Hengrui Pharma's drug sales return to growth in the third quarter as collaboration revenue boosts profit
Nomura estimates that Hengrui's third-quarter drug sales grew 4.9% year on year, reversing the previous quarter's decline. A sharp increase in collaboration revenue pushed total revenue and net profit attributable to shareholders above Bloomberg consensus estimates, although full-year growth in innovative drug sales may fall short of the company's target set at the start of the year.
Original source：Nomura International (Hong Kong) Ltd.First published on Unhidea：Original source date：
Key takeaway
Hengrui's drug sales recovered somewhat in the third quarter, with collaboration revenue the main driver of strong profit growth, while innovative drug sales remained constrained by hospital access and competition for older products.
Why did third-quarter results exceed expectations?
Hengrui reported third-quarter revenue of 8.95 billion yuan and net profit attributable to shareholders of 2.5 billion yuan, up 20.6% and 89% year on year, respectively. Both exceeded Bloomberg consensus estimates of 8.5 billion yuan and 2.1 billion yuan.
The main driver was collaboration revenue, which reached 1.4 billion yuan in the quarter, compared with just 130 million yuan a year earlier. Revenue for the first three quarters of 2026 was 24.4 billion yuan, up 5.3% year on year; net profit attributable to shareholders was 6.9 billion yuan, up 20.4% year on year.
Where did the rebound in drug sales come from?
Nomura estimates that third-quarter drug sales were 7.6 billion yuan, up 4.9% year on year, a return to growth from a 7% year-on-year decline in the second quarter.
The year-on-year decline in generic drug sales narrowed from 27% in the second quarter to 15% in the third quarter; sales fell 7% quarter on quarter. Year-on-year growth in innovative drug sales rose from 8% to 18%.
Performance varied markedly within innovative drugs: third-quarter oncology drug sales rose 4% year on year, while non-oncology drug sales grew 78%. Management said that hospital access was slower than expected and competition for older products had intensified, and that full-year innovative drug sales growth might fall short of the 30% target set at the start of the year; Nomura currently forecasts growth of 18%.
How much did profitability improve excluding collaboration revenue?
The overall gross margin rose 2.1 percentage points year on year to 86.5% in the third quarter. Nomura estimates the drug business's gross margin at 84.1%, unchanged year on year and below the second quarter's 85%.
Selling expenses fell 11% year on year to 2.1 billion yuan. Assuming an effective tax rate of 10%, Nomura estimates operating profit and net profit excluding collaboration revenue at 1.4 billion yuan and 1.2 billion yuan, respectively, up 29% and 4% year on year.
How does Nomura view the outlook?
Nomura is positive about the recovery in drug sales and believes collaboration revenue could continue to strengthen the company's financial performance. The bank maintained its buy rating on Hengrui's Hong Kong-listed shares and its target price of 73.85 Hong Kong dollars.
The target price is based on a discounted cash flow model, assuming a weighted average cost of capital of 8.7% and a perpetual growth rate of 5%. Downside risks listed by Nomura include price cuts in the next round of centralized procurement, as well as business development and clinical progress falling short of expectations.
