BeiGene, Ltd. — Form 10-Q Summary
Period: Quarter and nine months ended September 30, 2018. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted. The filing describes BeiGene as a commercial-stage biopharmaceutical company focused on cancer therapies.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $54.2 | $220.2 | $139.6 | $220.2 |
| Product revenue, net | $38.4 | $8.8 | $93.1 | $8.8 |
| Collaboration revenue | $15.8 | $211.4 | $46.4 | $211.4 |
| Research and development expense | $147.6 | $87.7 | $421.5 | $177.7 |
| Selling, general and administrative expense | $48.8 | $15.6 | $122.9 | $35.2 |
| Operating loss (income) | $(151.1) | $114.9 | $(425.0) | $5.3 |
| Net loss (income) | $(144.5) | $117.3 | $(407.3) | $6.0 |
| Net loss (income) attributable to BeiGene | $(144.0) | $117.4 | $(405.5) | $6.2 |
| Basic loss (income) per ordinary share | $(0.19) | $0.21 | $(0.58) | $0.01 |
Product sales are of ABRAXANE, REVLIMID and VIDAZA in China. Product gross profit, calculated as net product revenue less product cost of sales, was approximately $29.7 million in Q3 and $73.6 million for the nine months; the filing does not present a consolidated gross margin measure.
- Cash flow: Operating activities used $353.8 million in the first nine months of 2018, versus $81.0 million in 2017. Investing activities used $850.9 million; financing activities provided $1.682 billion. Cash, cash equivalents and restricted cash increased $471.2 million.
- Liquidity: At September 30, cash and cash equivalents were $643.5 million, short-term investments $1.390 billion, and restricted cash $67.3 million. Together these totaled approximately $2.101 billion; about $143.2 million of cash, cash equivalents and restricted cash was held by the Guangzhou manufacturing joint venture.
- Debt and commitments: Bank loans totaled approximately $49.6 million, including $8.7 million current; the GET shareholder loan was $146.4 million and bears 8% annual interest, with a stated term through April 2023 unless converted earlier. Capital commitments were $56.0 million, and operating lease commitments were $32.3 million.
- Balance sheet: Total assets were $2.409 billion, total liabilities $425.2 million, and accumulated deficit $739.0 million. Shareholders’ equity totaled $1.983 billion.
Material changes versus the comparable period
- Revenue fell 75% in Q3 and 37% for the nine-month period, chiefly because the 2017 comparison included $211.4 million of Celgene license revenue recognized at contract inception. No comparable license revenue was recognized in 2018.
- Net product revenue rose to $38.4 million in Q3 and $93.1 million for the nine months, reflecting the expanding China distribution business; VIDAZA launched in China in February 2018.
- R&D expense increased 68% in Q3 and 137% year to date, reflecting expanded clinical and preclinical programs, including pivotal trials, and increased staffing and manufacturing activity. Nine-month R&D included $10 million of acquired in-process R&D related to the sitravatinib license.
- SG&A expense increased 212% in Q3 and 249% year to date, reflecting commercial expansion in China, growth in personnel and share-based compensation, and costs of operating a larger global and dual-listed company.
- The company raised approximately $757.6 million net from a January 2018 ADS offering and $869.7 million net from its August Hong Kong IPO and global offering. It became dual-listed in the U.S. and Hong Kong on August 8, 2018.
Outlook, commentary and risks
- Management expected existing cash, cash equivalents and short-term investments at September 30 to fund operating expenses and capital expenditures for at least 12 months after issuance of the financial statements. It also cautioned that estimates depend on assumptions and capital could be consumed sooner than expected.
- The company expects continued losses and substantial increases in R&D and commercialization spending. Management anticipated 2018 China product revenue would exceed 2017 levels, while noting generic competition. No specific earnings or revenue guidance was provided.
- After discussions with the FDA, BeiGene revised the expected timing of its first U.S. zanubrutinib NDA submission from the previously planned first half of 2019 to 2019 or early 2020. China accepted additional NDAs for zanubrutinib and tislelizumab in 2018; acceptance is not approval.
- Key risks include clinical-trial outcomes and timing, regulatory approvals, manufacturing scale-up and compliance, product adoption and reimbursement, competition and generic entry, dependence on collaborators and a single China distributor, foreign-exchange and PRC currency-transfer restrictions, and the potential need for additional financing and shareholder dilution.
- As a subsequent event, BeiGene completed the acquisition of the company owning its leased Changping, Beijing facility on October 4, 2018, for $38.8 million. A $7.7 million prepayment and the remaining amount held in escrow were reflected at September 30.
- Management reported effective disclosure controls at a reasonable assurance level and no material change in internal control over financial reporting during the nine months. The filing states there were no legal proceedings believed likely to have a material adverse effect.
Investor verification points
- Track product revenue growth, rebate and return accruals, distribution-channel continuity, and the commercial effect of generic competition and reimbursement decisions.
- Assess cash burn against the stated 12-month liquidity outlook, planned clinical and commercial spending, manufacturing capital needs, and possible financing or dilution.
- Monitor clinical and regulatory milestones for zanubrutinib, tislelizumab and pamiparib, including the revised U.S. zanubrutinib filing timeline and the status of China applications.
- Review Guangzhou facility construction, loan drawdowns, manufacturing readiness and regulatory inspection progress, as well as the shareholder loan’s conversion and repayment terms.
- Confirm the final accounting and funding effects of the October 2018 Beijing facility acquisition and the company’s restricted cash and PRC asset-transfer limitations.