Why did both A-share and H-share prices of Hengrui fall together after its financial report, despite continued growth in its innovative drug revenue?

This decline can be easily summarized in one sentence: Hengrui’s interim report fell short of market expectations. The issue lies here: In the first half of the year, Hengrui’s innovative drug sales revenue reached RMB 8.809 billion, up 16.38% year-on-year; non-oncology innovative drug revenue grew nearly 74%. Although innovative drug sales are growing, this growth has yet to translate into increases in the company’s total revenue, net profit attributable to shareholders after non-recurring gains/losses (‘non-GAAP net profit’), or operating cash flow. What the market is currently debating is not whether Hengrui has innovative drugs—but rather, when these innovative drugs will truly sustain profitability and generate robust cash flow. 📌 Key points covered in this article: 01 Why innovative drug growth hasn’t lifted total revenue 02 What drives the divergence between net profit attributable to shareholders and non-GAAP net profit 03 What declining operating cash flow signals ANALYSIS Innovative drug sales are growing—but haven’t lifted total revenue yet First, examine product sales. Hengrui’s total revenue for the first half was RMB 15.456 billion, down 1.94% year-on-year; product sales revenue stood at RMB 13.948 billion, up only 1.87%. Within this segment—where overall growth was virtually flat—innovative drugs already contributed RMB 8.809 billion, accounting for 63.16% of pharmaceutical sales revenue. Oncology innovative drug sales revenue totaled RMB 6.265 billion, up 2.58% year-on-year; non-oncology innovative drug sales revenue reached RMB 2.545 billion, surging 73.97% year-on-year. Historically, Hengrui’s strongest identity has been as an oncology drug company—but this interim report reveals a new Hengrui emerging, with autoimmune, metabolic, and other non-oncology products becoming new sources of growth. The company has not cut back on R&D investment: total R&D expenditure in the first half amounted to approximately RMB 4.605 billion, up 18.96% year-on-year—about 29.8% of revenue; R&D expenses recognized in the current period totaled RMB 3.493 billion, up 8.21% year-on-year. Hengrui isn’t facing stagnation in innovative drug development—it’s confronting a transitional phase where mature products are slowing, while new growth drivers have yet to scale sufficiently to lift a company with annual revenue exceeding RMB 30 billion. In the past, mature products provided steady cash flow while R&D pipelines prepared for succession; today, successor products have entered the market—but slowdowns in legacy businesses and heavy commercialization investments have prolonged the handover period. ANALYSIS Attributable net profit appears stable—but non-GAAP net profit tells another story Hengrui’s net profit attributable to shareholders for the first half was RMB 4.465 billion, up just 0.34% year-on-year—essentially flat; non-GAAP net profit was RMB 3.73 billion, down 12.71% year-on-year. Stable attributable net profit does not mean core operations face no pressure. The interim report’s notes list non-recurring items—including fair value changes—that supported attributable net profit; exact amounts are detailed in the official interim report notes. The divergence between attributable net profit and non-GAAP net profit indicates that factors outside core operations are influencing the profit-and-loss statement. Changes in Q2 were even more pronounced. The company did not disclose a standalone Q2 income statement; the figures below are derived by subtracting Q1 results from the semi-annual report—intended solely for trend observation, not official Q2 disclosures. By this method, Hengrui’s Q2 revenue was approximately RMB 7.315 billion, down ~14.5% year-on-year; attributable net profit was ~RMB 2.183 billion, down ~15% year-on-year; non-GAAP net profit was ~RMB 1.557 billion, down ~35% year-on-year. Q1’s growth had temporarily propped up the headline H1 growth rate; by Q2, both revenue and profits weakened concurrently—revealing mounting pressure on core operations.

How will the innovative drug sector perform amid the third-quarter earnings release and the ESMO conference catalyst?

Based on comprehensive analysis of institutional research reports, the innovative drug sector is currently experiencing a confluence of three key factors: technological transformation, industrial globalization, and historically low valuations. 1. Technology empowerment: Accelerated adoption of AI-driven drug discovery Analysts suggest that the rapid advancement of large language models (LLMs) and other AI technologies is accelerating scientific discovery across biomedical fields. AI is evolving from a simple information-retrieval tool into a system capable of executing end-to-end decision-making processes—including de novo molecular design—potentially reshaping the foundational logic of drug discovery. Since 2026, foundational LLM providers have continuously increased investment in healthcare, and collaboration models between pharmaceutical companies and AI firms have shifted from project-based engagements toward enterprise-level deep integration—including model subscription services and joint laboratories. The industry has now entered a critical phase where clinical validation and commercial order fulfillment are converging. (Source: Guotai Haitong Securities, “AI-Driven Drug Discovery Reaches an Industrial Inflection Point: Large Models Reshape Industry Paradigms,” October 14, 2026) After analyzing data from 40 publicly listed CRO/CDMO companies, institutions conclude that upstream scientific research firms are steadily strengthening their AI capabilities, establishing a complete closed-loop system encompassing ‘AI design → experimental validation → data feedback → model iteration.’ As AI-driven drug discovery demand increasingly translates into tangible orders, upstream research service providers are poised to benefit first. (Source: BOC International Securities, “CRO/CDMO Sector Remains Robust; AI Empowers Upstream Research,” October 12, 2026) 2. Industrial upgrading: Accelerated globalization of China-made innovative drugs This year, the globalization of China-made innovative drugs has advanced steadily, with multiple overseas licensing deals finalized. The industry is undergoing rigorous testing and iterative improvement through global clinical trials and regulatory submissions. Institutions note that Chinese pharmaceutical enterprises are transitioning from BD (business development) licensing toward systematic international expansion and strategic alliances. International conferences such as ESMO are becoming concentrated windows for validating pivotal clinical data—and global recognition of innovation value is expected to further strengthen. (Sources: Securities Daily, “How Can China’s Innovative Drugs Sustain Global Expansion?”, October 12, 2026; Zhongcai Net, “Accelerating Globalization of Innovative Drugs: Globalization 2.0 Drives Dual Growth in Performance and Valuation,” October 11, 2026) From a global perspective, Chinese players are rapidly integrating into the worldwide pharmaceutical innovation ecosystem. Leveraging upgraded innovation capacity and resilient supply chains, upfront payments for overseas licensing of China-developed innovative drugs have risen markedly in recent years; medical devices are also actively expanding overseas markets. Against the backdrop of patent cliffs confronting multinational pharma companies—and their consequent strong need to replenish pipelines—China’s innovative assets offer compelling global cost-effectiveness, creating substantial room for cross-border industrial collaboration. (Source: China Securities Co., Ltd., “Pharmaceuticals, Medical Devices & Services Sector: Q3 2026 Outlook,” October 11, 2026) 3. Valuation advantage: Enhanced defensive investment appeal According to Wind data, as of October 18, 2026, the HKEx Connect Innovative Drug Index (987018.CNI) and the CS Innovative Drug Index (931152.CSI) traded at P/E ratios of 35x and 41x, respectively—placing them at the 22nd and 46th percentiles of their respective five-year historical ranges, i.e., at historically mid-to-lower levels. Analysts note that the innovative drug sector continues to receive policy support across R&D, market access, and reimbursement—while rising investor interest in defensive sectors further strengthens the foundation for valuation recovery.

Ashland Reports Higher Q4 Sales and Earnings Driven by Pharma Growth

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Ashland Global Holdings reported higher Q4 sales and adjusted earnings driven by pharmaceutical and personal care product growth. The company provided fiscal 2027 guidance projecting sales between $1.905 billion and $1.975 billion.

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