Revenue fell 10%: Why did net profit fall 39%?

  • In the third quarter of 2026, Lepu Medical reported revenue of 1.413 billion yuan and net profit of 179 million yuan, down 10% and 39% year on year, respectively. Both were below Goldman Sachs’ earlier forecasts of 1.627 billion yuan and 213 million yuan. Revenue continued to contract, while profit declined more sharply.
  • Goldman Sachs attributed the profit shortfall mainly to higher R&D expenses and a one-off charge of 98 million yuan for the redemption of convertible bonds. The additional R&D spending went primarily toward innovative drug development at Shanghai Minwei Biotechnology. Management said that excluding the year-on-year increase in R&D expenses and the redemption charge, the decline in net profit was broadly in line with the decline in revenue.

Traditional businesses are stabilizing, but how far away is a revenue recovery?

  • The devices business is closer to stabilizing: Revenue fell 2.97% year on year in the first three quarters of 2026; within that, cardiovascular intervention revenue fell 6.95% in the third quarter. Goldman Sachs believes the impact of centralized procurement on cutting balloons, coronary drug-coated balloons and structural heart disease occluders is largely under control, with rising product penetration providing support.
  • The pharmaceutical preparations business faces a deeper adjustment: Third-quarter revenue fell 27.26% year on year, a narrower decline than the 30.24% drop in the second quarter. The main pressure continued to come from channel price adjustments following the renewal of national centralized procurement contracts. The company said end-market sales began to recover in the third quarter, but this may take another quarter to be reflected in reported revenue.
  • Management broadly maintained its guidance: Devices revenue is expected to decline 2%–3% year on year or remain flat in 2026, followed by modest growth in 2027. The impact of channel price adjustments for pharmaceutical preparations is expected to largely fade by the end of 2026, with pharmaceutical revenue broadly stable in 2027. Near-term recovery hinges on the adjustments ending, while the scope for growth remains limited.

How can medical aesthetics and innovative drugs contribute to growth, and at what cost?

  • Medical aesthetics still faces pressure from a high comparison base. Third-quarter revenue in the medical services and health management segment, which includes medical aesthetics, fell 15.40% year on year, mainly because the launch of a PLLA facial filler in the same period last year created a high base. Medical aesthetics revenue was 50.65 million yuan this quarter, with injectable products accounting for about 40% and newly launched radiofrequency skin treatment devices about 60%.
  • The next step for medical aesthetics depends on new product approvals and increased sales through channels. The company expects its PDRN-containing injectable sodium hyaluronate compound solution to potentially gain approval by the end of 2026; management estimates it could be 1–1.5 years ahead of competing products. After approval, the company plans to increase sales and marketing spending through more than 2800 downstream channel outlets and encourage cross-selling across its product portfolio.
  • Innovative drugs remain in the clinical development and investment stage: Enrollment has begun for the Phase III trial of MWN109 injection, while the oral formulation is expected to receive approval to begin Phase III by the end of November 2026. The company plans to allocate more than half of its R&D spending to innovative drugs while exploring external financing and business partnerships. The growth potential comes with ongoing funding needs.

Why did Goldman Sachs cut its target price while remaining positive on some new businesses?

  • Goldman Sachs lowered its 2026 revenue forecast by 3.3% to 6.258 billion yuan and its net profit forecast by 4.7% to 715 million yuan. It also cut its 2027 net profit forecast by 4.2% to 909 million yuan. Accordingly, it reduced its 12-month target price from 15 yuan to 14 yuan and maintained its Neutral rating.
  • The assessment considers both growth opportunities and investment costs: Goldman Sachs sees long-term potential in medical aesthetics and some innovative devices, but believes growth in mature medical consumables and generic drugs is limited, innovative drugs still require substantial capital investment, and the current valuation already reflects near-term growth prospects.