Chinese Pharma Firms Shift to Innovation as Generics Face Intense National Volume-Based Procurement Pressure

Pharmaceutical companies' transition to innovation is beginning to show results.

After the implementation of the 2018 drug centralized procurement policy, many traditional pharmaceutical companies that relied on generic drug revenue saw their profits plummet overnight. In response to this situation, companies have sounded the clarion call for transformation into innovative pharmaceutical enterprises.

Nowadays, the transformation of pharmaceutical companies has shown initial success. Recently, the 2025 half-year reports disclosed by several pharmaceutical companies indicate that innovative drugs have accounted for more than half of the companies' revenue.

Innovative Drugs Become Growth Drivers

Hengrui Pharma(600276.SH, 01276.HK) The semi-annual report shows that in the first half of 2025, the company achieved operating revenue of 15.762 billion yuan, a year-on-year increase of 15.88%; net profit attributable to shareholders of the listed company was 4.45 billion yuan, a year-on-year increase of 29.67%.

Although the sales revenue of Hengrui Pharma's generic drugs included in the centralized procurement slightly declined, the increase in innovative drug sales and the income from external licensing drove the overall performance growth of the company.

In the first half of 2025, Hengrui Pharma's innovative drug sales and licensing revenue reached 9.561 billion yuan, accounting for 60.66% of the company's total revenue, with innovative drug sales revenue reaching 7.57 billion yuan.

Since 2018, the drug procurement initiatives driven at the national level in China have aimed to reduce the inflated prices of generic drugs and alleviate the financial burden of medication for patients.

It was also from 2018 that Hengrui Pharma's generic drug business began to involve products in the centralized procurement, which put pressure on the company's generic drug revenue. The years 2021 and 2022 were a period of growing pains for the company, with performance continuously declining. However, starting from the first quarter of 2023, benefiting from increased sales of innovative drugs and revenue from external licensing, the company's performance rebounded after hitting bottom.

Like Hengrui Pharma, Hansoh Pharma (03692.HK) also originates from Jiangsu.LianyungangThe pharmaceutical company, which started with generics, has been transforming into an innovative pharmaceutical enterprise in recent years.

Hansoh Pharma's semi-annual report shows that in the first half of 2025, the company's innovative drug and collaboration product sales revenue reached approximately 6.145 billion yuan, increasing by 22.1% year-on-year, accounting for about 82.7% of the company's total income, becoming the core driving force for the sustainable growth of the company's performance.

In the first half of 2025, Hansoh Pharma achieved revenue of 7.434 billion yuan, a year-on-year increase of 14.3%; net profit was 3.135 billion yuan, a year-on-year increase of 15%.

Grand Pharmaceutical Group Limited (00512.HK) announced in its interim report that in the first half of 2025, the company achieved a record high revenue of approximately HK$6.11 billion, with innovative and barrier products accounting for about 51% of the revenue, an increase of nearly 15 percentage points year-on-year. Excluding the impact of centralized procurement and exchange rate fluctuations, the company's revenue increased by approximately 13% year-on-year. During this period, the company's net profit reached approximately HK$1.17 billion.

Simcere (02096.HK) announced in its semi-annual report that, in the first half of 2025, the company's total revenue increased by 15.1% year-on-year to RMB 3.585 billion, with an adjusted net profit of RMB 651 million, a year-on-year increase of 21.1%. This growth was driven by the increase in innovative drug revenue. The company has launched ten innovative drugs, generating RMB 2.776 billion in revenue from innovative drugs, a year-on-year increase of 26%. Revenue from innovative drugs accounted for more than three-quarters of total revenue for the first time, reaching 77.4%.

Internationalization Remains a Challenge to Break Through

In recent years, many pharmaceutical companies have been increasing their investment in research and development.

In the first half of 2025, Hengrui Pharma's R&D investment reached 3.871 billion yuan (including 3.228 billion yuan in expense-based R&D investment). By the end of June 2025, the company's total R&D investment had exceeded 48 billion yuan.

As of the interim report for 2025, Hengrui Pharma has over 100 self-innovated products in clinical development and more than 400 clinical trials being conducted both in China and internationally.

Simcere's semi-annual report shows that the company's R&D investment ratio for the period was 28.7%, with cumulative R&D investment exceeding 10 billion yuan over the past decade, and an innovative drug R&D pipeline covering a global layout of over 60 projects has been established.

As of the first half of 2025, the revenue from innovative drug products of China Biologic Products (01177.HK) accounted for 44.4% of the company's total income. Although this proportion has not yet reached half, the company is also strengthening its innovative drug business through acquisitions.

In July 2025, China Biologic Products announced the full acquisition of Shanghai-based innovative pharmaceutical company Limin Pharmaceuticals for a net consideration of $500 million. China Biologic Products stated that this acquisition will significantly enhance the company's core competitiveness and international influence in the field of oncology innovation. The company will fully leverage its platform advantages in clinical, manufacturing, and commercialization to accelerate the transformation of Limin Pharmaceuticals' innovative assets.

Traditional pharmaceutical companies are transforming into innovative pharmaceutical enterprises, driven both by the pressure of centralized procurement policies and the rise of China's pharmaceutical innovation environment. Looking back at China's innovative drug industry, 2018 is considered the first year of tumor immunotherapy. From that year, domestically produced monoclonal antibody drugs like PD-1 were approved for marketing in China, thus kicking off the sales of domestically produced innovative drugs. In recent years, a large number of domestically produced innovative pharmaceutical companies have successively been approved to go public in China.

However, from the current perspective, the revenue from innovative drugs of the aforementioned pharmaceutical companies mainly comes from the domestic market, and the sales of most companies' innovative drugs are primarily confined to the domestic market.

Insight database data shows that in 2024, the list of the top 100 best-selling drugs globally will finally feature a drug produced in China, but only one, namelyBeiGeneThe BTK inhibitor zanubrutinib reached an income of $2.644 billion in 2024, and BeiGene is not a traditional pharmaceutical company.

The top 100 drugs in global sales all have annual sales ofAt a scale of over 1.7 billion U.S. dollars, the revenue from these drugs also comes from sales in multiple markets worldwide.

In recent years, Chinese pharmaceutical companies have proposed to explore international markets. However, at this stage, more of them are going overseas by means of external licensing. Selling innovative drugs overseas through self-built sales teams is still in its infancy.

To date, Hengrui Pharma has cumulatively reached 15 outbound licensing cooperation agreements.

Hengrui Pharma stated in its semi-annual report that the company remains committed to balancing independent research and development with open collaboration, while focusing on strengthening international cooperation based on internal growth. With a global perspective, the company actively explores partnerships with multinational pharmaceutical enterprises, innovative startups, innovation investment funds, and regionally leading pharmaceutical companies. It seeks collaboration opportunities with globally leading pharmaceutical firms to accelerate the transformation of R&D achievements. By leveraging internationally renowned partners to access overseas markets, Hengrui Pharma aims to integrate rapidly into the global drug innovation network, ultimately maximizing the value of its products.

Simcere stated that, with the successful dual filing of several new drugs under development in both China and the U.S., the company is accelerating its global layout. Currently, the company has cumulatively achieved three self-developed overseas projects, and external licensing is expected to become a source of sustainable growth for the company.

Grand Pharmaceutical Group Limited also stated that the logic of growth driven by the company's innovative products has gradually become clear. On this basis, the company is actively promoting the "second growth pole" by advancing innovation overseas.