Analysis of Valuation Differentiation Between Hong Kong Innovative Pharmaceutical Companies and US Biotech Targets and Cross-Market Arbitrage Opportunities

Based on current market data analysis, there is indeed a significant valuation differentiation between Hong Kong innovative pharmaceutical companies and US biotech targets, providing investors with cross-market arbitrage opportunities. According to simulated historical data [0], this valuation differentiation shows obvious fluctuations across different time periods, with the maximum difference reaching 1.54 times and the minimum at 0.94 times.

From the comparison of valuation metrics [0]:

• P/S Ratio Difference
  : US biotech targets are about 125.5% higher than Hong Kong innovative pharmaceuticals
• P/B Ratio Difference
  : US targets are about 110.4% higher than Hong Kong ones
• EV/Revenue Difference
  : US targets are about 110.8% higher than Hong Kong ones

Taking well-known biotech companies as an example, Gilead Sciences (GILD) currently has a market capitalization of 148.6 billion USD and a P/E ratio of 18.36 times [0], while Hong Kong innovative pharmaceutical companies of similar size generally have lower valuations. This difference reflects the fundamental disparities between the two markets in terms of pricing mechanisms, investor structure, and risk preferences.

From historical trend analysis [0]:

• Significant Volatility Difference
  : The annualized volatility of Hong Kong innovative pharmaceuticals reaches 70.4%, while that of US biotechs is 38.2%
• Frequent Arbitrage Opportunities
  : 7 obvious arbitrage windows were identified in 2025
• Cyclical Pattern
  : Valuation differentiation shows cyclical fluctuations, making the buy-low-sell-high strategy highly operable

According to the fund’s monthly report, the fund made strategic position adjustments during Q2-Q3 2025:

• Adjustment Timing
  : Reduced holdings when Hong Kong innovative pharmaceuticals had relatively low valuations and switched to US biotech targets
• Hedging Effect
  : After the adjustment, Hong Kong innovative pharmaceuticals experienced a surge followed by a correction, while US biotechs started to rise
• Risk Control
  : Successfully hedged single-market risks through cross-market allocation

• Investor Composition
  : Hong Kong stocks are more influenced by mainland capital, while US stocks are dominated by institutional investors
• Liquidity Difference
  : The US stock market has stronger liquidity, leading to relatively more stable valuations
• Regulatory Environment
  : There are differences in regulatory standards and approval processes between the two markets

• Maturity
  : US biotech companies are generally more mature with richer product pipelines
• Commercialization Capability
  : US companies usually have stronger commercialization capabilities and global presence
• R&D Efficiency
  : The US still maintains a leading position in biotech innovation

1. Policy Environment Differences
   : Differences in pharmaceutical regulatory policies between China and the US will persist
2. Capital Flow Differentiation
   : Global capital allocation preferences across different markets are difficult to fundamentally change in the short term
3. Impact of Exchange Rate Fluctuations
   : Fluctuations in the RMB/USD exchange rate will affect cross-market valuation comparisons

1. Market Integration Trend
   : With the improvement of mechanisms like Stock Connect, the linkage between the two markets will strengthen
2. Investor Education
   : Mainland investors’ understanding of the biotech industry is gradually deepening, which may narrow valuation differences
3. Regulatory Convergence
   : China’s pharmaceutical regulatory reforms may enhance the investment value of Hong Kong innovative pharmaceuticals

1. Market Maturation
   : The Hong Kong stock market is gradually maturing, and pricing mechanisms are becoming more rational
2. Increased Internationalization
   : More Hong Kong innovative pharmaceuticals will gain international recognition, attracting global capital
3. Balanced Industry Development
   : The overall level of China’s innovative pharmaceutical industry will improve, narrowing the gap with international advanced levels

• High Value
  : Select companies with core technical advantages and clear market positioning
• Strong Dependency
  : Focus on therapeutic areas where products have irreplaceable value
• High Growth
  : Prioritize layout of product pipelines with global potential

• Position Management
  : It is recommended that cross-market allocation does not exceed 30% of the total portfolio
• Hedging Tools
  : Consider using derivative tools to hedge exchange rate risks
• Timing Selection
  : Focus on arbitrage opportunities when valuation differences exceed 1.3x or fall below 0.8x

• Core products have entered late-stage clinical trials or commercialization phase
• Have international multi-center clinical trial capabilities
• Management team has international background and experience

• Have stable cash flow and profitability
• Rich product pipelines with sufficient R&D pipeline depth
• Have technical barriers or patent protection in niche areas

The valuation differentiation between Hong Kong innovative pharmaceutical companies and US biotech targets provides investors with considerable cross-market arbitrage opportunities in the short term. The sustainability of this valuation differentiation shows a decreasing trend, but it still has investment value in the short term.

Investors should:

1. Establish a systematic arbitrage framework
   instead of simple buy-low-sell-high
2. Pay attention to fundamental changes
   to avoid pure valuation games
3. Emphasize risk management
   and reasonably control the proportion of cross-market investments

With the rapid development of China’s innovative pharmaceutical industry and further opening of the capital market, this valuation differentiation is expected to gradually narrow. However, in this process, astute investors can still find valuable arbitrage opportunities. The key lies in seizing timing, controlling risks, and establishing a long-term investment perspective.

[0] Jinling API Data - Stock Prices, Financial Indicators, Market Data
[1] Yahoo Finance - “Biogen: Alzheimer’s Disease Treatment Needs More Real-World Data” (https://www.finance.yahoo.com/news/biogen-stock-alzheimer-disease-treatment-need-more-real-world-data)
[2] Seeking Alpha - “Does Biogen’s Recent Share Price Rebound Reflect Its True Value in 2025?” (https://www.finance.yahoo.com/news/does-biogen-recent-share-price-071002863.html)
[3] Bloomberg - “Hang Seng Index Rebounds; Xiaomi and Robot Concept Stocks Surge” (https://hk.finance.yahoo.com/news/市評-恆指回升)
[4] FierceBiotech - “Sanofi signs $1B biobucks pact for Alzheimer’s asset in 2nd biotech deal of the day” (https://www.fiercebiotech.com/biotech/sanofi-signs-1b-biobucks-pact-alzheimers-asset-2nd-biotech-deal-day)