BGNE.US 6160.HK 688235.SHG
The innovative drug maker’s product revenue rose 82% to $747 million in the first quarter, with its star drug on pace to possibly net $2 billion for the year.

The innovative drug maker’s product revenue rose 82% to $747 million in the first quarter, with its star drug on pace to possibly net $2 billion for the year

Key Takeaways:

  • BeiGene made progress in taking its key monoclonal antibody drug Tislelizumab overseas in the first quarter, with a U.S. debut expected in the second half of the year
  • At a time when its peers are cutting staff, the company added 1,400 employees over the last year, bringing its total to 10,600

 

By Molly Wen

In a crowded field of Chinese innovative drug makers, BeiGene Ltd. (BGNE.US; 6160.HK; 688235.SH) stands out as a special case. On the one hand, it has blockbuster drugs that are helping it earn more than $1 billion in annual revenue, which continues to reach new highs each year. On the other, it also has the most generous R&D budget among its peers, which has kept it mired in red ink since its inception. The day when it can turn a profit – if ever – remains a big question mark overshadowing the company.

There’s no doubt that day could be moving closer, which was evident in the company’s latest financial results that showed strong double-digit revenue growth and narrowing losses in this year’s first quarter.

BeiGene’s latest report, released earlier this month, showed its revenue jumped 68% in the first quarter to $752 million. Revenue from product sales, which made up the big majority, rose by an even bigger 82% to $747 million. The company continued to lose money to the tune of a $251 million net loss for the period. But that was 28% narrower than its $348 million loss a year earlier. The report lifted BeiGene’s U.S.-traded shares by a combined 5% over the next two trading days, suggesting investors liked the general direction.

In terms of revenue breakdown, BeiGene’s star product, Zanubrutinib, maintained strong sales growth, and is now considered a best-in class BTK inhibitor, a class of drugs used to treat certain cancers. After reporting more than $1 billion in revenue last year, the drug’s sales reached $489 million in the first quarter, putting it on pace to potentially top $2 billion for the year. The U.S. market contributed $352 million in sales, up 153% year-on-year, as the product gained market share for treating chronic lymphocytic leukemia (CLL). The European market brought in $66.8 million, up 243%.

Another product, Tislelizumab, also has significant potential, with first-quarter sales of $145 million, up 26% from a year earlier. While not growing as fast as Zanubrutinib, Tirellizumab’s overseas rollout moved ahead in the first quarter with approvals in several new markets.

The European Commission approved the drug for the treatment of three indications related to non-small cell lung cancer (NSCLC), including as first – and second-line therapies. And in March, Tislelizumab was approved by the U.S. Food and Drug Administration (FDA) as a second-line treatment for esophageal squamous cell carcinoma (ESCC) after regular chemotherapy, becoming the second domestically developed PD-1 antibody drug to win such approval in the U.S.

The drug has yet to generate any revenue in Europe and the U.S., and BeiGene is building its own overseas sales teams in anticipation of future sales in those market. The drug’s U.S. launch is expected in the second half of the year.

BeiGene currently has more than 60 drug pipelines in development covering a variety of types, including monoclonal antibodies, double antibody/multiple antibodies, ADC, cell therapy and mRNA, with potential applications for the treatment of diseases as varied as hematoma, lung cancer, breast cancer, gastrointestinal cancer and other solid tumors.

Its most promising self-developed drugs include Sonrotoclax, a BCL-2 inhibitor already enrolled in four clinical trials, including a global pivotal phase three trial where it is being used in combination with Zanubrutinib as a first-line treatment for chronic lymphocytic leukemia (CLL).

Continuing to invest

The current high-interest rate environment has cooled investment in the biomedical industry, with investors now expecting innovative drug makers to find a better balance between scale and profitability. Some investors worry that industry leaders like BeiGene are continuing to lose money and remain highly dependent on external capital infusions despite achieving billions of yuan in revenue. Such companies might struggle to convince investors that they can one day become profitable at their current activity levels.

BeiGene’s management has been tight-lipped about when it might finally become profitable, especially as its huge number of drugs in development make it a cash-burning machine. Its R&D spending rose 13% to $460 million in the first quarter as preclinical programs advanced to the clinical stage and early-stage clinical programs moved to late-stage. Zanubrutinib’s sales surge also owed to higher sales and administrative spending, which rose 30% year-on-year to $430 million. Total R&D spending equated to 61.2% of revenue for the quarter, while sales and administrative spending stood at 57.1%, showing why the company is still losing money.

As it continues to post losses, BeiGene’s cash and cash equivalents fell from $4.38 billion at the end of 2021 to $2.81 billion at the end of the first quarter. Without new cash infusions, the amount is likely to keep shrinking as the company continues to develop drugs, seek regulatory approvals, expand manufacturing, and sell its drugs.

Investment bank China Construction Bank International raised its sales and administrative costs forecast for BeiGene by 10%, 13% and 27% for the three-year period from 2024 to 2026, respectively, after considering additional sales costs related to efforts to increase its product revenues. It also raised its net loss forecast for next year by 2% to $449 million.

Its high spending levels aside, BeiGene’s continued rapid pace of expansion is also making the prospect of controlling costs and turning a profit even more elusive. At a time when its pharmaceutical peers are laying off workers, the company boosted its workforce by 1,400 in the 12 months to March, bringing it to 10,600 full-time employees. The latest report also disclosed the company would invest $74 million to build a new R&D center in Shanghai.

BeiGene’s unwavering commitment to expansion despite a sluggish broader market speaks to its confidence in its outlook and ability to raise new financing. But developing new drugs is a challenging business, to say the least, and whether its new drugs can match Zanubrutinib’s success remains to be seen.

The company’s shares now trade at a price-to-sales (P/S) ratio of about 6 times, trailing the 8 for Shanghai Junshi Biosciences (1877.HK; 688180.SH), which is also promoting its own PD-1 drug overseas. Investors seem relatively content with BeiGene for now, though they will closely watch its spending, as well as progress in its ongoing global expansion, to try and gage when it might one day become profitable.

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