In August 2026, the semi-annual financial report released by WuXi AppTec detonated the market: operating revenue of RMB 28.897 billion (approx. USD 4.26 billion), up 38.93% year-on-year; net profit attributable to the parent of RMB 11.08 billion (approx. USD 1.63 billion), breaking through the RMB-10-billion mark in a half-year report for the first time; and net profit excluding non-recurring items of RMB 10.572 billion (approx. USD 1.56 billion), with a year-on-year growth rate as high as 89.39%. What excited the market even more was that management directly raised its full-year revenue guidance to RMB 58.5 billion to 60.5 billion (approx. USD 8.63 billion to 8.92 billion). At the same time, the total value of out-licensing deals for Chinese innovative drugs broke through USD 100 billion — in the first half of 2026, the potential total value of License-out deals reached USD 110 billion, about twice that of the full year of 2024. The CXO sector surged in response, closing higher for four consecutive days, and the market generally formed a consensus view of a “comprehensive recovery of the CXO industry.” But beneath the revelry, a question surfaces: is this really the starting point of a comprehensive reversal for the industry, or the prelude to structural divergence?
The Non-Uniformity of Performance Growth: The Difference in Recovery Pace Between Leading Enterprises and Small-and-Medium CXOs
As of August 7, 2026, about 11 Chinese CXO enterprises had disclosed their semi-annual performance reports or performance forecasts. Comparing the above data horizontally, one can find that the internal divergence within the industry is relatively obvious.
Pharmaron expects its first-half revenue growth range to be 16% to 19%, and its net profit attributable to the parent growth range to be 4% to 10%; Medicilon’s revenue grew about 40%, turning losses into profit; Biocytogen’s revenue growth was 50.8% to 52.4%, and its net profit attributable to the parent growth was 392% to 413%. The revenue growth of WuXi AppTec’s new-molecule (TIDES) business reached 104.9% in the first half, with an order backlog of RMB 66.43 billion (approx. USD 9.80 billion) as of the end of June, up 41.9% year-on-year after excluding COVID-19 commercialization projects, providing strong order support for the company’s full-year revenue guidance.
At the same time, Jiuzhou Pharmaceutical’s revenue fell 10.30% year-on-year; Porton Pharma Solutions swung from profit to loss; XtalPi’s revenue declined 22.6% to 26.5%, likewise swinging from profit to loss; and Sunho (Zhaoyan) also recorded a loss. Although some enterprises such as JOINN Biologics turned losses into profit (net profit excluding non-recurring items of about RMB 30 million to 50 million [approx. USD 4.42 million to 7.37 million]), their net margin levels still have a considerable gap compared with leading enterprises.
From the perspective of the industry-chain transmission mechanism, the continued growth of global pharmaceutical companies’ R&D investment, the gradual implementation of AI drug technology, and the release of orders in Chinese domestic niche fields such as bispecific antibodies and ADCs together constitute the main drivers of demand expansion in the CXO industry. But the above incremental demand is currently mainly concentrated in leading enterprises with platform-based capabilities, a globalized customer base, and complex-drug production capabilities, while the order-recovery pace of small-and-medium CXO enterprises is relatively lagging.
The Dark Clouds of Geopolitics Are Dispersing: A Phased Victory on the 1260H List
In June 2026, WuXi AppTec formally filed a lawsuit over the U.S. Department of Defense’s placement of it on the 1260H list. On August 7, the U.S. federal court for the District of Columbia ruled to suspend the enforcement of the 1260H list. In its ruling, the court pointed out that all three reasons for the Department of Defense’s placement of WuXi AppTec on the list contained obvious errors: first, it misinterpreted WuXi AppTec’s shareholding of about 5% in a fund’s investment portfolio as “the fund holding a 5% stake in WuXi AppTec”; second, it made an improper presumption of a military connection regarding a research project in which WuXi AppTec participated in the capacity of a third-party laboratory; third, it made an improper presumption of a military connection regarding a WuXi AppTec subsidiary serving as the laboratory for Novo Nordisk’s application.
After the ruling was released, the market’s expected probability of WuXi AppTec being placed on the BIS Entity List within 2026 declined significantly. Previously, the market had to a certain extent incorporated this risk event into its valuation pricing model, and the phased result of this ruling means that the related valuation discount is beginning to be repaired.
The phased removal of geopolitical risk is significant not only for the single enterprise of WuXi AppTec. It means that the valuation ceiling of the entire Chinese CXO industry chain is being lifted. Previously, geopolitical uncertainty was one of the important factors that had suppressed the allocation willingness of overseas capital and Chinese domestic institutions. Now that this sword has been temporarily moved away, the space for the sector’s valuation repair has been reopened.
AI Drug Development: The Value Transmission from Technological Concept to Business Orders
Since 2026, the commercialization process in the AI drug development field has shown relatively obvious acceleration. Unlike the market stage from 2023 to 2025, which was mainly dominated by concept hype, the business progress of current AI drug development enterprises is gradually being converted into actual orders and milestone payments for CXO enterprises.
Insilico Medicine reached cooperation agreements in 2026 with multiple multinational pharmaceutical companies such as Takeda, Eli Lilly, Servier, and SK Biopharmaceuticals, with a cumulative potential total consideration exceeding USD 10 billion, and has already received multiple milestone payments. WuXi Biologics undertook the cell-line and process-development project of the AI-native biotech company Earendil, and WuXi XDC undertook ADC-related development projects, preliminarily validating the feasibility of the path by which AI drug development projects are transmitted from the early-stage R&D end to the CDMO production end.
The application of AI technology in the drug-discovery stage has a relatively high dependence on high-quality, standardized, and returnable experimental data. In the process of long-term service to global pharmaceutical companies, Chinese CXO enterprises have accumulated relatively rich data assets and experiment-execution capabilities, and possess a certain structural advantage in undertaking the outsourcing demand of AI drug development companies. As AI technology continues to generate new drug-molecule candidates, CXO enterprises’ order-undertaking capabilities in links such as target validation, molecule optimization, preclinical evaluation, and process development will face continuously growing demand.
The better-than-expected volume growth of global peptide drugs also provides incremental market space for the CXO industry. Eli Lilly’s tirzepatide reached sales of USD 27.7 billion in the first half of 2026, and the continued volume growth of peptide drugs in the commercialization stage has driven an increase in the capacity utilization of relevant CDMO enterprises.
Marginal Changes in the Global Competitive Landscape: Supply Disturbances of Major Competitors
The growth of Chinese CXO enterprises is driven not only by the improvement of internal technological capabilities; changes in the external competitive environment likewise constitute an important variable.
On May 1, 2026, Samsung Biologics of South Korea — ranked first in global biologics CDMO capacity — experienced the first full-scale strike since its establishment in 2011. About 2,800 employees participated, affecting the production of 23 drugs and impacting the supply chains of dozens of large pharmaceutical enterprises worldwide. According to estimates by research institutions, as of May 5, the 5-day strike had caused about KRW 150 billion (approx. USD 102 million) in direct losses.
From the financial data, Samsung Biologics’ revenue growth rate in the first half of 2026 was 28%, somewhat slower than the 36.1% in the same period of 2025; its order backlog still reached USD 24.3 billion, up 30% year-on-year. Industry research institutions analyze that the Samsung Biologics strike event may cause the global biologics CDMO supply chain to come under pressure in the short term, and in the medium-to-long term may prompt multinational pharmaceutical companies to accelerate the diversification of their supply-chain layout — a trend that in theory is favorable for relevant Chinese CDMO enterprises to obtain more overseas orders.
Capital Flows and the Valuation Positioning of the Industry Cycle
Public fund holding data reflects, to a certain extent, the change in institutional investors’ attitude toward the CXO industry. In the second quarter of 2026, in the allocation of actively managed equity funds within the pharmaceutical sector, the holding proportion of the CXO sub-industry rose to about 20%; within the whole market’s pharmaceutical positions, CXO’s proportion rose from 20% to 33%. This is the first time in nearly three years that CXO has surpassed other pharmaceutical sub-industries to once again become the segment with the highest holding proportion within the pharmaceutical sector.
In terms of global innovative-drug financing, the financing scale in the first quarter of 2026 was USD 8.7 billion, and in the second quarter USD 11.5 billion, a year-on-year growth of 96% and a quarter-on-quarter growth of 33%. Chinese domestic financing scale in the first half was USD 4.2 billion, already reaching 82% of the full year of 2025. A recovery in financing usually leads R&D project initiation and clinical investment, which then transmits to the outsourcing orders of CXO enterprises, and this transmission chain has a certain time lag.
At the valuation level, the 2026 expected price-to-earnings ratio of leading CXO enterprises is at about 50% of the 2019 level and 20% to 50% of the 2021 level. The sector’s overall average P/E ratio is about 25 times, and the forward P/E ratio for the next 12 months is about 15 to 20 times. Judging from the degree of matching between the historical valuation range and the current performance growth rate, the valuation level of the CXO sector is in a relatively reasonable range, but it still needs to be continuously validated in combination with subsequent order-conversion rates and the progress of commercialization projects.
Taken together, the CXO industry is currently at a stage where a recovery in prosperity and structural divergence proceed in parallel. Leading enterprises, relying on platform-based capabilities, globalized customer networks, and order-backlog reserves, have been the first to achieve performance growth; while the recovery pace of some small-and-medium CXO enterprises is relatively lagging, and the non-uniformity features within the industry are relatively obvious. Geopolitical risk has seen a phased easing, the commercialization implementation of AI drug technology has opened up incremental market space for the industry, and marginal changes in the global competitive landscape have likewise provided potential opportunities for Chinese CXO enterprises.
But what needs attention is that, among the USD-100-billion-level License-out deals, the vast majority are long-dated milestone payments; if subsequent new-drug clinical trials fail or commercialization sales fall short of expectations, the actual amount collected may be significantly lower than the total deal value. The final adjudication result in the geopolitical field has not yet landed, and external variables such as exchange rate fluctuations and changes in the global macroeconomic environment will likewise continue to affect the sector’s performance. Key observation variables for the CXO industry’s subsequent trajectory include: whether the recovery in global innovative-drug financing can continue to transmit to newly signed orders, whether the order backlog can smoothly convert into commercialization revenue, whether capital expenditure can effectively raise capacity utilization, and the actual degree of impact of exchange rate changes on profit margins. The synchronized improvement of orders, profit margins, and cash flow is a necessary precondition for the industry to enter a new round of a certainty-driven growth cycle.
[Disclaimer]: The above content reflects analysis of publicly available information, expert insights, and BCC research. It does not constitute investment advice. BCC is not responsible for any losses resulting from reliance on the views expressed herein. Investors should exercise caution.