Evaluating Biopharma stocks requires looking beyond traditional metrics, focusing instead on companies that have successfully navigated the entire drug development lifecycle—from molecule discovery and clinical research to commercialization—while generating sufficient revenue to sustain operations and fund future R&D pipelines.
Historically, valuations for innovative drug companies primarily considered the discounted net present value of a clinical pipeline's lifetime earnings. Simply put, for a single pipeline, assuming a 20% net profit margin, its value approximates 1x peak sales. However, post-acquisition by multinational corporations, the created market value can reach 2-3x peak sales, indicating a significant valuation gap between Biotech and Biopharma entities.
To further clarify this disparity, we examine specific biopharmaceutical firms—Innovent Biologics, Hengrui Pharmaceuticals, and BeiGene—to observe the relationship between their market capitalization, revenue scale, and R&D capabilities.
Innovent Biologics has transitioned from a Biotech to a Biopharma company. The critical factor for achieving Biopharma status is generating product sales revenue substantial enough to cover fixed costs, including administrative, sales, and R&D expenses. Considering Innovent's combined sales, administrative, and R&D expenses for 2022-2024 were RMB 6.297 billion, RMB 6.079 billion, and RMB 7.766 billion respectively, the company requires at least RMB 60 billion in revenue to qualify as a Biopharma.
Advancing further necessitates achieving profitability on the income statement. Using the mature Biopharma Hengrui Pharmaceuticals as a benchmark, its average combined administrative and R&D expense ratio from 2022-2024 was 34.0%. With Innovent's average combined administrative and R&D expenses during the same period at RMB 3.368 billion, the required revenue for Innovent to become a profitable Biopharma would be approximately RMB 99.06 billion (RMB 3.368 billion / 34%). Therefore, the period from 2022 to 2024 was crucial for Innovent's transformation from Biotech to Biopharma, during which its revenue ranged from RMB 4.556 billion to RMB 9.422 billion, while its market capitalization fluctuated between RMB 42.912 billion and RMB 87.589 billion.
As a leading domestic innovative drug company, Hengrui Pharmaceuticals serves as a valuation reference for other Biopharma companies, based on the relationship between its operating performance, R&D pipeline, and market cap fluctuations.
From 2022 to 2023, Hengrui's revenue and net profit attributable to shareholders were approximately RMB 220 billion and RMB 41 billion, respectively, with R&D expenses around RMB 49 billion. Its market capitalization fluctuated between RMB 2,044.47 billion and RMB 3,253.94 billion. Based on Price-to-Sales (PS) ratio, this corresponded to 9.34x-14.86x; the Price-to-Earnings (PE) ratio ranged from 49.81x to 79.29x; and the market cap / (net profit + R&D expenses) ratio varied between 22.65x and 36.05x. In 2024, the company's operating performance improved further, with the PS ratio range revising downward to 8.09x-13.11x, the PE ratio fluctuating between 35.75x and 57.91x, and the market cap / (net profit + R&D expenses) ratio further decreasing to 17.53x-28.40x. Projections for 2025 estimate Hengrui's revenue and net profit at RMB 315 billion and RMB 71 billion, respectively, with R&D expenses around RMB 64 billion. Consequently, Hengrui's 2025 PS ratio is projected between 8.6x and 15.02x, the PE ratio between 38.09x and 66.52x, and the market cap / (net profit + R&D expenses) ratio fluctuating from 19.72x to 34.44x.
Using Hengrui as an anchor, and considering that Innovent's management has repeatedly stated its 2027 target is RMB 20 billion in product revenue with 20 commercialized products, if the market's valuation of Hengrui is efficient, does Innovent with RMB 20 billion revenue in 2027 warrant a valuation range of RMB 200-320 billion?
As a Biopharma listed in China, the US, and Hong Kong, BeiGene's income statement differs significantly from its peers due to its "aggressive" R&D spending, which consistently exceeds RMB 10 billion annually. Using the mature biopharma benchmark of a 34% combined R&D and administrative expense ratio, BeiGene would need revenue of approximately RMB 54.118 billion (RMB 18.418 billion / 0.34) to normalize its income statement. Assuming a 20% net profit margin, its net profit could then reach around RMB 10.823 billion.
In the first three quarters of 2025, BeiGene's revenue reached RMB 27.595 billion, surpassing Hengrui's RMB 23.19 billion. However, BeiGene's peak market cap in 2025 was only HKD 353.505 billion, significantly lower than Hengrui's RMB 472.1 billion.
What is the reasonable market capitalization for Akeso Inc.? In the first half of 2025, Akeso's revenue was RMB 1.412 billion, a year-on-year increase of 33.67%. With full-year R&D expenses projected to be around RMB 1.461 billion, and using Hengrui's 2023 R&D expense ratio of 22.83% as a benchmark, Akeso would require revenue of approximately RMB 6.4 billion to achieve income statement normalization.
Therefore, anchoring to Hengrui's 2022-2023 metrics—RMB 220 billion revenue, RMB 41 billion net profit, 19 domestically approved drugs, and 12 clinical programs advanced to Phase III—which justified a reasonable valuation range of RMB 200-320 billion, Akeso, with RMB 6.4 billion revenue and comparable R&D pipeline capability, might warrant a reasonable market cap of HKD 64-102.4 billion.
However, Akeso's market cap fluctuation in 2025, ranging from HKD 45.417 billion to HKD 150.450 billion, already appears to fully price in expectations for the company to become a breakeven Biopharma. Additionally, a market cap around HKD 50 billion might reflect discounted value for Ivonescimab's (依沃西) overseas potential, contingent on the progress of its subsequent international clinical development.
This analysis primarily uses Hengrui Pharmaceuticals' 2022-2023 revenue, R&D strength, and market cap fluctuations as a benchmark to observe the relationship between revenue, R&D pipeline, and valuation. For biopharmaceutical companies transitioning from Biotech to Biopharma, revenue of RMB 6-10 billion and a market capitalization of RMB 50-100 billion may represent a critical threshold. Preliminary analysis suggests that, based on pipeline depth and revenue scale, Innovent Biologics might be undervalued; Akeso's market cap implies expectations for overseas Phase III approval; while BeiGene's revenue already exceeds Hengrui's, yet its market cap remains lower, likely due to its "abnormal" income statement. Naturally, these assessments require further detailed research for confirmation or refutation.
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