BeiGene, Ltd. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016; financial amounts are in U.S. dollars unless noted. BeiGene is a clinical-stage oncology biopharmaceutical company with no approved products and no product-sales revenue.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $1.38 million | $1.07 million | $4.14 million |
| Research and development expense | $30.11 million | $13.35 million | $69.10 million | $30.15 million |
| General and administrative expense | $4.72 million | $2.02 million | $11.76 million | $4.36 million |
| Operating loss | $34.83 million | $13.99 million | $79.79 million | $30.37 million |
| Net loss | $35.49 million | $14.00 million | $81.62 million | $29.85 million |
- For the quarter, revenue was entirely collaboration revenue; no product revenue was reported. Gross margin is not meaningful given the absence of product sales.
- Operating cash use was $63.37 million in the first nine months of 2016, versus $23.08 million in the comparable 2015 period. Investing activities used $51.13 million; financing activities provided $182.21 million.
- At September 30, cash and cash equivalents were $85.53 million and short-term investments were $118.09 million, totaling $203.62 million. Total assets were $235.43 million; current liabilities were $29.32 million.
- Long-term bank debt was $18.03 million, bearing fixed interest at 7% and repayable in 2018 and 2019. The Senior Promissory Note was converted into ordinary shares at the February 2016 IPO.
- Accumulated deficit was $199.81 million. Ordinary shareholders’ equity was $187.83 million, following conversion of preferred shares and note balances and the IPO.
Material changes and unusual items
- Quarterly net loss increased by $21.50 million year over year, principally reflecting higher R&D and administrative spending as the clinical and preclinical pipeline and organization expanded.
- Nine-month R&D expense more than doubled, driven particularly by increased external clinical program costs for BGB-3111 and BGB-A317. Management also cited hiring and development of in-house clinical drug manufacturing.
- Collaboration revenue fell because revenue recognition for BGB-290’s former ex-China license ended after BeiGene repurchased those rights in October 2015. The company reported no Q3 2016 collaboration revenue.
- The company completed its IPO in February 2016, raising approximately $166.2 million net. Preferred shares and the MSD note converted into ordinary shares; warrant and option liabilities were also settled through exercise.
- Available-for-sale securities disposal losses were $1.08 million for the nine-month period, and fair-value changes in financial instruments generated a $1.51 million loss, primarily associated with warrants and options.
Outlook, risks and contingencies
- Management said existing cash, cash equivalents and short-term investments were expected to fund operating expenses and capital expenditures for at least 12 months from September 30, 2016. It also cautioned that spending is expected to rise substantially and actual cash needs could exceed estimates.
- BeiGene expects significant losses and negative cash flows for the foreseeable future and says further funding will be needed to complete global development and potential commercialization. Future financing could dilute shareholders, add debt restrictions, or require licensing rights on unfavorable terms. No specific earnings or revenue guidance was provided.
- Key business risks include clinical-trial failure or delays, regulatory uncertainty, safety findings, competition, dependence on collaborators and third-party manufacturers, intellectual-property disputes, and foreign-exchange, PRC regulatory and currency-conversion risks.
- Construction and equipment capital commitments were $9.59 million; total operating lease commitments were $9.43 million. The Suzhou research and manufacturing facility lease provides for government payment of full rent for three years and half rent for the following two years. The filing reports no material pending legal proceedings and no off-balance-sheet arrangements.
- Management identified a material weakness in internal control over financial reporting related to insufficient experienced GAAP and SEC reporting personnel and described remediation efforts. Disclosure controls and procedures were assessed as effective at a reasonable-assurance level; remediation of the material weakness was ongoing.
Important facts for investors to verify
- Clinical progress, enrollment, safety and regulatory milestones for BGB-3111, BGB-A317, BGB-290 and BGB-283, and whether spending remains within the company’s runway assumptions.
- Cash burn, investment liquidity and credit exposure, as well as timing and terms of any additional financing.
- Execution, cost and regulatory readiness of the Suzhou manufacturing facility and the related capital commitments and debt security.
- Potential intellectual-property licensing needs for BGB-A317, BGB-3111 and BGB-290, and the status of internal-control remediation.
- Reliance on Merck KGaA collaboration income and the effect of the BGB-290 rights repurchase on future revenue opportunities.