BeiGene, Ltd. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2017. The unaudited consolidated financial statements are prepared under U.S. GAAP. BeiGene was a clinical-stage biopharmaceutical company with no approved products and no product-sales revenue.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0.4 million | $0 | $1.1 million |
| Research and development expense | $47.2 million | $21.1 million | $90.0 million | $39.0 million |
| General and administrative expense | $10.8 million | $3.9 million | $19.5 million | $7.0 million |
| Net loss | $60.7 million | $24.1 million | $111.3 million | $46.1 million |
| Net loss per ordinary share | $0.12 | $0.06 | $0.22 | $0.13 |
| Net loss per ADS | $1.52 | $0.73 | $2.80 | $1.66 |
Amounts are in U.S. dollars. The company reported no revenue in 2017, so a revenue or operating margin is not meaningful. Operating expenses increased substantially as clinical programs, staffing, and operations expanded.
- Cash and liquidity: At June 30, 2017, cash and cash equivalents were $261.0 million and short-term investments were $146.4 million, totaling $407.4 million, versus $368.2 million at December 31, 2016. About $155.2 million of cash was held by the biologics subsidiary for its Guangzhou facility and biologics R&D.
- Cash flow, six months: Operating activities used $87.6 million, compared with $39.1 million in 2016. Investing activities provided $113.2 million, mainly reflecting $134.2 million of net proceeds from sales or maturities of securities, offset in part by equipment and land-use-right expenditures. Financing activities provided $147.6 million, including $132.8 million from the shareholder loan and $14.5 million of GET capital contributions.
- Debt: Long-term liabilities included a $17.7 million bank loan bearing 7% interest, secured by equipment and patent rights, with principal due in 2018 and 2019, and a $135.0 million shareholder loan. The shareholder loan bears 8% interest, matures in 2023, is restricted to specified subsidiary purposes, and may be repaid or converted into additional subsidiary equity under the agreement.
- Balance sheet: Total assets were $474.0 million, total liabilities $203.8 million, and total equity $270.2 million. Accumulated deficit was $348.6 million. Contractual commitments included $46.0 million for property and equipment and $23.6 million of operating leases.
Material changes and developments
- Year-over-year six-month net loss increased by $65.2 million. R&D expense rose $51.0 million, driven by pipeline development, clinical-trial activity, staffing, and share-based compensation; G&A expense rose $12.5 million.
- Collaboration revenue ended after completion of BGB-283 research services in 2016. In March 2017, BeiGene regained worldwide rights to BGB-283 after Merck KGaA declined its continuation option outside China.
- Share-based compensation was $13.1 million for the first half, versus $3.9 million a year earlier. The company granted approximately 47.3 million options during the first half.
- BeiGene established a 95%-owned biologics subsidiary with Guangzhou GET to build manufacturing capacity in Guangzhou. GET contributed capital and provided the shareholder loan; the facility and related manufacturing projects remained under construction.
- After quarter-end, on July 5, 2017, BeiGene announced a Celgene collaboration for BGB-A317 solid tumors outside Asia, plus an agreement to acquire Celgene’s China commercial operations and license specified Celgene oncology products in China. Subject to closing conditions, BeiGene expected $263 million in upfront fees and a $150 million equity investment, and could receive up to $980 million in milestones plus royalties. The filing expected closing in Q3 2017; these proceeds were not included in June 30 cash.
Outlook, risks, and other notable items
- Management expected significant operating losses and expenses to continue as it advanced BGB-3111, BGB-A317, BGB-290, and BGB-283, expanded trials, and invested in manufacturing and commercial capabilities. It stated that June 30 cash and investments were expected to fund projected requirements for at least 12 months after issuance of the financial statements, while noting estimates could prove wrong and additional funding would be needed for broader development and commercialization.
- Key risks include clinical-trial success, enrollment and safety, regulatory approval, manufacturing scale-up and facility execution, competition, intellectual-property claims, and the ability to obtain future financing. The company also cited PRC regulatory, currency-convertibility, foreign-exchange, and cross-border cash-transfer risks.
- Clinical trials had reported treatment-related serious adverse events across the four principal programs and combinations, including bleeding and atrial fibrillation with BGB-3111 and immune-related, hepatic, and other events with BGB-A317 combinations. The filing cautions that additional safety issues could delay or limit development.
- The company disclosed no material legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective as of June 30, 2017. BeiGene expected to cease qualifying as an emerging growth company on December 31, 2017, increasing certain reporting requirements.
- No earnings guidance was provided. The company noted that revenue timing would depend on collaborations, milestones, potential product sales, and the Celgene transaction.
Important facts for investors to verify
- Whether the Celgene transactions closed on expected terms and timing, and whether the upfront payment, equity investment, China commercial operations, and licensed-product rights were realized.
- Clinical-trial enrollment, efficacy, safety, and regulatory progress for the lead drug candidates, including reported serious adverse events.
- Actual cash burn and runway, including the availability of subsidiary-held funds, future financing needs, and the use and repayment or conversion terms of GET’s shareholder loan.
- Progress, costs, and timing for the Suzhou and Guangzhou manufacturing projects, against the disclosed $46.0 million capital commitment.
- Potential dilution from option grants and the Celgene equity issuance, as well as share-based compensation expense.