(Yicai) Oct. 28 -- Shares of Hengrui Pharmaceuticals surged after the Chinese drugmaker reported solid earnings in the first three quarters of the year, mainly buoyed by its innovative drug business.

Hengrui Pharma [SHA: 600276; HKG: 1276] was trading up 6.2 percent at CNY48.38 (USD7.25) in Shanghai and 11.1 percent at HKD49.66 (USD6.33) in Hong Kong as of 2.45 p.m. today.

Revenue rose 5.3 percent to CNY24.4 billion (USD3.7 billion) in the nine months ended Sept. 30 from a year earlier, with revenue from product sales up 2.5 percent to CNY21.5 billion, the Jiangsu province-based company said in its latest financial statement yesterday. Net profit widened 20 percent to CNY6.9 billion (USD1 billion).

Revenue from the innovative drug out-licensing business surged over 31 percent to CNY2.8 billion in the first three quarters from a year ago, mainly thanks to revenue recognized from GlaxoSmithKline and Bristol Myers Squibb based on the progress of fulfillment of performance obligations and milestone payments for certain out-licensing products.

Hengrui Pharma generated CNY13.9 billion in revenue from innovative drug sales in the first three quarters, up 17 percent from the same period last year, accounting for nearly 65 percent of total product sales.

Among them, sales of innovative oncology products increased 3.1 percent to CNY9.9 billion, and that of innovative non-oncology drug products surged 75 percent to CNY4 billion, accounting for 71 percent and 29 percent, respectively, of the overall innovative drug sales in the period.

Due to factors such as changes in the external market environment, slower-than-expected progress in hospital access, and growing competition for certain innovative products launched earlier, Hengrui Pharma’s innovative oncology drug revenue growth in the first three quarters fell short of expectations, the company noted.

Although the growth rate improved in the third quarter, the full-year revenue growth rate from innovative drugs is still expected to remain below the target of 30 percent set at the beginning of the year, Hengrui Pharma added. “In the fourth quarter, the company will accelerate the market access process for new products and expand academic promotion efforts to provide solid support for rapid revenue growth.”

Meanwhile, revenue from generic drug sales continued to decline, down over 16 percent to CNY7.6 billion in the period, mainly due to the impact of national and regional centralized procurement policies. The company expects its proportion of sales revenue from generic drugs to decrease gradually, driven by continuous growth in innovative drug sales.

Hengrui Pharma’s aggregate research and development investment exceeded CNY7.1 billion in the first three quarters, including CNY5.4 billion in R&D expenses. Two of its Class 1 innovative drugs for marketing and five new indications for marketed innovative drugs were approved in the period.

In the third quarter, Hengrui Pharma reported revenue of CNY8.95 billion and net profit of CNY2.5 billion, up 21 percent and 89 percent, respectively, from a year earlier.

Due to delayed revenue from licensing out innovative drugs, the company’s earnings growth stalled in the first half, with revenue down 1.9 percent to CNY15.5 billion from a year ago, and net profit remaining basically unchanged at CNY4.5 billion in the period.

Editors: Tang Shihua, Futura Costaglione