Citi: HitGen’s third-quarter revenue rises 43%: core platforms expand as AI projects begin shortening drug discovery timelines

How dependent was third-quarter growth on milestone revenue?

In the third quarter of 2026, HitGen reported revenue of 204 million yuan, up 42.9% year on year, and net profit of 58.7 million yuan, up 37.2%. For the first three quarters, revenue was 550 million yuan and net profit was 139 million yuan, up 48.7% and 50.1% year on year, respectively.
Management said milestone revenue accounted for less than 5% of third-quarter revenue, below its historical annual share of approximately 10%–12%. On that basis, Citi believes growth reflected relatively solid demand for underlying services and that margin improvement did not come entirely from milestone revenue.
Quarterly gross margin rose from 56.5% to 64.4%, while operating margin rose from 28.3% to 41.3%; Citi attributed the improvement to an optimized revenue mix, including a higher contribution from the DEL business and milestone revenue.

Management said revenue from both DEL and FBDD/SBDD drug discovery services grew by more than 30% in the first three quarters of 2026. DEL remained the largest revenue source, with stable demand for library construction and screening and applications expanding into new modalities such as cyclic peptides and molecular glues.
The oligonucleotide business OBT grew 94% year on year in the first half of 2026, expanding its services from synthesis alone to sequence design, biological evaluation, delivery, CMC and integrated discovery. Management expects more integrated projects and additional capacity to continue supporting growth.
Approximately 80% of the company’s revenue comes from overseas, and its clients include multinational pharmaceutical companies, biotechnology companies and AI-native startups.

HAILO incorporates proprietary DEL data, AI models, automated synthesis and high-throughput testing into a design, make, test and analyze cycle for projects involving small molecules, cyclic peptides and other modalities. Management believes AI can expand the scope of drug discovery and improve project speed and the probability of success, while still requiring experimental support.
Management said delivery times for preclinical candidates (PCCs) in some projects have been shortened to approximately 6 months, and approximately 8 PCCs have been delivered to date. The company also plans to expand its cyclic peptide library from more than 700 billion compounds to 1 trillion by the end of 2026.
Citi believes faster AI-assisted PCC delivery could bring higher-value contracts and milestone revenue; its bear case includes slow platform commercialization.

Citing DEL and OBT demand stronger than it had previously expected, improved conversion of integrated projects and contributions from new businesses, Citi raised its revenue forecasts for 2026–2028 by 5%, 4% and 3%, respectively, and its net profit forecasts by 8%, 8% and 5%, respectively.
Citi expects revenue growth, a higher DEL share and operating leverage to support profits, although continued R&D investment will offset some of the gains. R&D spending in the first three quarters of 2026 rose 44.2% year on year to 62.6 million yuan, or 11.4% of revenue; management plans to maintain R&D spending at approximately 10%–15% of revenue.
Citi raised its target price from 45 yuan to 48 yuan and maintained its “Buy/High Risk” rating. Its bear case includes changes in the timing of milestone revenue, weaker financing for biotechnology clients and higher R&D spending limiting operating leverage.