When medicine returns to the center stage

Source: Longtan Value 2023

Hello everyone, I am Brother Long.

Recently, during the intensive earnings report disclosure period, there are many topics I want to share. Due to the need to read a large number of financial reports and listen to conference calls, I have delayed some. But the market doesn’t wait for anyone; the pharmaceutical industry has experienced continuous large gains, and the industry’s short-term attention has rapidly increased. Pharmaceuticals are back on the stage.

As a pharmaceutical investor and media personality, facing this “big counterattack” market trend, in theory, I should be very excited, but our current mindset is rather calm—when the industry fundamentals are strong enough, we’re not worried that the industry won’t rise over the year. We’re only considering how deep the pullback might be due to war factors, how much external influence there is, and when the rise will happen.

At the beginning of the year, I clearly outlined our favored direction in “Pharmaceutical Industry 2026, Continuing the Past and Opening a New Chapter,” here I update the performance of innovative drugs, CXO, and overseas medical devices in the first quarter to emphasize our preferred sectors and assets.

1. Innovative Drug Industry

The financial reports of innovative drug companies are not all out yet. The companies marked in yellow in the chart below have already updated their financial data and 2026 guidance/forecasts.

Among the 44 innovative drug commercialization companies we tracked (including some not counted, such as unlisted companies, and listed companies where it’s difficult to split out innovative drug sales data), the total commercialization revenue in 2025 is 172.1 billion yuan, a year-on-year increase of 29.35%, and it is expected to further grow by 26.7% to 218 billion yuan in 2026.

You can search across major industries—few markets can sustain such high growth rates, especially after experiencing such a significant correction.

Innovation drug commercialization revenue is undoubtedly in the best high-growth stage of industry development. In the oncology field, new products emerge endlessly, and in the inherently large-molecule fields of autoimmunity and metabolism, domestic companies’ new drugs are also gradually coming online and being included in medical insurance.

BD (Business Development) has continued to exceed expectations last year and this year:

Since 2026, overseas licensing of innovative drugs has reached nearly 30 projects, with a total upfront payment of 30 billion yuan and milestone payments totaling 438.1 billion yuan.

A few days ago, the National Medical Products Administration (NMPA) also issued a statement about this news:

The definition of innovative drugs has been upgraded to “Emerging Pillar Industry,” relying on industry’s own efforts, strong foreign exchange earnings, high-income employment creation, and industry upgrading capabilities.

Last year and this year, we will see a large number of upfront and milestone payments being recognized as revenue and profit, such as:

• Innovent Biologics signed two BD deals with Takeda Pharmaceutical and Eli Lilly last year and this year, totaling $1.55 billion upfront + $18.7 billion in milestone payments. In 2025, Innovent only recognized about 1.1 billion yuan in licensing fees, with roughly 1.4 billion yuan (close to 10 billion RMB) more to be recognized in the current and next year.
• Hengrui Medicine received a $500 million upfront payment from GSK last year, but only recognized $100 million in revenue in 2025, with another $400 million to be recognized in the current and next year.
• CSPC Pharmaceutical’s early-year BD deal with AstraZeneca involved a $1.2 billion upfront payment, with nearly 1.39B yuan of revenue to be recognized this year.

Regarding milestone payments, companies like Legend Biotech and Hutchison China MediTech (Hutchmed) that have already commercialized overseas products have been continuously receiving milestone payments over the past two years. Last year and this year, we also see more licensing projects receiving milestone payments, such as:

• BeiGene received a $250 million milestone payment from BMS at the end of last year.
• CanSinoBIO received a $45 million milestone payment from AstraZeneca earlier this year.

The Newco licensing model has also seen its first breakthrough, as discussed in “China Innovative Drugs Going Global, New Milestones,” where Conano Biotech’s BCMA*CD3 project’s overseas NEWCO was acquired by Gilead Sciences. Conano can thus receive a $250 million upfront payment and $70 million in milestones, with subsequent $610 million milestones and sales proceeds continuing to be managed by Gilead Sciences.

2. CXO Industry

A few days ago, I shared the excellent performance of WuXi’s sector in “WuXi, About to Reach the Top,” so I won’t repeat it here.

Recently, leading companies outside WuXi, such as Kelun, Kanglong, Tigermed, and Zhaoyan, have released their annual reports, with very promising guidance for the future.

**① Kelun: **Q4 2025 revenue of 2.04 billion +22.59%, quarter-on-quarter growth of 41.53%, net profit attributable to parent of 332 million +39.27%, non-recurring net profit of 308 million +65.74%. After missing in Q3, Q4 performance improved significantly. As of the end of 2025, on-hand orders totaled 4.01B +31.65%, with large-molecule chemical orders up 127.59% (mainly GLP-1 peptides), and biologics CDMO orders up 55.56% (antibodies, ADCs). Kelun’s guidance for 2026 revenue growth is 19%-22%.

**② Kanglong: **Q4 2025 revenue of 1.81B +15.93%, maintaining double-digit growth, net profit attributable to parent of 523 million +40.76%, non-recurring net profit of 504 million +55.28%. Profit recovery is significant (Q4 2024 base was low). Laboratory service new orders increased by 12% YoY, small-molecule CDMO new orders up 13%. Kanglong’s performance is less affected by cycle fluctuations, so growth remains steady.

**③ Tigermed: **Q4 2025 revenue of 256k +17.68%, the fastest growth in 12 quarters, gross margin 22.56%, up 4.86% YoY. Gross margin has recovered but remains relatively low, mainly because most of the orders executed in 2025 are still low-price orders from 2023-2024. New signed orders in 2025 totaled 10.2 billion +20.6%, on-hand orders 18.2 billion +15.4%. The company expects new signed orders in 2026 to grow at least at the level of 2025.

The clinical CRO industry experienced a brutal cleanup from 2024-2025. According to the National Health Commission, the number of registered clinical CRO companies in 2025 decreased by 69% compared to 2021, indicating a significant supply contraction; on the demand side, the number of Phase I-III clinical trials announced by CDE in 2025 was 2,333, up 25.6% YoY, and 2,703 INDs were approved, up 19%.

**④ Zhaoyan: **Q4 2025 revenue of 673 million yuan, down 1.54% YoY, still the best in the past 8 quarters. Gross margin 19.48%, down 10.8% YoY but up 3.16% QoQ, still poor. In 2025, new orders signed in Q1-Q4 were 430 million (+7.5%), 590 million (+18.0%), 620 million (+24.0%), and 960 million (+118.2%), with quarter-over-quarter growth and accelerating each quarter. The total new orders for 2025 reached 2.6 billion +41%.

You can also compare the growth levels and valuation levels of overseas CXO companies with those of leading Chinese CXO firms.

3. Overseas Medical Devices

Overseas expansion of medical devices is a key investment focus for us this year, as discussed in “Pathways for Chinese Medical Devices Going Global.” Unfortunately, few investors pay attention or discuss this direction; most still focus on traditional giants like Mindray, which feels very disappointing.

Among the companies we highlighted for successful overseas expansion, Angelalign, Microport Robotics, and Xianrui Medical have all released their 2025 annual reports.

Angelalign’s overseas cases in 2025 nearly match domestic levels, reaching 256k cases, up 82% YoY. The company guides that in 2026, domestic cases will grow by 18% to about 330k, and overseas cases will grow by 33% to about 340k. After three years of overseas layout, in 2026, overseas cases and invisible orthodontics revenue will surpass domestic. Angelalign’s total revenue growth was pulled from -0.16% in 2022 to 31% and 35% in 2024-2025.

Since overseas investment has entered a stable phase, the company no longer needs to hold so much cash on hand. Angelalign paid a special dividend in 2025, at HKD 4.99 per share, with a dividend yield of 8.2%.

Microport Robotics, which was feared to go bankrupt in 2023 due to poor domestic operations and failed laparoscopic surgical robot tenders, saw a turnaround in 2024. As shown in the order volume chart, overseas orders in 2024 surpassed domestic, and in 2025, overseas orders exploded to over 100 units, far exceeding the domestic order volume of a dozen units. Revenue in 2025 grew by 114%, with overseas revenue accounting for 73%, up 287% YoY.

Many other overseas successful medical device companies are emerging:

• Nanwei Medical’s domestic revenue has hardly grown in the past five years, but overseas revenue soared from about 700 million to 2 billion yuan, with overseas revenue share rising from around 40% to over 60%. This year, domestic procurement impacts may gradually clear, entering a new growth phase.
• Leading overseas orthopedic company Chunli Medical grew 38% YoY in overseas revenue in 2025, with overseas revenue share reaching 47%.
• Microtech Medical, specializing in continuous glucose monitors (CGM), saw overseas revenue grow 227% YoY in 2025, with overseas revenue share increasing to 52%.

I believe more and more assets will be available for overseas medical device expansion in the future.

Not only overseas, but some domestic niche fields are also seeing positive changes. For example, ShenNuo Interventional, a small but excellent company in neurointervention, achieved 244 million yuan in net profit attributable to the parent in 2025, up 144% YoY. The company plans to pay a dividend of 0.22 yuan per share in 2025, indicating that innovative small medical device companies are starting to significantly increase profits and shareholder returns—something to celebrate.

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The three main directions, dozens of companies, can be summarized into two sectors: Hong Kong-listed innovative drugs and Hong Kong-listed healthcare.

Last year’s core theme was innovative drugs, with CXO as an auxiliary. Most of our articles discussed the Hong Kong-listed innovative drug ETF (such as 520880 Hong Kong Stock Connect Innovation Drug ETF):

Including our previous articles on the turning point of leading pharma companies “Pharmaceutical Giants Breakthroughs,” and the PD-1 four giants (biopharma) turning point “PD-1 Four Giants Have Grown Up,” all of which are weighted stocks in the Hong Kong innovative drug ETF.

This year, we may also emphasize the HKEX Stock Connect Healthcare ETF 159137, where CXO, internet healthcare (Outstanding Performance of Internet Healthcare Giants), and innovative medical devices are also key sectors to watch.

Risk reminder: This article only discusses industry/company operations. Investment decisions should consider multiple factors such as company fundamentals, valuation, management, etc. Readers are advised to exercise caution. This article is not investment advice and should not be used as a basis for investment plans.