Kaiyuan Securities has released a research note indicating that China's domestic pharmaceutical raw material (API) industry is gradually stabilizing and recovering. Several companies are actively expanding into innovative drug development, which is expected to elevate their growth ceilings and potentially lead into a harvest period.
The domestic blood products sector is currently at the bottom of its cycle, with industry consolidation and mergers accelerating. Concurrently, the vaccine industry is stepping up its deployment of new products and innovative technologies. The domestic medical services segment remains heavily influenced by policy and is undergoing a phase of market clearing.
According to the research firm, companies with strong brand recognition and robust operational capabilities are likely to emerge from this downturn first.
Where to Begin Investment Analysis
The report's primary insights are segmented across several key areas. For the API sector, the foundational logic points to a recovery. As inventory destocking concludes and outdated capacity is rapidly phased out, the sector's fundamentals are showing signs of improvement. Both revenue and net profit are gradually bottoming out, gross margins remain relatively stable, and valuations are exhibiting a trend of recovery.
Some enterprises are leveraging their existing processes, production capacity, and customer relationships to transition toward CDMO and innovative drug operations. Notably, Prul Pharma has secured an order backlog of RMB 7.3 billion in its CDMO business for the first half of 2026. Given the low base in the second half of 2025, the firm projects a significant surge in Prul Pharma's performance during H2 2026, with accelerated growth sustained through 2027-2028.
Domestic API companies are also actively pivoting to innovative drugs. United Laboratories has advanced TUL01101 for atopic dermatitis and UBT251 for multiple indications into Phase III clinical trials. Huahai Pharmaceutical has seen HB0034 receive market approval, while HB0017 for moderate-to-severe plaque psoriasis has had its NDA accepted. HB0025 is in Phase II and III stages for different indications. Bright Gene has submitted an NDA for the weight-loss indication of BGM0504. Aoxiang Pharma has moved Brozop Sodium into Phase II trials, and Jingxin Pharmaceutical's lipid-lowering drug JX2201 is also in Phase II. Additionally, Joincare Pharmaceutical has advanced Mapaxivac dry suspension and a TSL monoclonal antibody into Phase III trials.
Expecting a Cyclical Turnaround in Blood Products
In the blood products segment, plasma collection is growing at a relatively fast pace, but the industry awaits a cyclical inflection point. The sector faced headwinds in 2026 due to inventory levels and suppressed hospital demand driven by medical insurance policies. This resulted in declines in both revenue and net profit, placing the industry at a cyclical low.
However, as leading companies accelerate mergers and acquisitions, the industry's pricing system is projected to gradually return to a more stable level.
Focus on New Vaccines and Technologies
The vaccine industry is under pressure due to a declining newborn population and shifting competitive dynamics, with business performance continuing to face challenges. In response, domestic vaccine manufacturers are accelerating their layouts in new products and innovative technologies. Olymvax Biopharmaceuticals completed the unblinding of its Phase III clinical trial for the recombinant Staphylococcus aureus vaccine in July 2026. Meanwhile, CanSino Biologics continues to advance research in multivalent, multi-component, and innovative vaccines.
Medical Services Poised for Efficiency Gains
The medical services sector is anticipated to enter a phase of improved efficiency. The segment's performance has declined recently, influenced by DRGs and the consumer environment. Looking at quarterly data for 2026, the sector is maintaining modest revenue growth on the whole, though net profit attributable to parent companies shows significant quarterly fluctuations due to the seasonal impact of school holidays. The price-to-earnings ratio for this segment remains relatively low.
Key Risks
The primary risks noted include policy changes, intensified market competition, and the potential failure of drug clinical research and development.