In the first half of 2026, the pharmaceutical industry's fundamentals continued to strengthen, with profit growth significantly outpacing revenue gains, according to a new research note. The brokerage recommends investors focus on innovative drugs and the broader industry chain, highlighting standout performance in high-growth areas.

Guosen Securities Co.,Ltd. released a report indicating that A-share pharmaceutical companies posted total operating revenue of RMB 1,194.21 billion in the first six months of 2026, a year-on-year increase of 2.6%. Net profit attributable to shareholders reached RMB 104.96 billion, up 10.8% year-on-year, confirming the trend of earnings recovery. The firm continues to recommend innovative drugs and the industry chain supporting them.

Mid-Year Sector Momentum Builds

Breaking down the figures by segment, the innovative drug sector generated RMB 43.75 billion in revenue, surging 44.1% year-on-year, with attributable net profit of RMB 7.51 billion, sustaining its rapid growth trajectory. The CXO segment delivered RMB 55.62 billion in revenue, up 23.3%, alongside attributable net profit of RMB 13.05 billion, an increase of 15.7%, reflecting continuous improvement in business conditions.

For the second quarter of 2026 alone, A-share pharmaceutical companies achieved operating revenue of RMB 598.05 billion, up 2.7% year-on-year, while attributable net profit climbed 15.3% to RMB 54.72 billion, accelerating from the first quarter. The innovative drug sector saw Q2 revenue expand by 51.3% year-on-year, while the CXO sector posted revenue and net profit growth of 27.8% and 11.0%, respectively. Nearly all 26Q2 revenue growth in the innovative drug sector came from domestic sales, with overseas business soon entering a commercialization phase.

Focus on CXO Leaders with Strong Order Books and Turning Points

In the CDMO space, Chinese companies hold comprehensive advantages in talent dividends, regulatory-compliant capacity, and intellectual property protection. The report suggests that Chinese firms' core position in chemical CDMO remains difficult to replace over the next five years, while their capabilities in biologics CDMO are steadily improving. Recommended names include IMMUNOTECH-B for its accelerating growth and strong short-term performance with solid medium-term order visibility, plus other leaders in the peptide CDMO space, XDC-focused operations, and chemistry-driven businesses with promising pipelines.

For CRO services, as previously negotiated price-increase orders are progressively delivered, both preclinical and clinical CRO companies are poised for an earnings rebound. Investors are advised to watch KINTOR PHARMA-B and similar firms that could benefit from this recovery cycle.

Innovative Drugs Enter Global Commercialization Phase

Most domestic innovative drug developers have entered the phase of major product launches with medical insurance coverage expansion, fueling rapid revenue growth. The next wave of innovation going global is also approaching a harvest period. A partner of a leading Chinese biotech announced that a global Phase 3 trial for sac-TMT met its primary clinical endpoint, with a regulatory submission to the FDA expected in the second half of the year. Additional candidates from other Chinese developers, including CMG901 and savolitinib, have also achieved primary endpoints in global Phase 3 studies. These advances signal that Chinese innovative drugs are nearing the global commercialization stage.

Key risks include research and development failures, weaker-than-expected commercial adoption, geopolitical tensions, and unexpected policy shifts.