Hengrui Medicine's 2Q26 results missed expectations, but global R&D catalysts are abundant from 2H26 through 1H27

Overview

The report reviews Hengrui Medicine's 2Q26 results, noting that mature innovative oncology drugs, generics, and licensing revenue all fell short of expectations, prompting cuts to earnings forecasts and the target price. At the same time, Goldman Sachs believes the company's non-oncology innovative drugs, overseas partnership programs, independently led global clinical development, and data readouts over the coming quarters remain important medium- to long-term supports, and therefore retains its Buy rating.

Core views

2Q26 revenue was weaker than Goldman Sachs expected. Product sales declined 4.9% YoY to Rmb6.7bn, below Goldman Sachs' forecast of Rmb7.7bn; licensing revenue recognition was also slower than expected at only Rmb635mn, versus Goldman Sachs' original estimate of Rmb1.2bn and Rmb1.5bn in 2Q25. Innovative drug sales grew 8% YoY, significantly below the 26% recorded in 1Q26, mainly because mature oncology products such as apatinib and pyrotinib faced pressure from intensifying competition and the recent tightening of anti-corruption policies. Generic drug sales were estimated to have declined by more than 20% YoY in 2Q26 and by 16% in 1H26, mainly due to further price cuts under volume-based procurement. On the positive side, non-oncology innovative drugs such as SGLT2i, JAKi, and PCSK9 products grew 74% YoY, but their scale remains insufficient to fully offset weakness in the mature oncology portfolio. In light of these pressures, Goldman Sachs revised its 2026 innovative drug sales forecast to Rmb19.7bn, implying 20% YoY growth, below its previous expectation of more than 30% growth. It also revised its forecast for the generic drug portfolio from a decline of approximately 10% to a more conservative decrease in the mid-to-high teens. Regarding partnership revenue, the report expects subsequent milestone payments from signed partnership programs and potential new transactions to continue supporting sustainable growth, although the actual timing of recognition remains an important factor affecting periodic results. Cost discipline partially cushioned the revenue pressure. Selling expenses declined 11.5% YoY in 2Q26, reflecting fewer academic promotional activities amid a tighter policy environment, while R&D spending continued to increase by 9% YoY. Due to weak product sales and the decline in licensing revenue from Rmb1.5bn in 2Q25 to Rmb635mn in 2Q26, net profit fell 15.3% YoY to Rmb2.2bn, below expectations. Management believes that expanded hospital access, sales ramp-up of products newly included in the National Reimbursement Drug List, and forthcoming approvals for new indications could improve growth in 2H26. Goldman Sachs, however, emphasizes that execution for core oncology products remains critical to whether innovative drug sales can reaccelerate. Globalization progress is a major highlight of the report. Among partnered programs, Kailera has initiated a global Phase II study of the GLP-1/GIP asset HRS9531, with a high-dose study expected to read out in 2027 and pivotal data potentially available in 2028. Oral HRS9531 is expected to enter global Phase III development in 1H27, while the oral GLP-1 program HRS-7535 has entered overseas Phase II development. HRS-1893, a myosin program partnered with Braveheart, is expected to initiate global Phase III studies in obstructive and non-obstructive hypertrophic cardiomyopathy in 2H26 and 1H27, respectively. SHR-4849, a DLL3 ADC partnered with IDEAYA, is expected to disclose preliminary global Phase I/II data in 2H26 and could initiate Phase III studies in small-cell lung cancer and neuroendocrine tumors before year-end. Independent global development is also accelerating. Management indicated that four internally developed programs are expected to initiate global Phase III studies in 2H26. Programs specifically mentioned in the report include SHR-1139, an IL-23p19/IL-36R bispecific antibody for psoriasis whose Phase I efficacy data showed PASI90 of over 90% at week 52, and SHR-2173, an IFNAR1/TACI fusion protein for autoimmune diseases that is expected to begin enrolling US patients within the year. HRS-7085, an oral miR-124 enhancer for ulcerative colitis, is expected to enter global Phase II development in 2H26. Goldman Sachs believes Hengrui is using its overseas clinical infrastructure and regulatory capabilities to advance parallel development in China and the United States. Its globalization model is also evolving from pure out-licensing toward a combination of strategic alliances, NewCo structures, and self-funded global development, potentially allowing it to retain greater long-term economic interests. The main 2H26 data catalysts come from the cardiovascular, metabolic, autoimmune, and dermatology pipelines. Phase II data for HRS-5346, an oral Lp(a) inhibitor, are expected to be presented at ESC. Management believes the program has best-in-class potential and could enter Phase III development in 2H26. ESC will also feature first-in-human clinical data for an oral PCSK9 inhibitor, an APOC3 siRNA, and a V2R antagonist for heart failure. The AHA meeting is expected to present first-in-human data for an Lp(a) siRNA, whose dosing interval management believes could be among the longest of emerging Lp(a)-lowering therapies. EASD is expected to provide updates on obesity and diabetes programs including HRS9531, HRS-7535, and the GLP-1/GIP/GCG asset HRS-4729, while EADV is expected to present Phase II psoriasis data for SHR-1139. Following the earnings release, Goldman Sachs lowered its 2026, 2027, and 2028 earnings forecasts by 5.5%, 6.1%, and 4.1%, respectively, to reflect more conservative product sales assumptions. With the DCF valuation rolled forward, the 12-month target price was reduced from Rmb79.20 to Rmb73.86. The target price comprises two components: the generic drug business is valued using a five-year exit P/E multiple of 10x, implying a valuation of Rmb39.3bn, while the innovative drug business is valued using a risk-adjusted DCF, resulting in a valuation of Rmb390.7bn based on a 9.0% weighted average cost of capital and a 3% perpetual growth rate. Goldman Sachs maintains its Buy rating. Its long-term thesis is that Hengrui is transitioning from its previous "generics plus innovation" model toward a focus on innovative drugs. Leveraging its established sales platform, the company has launched nine drugs with sales exceeding Rmb1bn, four of which are innovative drugs. The report believes that most of the impact from volume-based procurement price cuts was already reflected in the low 2022 base, and that future growth drivers will increasingly include PARP inhibitors, CDK4/6 inhibitors, androgen receptor antagonists, PI3K inhibitors, and diabetes drugs. The existing product cycle could slow after the blockbuster PD-1 ramp-up, but Goldman Sachs believes the current valuation primarily reflects the outlook for the China business, while overseas progress represents the next key milestone and a potential source of incremental value.

Analysis framework

The report first compares 2Q26 product sales, growth in innovative drugs and generics, licensing revenue, and profit with the prior-year period and Goldman Sachs' forecasts, then analyzes the impact of competition, volume-based procurement price cuts, the policy environment, and product mix on performance. It subsequently assesses whether cost controls, reimbursement-driven sales growth, and hospital access can support improvement in 2H26, and organizes R&D catalysts by partnered programs, independently led global development, and major medical conferences. Finally, based on more conservative sales assumptions, it lowers earnings forecasts and updates the target price using a sum-of-the-parts valuation combining an exit P/E multiple for generics with a risk-adjusted DCF for innovative drugs.

Methodology notes

• Valuation MethodDCF

  Risk-adjusted DCF for innovative drugs

  The report discounts future cash flows from innovative drugs after adjusting for the probability of R&D success, deriving a valuation of Rmb390.7bn based on a WACC of 9.0% and a perpetual growth rate of 3%, and rolls the model forward to the new valuation date.

• Valuation MethodPE/PEG valuation

  Five-year exit P/E multiple for generics

  The report applies a five-year exit P/E multiple of 10x to the relatively mature generic drug business, calculating a business value of Rmb39.3bn.

• Valuation MethodSOTP Valuation

  Segment valuation of generic and innovative drugs

  Given the different maturity and risk profiles of the two businesses, the report values them separately using an exit P/E multiple and a risk-adjusted DCF, then incorporates both components into Hengrui Medicine's overall target price framework.

Asset mapping & comparison

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

• Hengrui Medicine (600276.SS)

  The core company covered by the report; 2Q26 results missed expectations, but progress in global R&D and abundant catalysts from 2H26 through 1H27 support Goldman Sachs' Buy view.

  Strengths

  Established sales platform, nine drugs with sales exceeding Rmb1bn, 74% YoY growth in non-oncology innovative drugs, and continued progress across global partnerships and independently developed pipelines.

  Weaknesses

  Slower growth in mature innovative oncology drugs, pressure on generics from volume-based procurement price cuts, slower-than-expected recognition of licensing revenue, and insufficient scale of new non-oncology products to offset pressure on the traditional portfolio.

  Comparison

  Goldman Sachs believes the current valuation primarily reflects the outlook for the company's China business, while overseas progress could provide additional value.

  Risks

  Slower-than-expected innovative drug uptake, failure of late-stage R&D programs, higher-than-expected globalization expenses, larger-than-expected drug price cuts, and licensing or globalization progress falling short of expectations.

Key data

• 2Q26 product salesRmb6.7bnDown 4.9% YoY, below Goldman Sachs' forecast of Rmb7.7bn
• 2Q26 licensing revenueRmb635mnBelow Goldman Sachs' forecast of Rmb1.2bn; 2Q25 was Rmb1.5bn
• 2Q26 innovative drug sales growth+8% YoYA significant slowdown from 26% in 1Q26
• 2Q26 generic drug sales changeDown more than 20% YoYGoldman Sachs estimate; down 16% in 1H26, mainly due to further price cuts under volume-based procurement
• Non-oncology innovative drug sales growth+74% YoYIncluding products such as SGLT2i, JAKi, and PCSK9
• 2026 innovative drug sales forecastRmb19.7bnExpected to grow 20% YoY, versus the previous expectation of more than 30% growth
• 2Q26 selling expense change-11.5% YoYReduced academic promotional activities partially offset revenue pressure
• 2Q26 R&D spending change+9% YoYContinued to increase despite earnings pressure
• 2Q26 net profitRmb2.2bnDown 15.3% YoY and below expectations
• 2026/2027/2028 earnings forecast revisions-5.5%/-6.1%/-4.1%Reflecting more conservative product sales expectations
• 12-month target priceRmb73.86Reduced from Rmb79.20
• Generic drug business valuationRmb39.3bnBased on a five-year exit P/E multiple of 10x
• Innovative drug business valuationRmb390.7bnRisk-adjusted DCF with a WACC of 9.0% and a perpetual growth rate of 3%
• Number of marketed blockbuster products9 productsEach has sales exceeding Rmb1bn, including four innovative drugs
• Early efficacy of SHR-1139PASI90 exceeded 90% at week 52Management is advancing global late-stage development in psoriasis based on these results

Impact & implications

The report believes that near-term earnings improvement depends on execution for core oncology products, sales ramp-up of newly reimbursed products, hospital access, and the timing of licensing revenue recognition. The high growth of non-oncology innovative drugs has not yet reached a scale sufficient to offset pressure on mature products. Over the longer term, partnered programs, independently led global clinical development, and data readouts at multiple conferences could increase the value of the overseas pipeline, while the shift from pure licensing toward a combination of alliances, NewCo structures, and independent development may allow Hengrui to retain greater long-term economic interests.

Risks

• Uptake of innovative drugs newly 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 declines for generic and innovative drugs may exceed expectations.
• Out-licensing or globalization progress may fall short of expectations.

What to watch

• Monitor whether execution for core oncology products, expanded hospital access, sales ramp-up of newly reimbursed products, and approvals of new indications can reaccelerate innovative drug sales in 2H26.
• Monitor milestone payments from partnered programs, new transactions, and the actual timing of licensing revenue recognition.
• Monitor the initiation of global clinical trials for programs such as HRS-1893, SHR-1139, and SHR-2173 from 2H26 through 1H27.
• Monitor preliminary global Phase I/II data for SHR-4849 in 2H26 and the potential initiation of Phase III studies before year-end.
• Monitor Phase II data for HRS-5346 at ESC, as well as first-in-human clinical data for the oral PCSK9 inhibitor, APOC3 siRNA, and V2R antagonist.
• Monitor first-in-human data for the Lp(a) siRNA at AHA.
• Monitor updates on the obesity and diabetes pipelines at EASD and Phase II psoriasis data for SHR-1139 at EADV.