The 11-year-old money-losing biotech has filed for a listing on Shanghai’s STAR Market to raise more than $3 billion

Key Takeaways:

  • BeiGene will become the world’s first stock to be simultaneously listed in the U.S., Hong Kong and on one of China’s A-share markets
  • Some analysts believe that a strong valuation for BeiGene’s new A-share listing could help to boost its stock price in the U.S. and Hong Kong

By Jony Ho

Biotech firm BeiGene Ltd. (BGNE.US; 6160.HK) will soon become the world’s first stock listed in New York, Hong Kong and on the Chinese mainland, following the China Securities Regulatory Commission’s approval last week for the company’s IPO on Shanghai’s STAR Market. This week BeiGene disclosed it will issue 115 million shares in the listing, with the pricing procedure to launch Nov. 29. Online and offline subscriptions will start from Dec. 2.

BeiGene is just the latest of a steady stream of U.S.-listed Chinese companies to announce plans to return “home” in recent months. But the pioneer among China’s innovative anti-cancer drug developers will make history by becoming the first stock to list American depositary shares (ADSs) in the U.S., H-shares in Hong Kong and A-shares on the Chinese mainland .

Despite losing money throughout its 11-year history, BeiGene’s prospectus shows it is hoping to raise a hefty 20 billion yuan ($3.13 billion) with its newest listing on China’s Nasdaq-style STAR Market for high-growth startups. It plans to use the funds mainly for clinical trial research and development projects, as well as construction of research and production facilities.

BeiGene is a global biotechnology company that develops and produces innovative molecular-targeting and tumor-immunotherapy drugs often used to fight cancer. The company has 11 self-developed drugs in various stages of development, including three that have been approved for selling.

But the company’s losses have also expanded steadily in the past three years. Last year it recorded a loss of $1.6 billion, the largest since its establishment. In the past five years, it has accumulated losses of more than $3.4 billion, and has been losing money since its establishment 11 years ago.

BeiGene is making its latest listing using the STAR Market’s criteria for overseas “listed red-chip companies.” Those conditions include a minimum market value of more than 20 billion yuan, being able to conduct independent research and development, ownership of international leading technology, possession of strong scientific and technological innovation capabilities, and a comparative advantage over industry competitors.

After announcing it had received the green light for its listing last week, BeiGene’s Hong Kong-listed shares initially rose by 3.3%, before giving back some of that and closing up about 1% for the day. Investors in its U.S. shares were less impressed, with its New York-listed stock falling by about 2% in the local trading session after the announcement.

Negative cash flow

BeiGene’s years of losses have resulted in record capital outflows from the company. Its operating activities from 2018 to 2020 generated more than $2.5 billion in negative cash flow, mainly due to roughly $3 billion in R&D spending, one of the highest rates for its industry in China. That spending has helped BeiGene become known as China’s “most money-burning” pharmaceutical company.

BeiGene is now managing more than 100 clinical trials in more than 35 countries and regions, according to media reports. It has more than 12,000 patients and healthy subjects, of whom 5,700 are overseas. Higher costs for global clinical trials are partly responsible for its high R&D costs.

BeiGene’s latest interim results show its research and development expenses reached $677 million in the first half of the year, and its operating activities recorded a net cash outflow of about $300 million. It had $1.78 billion in cash, cash equivalents and restricted cash at the end of the period.

Its continuous “money burning” means that raising funds from the capital market is one of the only ways to stay afloat. Although BeiGene has yet to earn profits, its revenue has risen rapidly, from $1.07 million in 2016 to $309 million last year, holding out hope for investors and providing a boost for its past two listings.

BeiGene made its first IPO in 2016 when it listed on Nasdaq, pricing its ADSs at $24 and raising about $180 million; in 2018, it made a secondary listing in Hong Kong with an issue price of HK$108 per share, raising another HK$7 billion ($898 million).

Now BeiGene latest plans to raise another 20 billion yuan on the STAR Market would bring its total fundraising to about $4.2 billion from the three listings.

BeiGene’s shares have posted healthy gains following their earlier listings, benefiting from strong market sentiment toward biopharmaceutical stocks. As of Wednesday, it’s Hong Kong- and U.S.-listed shares traded at HK$211.8 and $351.51, respectively, giving it a market capitalization of about $34 billion. In addition to IPOs, the company also raised $2.1 billion through a rights issue last year.

A successful listing in the U.S., Hong Kong and now the Chinese mainland will give BeiGene access to additional fundraising sources in all three markets to protect its capital chain for future R&D spending.

Focus on overseas competition

Relatively high valuations for the STAR Market could help BeiGene to obtain more funds, or even stimulate its stock prices in Hong Kong and on the Nasdaq, said Kenny Wen, a commentator at Everbright Sun Hung Kai Co. Ltd., who follows biotech stocks.

Wen said that BeiGene is one of China’s “four kings” for a class of anti-cancer drugs called PD1, a type of immune checkpoint inhibitor that is currently one of the most popular immunotherapies for cancer treatment. The other three are Innovent Biologics (1801.HK), Shanghai Hanghai Junshi Biosciences (1877.HK) and Jiangsu Hengrui Medicine (600276.SH).

“An area for future competition will be how (these companies) obtain certification abroad and export their products. For example, BeiGene’s treatment for mantle cell lymphoma has been approved by the Saudi Arabian Drug Administration,” Wen said.

He added that the PD1 market in China is already relatively mature, meaning future competition will be abroad as companies spend heavily to promote their products in those markets. That means BeiGene’s fundraising on the STAR Market is a step in the right direction, he added.

But the Shanghai listing also carries some potential risks. Loose supervision in China means stocks are more prone to manipulation. And the China-listed stock could become volatile due to limited trading and rapidly changing market conditions and investor behavior.

China’s stock market rules and guidelines for listing, trading, and information disclosure are also quite different from the Nasdaq and Hong Kong stock exchange, and the mainland’s constantly changing regulatory environment also often requires companies to quickly adapt to new changes.

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