Hengrui Medicine's commercialization recovered sequentially in the third quarter, with autoimmune and non-oncology pipelines becoming key areas of global growth

Overview

This report summarizes key takeaways from discussions with Hengrui Medicine's management at the 2026 Asia Leaders Conference. Goldman Sachs believes the company's commercialization activities recovered sequentially following short-term disruptions, while its autoimmune and other non-oncology pipelines are forming a broader global innovation platform. It maintains its Buy rating and 12-month target price of Rmb73.86.

Core views

On commercialization, management reiterated its confidence in achieving the Rmb19.2bn innovative drug sales target for 2026 and said that the target remains conservative under the employee equity incentive plan. A recent tightening of anti-corruption oversight temporarily disrupted hospital promotion activities, but the company observed a clear sequential recovery from June to August. Hengrui continues to establish dedicated teams in advance of new drug launches and indication expansions, covering camrelizumab combined with TACE for hepatocellular carcinoma, adebrelimab for perioperative treatment of small-cell lung cancer, and hetrombopag for chemotherapy-induced thrombocytopenia; the latter targets the Rmb5bn market in which TPIAO operates. Some 60%-70% of the sales force's representatives come from multinational pharmaceutical companies, and management expects the selling and administrative expense ratio on a product-sales basis to improve by 0.5-1 percentage points annually, reflecting continued gains in sales efficiency. Management views autoimmune diseases as one of Hengrui's most differentiated global opportunities. For SHR-1139, an IL-23p19/IL-33 bispecific antibody, the company has held preliminary discussions with the FDA and is confident that it can initiate a global Phase III trial in the second half of 2026; Phase II psoriasis data are expected around the end of September. The asset achieved a 100% PASI90 response in a small-sample Phase I trial, including among patients previously treated with biologics, and may offer a once-yearly maintenance dosing regimen. Management cited AbbVie's Skyrizi as a reference for the market opportunity; the product generated sales of US$18bn in 2025. China Phase II data for SHR-1139 in inflammatory bowel disease are also expected in the second half of 2026. Another core asset, SHR-2173, is an IFNAR1/TACI fusion protein. Its first indication, primary membranous nephropathy, is in Phase II, with recruitment of US patients planned to begin later in 2026. Early systemic lupus erythematosus data showed an SRI-4 response rate of 69%, and management believes its efficacy may have the potential to compete with existing biologic therapies. HRS-7085 (miR124) for ulcerative colitis is expected to begin Phase II trials in the second half of 2026. The pipeline is expanding further beyond oncology. Hetrombopag for chemotherapy-induced thrombocytopenia has entered global Phase III development. Cardiovascular programs are also progressing rapidly, with the company expecting to present four datasets at the upcoming ESC conference, covering SHR-1918 (ANGPTL3), HRS-5346 (oral Lpa), APOC3 siRNA, and oral PSCK9. The Nav1.8 inhibitor is viewed as a potential next-generation pain management asset and is currently undergoing a Phase II study in abdominal pain. Based on this, Goldman Sachs believes Hengrui is gradually evolving from an oncology-focused innovative drug company into a broad global innovation platform spanning autoimmune diseases, cardiovascular and metabolic diseases, renal diseases, and pain management. Regarding globalization, BD, and R&D investment, management remains optimistic about further BD opportunities across different therapeutic areas following the successful execution of its collaboration with BMS and multiple NewCo transactions. The company stated that it now has sufficient financial flexibility to independently advance global Phase III trials for assets with ample value-creation potential. R&D expenses are expected to remain at 20%-25% of total revenue, with incremental investment focused on global clinical trials, autoimmune assets, and AI-assisted drug discovery. The company's dedicated AIDD team is expanding and uses its proprietary clinical database, including failed data, as well as internal models to support future target discovery and molecular optimization. For financial forecasts, Goldman Sachs expects revenue to rise from Rmb31,629.4mn in 12/25 to Rmb33,247.5mn in 12/26E, Rmb36,905.1mn in 12/27E, and Rmb41,985.5mn in 12/28E. EBITDA over the same periods is projected at Rmb9,676.4mn, Rmb10,771.9mn, Rmb12,172.5mn, and Rmb14,619.1mn, respectively, while EPS is projected at Rmb1.19, Rmb1.34, Rmb1.51, and Rmb1.80. The corresponding P/E multiples are 47.4x, 34.4x, 30.6x, and 25.6x, while P/B multiples are 6.0x, 4.4x, 3.9x, and 3.5x. On valuation, Goldman Sachs assigns a Buy rating and a 12-month target price of Rmb73.86, representing 60.3% upside from the August 31, 2026 closing price of Rmb46.07. The target price values the generic and innovative drug businesses separately: the generic drug business is valued at Rmb39.3bn based on a five-year exit P/E of 10x, while the innovative drug business is valued at Rmb390.7bn using a risk-adjusted DCF, assuming a WACC of 9.0% and a terminal growth rate of 3%. The company's M&A rank is 3, corresponding to a low 0%-15% probability of being acquired under Goldman Sachs' framework, and is not included in the target price. Key downside scenarios include slower-than-expected sales ramp-up after innovative drugs are included in the National Reimbursement Drug List, failure of key late-stage R&D programs, higher-than-expected R&D and administrative expenses from global expansion, larger-than-expected price reductions for generic or innovative drugs, and slower-than-expected out-licensing or internationalization progress.

Analysis framework

The report first uses discussions with management at the conference to verify the 2026 innovative drug sales target and the recent commercialization recovery. It then reviews clinical data, trial milestones, and potential market opportunities across autoimmune and other non-oncology therapeutic areas, before assessing the role of BD, global Phase III development, and AI R&D investment in the company's transformation into a platform business. Finally, Goldman Sachs combines company data, internal forecasts, and FactSet data to construct financial projections and conducts a sum-of-the-parts valuation using an exit P/E for generic drugs and a risk-adjusted DCF for innovative drugs.

Methodology notes

• Valuation methodologySOTP valuation

  Separate valuation of generic and innovative drug businesses

  Goldman Sachs separately estimates the values of the mature generic drug business and the innovative drug pipeline, then uses the two components as the basis for its target price to reflect the different growth, risk, and cash flow characteristics of the two businesses.

• Valuation methodologyP/E and PEG valuation

  Five-year exit P/E

  The report applies a 10x exit P/E five years out to the generic drug business, resulting in a valuation of Rmb39.3bn and reflecting the pricing of a mature business based on future earnings and an exit valuation multiple.

• Valuation methodologyDiscounted cash flow valuation

  Risk-adjusted DCF for innovative drugs

  The report discounts the innovative drug business's future cash flows while accounting for R&D success risk, deriving a valuation of Rmb390.7bn using a 9.0% WACC and a 3% terminal growth rate.

• Event-driven strategies and behavioral financeEvent-driven analysis

  M&A ranking framework

  Goldman Sachs uses qualitative and quantitative factors to assess the probability that the company could become an acquisition target. Hengrui is ranked 3, corresponding to a low probability of 0%-15%, so no acquisition premium is included in the target price.

Asset mapping & comparison

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

• Hengrui Medicine (600276.SH; original report code 600276.SS)

  The principal company covered by the report; the recovery in commercialization, global R&D capabilities, and diversification of the non-oncology pipeline collectively underpin Goldman Sachs' positive view.

  Strengths

  Sequential recovery in innovative drug commercialization; multiple differentiated autoimmune assets; financial flexibility to independently advance global Phase III trials; continued development of BD, NewCo, and AIDD capabilities.

  Weaknesses

  Innovative drug sales remain affected by the hospital promotion environment, global expansion requires sustained high R&D and administrative investment, and the innovative drug valuation depends on the success of clinical programs.

  Comparison

  The report cites AbbVie's Skyrizi sales of US$18bn in 2025 as a reference for the scale of the SHR-1139 opportunity and believes the early SLE efficacy of SHR-2173 may be competitive with existing biologic therapies.

  Risks

  The ramp-up of innovative drugs, late-stage R&D success rates, expense control, drug price reductions, and progress in out-licensing and international expansion could all fall short of the report's expectations.

Key data

• 2026 innovative drug sales targetRmb19.2bnManagement reiterated its confidence in achieving the target and described it as conservative under the employee equity incentive plan.
• Sales force and expense efficiency60%-70%; annual improvement of 0.5-1 percentage points60%-70% of sales representatives come from multinational pharmaceutical companies; the selling and administrative expense ratio on a product-sales basis is expected to improve by 0.5-1 percentage points annually.
• Early efficacy of SHR-1139100% PASI90From a small-sample Phase I trial, including patients previously treated with biologics.
• Early SLE data for SHR-217369% SRI-4 response rateThe report believes the result indicates that its efficacy may have the potential to compete with existing biologic therapies.
• Autoimmune market benchmarkSkyrizi 2025 sales of US$18bnManagement cited AbbVie's Skyrizi as a reference for the scale of SHR-1139's potential opportunity.
• R&D expense ratio20%-25% of total revenueExpected to remain within this range, with investment focused on global trials, autoimmune assets, and AI-assisted drug discovery.
• Revenue forecastsRmb31,629.4mn / Rmb33,247.5mn / Rmb36,905.1mn / Rmb41,985.5mnCorresponding to 12/25, 12/26E, 12/27E, and 12/28E, respectively.
• EBITDA forecastsRmb9,676.4mn / Rmb10,771.9mn / Rmb12,172.5mn / Rmb14,619.1mnCorresponding to 12/25, 12/26E, 12/27E, and 12/28E, respectively.
• EPS forecastsRmb1.19 / Rmb1.34 / Rmb1.51 / Rmb1.80Corresponding to 12/25, 12/26E, 12/27E, and 12/28E, respectively.
• P/E and P/BP/E 47.4x / 34.4x / 30.6x / 25.6x; P/B 6.0x / 4.4x / 3.9x / 3.5xCorresponding to 12/25, 12/26E, 12/27E, and 12/28E, respectively.
• Dividend yield and FCF yieldDividend yield 0.4% / 0.5% / 0.6% / 0.7%; FCF yield 2.3% / 3.2% / 2.5% / 4.0%Corresponding to 12/25, 12/26E, 12/27E, and 12/28E, respectively.
• Net debt leverage and CROCINet debt/EBITDA (excluding leases) (4.2)x / (4.6)x / (4.5)x / (4.5)x; CROCI 24.5% / 23.7% / 23.8% / 25.2%Corresponding to 12/25, 12/26E, 12/27E, and 12/28E, respectively.
• Market capitalization and enterprise valueMarket capitalization Rmb305.8bn / US$45.5bn; enterprise value Rmb257.0bn / US$38.2bnValuation overview data from the report.
• Target price, current price, and upsideRmb73.86 / Rmb46.07 / 60.3%The target price horizon is 12 months, and the current price is the August 31, 2026 closing price.
• Generic drug business valuationRmb39.3bnBased on a five-year exit P/E of 10x.
• Innovative drug business valuationRmb390.7bnUsing a risk-adjusted DCF with a WACC of 9.0% and a terminal growth rate of 3%.
• M&A rank3Corresponds to a low 0%-15% probability of being acquired under Goldman Sachs' framework and is not included in the target price.

Impact & implications

The report believes that recent disruptions to hospital promotion have not changed management's confidence in the full-year innovative drug sales target, while dedicated commercialization teams and improving sales efficiency should support the ramp-up of subsequent new products and indications. Meanwhile, projects in autoimmune diseases, cardiovascular and metabolic diseases, renal diseases, and pain management are expanding the company's sources of growth beyond oncology. Financial flexibility enables Hengrui to independently advance certain global Phase III programs in addition to pursuing BD, but this also means that R&D and global operating investments will remain elevated over the long term. Most of the target valuation comes from the risk-adjusted value of innovative drugs, making key data readouts, late-stage program success rates, and the execution pace of internationalization particularly important to realizing the valuation.

Risks

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

What to watch

• Track whether innovative drug sales can reach Rmb19.2bn in 2026 and whether the recovery in commercialization activities from June to August can continue.
• Monitor whether SHR-1139 Phase II psoriasis data are released as scheduled around the end of September 2026.
• Monitor whether SHR-1139 can initiate a global Phase III trial in the second half of 2026, as well as its China Phase II inflammatory bowel disease data.
• Track progress in initiating recruitment of US patients with primary membranous nephropathy for SHR-2173 later in 2026.
• Monitor whether HRS-7085 can initiate a Phase II trial in ulcerative colitis in the second half of 2026.
• Monitor the four cardiovascular datasets for SHR-1918, HRS-5346, APOC3 siRNA, and oral PSCK9 at the ESC conference.
• Track subsequent BD or out-licensing progress, investment in global Phase III programs, and whether the R&D expense ratio can remain at 20%-25%.