CROs on Fire: Davis Double Play Has Arrived

After a multi-day winning streak, the CRO concept index hit a fresh high on 25 Jul. Porton (300363.SZ), Pharmaron (3759.HK) and Tigermed (300347.SZ) surged more than 5 %, with dozens of peers following suit.

Behind the euphoria: NMPA Drug-Evaluation Chief Yang Ting revealed that China now hosts ~25 % of the world's innovative-drug pipeline and launches ~3,000 new trials each year—ranking top-three globally.

Earnings delivered the spark:

• WuXi Biologics (2269.HK) H1 profit +54-56 %

• WuXi XDC (2268.HK) net profit +50 %+

• WuXi AppTec (603259.SH) net profit +101.9 %

What is a CRO?

Contract Research Organizations are the "picks-and-shovels" of pharma innovation, providing outsourced R&D services from discovery to market approval. Outsourcing cuts drug-development cost by ~30 % and timeline by ~25 %. China's engineering dividend keeps local CROs cost-competitive while maintaining quality.

Triple-engine recovery

1. Demand rebound: China biotech raised RMB 32 bn in H1 VC (+45 % YoY) and signed >80 BD deals (avg. upfront RMB 850 m), directly feeding CRO order books.

2. Policy tailwinds: NMPA pledges faster, value-driven reviews and extra support for multi-valent vaccines, cell & gene therapies.

3. Macro thaw: Post-Q4 2024 global rate cuts revived biotech funding; Q2' 25 geopolitical détente further lifted sentiment. Supply-side discipline is visible—lab-cynomolgus-monkey prices keep rising while new-build capex slows.

Broker chorus:

• Zhongtai Securities: "Sailing past ten-thousand mountains" – expects simultaneous EPS and P/E re-rating (classic Davis Double Play).

• CITIC: Focus on global leaders, domestic clinical-CRO champions, resource-rich pre-clinical CXOs, and life-science upstream suppliers.

• Citi: Prefers top-tier CXOs ahead of earnings season on improving fundamentals and attractive valuations.

• verbright: Sees a strong rebound as USD-rate pressure eases and overseas early-stage demand returns.

Bottom line: China's CRO/CDMO sector is moving from trough to take-off, propelled by earnings beats, policy clarity and capital-market thaw.