Analysis indicates that the latest data on key CXO sector indicators shows a multi-factor upswing from funding, R&D, to order pipelines in the domestic market during the first five months of 2026, sustaining the industry's robust growth phase.

The report suggests that domestic CXO companies are operating with ample order backlogs and experiencing growth in both volume and pricing. As these orders are executed and converted into revenue, significant improvements in financial statements are anticipated.

Key insights from the analysis are detailed below.

Funding Environment: Multiple Positive Drivers

1) Primary Market: Sustained activity with a focus on leading firms. In the first five months of 2026, total investment and financing in China's primary healthcare market reached RMB 41.7 billion, a 57% year-on-year increase. The number of transactions saw only a modest 3% growth during the same period, indicating that capital continues to concentrate towards top-tier companies, with industry funds favoring a select group of high-quality enterprises.

2) IPO Activity: Positive momentum in Hong Kong and a revival on STAR Market. From January to May 2026, financing under Hong Kong's Chapter 18A rules amounted to RMB 6.9 billion, up 60% year-on-year. On June 4th, the China Securities Regulatory Commission officially approved Tiannuo Maibo's application for IPO registration on the STAR Market, making it the first project to be registered and become effective following the resumption of the market's fifth set of listing criteria. Since May 2026, four biopharmaceutical companies have submitted IPO application materials in quick succession, aiming to raise a total of RMB 12.4 billion. This suggests that, bolstered by supportive policies, innovative drug companies are entering a concentrated application window, potentially heralding the start of a new financing cycle on the STAR Market.

3) Business Development (BD): Unabated trend reaching new highs. Recent proposals of detailed U.S. regulatory restrictions have raised market concerns about the sustainability of Chinese innovative drugs going global. However, the analysis posits that policy risks are overestimated in the short term, and China's comparative advantages in drug discovery and proof-of-concept stages remain intact, with the overarching trend of global expansion unchanged. According to statistics, as of May 14, 2026, the upfront payments and potential total deal value for China's innovative drug out-licensing transactions (BD) reached $4.6 billion and $79.2 billion, respectively, accounting for 66% and 58% of the full-year 2025 figures and hitting a record high for the same period.

4) Domestic Sales: Rapid volume growth feeding back into R&D. The market size for domestically developed innovative drugs approved after 2015 reached RMB 40.8 billion in 2025, a 29% year-on-year increase, yet representing only 14% of the domestic innovative drug market. As more domestic new drugs gain approval, are included in national reimbursement, and begin their sales ramp-up, high growth rates are expected to persist, further fueling research and development investments.

Research and Development: Preclinical Strength Continues

1) IND Applications: Overall acceleration with strong marginal growth. In the first five months of 2026, the number of Investigational New Drug (IND) applications for Class 1 innovative drugs in China totaled 511, a 30% year-on-year increase. The number of applications in May alone reached 89, with a growth rate of 25%, maintaining a high pace.

2) Clinical Trials: Early-stage research drives active new initiations. During the same period, the total number of newly initiated Phase I-III clinical trials in China was 1,042, a 15% year-on-year increase. The growth in newly initiated clinical trials since 2025 has been primarily driven by Phase I/II studies.

Order Pipeline: Safety Evaluation Shows Elasticity, Leaders Exhibit Strong Growth

1) Safety Evaluation: Sector upturn with significant profit potential. The value of new orders signed by Zhaoyan New Drug and Yinuosi in Q1 2026 reached RMB 910 million and RMB 730 million, representing year-on-year growth rates of 112% and 199%, respectively. As these orders are fulfilled, substantial profit elasticity is anticipated from these services.

2) CDMO: Strong guidance and promising performance outlook. WuXi AppTec forecasts an 18-22% year-on-year revenue growth for its continuing operations in 2026 and plans to adjust its guidance upward in a timely manner, while expressing confidence in maintaining a stable and resilient adjusted non-IFRS net profit margin. WuXi Biologics expects a three-year revenue compound annual growth rate of 20%, with performance growth set to accelerate significantly in 2027-2028, benefiting from the scaling up of commercial projects. Additionally, WuXi XDC anticipates a revenue CAGR of 30%-35% from 2025 to 2030, demonstrating strong confidence in the medium-to-long-term development of the ADC and XDC fields.

Risk Factors to Consider

1) Domestic policy risks; 2) Geopolitical risks; 3) Technology cycle risks.