China Securities Co., Ltd. (601066) has released a research report indicating that after a period of adjustment from 2022 to 2024, China's CXO industry is benefiting from an early recovery in overseas investment and financing. In 2024, leading domestic CXO companies saw a resurgence in overseas orders. As domestic innovative drug assets underwent large-scale out-licensing in 2025, domestic investment and financing began a sustained recovery in the second half of 2025, stabilizing domestic demand.

From 2026 to the present, the long-term structural opportunities in the domestic innovative drug industry have continued to materialize, with domestic investment and financing steadily improving. New drug modality tracks remain highly active and are expanding further. The firm believes that new contract signings and performance in the domestic CRO/CDMO industry will accelerate in 2026, driving the CXO industry chain into a new phase of development.

External and Internal Demand Converge, Industry Sentiment and Valuation Enter a Repair Phase

The fundamental demand for CXO services is driven by R&D funding from pharmaceutical companies. In the first half of 2026, global innovative drug financing reached $20.177 billion, with domestic financing hitting $4.233 billion, which is 82% of the total for the entire year of 2025. R&D expenditure by multinational corporations (MNCs) remains at a high level. Since the second half of 2025, domestic BD, IPO, and primary market financing have all improved synchronously. As funds are channeled from the financing end to the CXO sector, and with valuations still at historically low levels, both industry performance and valuations are poised for ongoing recovery.

Globalization of Innovative Drugs Accelerates, Supply and Demand Establish Long-Term Industry Trends

The approval rate for new drugs globally remains high. Rising R&D costs are driving a continued increase in the penetration rate of outsourcing, which is expected to rise from 52% in 2024 to 57% in 2026. China's innovative drugs are becoming increasingly competitive in cutting-edge fields such as ADC, bispecific/multispecific antibodies, and next-generation small molecule drugs. In 2025, the number and value of major license-out transactions accounted for approximately 44% and 49% of the global total, respectively, with BD upfront payments becoming a significant source of funding. In recent years, the patent cliff has prompted MNCs to continuously supplement their pipelines through mergers and acquisitions. FDA accelerated review and new methodological policies are expected to further incentivize R&D, enhance efficiency, and expand global outsourcing demand.

Industry Adjustment Nearly Complete, Beta Recovery and Individual Stock Alpha Enter the Realization Phase

In 2025, industry revenue and profit returned to growth, with this trend expected to continue into 2026. New contract signings for preclinical CROs and clinical CROs are growing steadily, with order prices rebounding to varying degrees. CDMO benefits from sustained growth in late-stage and commercial demand, maintaining relatively fast growth overall. Segments like ADC and peptides remain at a high level of prosperity, further driving CAPEX investment in the industry back to a growth trajectory. Simultaneously, as leading companies' order backlogs and pipelines advance toward later-stage and commercial phases, utilization rate improvements leading to economies of scale, combined with internal cost-reduction and efficiency-enhancement measures, are expected to drive sustained margin improvements, thereby enhancing business operational efficiency.

Overseas CRO Sees Moderate Recovery, CDMO Remains Resilient, Demand Recovery Shows Structural Differentiation

In the first quarter of 2026, the majority of overseas CXO companies saw year-over-year revenue improvements and maintained high order backlogs. However, the pace of recovery differs between preclinical and clinical CROs. CRL is stabilizing at the margin, IQVIA's growth is accelerating, and Medpace continues its high growth trajectory, though its book-to-bill ratio has temporarily declined. On the CDMO front, Lonza's revenue and margins have recovered after refocusing on its core business, while Samsung Biologics maintains rapid growth, fueled by the fast ramp-up of its commercial capacity.

Investment Recommendations

From a certainty perspective, the firm favors WuXi AppTec. From a growth perspective, it favors WuXi Biologics, WuXi XDC, Pharmaron, BioMap, as well as AI drug discovery leaders like Insilico Medicine and XtalPi. From a flexibility perspective, it favors Genscript, JOINN Lab, Asymchem, Bide Pharm, and Haoyuan Pharmaceutical. For marginal recovery, it suggests attention on Tigermed and Novogene.