Summary of Key Points
Zejing Pharmaceutical reported its first profit in the first half of 2026 (net profit of 640 million yuan, compared to a loss in the same period last year), with revenue increasing by 220% to 1.205 billion yuan. However, the stock price fell by 12% the following day. The contradiction lies in the fact that the profit was mainly derived from one-time licensing income (662 million yuan, from the initial payment of $100 million for the overseas rights of ZG006 sold to AbbVie), while the profitability from its own drug sales has not yet matured. The market is concerned that this profit is a one-off and not a sustainable business model, leading to a negative reaction in stock prices.
I. The “Backing” for the Impressive Financial Report: Half of the Revenue Comes from “Licensing”
Zejing’s semi-annual report looks impressive, but it contains significant elements that may cast doubt on its sustainability:
- The bulk of revenue comes from licensing: Out of 1.2 billion yuan in revenue, 662 million yuan came from the initial payment for the overseas rights of ZG006 (the world’s first triple-target antibody drug), which amounted to $100 million after exchange rate conversion. This money was received in a lump sum and not from drug sales.
- Drug sales growth is insufficient: The four marketed drugs generated a total of 540 million yuan, an increase of 44.3% year-on-year (for example, the sales of Jikaxitinib increased after it was included in the medical insurance program). However, this revenue is not enough to cover the company’s operating costs; the net profit excluding one-time income in the second quarter was a loss of 15.7 million yuan.
- Cash flow depends on licensing: The operating cash flow of 809 million yuan mainly came from this $100 million payment, not from regular drug sales.
In short, this profit was an unexpected windfall, not the result of regular drug sales.
II. Why Doesn’t the Market Buy In? Concerns About Sustainable Profitability
The sharp drop in the stock price reflects the market’s realization that the profit was based on a one-time event:
- Quarterly data exposes the issue: The company earned a net profit of 633 million yuan from licensing in the first quarter. After the second-quarter licensing revenue was recognized, profits plummeted to 7.4 million yuan (a 98.8% decrease), and there was still a loss after excluding one-time income.
- The business model is under question: The market is wondering whether Zejing is primarily a drug company or a company that licenses its technologies. If it’s a drug company, with four drugs still in the early stages of sales growth, 540 million yuan in half a year is not enough to support a sales team of 470 people and multiple research and development (R&D) projects. If it’s a licensing company, the frequency and amount of BD transactions are uncertain, making it difficult to generate stable revenue.
- Significant accumulated losses: The company still has a loss of 1.64 billion yuan to cover, and several new drugs are in the R&D phase, so whether it can continue to profit in the future is unknown.
The market’s decline is essentially a reflection of uncertainty: the company may have made a profit this time, but what about next?
III. BD Transactions Are Not a One-Time Deal; Long-Term Value Is Underestimated
Many people view BD licensing as a one-time income source, but it can be a long-term revenue stream:
- The full structure of BD transactions: In addition to the initial payment, there are subsequent milestone payments (e.g., money from AbbVie when the drug enters clinical trials or is approved for market release, up to $1.075 billion) and sales royalties (Zejing receives a percentage of overseas sales). Huatai Securities estimates that the peak overseas sales of ZG006 could reach $6 billion, resulting in substantial royalties.
- The value of cash is greater than profit: After receiving the $100 million, Zejing’s cash reserves increased to 2.094 billion yuan, and its short-term debt decreased from 989 million yuan to 675 million yuan. This means the company no longer needs to frequently raise funds and can focus on R&D and drug sales. For early-stage innovative companies, cash flow is more important than the figures in the income statement.
Therefore, this BD transaction is not just a sale of assets but a long-term revenue contract; the market has simply not yet recognized its potential.
IV. Industry Trend: BD Transactions as a New Path to Profitability, but Valuation Logic Is Changing
Zejing is not an isolated case; many innovative companies have turned losses into profits through BD transactions since 2025:
- Innovent Biologics turned around its losses with a $1.2 billion BD payment, BeiGene achieved profitability through both self-sold drugs and BD deals, as did Sinovac and NovoChem.
- Changing valuation logic: The market previously viewed BD transactions as non-recurring income, but now it focuses more on whether a company’s BD capabilities are replicable. If a company can consistently attract large pharmaceutical companies (like AbbVie or Takeda) to purchase its technologies, it indicates that its R&D capability is of global significance, which in itself is valuable.
- The market’s current question is whether Zejing’s BD success is due to luck (ZG006 being the world’s first such drug) or genuine strength. If it’s the latter, then BD transactions represent a core competitive advantage.
V. The Future Challenge: Drug Sales Capability as the Key
Zejing’s semi-annual report marks a milestone, but the real challenge lies ahead:
- What if licensing income declines? When the subsequent milestones and royalties for ZG006 are not received, will drug sales be sufficient to support profitability? For example, will Jikaxitinib continue to sell well after being included in the medical insurance program, and will Donafenib open up new markets?
- The core of industry valuation: The market is shifting from valuing one-time events (such as BD transactions) to evaluating a company’s systematic capabilities (drug sales + ongoing BD activities). BD transactions can provide cash flow but cannot replace the sustainability of drug sales; licensing income can improve finances, but it cannot replace intrinsic profitability.
For Zejing, the profit in 2026 is a good start, but to be truly recognized by the market, it must prove its ability to generate revenue from drug sales—this is what determines its long-term value.
In summary: Zejing’s profit this time was aided by BD transactions, but to become a sustainable profitable company, it needs to demonstrate its ability to sell drugs effectively. The current market decline is a wait-and-see situation, as investors want to see actual performance to prove whether the company can continue to generate profits.
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