After inking a transforming deal with Celgene Corp. (NASDAQ:CELG) last month, BeiGene Ltd. (NASDAQ:BGNE) may be the most intriguing Chinese stock that growth investors can buy.

The deal catapults BeiGene into a commercial-stage company that's marketing some of the world's most successful drugs to the world's biggest population. It also significantly increases the company's financial firepower, and provides a faster pathway to commercializing BeiGene's cancer drug pipeline outside of Asia.

A big-time deal

Celgene, one of the most successful biotech companies on the planet, has marketed its drugs in China by itself, but soon, that responsibility will shift to BeiGene for the next 10 years.

Chinese lucky coins on top of Chinese banknotes inside an open red envelope.


Celgene currently has three drugs that are approved for sale in China: Revlimid, Abraxane, and Vidaza. Revlimid, a multiple myeloma drug, is one of the world's best-selling medicines; this year, it's expected to generate global sales of $8 billion. Abraxane is a pancreatic cancer and breast cancer drug that has global sales of about $1 billion per year, and Vidaza, which recently won approval in China, but isn't being sold there yet, had sales of $156 million in the second quarter, nearly all of which was generated outside the United States.

According to BeiGene, Revlimid and Abraxane sales totaled $65 million in China last year. Over the past five years, sales of those two drugs in China have grown by a compound annual rate in the mid-20%. According to BeiGene, Celgene's China business is already profitable. The company did not specify exactly how profitable, but any sales and profit are welcome, because up until now BeiGene has been a clinical-stage company without any products to sell.

The benefits of its deal with Celgene, however, stretch far beyond selling Celgene's drugs in China. Celgene has also agreed to take a 5.9% equity stake in BeiGene, and it's handing over big money to license certain ex-Asia rights to BeiGene's PD-1 cancer drug, BGB-A317.

PD-1 drugs help prevent cancer cells from hiding from the immune system. Trials in China are already evaluating BGB-A317 in solid-tumor cancers, such as liver cancer and bladder cancer, and a pivotal study in classical Hodgkin lymphoma began enrolling patients in June.

BGB-A317 isn't the first PD-1-inhibiting drug, but it could be the best one. Currently, the two top-selling PD-1 drugs are Opdivo and Keytruda, which rack up combined quarterly sales in excess of $2 billion. However, Opdivo and Keytruda can bind to Fc receptors in a way that depletes the T-cell population necessary to attack tumor cells, thus diminishing their effectiveness. BGB-A317 is designed to avoid this off-target risk, so possibly, it will work even better than the established treatments. 

Celgene plans to kick off next year its own solid-tumor studies that could eventually result in approvals of BGB-A317 in the U.S., Europe, and elsewhere. Of course, there's no guarantee that these trials will pan out, but Celgene is betting heavily on BGB-A317's success. To secure rights to it in the U.S. and elsewhere, Celgene is paying BeiGene $263 million up front, plus another $980 million if certain development, regulatory, and sales milestones are achieved. BeiGene will also receive royalties on sales, which could be significant because the global market for PD-1 drugs could be worth up to $36 billion by 2023. 

A global map showing China.


Looking forward

BeiGene's selling Celgene's medicine in China will provide cash flow, but revenue isn't likely to exceed the company's spending, at least at first. In the second quarter, BeiGene's research and development investments and spending on general business operations totaled $58 million. Therefore, the company's losses are likely to continue to outpace sales for a while.

Nevertheless, BeiGene couldn't ask for a better development and commercialization partner for BGB-A317. Celgene's got an envy-inspiring track record for identifying winning drugs, and the PD-1 market opportunity alone is potentially needle-moving.

Notably, BeiGene's success isn't entirely dependent on Celgene. BeiGene is developing a slate of other promising cancer drugs, including a BTK inhibitor and a PARP inhibitor. BTK inhibitors, which can treat certain white blood cell malignancies, already generate billions in annual sales, and analysts think PARP inhibitors, which prevent the body from repairing cancer cells, could become blockbusters as well. 

Overall, BeiGene has a lot of intriguing irons in the fire; It's perfectly positioned to tap into the fast-growing market for medicine in China; it has potential top sellers in its pipeline; and it's got a deep-pocketed, highly successful teammate in Celgene. Granted, it's anyone's guess where BeiGene's stock will go from here, but with all that's going on at this company, I can't help but think it's one of the best Chinese stocks to buy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.