Hengrui Medicine reiterates its 2026 innovative drug sales target, with a 2H recovery and a rich pipeline of R&D catalysts forming the main growth drivers

Overview

This report summarizes management commentary from Hengrui Medicine's non-deal roadshow, focusing on the recovery in innovative drug sales, expense improvements, BD revenue, the autoimmune and metabolic pipelines, and R&D catalysts over the next 6-12 months. Goldman Sachs believes the company is transitioning further from a “generics + innovation” model toward innovative drug-driven growth and maintains its “Buy” rating and 12-month target price of Rmb73.86.

Core views

The first key theme is whether innovative drug sales can reaccelerate in 2H26. Innovative drug sales grew only 8% YoY in 2Q, and management acknowledged that its previous guidance of 30% YoY growth may be difficult to achieve in the current market environment. Nevertheless, it remains confident in reaching its 2026 innovative drug sales target of Rmb19.2bn, which it regards as a relatively conservative target under the employee equity incentive plan. Hospital promotion activities have gradually resumed since June, and the July trend improved versus May. Combined with recently approved major indications—including adjuvant dalpiciclib for breast cancer, camrelizumab plus TACE for hepatocellular carcinoma, perioperative adebrelimab for non-small cell lung cancer, and hetrombopag for chemotherapy-induced thrombocytopenia—the company expects growth momentum to improve in 2H. In addition to product ramp-up, earnings are supported by expense control and business development revenue. Management originally targeted a 0.5-1ppt decline in the full-year selling and administrative expense ratio, while the ratio had already improved by 1.5ppt in 1H, outperforming the original target. Revenue from the BMS partnership is expected to begin being recognized in 3Q26, with up to 40% of the upfront payment potentially recognized in 2H. The accounting treatment will be similar to that used for the previous GSK partnership, so BD revenue could provide incremental earnings upside. The second key theme is the autoimmune pipeline's gradual emergence as an important pillar of the next growth cycle. SHR-1139 is a bispecific antibody targeting IL-23p19/IL-36R, and management believes it has potential first-in-class value. In Phase 1 psoriasis data, the PASI 90 response rate exceeded 90% at week 52, and the asset could establish a differentiated advantage through once-yearly dosing. Its Phase 2 data are scheduled to be presented at EADV within the year, while Phase 3 programs in China and globally are planned to begin in 2H26. Another asset, SHR-2173, is an IFNAR1/TACI fusion protein that has generated positive Phase 1 data in systemic lupus erythematosus and is rapidly expanding into primary membranous nephropathy, lupus nephritis, and IgA nephropathy. The company plans to enroll US patients in the ongoing Phase 2 study and prepare for global Phase 2 and subsequent Phase 3 development. The third key theme is the commercialization strategy for the GLP-1 and metabolic businesses. Management remains positive on HRS9531, believing that, as China's first GLP-1/GIP dual agonist, it has a favorable safety profile with less nausea and vomiting. The company expects approval for the obesity indication in early 2027, followed by approval for the diabetes indication in 2H27. Commercial preparations are already underway, and the company can leverage its existing metabolic business, where its SGLT2 product ranks among the market leaders and dedicated hospital, retail, and patient engagement teams have been established. Pricing is intended to reference tirzepatide rather than adopt aggressive discounting. In addition to HRS9531, the company is developing oral HRS9531, the oral small-molecule GLP-1 drug HRS-7535, and the triple agonist HRS-4729, forming what Goldman Sachs describes as one of the more comprehensive obesity and metabolic portfolios among Chinese biopharmaceutical companies. R&D catalysts over the next 6-12 months span multiple therapeutic areas. In autoimmune diseases, Phase 2 psoriasis data for SHR-1139 will be presented at EADV and will inform subsequent Phase 3 development in China and globally; SHR-2173 will continue US patient enrollment and global development. In cardiomyopathy, HRS-1893 is expected to enter global Phase 2 development for obstructive hypertrophic cardiomyopathy in 2H26 and development for non-obstructive hypertrophic cardiomyopathy in 1H27. ESC also plans to present multiple cardiovascular datasets for SHR-1918 (ANGPTL3), HRS-5346 (oral Lp(a)), oral PCSK9, and the ApoC3 siRNA program; EASD is expected to disclose additional data for HRS9531 and HRS-7535. Goldman Sachs' long-term investment thesis is that Hengrui is transitioning from its previous “generics + innovation” model toward one centered on innovative drugs. The company has an established sales team and has launched nine drugs with sales exceeding Rmb1bn over the past several years, four of which are innovative drugs. Most of the impact from VBP price cuts was reflected in 2022, creating a lower base, while future growth drivers are expected to include PARP, CDK4/6, AR antagonists, PI3K inhibitors, and diabetes drugs. However, following the ramp-up of its blockbuster PD-1 product, growth in the current product cycle may slow, making overseas progress the next key milestone. Goldman Sachs believes the current valuation primarily reflects the outlook for the China business, while overseas expansion could still provide additional upside. The target price is based on a sum-of-the-parts valuation: the generic drug business is valued at Rmb39.3bn using a 10x exit P/E five years from now; the innovative drug business is valued at Rmb390.7bn using a risk-adjusted discounted cash flow approach, with a weighted average cost of capital of 9.0% and a terminal growth rate of 3%. Together, the two segments support a 12-month target price of Rmb73.86 and a “Buy” rating.

Analysis framework

The report first assesses near-term operating trends based on management's roadshow commentary, including innovative drug sales, the resumption of hospital promotion, expense ratios, and BD revenue. It then reviews the clinical evidence, development timelines, and commercialization preparations for the autoimmune, metabolic, and cardiovascular pipelines asset by asset. Finally, it incorporates the company's innovation-led transformation and overseas expansion into the long-term investment thesis and derives the target price through a sum-of-the-parts valuation combining a P/E-based valuation for generics with a risk-adjusted DCF valuation for innovative drugs.

Methodology notes

• Valuation methodologySOTP valuation

  Combined valuation of the generic and innovative drug segments

  The report separately assesses the generic and innovative drug businesses and then combines the value of the two segments to derive the company's overall valuation and 12-month target price.

• Valuation methodologyPE/PEG valuation

  Five-year forward exit P/E for the generic drug business

  The report applies a 10x exit P/E five years from now to the generic drug business, deriving a valuation of Rmb39.3bn to reflect the mature business's long-term earnings value.

• Valuation methodologyDCF valuation

  Risk-adjusted discounted cash flow for innovative drugs

  The report discounts future innovative drug cash flows after adjusting for R&D risk, using a weighted average cost of capital of 9.0% and a terminal growth rate of 3%, deriving a valuation of Rmb390.7bn.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Hengrui Medicine (600276.SS)

  The report views the company as a leading Chinese pharmaceutical company transitioning from “generics + innovation” toward innovative drug-driven growth and assigns it a Buy rating.

  Strengths

  An established sales team, nine drugs with sales exceeding Rmb1bn, rich autoimmune and metabolic pipelines, and advanced preparations for global clinical development and commercialization.

  Weaknesses

  Innovative drug sales growth slowed to 8% in 2Q, the previous 30% growth guidance faces challenges, and growth in the current product cycle may decelerate following the ramp-up of PD-1.

  Comparison

  Management describes HRS9531 as China's first GLP-1/GIP dual agonist and plans to price it with reference to tirzepatide; Goldman Sachs believes the company's obesity and metabolic pipeline is one of the more comprehensive portfolios among Chinese biopharmaceutical companies.

  Risks

  Innovative drug ramp-up could be slower than expected, key late-stage R&D programs could fail, global R&D and administrative expenses could exceed expectations, drug price cuts could be greater than expected, and out-licensing or internationalization progress could fall short of expectations.

Key data

• 2026 innovative drug sales targetRmb19.2bnThe full-year target reiterated by management, which described it as relatively conservative under the employee equity incentive plan
• 2Q innovative drug sales growth8% YoYGrowth slowed; the previous guidance of 30% YoY growth was considered challenging in the current environment
• 1H improvement in selling and administrative expense ratio1.5pptBetter than the original full-year target of a 0.5-1ppt decline
• BMS partnership revenue recognitionUp to 40% of the upfront paymentRecognition is expected to begin in 3Q26, with the relevant proportion potentially recognized in 2H26
• SHR-1139 psoriasis dataPASI 90 response rate exceeded 90% at week 52Phase 1 data, with potential once-yearly dosing
• SHR-1139 Phase 3 initiation plan2H26Planned initiation of Phase 3 programs in China and globally
• Expected approval of HRS9531 for obesityEarly 2027Management's expected timeline
• Expected approval of HRS9531 for diabetes2H27Expected to be approved after the obesity indication
• HRS-1893 global Phase 2 planoHCM: 2H26; nHCM: 1H27Corresponding to obstructive and non-obstructive hypertrophic cardiomyopathy, respectively
• Drugs with sales exceeding Rmb1bn9 drugsLaunched over the past several years, including four innovative drugs
• Generic drug business valuationRmb39.3bnBased on a 10x exit P/E five years from now
• Innovative drug business valuationRmb390.7bnRisk-adjusted DCF, with a WACC of 9.0% and a terminal growth rate of 3%
• 12-month target priceRmb73.86Goldman Sachs' target price, with a Buy rating

Impact & implications

The report believes that the resumption of hospital promotion, launches of new indications, expense ratio improvements, and BD revenue could jointly drive an improvement in operating trends in 2H26, while the autoimmune and metabolic pipelines provide longer-term support for the next phase of growth. As growth in the current product cycle may slow following the ramp-up of PD-1, overseas clinical and licensing progress will become key milestones determining whether the company can unlock additional value.

Risks

• Sales ramp-up after innovative drugs enter the National Reimbursement Drug List could be slower than expected.
• Key late-stage R&D programs could fail.
• R&D and administrative expenses required for global expansion could be higher than expected.
• Price reductions for generic and innovative drugs could be greater than expected.
• Out-licensing and internationalization progress could fall short of expectations.

What to watch

• Monitor whether innovative drug sales can accelerate in 2H26 and achieve the full-year target of Rmb19.2bn.
• Monitor the resumption of hospital promotion activities and the 3Q sales trend.
• Monitor the recognition of BMS partnership revenue beginning in 3Q26 and the proportion of the upfront payment recognized in 2H.
• Monitor the Phase 2 psoriasis data for SHR-1139 presented at EADV and whether Phase 3 programs in China and globally can begin in 2H26.
• Monitor US patient enrollment for SHR-2173, the global Phase 2 study, and preparations for subsequent Phase 3 development.
• Monitor data for HRS9531 and HRS-7535 presented at EASD, as well as the 2027 approval timeline for HRS9531.
• Monitor the global development progress of HRS-1893 in oHCM and nHCM.
• Monitor data presented at ESC for SHR-1918, HRS-5346, oral PCSK9, and the ApoC3 siRNA program.
• Monitor whether overseas clinical development, out-licensing, and globalization progress can become new growth milestones following the ramp-up of PD-1.