According to a research report by CMSC, the pharmaceutical sector is expected to see structural opportunities in 2026, driven by continued overseas expansion of innovation and differentiated domestic medical demand. The innovative drug industry chain remains the main theme, with particular attention on the accelerated development of small nucleic acid technology, alongside clinical data from second-generation IO, weight-loss, and ADC segments. Companies in CXO, upstream supply chains, and APIs with strong performance and growth potential are also worth monitoring. Additionally, a moderate recovery in hospital and outpatient demand may benefit medical devices, services, pharmacies, and traditional Chinese medicine (TCM).

**Pharmaceutical Sector: Innovation as the Core, BD as the Clue** Biopharma is an industry where supply creates demand, with major trends historically driven by breakthroughs. Examples include the PD-1-led immuno-oncology wave (2018–2021), ADC platform advancements (2023), GLP-1-based weight-loss drugs (late 2023), and next-gen immunotherapies (2024 onward). Each cycle follows a pattern: overseas R&D breakthroughs → domestic adoption → local innovation → global competition. Small nucleic acid technology, expanding from rare to chronic diseases and hepatic to extrahepatic targeting, is poised for a breakout in 2026, with new entrants and legacy players entering the field. Other areas like second-gen IO, weight-loss, and ADC therapies also present ongoing opportunities.

**Key Stocks to Watch**: - **Pharma & Biopharma**: Hengrui Pharmaceuticals, Hansoh Pharma, Sino Biopharm, CSPC Pharma, Innovent Biologics, Kelun-BTB, Henlius. - **Biotech**: Small nucleic acid players (Ribo Bio, Bowei Pharma), weight-loss (United Labs, Ascletis Pharma, Laekna Therapeutics), autoimmune (Keymed Biosciences, Quanxin Biotech).

**CXO & Supply Chain**: CXO firms are benefiting from overseas demand recovery and molecular innovation, while domestic CROs see structural improvements. Favorites include WuXi AppTec, WuXi XDC, Pharmaron, Joinn Laboratories, and MedChemExpress.

**Life Science Tools & APIs**: Upstream suppliers like Proteintech, Bideli, and Opumax are rebounding on R&D growth. API makers such as Apeloa, Aurisco, and Tianyu Pharma are nearing cyclical troughs, with some venturing into innovative drugs.

**Medical Devices**: Hospital demand recovery and export growth may drive inventory optimization in 2026. High-value consumables could gain from volume-based procurement (VBP), while domestic IVD leaders consolidate market share. Top picks include United Imaging, Mindray, Healforce, HuiTai Medical, MicroPort EP, MicroPort CardioFlow, Chunli, Intco Medical, and Lepu Medical.

**Healthcare Services & TCM**: Post-2025 pressure, essential and elective medical services may rebound. TCM OTC and innovative prescriptions could stabilize, with highlights for CR Sanjiu, Lingrui, Zhong Sheng, Fangsheng, and Kanyun. Blood products may see price impacts absorbed, while pharmacy chains like Yifeng and Dashenlin benefit from consolidation.

**Risks**: R&D setbacks, geopolitical tensions, FX volatility, competition, and environmental regulations.