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BeiGene: Should Investors Buy or Sell After Its Earnings?

The Chinese biopharmaceutical industry is flush with opportunities for investors.

It’s the world’s second-largest market for pharmaceuticals, with a growing middle-class and aging population. This will ensure that new and innovative drugs are in demand.

Today, I’m going to take a look at one of China’s more promising pharmaceutical stocks: BeiGene Ltd (SEHK:6160) (NASDAQ: BGNE).

Let’s start by looking at why BeiGene does, as well as its target market.

What does it do? 

BeiGene is a commercial-stage biopharmaceutical company. Since its founding in 2010, the company has been focused on developing and commercialising cutting-edge immuno-oncology drugs and molecularly-targeted drugs.

Many of these drugs will be used for the treatment of cancer, which is a growing problem in China. It’s estimated that four people die of cancer and seven are diagnosed with it every minute in China.

Beyond that, BeiGene is also selling its products to international markets. This is good news because it means it has a diversified distribution market.

The global cancer therapy market is expected to grow at a compound annual growth rate (CAGR) of 8% between 2017 to 2025.

BeiGene’s fourth-quarter 2019 earnings

When it comes to pharmaceutical companies, it’s important to look at revenue, research and development, and net loss per share. Let’s start with revenue.

BeiGene’s reported revenue of US$56.89 million for the fourth quarter of 2019. This marked a decrease in revenue when compared to the same period last year, when total revenue was US$58.67 million.

While this may concern some investors, it’s likely BeiGene’s revenue will continue to grow in the future. This particular decrease in revenue stemmed from the termination of its Celgene collaboration.

The company continued to generate revenue through other pharmaceutical products, including a new drug just released in the US market. Since that product is fairly new to the American market, it will likely generate more profit in the future.

Meanwhile, R&D expenses for the fourth quarter were US$283 million compared to US$257 million during the same period last year. BeiGene increased its R&D expenditure because of ongoing medical trials for two of the company’s key drugs – zanubrutinib and tislelizuman.

Money was also spent preparing drugs in late-stage development for regulatory submissions. This is good news for long-term growth. It means BeiGene will probably have more drugs in its product lineup.

Finally, the net loss for the fourth quarter was US$0.49 a share. Net loss in the same quarter last year was US$0.35 a share. The increase in net loss per share shouldn’t concern investors interested in the company’s long-term development and potential.

What to expect in 2020

BeiGene has been making waves in the biopharmaceutical industry. In 2019, the company reached many major milestones that could pave the way for future growth.

One such milestone was approval from the US Food and Drug Administration (FDA) to use BRUKINSA to treat mantle cell lymphoma. BeiGene is now selling BRUKINSA on the US market.

It also received approval in China for the use of its tisleilizumba drug to treat classical Hodgkin’s lymphoma patients. That drug is expected to be launched in March.

Right now, the majority of the company’s sales in China are coming from its products ABRAXANE, REVLIMID, and VIDAZA. Sales of these drugs increased 70% compared to the same period in 2018.

These drug sales could continue to grow in China thanks to the growing pharmaceutical industry. Beyond its established drugs, BeiGene has also submitted applications for new drugs, including a drug that will target indolent lymphoma.

Covid-19’s impact on BeiGene 

Like many companies in China, BeiGene has been impacted by the ongoing coronavirus outbreak. The company now expects its operations and sales within the mainland to be negatively impacted in the first quarter of 2020.

Yet, even with this disruption, BeiGene is still developing multiple medical products. This is good news for long-term investors since getting new products on the market means more revenue over the longer term.

Foolish takeaway

There is no denying that China’s pharmaceutical industry is growing. In the short term, BeiGene may be negatively impacted by the ongoing Covid-19 outbreak. In the long term though, the company is poised to grow alongside China’s expanding cancer treatment market.

It is innovating, launching new products abroad, and focusing on getting new late-stage drugs into production and distribution. These are all positive signs, even if the company missed expectations on its most recent earnings.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Alex Perry doesn't own shares in any companies mentioned.