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Elevator Pitch
I have a Buy investment rating assigned to BeiGene, Ltd.’s (NASDAQ:BGNE) [6160:HK] stock. In my view, the recent FDA approval for BRUKINSA is a major growth catalyst for BGNE, and this hasn’t been completely factored into its share price and valuations. Therefore, I think that BeiGene’s shares have the potential to rise further, which explains why I have rated BGNE as a Buy.
Company Description
BeiGene refers to itself as a “biotechnology company that is developing and commercializing innovative and affordable oncology medicines” in the company’s press releases. BGNE was started in 2010, and its shares have been listed on Nasdaq since February 2016.
BeiGene’s Key Metrics
BGNE’s January 2023 Investor Presentation
In its fiscal 2021 10-K filing, BGNE highlighted that it has “three approved medicines”, namely BRUKINSA, tislelizumab, and pamiparib. BRUKINSA or zanubrutinib, which BeiGene describes as “a small molecule inhibitor of Bruton’s Tyrosine Kinase for the treatment of various blood cancers”, is the focus of my current article.
FDA Approval
Seeking Alpha News reported on January 19, 2023 that BeiGene has secured the U.S. Food and Drug Administration’s approval for BRUKINSA to be used to treat “chronic lymphocytic leukemia (CLL) and small lymphocytic lymphoma (SLL).”
BGNE’s stock price surged by +33% from $201.09 as of January 19, 2023 to close at $266.75 at the end of the January 24, 2022 trading day following the recent FDA approval.
The market’s positive response to BRUKINSA’s FDA approval for CLL and SLL is justified.
Firstly, sales derived from BRUKINSA have been expanding rapidly, and there is substantial room for further growth. BGNE generated a revenue of $156 million from BRUKINSA in Q3 2022, which accounted for around 40% of the company’s top line for that quarter and was equivalent to a +136% YoY growth. In comparison, BeiGene’s BRUKINSA contributed a mere $7 million of sales three years ago in the second quarter of 2020. Looking ahead, the Bruton’s Tyrosine Kinase or BTK inhibitor market has strong growth potential. In its January 2023 investor presentation, BGNE cited research from Deutsche Bank (DB) which forecasted that the worldwide BTK inhibitor market can grow by a CAGR of +21% from $8.0 billion in 2021 to $20.4 billion in 2026.
Secondly, the FDA approval for CLL and SLL will expand BRUKINSA’s addressable market in a significant manner. At JPMorgan’s (JPM) 41st Annual Healthcare Conference 2023, BeiGene emphasized that the “approval of CLL in the U.S.” will enable BRUKINSA to “reach the rest of the (BTK inhibitor) market.” Prior to the recent FDA approval for CLL and SLL, BGNE’s BRUKINSA could only target roughly 15% of the BTK inhibitor market. Notably, the sales of IMBRUVICA or ibrutinib, which competes with BRUKINSA, jumped from under $1 billion to more than $8 billion in a few years’ time after obtaining FDA approval for CLL in 2014.
Thirdly, BRUKINSA or zanubrutinib, is well-positioned to grab market share from IMBRUVICA (ibrutinib) and CALQUENCE (acalabrutinib). In the company’s January 19, 2023 media release disclosing the FDA approval, BGNE stressed that BRUKINSA has exhibited “superior efficacy and a favorable safety profile” for the treatment of CLL. Assuming that BRUKINSA can achieve a 23% market share for the global BTK inhibitor market by 2026, BeiGene will be able to deliver a revenue of $4.7 billion from BRUKINSA alone which is already equivalent to the current sell-side’s consensus fiscal 2026 top line projection for BGNE. In other words, there is upside to BeiGene’s future revenue for the medium to long term.
Valuations
BeiGene’s current valuations appear to be reasonable based on peer and historical comparisons, despite its share price surge in the past week. This implies that positives relating to the recent FDA approval haven’t been fully factored into BGNE’s stock price.
Peer Valuation Comparison
| Stock | Consensus Forward Next Twelve Months’ Enterprise Value-to-Revenue Valuation Multiple |
| Shanghai Junshi Biosciences Co., Ltd. (OTCPK:SHJBF) [1877:HK] | 29.9 |
| argenx SE (ARGX) | 23.9 |
| Alnylam Pharmaceuticals, Inc. (ALNY) | 20.7 |
| AKESO INC. (OTCPK:AKESF) [9926:HK] | 14.7 |
| BeiGene | 12.6 |
| Genmab A/S (GMAB) | 9.8 |
| BioMarin Pharmaceutical Inc. (BMRN) | 8.8 |
| Peer Mean Valuation Multiple (excluding BGNE) | 18.0 |
Source: S&P Capital IQ
BGNE’s consensus forward Enterprise Value-to-Revenue ratio of 12.6 times is below the peer average of 18.0 as per the peer comparison table presented above.
Also, BeiGene is currently trading at a forward EV-to-Revenue valuation multiple that is much lower than its three-year mean valuation metric of 23.9 times (source: S&P Capital IQ).
Furthermore, BGNE boasts an impressive consensus fiscal 2023-2026 revenue CAGR of +35%, and analysts see the company realizing EBITDA breakeven by FY 2025 as per S&P Capital IQ data. As such, BeiGene should at least command a forward EV-to-Revenue multiple in the high-teens (versus 12.6 times now) considering its expected annualized top line expansion of +35% for the next four years.
Bottom Line
BeiGene’s shares are deserving of a Buy rating. The company’s growth outlook is promising in view of its key product’s recent FDA approval for the treatment of SLL and CLL. I don’t think that the stock’s current valuations have fully priced in BGNE’s growth potential, so I view BeiGene’s shares as undervalued.
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