China Merchants Securities: The pharmaceutical sector's innovative drug industry chain is still the main focus on technical directions such as small nucleic acids

The Zhitong Finance App learned that China Merchants Securities released a research report saying that in 2026, the pharmaceutical sector is expected to see a structural market in 2026 under the industrial trend of continuous implementation of innovation and domestic demand differentiation in healthcare. The innovative drug industry chain is still the main line. In addition to observing clinical data in the second-generation IO, weight loss, and ADC sectors, particular attention is being paid to the accelerated development of small nucleic acid technology; at the same time, attention is being paid to companies with prosperity and performance in CXO, upstream, and APIs. Furthermore, demand for in-hospital medical care is expected to recover moderately, focusing on improved performance and overseas sales in the medical device sector, as well as individual stock opportunities in services, pharmacies, and traditional Chinese medicine.

The main views of China Merchants Securities are as follows:

Pharmaceutical sector: Innovative drugs are the main line, BD is the clue, focusing on technical directions such as small nucleic acids

Biomedicine is an industry where supply creates demand. The market for large-scale innovative drugs is driven by industry trends. The immunotherapy market represented by PD-1 from 2018 to 2021, the ADC technology platform breakthrough market starting in 2023, the diet drug market starting in the second half of 2023, and the next-generation immunotherapy market starting in 2024. The rhythm behind each round of the big market is reflected in “breakthroughs in overseas R&D - domestic mapping - breakthroughs in domestic enterprises - export to participate in global competition”. Small nucleic acid technology has gradually broken through from rare diseases to chronic diseases, from intrahepatic targeting to extra-hepatic targeting. The bank believes that 2026 will be a big year of catalysis for the small nucleic acid industry. Small nucleic acid companies will go public, and small nucleic acid platforms with traditional enterprise layouts have also surfaced, and it is recommended to focus on it. At the same time, industry trends in sectors such as second-generation IO, weight loss, and ADC are not over. Reading out data within the sector is also an important catalyst and can bring investment opportunities. Concerns: Pharma & Biopharma: Hengrui Pharmaceuticals, Hanson Pharmaceuticals, China Biopharmaceuticals, Shiyao Group, Cinda Biotech, Collenbotai, Fuhong Hanlin; Biotech: Small nucleic acid fields (Ruibo Biotech, Borowang Pharmaceuticals, etc.), weight loss lines (Federal Pharmaceuticals, Geli Pharmaceuticals, Lai Kai Pharmaceuticals), etc.

Innovation and pharmaceutical industry chain

CXO: Since 2025, external CXO performance has gradually been realized, and continuous innovation in molecular types has brought new industrial opportunities; domestic CRO demand has been structurally improved, and new orders have continued to grow. In 2026, we will continue to be optimistic about fundamental improvements and valuation fixes in the CXO sector. Focus on: Pharmaceutical Kangde, Pharmaceutical Union, Kanglong Chemical, Zhaoyan New Pharmaceutical, Haoyuan Pharmaceutical, etc. Upstream life science: Benefiting from the increase in domestic R&D boom, performance inflection points have generally occurred. It is recommended to focus on targets with upward performance trends, such as Bepsis, Bitech Pharmaceuticals, Oppmax, etc. APIs: The overall price range is in the bottom range. Companies with high-quality customers and orders can reap marginal profit increases brought about by increased capacity utilization, and some companies have successively ushered in inflection points, and some companies have deployed innovative drugs in different ways, bringing new momentum. Focus on: Propharmaceuticals, Orient, Tianyu Co., Ltd., Staili, etc.

Medical devices: In 2026, focus on opportunities brought about by trends such as inventory optimization and export volume brought about by improved demand in hospitals

Device-side bidding data continues to improve, which is expected to drive improvements in channel inventory, and 2026 is expected to reach an inflection point. The collection of high-value consumables continues to expand, and imported high market share tracks are expected to benefit from the use of collection to achieve domestic production volume, and there is plenty of room for brands to go overseas. The CDMO/low consumption market share of consumables, seize domestic replacement opportunities and continue to pay attention to downstream inventory removal progress, which is expected to improve steadily. IVD collection accelerates leading domestic companies to increase their market share. Concerns: Lianying Healthcare, Mindray Healthcare, Kaili Healthcare, Huitai Healthcare, Microelectrophysiology-U, Cardiac Medicine, Chunli Healthcare, English Healthcare, Lepu Healthcare, etc.

In-hospital medical expenses

Medical services: Overall pressure in 2025. Observe the mild recovery of medical needs after stabilizing the 2026 base and DRGs policy, the recovery in demand for consumer medical services and products, and the optimization of the competitive pattern, focus on opportunities for pharmaceutical companies to transform medical and aesthetic products, and focus on: Aier Ophthalmology, Tongze Healthcare, Gushengtang, Hygea Healthcare, etc. Traditional Chinese Medicine: Looking forward to steady progress in 2026, optimistic about OTC recovery of traditional Chinese medicine and innovative transformation of traditional Chinese medicine prescription drugs, focusing on China Resources 39, Ling Rui Pharmaceutical, Zhongsheng Pharmaceutical, Fangsheng Pharmaceutical, Kangyuan Pharmaceutical, etc. Blood products: Short-term fluctuations in the relationship between supply and demand, and price effects are expected to gradually be digested on the base side. Pharmacies: Standardized industry regulation accelerates concentration, continuously explores new retail formats, and focuses on the pace of performance improvement: Yifeng Pharmacy, Dashenlin, etc.

Risk warning: Risks such as R&D falling short of expectations, international relations, foreign exchange fluctuations, increased competition, and environmental protection.