Why Did BeiGene’s Share Price Soar Last Week?

Shares of BeiGene Ltd (SEHK: 6160) (NASDAQ: BGNE), a biopharmaceutical company with a presence in the US and China, jumped last Friday in response to a new partnership with one of the world’s largest biotech companies, Amgen (NASDAQ: AMGN).

Investors looking forward to the deal drove this Chinese biotech’s stock price nearly 33% higher in Hong Kong on 1 November. Shares gained a further 5.8% as of the close of the Hong Kong market today (4 November).

So what?

While most of us were perfecting our Halloween costumes, executives at Amgen and BeiGene were busy hammering out details of a deal that could prove incredibly important for both companies. Amgen will spend US$2.7 billion on a 20.5% stake in BeiGene at US$174.85 per ADR, which was a 36% premium to the stock’s average price over the past 30 days.

In return, BeiGene will commercialise two of Amgen’s cancer therapies, Kyprolis and Blincyto, plus the bone-density drug Xgeva. A couple of years ago, BeiGene began marketing three of Celgene‘s drugs – Revlimid, Abraxane, and Vidaza – in China. In the first half of 2019, BeiGene’s share of the revenue from these three products reached US$115.6 million, an 85% increase over the previous-year period.

Amgen agreed to more than just a marketing arrangement. BeiGene will also handle the Chinese side of development efforts for 20 cancer-related assets in Amgen’s pipeline. BeiGene will also be responsible for commercialising these drugs in China if they earn approval.

Now what?

Combined global sales of the three cancer drugs that BeiGene will commercialize for Amgen reached an annualised run rate of US$3.3 billion in the third quarter, but investors probably shouldn’t expect these drugs to generate nine-figure sales right away in China. Xgeva launched in China in September, but Kyprolis and Blincyto are still in phase 3 trials.

If approved as expected, BeiGene-generated sales of Amgen’s treatments probably won’t rise as far as sales of Celgene’s. Global sales of Revlimid alone reached an annualised US$11.1 billion run rate in the third quarter.

Investors probably don’t need to worry about BeiGene’s cash burn rate. Although operating expenses are rising, product sales and collaboration revenue have been rising even faster. The company finished June with around US$1.5 billion in cash and securities, and another US$2.7 billion from Amgen will go a long way.

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