Hengrui Medicine 2025 Annual Report Analysis: Operating Cash Flow Increased by 51.36%, Financing Cash Flow Increased by 601.85%

Operating Revenue: Dual Drivers of Innovative Drugs and External Licensing, Steady Expansion in Revenue Scale

In 2025, the company achieved operating revenue of 31.629 billion yuan, representing a year-on-year increase of 13.02%. Revenue growth was mainly driven by two engines: first, sales revenue from innovative drugs reached 16.342 billion yuan, up 26.09% year-on-year; its share of drug sales revenue increased to 58.34%. Among them, revenue from anti-tumor products was 13.240 billion yuan (up 18.52% year-on-year), revenue from non-tumor products was 3.102 billion yuan (up 73.36% year-on-year). Commercialization results from the innovative drug pipeline continued to be released; second, external licensing revenue from innovative drugs reached 3.392 billion yuan, becoming an important new incremental contributor to revenue growth. During the reporting period, licensing cooperation was reached with multiple multinational enterprises such as MSD and GSK, and large upfront payment revenue was recognized.

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Net Profit: Profitability Level Continues to Improve, Profitability Strength Steadily Enhances

In 2025, the net profit attributable to shareholders of the listed company was 7.711 billion yuan, up 21.69% year-on-year; net profit after excluding non-recurring items was 7.413 billion yuan, up 20.00% year-on-year. The net profit growth rate was significantly higher than the revenue growth rate. On the one hand, this was due to the increased proportion of innovative drugs, which drove optimization of the overall gross margin. On the other hand, under the company’s refined management and control, the expense ratio remained relatively stable, and the scale effect gradually emerged. Meanwhile, non-recurring gains and losses had a relatively small impact on net profit. The growth rates of non-recurring net profit and net profit were basically synchronized, indicating high profit quality.

Earnings Per Share: Limited Impact from Share Dilution, Earnings Indicators Maintain Growth

In 2025, basic earnings per share was 1.19 yuan per share, up 19.00% year-on-year; earnings per share after excluding non-recurring items was 1.14 yuan per share, up 17.53% year-on-year. During the reporting period, the company issued 258 million H shares, leading to an increase in total share capital, but because the growth rate of net profit was higher than the pace of share capital expansion, earnings per share still achieved steady growth, and the dilution impact was lower than market expectations.

Expenses: Overall Management and Control Effect Is Evident; Structural Optimization Supports Innovation

In 2025, the company’s total period expenses amounted to 1.846 billion yuan (financial expenses were negative). The expense ratio was approximately 58.39%, slightly down from the previous year, showing a significant effect of expense management and control. By expense category:

• Selling expenses: 9.106 billion yuan, up 9.24% year-on-year, with the growth rate lower than that of revenue. The expense structure continued to be optimized, with the proportion of employee compensation and academic promotion expenses increasing, and the proportion of professional consulting and conference expenses decreasing. Under the academic promotion model, expense deployment efficiency was further improved.
• Administrative expenses: 2.806 billion yuan, up 9.80% year-on-year, mainly due to an increase in employee compensation and office expenses, in line with the company’s scale expansion and adjustments to its organizational structure.
• Financial expenses: -0.407 billion yuan, narrowing by 28.95% year-on-year, mainly due to decreased interest income and increased foreign exchange losses, though the company still maintained a net gains position overall.
• R&D expenses: 6.961 billion yuan, up 5.75% year-on-year. The R&D investment intensity was approximately 22.0%. The company continued to maintain high R&D investment to support pipeline innovation. During the reporting period, 14 innovative achievements were approved for listing, and the R&D pipeline entered a harvest period.

R&D Personnel Overview: Expansion of a Global Talent Team, Continuous Strengthening of Innovation Capability

By the end of 2025, the company had 5,684 R&D personnel, accounting for 27.59% of the company’s total headcount, further expanding compared with the previous year. In terms of personnel structure, there were 742 doctoral degree holders and 2,634 master’s degree holders; together they accounted for 59.39% of R&D personnel, and the proportion of high-education talent remained high. The age structure was mainly 30–40 years old (3,202 people, accounting for 56.33%), making the R&D team both younger and rich in experience. In addition, among the company’s R&D team, about 30% of middle- and senior-level management personnel have overseas education or work backgrounds. The international talent reserve has been continuously strengthened, laying a foundation for global pipeline deployment.

Cash Flow: Both Operating and Financing Cash Flows Increase; Capital Reserves Increase Significantly

In 2025, the company’s cash flow performance was impressive. Cash flows from operating activities and financing activities both recorded substantial growth, and the strength of capital reserves increased significantly:

• Net cash flow from operating activities: 11.235 billion yuan, up 51.36% year-on-year. This was mainly due to an increase in cash received from upfront payments under external licensing. Under the commercialization of innovative drugs and the external licensing model, cash inflow efficiency improved significantly.
• Net cash flow from investing activities: -2.741 billion yuan, with the net outflow widening by 43.33% year-on-year. This was mainly due to increased expenditures on long-term asset purchases such as fixed assets and intangible assets. The company has continued to increase capacity-building efforts to support large-scale production of innovative drugs.
• Net cash flow from financing activities: 7.782 billion yuan, up 601.85% year-on-year. This was mainly due to net proceeds from the issuance of H-share stocks of 10.285 billion yuan during the reporting period, which provided sufficient funding support for the company’s global strategy and pipeline R&D.

Potential Risks: Multiple Challenges in Innovation and Internationalization

2. R&D innovation risk: The drug R&D cycle is long and requires substantial investment, and review standards continue to rise. Meanwhile, as innovation targets move forward, there is a higher risk of R&D failure. Continuous optimization of end-to-end R&D management is required to improve project selection accuracy and R&D efficiency.
3. Industry policy risk: Policies such as volume-based procurement and dynamic adjustments to the medical insurance formulary continue to be advanced, which may affect drug profitability levels. It is necessary to closely track policy changes, adjust product structure and pricing strategies, and strengthen cost control.
4. Quality control risk: There are many steps in drug production, making quality management difficult. If quality issues arise, it will have a major impact on the company’s reputation and performance. It is necessary to continuously improve the end-to-end quality management system and strengthen compliant production.
5. Internationalization risk: Overseas clinical trials and commercialization involve different regulatory requirements, market competition, and cultural differences across countries. If partners in external licensing cooperation do not advance as expected, it will affect milestone payments and the company’s global product layout. The company needs to continuously enhance international operating capabilities and strictly screen partners.
6. Environmental protection risk: Requirements for handling pollutants in drug production are becoming stricter. Increased environmental protection spending may affect profitability. It is necessary to continuously promote green production technology transformation and reduce environmental protection costs.

Compensation for Directors, Supervisors, and Senior Management: Executive Compensation Tied to Performance; Incentive Mechanisms Market-Oriented

During the reporting period, the Chairman Sun Piaoyang’s total pre-tax remuneration received from the company was 2.0147 million yuan; the President Feng Ji’s total pre-tax remuneration was 6.5362 million yuan; the Executive Vice Presidents Zhang Lianshan and Jiang Ningjun’s total pre-tax remuneration was 4.0373 million yuan and 4.4063 million yuan respectively; the Chief Financial Officer Liu Jianjun’s pre-tax remuneration was 2.5092 million yuan. Executive compensation is linked to the company’s performance. A market-oriented compensation system helps attract and retain core management talent, supporting the advancement of the company’s innovation and global strategy.

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Responsible editor: Xiaolang Kuailibao