Why has innovative drug progress become a valuation focus?

  • Huachuang Securities analyst Zheng Chen believes Zhongsheng Pharmaceutical’s innovative transformation is entering a harvest phase: the company has 8 projects in clinical trials, including 3 in Phase III, and two innovative drugs have been approved.
  • The brokerage values the mature businesses by reference to comparable companies and assigns RAY1225 and ZSP1601 risk-adjusted net present values attributable to the parent of 12.05 billion yuan and 14.48 billion yuan, respectively, for a total equity value attributable to the parent of 30.36 billion yuan. The two metabolic drugs together account for approximately 87% of this valuation; sales falling short of expectations is a risk highlighted in the report.

Where does the commercial potential of the two metabolic drugs come from?

  • Phase II data for the weight-loss drug RAY1225 showed placebo-adjusted weight loss of 20.46% at week 52 with the 9 mg dose, with no plateau reached yet. Zheng Chen is optimistic about its every-two-week dosing advantage and Qilu Pharmaceutical’s commercialization capabilities; the company licensed the drug’s domestic commercialization rights to Qilu in 2026.
  • The company says it is actively seeking international partnerships for RAY1225. Zheng Chen expects the drug to potentially occupy a central position among GLP-1 drugs and anticipates overseas partnerships.
  • ZSP1601, a treatment for metabolic dysfunction-associated steatohepatitis (MASH), was included on the breakthrough therapy list in the first three quarters of 2026. Its Phase IIb data at week 48 showed that the proportion of patients with at least a one-stage improvement in liver fibrosis and no worsening of MASH was 29.5 percentage points higher after placebo adjustment; Huachuang Securities is optimistic about its oral formulation and relatively broad potential patient population.

What support can existing businesses provide?

  • The company’s proprietary Chinese medicines cover ophthalmology, cardiovascular and cerebrovascular conditions, respiratory diseases and other areas. The report says the impact of centralized procurement is gradually being absorbed, while Compound Xueshuantong has returned to growth by trading price for volume and expanding into lower-tier distribution channels. The traditional Chinese medicine business can provide cash flow to support innovative research and development.
  • Two innovative antiviral drugs have been approved: leritrelvir for COVID and onradivir for influenza A. In the adult Phase III trial of onradivir, median time to symptom alleviation was 38.8 hours, compared with 63.4 hours in the placebo group; following positive results from two pediatric Phase III trials, the company has submitted a marketing application.

How do near-term earnings relate to long-term valuation?

  • Huachuang Securities forecasts net profit attributable to the parent of 221 million yuan in 2026, down 19.7% from 276 million yuan in 2025; it expects a recovery to 255 million yuan and 293 million yuan in 2027 and 2028, respectively.
  • The brokerage’s overall valuation therefore relies mainly on the future value of the metabolic drugs, while its near-term profit forecast still points to a decline followed by a recovery.