Blue Whale Finance Tu Jun

Recently, news of Betta Pharmaceuticals's layoffs has spread widely in the industry. According to several media reports, the main target of Betta Pharmaceuticals layoffs this time is its R&D department. Judging from the number of R&D personnel in its newly released 2023 financial report, the number of R&D personnel dropped from 647 in 2022 to more than 562 in 2023, a decrease of 13.14%.

In fact, in the previous three years, Betta Pharmaceuticals was very willing to invest in R&D. In the past three years, R&D investment showed a trend of increasing year by year. In 2022 and 2023, it was around 1 billion dollars, accounting for about 40% of revenue. However, there are opinions that Betta Pharmaceuticals, which is willing to invest in research and development, has not produced explosive drugs for many years other than the first domestically produced first-generation EGFR inhibitor (ectinib, trade name: Kaimena), which it is proud to be proud of. As a result, its revenue growth rate declined markedly after 2022, and most R&D pipelines are in the early stages, showing a troubled trend.

However, its recently released 2023 financial report also shows that there is a phenomenon where profits are not increasing, and its management expenses have dropped sharply. Some industry insiders questioned that layoffs and lower management expenses increased their current profits, but the sustainability of this approach needs to be considered.

Profits rose rapidly in 2023, but revenue stagnated

On the evening of April 19, Betta Pharmaceuticals released its 2023 annual report and first quarter report.

According to the annual report, the company achieved operating income of about 2,456 billion yuan in 2023, up 3.35% year on year; net profit to mother was about 348 million yuan, up 139.33% year on year; net profit after deduction was 263 million yuan, up 768.85% year on year. The company's net cash flow from operating activities was 914 million yuan, an increase of 198.05% over the previous year.

According to the 2024 first quarter report, the company achieved revenue of 736 million yuan in the first quarter of 2024, an increase of 38.40% over the previous year; realized net profit of 98.1407 million yuan to mother, an increase of 90.95% over the previous year.

Overall, judging from financial data, the profit growth rate for the full year of 2023 and the first quarter of 2024 was very fast, and net profit returned to mother more than doubled in 2023. Notably, its revenue for the full year of 2023 increased only slightly by 3.35%.

Some industry insiders speculate that layoffs and lower management expenses have contributed to its profit growth, but if revenue does not continue to grow, it indicates that Betta Pharmaceuticals' product structure is uncompetitive. Apart from Kaimena's rapid expansion in the past 10 years, subsequent product sales have been slow, and this increase in profits may not be sustainable.

Currently, the company has five marketed products: Kaimena, Bemena, Saimena, Vimena, and Beantin.

Among them, Kaimena is its “cornerstone product”. As the first self-developed small-molecule lung cancer targeted drug in China, it was approved for the first indication in June 2011 and included in medical insurance in February 2017. However, until now, it has been questioned that the product line is too single. It wasn't until 9 years after Kaimena went on the market that Beimena became the second product approved for marketing by Betta Pharmaceuticals. The first indication was launched in November 2020. The remaining products will be launched in 2021 and 2023, respectively.

Although Beida Pharmaceuticals did not disclose the revenue for each product in its 2023 financial report, judging from its overall revenue, the fastest revenue growth rate was 19.27%, 26.94%, 20.36%, and 20.08% respectively, and Kaimena was undoubtedly the main source of revenue; in 2022, even though many new products were already on the market, its growth rate was only 5.82%, which clearly slowed down.

Judging from its management costs, there was a marked decrease in 2023 compared to the same period. Its management expenses in 2023 were 261 million, down nearly 50% from 455 million in 2022. There are questions from the industry that open source savings are the main reason for increasing its profits.

Nearly 3 billion dollars have been invested in R&D in three years, yet no explosive drugs have been created

According to the industry, in the past three years, Betta Pharmaceuticals has been very willing to invest in R&D. Financial reports show that its R&D investment in the past three years has been increasing year by year. R&D investment in 2021-2023 was $860 million, $977 million, and $1 billion, respectively, accounting for 38.32%, 41.12%, and 40.8% of revenue, respectively.

The company has invested nearly 3 billion dollars in R&D over a period of three years, but unfortunately it still hasn't made a hit like ectinib.

Judging from the company's follow-up pipeline, Betta Pharmaceuticals's official website shows that few drugs have advanced to phase III clinical trials. Apart from two marketed drugs that are expanding indications, only one CDK4/6 inhibitor, BPI-16350, is in phase III clinical phase. The remaining PD-1 product and the other all-human monoclonal antibody targeting cytotoxic T lymphocyte-related protein 4 (CTLA-4) are in the second phase of clinical trials. Apart from the above three, they are all still in the early clinical stages, and the pace of development is slow.

Furthermore, it is worth noting that around 2020, when innovative drug development was raging, Betta Pharmaceuticals took large sums of money to invest in real estate. According to the Hong Kong Stock Prospectus, Betta Pharmaceuticals spent a large amount of cash to invest in real estate. From 2018 to early 2020, Betta Pharmaceuticals held investment real estate of $524 million, $577 million and $36 million respectively.

In fact, according to the 2023 report, Betta still has more than 2 billion yuan of projects under construction. This part of the assets mainly includes projects such as the Betta Dream Factory project and the Shengzhou Innovative Drug Industrialization Base Project.