Summary of Key Points
Hengrui Medicine's financial report for the first half of 2026 may appear to show a "slight increase in net profit," but in reality, its main business is under pressure: non-recurring net profit decreased by 12.7%, revenue from generic drugs plummeted by 16%, and the growth of innovative drugs, although 16%, fell short of industry peers. Older innovative drugs (such as PD-1 and pyrotinib) are facing competition or price cuts from healthcare insurance, leading to a decline in performance, while the introduction of new drugs is slow. The company's globalization efforts in business development (BD) are impressive, with a potential value of $42 billion in accumulated deals, but FDA approval has been delayed three times due to production quality issues. Hengrui is in a period of transition, dealing with the challenges of replacing old products with new ones, transforming its commercialization system, and addressing shortcomings in globalization. To achieve greater success, it needs to break away from its current model.
I. Performance: A Slight Increase on the Surface, but Weakness in the Main Business
Hengrui's net profit for the first half of the year was 4.465 billion yuan, a year-on-year increase of only 0.34%. This increase is not due to improved business performance but rather from the "book value gain" of 821 million yuan from the listing of its subsidiary Kailera on NASDAQ (from changes in fair value). The non-recurring net profit, which truly reflects the company's core profitability, actually decreased by 12.71%. This is like running a restaurant where the profit seems to have increased, but in reality, you have sold the equipment and both the sales volume and profit of the food have decreased.
Looking at the details: Revenue from generic drugs decreased significantly by 16%, dragging down overall performance. Although innovative drug revenue increased by 16%, this growth is not as impressive compared to companies like BeiGene (98% of revenue from products and continuous profitability), Innovent (55% increase in product revenue), and Zhongsheng (29% increase in innovative drug revenue). The first wave of innovative drugs that drove Hengrui's transformation (such as PD-1 and pyrotinib) is experiencing a slowdown. PD-1's sales in hospitals in 2025 were only 2.9 billion yuan due to intense competition in the market, and pyrotinib's revenue has declined due to competing products. The overall growth rate of oncology innovative drugs was only 2.58%, indicating that the company's core business is struggling to maintain its momentum.
II. Transition Period: Old Drugs Fading, New Drugs Lagging
Hengrui is in a phase of transitioning between old and new products. The first wave of innovative drugs (such as tykinibs and PD-1) was a result of technological advancement, but now they are facing competition from newer therapies. For example, pyrotinib's competitiveness has declined due to the emergence of HER2 ADC drugs like Daiichi Sankyo's DS-8201. Hengrui is also developing new drugs, such as the HER2 ADC rucaltuzumab, which has shown promising clinical data (median progression-free survival of 30.6 months), and the CDK4/6 inhibitor dalcislib is still growing. Additionally, it has pipelines for GLP-1 and bispecific antibodies in development. However, the rapid decline in old drugs and the slow introduction of new drugs mean that the gap cannot be quickly filled. Moreover, stricter pharmaceutical regulations mean that Hengrui's traditional hospital-based sales channels are no longer as effective, and it needs to expand into retail and grassroots markets (it has already covered 8,000 community outlets), which requires a significant shift in its business model.
III. Globalization: Bright BD Prospects, but Production Hinders Progress
Hengrui's globalization efforts have two contrasting aspects:
- Bright BD Performance: Revenue from external licensing in the first half of the year was 1.422 billion yuan, with a total potential value of $42 billion in 13 overseas deals, making it one of the best-performing Chinese pharmaceutical companies in this area. For example, the deal with BMS involved the development of 13 early-stage projects, indicating that multinational companies recognize Hengrui's R&D capabilities and are incorporating its products into their innovation pipelines.
- FDA Approval Delays: The "Dual-Ai Therapy" (rucaltuzumab + apatinib) showed promising clinical data (median survival of 23.8 months, 8.6 months longer than the control group), but Hengrui has faced three rejections from the FDA due to production quality issues. This indicates that, despite strong R&D capabilities, Hengrui's production quality system does not meet global standards.
IV. Future Potential: A Stable Model, but Need to Break Through Limits
Hengrui's current model is relatively stable, with a diverse pipeline of own-developed drugs (ADCs, bispecific antibodies, GLP-1, etc.) that reduce risk and make it more resilient than companies like BeiGene (which relies on a single product, zanubrutinib) and Innovent (which relies on imported drugs like masitide). To achieve greater success, it needs to address two key issues:
- Globalization Shortcomings: Its production quality system must meet international standards to enter European and American markets.
- Commercialization Transformation: It needs to shift from a hospital-focused approach to a retail and grassroots-based model, which requires new teams and capabilities.
- Breaking Away from the Fast-Follow Strategy: In the past, Hengrui focused on quickly following others' research topics, but now it needs to develop more original drugs (first-in-class therapies) to differentiate itself.
The new management team, including former executives from Eli Lilly, may help Hengrui overcome these challenges. However, the effectiveness of these changes will depend on how well they are implemented. Overall, Hengrui is in a stable position, but it faces difficulties in production, distribution channels, and original R&D. It needs to overcome these barriers to achieve further growth.
Conclusion
Hengrui is like a former top student facing a transition period. Its traditional strengths (generic drugs and early-stage innovative drugs) are fading, while its new strengths (new drugs and globalization) are not yet fully established. The question is not whether it can survive, but whether it can thrive. The next few years will determine whether it can improve its production quality, transform its distribution channels, and enhance its original R&D efforts, allowing it to continue as a leading domestic company or become a global player.