Goldman Sachs discusses the Chinese innovative drug boom: more transactions will follow, focusing on CXO opportunities

Since the beginning of this year, the innovative drug sector has been booming. Regarding the future trends of the industry, Goldman Sachs believes that more catalysts will emerge, and CDMO/CRO may welcome secondary investment opportunities.

According to news from the Chase Wind Trading Desk, Goldman Sachs released its latest research report after participating in the 46th Global Healthcare Conference, revealing that the Chinese biotechnology sector is undergoing significant revaluation, rising 72% year-to-date, far exceeding the MXCN index's 17% increase.

Goldman Sachs stated that the core driving force behind this round of revaluation comes from the surge in licensing deals between Chinese biotechnology companies and global pharmaceutical giants, particularly in the PD-1/VEGF bispecific antibody field. Goldman Sachs expects this momentum to continue, with more deals on the horizon.

Additionally, Goldman Sachs mentioned investment opportunities in other areas, with the CDMO/CRO sector likely to benefit from the surge in licensing activities, although short-term performance still faces pressure. The medical device sector is showing positive signals due to the recovery of hospital procurement.

Biotechnology Licensing Deals Drive Sector Revaluation

The wave of licensing deals between Chinese biotechnology companies and global pharmaceutical giants has become the main driving force behind this round of increases. A series of deals, including those between CanSino Biologics and Summit, 3S Bio and Pfizer, and Boteng Co., Ltd. and BioNTech/BMS, are concentrated in the PD-1/VEGF bispecific antibody field. These deals have been likened by investors to a "DeepSeek moment" in the healthcare sector.

Goldman Sachs expects this momentum to continue, with more deals imminent. Future catalysts include:

• CSPC has announced its first platform collaboration agreement with AstraZeneca, with two more deals expected to be announced.
• The management of China National Pharmaceutical Group revealed in a fireside chat that a significant deal worth billions of dollars may be imminent.
• Upcoming data releases from the ADA conference and meetings such as WCLC/ESMO/SABCS/ASH/ESMO Asia in the second half of the year will also support this trend.

CDMO/CRO May Welcome Secondary Investment Opportunities

The surge in licensing deal activities has sparked positive discussions among investors about whether the Chinese CRO/CDMO sector can benefit from it. This sector has risen 25% year-to-date, with Tigermed receiving significant attention, showing a 20% year-on-year growth in new orders in the first quarter. Management pointed out that pricing is expected to stabilize in the fourth quarter of 2024, and profit margin pressures are anticipated to ease in the second half of 2025.

Goldman Sachs believes:

• Companies with higher exposure to late-stage and commercial manufacturing demonstrate stronger profitability, such as WuXi AppTec and Yabao Pharmaceutical;
• Revenue contributions from oral small molecule GLP-1 drugs are expected to become more apparent in the second half of 2025/2026;
• The likelihood of reintroducing the Biosecurity Act has decreased, with a focus shifting to budget and resolution bills;

Notably, discussions about Samsung Biologics' spin-off of Bioepis (with Bioepis accounting for 35% and CDMO business for 65%) have also become a focal point. Goldman Sachs believes that this proposed spin-off is a strategic move aligned with Samsung Biologics' long-term goals, aimed at optimizing profitability and maintaining the competitive advantage of its core CDMO business

Will Medical Devices and Centralized Procurement Be the Next Revaluation Targets?

The medical device sector has fallen 4% year-to-date, while the medical services sector has dropped 7%. Investors are concerned whether it will become the next revaluation target after the biotechnology sector.

Goldman Sachs stated that equipment bidding has shown signs of recovery since the beginning of the year, with a year-on-year increase of 91% in May, despite a month-on-month decline of 13%.

Due to channel inventory digestion, the longer completion time for centralized procurement installations, and malicious reporting by competitors leading to re-bidding, revenue recognition may still lag. It is expected that United Imaging Healthcare will achieve positive growth in the Chinese market in the second quarter (with projected total revenue/profit growth of 24%/42% in 2025, domestic growth of 20%, and overseas growth of 40%).

Mindray Medical expects to achieve positive growth in the Chinese market in the third quarter, mainly driven by ongoing channel destocking (with projected total revenue/profit growth of 4%/5% in 2025, domestic decline of 6%, and overseas growth of 16%).

In the first quarter, the number of surgeries in hospitals was below expectations due to DRG-related pricing and quantity pressures. From a VBP perspective, the initial impact on consumables may be one-time, while future renewals will provide greater visibility.

Additionally, Goldman Sachs noted that global large pharmaceutical/biotechnology companies recognize the value of Chinese assets, and BD transactions remain a continued priority. Recent transaction activities in the PD-1/L1xVEGF bispecific antibody field demonstrate this trend. The Summit management emphasized that data from a single region (China) can be translated to Western patients, supporting its use of partner CanSino Biologics to advance the ivonescimab development plan based on data generated in China. However, multinational medical device companies remain cautious about capital equipment procurement in China. GE Healthcare expects a mid-single-digit decline in the first half of 2025, with an annual expectation of a low single-digit decline