Cancer Drug Maker BeiGene Takes Action to Mitigate Delisting Risk

Key Takeaways:

• BeiGene has switched auditors for its New York listing to a U.S. company from a Chinese one in a move to comply with U.S. law
• The change could reduce the company’s threat of being forcibly delisted from the Nasdaq

By Doug Young

It may have listings in Hong Kong and Shanghai, but cancer drug maker BeiGene Ltd. BGNE is making it clear it wants to keep its original listing in the U.S. that is currently under threat due to U.S.-China tensions.

That’s the key message coming from the company’s newly disclosed change of auditors. That change has seen BeiGene drop its previous accountant, China-based Ernst & Young Hua Ming LLP, for U.S.-based Ernst & Young, Chinese financial publication Caixin is reporting.

The report notes the change will only apply to BeiGene’s U.S.-listed shares. BeiGene notched a major milestone late last year when it listed on Shanghai’s Nasdaq-style STAR Market, becoming the first company to have concurrent listings in New York, Hong Kong and on one of the Chinese mainland’s A-share markets. Presumably E&Y Hua Ming – which is Ernest & Young’s China affiliate – will remain as BeiGene’s auditor for its Hong Kong and STAR Market listings.

BeiGene made the move after being named by the U.S. Securities and Exchange Commission (SEC) last month as one of five Chinese companies in danger of a forced delisting from New York. The delisting threat stems from a Chinese law that bans locally-based auditors for overseas-listed Chinese companies from sharing their audit papers with overseas regulators like the SEC.

The U.S. and China are currently in discussions to reach an information-sharing agreement to give the SEC the access it wants. Failure to do so could result in the forced delisting of most of the nearly 300 Chinese companies listed in New York beginning in December 2023.

China late last month proposed changes to its securities law to allow the information sharing that is currently banned. And in the latest positive signal of progress, a top official from the China Securities Regulatory Commission (CSRC) called for speedy implementation of the new rule, according to the text of a speech he made published over the weekend.

Despite those positive signs, BeiGene appears to be taking matters into its own hands with this latest audit move. Another drug maker on the SEC list, Zai Lab Ltd. ZLAB, is also reportedly preparing a similar move. Still, BeiGene is cautioning that such a move “may not be adequate” to satisfy the U.S. regulator, according to the Caixin report. It points out that such a move would only really be suitable for Chinese companies with a big global presence, since much of their business would be outside China.

BeiGene certainly has such global aspirations. One of its main drugs, Brukinsa, made about two-thirds of its sales in the U.S. in last year’s fourth quarter, with the remaining third in China, according to the company’s fourth-quarter report released in late February. The drug, used to treat the most common form of lymphoplasmacytic lymphoma, posted total sales of $87.6 million for the quarter, accounting for nearly half of BeiGene’s total product sales of $197 million for the period.

Global team

A look at BeiGene’s leadership team also shows the company is quite global and not just Chinese, split roughly 50-50 between Chinese and non-Chinese. While Brukinsa is making all of its sales in China and the U.S. right now, the company points out the drug has been approved for sale in 45 markets globally.

Maintaining a U.S. listing is relatively understandable for a globally-minded company like BeiGene, which might explain why it’s taking the unusual step of changing the auditor for its U.S. listing. The company’s name is probably already familiar to many global investors, and a U.S. listing provides it with access to the world’s largest capital market for future fundraising.

BeiGene’s shares have taken a beating lately, losing about half their value from a peak of around $400 late last September. The stock was relatively resilient before September, even as many other U.S. and Hong Kong-listed Chinese companies’ shares were already sinking due to a series of crackdowns by Chinese regulators.

But the stock got dragged into the sell-off as the U.S. delisting concerns grew stronger late last year. As that was happening, the company made its STAR Market IPO in December, beefing up its coffers with an additional $3.5 billion in cash. Its cash reserves totaled $6.6 billion at the end of last year, so clearly the company isn’t facing a cash crunch anytime soon.

Despite the big selloff, anyone who purchased BeiGene shares at the time of their 2016 New York IPO has done quite nicely. The stock’s latest close of $196.57 is roughly eight times the IPO price of $24 – not a bad return. The company currently trades at a relatively inflated price-to-sales (P/S) ratio (P/S) of 17, compared with an 8.2 P/S for Innovent Biologics (1801.HK) and 10.4 for Shanghai Junshi Biosciences (1877.HK). But it’s relatively comparable with those other two on a price-to-book (P/B) basis, with all three having ratios in between 3.4 and 5.3.

All that said, we’ll close with a look at BeiGene’s latest financials, which show a young drug startup that has just entered its rapid growth period as it starts to commercialize its products. The company’s revenue roughly doubled year-on-year in the fourth quarter to $214 million, with nearly all of the latest quarter’s revenue coming from product sales. But analysts see the growth slowing sharply this year, forecasting, on average, that the figure will rise just 19% in 2023.  

The company is also still spending heavily on marketing and product development, with the result that its net loss widened in the fourth quarter to $586 million from a $473 million loss a year earlier. The latest loss brought its loss for the year to $2.6 billion, though analysts polled by Yahoo Finance see that figure narrowing by about a third this year.

At the end of the day, BeiGene looks like quite a safe long-term investment due to its strong drug lineup, as well as its international team and global focus. Its shares may look a little overvalued at their current levels, especially given the sharp slowdown in revenue growth analysts are forecasting for this year. But the U.S. delisting threat looks like an increasingly receding concern.