CITIC Construction Investment: Improved domestic and external demand gradually transmits orders and performance, and CXO is expected to enter a new round of growth
The Zhitong Finance App learned that CITIC Construction Investment released a research report saying that CXO is an important carrier for the specialized division of labor in the innovative drug industry chain and is also a key infrastructure connecting drug development and commercial production. The bank believes that the development of the industry is mainly driven by three factors: maintaining a high level of R&D investment by global pharmaceutical companies, expanding innovative drug pipelines and increasing the penetration rate of outsourcing driven by the development of complex drugs such as ADC, peptides, and small nucleic acids; and Chinese companies continue to take on global demand with talent and cost efficiency advantages. As improvements in domestic and external demand gradually spread to orders and performance, CXO is expected to enter a new round of growth.
CITIC Construction Investment's main views are as follows:
CXO is an important carrier for the specialized division of labor in the innovative drug industry chain. It is also a key infrastructure connecting drug development and commercial production
CRO/CDMO covers the entire R&D and production process of innovative drugs. Through professional technology, platform resources and scale effects, it helps pharmaceutical companies improve R&D production efficiency, reduce development costs and investment in self-built production capacity, and accelerate the transformation of innovative achievements. The development of the industry is mainly driven by three factors: first, global pharmaceutical companies' R&D investment remains high, domestic innovative drug investment and financing growth and external licensing growth to provide financial support for outsourcing demand; second, the expansion of innovative drug pipelines and the development of complex drugs such as ADCs, peptides, and small nucleic acids, increasing reliance on professional R&D and production platforms to increase the penetration rate of outsourcing; third, Chinese enterprises rely on talents, industrial chain support and cost efficiency advantages to continue to meet global demand. As improvements in domestic and external demand gradually spread to orders and performance, CXO is expected to enter a new phase of growth.
CXO runs through the entire R&D and production process of innovative drugs. Specialized division of labor and the advantages of China's supply chain form the foundation for long-term growth
Pharmaceutical companies' R&D and production investment and outsourcing penetration rate are core variables in the scale growth of the industry. The pharmaceutical structure is becoming more and more complex, and the continuous expansion of Biotech pipelines further strengthens the demand for professional outsourcing. Clinical CRO is centered on talent and project management systems, while pre-clinical CRO and CDMO rely more on qualifications, technology platforms, and capacity investment. Order growth and utilization rate increase determine profit flexibility. Chinese companies rely on engineer dividends, complete industrial chains and cost efficiency advantages to meet global demand. Leading platforms extend to multi-technology fields and integrated R&D and production, and continue to strengthen customer stickiness and scale advantages.
The recovery in investment and financing and R&D investment remained high, providing support for the recovery of CXO demand
2026H1 global innovative drug financing reached US$20.077 billion, and domestic financing reached US$4.233 billion, which is equivalent to 82% of the full year of 2025. Combined with large pharmaceutical companies, R&D investment remained high, and the supply of R&D capital at home and abroad continued to improve. China's innovative drug license-outs are growing rapidly, down payments have become an important source of capital, and the recovery in IPOs and primary market financing has further improved Biotech's R&D capabilities. As capital is gradually transformed into R&D projects, clinical promotion, and production requirements, it is expected that outsourced orders will continue to be released; domestic IND declarations and new drug approvals have increased, and pipelines such as double polyantibodies and nucleic acid have been promoted to provide follow-up growth for the industry chain.
Global policies and industrial chain adjustments bring structural opportunities, and core competencies and overseas layout enhance competitive resilience
Geographic policies and supply chain localization requirements are still disrupting. The actual impact depends on capacity substitutability, delivery capacity, and customer switching costs. Chinese CXO companies improve global service networks through overseas production capacity construction. At the same time, the FDA is promoting the application of new methodologies and improving review efficiency, speeding up domestic reviews, and improving medical insurance and commercial insurance payment systems, which is expected to improve the efficiency and commercialization return of innovative drugs. The global patent expiration cycle promotes biosimilar development and MNC supplements pipelines through mergers and acquisitions, creating business opportunities for outsourcing platforms with R&D, process development and commercial production capabilities.
The valuation logic of the industry has changed from short-term restoration to growth pricing, and the industry has entered a new stage of growth
The revenue and net profit of enterprises in the 2026H1 sector increased 25.2% and 66.5% year-on-year respectively. CRO orders continued to pick up, CDMO demand remained strong, and the accumulation of ongoing orders and late-stage projects by leading companies enhanced performance visibility. Improved capacity utilization, commercialized release of complex drugs, and recovery in capital expenditure will jointly support subsequent growth. Since 2026, as the upward cycle of the sector is gradually confirmed and individual stock industry trends have re-entered a new stage of growth, using PEG for the next 1-2 years as the core horizontal valuation index, we believe that companies with strong growth and high certainty in medium- to long-term performance are still underestimated, and there is plenty of room for growth.
Risk warning: industry policy risk, risk of R&D falling short of expectations, risk of falling short of expectations in approval, risk of macro-environmental fluctuations