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Why BeiGene Soared 56.6% In July

What happened

After inking a collaboration agreement with biotech powerhouse Celgene (NASDAQ: CELG), shares in BeiGene Ltd. (NASDAQ: BGNE) rocketed 56.6% higher last month, according to S&P Global Market Intelligence.

So what

Celgene loves locking up promising drugs in the pipeline of smaller peers, especially when those drugs could get to market relatively quickly.


Last month, Celgene cut a deal with BeiGene to gain certain ex-Asia rights to BeiGene's anti-PD-1 drug, BGB-A317.

Celgene gains rights to develop BGB-A317 in solid-tumor cancers for use in Japan, the U.S., and Europe, as well as other non-Asian territories. It's also taking a $32.7 million share equity stake in BeiGene that's equal to about a 5.9% ownership position. 

BeiGene retains the rights to develop BGB-A317 for hematological cancers. It also receives $263 million in up front cash from Celgene, and it can receive as much as $980 million in various development, regulatory, and sales milestones, plus future tiered royalty payments on sales.

BGB-A317 is already in pivotal mid-stage studies in China for relapsed/refractory classical Hodgkin lymphoma and bladder cancer. The company also reported in June, promising results from a phase 1 liver cancer study.

In addition, BeiGene will take over marketing responsibility of Celgene's approved drugs in China, including its best-seller, Revlimid. The marketing agreement will last 10 years, and it transforms BeiGene into a commercial-stage biotech. In 2016, sales of these drugs in China totaled $65 million. Over the past five years, sales in China have been growing at a mid-20% annualized clip, and according to BeiGene, Celgene's China business is profitable.

Now what

PD-1 drugs are some of the most exciting in cancer treatment right now. Bristol-Myers Squibb's Opdivo and Merck & Co.'s Keytruda, for example, had combined sales in excess of $2 billion in the second quarter of 2017.

BeiGene believes that BGB-A317 might have advantages over these and other currently approved PD-1 drugs. Unlike existing PD-1 drugs, BGB-A317 is designed to potentially minimize negative interactions with other immune cells. If so, then it could provide a better efficacy and safety profile.

Overall, this is an intriguing deal. BeiGene immediately starts generating revenue from selling Celgene's drugs in China, and it doubles its cash thanks to the upfront money Celgene paid. It gains a partner with deep pockets and tons of clinical trial experience, which paves the way to a quicker path to ex-Asia commercialization.

BeiGene hasn't said how much it will spend commercializing Celgene's drugs, so we don't know how profitable this deal will be initially. However, there's undeniably an opportunity here that's pretty big, and that makes this stock worth tracking.  

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Todd Campbell owns shares of Celgene. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Celgene. The Motley Fool has a disclosure policy.