01—Abstract
Summary
Summary of the 10-K filed February 28, 2018. Cited figures are marked; the original filing is the authoritative source.
BeiGene, Ltd. (ONC) reported its FY2017 Form 10-K on February 28, 2018 as a commercial-stage, Beijing-based, immuno-oncology and targeted-oncology company.
Its results were dominated by a one-time $263 milliona upfront payment from Celgene for tislelizumab (anti-PD-1) rights outside Asia, which drove total 2017 revenue to $238.4 million from $1.1 million in 2016. Excluding that licensing revenue, the company remains deeply loss-making: net loss attributable to BeiGene was $93.1 million (vs. $119.2 million in 2016), R&D expense rose 174% to $269.0 million, and SG&A rose 211% to $62.6 million as the company built out its China commercial team and clinical programs. Net product revenue of $24.4 million came from distributing Celgene's ABRAXANE and REVLIMID in China since September 2017.
The balance sheet strengthened materially. Cash, equivalents and short-term investments were $837.5 millionb at year-end 2017, and the company raised approximately $758.0 million in net proceeds from a January 2018 ADS offering at $101.00 per ADS, which is not included in the year-end figures. Management states existing resources are sufficient for at least 12 months but not for all planned global development and launches, implying further capital needs.
Accumulated deficit reached $330.5 millionc, and the company carries a $164.7 million debt-type obligation mix including a shareholder loan from GET and a long-term bank loan. Key investor considerations are the pipeline catalysts (zanubrutinib and tislelizumab China filings planned for 2018, several global Phase 3 trials), the concentration of ownership (directors, officers and principal shareholders hold about 61.2%), the Cayman Islands and PRC structure with associated tax and regulatory risks, the auditor PCAOB inspection limitation, and the company's note that it is not currently a PFIC for 2017 but may become one in future years. Revenue quality is also a concern, since 2017 collaboration revenue was largely a non-recurring upfront license recognition.
02—Key points
Key Highlights
- Total 2017 revenue of $238.4 million, driven by $211.4 million of license revenue recognized from Celgene's $263 million upfront payment, versus $1.1 million in 2016.
- Net product revenue of $24.4 million from China sales of ABRAXANE and REVLIMID under a Celgene license, with VIDAZA launched in China in early 2018.
- Net loss attributable to BeiGene narrowed to $93.1 million (EPS of $(0.17)) from $119.2 million, though operating expenses grew sharply, with R&D up 174% to $269.0 million.
- Approximately $758.0 million net raised in January 2018 ADS offering at $101.00 per ADS, on top of $837.5 million of cash and short-term investments at December 31, 2017.
- Three late-stage candidates (zanubrutinib, tislelizumab, pamiparib) in pivotal trials, with China NDA submissions for zanubrutinib and tislelizumab expected in 2018.
- Accumulated deficit of $330.5 million; management says current resources cover at least 12 months but not all planned global development and launches, indicating future financing needs.
- Insider and principal shareholder concentration of about 61.2% of ordinary shares, plus Cayman Islands incorporation, PRC tax residency and currency risks, and PCAOB inspection limitations on the auditor.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2017, BeOne Medicines Ltd. lost $0.39.
- Revenue$238.4M100.0%
- Cost of revenue−$5.0M2.1%
- Gross profit$233.4M97.9%
- Operating costs−$331.9M139.2%
- Operating income−$98.5M41.3%
- Interest, other & tax$5.4M2.2%
- Net income−$93.1M39.1%
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 28, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $238.39M$1.07M | +22179.2% |
| Cost of Revenue | $4.97M$0 | — |
| Gross Profit | $233.41M$1.07M | +21714.3% |
| R&D Expenses | $269.02M$98.03M | +174.4% |
| SG&A Expenses | $62.60M$20.10M | +211.5% |
| Operating Expenses | $336.84M$118.13M | +185.1% |
| Operating Income | -$98.46M-$117.06M | +15.9% |
| Net Income | -$93.11M-$119.22M | +21.9% |
| EPS (Basic) | $-0.17$-0.30 | +43.3% |
| Shares Outstanding (Basic) | 543.19M403.62M | +34.6% |
05—Questions
Frequently Asked Questions
How much of BeiGene's 2017 revenue is recurring versus one-time?
Most of 2017 revenue was non-recurring. Of $238.4 million total revenue, $211.4 million was license revenue recognized from Celgene's upfront payment for tislelizumab rights, and $2.6 million was R&D service revenue. Only $24.4 million was net product revenue from ongoing China sales of licensed Celgene drugs, which began in September 2017.
Does BeiGene have enough cash to fund its plans?
Management says existing cash, cash equivalents and short-term investments of $837.5 million at year-end 2017 are sufficient for at least 12 months. However, it states these resources will not be enough to complete all global development or launch all current candidates for the anticipated indications. The January 2018 offering of about $758.0 million net proceeds adds to this, but the filing signals that additional funding through equity, debt, or partnerships will likely be needed.
What are the near-term regulatory catalysts?
BeiGene expects to file for approval in China in 2018 for zanubrutinib (mantle cell lymphoma) and tislelizumab (Hodgkin's lymphoma). It also plans a China NDA for zanubrutinib in MCL in 2018, and a global Phase 3 trial of pamiparib in gastric cancer in the first half of 2018. The filing notes that Phase 3 timelines, approvals and reimbursement remain uncertain.
What structural risks should investors consider?
Key structural risks include: a Cayman Islands holding company with most operations in China, exposing investors to PRC regulation, currency convertibility limits, and possible PRC resident enterprise tax treatment; the PCAOB's inability to fully inspect the auditor's work; concentrated ownership (about 61.2% held by directors, officers and principal shareholders); and the possibility of PFIC status in future years for U.S. holders.
Why did operating expenses grow so quickly in 2017?
Research and development expense rose $171.0 million to $269.0 million, driven by expanded clinical trials for zanubrutinib, tislelizumab and pamiparib, a $33.8 million increase in internal employee costs, and a $22.5 million increase in share-based compensation. Selling, general and administrative expense rose $42.5 million to $62.6 million, reflecting the acquired Celgene China commercial operations and global expansion. Headcount grew from about 320 at the start of 2017 to about 900 at year-end.
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