The Chinese drug maker was sued by U.S. rival AbbVie over alleged patent infringement involving a key product for both companies

Key Takeaways:

  • A unit of AbbVie has sued BeiGene for alleged patent infringement involving one of the Chinese company’s core products, Brukinsa
  • The lawsuit comes amid rapidly growing sales for Brukinsa, which is used to treat blood cancer, even as sales for AbbVie’s competing product sag


By Warren Yang

Welcome to the world, baby BeiGene.

BeiGene Ltd. (BGNE.US; 6160.HK; 688235.SH) is one of China’s oldest innovative drug makers, boasting significant revenue in its rise as a formidable cancer drug specialist. Now, the company has unofficially entered the global big leagues, facing a lawsuit from a pharma major feeling threatened by BeiGene’s rapid ascent.

Last Thursday, word emerged that BeiGene was being sued by Pharmacyclics LLC, which became a unit of AbbVie Inc. (ABBV.US) in 2015 through an acquisition, over alleged patent infringement involving one of the Chinese company’s core products, Brukinsa. The patent at the center of the lawsuit was issued just two days earlier, and according to media reports, the suit was filed later that same day.

BeiGene confirmed the lawsuit last Thursday, using typical language to say it would “vigorously” defend itself, and stressing Brukinsa, which is used to treat blood cancer, is based on its own original development efforts.

“BeiGene has developed original and novel intellectual properties around Brukinsa to demonstrate its differentiated profile,” the company said in a statement. “BeiGene remains confident in Brukinsa’s intellectual property and will continue its mission to discover and develop innovative oncology treatments that are more efficacious and safer.”

All three of BeiGene’s listings took hits after reports of the lawsuit surfaced, including drops of more than 10% in Hong Kong and Shanghai before the company issued its response. The stock held up better in New York, possibly helped by the company’s statement that was issued in time for the trading day began on Wall Street. Even so, the New York shares also fell about 3%.

It’s not hard to see why the lawsuit was such a bombshell. Brukinsa became BeiGene’s top-selling product last year after its sales surged nearly 160% to $565 million, accounting for nearly half of the company’s total product revenue.

That said, investors may want to wait before pressing the panic button since this kind of patent lawsuit is quite common among drug makers are, often in an attempt to slow down their rivals in the fast-moving sector. And it’s not too hard to receive drug patents in the U.S., creating fertile ground for such legal jousting among pharmaceutical firms. BeiGene flags the possibility of being sued as a key risk for the company each year in its annual reports, and reiterated that patent cases are a “rather regular occurrence” in its statement last Thursday.

So, while AbbVie’s lawsuit is undoubtedly a headache for BeiGene, it doesn’t mean the company is at immediate risk of losing Brukinsa sales. Instead, the case could drag on for years and potentially end with a settlement. Such expectation in the U.S., where litigation is often used as a business weapon between makers of rival products, may explain the more muted market reaction for BeiGene’s stock in New York than in Hong Kong and Shanghai.

Big threat

Regardless of how this lawsuit develops, it shows that AbbVie sees BeiGene as a big threat to its own position in the market for blood cancer drugs. While Brukinsa flew off the shelves last year, global sales of AbbVie’s market-leading competing product, Imbruvica, fell nearly 20%. Some, if not much, of that decline inevitably owed to people opting for BeiGene’s product over AbbVie’s.

AbbVie’s use of a patent fresh off the press to attack a fast-rising rival also speaks volumes about the pressure the U.S.-based company is facing.

Brukinsa is a small-molecule inhibitor of Bruton’s tyrosine kinase (BTK), a type of drug used to treat cancer caused by defective B cells. The product has been approved for sale in more than 65 markets globally, including the U.S., China, and Europe.

And in January, the U.S. Food and Drug Administration (FDA) gave the drug the green light to treat adult patients with chronic lymphocytic leukemia (CLL) or small lymphocytic lymphoma (SLL), which helped its global sales more than double in the first quarter from a year earlier.

The rivalry between the two companies has heated up in recent years after BeiGene launched an aggressive campaign to prove its product was superior to AbbVie’s Imbruvica, a first-generation BTK inhibitor that is also known as Ibrutinib and was jointly developed with Johnson & Johnson’s (JNJ.US) Janssen Biotech. Brukinsa scored wins in two global head-to-head clinical trials that compared it with Imbruvica, helping BeiGene win its latest FDA approval.

AbbVie’s lawsuit shows it won’t sit idly by and let BeiGene continue to chip away at its market leadership. Its patent in the BeiGene suit covers how a BTK inhibitor can be used under a certain chemical structure for treating CLL or SLL, according to a Fierce Pharma report. AbbVie’s swift filing of the lawsuit after receiving the patent suggests it sought the official intellectual-property rights primarily to take action against its Chinese competitor. 

While BeiGene’s revenue is growing fast, it still remains deeply in the red as it continues to spend heavily on new drug development. Now, extra expenses it will need to defend itself in court, or any settlement cost, won’t help it turn a profit anytime soon.

Diversion of resources for the litigation could also hamper BeiGene’s new product development, as it works to create a more diversified drug portfolio to reduce its reliance on Brukinsa. Beside the blood cancer drug, BeiGene has just one other product that generates significant sales, Tislelizumab, which is used to treat solid tumors and hematological cancer. It has other products on the market, but their sales are all small.

Despite the pullback following news of the lawsuit, BeiGene’s New York-listed shares are still up almost 170% from their IPO price in 2017. They now trade at a price-to-sales (P/S) ratio of about 13, much higher than 4 for AbbVie. That seems to show investors are far more excited about BeiGene’s potential than that for the older AbbVie.

With the legal drama unfolding, BeiGene may face an uphill battle to sustain its current valuation. While the company is floating in a sea of uncertainty, one thing that’s more certain is that BeiGene and its Chinese peers are likely to face more similar lawsuits in the years ahead as they bring more of their drugs to market both in China and across the globe.

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