BeiGene, Ltd.

Moat: 2/5

Understandability: 4/5

Balance Sheet Health: 4/5

BeiGene is a global biotechnology company focused on developing and commercializing innovative and affordable medicines to improve treatment outcomes and access for patients worldwide, with a growing emphasis on oncology.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview: BeiGene is a commercial-stage biotechnology company that develops and markets cancer drugs. They have 13 approved products commercially available (with 6 developed in house), and another 14 in clinical development. Their pipeline primarily focuses on therapies for various cancers. They have established a global presence, including a presence in China, the United States, Europe, and other key markets. The core tenet of the company is innovation and accessibility. Revenues are primarily driven by sales of their marketed drugs, with a growing contribution from collaborations and licensing agreements. They also engage in significant research and development spending.

Revenue Distribution:

  • Product Revenue: Primarily comes from the sales of their approved cancer therapies, including BRUKINSA and other commercialized products. While most approved products have been targeted toward hematological cancers, they have continued to expand and offer products for other tumor types, solid tumors. The recent approval for SYLEVANT also enables them to penetrate the immunology field and offer their products to broader markets.
  • Collaboration and License Revenue: These revenues fluctuate from licensing agreements and partnership collaborations.
  • Geographic Revenue: Revenue distribution is concentrated in the U.S. (56%), China (34%), and Europe (11%), along with other regions, but with more and more reliance on the US for future growth. A big focus is also on establishing operations in Latin America, and Asia.

Recent growth shows a heavy reliance and expansion in Europe and the US, in 2022 over 88% of their revenues were recorded in the US. This reliance is now starting to shift towards China and other developed nations.

Industry Trends:

  • The pharmaceutical industry is marked by high barriers to entry due to stringent regulatory approval processes and high R&D costs, requiring a robust strategy to develop their pipeline. There is also a shift towards a focus on value creation and personalized medicine.
  • The oncology market continues to be a high-growth segment, but also increasingly competitive with the emergence of many new treatments.
  • Biotechnology companies are under pressure to develop and commercialize drugs quickly and effectively, driven by investor expectations and the need to recoup substantial research expenditures.
  • There is increasing focus by governments to manage pharmaceutical prices and spending in order to keep the cost of healthcare sustainable. The government also enforces drug regulations in an effort to keep quality in check.

Competitive Landscape: The pharmaceutical industry is highly competitive, with many players including:

  • Large Pharmaceutical Companies: such as Johnson & Johnson, Pfizer, Merck, Novartis, Bristol-Meyers Squibb, and others that enjoy substantial economies of scale and a widespread market reach.
  • Smaller Biotechs: companies like Gilead, Amgen, and Vertex that also focus on specific drug categories and therapeutic areas.
  • Local Pharmaceutical Companies in China: such as Innovent and Junshi, that have strong market access and recognition in their local markets.
  • Direct Competitors in similar areas: such as Abbvie, which has a similar drug to BRUKINSA, and which could steal away market share, as well as many other smaller competitors in their field.

What Makes BeiGene Different?:

  • Global Focus: Unlike many other smaller biotech companies who are generally focused on local markets, BeiGene has a global outreach, targeting the U.S. and Europe, as well as China.
  • In-house R&D: They develop and commercialize their own drugs.
  • Focus on China: This is a major market that they have expertise in, and know the regulatory dynamics.
  • Emphasis on Novel Therapies: There is a continued emphasis on developing novel therapies for cancer and immunology, thereby focusing on new treatment methods for these diseases.
  • Emphasis on commercialization: The company has focused heavily on being successful at commercializing drugs, not only developing them.

Financials In-Depth:

  • Revenue Growth: BeiGene has been experiencing a strong growth in revenues, driven primarily by increased sales in BRUKINSA and collaborations and agreements. However, revenue growth is inherently volatile and affected by approval dates and product launches.

Recent Developments & Challenges

  • BRUKINSA Growth: This product has seen strong growth, but its long-term growth and viability may be affected by increased competition from other pharmaceutical competitors, or a change in market preferences or regulations.
  • R&D Expenses: Their heavy R&D expenses to further clinical trials in order to get approvals for new medications, continues to affect their net income.
  • Operating Losses: Beigene is not profitable as of now. They have consistently recorded losses, due to high development and operation costs.
  • Regulatory Hurdles and Commercialization: While the company has successfully obtained approval in China, other markets such as the U.S and Europe may prove a tougher battle given the difference in regulations between them, and the level of competition.
  • Increased reliance on cash: With increasing expenses, and net income taking time to get better, BeiGene’s cash flow will be affected and may cause problems. There is a big focus to build their cash on hand, they had over $3B in cash and restricted cash at the end of 2022, and they look forward to continue this trend.

  • Loss in R&D expenses: In 2022, the company recorded a significant loss of around $820 million dollars in research and development.

  • Operating Expenses: They are increasing significantly. This needs to be kept in check so that the company can return to profitability. This can also decrease their overall market value and ability to generate returns for its shareholders.

Moat Rating: 2 / 5 While BeiGene has some unique characteristics that give them competitive advantage, such as in-house R&D and a focus on both China and the world, they lack strong moats against the competition in the pharma industry. It does have certain economic advantages in the distribution space within China, their regulatory expertise, and their ability to quickly launch new products. But at this point in time, they still face intense competition from already established giants, and also from new companies focusing on similar treatment therapies. They have a high degree of exposure to regulatory and clinical trial risks that may heavily affect growth. The only factors holding back competition are those that are created by the government, and are external in nature, rather than having a truly competitive business model. Therefore, a rating of 2 out of 5 is justified.

Risks to the Moat:

  • Regulatory Approval: They are heavily dependent on new drug approvals.
  • Competition: Other existing pharma and biotech companies, or new startups, can produce drugs that have better effectiveness.
  • Clinical Trial Failures: The products being developed could have some setbacks in development and clinical trials and this will affect the long-term profitability of the company.
  • Pricing pressure: Due to increased focus on healthcare costs, governments may intervene in the market and push for price-lowering policies.
  • Economic Downturn: The market and industry are both highly dependent on economic conditions. If a major recession occurs, companies may be forced to reduce spending, and that could affect BeiGene’s profits and ability to operate in the long term.
  • Global unrest: International conflicts, trade embargos, and restrictions may affect the company’s abilities to operate, and to get their products commercialized.

Business Resilience:

  • High Cash Reserves: Their cash reserves help them to survive for the next few years, and gives them significant time to increase revenue, lower expenses, and make the company profitable.
  • Global Presence: Having operations in a variety of countries and not just one particular market insulates them from geographical and economical issues.
  • Diverse Pipeline: Having multiple drugs in different stages of development helps them to not be reliant on one particular drug.
  • Focus on Innovation: This is the main driving force behind the company’s value and helps in its ability to develop the new, needed drugs in the future.

Understandability Rating: 4 / 5 The biotechnology industry is inherently complex due to complicated R&D processes, regulatory hurdles, and the science behind the drugs. While the business model of commercializing and selling drugs is relatively straightforward, understanding the scientific research behind it is not easy. The complexity of their financials are also not easy to understand and follow, given the numerous collaborations, agreements, and development plans. Therefore a rating of 4 out of 5 is appropriate.

Balance Sheet Health: 4 / 5

  • Cash Position: The company holds large amounts of cash, but they seem to burn through cash quickly. They are in negative free cash flow in both 2021 and 2022.
  • Debt Burden: While they hold an increasing amount of debt, their assets are a lot higher than their liabilities, but in the long term these will need to be addressed so that they don’t affect future earnings.
  • Total Assets: The total amount of assets is greater than total liabilities, showing their ability to cover their obligations.

Overall, Beigene has decent financial and operational strength to continue its current operations. The company’s balance sheet is relatively healthy, but needs to focus on controlling expenses and reaching profitability. Therefore a rating of 4 out of 5 is applicable.