Sales success comes with side effects for drug maker BeiGene

The Chinese biotech’s product revenues surged nearly 82% in the second quarter, driven by forecast-beating sales of its core cancer drugs

Key Takeaways:

• Global sales of BeiGene’s anti-tumor drug zanubrutinib more than doubled to $308 million (2.22 billion yuan) in the quarter
• BeiGene was slapped with a patent lawsuit by U.S. rival AbbVie in June, and suffered another blow to its global ambitions in July when Novartis pulled out of a drug collaboration

By Emily Chan

China’s BeiGene Ltd. (6160.HK; 688235.SH; BGNE.US) has underlined its status as a rising star of the global drugs industry, posting a big jump in quarterly sales of its trademark cancer medicines.

But the upstart drug developer is facing resistance from other top brands in the field of cancer therapy, and has yet to find a path into profit.

BeiGene reported last Wednesday that its overall revenue from product sales and collaborations rose 74% in the second quarter to $595 million, boosted by sales of its self-developed cancer drugs. The company’s net loss for the quarter shrank by almost a third, from $566 million to $381 million. Leaving aside a 17% rise in operating expenses, the underlying business was thriving with an 81.8% leap in product income.

Two of the company’s three independently developed drugs were the main revenue drivers. The biggest earner was zanubrutinib, a drug used to treat cancer caused by defective B cells. Sold under the brand name Brukinsa, the BTK inhibitor ranks as the first U.S.-approved lymphoma treatment developed in China. The drug brought in $308 million in the second quarter, 139% more than in the same period a year earlier. The U.S. market generated about $224 million of that income, marking a year-on-year surge of nearly 153%.

Meanwhile, BeiGene’s tislelizumab, the best seller in China’s market for PD-1 cancer drugs, also drove the rise in quarterly revenues. Mainland sales of the drug, which targets immune checkpoint proteins on cancer cells, climbed 42.5% to $150 million.

Buoyed by the second-quarter earnings, the half-year figures were also eye-catching. Six-month revenue rose nearly 61% to around $1.043 billion. The company slashed its net loss by around 27%, or $271 million, in the first half to around $730 million. Global zanubrutinib sales soared 123% to $519 million in the half year, turbocharged by U.S. demand. The U.S. market accounted for $362 million of the drug’s sales, a surge of 37% year on year.

Despite the stellar sales, the stock market was in two minds about the results. Investors sent BeiGene stock tumbling 3.3% on the day after the earnings, only to propel a 6.2% rebound the following day. Some analysts decided to raise their price targets on the back of the earnings. Credit Suisse said second-quarter revenues exceeded expectations, mainly thanks to strong zanubrutinib sales, which helped to narrow the company’s losses. Credit Suisse also highlighted continued changes in the company’s sales mix and an increase in operating leverage, raising its price target slightly from HK$180 to HK$180.6 while sticking with an “outperform” rating.

Soochow Securities predicted a sustained rise in overseas sales after a global head-to-head trial found that BeiGene’s zanubrutinib outperformed a rival drug, ibrutinib, that was developed by U.S. pharmaceutical giants AbbVie Inc (ABBV.US) and Johnson & Johnson (JNJ.US). BeiGene’s drug also won U.S. approval this year to treat chronic lymphocytic leukemia or small lymphocytic lymphoma, providing another sales boost. The securities firm also noted that BeiGene’s other flagship product, tislelizumab, had been approved in China to treat 11 conditions, of which nine were covered by national medical insurance. As a result, the brokerage maintained its “buy” rating, citing the fact that revenue growth outpaced a rise in operating expenses.

But for all its sales growth and burgeoning prestige, the company remains stuck in the red, accumulating losses of $5.743 billion since 2020, squeezed by high administrative and sales costs, as well as R&D spending for the overseas strategy. Another factor was a stronger U.S. dollar, which led to losses on subsidiaries’ foreign exchange holdings.

Novartis pulls out

Commercial disputes and ill-fated alliances have also threatened to impede BeiGene’s global ambitions, as rivalry in the market for novel cancer drugs intensifies.

In early August, the company reached a settlement in a legal tussle dating from 2020 with Bristol-Myers Squibb (BMY.US) over a troubled Chinese distribution deal for the anti-cancer injection Abraxane. Under a deal struck in arbitration, BMS agreed to return about 23.27 million BeiGene shares in exchange for termination of the licensing and supply contract.

But as one headache was being eased, managers were having to wrestle with bigger troubles.

In June, U.S. drugmaker AbbVie (ABBV.US) filed a complaint against BeiGene and its U.S. subsidiary, BeiGene USA, alleging breaches of patents held by its Pharmacyclics unit.

The focus of the lawsuit, zanubrutinib, was the first independently developed drug to be marketed by BeiGene. It became China’s first novel anti-cancer drug to get U.S. regulatory approval in 2019. The drug has now been approved for use in more than 65 countries and markets including China, the U.K. and the European Union.

The drug’s status was burnished by the victory over AbbVie’s ibrutinib, formerly the front runner in blood cancer therapy, in the global trials. BeiGene’s drug outperformed ibrutinib for safety and effectiveness in the head-to-head tests, thus gaining more traction in European and U.S. markets.

BeiGene has insisted its drug is an original and independently developed product. The company vowed to fight the patent lawsuit, saying it was not surprising if a commercial competitor used every available means to thwart surging sales of a rival drug. However, such lawsuits can drag on for years, destabilizing sales.

Another blow landed in early July when the multinational pharmaceutical company Novartis (NOVN.SWX) opted to pull out of a collaboration with BeiGene to develop a TIGIT inhibitor, once tipped as the future of cancer immunotherapy. The end of the alliance means the drug candidate, osperimab, reverts to BeiGene.

Under the initial external licensing agreement, BeiGene gained the right to phased payments from Novartis of more than $2.8 billion. The Novartis retreat means BeiGene holds on to the $300 million cash downpayment, but it forfeits the remaining balance. Aside from sowing revenue uncertainty, the move could be seen by investors as a vote of no-confidence in the project to develop a drug targeting the TIGIT immune receptor.

Another innovative drugmaker that has yet to turn a profit can serve as a useful market reference for BeiGene. Shanghai Junshi Biosciences Co., Ltd. (1877.HK; 688180.SH) has a price-to-sales (P/S) ratio of 13.6 times, just above BeiGene’s 12.3 times. But Junshi’s Hong Kong share price has fallen more than 50% this year compared with a 12.7% drop for BeiGene. The market may be a tad more optimistic about BeiGene, whose valuation could enjoy a more forceful rebound later in the year.

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