BeiGene, Ltd. — Q3 2019 Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. The filing identifies the registrant as BeiGene, Ltd. Amounts below are in U.S. dollars; financial figures are rounded to millions unless noted.
Business context
BeiGene is a commercial-stage biotechnology company developing oncology medicines and selling three Celgene-licensed products in China: ABRAXANE, REVLIMID and VIDAZA. Its lead investigational candidates included zanubrutinib, tislelizumab and pamiparib. The interim financial statements are unaudited and prepared under U.S. GAAP.
Key financial metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $50.1m | $54.2m | $371.3m | $139.6m |
| Net product revenue | $50.1m | $38.4m | $165.7m | $93.1m |
| Collaboration revenue | — | $15.8m | $205.6m | $46.4m |
| Operating loss | $312.3m | $151.1m | $571.9m | $425.0m |
| Net loss | $308.7m | $144.5m | $562.7m | $407.3m |
| Net loss attributable to BeiGene | $307.4m | $144.0m | $560.6m | $405.5m |
| Loss per share | $0.39 | $0.19 | $0.72 | $0.58 |
Product gross margin, calculated from product revenue less product cost of sales, was approximately 59.9% in Q3 2019 versus 77.4% a year earlier, and 67.9% for the first nine months versus 79.0%. The filing does not present a consolidated gross margin measure.
- Operating expenses: Q3 research and development was $237.0m, up 61% year over year; selling, general and administrative expense was $105.0m, up 115%. For the nine months, those expenses were $644.1m and $244.9m, up 53% and 99%, respectively.
- Cash flow: Operating activities used $483.1m in the first nine months, compared with $353.8m in 2018. Investing activities provided $578.1m, largely reflecting net proceeds from investment sales and maturities; financing activities provided $83.5m.
- Liquidity: At September 30, cash and cash equivalents were $856.2m, restricted cash $44.7m and short-term investments $375.8m, totaling about $1.28bn. Management said these resources were expected to fund operating expenses and capital expenditure requirements for at least 12 months after issuance of the statements, while noting substantial future funding needs.
- Debt: Bank loans totaled about $104.9m and the shareholder loan about $150.8m, or approximately $255.7m combined. The shareholder loan bears 8% interest and is due in 2023 unless converted earlier. The company also reported $29.5m of operating lease liabilities.
- Balance sheet: Total assets were $1.88bn and total liabilities $586.8m. Accumulated deficit reached $1.57bn. Short-term investments declined from $1.07bn at year-end 2018 to $375.8m, while cash and cash equivalents increased from $712.9m to $856.2m.
Material changes versus the prior comparable period
- Q3 total revenue declined 7% year over year because collaboration revenue ceased, although net product revenue grew 30%. Product sales in the quarter were affected by temporary ABRAXANE supply disruptions.
- Nine-month revenue rose 166%, primarily because it included a one-time $150m payment from Celgene upon termination of the tislelizumab collaboration, along with recognition of deferred collaboration revenue. The payment is not recurring product revenue.
- BeiGene regained global rights to tislelizumab when the Celgene collaboration ended in June 2019. The separate license to distribute Celgene’s three marketed products in China was unaffected.
- Losses and operating cash use increased as the company expanded clinical development, its workforce and commercial operations. Q3 cost of sales rose faster than product revenue, contributing to lower product gross margin.
- The company adopted the new lease accounting standard on January 1, 2019, recognizing right-of-use assets and lease liabilities; comparative periods were not restated.
Outlook, commentary and risks
- Management expected product revenue from the Celgene-licensed portfolio to continue increasing in 2019, but gave no quantified financial guidance. It anticipated higher R&D and commercial expenses and continuing losses while advancing trials and preparing launches.
- The FDA accepted zanubrutinib’s U.S. application for relapsed/refractory mantle cell lymphoma and granted priority review, with a target action date of February 27, 2020. Approval and launch remained uncertain.
- On October 31, 2019, after quarter-end, BeiGene announced an Amgen collaboration and an agreed approximately $2.7bn investment for a 20.5% stake. Closing was expected in Q1 2020, subject to shareholder, antitrust and other conditions; proceeds were not included in September 30 liquidity.
- Key risks include clinical trial and regulatory uncertainty, reliance on third-party manufacturing and supply, product pricing and reimbursement, rapid expense growth, foreign-exchange and PRC regulatory risks, and the possibility that additional financing may be required. The company reported no legal proceedings it believed would have a material adverse effect.
- Management stated disclosure controls were effective at a reasonable assurance level as of September 30, 2019, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether product sales growth can continue and whether ABRAXANE supply disruptions have been resolved.
- How much of reported revenue and cash generation reflects recurring product sales versus the one-time Celgene termination payment and investment maturities.
- Clinical, regulatory and launch progress for zanubrutinib, tislelizumab, pamiparib and other pipeline candidates, including the zanubrutinib FDA review.
- Quarterly cash burn, projected funding runway, and the impact of rising R&D, commercial, manufacturing and collaboration commitments.
- Whether the Amgen transaction closed on the stated terms and how its investment, dilution and collaboration obligations affect BeiGene’s financial position.