Can Hengrui Medicine's $12 Billion Deal with GSK Bridge Its Internationalization Gap?

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Source: Scale Finance

Text | Yang Wanli

Leading Innovative Drug CompanyHengrui Pharma, Total Market Value Returns to 420 Billion Yuan: What Happened?

On the morning of July 28, Hengrui Pharma announced that it had reached an overseas licensing agreement for an innovative drug with GSK (Chinese name: GlaxoSmithKline), with a potential total amount of approximately 12 billion US dollars (equivalent to approximately 86.13 billion yuan).

Affected by the above news, on July 28, Hengrui Pharma's stock price opened high and continued to rise, eventually closing at the daily limit. On July 29, Hengrui Pharma's share price continued to increase by 2.85%. By the close, the stock price was 63.8 yuan, with a total market value of 423.5 billion yuan.

The $86 billion deal represents a significant breakthrough for Hengrui Pharma in its recent business expansion, while also drawing attention to the challenges it faces in the process of internationalization.

Many years ago, founder Sun Piaoyang led Hengrui Pharma in exploring international business. However, data shows that international operations have a "weakness": over the past eight years, Hengrui Pharma's annual overseas revenue has been consistently below 800 million yuan, accounting for less than 5% of total revenue. Additionally, some comparable companies in the industry are expected to achieve overseas revenues exceeding 5 billion yuan in 2024, surpassing Hengrui Pharma.

With this licensing collaboration reached with GSK, Hengrui Pharma's innovative drugs "going overseas" have accelerated.

Exploring "going global" twenty years ago,

Over the past 8 years, foreign revenue accounted for less than 5%

Hengrui Pharma is an innovative pharmaceutical company with operations covering products in oncology, neuroscience, imaging agents, metabolism, and cardiovascular fields.

On the company's official website, Hengrui Pharma mentioned adhering to a dual-driven strategy of scientific innovation and internationalization. The company outlined its development goals: striving to become a multinational pharmaceutical enterprise with international influence within 5-10 years.

Sun Piaoyang once stated in an interview that Chinese pharmaceutical companies must deeply integrate with the world and play well in the "World Cup" of innovation. He also believes that Hengrui Pharma is pursuing innovation on a global scale.

Multinational pharmaceutical companies, as the name implies, operate not only in their home countries but also expand their businesses to multiple nations worldwide. As early as two decades ago, Sun Piaoyang led Hengrui Pharma to fully embark on its path to internationalization.

In 2005, Sun Piaoyang invested $2.9 million to establish an office in the United States. Afterwards, Hengrui Pharma set up production lines that met European and American standards, studied foreign registration systems, actively collaborated with overseas universities and research institutes, purchased substantial insurance for pharmaceutical enterprises to protect patient interests, and introduced foreign commercial companies to sell products, actively exploring through a series of measures.

In 2011, Hengrui Pharma's high-end formulation product - Irinotecan was approved for marketing in the U.S., becoming the first injectable product produced in China to be approved for marketing in the United States.

Hengrui Pharma, which has been strategically expanding in the international market for many years, has achieved阶段性业绩, but still has "shortcomings".

Taking the past eight years as an example, from 2017 to 2024, Hengrui Pharma's overseas revenue was approximately 6.37 billion yuan, 6.51 billion yuan, 6.32 billion yuan, 7.58 billion yuan, 6.17 billion yuan, 7.79 billion yuan, 6.17 billion yuan, and 7.16 billion yuan, respectively. The proportion of overseas revenue to total revenue during the same period was 4.6%, 3.74%, 2.71%, 2.73%, 2.38%, 3.66%, 2.70%, and 2.56%, respectively.

As the data shows, over the past eight years, Hengrui Pharma's overseas revenue has consistently been below 800 million yuan, accounting for less than 5% of its total revenue during the same period.

Looking at the situation of comparable companies in the same industry,BeiGeneAchieved International Revenue of Approximately 17.1 Billion in 2024, Emerging as a New "Dark Horse" in Innovative DrugsBaili TianhengIn 2024, the international revenue is expected to reach approximately 5.332 billion.

Compared with well-known innovative pharmaceutical companies in China, Hengrui Pharma has significant room for growth in international market revenue.

In fact, innovative pharmaceutical companies "going global" face both opportunities and challenges. The opportunity lies in the huge growth potential of the global pharmaceutical market, with China encouraging pharmaceutical companies to implement international strategies and benefiting from an engineering talent dividend domestically. However, the challenge involves market competition pressure from overseas pharmaceutical giants as well as domestic peers, along with strict regulatory environments abroad.

Given Hengrui Pharma's continuous efforts in international business, many securities analysts are optimistic about the company's future development potential.

For example, in a recent research report disclosed on July 28,Cathay Pacific HealthcareBroker analysts raised their profit forecast for Hengrui Pharma, predicting that the company's revenue will reach 35.771 billion yuan in 2025, with an estimated net profit attributable to shareholders of 9.277 billion yuan. July 28,Everbright SecuritiesSecurities analysts raised the net profit attributable to Hengrui Pharma to 8.33 billion yuan.

Sign 86 billion yuan in major contracts,

Will Hengrui's Second Growth Engine Start?

Hengrui Pharma is widely recognized as a blue-chip stock in the secondary market, but it has experienced a period of earnings trough.

In 2021, Hengrui Pharma's revenue and attributable net profit decreased by 6.59% and 28.41% year-on-year respectively. In 2022, Hengrui Pharma's revenue and attributable net profit decreased by 17.87% and 13.77% year-on-year respectively. The decline in performance is related to factors such as accelerated R&D investment and a decrease in gross profit margin.

In 2023, Hengrui Pharma's revenue and net profit attributable to shareholders increased by 7.26% and 10.14% year-on-year, respectively. Although the growth rate turned positive, the scale of revenue and net profit at that time had not yet returned to the performance level of 2020.

Not until 2024 did Hengrui Pharma emerge from its downturn. Last year, Hengrui Pharma achieved revenue of 27.98 billion yuan, representing a year-on-year increase of 22.3%; net profit attributable to shareholders reached 6.337 billion yuan, marking a year-on-year increase of 47.28%.

Against the backdrop of recovering performance and Chinese pharmaceutical companies ramping up internationalization, the overseas expansion of innovative drugs is regarded by Hengrui Pharma as the second engine for revenue growth.

In recent years, Hengrui Pharma has been ramping up its international business, with specific measures including the recruitment of top-tier talent and a focus on innovative drugs.

In terms of top talent, in January 2023, Hengrui Pharma brought in Jiang Ningjun (currently serving as Executive Vice President and Director), who has extensive commercial experience. Since Jiang Ningjun joined, Hengrui Pharma has reached multiple deals with multinational pharmaceutical companies.

In April 2025, Hengrui Pharma announced the appointment of Feng Ji as General Manager (President) and Chief Operating Officer. According to her work experience, Feng Ji has global business management experience and international resources and capabilities from her time at AstraZeneca.

In terms of products, by the end of 2024, Hengrui Pharma has received approval for 17 new molecular entity drugs (Class 1 innovative drugs) and 4 other innovative drugs (Class 2 new drugs) in China. The progress of these innovative drugs is inseparable from research and development support. Hengrui Pharma disclosed that the company's cumulative R&D investment has reached 46 billion yuan.

How effective is the overseas expansion of innovative drugs?

On July 4 this year, a staff member of Hengrui Pharma introduced that since 2018, the company has conducted 14 out-licensing transactions with global partners, with a potential total transaction value of approximately 14 billion US dollars, and also obtained equity from several partners.

If the recently disclosed transactions are included, the total potential transaction amount of Hengrui Pharma's external licensing reaches a new level.

The announcement on July 28 showed that Hengrui Pharma and GSK reached an agreement to grant GSK the exclusive rights to the markets outside of China for the HRS-9821 project, as well as the exclusive option for global exclusive licenses of up to 11 projects.

According to the agreement, GSK will pay Hengrui an upfront payment of 500 million US dollars; if all projects are exercised and all milestones are achieved, Hengrui will be eligible to receive a potential total amount of approximately 12 billion US dollars based on successful development, registration, and sales milestone payments in the future; Hengrui will have the right to charge GSK corresponding tiered sales royalties.

Hengrui Pharma stated that the signing of this agreement will help expand the overseas markets for HRS-9821 and multiple innovative products in the fields of oncology, respiratory, autoimmune, and inflammation treatment, further enhancing the company's innovative brand and overseas performance.

However, it should be noted that the payments based on future successful development milestones stipulated in the agreement are subject to certain conditions. The final option exercise fee and milestone payment amounts remain uncertain.

This means that Hengrui Pharma has the opportunity to secure a multi-billion-dollar contract, provided that relevant conditions are met. However, this does not mean that it can obtain all of the aforementioned benefits at present.

Whether Hengrui Pharma, which has secured a potential large order, can successfully convert it into performance to support its rapid development remains to be verified by financial reports.

Editor: Yang Hongbo