IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

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<a href="https://www.smartkarma.com/entities/23712" target="_blank" data-smartkarma-citation="entities:23712:1">BeiGene (BGNE US)</a> is set to become the first overseas listed biotech firm to seek a secondary listing in Hong Kong, under the city’s newly revamped listing rules. Since its Nasdaq IPO in 2016, the shares have increased more than sevenfold. The price range of HK$94.4-111.6 per share implies a market value of $9.2 billion (HK$72.4 billion) to $10.9 billion (HK$85.6 billion). Cornerstone investors, Baker Bros Advisors, Hillhouse Capital, GIC and Ally Bridge, will buy around 32% of the offer shares at the mid-point of the pricing range.BeiGene has a strong product portfolio which comprises of three marketed products in China, three late-stage assets, and five early-stage clinical assets. BeiGene is on the cusp of two large near-term commercial opportunities which are zanubrutinib (BTK Inhibitor) globally and tislelizumab (PD-1 Inhibitor) in China. Overall, we believe that BeiGene is an innovative and well-run biotech company, and would participate in the Hong Kong listing because:<ol>
<li>
Zanubrutinib (BTK Inhibitor) could be the first internally developed drug from a Chinese company that is best-in-class in its category. Zanubrutnib’s potential as a best-in-class BTK inhibitor is based on its ability to offer higher quality responses, more complete target inhibition and a favourable safety profile over market leader ibrutinib. Encouragingly, the clinical experience to date supports the best-in-class hypothesis.</li>
<li>
Tislelizumab is well positioned in a large addressable market. Tislelizumab is a PD-1 checkpoint inhibitor currently under development in a wide range of solid cancer tumour indications. China is a significant addressable market as out of the total tumour incidence of 4.3 million in China, 3.0 million have PD-1 responsive tumours. Notably, the July 2017 licensing agreement ($413 million in license fees and equity investment) with <a href="https://www.smartkarma.com/entities/7410" target="_blank" data-smartkarma-citation="entities:7410:1">Celgene Corp (CELG US)</a> validates tislelizumab’s commercialisation potential.</li>
<li>In China, tislelizumab faces competition from two US multinationals and three domestic firms. In the long term, the company with the largest market share will be the one which has quickly built a broad approved label, a deep commercial team, and scalable manufacturing facilities. BeiGene is investing in substantial clinical capabilities and running the broadest clinical development programme. This strategy positions BeiGene to get a broad approved label and thus qualify for comprehensive reimbursement. It remains unclear if the multinationals can competitively price their drugs in China without comprising their US profitability. PD-1 inhibitors are currently priced globally at $160K per patient per annum and multinationals will likely have to at least half the global price in China to qualify for reimbursement.</li>
<li>We value BeiGene at $11.9 billion (HK$93.4 billion) based on a risk-adjusted NPV analysis of just BeiGene's three late-stage assets. This valuation is 15% above the market cap implied by the mid-point of the proposed price range. Notably, our rNPV valuation is cautious as it does not ascribe any value to BeiGene's marketed products with Celgene/Mirati, five early-stage clinical assets and the potential $980 million milestone payments from Celgene. We also note that the current average analyst price target is $209 per ADS which is 18% above the last close price of $177 per ADS.</li>
</ol><div class="content-highlight">Overall, we believe that BeiGene is an exciting biotech company with the potential to be one of the few world-class biotech companies arising from China. While the shares have had a strong run year-to-date, there are a number of expected catalysts for the three late-stage assets to sustain the share price momentum. To sum up, we would participate in the Hong Kong listing at the proposed pricing range. </div>

BeiGene (BGNE US) is set to become the first overseas listed biotech firm to seek a secondary listing in Hong Kong, under the city’s newly revamped listing rules. Since its Nasdaq IPO in 2016, the shares have increased more than sevenfold. The price range of HK$94.4-111.6 per share implies a market value of $9.2 billion (HK$72.4 billion) to $10.9 billion (HK$85.6 billion). Cornerstone investors, Baker Bros Advisors, Hillhouse Capital, GIC and Ally Bridge, will buy around 32% of the offer shares at the mid-point of the pricing range.BeiGene has a strong product portfolio which comprises of three marketed products in China, three late-stage assets, and five early-stage clinical assets. BeiGene is on the cusp of two large near-term commercial opportunities which are zanubrutinib (BTK Inhibitor) globally and tislelizumab (PD-1 Inhibitor) in China. Overall, we believe that BeiGene is an innovative and well-run biotech company, and would participate in the Hong Kong listing because:

Zanubrutinib (BTK Inhibitor) could be the first internally developed drug from a Chinese company that is best-in-class in its category. Zanubrutnib’s potential as a best-in-class BTK inhibitor is based on its ability to offer higher quality responses, more complete target inhibition and a favourable safety profile over market leader ibrutinib. Encouragingly, the clinical experience to date supports the best-in-class hypothesis.

Tislelizumab is well positioned in a large addressable market. Tislelizumab is a PD-1 checkpoint inhibitor currently under development in a wide range of solid cancer tumour indications. China is a significant addressable market as out of the total tumour incidence of 4.3 million in China, 3.0 million have PD-1 responsive tumours. Notably, the July 2017 licensing agreement ($413 million in license fees and equity investment) with Celgene Corp (CELG US) validates tislelizumab’s commercialisation potential.
In China, tislelizumab faces competition from two US multinationals and three domestic firms. In the long term, the company with the largest market share will be the one which has quickly built a broad approved label, a deep commercial team, and scalable manufacturing facilities. BeiGene is investing in substantial clinical capabilities and running the broadest clinical development programme. This strategy positions BeiGene to get a broad approved label and thus qualify for comprehensive reimbursement. It remains unclear if the multinationals can competitively price their drugs in China without comprising their US profitability. PD-1 inhibitors are currently priced globally at $160K per patient per annum and multinationals will likely have to at least half the global price in China to qualify for reimbursement.
We value BeiGene at $11.9 billion (HK$93.4 billion) based on a risk-adjusted NPV analysis of just BeiGene's three late-stage assets. This valuation is 15% above the market cap implied by the mid-point of the proposed price range. Notably, our rNPV valuation is cautious as it does not ascribe any value to BeiGene's marketed products with Celgene/Mirati, five early-stage clinical assets and the potential $980 million milestone payments from Celgene. We also note that the current average analyst price target is $209 per ADS which is 18% above the last close price of $177 per ADS.
Overall, we believe that BeiGene is an exciting biotech company with the potential to be one of the few world-class biotech companies arising from China. While the shares have had a strong run year-to-date, there are a number of expected catalysts for the three late-stage assets to sustain the share price momentum. To sum up, we would participate in the Hong Kong listing at the proposed pricing range. 

BeiGene IPO Preview: Lucrative Lifesavers

United States

Mirati Therapeutics, Inc. is a targeted oncology company developing a pipeline of therapeutics for precisely defined patient populations. The Mirati team is using a blueprint proven by their prior work for developing potential breakthrough therapies with accelerated development paths.

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Mirati Therapeutics (MRTX US)

BeiGene IPO Preview: Lucrative Lifesavers

BeiGene (BGNE US) is set to become the first overseas listed biotech firm to seek a secondary listing in Hong Kong, under the city’s newly revamped...

Arun George

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