Shares of BeiGene (NASDAQ:BGNE) have risen over 20% in the past year with investor confidence rising as late stage studies are initiated for the firm’s promising clinical candidates.

BGNE data by YCharts

The $1.5 billion Beijing-based company is advancing a deep pipeline of internally discovered candidates, with all compounds in clinical studies both in China and worldwide.

Figure 2: Pipeline (source: corporate website)

Lead asset BGB-311 is the company’s potent and highly selective small molecule BTK inhibitor (Bruton’s Tyrosine Kinase), which based on preclinical studies could be more selective than ibrutinib, leading to less off target inhibition of other kinases and therefore lower toxicity. Ibrutinib (Imbruvica) did $511 million of sales in the fourth quarter of 2016 alone.

The company has already initiated a global phase three trial comparing BGB-311 to ibtrutinib in patients with Waldenstrom’s Macroglobulinemia, as well as a pivotal program in China to treat patients with relapsed/refractory mantle cell lymphoma and relapsed/refractory chronic lymphocytic leukemia/small lymphocytic lymphoma.

As for the company’s PD-1 inhibitor BGB-A317, on April 21st management announced the first patient has been dosed in a pivotal study in patients with relapsed/refractory classical Hodgkin lymphoma (CHL). They believe the asset is differentiated from currently approved PD-1 antibodies due to its ability to bind Fc gamma receptor I specifically engineered out, which could result in improved activity.

Key Upcoming Catalysts

  • Present updated phase I monotherapy data this year
  • Present data from phase I combination studies of BGB-3111 with obinutuzumab and BGB-3111 with BGB-A317 later this year
  • Present data from phase I combination studies of BGB-A317 with BGB-290 and BGB-A317 with BGB-3111 later in the year
  • Present updated phase I monotherapy data for BGB-290 (their PARP inhibitor) later in the year, as well as updated combination data with BGB-A317

Other Information

The company reported a year end 2016 cash balance of $368.17 million, compared to $100.49 million as of December 31, 2015. Research and development expenses for the quarter were $28.9 million and for the full year $98.3 million, quite an increase from $28.10 million and $58.25 million, respectively. This was due to the company´s increased activity in the clinic as programs progress into pivotal trials. I assume dilution or another form of funding will be necessary in 2018.

Also of note, the company will be building its own commercial biologics manufacturing facility in Guangzhou, Guangdong Province, China as part of a joint venture with Guangzhou Development District. Expected direct investments total $330 million to support research and development efforts in China.

Also, the Baker Brothers have been aggressively adding to their position with a total of 3.673 million shares. FMR, Hillhouse Capital Management, Wellington Management Group, and Orbimed Advisors also own significant stakes.

Thesis and Risks

It is noteworthy that in China no immune checkpoint inhibitors are currently approved, an area of significant unmet patient need. Management has shown themselves to be uniquely competent in progressing candidates in a swift manner. Investors would do well to remember that China is home to almost a quarter of the world´s cancer patient population and one-third to one half of cancer patients in certain tumor types.

Figure 3: New incidence by cancer type in China and worldwide (source: World Health Organization)

Shares are at relative highs, although they have pulled back significantly since almost hitting $42. I believe the company is an intriguing though speculative long term story- investors who have done their due diligence and agree might be best served to establish a small pilot position in the near term, waiting for future volatility and dips in share price before adding to their position.

Risks include those typical of biotech, including trial setbacks, regulatory risk, disappointing data, and dilution in the medium term (2018). Additionally, the so-called China discount applies here, as disclosure and transparency have been troubling issues in the past for investors holding shares in Chinese companies.

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