Zero-Sales Biotechs May Damage Your Financial Health

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China's biotech unicorns are chasing a big prize. Landing it may prove elusive.

BeiGene Ltd. raised $903 million in a secondary listing in Hong Kong last week. The company’s market value has swelled to $9.4 billion since its 2016 initial public offering on the Nasdaq, despite the firm being at the “clinical stage”– a euphemism for having sales. Competitor Innovent Biologics Inc., which has filed to sell shares in Hong Kong, is another IPO worth watching. 

Both companies are engaged in cancer immunotherapy, the hottest field in China’s pharmaceutical industry. It’s easy to see why: China adds 4.3 million new cancer patients each year. The therapy works by stimulating a patient’s immune system to fight the disease. Treatments such as PD-1/PD-L1 have huge potential in the country, with about 3 million of the annual increase in cancer patients found to be receptive to these drugs, a far higher ratio than in the U.S.

It’s a new frontier that’s ripe for land grabs. PD-1/PD-L1 inhibitors accounted for 16 percent of cancer drug sales in the U.S. last year, where the Food and Drug Administration has approved five medications. In China, most patients are still treated using chemotherapy. Annual sales of PD-1 inhibitors can reach $15 billion in the country by 2030, from nil today, estimates research firm Frost & Sullivan. 

New Riches

Chemotherapy is still the main cancer treatment in China, while PD-1/L-1 treatments already account for 16 percent of total cancer drug sales in the U.S.

Source: Goldman Sachs

Buyers should beware, though. Wherever a gold mountain appears, crowds will flock.

Already, there are more than 100 clinical PD-1 trials underway, with almost half in phase III, the final stage before labs apply for permission to sell the drugs. In June, China’s Center for Drug Evaluation approved its first PD-1 drug – Opdivo, made by U.S. pharma giant Bristol-Myers Squibb Co. Four others are seeking the regulator’s nod, and BeiGene is expected to file later this year. More are sure to follow.

New Frontier

China approved its first PD-1 drug in June. Four more are now seeking the nod

Source: BeiGene filings

It’s unclear that local drugmakers have any edge over the multinationals. The three domestic PD-1 applications, along with BeiGene’s, treat Hodgkin’s lymphoma and melanoma, a form of skin cancer that’s rarer in China than in the U.S. The vast market potential for China lines in stomach and lung cancer drugs. So even if this initial batch is approved, it will be more of a confidence booster than a driver of sales. Bristol-Myers’s Opdivo, which treats lung cancer, is the only real first-mover.

A thorny issue is how to price these drugs without looking unethical. The cost of cancer treatment in China has become such a prominent social problem that “Dying to Survive,” a low-budget film on the topic, became a box-office blockbuster this year. It now ranks as the country’s fifth-highest-grossing movie of all time. 

Annual pricing for PD-1/PD-L1 treatments could range between $15,000 and $20,000 per year in China, a tenth of the cost in the U.S., reckons Goldman Sachs Group Inc. Yet if these drugs are to be included in the communist government’s social insurance programs – a necessary step for them to reach millions more patients – prices will have to come down by a lot more. The likes of Pfizer Inc. and Roche Holding AG are already slashing drug prices in China. 

Meanwhile, biotech start-ups are cash-burning machines. BeiGene spent almost $500 million on research and development since 2016. This partly explains why the firm has raised additional capital three times since its 2016 IPO and tapped the Hong Kong market as well.

Explaining why BeiGene came to Hong Kong, founder John Oyler was cited by Reuters as saying that the dual listing could help to educate global investors who are specialists in biotech but know little about China, and local investors who know China but little about biotech.

He’s right. Hong Kong investors are new to cancer research, but they know a thing or two about Beijing’s whims. BeiGene’s reception was lukewarm among retail buyers, who applied for 1.7 times the shares available. The stock fell as much as 4.6 percent when it started trading in Hong Kong on Wednesday.

Technology unicorns are sometimes frowned upon for their lack of profit; next to biotech startups, they’re veritable cash cows. Earnings are beside the point for companies that don’t have any sales yet. This alone makes fancy cancer drugs a bit difficult to swallow. 

(Updates with BeiGene’s Hong Kong trading debut in the second-last paragraph.)

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    Shuli Ren at

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    Matthew Brooker at

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