kelun-Biotech, Hutchmed, Keymed Biosciences, 3SBio, WuXi Biologics, AK Medical, Weigao Group.
Risk warnings: R&D failure risks, commercialization underperformance risks, geopolitical risks, and unexpected policy risks.