Investment banking firm Northeast Securities Co.,Ltd. has released a research report indicating that the high prosperity of the overseas innovative drug industry is set to continue, allowing domestic pharmaceutical companies to capitalize on these dividends. Numerous innovative drug enterprises reported stronger-than-expected growth in the first half of 2026, aligning with the semi-annual performance of CXO sector companies, which further validates the medium-term industry trajectory.
The pharmaceutical retail sector is currently in a phase characterized by supply-side consolidation intertwined with a tentative recovery. Leading companies are leveraging their scale advantages to continuously capture market share, while their high dividend yields offer a defensive investment appeal. Concurrently, the traditional Chinese medicine (TCM) sector is navigating a period defined by the digestion of centralized procurement impacts alongside cost improvements. Branded OTC leaders are demonstrating resilience, with their high dividend characteristics again providing a defensive buffer.
Where the opportunities lie
Within the innovative drug arena, Pharma companies are achieving steady revenue growth through diversified strategic approaches, while Biotech firms are unlocking performance elasticity via business development (BD) deals and commercialization efforts. Between 2023 and the first half of 2026, leading Pharma companies have primarily relied on three pathways—transitioning from generics to innovative drugs, product internationalization, and the scaling of core blockbuster drugs—to consistently expand their revenue. This is evident in the growing revenue scale of companies like Hengrui Medicine, CSPC Pharmaceutical Group, and Sino Biopharmaceutical. For Biotech firms, revenue elasticity stems largely from the recognition of upfront payments in BD licensing agreements and the commercialization ramp-up of their products. Enterprises such as Innovent Biologics and RemeGen have seen significantly accelerated revenue growth in recent years, with some already completing the transition from research-focused entities to fully commercialized operations.
The CXO sector is witnessing rapid order growth, ushering in a new phase of the industry cycle. With a continued global recovery in biopharmaceutical financing, a substantial surge in domestic innovative drug funding, and comprehensive policy support for the sector, the CXO industry has entered a fresh upward cycle. Demand remains robust in specialized areas like GLP-1 and ADC, making qualified production capacity increasingly scarce. The better-than-expected 2026 first-half results from multiple innovative drug companies echo the semi-annual performance of CXO peers, solidifying confidence in this medium-term sector trend.
For innovative medical devices, the strategy focuses on pioneering innovation, accelerated market access, and breakthroughs in core technology platforms. After hitting cyclical peaks in 2015 and 2020-2021, followed by years of deep correction, the sector's valuations are now at relatively low levels and have been bottoming out since 2024. With risks largely priced in and fundamental improvements emerging, the potential for valuation recovery is established. The sector's clean shareholding structure suggests attention should be paid to a structural rebound in medical device stocks.
In medical services, single-hospital operating models are stabilizing, and capital expenditure is returning to the forefront. Leading companies display strong operational resilience, with organic growth in ophthalmic services now steadily hovering at mid-single-digit rates. To sustain business expansion, some firms have initiated new capital expenditure cycles, and the expansion of overseas operations is expected to become a core growth driver. Current recommendations focus on companies with clear international expansion plans.
The pharmaceutical retail sector reported a pattern of "continued revenue growth recovery, but diverging profits" in the first half of 2026. On the revenue side, leading players maintain positive growth with a clear trend of increasing industry concentration. However, profit performance varies significantly, reflecting differences in store operational efficiency and product mix. Most companies saw slight sequential revenue improvements in the second quarter. The sector remains in a stage of supply-side clearing and weak recovery, where scale advantages allow leaders to grab more share, supported by the defensive nature of their high dividend yields.
The TCM sector presented a "revenue growth pressure, significant profit divergence" landscape for 2026H1. Companies focusing on hospital channels faced notable revenue headwinds. While most firms saw sequential profit declines in Q2, the impact was particularly pronounced for hospital-based products due to the comprehensive coverage of the fourth batch of centralized procurement. As the industry navigates a phase of procurement digestion and cost improvements, branded OTC leaders show their resilience, with high dividend yields offering a defensive stance.
Key risks to monitor include policy shifts, R&D and competitive dynamics, product-related challenges, and risks associated with international expansion.