Core Viewpoint - In 2024, Heng Rui Medicine achieved significant revenue growth, with total revenue reaching 27.985 billion yuan, a year-on-year increase of 22.63%, and net profit attributable to shareholders reaching 6.337 billion yuan, up 47.28% year-on-year, indicating a potential shift from "supply chain disruption" to "turnaround" [1][6]. Group 1: Performance Drivers - The strong performance in 2024 is primarily driven by substantial external licensing income, including 1.6 billion euros from Merck Healthcare and 1 billion USD from Kailera Therapeutics, leading to a sixfold increase in licensing income compared to 2023 [7][12]. - The company's core business net profit and non-recurring net profit would revert to around 4 billion yuan if excluding these non-recurring gains, indicating reliance on external partnerships for profit growth [7][15]. Group 2: Impact of Centralized Procurement - The generic drug business still contributes 50% to the company's revenue, and the impact of centralized procurement remains significant, with ongoing effects from previous rounds of procurement [3][4]. - The third and fifth rounds of centralized procurement led to substantial revenue declines in 2021, with sales dropping by 55% and 37% respectively for affected products [3][4]. - The seventh round of procurement also saw a 48% decline in sales for affected products, and the upcoming ninth round is expected to further impact revenue in 2025 [5][6]. Group 3: Valuation and Investment Considerations - The current rolling P/E ratio of around 50 suggests that the company may need 2-3 years to digest this valuation, with expectations of net profit growth slowing to 15%-20% from 2025 to 2027 [17][18]. - The market is shifting focus from short-term profits to long-term innovation value, which may limit the short-term upside for Heng Rui Medicine, given its significant reliance on generic drugs [20].

Core Insights - Hansoh Pharmaceutical reported a total revenue of approximately 12.261 billion RMB for 2024, representing a year-on-year growth of about 21.3%, and a net profit attributable to shareholders of 4.372 billion RMB, up 33.4% year-on-year [1] - The proportion of innovative drugs in total revenue increased significantly from less than 20% at the time of the company's Hong Kong listing to 77.3% in 2024, highlighting the successful transition to an innovation-driven pharmaceutical company [1][5] - The company achieved revenue of 9.477 billion RMB from innovative drugs and collaborative products, marking a year-on-year increase of 38.1% [1] Revenue Breakdown - In 2024, revenue from various therapeutic areas included approximately 8.122 billion RMB from oncology, 1.464 billion RMB from anti-infection, 1.379 billion RMB from central nervous system disorders, and 1.296 billion RMB from metabolic and other diseases, accounting for 66.2%, 11.9%, 11.3%, and 10.6% of total revenue respectively [1] R&D Investment - The company invested 2.702 billion RMB in R&D, which accounted for 22% of total revenue, focusing on major disease areas such as oncology, central nervous system disorders, metabolism, and autoimmune diseases [2] - Key products in development include the lung cancer treatment Amelot, which has three indications entering NDA stage, and other drugs like HS-20094 and HS-10374 progressing to Phase III clinical trials [2] Business Development (BD) Cooperation - In 2024, revenue from BD cooperation reached 1.573 billion RMB, including a 185 million USD upfront payment from GSK for HS-20093 [4] - The company secured a global exclusive license for an oral GLP-1 small molecule from Merck, receiving an upfront payment of 112 million USD and potential milestone payments of up to 1.9 billion USD [4] - Collaborations with international pharmaceutical companies like GSK and Merck are aimed at accelerating global market expansion [4] Strategic Direction - The company aims to continue its transformation from generics to innovative drugs, leveraging R&D and international strategies while enhancing BD cooperation to optimize its global market presence [5]