What spooked the company's shareholders in September? BeiGene's shares tanked in response to a rather harsh short-seller report that basically accused the company of outright fraud on several fronts. The company, for its part, refuted most of these claims, calling them "baseless" in a public rebuttal. Still, investors didn't seem wholly convinced by BeiGene's response based on how its stock performed for the rest of the month.
While it may not be fair, Chinese companies in general suffer from an image problem among American investors. A short-seller report stoking concerns about rampant fraud occurring within one of the most visible Chinese entities trading on a major U.S. stock exchange, therefore, was essentially assured to gain traction in the marketplace of ideas. Whether or not the report in question was a valid criticism of BeiGene, though, is another issue entirely.
The good news is that BeiGene does enjoy the financial support of the highly respected hedge fund Baker Bros. Advisors. Moreover, the company has a drug distribution deal in place with biotech heavyweight Celgene. That doesn't mean that fraud isn't possible in this case, but it's hard to imagine that both the Baker Bros. and Celgene would back an alleged shell company.
Can BeiGene's shares rebound from this biting criticism? BeiGene currently sports three late-stage cancer candidates indicated for a host of high-value indications. Nonetheless, the biotech's shares are still trading in nosebleed territory at 17 times next year's projected sales. So, with the market souring on healthcare stocks in general and biopharmas in particular, BeiGene could have a hard time maintaining its premium valuation. Simply put, investors shouldn't bet the farm on a rebound anytime soon.