BeiGene, Ltd. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; interim financial statements are unaudited and prepared under U.S. GAAP. The filing identifies the registrant as BeiGene, Ltd. The company is a clinical-stage biopharmaceutical business focused on oncology and had no approved products or product-sales revenue.
Financial performance and position
Amounts below are in millions of U.S. dollars, except per-share data. Expenses and losses are shown as positive magnitudes for comparison.
| Metric | Q1 2015 | Q1 2016 |
|---|---|---|
| Collaboration revenue | $1.379 | $0.677 |
| Research and development expense | $10.059 | $17.877 |
| General and administrative expense | $1.132 | $3.134 |
| Operating loss | $9.812 | $20.334 |
| Net loss | $10.212 | $22.001 |
| Operating cash used | $3.711 | $19.841 |
| Basic and diluted loss per ordinary share | $0.09 | $0.07 |
| Basic and diluted loss per ADS | $1.22 | $0.97 |
- Revenue was entirely collaboration revenue, substantially from Merck KGaA; no product-sales revenue was reported. The filing attributes the revenue decline primarily to no longer recognizing BGB-290 ex-China collaboration revenue after repurchasing those rights in October 2015.
- R&D expense rose 78% year over year, with increased clinical-program and internal development spending. G&A expense rose from $1.1 million to $3.1 million, including higher personnel, professional fees, share-based compensation and public-company costs.
- Q1 2016 included a $1.514 million loss from changes in fair value of financial instruments and a $0.712 million disposal loss on available-for-sale securities. Net interest income was $0.290 million; income tax expense was $0.044 million.
- Loss per share was lower despite a larger net loss, as weighted-average ordinary shares increased to 294.0 million from 108.5 million, principally reflecting the IPO and conversions. The company reported an accumulated deficit of $140.2 million at March 31.
Liquidity, cash flow and debt
- At March 31, 2016, cash and cash equivalents were $208.506 million and short-term investments were $38.720 million, totaling $247.226 million; total current assets were $251.782 million and current liabilities were $15.826 million.
- Cash used in operating activities was $19.841 million. Investing activities provided $40.343 million, mainly from $43.646 million in proceeds from available-for-sale securities, partly offset by $3.303 million of equipment purchases. Financing activities provided $170.049 million, including $167.931 million of net IPO proceeds and $2.118 million from warrant exercises. Cash and cash equivalents ended the quarter at $208.506 million.
- The $14.693 million Senior Promissory Note balance was exchanged for 7,942,314 ordinary shares at the IPO. The company had $6.214 million of long-term bank debt outstanding, at a 7% fixed rate, with repayment scheduled in 2018 and 2019 and security over future equipment purchases and rights to a PRC patent.
- Management expected existing cash, cash equivalents and short-term investments to fund operating expenses and capital expenditures for at least 12 months, while also warning that expenses would rise and further financing would be needed to complete global development and potential commercialization.
- Contractual obligations included $6.220 million of operating lease commitments and $2.284 million of capital commitments. A new Suzhou facility lease was entered into on April 10, 2016, after quarter-end.
Material changes and unusual items
- The company completed its IPO on February 8, 2016, raising $166.2 million net of underwriting discounts and offering expenses. It reported that IPO proceeds had not yet been used and were invested in short-term interest-bearing investment-grade and government securities.
- All outstanding preferred shares converted into 199,990,641 ordinary shares upon the IPO; the $176.084 million carrying value moved to shareholders’ equity. The Senior Promissory Note, warrant and option liabilities, and related instruments were also converted or settled. Shareholders’ equity was $243.099 million at March 31, compared with a deficit of $101.765 million at year-end 2015.
- The company recorded $1.514 million of fair-value losses on warrants and an option before their settlement at the IPO. It also recorded the $0.712 million securities disposal loss noted above.
- In January 2016, BeiGene voluntarily suspended new patient accrual in the China dose-escalation trial for BGB-283 to assess pharmacokinetics, safety and efficacy after more frequent thrombocytopenia was observed than in the Australia/New Zealand trial.
Outlook, risks and controls
- Management expected significant and increasing losses and R&D spending as it advanced BGB-3111, BGB-A317, BGB-290 and BGB-283, developed its platform and manufacturing capacity, hired staff and absorbed public-company costs. It did not provide financial earnings guidance.
- Clinical, regulatory and commercial outcomes remain uncertain, including trial enrollment and results, safety, approvals in the U.S., China and other markets, manufacturing scale-up, reimbursement, competition and the ability to secure additional capital. The company relies substantially on collaboration revenue and stated that future revenue would likely remain concentrated in collaborations until products are approved and commercialized.
- Risks include foreign-exchange and RMB convertibility restrictions, PRC regulatory and operating uncertainties, dependence on third-party research and manufacturing, and potential intellectual-property disputes. The filing discusses relevant third-party patent risks affecting BGB-A317, BGB-3111 and BGB-290. No material legal proceedings were reported.
- Management said disclosure controls were effective at a reasonable-assurance level. The company nevertheless disclosed an unremediated material weakness in financial reporting controls, related to insufficient personnel with appropriate GAAP and SEC reporting experience, and described remediation efforts.
Investor facts to verify
- Progress and safety findings in the BGB-283 China trial, including the thrombocytopenia assessment and any impact on development timing.
- Cash burn relative to management’s stated 12-month runway, planned clinical and manufacturing spending, and timing or terms of any additional financing.
- Clinical progress, enrollment and regulatory milestones for BGB-3111, BGB-A317, BGB-290 and BGB-283, alongside collaboration income and milestone expectations.
- Resolution of the disclosed material weakness and the effectiveness of internal-control remediation.
- Execution, funding and regulatory readiness of the Suzhou manufacturing-facility plans, including the April 2016 lease terms and related commitments.