Hengrui Pharmaceuticals: A Strategic Undervaluation Amid Global Healthcare Growth

The Hong Kong listing of Jiangsu Hengrui Pharmaceuticals (SHSE:600276) at HK$44.05 per share—priced at the top of its marketed range—has sparked debate over whether its valuation reflects a rare opportunity in a crowded biotech landscape. With a 25% discount to its Shanghai-listed shares and a fundraising haul of $1.3 billion, Hengrui is positioning itself at the intersection of China’s healthcare reforms and global biotech trends. This article argues that its current valuation, while elevated by traditional metrics, remains compelling when viewed through the lens of its pipeline, strategic capital allocation, and the structural tailwinds reshaping healthcare.

Valuation: A Premium, But for a Reason

Hengrui’s P/E ratio of 51.32x (as of May 2025) is nearly double the industry median of 22.3x, and its EV/EBITDA of 43.3x far exceeds peer averages. Critics may cite this as overvaluation, but these metrics fail to capture the company’s growth catalysts:
- Pipeline Dominance: Hengrui’s oncology portfolio—spanning targeted therapies, immuno-oncology, and CAR-T cell therapies—is among the most advanced in Asia. Its lead asset, a PD-1 inhibitor, has shown efficacy in multiple tumor types, while a novel bispecific antibody is in late-stage trials.
- China’s Healthcare Reforms: The government’s push to reduce drug prices through centralized procurement has penalized legacy players but rewards innovators like Hengrui. Its focus on patented, high-margin therapies aligns with reforms favoring domestic biotech champions.
- Global Expansion: With cornerstone investors like Singapore’s GIC and Hillhouse Capital committing $533 million, Hengrui is securing capital to build overseas manufacturing and pursue partnerships in Europe and the U.S., where its oncology pipeline could command premium pricing.

Why the Discount to Shanghai Shares Is Strategic, Not a Bargain

The 25% discount to its Shanghai listing reflects Hengrui’s dual objectives:
1. Liquidity and Diversification: By listing in Hong Kong, it taps into a broader pool of global investors, reducing reliance on mainland markets. This is critical as it pivots toward capital-intensive R&D and overseas expansion.
2. Valuation Discipline: Hong Kong’s more demanding investor base may initially undervalue Hengrui’s potential, but this creates a margin of safety. Over time, as its pipeline matures and international sales ramp up, the stock could converge with Shanghai’s premium.

The Case for Long-Term Growth

Hengrui’s 20% revenue growth in Q1 2025 underscores its resilience in a slowing economy. Yet its true upside lies in its R&D engine:
- Innovation Over Volume: Unlike peers focused on generics, Hengrui invests 15-20% of revenue in R&D, targeting therapies for metabolic disorders, cardiovascular diseases, and rare cancers—areas with high unmet needs and pricing power.
- Global Commercialization: The Hong Kong proceeds will fund FDA approvals for key assets, unlocking markets where pricing constraints are less stringent. For example, its bispecific antibody could command $1 billion+ in annual sales in the U.S. alone.

Risks and Mitigants

• Regulatory Headwinds: China’s price controls could pressure margins, but Hengrui’s focus on patented drugs shields it better than competitors.
• Pipeline Delays: While unlikely given its advanced trials, setbacks could dent sentiment. The cornerstone investments and diversified investor base provide a cushion.

Conclusion: A Rare Combination of Growth and Value

At HK$44.05, Hengrui trades at a discount to its Shanghai valuation but commands a premium over peers—a reflection of its unique position in China’s healthcare transformation and its global ambitions. With analysts projecting a 13% upside to its price target and a fair value estimate suggesting further gains, now is the time to act.

For investors seeking exposure to the next wave of biotech innovation, Hengrui’s Hong Kong listing offers a rare blend of undervaluation relative to its peers and the catalysts to realize it. This is a stock to buy and hold as the global healthcare landscape evolves.

Act now—before the market catches up to Hengrui’s potential.