BeiGene stock: Buy or sell China’s cancer-fighting Pharma giant?

Headquartered in Beijing, China, BeiGene Ltd. is a commercial-stage biotechnology company specializing in developing cancer immunotherapies. The company was initially founded as a research and development company in 2010. BeiGene has come a long way since then to become the first Chinese company to receive U.S. FDA approval for its mantle cell lymphoma treatment drug.

BeiGene was the first Chinese biotech company to list an ADR on the Nasdaq stock exchange in 2016. On top of this it recently became first triple-listed biotech company, with stock listed on the Nasdaq, Hong Kong Stock Exchange, and the Shanghai Stock Exchange STAR Market (it’s most recent listing).

Despite being headquartered in China, BeiGene brands itself as a global biotech company.

In late 2019, the company sold a 20.5% equity stake to renowned U.S.-based biopharma giant Amgen Inc. Furthermore, BeiGene primarily conducts its clinical trials outside of China, with candidates from diversified ethnicities to ensure that its drugs get regulatory approvals in the major Western economies

Industry tailwinds 

BeiGene has been capitalizing on strong global structural tailwinds for medical research and development in recent years. These have fuelled the company’s global growth as the Chinese biotech industry has been gaining traction.

Domestically in China, with more than 30% of cancer deaths globally, the Chinese government has been adopting more favorable research policies to boost the domestic biotech industry over the past five years.

In 2017-18, China streamlined its regulatory standards to come more in line with the conventional international norms. This has help solidify the company’s position when it comes to global drug reviews and approvals.

BeiGene has a diversified product pipeline 

BeiGene’s primary mantle is the cell lymphoma treatment drug, zanubrutinib. It was approved by the U.S. FDA in 2019, making it one of the leading cancer therapies developers worldwide. The company is on track to become of the largest biotech companies in the world, given its impressive product pipeline and expanding operations. 

Earlier in January, BeiGene signed a $1 billion option, collaboration, and license agreement with the renowned Swiss-based multinational pharmaceutical company  Novartis International AG to develop its anti-cancer therapy ociperlimab. Under this agreement, BeiGene received a $300 million initial investment from the Swiss company to expand its oncology therapy. If the option agreement is exercised before late 2023, the Chinese biotech company will receive an additional $700 million fee. 

Several BeiGene products have been approved in China over the past few years, including multiple myeloma treatment drug REVLIMID and myelomonocyte leukemia drug VIDAZA. 

Related: Asia Markets’ guide to buying Chinese stocks from the United States

Impressive top line growth 

BeiGene’s total revenues increased 280.83% year-over-year to $1.18 billion for 12 months ended December 31, 2021. The company’s product revenues more than doubled in fiscal 2021, driving its total revenue growth last year. 

Regarding this, here’s what BeiGene co-founder, Chairman, and CEO John V. Oyler said following the release of the annual results:

“Last year was transformative for our company, and we have built strategic competitive advantages that will help BeiGene to achieve our mission of making innovative medicines more readily accessible and affordable for all who need them.

“We have significantly increased the reach of our medicines, as BRUKINSA is now approved in 45 markets, and we now have 16 approved medicines in China, including our sixth approved indication for tislelizumab and five approved Novartis Oncology products in designated regions of China that we plan to promote following the transition from Novartis.”

Mixed earnings growth prospects 

Analysts expect BeiGene’s revenues to increase 23.74% year-over-year to $1.46 billion in fiscal 2022. However, given the increased research and development costs and SG&A expenses, the company’s loss per share is expected to worsen 5.84% in the current year to $16.12. 

Also, Wall Street analysts are betting on BeiGene’s revenues to decline 49% in the fiscal first quarter (ending March 2022), given the expected delays in receiving regulatory approvals and pandemic-driven operational challenges. 

Nonetheless, BeiGene is playing the long game. The company’s CEO Olyer recently said:

“With exciting momentum for BRUKINSA including acceptance by the FDA and EMA of our supplemental NDAs for CLL, the most common form of adult leukemia, we are building a strong portfolio with cornerstone assets that will support the development of potential future new therapies.

“In addition, we have expanded our productive collaboration with Novartis by entering into an option, collaboration and license agreement to accelerate our anti-TIGIT antibody, ociperlimab, which is one of the most advanced assets in its class.”

BeiGene aims to expand its proprietary BRUKINSA drug in more than ten markets in 2022. Moreover, the company plans to continue developing its Tislelizumab drug in collaboration with Novartis and complete global phase three trials this year.  It also plans to begin pivotal trials for two of its drug candidates in 2022. 

BeiGene currently trades on a high valuation

BeiGene listed its shares on Shanghai’s STAR market in December 2021, making it the first biotech company in the world to be listed in the United States, Hong Kong, and Shanghai markets simultaneously.

BeiGene IPO was the biggest launch on the STAR market last year, raising $3.5 billion. The company stated in its IPO prospectus that it plans on utilizing the funds raised to finance its operations and research and development expenses.

As BeiGene is yet to generate profits from its operations, funds raised from public and private markets have been a major source of capital for the company over the years. BeiGene had a post-IPO enterprise valuation of $29 billion.

BeiGene’s shares were listed at an 8% premium on the Shanghai-based stock exchange compared to similar listings on the Hong Kong Stock Exchange, raising concerns regarding its high valuation. As a result, shares of the newly listed company on the STAR market slumped 16% following its IPO, while BeiGene shares listed on the Hong Kong Stock Exchange declined 8%. 

The verdict on BeiGene stock

Investors have been bearish about the BeiGene ADRs listed on the Nasdaq Stock Exchange over the past year, as evident from the stock’s 35.07% decline. This comes following increased scrutiny of Chinese companies by U.S. regulators.

Amid increased security concerns, the US. Depart of Commerce is expected to levy additional sanctions on Chinese biotech first listed in the country and potentially add them on an “entity list,” thereby restricting imports of such company-manufactured products in the United States. 

In light of increased geopolitical tensions, shares of BeiGene have been slumping in all three listings. BeiGene heavily relies on equity funding to finance its operations.

Given the threat of delisting and unsustainable valuations, in my view the stock is best avoided now.