Jiangsu Hengrui Pharmaceuticals Co.,Ltd. (SSE: 600276) recently released its interim report for the first half of 2026, and the numbers paint a less-than-rosy picture. During the reporting period, the company generated operating revenue of RMB 15.456 billion, a slight year-on-year dip of 1.94%. Net profit attributable to shareholders came in at RMB 4.465 billion, nearly flat, while non-GAAP net profit took a sharper 12.71% tumble. Even more concerning, cash flow from operating activities was nearly halved. The lingering question now is whether the "pharma leader" can sustain its growth narrative.
Revenue contraction hits first half-year in four years; non-GAAP profit and cash flow weaken sharply
Looking at the financials, the scorecard Hengrui Pharma delivered for the first half of 2026 is hardly encouraging. Operating revenue of RMB 15.456 billion, down 1.94% year-on-year, marks the company's first half-year revenue decline since 2023. Net profit attributable to shareholders was RMB 4.465 billion, a modest 0.34% increase. Notably, the period saw non-recurring gains of RMB 736 million, including a fair value change gain of RMB 821 million from the Nasdaq listing of associate company Kailera, which accounted for roughly 15.75% of total profit for the period. Stripping out non-recurring items, non-GAAP net profit stood at just RMB 3.730 billion, a steep 12.71% year-on-year drop.
On a quarterly basis, the second quarter alone saw operating revenue of RMB 7.315 billion, a sharp 14.5% year-on-year decline and a 10.14% sequential drop from Q1. Non-GAAP net profit attributable to shareholders for the quarter was around RMB 1.56 billion, plunging 35.4% year-on-year and down 28% quarter-on-quarter. This marks a dramatic slowdown compared to 2025's full-year revenue growth of 13.02% and net profit growth of 21.69%, as well as the double-digit growth seen in both metrics during Q1 2026.
Cash flow tells a similar story. Net cash generated from operating activities in the first half of 2026 was RMB 1.987 billion, a decrease of RMB 2.313 billion from RMB 4.3 billion in the same period last year, representing a hefty 53.80% year-on-year contraction. The primary culprit is a squeeze on the inflow side. In the first half of 2026, cash received from sales of goods and services totaled just RMB 13.443 billion, down RMB 2.223 billion or 14.2% year-on-year, largely because the prior-year period benefited from substantial upfront payments tied to out-licensing deals with partners like MSD, whereas BD licensing cash receipts have dwindled this year.
Legacy blockbusters fade; second growth curve remains elusive
On the business front, Hengrui Pharma is grappling with an accelerating contraction in its traditional generic drugs segment, stagnation in growth for its established oncology innovative drugs, and a non-oncology pipeline that remains too small to provide a safety net. Meanwhile, its much-anticipated overseas expansion faces challenges from an unstable business model and setbacks in self-developed drug approvals.
In the first half of 2026, Hengrui Pharma's innovative drug sales reached RMB 8.809 billion, up 16.38% year-on-year, now accounting for over 60% of total drug sales revenue. However, the oncology segment, which serves as the core of its innovative drug portfolio, has seen growth nearly grind to a halt. During the reporting period, anti-tumor innovative products, which represent 71.11% of total innovative drug sales, generated revenue of RMB 6.265 billion, a mere 2.58% year-on-year increase—a marked deceleration from 2025's full-year performance.
The stagnation in oncology stems from intense competition squeezing mature products. Early-market targeted therapies like pyrotinib are seeing terminal sales decline as next-generation ADC drugs and similar competitors flood the market. Apatinib and mecapegfilgrastim, meanwhile, have suffered revenue drops due to medical insurance renewal price adjustments, where volume gains failed to offset price cuts. These once-star products that underpinned Hengrui Pharma's innovative drug portfolio are now entering the twilight of their lifecycles, with growth engines gradually sputtering.
Even relatively stronger new products face the risk of hitting growth ceilings earlier than expected. Core varieties like rezerodine, dalpiciclib, and fuzuloparib continue to grow, but with an increasing number of competitors targeting the same pathways and already-low post-negotiation price baselines, the marginal benefits of further volume expansion are diminishing. Trastuzumab rezetecan (HER2 ADC), a heavyweight newly included in medical insurance, saw rapid volume growth in the first half, but the HER2 ADC space is already crowded with over a dozen products in development. Daiichi Sankyo and AstraZeneca's trastuzumab deruxtecan continues to erode market share through head-to-head clinical advantages, while domestic rivals like Rongchang Biology and Kelun-Biotech are accelerating their pursuit, setting the stage for a price war. How long Hengrui Pharma can sustain its first-mover advantage in this field remains uncertain.
On the generics side, sales in the first half of 2026 fell to RMB 5.139 billion, down 16.07% year-on-year, with their share of total drug sales dropping from 44.72% in the same period last year to 36.84%. Some of this decline can be attributed to the company's deliberate strategic retreat, including scaling back resources for low-margin generics and accelerating the clearance of centralized procurement risks. However, the lingering tail-end impact of volume-based procurement continues to weigh on the business. Products like butorphanol and sevoflurane saw revenue declines due to local procurement implementation, while already-procured items like nab-paclitaxel further contracted under national procurement renewal price cuts. Moreover, in July 2026, the 12th batch of national centralized drug procurement announced its proposed winning results, with sevoflurane securing a national bid—ushering the major anesthetic into the era of nationwide volume-based procurement. This suggests the downturn cycle for the generics business may not yet have bottomed out.
While the non-oncology segment is growing rapidly, its scale is still insufficient to become a new pillar. In the first half of 2026, revenue from non-oncology innovative drugs in areas like metabolism, autoimmune, and cardiovascular totaled RMB 2.545 billion, surging 73.97% year-on-year. But in absolute terms, this RMB 2.5 billion figure represents less than 20% of the company's nearly RMB 14 billion total drug sales, making it unlikely to offset the dual pressures of slowing oncology growth and declining generics in the near term. Furthermore, the autoimmune and metabolism spaces are equally cutthroat, with IL-17, JAK, and SGLT-2 pathways already saturated. Whether Hengrui Pharma can replicate its oncology market dominance in these areas remains to be seen.
On the internationalization front, Hengrui Pharma's overseas expansion currently relies primarily on the License-out model, where overseas rights to self-developed products are licensed to multinational pharmaceutical companies in exchange for upfront payments and milestone fees. In the first half of 2026, the company recognized RMB 1.422 billion in out-licensing collaboration revenue, mainly from the GSK partnership and Braveheart Bio milestone payments. Yet, while BD deals continue to make headlines, the company's self-developed drug approvals abroad have faced repeated setbacks. In April 2026, FDA site inspections once again uncovered issues, stalling the third submission of the "Double Ai" combination for market approval. Compared to BeiGene, Hengrui Pharma still has notable gaps in production quality system building and international operational capabilities.
BD collaborations themselves are also not without risk. In March 2026, Merck KGaA terminated its global licensing agreement with Hengrui Pharma for the PARP1 inhibitor HRS-1167 and abandoned its global option for the Claudin 18.2 ADC drug, scuttling a potential EUR 1.4 billion deal. As such, much of the so-called billion-dollar potential transaction value is largely illusory—what actually lands in the bank is limited to upfront payments and some early-stage milestones. Investors should be cautious about overestimating the long-term contribution of BD deals to performance.
Taken together, Hengrui Pharma is navigating the most difficult transition period in its history. Old growth engines are shutting down one by one, new engines have yet to generate sufficient momentum, and the overseas path, heavily dependent on the BD licensing model, carries inherent volatility. The road to transformation for Hengrui Pharma may prove far longer and more winding than the market anticipates.
Comments