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BeiGene, the "No. 1 innovative drug company", has delivered a good "report card".

On August 7, BeiGene released its performance report for the first half of 2024. In the first half of 2024, BeiGene's revenue was 12 billion yuan, a year-on-year increase of 65.4%. The net loss attributable to the parent company was 2.877 billion yuan, a year-on-year reduction of 45%.

This is a positive signal. BeiGene has been losing money for many years. From 2019 to date, its net loss attributable to its parent company has exceeded 49 billion yuan. It was once known as China's most "money-burning" pharmaceutical company.

However, even so, BeiGene is still a "hot commodity" in the capital market. Its total financing amount exceeds 65 billion yuan, and it is the first company in China to be listed on the A-shares, Hong Kong stocks and US stocks (Nasdaq).

However, BeiGene, which has been losing money for many years, is also testing investors' patience. Its A-share price has long fallen below the issue price. As of the close of August 23, BeiGene-U reported 148 yuan per share, down 23% from the issue price of 192.6 yuan per share, with a total market value of 197.163 billion yuan. What puzzles investors is when BeiGene can achieve profitability?

1

Stock prices are under pressure.

Ou Leiqiang's wealth has shrunk by 5.8 billion yuan

The founding of BeiGene is inseparable from two key figures, one is the American elite entrepreneur John Oyler, and the other is Wang Xiaodong, a foreign academician of the Chinese Academy of Sciences and an academician of the U.S. Academy of Sciences.

Wang Xiaodong has a rich resume. He was born in 1963. His mother died of cancer when he was 11 years old, and he lived with his grandparents. At the age of 17, he was admitted to Beijing Normal University. After graduating from university, he was admitted to the master's program of biology at Beijing Normal University.

During his graduate studies, Wang Xiaodong passed the Sino-US joint enrollment program for biochemistry, and ultimately decided to give up graduate studies and choose to study abroad to pursue a doctorate in the United States.

Since then, Wang Xiaodong has started a "cheating" life. He is the first person in mainland China to be awarded the title of academician of the American Academy of Sciences after the reform and opening up, and he is also one of the most authoritative scientists in the field of apoptosis in the world. He also founded the Beijing Institute of Life Sciences of the Chinese Academy of Sciences, and was the first co-director of the institute with Deng Xingwang, who was a tenured professor at Yale University at the time. In 2010, Wang Xiaodong returned to China full-time to serve as the director until now.

In 2010, Wang Xiaodong met Oyler, a "battle-hardened" business executive, at a friend's party in the San Francisco Bay Area. The two hit it off and chose China, the world's second largest pharmaceutical market after the United States at the time, to start their business.

BeiGene was registered and established in Beijing in 2011. Xiaodong Wang served as the chairman of the Scientific Advisory Committee, responsible for the research direction. John Oyler served as the chairman and CEO, responsible for the company's operations and governance.

The strong combination of "entrepreneurs + scientists" laid the foundation for BeiGene's development. In terms of business layout, BeiGene implemented a "high-profile" strategy from the beginning, not starting with generic drugs, but directly entering the field of oncology drug research and development.

Image/Photo Network, based on VRF protocol

The R&D of innovative drugs is very expensive due to the long R&D cycle, high cost and high failure rate. Large R&D expenditures test the financing capabilities of innovative drug companies.

However, BeiGene has accumulated considerable financing through listing on the Hong Kong Stock Exchange, Shanghai Stock Exchange, and Nasdaq in the United States and multiple rounds of financing. BeiGene has raised more than 30 billion yuan through listing in these three places alone.

However, in recent years, BeiGene's stock price performance has not been ideal.At its peak, BeiGene’s market capitalization in Hong Kong stocks, U.S. stocks, and A-shares exceeded HK$250 billion, US$30 billion, and RMB 200 billion.

As of the close of August 23, BeiGene's H-shares were priced at HK$116.5 per share, with a market value of HK$160.3 billion, a decrease of nearly HK$100 billion from its peak; BeiGene's U.S. stocks were priced at US$195.63 per share, with a market value of US$20.76 billion, a decrease of nearly US$10 billion from its peak; BeiGene's A-shares were priced at RMB 148 per share, having already fallen below the issue price.

In this process, the wealth of BeiGene Chairman Paul Oyler has also shrunk. On the 2023 Hurun Global Rich List, Paul Oyler ranked 1782nd with a wealth of 13 billion yuan. The 2024 Hurun Global Rich List shows that Paul Oyler ranked 3058th with a wealth of 7.2 billion yuan. In other words, in just one year, Paul Oyler's wealth has shrunk by 5.8 billion yuan.

The shrinking market value of the company may be related to BeiGene's huge losses, but BeiGene is no longer far from profitability.

2

50 billion R&D investment in five and a half years,

Net loss exceeds 49 billion

In the company's Hong Kong stock financial report released, BeiGene emphasized that in the second quarter of 2024, based on non-GAAP (Non-GAAP), that is, excluding the impact of non-cash items such as equity incentives, depreciation, and amortization of intangible assets, the company turned losses into profits, with an adjusted net profit of US$48.464 million.

BeiGene said that the reduction in GAAP (U.S. Generally Accepted Accounting Principles) operating losses and the turnaround in adjusted operating profit are the company's key strategic goals, which were achieved as a result of the company's tremendous efforts to drive growth and prudent investment.

But in fact, based on GAAP, BeiGene is still in a loss-making state. In the second quarter, the company's operating loss was US$107 million, a 66% year-on-year reduction in losses.

Figure/ BeiGene H-share financial report

However, the reduction in the loss margin is a good development direction for BeiGene, which is related to the fact that BeiGene's revenue growth rate is higher than its expense growth rate.

In the second quarter, BeiGene's revenue was $929 million, a year-on-year increase of 56%. Among them, product revenue was $921 million, a year-on-year increase of 66%. The company's R&D expenses and sales and administrative expenses were $454 million and $444 million, respectively, up 7% and 12% year-on-year. The company's revenue growth was much higher than the growth of related expenses.

Looking at the long term, in the past six years, BeiGene's revenue has continued to expand, from 3 billion yuan in 2019 to 12 billion yuan in the first half of 2024. The revenue in the first half of 2024 is equivalent to nearly 70% of the full-year revenue in 2023.

However, BeiGene's loss problem remains to be solved. From 2019 to the first half of 2024, BeiGene has accumulated losses of 49.1 billion yuan.

As the leader in innovative drugs, BeiGene's ability to "burn money" is unmatched. In the past five and a half years, BeiGene's R&D expenditures exceeded 50 billion yuan, ranking first among A-share listed pharmaceutical companies. Coupled with 38.7 billion yuan in sales and management expenses and high operating costs, this directly led to BeiGene's expenditures exceeding its income.

When will BeiGene achieve profitability? From the revenue perspective, this still requires the rapid growth of BeiGene's core products, but how much stamina do the core products, Zanubrutinib and Tislelizumab, have?

3

Zanubrutinib sales doubled.

Drug costs in the U.S. are 10 times higher than in China

At present, BeiGene has three independently developed and approved drugs, namely, zanubrutinib capsules, tislelizumab and pamiparib. In addition, there are many authorized sales products such as lenalidomide, denosumab, bevacizumab and so on.

Among them, Zebutinib and Tislelizumab are BeiGene's core self-developed products, which have carried the commercialization banner for BeiGene in the innovative drug market.

As a BTK inhibitor (Bruton's tyrosine kinase) used to treat a variety of blood tumors, Zebutinib has indications covering chronic lymphocytic leukemia, Waldenstrom's macroglobulinemia, mantle cell lymphoma, etc. It has been approved for multiple indications in more than 70 countries and regions including the United States, China, the European Union, and the United Kingdom.

Since its launch in 2019, Zebutinib's sales have grown at a rate of more than 100% each year, making an important contribution to BeiGene's performance.In the first half of 2024, global sales of Zebutinib exceeded US$1.1 billion, reaching RMB 8.018 billion, a year-on-year increase of 122%, accounting for 67% of BeiGene's annual revenue.

Image/Photo Network, based on VRF protocol

In terms of regions, the US market is the sales base of Zebutinib. In the first half of 2024, Zebutinib's sales in the United States reached 5.903 billion yuan, a year-on-year increase of 134.4%.

In response, BeiGene stated that more than 60% of the quarter-on-quarter demand growth came from the expansion of its use in chronic lymphocytic leukemia (CLL) indications, while the product's market share in new CLL patients continued to increase.

In addition, the product's sales in Europe totaled 1.057 billion yuan, a year-on-year increase of 231.6%, mainly due to increased market share in Germany, Italy, Spain, France, the United Kingdom and other countries.

Sales of zanubrutinib in China totaled RMB 873 million, up 30.5% year-on-year. The growth in the Chinese market was also due to the increase in sales in approved indications. Currently, zanubrutinib has been approved for 13 indications in China, including the recently approved combination of etoposide and platinum chemotherapy for the first-line treatment of extensive-stage small cell lung cancer.

However, compared with other regions, the high price of Zebutinib in the United States has also brought more profits to BeiGene.

Currently, the price of zanubrutinib in the United States is about $15,000 per bottle (120 pills), and the annual cost is $170,000 to $180,000. The latest medical insurance price in China is 5,440 yuan (80 mg, 64 pills), and the annual cost is 120,000 to 130,000 yuan. The price of zanubrutinib in the United States is about 10 times the medical insurance price in China.

But with a high base, can the sales of Zebutinib still double? As a "blockbuster" in the field of domestic innovative drugs, Zebutinib is not sitting back and relaxing.

4

Core Products

Patent disputes in the United States

In June last year, the US pharmaceutical company AbbVie filed a patent infringement lawsuit against BeiGene in the United States, accusing Zebutinib of infringing the patent of Ibrutinib (the world's first anti-cancer drug similar to Zebutinib).

Regarding the progress of this lawsuit, BeiGene stated that on May 1, 2024, the US Patent and Trademark Office approved the company's application to conduct a post-grant review of the patent that AbbVie accused the company of infringing in the patent infringement lawsuit. It is expected that the US Patent and Trademark Office will make a final decision on the validity of the patent within 12 months after approving the application.

In the first half of 2024, ibrutinib sales reached $3.225 billion, down 7% year-on-year, while zanubrutinib sales reached $1.126 billion, up 117% year-on-year. Although zanubrutinib sales are growing, patent infringement lawsuits are still ongoing, adding uncertainty to the future of this star product.

In addition to its competitor ibrutinib, other BTK inhibitors such as acotinib also occupy a certain share in the market. In 2023, Eli Lilly's newer generation product Pirtobrutinib is expected to completely solve the drug resistance problem of covalent BTK inhibitors.

In addition to the fierce competition among innovative pharmaceutical companies, foreign generic drug companies have also seen the commercial value of Zebutinib.

Sandoz and MSN have submitted abbreviated new drug applications to the FDA (U.S. Food and Drug Administration) seeking approval to sell their generic drugs.

To this end, on March 8, 2024, BeiGene filed patent infringement lawsuits against Sandoz and MSN, respectively, on the grounds that Sandoz and MSN were seeking approval to sell generic drugs of Zebutinib.

It can be seen that Zanubrutinib faces considerable competitive pressure. Most of BeiGene's revenue comes from Zanubrutinib alone, and factors such as the drug's market performance and patent protection period have a significant impact on the company's overall performance.

Fortunately, BeiGene has another core product - tilelizumab.

Tislelizumab is the fourth domestically produced PD-1 (an important immunosuppressive molecule) monoclonal antibody approved for marketing, and is also the best-selling domestic PD-1. PD-1 is a new drug for treating tumors, which can reactivate T cells in the patient's body and enhance their immune capacity to achieve the effect of resisting tumors.

Image/Photo Network, based on VRF protocol

In December 2019, tilelizumab was approved for marketing. Currently, it has been approved by the National Medical Products Administration for 13 indications, 11 of which are included in the national medical insurance catalogue, covering high-incidence cancers in my country such as lung cancer and liver cancer.

In 2023, the product sales reached 3.8 billion yuan, a year-on-year increase of 33%. In the first quarter of 2024, the sales of tislelizumab reached 1.044 billion yuan, a year-on-year increase of 32.8%.

However, compared with Zebutinib, the performance contribution of Tislelizumab is not outstanding.Taking the first quarter of 2024 as an example, Zebutinib accounted for 65% of revenue, while tilelizumab accounted for only 19% of revenue.

It is worth noting that on March 15, 2024, BeiGene announced that the FDA has approved tislelizumab as a monotherapy for adult patients with unresectable or metastatic esophageal squamous cell carcinoma (ESCC) who have previously received systemic chemotherapy (without PD-1/L1 inhibitors).

Tislelizumab is expected to be launched in the United States in the second half of 2024. However, it will take time to prove whether it can replicate the glory of Zebutinib and become the company's next "blockbuster".

In terms of research projects, the company is promoting potential differentiated projects for key cancer types such as lung cancer, breast cancer, and gastrointestinal cancer in the field of solid tumors. In the field of hematological tumors, the company is promoting key research projects such as Sonrotoclax (BGB-11417, BCL-2 inhibitor) and chimeric degradation activating compound (CDAC) BGB-16673 targeting BTK. However, these products still have a long way to go before they can be commercialized.