Goldman Sachs: China Healthcare Fundamentals Intact; Improved Risk-Reward in H2; Key Buy Recommendations Highlighted

Overview

Based on insights from the 47th Annual Global Healthcare Conference and feedback from communications with US investors, this report provides a comprehensive review of the China healthcare industry. It notes that although the China healthcare sector has lagged the broader market year-to-date and faces cautious sentiment due to Sino-US regulatory uncertainties and anti-corruption policies, sector fundamentals remain intact and robust. With upcoming catalysts such as clinical data readouts, BD licensing deals, and Q2 earnings reports, alongside a correction of the mismatch between valuations and fundamentals, the risk-reward profile is expected to improve in the second half of the year. The report maintains an optimistic view on the industry and analyzes investment logic and key targets across three sub-sectors: Biotech/Pharma, CDMO, and MedTech.

Core views

Biotech/Pharma: The global strategic position of Chinese innovation has significantly strengthened. The conference indicated that large multinational corporations (MNCs) increasingly view China as a critical hub for innovation and early-stage clinical development. Gilead stated that approximately 50% of its priority corporate development opportunities originate from or are related to Chinese innovation; Pfizer acknowledged that the quality of Chinese assets has improved markedly over the past few years. Despite geopolitical discussions, out-licensing remains a clear path to globalization, particularly in oncology, ADCs, and bispecific antibodies/TCEs. Investor focus has shifted from generalized 'China data' to the specific 'translatability' of assets, favoring projects with randomized global standard endpoints, clear biomarkers, and early FDA/EMA alignment. The report prefers companies with high-quality global assets, clear BD optionality, and rigorous trial designs, such as Kelun-Biotech (leading sac-TMT data, Merck as global partner), Sichuan Baili-Tianheng (validated the clinical development 'highway' for rapidly building solid tumor pipelines), and Innovent Biologics (strong pipeline delivery capability, expecting five assets to enter Phase III MRCTs before 2030). CDMO: Demonstrating resilience; execution supports H2 re-rating. While some US investors remain cautious due to policy and headline risks, those bullish on the sector continue to increase exposure, citing limited fundamental disruption, strong technological and capacity advantages, and significant valuation discounts versus global peers. Although WuXi AppTec's inclusion on the US 1260H list caused volatility, its order momentum remains strong with upside potential in Q2 guidance, and it has consolidated its Singapore site's commercial manufacturing positioning through BioDlink integration. Asymchem is drawing attention for GLP-1 capacity expansion, with market focus shifting to margin trajectory and utilization ramp-up. Tigermed sentiment is currently cautious due to recent earnings misses and pricing pressure, but signs of order recovery are emerging, and the CSRC investigation outcome could be a key event for stock price recovery. Samsung Biologics maintains strong fundamentals (high utilization, global customer base), with recent volatility primarily driven by labor negotiations and quarterly order pacing. MedTech & Services: Selective interest increasing; going global is a key differentiator. Weak domestic demand and tightening medical insurance coverage have constrained overall sentiment, leading investors to focus on companies with proven overseas execution capabilities. AngelAlign's overseas expansion exceeded expectations, driven by product capability, digital design efficiency, and brand recognition rather than pure price competition; its parent company, Align Technology, also emphasized untapped growth potential. MicroPort MedBot's Toumai laparoscopic surgical robot has secured over 300 commercial orders globally (over 240 overseas), and order disclosures help validate global competitiveness and support high valuation multiples.

Analysis framework

The report employs a 'top-down combined with bottom-up' analytical framework. First, by attending top-tier global industry conferences and conducting face-to-face meetings with over 30 US investors, it gathered first-hand market sentiment, capital flow trends, and updated views on macro policies (e.g., geopolitics, regulatory scrutiny) to assess overall sector risk appetite and capital rotation trends (e.g., flows moving from healthcare to AI/semiconductors). Second, it breaks down macro sentiment into specific sub-sectors (Biotech, CDMO, MedTech) to analyze core drivers for each (e.g., BD and data translatability for Biotech, orders and margins for CDMO, overseas implementation for MedTech). Finally, it combines quantitative data (e.g., charts on BD deal volume, value, and global share) to validate qualitative judgments and applies these to company-specific fundamental metrics (e.g., order visibility, clinical progress, capacity utilization) to screen for high-quality targets possessing 'earnings visibility, validated assets, and commercialization progress.'

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Reverse-engineering the supply-side value of Chinese innovative drug firms based on M&A and licensing demand from global big pharma.

  The report evaluates the BD potential and valuation support for Chinese biotech companies by analyzing the demand from major pharmaceutical firms like Gilead and Pfizer for non-US innovative assets (particularly innovation originating from China). This represents a typical analytical method of inferring upstream supply value from downstream demand.

• Event Arbitrage and Behavioral FinanceExpectation Gap/Expectations Management

  Identifying divergences between stock prices and fundamentals to find catalyst-driven valuation repair opportunities.

  The report highlights a persistent disconnect between current China healthcare sector stock performance (-11% YTD) and fundamentals (robust clinical trial data and sustained BD activity). By identifying this 'expectation gap' and incorporating upcoming clinical data, BD announcements, and Q2 earnings as catalysts, the firm judges that the risk-reward ratio is tilting favorably, thereby recommending positioning.

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Value Chain Transmission

  Analyzing business transmission linkages between innovative drug firms (upstream) and CRO/CDMOs (midstream).

  Beyond analyzing Biotech in isolation, the report specifically highlights its linkage with the CDMO sector. For instance, active BD deals and advancing new drug R&D pipelines in Biotech directly drive order demand and capacity utilization for CDMOs (e.g., WuXi series, Asymchem). Understanding these upstream-downstream transmission dynamics facilitates a more comprehensive assessment of investment value across various segments of the value chain.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• WuXi AppTec

  Leading CDMO benefiting from global outsourcing demand and growth in new businesses like GLP-1

  Strengths

  Strong order momentum with upside potential in Q2 guidance; reinforced long-term growth positioning of Singapore site via BioDlink integration; diversified growth beyond single peptide GLP-1

  Weaknesses

  Inclusion on US 1260H list causes short-term stock price volatility and policy uncertainty

  Comparison

  Stronger economies of scale and client network compared to other CDMOs, but most directly exposed to geopolitical impacts

  Risks

  Escalation of geopolitical sanctions, US legislative restrictions

• Asymchem

  Leading small molecule CDMO actively expanding GLP-1 capacity

  Strengths

  Expansion of emerging platforms (peptides/ADCs/oligonucleotides) supports growth and margins; high visibility in GLP-1 business

  Weaknesses

  Market divergence regarding post-expansion margin trajectory and capacity utilization ramp-up

  Comparison

  Focused on small molecules and emerging modalities, complementary to WuXi Biologics' biologics focus

  Risks

  Price wars due to overcapacity, intensified competition in GLP-1 market

• Kelun-Biotech

  Innovative ADC company with globally leading clinical data

  Strengths

  De-risked sac-TMT with benchmark-setting data in NSCLC; Merck (MRK) as committed global partner conducting 17 global Phase III trials

  Comparison

  Leading in ADC data quality and global partner commitment

  Risks

  Clinical trial results falling short of expectations, reliance on partners

• Innovent Biologics

  Comprehensive biopharmaceutical company with rich pipeline

  Strengths

  Strong pipeline delivery capability, expecting five assets to enter Phase III MRCTs before 2030; committed to building global end-to-end capabilities

  Comparison

  Pipeline depth and breadth rank among the top in Chinese Biotech

  Risks

  Commercialization progress slower than expected, high R&D expenses

• MicroPort MedBot

  Surgical robotics platform company

  Strengths

  Overseas orders for Toumai laparoscopic surgical robot surpassed 240 units, validating global competitiveness; platform economics recognized by investors

  Weaknesses

  Not yet profitable; high valuation multiples require greater near-term earnings visibility

  Comparison

  Superior to pure price competitors in overseas order disclosure and clinical value differentiation

  Risks

  Poor execution of overseas commercialization, technology iteration risks

• AngelAlign

  Leading clear aligner company with smooth overseas expansion

  Strengths

  Overseas expansion ahead of expectations, driven by product capability, digital design efficiency, and brand; achieved overseas breakeven ahead of schedule

  Weaknesses

  Limited visibility on VBP timeline

  Comparison

  Focuses more on product strength and digital efficiency compared to competitors, rather than pure price wars

  Risks

  Domestic VBP pricing pressure, intensified overseas market competition

Key data

• China Healthcare Sector YTD Performance-11%Coverage universe returned +42% last year, indicating significant underperformance this year
• Source of Gilead's Priority Development Opportunities~50%Originating from or related to Chinese innovation
• Share of China Outbound BD Deal Volume26%YTD 2026, accounting for one-quarter of global total deal volume
• Share of China Outbound BD Deal Value43%YTD 2026, share of global total deal value
• MicroPort MedBot Toumai Global Orders>300 unitsIncluding over 240 overseas orders

Impact & implications

For investors, the current pullback offers an opportunity to build positions in high-quality Chinese healthcare assets at more attractive valuations. In the near term, the market will continue to monitor details of Sino-US regulatory policies (particularly scrutiny regarding platform licensing) and the impact of domestic anti-corruption efforts on hospital procurement. Over the medium term, as Q2 earnings are disclosed and pivotal clinical data is released, companies with solid fundamentals are poised for valuation recovery. In the long run, the position of Chinese innovative drugs in the global supply chain is irreversible, and enterprises with global clinical development capabilities and commercialization potential will command higher valuation premiums.

Risks

• Sino-US Regulatory Uncertainty: Particularly bilateral regulatory scrutiny on out-licensing by Chinese biotech firms; focusing on platform licensing could lead to structural changes.
• Domestic Policy Risks: Anti-corruption campaigns may negatively impact near-term hospital activities and procurement.
• Geopolitical Risks: Sanctions such as the US 1260H list could cause supply chain disruptions or stock price volatility.
• Disputes Over Clinical Data Translatability: The global translatability of certain Chinese clinical data (e.g., PD-1/VEGF, ADC projects) remains questioned by investors, potentially leading to valuation discounts.
• Macroeconomic and Interest Rate Environment: Delayed expectations for Fed rate cuts or even risks of rate hikes increase market uncertainty.

What to watch

• Near-term BD Trends: Closely monitor the intensity of Chinese regulatory scrutiny on platform licensing as the primary observation point for potential headwinds.
• Clinical Data Readouts: Focus on global Phase II/III clinical data for key targets like PD-1/VEGF and ADCs, especially evidence of global translatability.
• Q2 Earnings and Guidance: Potential upside in Q2 results and guidance revisions for CDMOs like WuXi AppTec; outcome of CSRC investigation into Tigermed.
• Overseas Order Disclosures: Continued disclosure of overseas orders by medical device companies like MicroPort MedBot to validate global competitiveness.
• IPO Pipeline Performance: Monitor post-listing performance of the HK IPO pipeline and share buyback trends within the sector.