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Here's Why BeiGene Ltd. Rose as Much as 31.4% on Thursday

What happened

Shares of BeiGene Ltd. (NASDAQ: BGNE) rocketed more than 31% higher at one point Thursday morning after the clinical-stage biopharma announced a new collaboration with Celgene Corp. (NASDAQ: CELG). The biopharma giant acquired worldwide rights outside of Asia to the upstart's PD-1 inhibitor BGB-A317, a pipeline drug candidate identified for immuno-oncology applications to treat solid tumors. 

In a bit of a twist as far as such collaborations go, BeiGene is acquiring something from Celgene as well. The $2.6 billion market-cap upstart is getting all Chinese commercial operations of the $103 billion company, and an exclusive license to sell Celgene's blockbuster drugs Abraxane, Revlimid, and Vidaza in China. As of 2:05 p.m. EDT, the stock had settled to a 26.3% rise. With those gains, BeiGene shares have more than doubled in 2017. 

Image source: Getty Images.

So what

BeiGene will receive an upfront payment of $263 million, in addition to a $150 million equity investment from Celgene, which will nearly double the company's cash position from the end of March. It will also retain commercial rights to BGB-A317 in Asia (excluding Japan).

What does all this mean? Well, in 2016, only $1.17 billion, or 10.4%, of Celgene's revenue came from outside the United States and Europe. Not all of that was from China, nor was it all derived from sales of the blockbuster trio mentioned above. Therefore, investors will need to wait to see more precise details, but for a pre-revenue company such as BeiGene, this is pretty amazing no matter the exact dollar amount. 

Celgene is looking to begin studies in solid tumors in the United States sometime in 2018. Considering that the drug candidate has exhibited safety and activity against a broad range of solid tumor types in more than 500 patients to date -- an extraordinarily high number for an early-stage asset -- BGB-A317 appears to have a better chance of reaching the market than most pipeline assets.

Meanwhile, the creative aspects of the newly formed collaboration hint at what may be the cost of doing business in China. The terms announced this week could set a high bar for other established biopharma companies looking to gain access to homegrown technology and assets in the future, although that would be good news for Chinese companies such as BeiGene trying to protect their intellectual property.

Now what

This news is definitely great for both the company's near- and long-term future. BeiGene instantly gets revenue from Chinese sales of three Celgene drugs, and it has advanced a pipeline asset closer to clinical trials in the world's biggest markets. But even so, a significant amount of the company's market cap is based on potential, which is a tricky thing to predict accurately in biopharma.

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Maxx Chatsko has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Celgene. The Motley Fool has a disclosure policy.