Pharmablock Sciences (Nanjing), Inc.'s 2026 half-year report shows simultaneous increases in revenue, net profit, and gross margin, with a robust CDMO order pipeline and a doubling of new molecular entity business. On the surface, this indicates a clear trend of business recovery. However, a deep dive into the financial details reveals concentrated issues such as a sharp contraction in operating cash flow, volatile asset size, imbalanced business growth, and rising fixed costs, signaling multiple operational and financial risks that warrant investor attention.

Financial Pressure Signals Are Intensifying, Raising Questions About Profit Quality

The most significant risks in the financial report are concentrated in cash flow and asset side, with a serious divergence between profit growth and cash generation, and a sharp decline in asset structure stability. First, operating cash flow nearly halved. Net cash from operating activities in the first half was only 192 million RMB, a sharp 58.80% year-on-year decrease. The company explained this was due to funds tied up in stocking up inventory and employee salary expansion, but such sustained large-scale cash outflows directly weaken its cash-generating ability. Current inventory stands at 714 million RMB, an 8.91% increase from the start of the year. A significant amount of working capital is tied up in raw materials and work-in-process. If downstream client projects are delayed or demand falls short of expectations, the risk of inventory impairment will quickly materialize, further eroding profits. Second, long-term equity investments shrank dramatically, leading to a significant reduction in total assets. Total assets at the end of the period were 5.383 billion RMB, and net assets attributable to the parent company were 4.566 billion RMB, down 26.66% and 27.53% respectively from the end of last year. The primary cause was a sharp drop in the fair value of its equity holdings in Pharmablock Sciences (Nanjing), Inc. (药捷安康), with the investment's book value plunging from 2.301 billion RMB to just 124 million RMB. This fluctuation in equity investment directly caused a severe shock to net assets, highlighting that the company's asset value is highly dependent on the valuation of external equity investments, its asset stability is weak, and non-recurring gains and losses can easily disrupt long-term performance. Third, the company's funding sources rely heavily on equity disposals. While cash and cash equivalents increased 21.58% year-on-year, the increase primarily came from selling shares of its investee, not from operating cash flow. If the company stops disposing of equity investments in the future and operating cash flow remains depressed, the funding gap for daily operations, expansion, and dividends will continue to widen. The company plans to distribute a cash dividend of 1 RMB per 10 shares, totaling 23.2971 million RMB. The sustainability of this dividend is questionable given the significant contraction in cash flow.

Imbalanced Business Growth Structure, Core Traditional Business Stagnates

The company's revenue is entirely reliant on its backend CDMO business, while its front-end CRO business growth has nearly stalled. New ventures are still in their infancy, raising questions about the sustainability of growth. By segment, the Drug Development and Commercialization CDMO business generated revenue of 895 million RMB, a 17.04% increase year-on-year, accounting for over 80% of total revenue. However, the Drug Research CRO segment generated only 158 million RMB in revenue, a meager 2.59% increase year-on-year. Although the company cited the impact of the R&D center relocation, with new facilities only beginning operations in June, this segment, as the company's core founding business, has shown long-term sluggish growth, revealing two major risks: first, the production capacity relocation has created a temporary business gap, with an uncertain timeline for capacity release; second, competition in the traditional small molecule building block track is intensifying, weakening the competitiveness of its front-end R&D services and its overall growth foundation. While the New Molecular Entity (OPC) business saw over 100% growth in both revenue and orders, adding 13 new GMP orders, it only contributed 80 million RMB in revenue during the period, a relatively small scale. Tracks like oligonucleotides and peptides require high R&D investment and long customer validation cycles, making it difficult for OPC to form a stable profit pillar in the short term or offset the weakness in the traditional business's growth. The regional customer structure also has shortcomings, with revenue from Japan, South Korea, and other regions declining 11.59% year-on-year, indicating uneven overseas market expansion. North American clients remain the largest revenue source, accounting for over half of total revenue. With high overseas revenue exposure, the company's performance is directly vulnerable to exchange rate fluctuations and changes in the financing cycles of overseas pharmaceutical companies, meaning the risk of customer concentration persists.

Rigid Expense Expansion Erodes Profits, Scale Benefits Not Yet Realized

In the first half of the year, the growth rate of various expenses generally outpaced revenue growth, intensifying cost control pressures and compressing long-term profit margins. Selling expenses were 44.2008 million RMB, a sharp 43.08% increase year-on-year, significantly higher than the 15.19% revenue growth rate, primarily driven by expanding the sales team and increasing global marketing investment. Amidst intensifying competition in the CXO industry, the company must continue to spend heavily on marketing to secure orders. If subsequent order conversion falls short of expectations, these high sales expenses will continue to drag down net profit margins. R&D investment was 60.684 million RMB, a 25.50% increase year-on-year, representing a rigid expenditure as the company pushes into the new molecular entity track, unlikely to generate quick returns. Administrative and financial expenses also rose steadily, leading to an overall rigid increase in the three major expense categories. Although the gross margin improved slightly by 1.44 percentage points during the period, the continuous rapid expansion of expenses will gradually offset the profit gains from the gross margin improvement, suppressing long-term profitability.

Conclusion

Overall, the performance recovery for Pharmablock Sciences (Nanjing), Inc. in the first half of 2026 appears to be a temporary rebound. The four major risks of worsening cash flow, asset volatility, business imbalance, and high expense growth remain unresolved. Going forward, three key indicators need continuous monitoring: the ability of operating cash flow to recover sustainably, the capacity ramp-up efficiency of the traditional CRO business, and the return on investment for selling expenses. If cash flow remains under pressure and the traditional business experiences prolonged low growth, the sustainability of the company's performance growth will likely face challenges.