Business context and reporting period
BeiGene, Ltd. (the filing registrant; not “Beone Medicines Ltd.”) is a commercial-stage biotechnology company developing oncology medicines and marketing three Celgene-licensed cancer drugs in China. This unaudited Form 10-Q covers the three months ended March 31, 2019, compared with the three months ended March 31, 2018. Amounts below are in U.S. dollars; financial statement figures are in thousands unless stated otherwise.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Product revenue, net | $57.4 million | $23.3 million; up 147% |
| Collaboration revenue | $20.4 million | $9.3 million; up 120% |
| Total revenue | $77.8 million | $32.5 million; up 139% |
| Cost of product sales | $15.3 million | $4.6 million |
| Research and development expense | $178.4 million | $109.7 million; up 63% |
| Selling, general and administrative expense | $57.6 million | $28.9 million; up 99% |
| Operating loss | $173.8 million | $110.8 million |
| Net loss attributable to BeiGene | $167.6 million | $104.6 million |
| Basic and diluted loss per share | $0.22 | $0.16 |
| Net cash used in operating activities | $172.0 million | $104.5 million |
Product sales were ABRAXANE, REVLIMID and VIDAZA in China. Product gross profit was approximately $42.2 million, or about 73% of net product revenue, calculated as product revenue less product cost of sales; this is not the company’s consolidated gross margin. Collaboration revenue primarily reflected Celgene trial-cost reimbursements ($18.2 million) and recognition of previously deferred research and development service revenue ($2.2 million).
At March 31, 2019, cash and cash equivalents were $764.5 million, short-term investments $849.2 million, and restricted cash $23.9 million, totaling approximately $1.64 billion. The company reported current assets of $1.80 billion and current liabilities of $238.8 million. Total liabilities were $549.6 million, including $86.4 million of bank loans and a $155.2 million shareholder loan; total equity was $1.62 billion. The shareholder loan bears 8% interest and is due in 2023 unless converted earlier. Operating cash outflow was partly offset by $172.4 million of net investing cash inflow, mainly from investment maturities and sales, and $43.0 million of financing inflow, including a $36.7 million bank-loan drawdown. Cash, cash equivalents and restricted cash ended the quarter at $788.4 million.
Material changes versus the prior comparable period
- Revenue grew substantially, with net product revenue rising 147%; operating costs also expanded, and net loss increased 60% to $168.1 million.
- R&D growth reflected advancement and expansion of clinical programs, especially tislelizumab and zanubrutinib, and increased personnel and infrastructure. SG&A rose with commercial expansion in China and broader company growth.
- Operating cash use increased by $67.5 million year over year. Q1 2018 financing included $758.0 million of net follow-on offering proceeds; Q1 2019 financing instead included bank borrowing and employee share-plan proceeds.
- The company adopted lease accounting on January 1, 2019, recognizing operating lease right-of-use assets and liabilities. It did not restate prior periods, and adoption did not affect reported operations or cash flows.
Outlook, commentary, risks and unusual items
- Management expected existing cash, cash equivalents and short-term investments at March 31, 2019 to cover operating expenses and capital requirements for at least 12 months after issuance of the financial statements. It also expected continuing losses, materially higher R&D and commercialization spending, and a need for substantial additional funding to complete planned development and commercialization.
- Management expected 2019 product revenue to increase as China promotion and reimbursement efforts expanded for ABRAXANE and REVLIMID and VIDAZA sales continued. The filing provides no numerical revenue or earnings guidance and states that it does not give guidance on operating results.
- Key execution risks include clinical-trial enrollment, safety and efficacy outcomes, regulatory approvals, manufacturing scale-up and GMP compliance, market access and reimbursement, competition, and dependence on collaborators and third-party manufacturers. The company also cites PRC regulatory, foreign-exchange and fund-transfer constraints, intellectual-property disputes, and the possibility of future financing dilution.
- Commitments at quarter-end included $56.1 million of minimum Celgene product purchases and $26.6 million of capital commitments, mainly for the Guangzhou manufacturing facility. Total contractual obligations were reported as $357.5 million; the table’s debt-obligation total and maturity buckets warrant reconciliation before relying on them.
- The company reported no legal proceedings believed likely to have a material adverse effect and no off-balance-sheet arrangements. It disclosed $2.6 million of gross unrecognized tax benefits and stated it did not expect a significant change within 12 months.
- Subsequent to quarter-end, the company entered a BioAtla collaboration for BA3071, with a $20 million upfront payment and potential milestone and royalty obligations. In March 2019 it also announced an Ambrx collaboration, including a $10 million upfront payment and potential additional payments. Management described $29 million of acquired in-process R&D-related cash-flow adjustments as associated with Ambrx and termination of the Merck KGaA collaboration; investors should verify the precise timing and accounting treatment against the notes.
Most important facts for investors to verify
- Whether China sales growth, reimbursement access and product gross economics can support an increasing share of operating costs.
- Clinical, regulatory and manufacturing milestones for zanubrutinib, tislelizumab, pamiparib and the Guangzhou biologics facility, including any changes to expected timelines or costs.
- The cash runway assumptions, including the portion of liquidity held by the biologics joint venture, restricted cash, ongoing cash burn and likely financing needs.
- The full economics and accounting for the Ambrx and BioAtla agreements, Merck collaboration termination, and any related milestone, royalty or cost-sharing obligations.
- The contractual-obligations schedule, especially the reported debt total and maturity breakdown, and the terms and potential conversion impact of the shareholder loan.
- Potential limits on transferring PRC subsidiary cash offshore and the status of regulatory, tax, intellectual-property and manufacturing contingencies.