Initiation: September 5, 2019
J Capital Research ("J Cap") is an investment advisor to private funds. J Cap has analyzed the U.S.-listed company BeiGene, Ltd. (“BGNE”) and is hereby publishing the outcome and the conclusions of our analysis, based on publicly available information. We or some of our clients may be short shares of AOS, and, for this reason, there might be a conflict of interest.
  • Confidence game: BeiGene has no future, and we think management knows it, which explains the rapid pace of stock sales by management since inception. We have clear evidence that the company is faking sales in order to persuade investors that it can develop a successful platform in China; we suspect management may also be skimming R&D and capital budgets. At best, this is a poorly managed company pursuing commoditized drugs, with internal controls, even in the context of Chinese companies, that we find to be lax. At worst, BeiGene executives may be robbing shareholders.
  • “Golden opportunity”—for management to cash out: BeiGene executives keep telling investors they have a once-in-a-lifetime opportunity to invest another round of capital in a native Chinese biotech company. Clearly, they see an opportunity, but not for investors. Top management has sold or registered to sell $322 mln in stock, the founder accounting for $189 mln of that. 
  • Capex: really? BeiGene owns three manufacturing facilities, racking up $157 mln in net fixed assets since 2016, with another roughly $300 mln committed, and has paid $25 mln toward a fourth despite having no drugs to manufacture. Irrational spending of this level in a highly regulated and corrupt environment like China’s is a red flag. 
  • Fake revenues: Our extensive interviews in China and review of Chinese Tax Department financial statements indicate that BeiGene has invented over $154 mln in revenues since Q4 2017, when it took over sales of Celgene drugs in China, an overstatement of 133%.
  • The world’s most expensive R&D staff: Reported staff costs within China are about $65 mln higher than we believe is feasible given staff compensation standards. R&D expenditure overall is eight times higher than the direct competition. This further strengthens our belief that the company, without a single drug approved in its nine-year history, is desperately wasteful or padding expenses. 
  • No special privileges: BeiGene portrays itself as a native-son pharmaceutical company favored by regulators. In reality, BeiGene stands at the back of the line for approvals, with other foreign companies. We interviewed Chinese regulators, who said that BeiGene does not enjoy the privilege of fast-track approval that a fully Chinese firm would. We have confirmed with regulators that trials for BeiGene’s own drugs cannot be completed before the end of this year, meaning there will be no new BeiGene drug in the Chinese reimbursement lists this year. 
  • The disappearing $70 mln: A BeiGene subsidiary with no address or operations—and which has not been audited—shows $69.8 mln in “costs.” We think that money was used to roundtrip sales.
  • Suspicious acquisition: In 2018, BeiGene made a nonsensical decision to purchase a building on which it already had a 10-year lease for R&D in Beijing, spending $38 mln. Based on local comparisons, that price seems to be at least $10 mln too much. There appears to have been zero commercial rationale, and the seller looks suspiciously like a related party.
  • Nothing to invest in: BeiGene has little to show for nine years of operations. With no commercialized IP assets of its own, poor internal controls over huge expenditures, and a sales team that competitors call “weak.” We cannot find value in this speculative bubble of a company and blame market frenzy for driving the company “valuation” to $8.8 bln.
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