Business context and reporting period
BeiGene, Ltd. (the filing registrant; the request metadata says “Beone Medicines”) is a commercial-stage biopharmaceutical company focused on cancer medicines. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2018; balance-sheet comparisons are with December 31, 2017. Unless noted otherwise, amounts below are U.S. dollars in millions.
The company sold three Celgene-licensed cancer medicines in China and reported revenue from Celgene and Merck KGaA collaborations. Its internally developed lead candidates—zanubrutinib, tislelizumab and pamiparib—were in late-stage clinical development.
Financial results and position
| Metric | Q2 2018 | Six months 2018 | Comparable 2017 period |
|---|---|---|---|
| Total revenue | $52.8 | $85.3 | Nil |
| Net product revenue | $31.4 | $54.7 | Nil |
| Collaboration revenue | $21.4 | $30.7 | Nil |
| Product cost of sales | $6.3 | $10.8 | Nil |
| Research and development expense | $164.3 | $274.0 | $47.2 / $90.0 |
| Selling, general and administrative expense | $45.2 | $74.1 | $10.8 / $19.5 |
| Operating loss | $163.1 | $273.9 | $58.0 / $109.6 |
| Net loss attributable to BeiGene | $156.9 | $261.5 | $60.5 / $111.2 |
Product gross margin was approximately 80% in both periods, calculated from net product revenue less product cost of sales. The company remained loss-making; Q2 and six-month loss per ordinary share were $0.22 and $0.38, respectively (loss per ADS: $2.92 and $4.97).
At June 30, current assets were $1,516.7 and current liabilities $186.4. Cash and cash equivalents were $438.4, restricted cash $31.6, and short-term investments $931.2—$1,401.2 combined. Total assets were $1,653.9; accumulated deficit was $594.9. Bank loans and shareholder loan totaled $209.8, including a $149.2 shareholder loan bearing 8% annual interest. The Guangzhou facility loan is secured by the land-use right; the Suzhou loan is secured by equipment and patent rights.
For the six months, operating cash use was $221.6, investing cash use $360.2, and financing cash provided $810.5. Financing included $757.6 net proceeds from a January follow-on offering and $42.3 drawn under a long-term bank loan. Capital expenditures were $20.3; the investing outflow also reflected substantial purchases of short-term investments.
Material changes versus the prior comparable period
- Revenue began following the Celgene product distribution arrangement: product sales started in September 2017, and VIDAZA launched in China in February 2018. Collaboration revenue included Celgene trial-cost reimbursements and service revenue, plus a $1.5 Merck KGaA milestone.
- Compared with Q2 2017, R&D expense rose 248% and SG&A rose 319%; for the six-month period, they rose 204% and 279%. Management attributed increases chiefly to expanded clinical programs, hiring, share-based compensation and commercial operations.
- Cash and short-term investments increased substantially, principally reflecting the January equity offering. Property and equipment rose to $90.5 from $62.6, largely as construction continued on the Guangzhou biologics facility.
- On January 1, 2018, the company adopted new revenue-recognition guidance using the modified retrospective method. Adoption increased opening unbilled receivables and accumulated deficit by $16.3; comparative periods were not restated.
Outlook, commentary and risks
Management expected losses and expenses to increase as clinical programs, regulatory work, commercialization and manufacturing efforts expanded. It stated that June 30 cash, cash equivalents and short-term investments were expected to fund operating expenses and capital expenditure requirements for at least 12 months after the financial statements were issued, while cautioning that assumptions could prove wrong. No quantified revenue or earnings guidance was provided.
Management expected to seek China regulatory filings in 2018 for zanubrutinib and tislelizumab and a U.S. filing for zanubrutinib in the first half of 2019. After quarter-end, BeiGene reported preliminary tislelizumab Hodgkin’s lymphoma response results and announced FDA Fast Track designation for zanubrutinib in Waldenstrom macroglobulinemia; these were preliminary developments, not approved indications. The company completed a Hong Kong offering on August 8, 2018, raising approximately $870.1 net and becoming dual-listed.
Principal disclosed risks include clinical-trial failure or delay, regulatory uncertainty, adverse events, competition and reimbursement, dependence on collaborators, CROs and product distributors, manufacturing scale-up and facility approvals, intellectual-property disputes, and China-specific regulatory, currency-convertibility and cash-transfer restrictions. The company reported $55.96 of capital commitments, $38.28 of operating-lease commitments and $209.75 of debt obligations in its contractual-obligations table. It reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls at June 30, 2018.
Investor verification priorities
- Verify product revenue growth, pricing, distribution and reimbursement for the three Celgene-licensed medicines, including exposure to generic competition and reliance on a single distributor.
- Track cash burn against management’s runway estimate, planned clinical and commercial spending, and the extent to which funds held by the Guangzhou joint venture or restricted deposits are available for general use.
- Review clinical and regulatory progress for zanubrutinib, tislelizumab and pamiparib, including the status and full data behind preliminary trial announcements.
- Assess the Guangzhou facility’s construction, regulatory readiness and remaining capital needs, as well as the terms, security and conversion provisions of outstanding loans.
- Consider dilution and share supply from equity compensation, follow-on and Hong Kong offerings, and any shareholder lock-ups or resale registrations.