A research report from China Galaxy Securities indicates that the 15th Five-Year Plan is expected to continue driving the development of the biopharmaceutical industry. The firm is optimistic about investment opportunities in the healthcare sector for 2026. Following recent market fluctuations and adjustments, valuations have retreated to relatively low levels, potentially paving the way for a renewed upward trend. The investment strategy focuses on identifying high-tech medical innovations and alpha opportunities in niche segments. Recommendations include focusing on innovative drugs (leaders with Best-in-Class and First-in-Class pipelines), innovative medical devices (imaging, high-value consumables, consumer medical devices, etc.), and the medical AI sector. Attention is also advised on the recovery of medical consumption and independent third-party Independent Clinical Laboratories (ICL).

Key viewpoints from China Galaxy Securities are as follows: The "15th Five-Year Plan" has, for the first time, listed biopharmaceuticals as a national emerging pillar industry, emphasizing sustained efforts in R&D and innovation. The "14th Five-Year Plan" focused on five major projects: industrialization of innovative pharmaceutical products, tackling key industrial pharmaceutical technologies, supply guarantee for vaccines and drugs in short supply, product quality upgrades, and green, low-carbon development of the pharmaceutical industry. These efforts have yielded significant results. The number of innovative drugs approved for marketing in China increased from 11 in 2015 to 92 in 2024. In 2024 alone, 22 domestically developed chemical drugs and 17 domestically developed biological drugs were approved, with the proportion of domestic innovative drugs rising to 42%. The "15th Five-Year Plan" proposes improving the coordinated development and governance mechanism integrating healthcare, medical insurance, and pharmaceuticals. The biopharmaceutical industry's strategic position has been further elevated as it is designated a national "emerging pillar industry" for the first time.

**Healthcare Sector: Transition from "System Building" to "Strengthening Foundations and Collaborative Governance"** The "15th Five-Year Plan" period is a critical stage for the development of China's healthcare sector, marking a fundamental shift from scale-expanding "system building" to connotation and quality-focused "strengthening foundations and collaborative governance." This transformation is driven by two core factors: firstly, a strategic upgrade of the "triple healthcare linkage" from fragmented departmental reforms to systematic, collaborative governance, typified by the Sanming model; and secondly, a paradigm shift in service models from "treatment-centered" to "health-centered."

**Medical Insurance Sector: Upgrading from "Universal Basics" to "Multi-dimensional Optimization and Provincial-level Pooling"** The acceleration of provincial-level pooling of medical insurance funds enhances the efficiency of medical insurance fund usage and is expected to become a new starting point for healthcare investments. Provincial-level pooling is anticipated to resolve structural contradictions in medical insurance, revitalize existing funds, and promote a recovery in expenditures. Structural issues currently exist in China's medical insurance funds, with declining expenditures in some regions and insufficient coverage. The provincial-level pooling system breaks down administrative barriers between cities, allowing surplus funds generated by economically developed cities with younger populations to be directed through provincial adjustment mechanisms to support cities within the province that have weaker economic foundations, severe aging populations, or face fund depletion risks, thereby achieving "using abundance to make up for shortage and sharing risks." By advancing provincial-level pooling and cross-provincial mutual aid for individual accounts, it is expected to revitalize accumulated medical insurance funds, effectively resolve structural contradictions between income and expenditure, and reverse the trend of slowing expenditure growth.

**Pharmaceutical Sector: Leaping from "Imitation-Innovation Combination" to "Original Innovation and High-Quality Development"** Supported by comprehensive policies across the chain (R&D, review, payment, internationalization), the sector is making significant strides. On one hand, the number of approved domestic Class 1 new drugs has hit record highs, and outbound licensing deal values and upfront payments are rising, signaling significantly enhanced global competitiveness. On the other hand, upstream life sciences and high-end medical devices are accelerating import substitution to address "bottleneck" technologies, while simultaneously deepening the inheritance and innovation of traditional Chinese medicine and strictly standardizing re-evaluations to reshape the market landscape. Complemented by the comprehensive empowerment of AI technology in R&D, diagnosis, and service scenarios, this ultimately aims to build a modern, autonomous, and controllable pharmaceutical industry system with global influence, accelerating the transition from a "major pharmaceutical country" to a "pharmaceutical power."

Risk warnings include: 1. Risk of insufficient growth in healthcare consumption capacity due to increasing macroeconomic pressures. 2. Risk of policies such as medical insurance reimbursement for innovative drugs falling short of expectations. 3. Risk of global order transfers due to geopolitical factors. 4. Risk of volume-based procurement or fee reductions exceeding market expectations.