Donghai Securities: The operating conditions of the pharmaceutical industry continue to stabilize, and the innovative drug chain remains the most core investment direction.

East Sea Securities released a research report stating that since 2026, the overall performance of the pharmaceutical and biotechnology sector has been continuously declining, significantly underperforming the market. From a performance perspective, in the first quarter of 2026, the overall revenue and net profit growth rates of listed companies in the pharmaceutical and biotechnology sector were 2.16% and 7.13% respectively, indicating that the industry's operating conditions continue to stabilize. From a valuation perspective, the current valuation of the sector is at a nearly one-year low, with limited downside potential. Overall, the long-term investment value of the pharmaceutical and biotechnology sector is significant, and it is recommended to actively position themselves in quality stocks in related sub-sectors for investment opportunities. The main points of East Sea Securities are as follows: Innovative Drug Chain: Since 2025, the performance of the innovative drug and CXO sectors has been excellent, and in the first quarter of 2026, the rapid growth trend continued, with expectations of rapid growth for the full year. Several innovative drug companies have crossed or are about to cross the breakeven point, and the overall innovative drug sector has entered a period of performance explosion. In terms of internationalization, BD transactions continue to be hot, with the total transaction amount expected to exceed 200 billion U.S. dollars for the year; in terms of research and development progress, in areas such as IO dual-targeted therapy and ADC, the latest data released by many innovative drug companies is changing or creating history, making domestic innovative drug companies one of the most competitive globally. The innovative drug chain remains the most core investment direction in the pharmaceutical and biotechnology industry. Medical Devices: The medical device industry is still in a phase of overall slow recovery. Based on the 2025 annual reports and the first quarter of 2026 data, medical equipment and medical consumables have performed relatively well, while in vitro diagnostics continue to be under pressure in the short term; overseas market demand remains stable, with overseas business performing better than domestic business. With most conventional medical consumables and reagents already included in the centralized procurement scope, the impact of centralized procurement policies on the sector is gradually weakening, and the sector as a whole is expected to continue stabilizing and recovering. Medical Consumption: The overall medical service consumption is affected by the macro consumer environment. Based on the first quarter of 2026 data, both the hospital and pharmacy sectors have shown good growth momentum. With the continuous improvement of medical payment reform, the hospital sector, especially specialist chain hospitals, is expected to lead in recovering good growth momentum; the excess capacity in the pharmacy industry continues to be cleared, and with policy regulation, support, and new opportunities for transformation in terms of functional positioning, service scenarios, and product categories, leading chain pharmacies are expected to benefit first. Stock portfolio: Sichuan Kelun Pharmaceutical, REMEGEN, Betta Pharmaceuticals, Dize Pharmaceutical, Guangdong Zhongsheng Pharmaceutical, Xiamen Amoytop Biotech, Acrobiosystems, Livzon Pharmaceutical Group Inc., Changzhou Qianhong Biopharma, Sonoscape Medical Corp., Qingdao Haier Biomedical Co., Ltd., Huaxia Eye Hospital Group, Yifeng Pharmacy Chain, LBX Pharmacy Chain Joint Stock, Henan Lingrui Pharmaceutical, etc. Risk warning: Policy risk, performance risk, research and development risk, event risk, etc.