Citi: The full impact of centralized procurement pressure on Huadong Medicine will be felt in 2027; Citi expects innovative drugs to drive an earnings recovery in 2028

What changed in third-quarter results?

Huadong Medicine reported revenue of 10.95 billion yuan in the third quarter of 2026, down 0.3% year on year; net profit was 911 million yuan, down 2.4% year on year.
Gross margin fell 0.3 percentage points year on year to 32.5% in the same period. Lower selling and research and development expenses helped cushion the decline in earnings.

Some older products, including indobufen, failed to win centralized procurement bids. Citi expects the associated pressure to be fully felt from 2027. After factoring in price cuts, Citi lowered its earnings-per-share forecasts for 2026 through 2028 by 1%, 18% and 14%, respectively.
Citi forecasts net profit of 2.839 billion yuan in 2027, down 17.7% from its 2026 forecast, followed by a recovery to 3.601 billion yuan in 2028, up 26.8% year on year. The bank believes the commercial contribution of newly launched products will be more pronounced by then, helping offset centralized procurement pressure.
Citi cut its target price from 39.4 yuan to 35.2 yuan per share and maintained its buy rating; the bank believes the market has already priced in the impact of the price cuts.

In the first three quarters of 2026, revenue from innovative products and related services grew 48.3% year on year and accounted for 21.8% of pharmaceutical manufacturing revenue, a share that continued to rise.
Management expects around 10 products, including HDM3014 and HDM7007, to potentially receive approval, and guided for innovative products to account for 30%–40% of pharmaceutical manufacturing revenue in 2027. Citi’s expectation of an earnings recovery in 2028 depends on new products making a more pronounced commercial contribution after launch.
Over the longer term, management expects to launch more than 40 innovative products progressively over the next five years.

An application for marketing approval of the oral small-molecule GLP-1 drug HDM1002 for obesity has been submitted. Management expects approval potentially as early as the end of 2027; a pre-biologics license application meeting for its type 2 diabetes indication is expected in 2026.
The company expects to submit a biologics license application in the first quarter of 2027 for the obesity indication of its long-acting GLP-1R/GIPR drug HDM1005; patient enrollment has begun for the phase III clinical trial of DR10624.