The pharmaceutical sector demonstrated stable overall performance in the first three quarters of 2025, with a slight revenue decline but notable profit growth. According to a research report, the sector's total revenue and net profit attributable to shareholders for Q1-Q3 2025 declined by 3% and 8% year-on-year (YoY), respectively. However, Q3 2025 saw a 1% revenue drop but a 17% YoY increase in net profit, driven by factors such as overseas licensing of innovative drugs (License-out) and improved operational efficiency.

**Pharmaceutical Sector Overview** The sector's sales and management expense ratios remained stable, with Q1-Q3 figures declining by 3% and staying flat, respectively. R&D investment continued to rise, growing by 4% in Q1-Q3 and 5% in Q3 2025, reflecting sustained innovation efforts.

**Key Pharma Companies: Performance Divergence** Among 17 selected leading pharmaceutical firms, Q1-Q3 2025 revenue dipped slightly by 0.7%, while net profit rose by 4.5%. The average net profit margin improved to 13%, up 0.7 percentage points (pct) YoY. Larger firms (with revenue exceeding RMB 10 billion) reported a 1.9% revenue decline but a 4.4% profit increase, maintaining a 12% net margin. Smaller firms (under RMB 10 billion revenue) grew revenue and profit by 4.3% and 4.7%, respectively, though some, including Haisco and Kelun Pharma, faced short-term profit pressure. Companies with advanced innovation pipelines and high-barrier products outperformed.

**Biotech Sector: Rapid Expansion Nears Break-Even** Biotech firms remained in a high-growth phase, with 11 selected companies generating RMB 12.4 billion in product revenue (excluding milestone payments) in Q1-Q3 2025, up 31% YoY. Growth catalysts included overseas expansion, superior drug efficacy, favorable reimbursement policies, and exclusive indications. With enhanced global competitiveness in clinical pipelines and supportive insurance policies, many domestic biotech firms are approaching profitability.

**Biological Products: Continued Pressure in Vaccines and Blood Products** The biological products segment (14 selected firms) saw revenue and net profit decline by 25% and 50% YoY in Q1-Q3 2025. Vaccine companies mostly reported wider Q3 losses, while blood product firms faced margin compression. However, Q3 revenue declines moderated slightly (-14% YoY). Leading players in niche, high-barrier segments maintained growth momentum.

**Investment Recommendations** Innovative drugs and turnaround opportunities remain key themes for 2025–2026. Focus areas include pan-cancer bispecific/multispecific antibodies, drugs addressing unmet chronic disease needs, and emerging modalities like ADCs, bispecifics, and small nucleic acids.

**Risks** Potential risks include currency fluctuations, domestic and international policy changes, delays in clinical trials, and regulatory approval setbacks.