BeiGene has accumulated a loss of 32 billion yuan after its listing, and its best-selling products have encountered patent challenges

Produced by Radar Finance and Economics, edited by Xiao Sa, Deep Sea

BeiGene, the "first brother of innovative drugs", has not yet come out of the quagmire of losses.

BeiGene recently released its first quarter 2024 report, with a net profit loss attributable to the parent company of RMB1.908 billion, compared to a loss of RMB2.447 billion in the same period last year, and a net cash flow from operating activities of -RMB2.396 billion, compared to RMB3.578 billion in the same period last year.

Although the company reduced its loss year-on-year in the first quarter, the company has continued to record losses since its A-share listing in 2021. According to Flush iFinD data, from 2021 to the first quarter of 2024, BeiGene's net profit attributable to the parent company was -9.748 billion yuan, -13.642 billion yuan, -6.716 billion yuan and -1.908 billion yuan respectively, with a cumulative loss of 32.014 billion yuan.

Founded in Beijing in October 2010, BeiGene is a biotechnology company focusing on the research, commercialization and production of innovative oncology drugs, founded by Dr. Ou Leiqiang and Dr. Wang Xiaodong. At present, the company has a total of 3 drugs independently developed and approved for marketing, including BRUKINSA ® (zanubrutinib), tislelizumab ® (tislelizumab) and Baihuize ® (pamiparib).

However, as most of BeiGene's product pipeline is still in the R&D stage of new drugs, the amount of R&D expenditure is large. and the sales revenue of self-developed drugs and authorized sales products cannot cover the costs and expenses, resulting in perennial losses. When to achieve profitability has also become one of the most important questions for investors.

The cumulative uncovered loss was 57.688 billion yuan

On May 8, BeiGene released key financial data for the first quarter of 2024. During the reporting period, the company's revenue was 5.359 billion yuan, a year-on-year increase of 74.8%, of which product revenue was 5.325 billion yuan, a year-on-year increase of 89.6%.

According to the financial report, the company's revenue growth is mainly due to the increase in sales of self-developed products Baiyuze ® and Baizean, ® as well as Amgen's authorized products.

On the conference call, Wu Xiaobin, president and chief operating officer of BeiGene, said that in the first quarter of 2024, BRUKINSA's ® global sales totaled 3.476 billion yuan, a year-on-year increase of 140.2%; In the same period, the sales of Baizean ® totaled 1.044 billion yuan, a year-on-year increase of 32.8%.

Based on this calculation, only these two major products contributed 84.88% of the company's product revenue during the reporting period.

According to the data, BRUKINSA ® (zanubrutinib capsules) is a new generation of small molecule inhibitors of BTK, which is designed to maximize BTK occupancy and minimize off-target effects.

In November 2019, BRUKINSA ® received accelerated approval in the U.S.; In Europe, BRUKINSA ® has been approved by the European Commission (EC). In the first quarter of 2024, BRUKINSA's ® sales in the U.S. and Europe increased by 162.7% and 256.8%, respectively year-on-year

In China, BRUKINSA ® is also approved by the National Medical Products Administration (NMPA) of China. As of April 2024, BRUKINSA ® has been approved in 70 markets for multiple indications.

BeiGene's other core in-house product, tislelizumab ® (tislelizumab), an anti-PD-1 antibody drug, has been approved for 12 indications in China and has also been approved for related indications in Europe and the United States. At present, the establishment of the overseas market access and sales team of Baizean ® is progressing smoothly.

"Parmiparib" is the trade name of BeiGene's proprietary and proprietary next-generation PARP inhibitor, pamiparib capsules, a medical agent that affects the way cancer cells replicate themselves.

In China, Parkway ® received conditional approval in May 2021 for the treatment of patients with recurrent advanced ovarian, fallopian tube, or primary peritoneal cancer harboring germline BRCA (gBRCA) mutations who have received prior chemotherapy for two or more lines.

All three drugs are in-house developed and marketed by BeiGene. In addition, BeiGene has licensed a variety of products from Amgen, Bristol-Myers Squibb (BMS), EUSA Pharma, and Bio-Thera for commercialization in the Chinese market.

However, in the first quarter of this year, while the company maintained high revenue growth, the loss problem is still difficult to solve. According to the financial report, in the first quarter of 2024, the company achieved a net profit loss of 1.908 billion yuan attributable to the parent company, compared with a loss of 2.447 billion yuan in the same period last year, and a non-net profit loss of 2.047 billion yuan, compared with a loss of 2.614 billion yuan in the same period last year.

Management revealed that the company's operating loss under U.S. GAAP decreased by 30% year-on-year and adjusted operating loss decreased by 47% year-on-year in the first quarter. The company continues to maintain significant revenue growth and expense control, making further progress on the road to sustainable profitability.

In the long run, losses have become the "norm" for BeiGene. From 2021 to the first quarter of 2024, the company's net profit attributable to the parent company was -9.748 billion yuan, -13.642 billion yuan, -6.716 billion yuan and -1.908 billion yuan respectively, with a cumulative loss of 32.014 billion yuan.

In its 2023 annual report, BeiGene stated that the company's cumulative uncovered loss as of the end of the period was RMB57.688 billion.

The annual report pointed out that the company has not yet made a profit and has accumulated losses during the reporting period, mainly because most of the company's product pipelines are still in the stage of new drug research and development, and have not yet formed sales, and the amount of research and development expenditure is large, which is in line with the industry characteristics of new drug research and development enterprises, and the specific reasons are:

Since its establishment, the company has focused on drug research and development, with a large R&D pipeline, and R&D expenses have shown an increasing trend during the reporting period. During the reporting period, the sales revenue of the company's self-developed drugs and authorized sales products could not cover the costs and expenses.

Past financial reports show that BeiGene's R&D expenses have increased year after year, with 6.588 billion yuan, 8.943 billion yuan and 9.538 billion yuan respectively from 2019 to 2021. In 2022, the R&D investment will reach 11.152 billion yuan, exceeding 10 billion yuan for the first time, and will increase to 12.813 billion yuan in 2023, and the company's R&D expenses will be 49.034 billion yuan in the past five years.

Financing tens of billions of debt, debt ratio climbing

R&D investment costs a lot of money, and the sales revenue of products cannot cover the costs and expenses, which undoubtedly brings certain financial pressure to BeiGene.

Flush iFinD data shows that the company's cash flow from operating activities has been consistently negative since 2018. In 2023, the company's net cash flow from operating activities will be -7.793 billion yuan, and the company's net cash flow from operating activities in the first quarter of this year will be -2.396 billion yuan.

In this regard, it is pointed out that if the net cash flow of operating activities is negative for a long time, it means that the enterprise itself lacks the ability to "hematopoietic" and mainly relies on financing for "blood transfusion". Indeed, BeiGene's financing has been astronomical since its founding.

According to public information, Ou Leiqiang, who is currently the chairman and CEO of BeiGene, once served as the CEO of Genta, a biopharmaceutical company focusing on oncology, and Galenea, a biopharmaceutical company.

In 2005, Mr. O'Leqiang founded BioDuro in Beijing, and four years later he sold BioDuro to PPD, a leading CRO company, for $77 million. In early 2010, he left BioDuro to co-found BeiGene with Xiaodong Wang.

Born in Xinxiang, Henan Province in 1963, Wang Xiaodong went to the United States to study in 1985 and was elected to the National Academy of Sciences in 2004. In 2013, Wang Xiaodong was elected as a foreign academician of the Chinese Academy of Sciences.

With the blessing of Wang Xiaodong, an authority in the field of cancer, BeiGene has carried a halo since its inception, and has since continued to raise funds in the primary and secondary markets.

Tianyancha data shows that from 2014 to 2015, BeiGene experienced Series A and B round financing, raising a total of $172 million.

BeiGene, which went public in the U.S. in 2016, raised $158 million in an IPO. According to the statistics of New Fortune magazine, the company subsequently raised US$175 million and US$750 million through additional offerings in 2017 and 2018, respectively, raising a total of US$1.08 billion from the U.S. stock market.

In 2018, BeiGene raised HK$7.085 billion in its secondary listing on the Hong Kong stock market, followed by a second placement of US$2.78 billion and HK$16.08 billion, raising a total of HK$36.6 billion from the Hong Kong stock market.

In 2021, BeiGene was listed on the A-share Science and Technology Innovation Board, raising 22.2 billion yuan. According to the rough calculation of the exchange rate at that time, the company has raised more than 66.9 billion yuan directly from the listing of the three places.

In addition to direct financing, the company also borrows from financial institutions for financing. According to the financial report, as of the end of 2023, the company's short-term borrowings were 4.684 billion yuan, long-term borrowings were 1.404 billion yuan, and the total liabilities were 16 billion yuan, with a debt ratio of 38.95%.

However, in the context of R&D covering multiple pipelines and choosing to de-"CRO" in R&D strategy, the company's cash is still decreasing.

According to the financial report, as of the end of 2023, BeiGene's cash and cash equivalents balance was 15.038 billion yuan, a quarter less than 20.111 billion yuan in the same period last year.

In its annual report, BeiGene acknowledged that the Company's liquidity and financial condition could be materially and adversely affected by negative net cash flows, and that the Company cannot guarantee that it will be able to obtain sufficient cash from other sources for working capital. If the Company's future operating cash flow is negative, the Company's liquidity and financial condition could be materially and adversely affected.

Zanubrutinib is embroiled in a lawsuit battle

BeiGene disclosed that in the three months ended March 31, 2024, the largest market for BRUKINSA ® (zanubrutinib capsules) was the United States, with product revenue of 2.496 billion yuan, up 162.7% year-on-year.

But in the single largest market, the company's best-selling product, zanubrutinib, is in the midst of a patent infringement lawsuit.

According to public information, Sandoz, MSN Pharmaceuticals, Inc. and MSN Laboratories Private Ltd. (hereinafter collectively referred to as "MSN"), two generic drug companies in the United States, have submitted abbreviated new drug application (ANDA) notices to the U.S. Food and Drug Administration (FDA), challenging the invalidity, unenforceability or non-infringement of individual zanubrutinib patents, and sent notices to BeiGene.

Notably, the two companies have not challenged zanubrutinib's substance-ingredient patent, which will continue to protect zanubrutinib from generic competition until it expires in 2034.

In response, BeiGene filed a patent infringement lawsuit against Sandoz and MSN, arguing that their submission to ANDA infringed the patent rights of zanubrutinib, and sought a permanent injunction to prevent the companies from commercializing the generic zanubrutinib drug before the patent expired.

In addition, in June 2023, Pharmacyclics LLC filed a complaint in the U.S. District Court for the District of Delaware against BeiGene and its wholly owned subsidiary, BeiGene USA Inc., alleging that the product zanubrutinib infringes a patent granted on June 13, 2023.

In the latest conference call, BeiGene management said that the U.S. Patent and Trademark Office (USPTO) approved the company's application to conduct a post-grant review of the patent that Pharmacyclics alleges the company infringed in the patent infringement lawsuit, and said that the company has demonstrated a greater than 50 percent probability that the patent will be invalid. The USPTO is expected to make a final ruling on the validity of the patent within 12 months.

Analysts point out that it is common practice to thwart competitors in the pharmaceutical industry through patent litigation, and zanubrutinib is currently facing patent litigation from foreign capital. Even if the case is ultimately successful, the litigation process is often costly and time-consuming, which can disrupt the pace of BeiGene's marketing efforts.