Pharmaceutical Sector Investment Strategy toward 2H 2026

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Pharmaceutical Sector Investment Strategy toward 2H 2026

Investment Strategy toward 2H 2026

✓ Sector overview: Looking at pharmaceutical sector share price trends since Jan-Mar results, we note that the sector has been

relatively weak due to the concentration of funds in semiconductor and AI-related stocks. However, excluding the impact of patent

expirations for individual products, we expect Apr-Jun results to confirm strong fundamentals for the sector, which is not affected

much by macroeconomic factors. There are also several pipeline-related catalysts for the second half of the year, which we expect

will trigger a reassessment of the sector. We recommend companies with strong fundamentals and significant share price catalysts.

Our picks among large-cap stocks are Otsuka Holdings followed by Chugai Pharmaceutical, and among small and mid-cap stocks,

Santen Pharmaceutical and Sumitomo Pharma.

✓ Otsuka Holdings: We expect FY2026 business profit to remain in line with that of FY2025 given Voyxact's strong market

penetration and the limited impact of generics on Jynarque and Abilify Maintena. Even if the impact of patent expirations for

Jynarque and Abilify Maintena is delayed from FY2026 to FY2027, we expect it to be offset by sales growth of Voyxact, allowing

growth to be maintained. The main potential catalysts are the announcement of Phase 3 final analysis data scheduled to be

presented during the American Society of Nephrology's Kidney Week (ASN 2026; Oct 21-25).

✓ Chugai Pharmaceutical: We expect the business environment to remain favorable in 2Q and think FY2026 earnings are likely to

overshoot guidance. In contrast, the share price has stalled as Foundayo uptake has been gradual, but we think growth in these