Sinolink Securities has released a research report indicating a clear upward trend in the CXO sector's performance for 2026. Global enthusiasm for innovative drug research and development continues to recover, providing solid momentum for a fundamental industry recovery with a definite upward trajectory. Once price increases for active pharmaceutical ingredients (APIs) commence, they are expected to be sustainable; it is recommended to monitor the profit elasticity resulting from subsequent price hikes. The pharmaceutical supply chain industry is entering a new cycle of recovery and growth, characterized by synchronized domestic and international demand, volume expansion in new molecular therapy fields, and sequential quarterly improvements in orders and financial performance. It is advisable to focus on companies within the CXO sector, API-related firms, and upstream life science suppliers. The main views of Sinolink Securities are as follows:
CXO Industry Chain: Clear Signals of an Upturn Global biomedical investment and financing levels have improved significantly, continuously strengthening the industry's recovery momentum. Throughout 2025, overseas biomedical investment and financing reached $198.1 billion, a substantial 57% increase from $126.1 billion in 2024. Driven by ongoing business development (BD) activities, domestic pharmaceutical companies' willingness to collaborate has increased, leading to explosive growth on the demand side. The firm believes the CXO sector's upward trend in 2026 is clear, with the industry entering a new cycle of recovery and growth fueled by synchronized domestic and international demand, volume expansion in new molecular fields, and sequential quarterly improvements in orders and performance.
Integrated CDMO Companies Lead Industry Recovery In 2024, due to factors such as geopolitical disturbances, CDMO sector revenues remained largely flat compared to 2023. However, the CDMO industry was the first to reach an inflection point for recovery in 2025, with sector growth accelerating significantly to 17%. In the first quarter of 2026, despite unfavorable conditions including RMB appreciation and significant pressure on earnings, CDMO revenue growth further increased to 20%, demonstrating strong resilience. The continued recovery in global innovative drug R&D enthusiasm, combined with the concentrated release of R&D demand in emerging fields such as GLP-1, ADCs, peptides, and small nucleic acids, has provided domestic CDMO companies with ample incremental overseas orders. The fundamental momentum for industry recovery is solid, and the upward trend is clear.
Domestic BD Activity Fuels Significant Internal Demand Recovery In 2024, CRO sector revenue growth declined by 8% year-on-year. By 2025, the rate of decline narrowed to 3%, indicating a clear bottoming-out signal for the sector. In Q1 2026, sector revenue growth successfully returned to positive territory, increasing 14% year-on-year, revealing a clear recovery trend. The significant rebound in investment and financing scale fully reflects the capital market's ongoing restoration of confidence in the innovative drug sector. Coupled with rising heat in industrial BD deals and the value re-rating of high-quality R&D assets, this has further prompted pharmaceutical companies to expand R&D expenditures and increase pipeline layout and innovation investment. As pharmaceutical companies' willingness to invest in R&D has significantly rebounded, the rising demand is being transmitted to the domestic CRO industry chain. Based on the order data disclosed by various CRO companies for 2025, domestic orders have shown clear improvement, and the logic of domestic demand recovery continues to materialize.
APIs: Improving Profitability and Potential Price Increases Influenced by persistently high international oil prices and elevated overseas energy costs, various chemical products have generally experienced significant price increases. Among these, solvent products, which are difficult to stockpile, have seen continuously rising market prices, making them one of the categories with the most significant price elasticity in this round of chemical price hikes. This has directly led to increased costs for downstream industries such as pharmaceutical intermediates and APIs. Affected by rising upstream raw material costs, downstream API products may see opportunities for price increases. Considering that customer inventory levels have remained low for an extended period, any price increases are expected to be sustainable. It is recommended to monitor the profit elasticity resulting from subsequent price hikes.
Upstream Life Sciences: Steady Recovery and Earnings Improvement Domestic investment in basic scientific research and biomedical R&D continues to increase, downstream demand for innovative drug R&D is expanding robustly, and the process of domestic substitution is accelerating with policy support. The market penetration of upstream core products such as scientific instruments, biological reagents, and laboratory consumables is steadily increasing, driving sequential quarterly improvements in the revenue and profitability of companies within the sector. The trend of fundamental recovery is clear. The current industry landscape remains relatively fragmented, with a large number of small and medium-sized manufacturers and prominent homogeneous competition. Driven by technological barriers, economies of scale, and channel service advantages, the trend of consolidation led by industry leaders is expected to deepen.
Risk warnings include foreign exchange risk; domestic and international policy risks; risks associated with clinical trial progress falling short of expectations; and risks related to product approval and review progress falling short of expectations.