BeiGene, Ltd. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2018. Interim financial statements are unaudited and prepared under U.S. GAAP. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context
BeiGene is a commercial-stage biopharmaceutical company developing cancer therapies. Its commercial revenue came from distributing Celgene’s ABRAXANE, REVLIMID and VIDAZA in China, alongside collaboration revenue. Its late-stage internally developed candidates include zanubrutinib, tislelizumab and pamiparib.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Total revenue | $32.5 | $0 |
| Product revenue, net | $23.3 | $0 |
| Collaboration revenue | $9.3 | $0 |
| Cost of product sales | $4.6 | $0 |
| Research and development | $109.7 | $42.8 |
| Selling, general and administrative | $28.9 | $8.8 |
| Operating loss | $(110.8) | $(51.5) |
| Net loss | $(105.1) | $(50.6) |
| Net loss attributable to BeiGene | $(104.6) | $(50.6) |
| Operating cash flow | $(104.5) | $(35.7) |
Product gross profit was approximately $18.7 million, or 80% of net product revenue. Net loss per ordinary share was $0.16 (basic and diluted); loss per ADS was $2.03. R&D expense rose 156% and SG&A expense rose 230% year over year, reflecting pipeline expansion, hiring, share-based compensation and expanded commercial operations.
At March 31, cash and cash equivalents were $490.6 million, restricted cash $17.5 million and short-term investments $973.4 million, totaling approximately $1.48 billion. Current assets were $1.59 billion and current liabilities $141.9 million. Total liabilities were $350.2 million, including a $154.6 million shareholder loan and $19.1 million of bank debt. The shareholder loan bears 8% interest and may be repaid or converted into an additional equity interest in the biologics joint venture.
Financing activities provided $763.9 million, principally from the January follow-on offering, which generated $757.6 million net proceeds. Investing activities used $394.4 million, including purchases of investments, the Mirati license payment and capital expenditures. The company reported an accumulated deficit of $438.0 million.
Material changes and unusual items
- Revenue began to scale from zero in the prior-year quarter, following the Celgene transaction and China product distribution launch. Q1 2018 product revenue was from sales in China; collaboration revenue included $7.6 million of R&D cost reimbursements and $1.7 million of R&D service revenue.
- Net loss increased 108% year over year, while operating cash use increased from $35.7 million to $104.5 million.
- Q1 R&D included a $10.0 million upfront fee for the Mirati sitravatinib license, expensed as acquired in-process R&D. Share-based compensation expense was $17.4 million, versus $6.0 million.
- Adoption of the new revenue standard increased opening unbilled receivables and accumulated deficit by $16.3 million for Celgene-related variable consideration. The company received Celgene’s formal clinical-trial opt-in notice in March 2018.
- Capital commitments for property and equipment were $41.9 million, mainly for the Guangzhou manufacturing facility. A subsequent April 4, 2018 agreement provides for a $92.5 million, nine-year floating-rate loan secured by the facility land; the company planned to draw the borrowing by December 31, 2019.
Outlook, commentary and risks
Management expected to seek regulatory approvals in China in 2018 for zanubrutinib and tislelizumab, and anticipated rising product revenue as it expanded promotion and reimbursement efforts for Celgene products. It also expected losses and expenses to increase as clinical development, regulatory work, commercialization and manufacturing activities expand. Based on its operating plan, the company expected existing cash, cash equivalents and short-term investments to fund operating expenses and capital expenditures for at least 12 months after issuance of the financial statements. It cautioned that estimates depend on assumptions and capital could be used sooner than expected; no specific earnings or revenue guidance was provided.
Key risks include clinical-trial outcomes and timing, regulatory approval, commercialization and reimbursement, manufacturing scale-up and compliance, competition and intellectual-property disputes. The company also cited risks from operating in China, including regulatory and currency uncertainty, limits on moving funds across borders, and generic competition. Management reported disclosure controls were effective at a reasonable assurance level and no material change in internal control over financial reporting during the quarter. It reported no legal proceedings believed likely to have a material adverse effect.
Important facts for investors to verify
- Progress, trial results and regulatory filing timelines for zanubrutinib and tislelizumab, as well as other clinical programs.
- China sales, product-level performance, reimbursement access, and the adequacy of rebate and returns accruals.
- Cash burn, investment liquidity and the assumptions behind the stated 12-month funding outlook.
- Celgene collaboration reimbursements, including collection of unbilled receivables and the effect of revenue-recognition estimates.
- Guangzhou facility construction costs, capital commitments, and the drawdown terms and collateral for the subsequent $92.5 million loan.
- The shareholder loan’s interest burden and any potential conversion impact on BeiGene’s ownership of the biologics joint venture.