UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| (Mark One) | |||||
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the fiscal year ended December 31, 20192022
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
| For the transition period from to | |||||
Commission file number: 001-37686
BEIGENE, LTD.
(Exact Name of Registrant as Specified in its Charter)
| Cayman Islands | 98-1209416 | |||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||
| c/o Mourant Governance Services (Cayman) Limited | ||||||
| 94 Solaris Avenue, Camana Bay | ||||||
| Grand Cayman | ||||||
| Cayman Islands | KY1-1108 | |||||
| (Address of principal executive | ||||||
+1 (345) (345) 949 4123
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| American Depositary Shares, each representing 13 Ordinary Shares, par value $0.0001 per share | BGNE | The NASDAQ Global Select Market | ||||||||||||
| Ordinary Shares, par value $0.0001 per share* | 06160 | The Stock Exchange of Hong Kong Limited | ||||||||||||
*Included in connection with the registration of the American Depositary Shares ("ADSs") with the U.S. Securities and Exchange Commission. The ordinary shares are not registered or listed for trading in the United States but are listed for trading on The Stock Exchange of Hong Kong Limited ("HKEx").
Securities registered pursuant to Section 12(g) of the Act: NoneThe RMB shares are ordinary shares of the registrant issued to permitted investors in the People's Republic of China and listed and traded on the STAR Market in Renminbi. The RMB shares are not listed for trading in the United States or on the HKEx and are not fungible with the ordinary shares listed on the HKEx or the ADSs representing the ordinary shares listed on NASDAQ, and in no event will any RMB shares be able to be converted into the ordinary shares listed on the HKEx or the ADSs listed on NASDAQ, or vice versa.
Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No NoT☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act. :
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒
As of June 28, 2019,30, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the ordinary shares, including in the form of American Depositary Shares (“ADSs”),ADSs, each representing 13 ordinary shares, held by non‑affiliates of the registrant was approximately US$4.9$16.8 billion, based upon the closing price of the registrant’s ADSs on the NASDAQ Global Select Market on June 28, 2019.30, 2022.
As of February 14, 2020, 1,007,975,7112023, 1,356,140,180 ordinary shares, par value $0.0001 per share, were outstanding, of which 846,730,482863,876,312 ordinary shares were held in the form of 65,133,114 ADSs.66,452,024 ADSs, and 115,055,260 were RMB shares.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2019.2022. Portions of such definitive proxy statement are incorporated by reference into Part III of this Annual Report on Form 10‑K.
BeiGene, Ltd.
Annual Report on Form 10‑K
TABLE OF CONTENTS
| Page | ||||||||
Forward‑Looking Statements and Market Data
This Annual Report on Form 10‑K (the “Annual Report”), contains forward‑looking statements that involve substantial risks and uncertainties. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. All statements other than statements of historical facts contained in this Annual Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected growth, are forward‑looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward‑looking statements.
Forward looking statements are often identified by the use ofinclude words such as, but not limited to, “aim,” “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would” andor the negative of these terms or similar expressions or variations intended to identify forward-looking statements, although not all forward-looking statements contain those identifying words.expressions. These forward‑looking statements include, among other things, statements about:
•our ability to successfully commercialize BRUKINSA™ (zanubrutinib) in the United States, for which we have obtained approval from the U.S. Foodour approved medicines and Drug Administration (“FDA”) for the treatment of adult patients with mantle cell lymphoma (“MCL”) who have received at least one prior therapy, and tislelizumab in the People's Republic of China ("PRC" or "China"), for which we have received approval from the National Medical Products Administration (“NMPA”) for the treatment of patients with classical Hodgkin's Lymphoma ("cHL") who have received at least two prior therapies;
•our |
•our ability to further develop sales and marketing capabilities and launch and commercialize new drugs,medicines, if approved;approved;
•our ability to maintain and expand regulatory approvals for our drugsmedicines and drug candidates, if approved;approved;
•the pricing and reimbursement of our drugsmedicines and drug candidates, if approved;
•the initiation, timing, progress and results of our preclinical studies and clinical trials and our research and development programs;
•our ability to advance our drug candidates into, and successfully complete, clinical trials;trials and obtain regulatory approvals;
•our reliance on the success of our clinical‑clinical stage drug candidates;
•our plans, expected milestones and the timing or likelihood of regulatory filings and approvals;
•the implementation of our business model, strategic plans for our business, drugs,medicines, drug candidates and technology;
•the scope of protection we (or our licensors) are able to establish and maintain for intellectual property rights covering our drugs,medicines, drug candidates and technology;
•our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights and proprietary technology of third parties;
•costs associated with enforcing or defending against intellectual property infringement, misappropriation or violation, product liability and other claims;
•the regulatory environment and regulatory developments in the United States, China, the United Kingdom, Switzerland, the European Union ("EU") and other jurisdictions;jurisdictions in which we operate;
•the accuracy of our estimates regarding expenses, revenues, capital requirements and our need for additional financing;
•the potential benefits of strategic collaboration and licensing agreements and our ability to enter into and maintain strategic arrangements;
•our abilityplans and expectations to maintainbuild significant technical operations and establish collaborations or licensing agreements;independent production capabilities for small molecule medicines and large molecule biologics to support the global demand for both commercial and clinical supply;
•our reliance on third parties to conduct drug development, manufacturing and other services;
•our ability to manufacture and supply, or have manufactured and supplied, drug candidates for clinical development and drugsmedicines for commercial sale;
•the rate and degree of market access and acceptance and reimbursement of our drugsmedicines and drug candidates, if approved;
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•developments relating to our competitors and our industry, including competing therapies;
•the size of the potential markets for our drugsmedicines and drug candidates and our ability to serve those markets;
•our ability to effectively manage our growth;
•our ability to attract and retain qualified employees and key personnel;
•statements regarding future revenue, hiring plans, key milestones, expenses, capital expenditures, capital requirements and share performance;
•the future trading price of our American Depositary Shares ("ADS"), and listed on NASDAQ, our ordinary shares listed on HKEx, and our ordinary shares issued to permitted investors in China and listed and traded on the STAR in Renminbi ("RMB Shares"), as well as the impact of securities analysts’ reports on these prices; and
•the impact of the COVID-19 pandemic on our clinical development, regulatory, commercial, manufacturing, and other operations.
These statements involve risks and uncertainties, including those listed under “Partthat are described in "Part I-Item 1A-Risk Factors.”
This Annual Report includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third‑partythird-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, you are cautioned not to give undue weight to this information.
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Summary of Risk Factors
Below is a summary of the material factors that make an investment in our ADSs, ordinary shares or RMB Shares speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, are summarized in “Part I-Item 1A-Risk Factors” and should be carefully considered, together with other information in this Annual Report and our other filings with the SEC, before making an investment decision regarding our ADSs, ordinary shares or RMB shares.
•Our medicines may fail to achieve and maintain the degree of market acceptance by physicians, patients, third-party payors, and others in the medical community necessary for commercial success.
•We have limited experience in launching and marketing our internally developed and in-licensed medicines. If we are unable to further develop marketing and sales capabilities or enter into agreements with third parties to market and sell our medicines, we may not be able to generate substantial product sales revenue.
•We face substantial competition, which may result in others discovering, developing, or commercializing competing medicines before or more successfully than we do.
•The market opportunities for our medicines may be limited to those patients who are ineligible for or have failed prior treatments and may be small.
•If we or any third parties with which we may collaborate to market and sell our medicines are unable to achieve and maintain coverage and adequate levels of reimbursement, our commercial success and business operations could be adversely affected.
•We depend substantially on the success of the clinical development of our medicines and drug candidates. If we are unable to successfully complete clinical development, obtain regulatory approvals and commercialize our medicines and drug candidates, or experience significant delays in doing so, our business will be materially harmed.
•Clinical development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
•If clinical trials of our drug candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our drug candidates.
•If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
•All material aspects of the research, development, manufacturing and commercialization of pharmaceutical products are heavily regulated, and we may face difficulties in complying with or be unable to comply with such regulations, which could have a material adverse effect on our business.
•The approval processes of regulatory authorities in the United States, China, Europe and other comparable regulatory authorities are lengthy, time consuming, costly and inherently unpredictable. If we experience delays or are ultimately unable to obtain regulatory approval for our drug candidates, our business will be substantially harmed.
•Our medicines and any future approved drug candidates will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our medicines and drug candidates.
•Even if we are able to commercialize our medicines and any approved drug candidates, the medicines may become subject to unfavorable pricing regulations or third-party reimbursement practices or healthcare reform initiatives, which could harm our business.
•We have incurred significant net losses since our inception and anticipate that we will continue to incur net losses for the foreseeable future and may not become profitable.
•We may need to obtain additional financing to fund our operations, and if we are unable to obtain such financing, we may be unable to complete the development of our drug candidates or achieve profitability.
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•If we are unable to obtain and maintain patent protection for our medicines and drug candidates through intellectual property rights, or if the scope of such intellectual property rights is not sufficiently broad, third parties may compete against us.
•We rely on third parties to manufacture some of our commercial and clinical drug supplies. Our business could be harmed if those third parties fail to provide us with sufficient quantities of product or fail to do so at acceptable quality levels or prices.
•We have entered into licensing and collaboration arrangements and may enter into additional collaborations, licensing arrangements, or strategic alliances in the future, and we may not realize the benefits of such arrangements.
•If we fail to maintain an effective distribution channel for our medicines, our business and sales could be adversely affected.
•If third-party manufacturers fail to comply with manufacturing regulations, our financial results and financial condition could be adversely affected.
•If we are not able to successfully develop and/or commercialize Amgen’s oncology products, the expected benefits of the collaboration will not materialize.
•We have significantly increased and expect to continue to increase our research, development, manufacturing, and commercial capabilities, and we may experience difficulties in managing our growth.
•Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
•Our business is subject to complex and evolving industry-specific laws and regulations regarding the collection and transfer of personal data. These laws and regulations can be complex and stringent, and many are subject to change and uncertain interpretation, which could result in claims, changes to our data and other business practices, significant penalties, increased cost of operations, or otherwise adversely impact our business.
•We manufacture some of our medicines and intend to manufacture some of our drug candidates, if approved. Failure to comply with regulatory requirements could result in sanctions being imposed against us and delays in completing and receiving regulatory approvals for our manufacturing facilities, or damage to, destruction of or interruption of production at such facilities, could delay our development plans or commercialization efforts.
•Changes in the political and economic policies of the PRC government or in relations between China and the United States or other governments and the significant oversight and discretion the PRC government has over the conduct of the business operations of our PRC subsidiaries may materially and adversely affect our business, financial condition, and results of operations and may result in our inability to sustain our growth and expansion strategies.
•The audit reports included in our previous annual reports on Form 10-K filed with the SEC have historically been prepared by auditors who are not inspected fully by the Public Company Accounting Oversight Board, and as such, investors have previously been deprived of the benefits of such inspection.
•The trading prices of our ordinary shares, ADSs and/or RMB Shares can be volatile, which could result in substantial losses to you.
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PART I
Unless the context requires otherwise, references in this report to “BeiGene,” the “Company,” “we,” “us,” and “our” refer to BeiGene, Ltd. and its subsidiaries, on a consolidated basis.
Item 1. Business
Overview
We are a global commercial-stage biotechnology company focused onthat is developing and commercializing innovative molecularly-targeted and immuno-oncology cancer therapeutics. We started as a researchaffordable oncology medicines to improve treatment outcomes and development company in Beijing in 2010. Over the last ten years, we have developed into a fully-integrated global biotechnology company, with significant commercial, manufacturing, and research and development capabilities.access for patients worldwide.
We currently have built substantial commercial capabilitiesthree approved medicines that were discovered and developed in our own labs, including BRUKINSA®, a small molecule inhibitor of Bruton’s Tyrosine Kinase ("BTK") for the treatment of various blood cancers; tislelizumab, an anti-PD-1 antibody immunotherapy for the treatment of various solid tumor and blood cancers; and pamiparib, a selective small molecule inhibitor of PARP1 and PARP2. We have obtained approvals to market BRUKINSA in the United States, the People's Republic of China ("PRC"China" or "China"the "PRC") and, the European Union ("EU"), the United States,Kingdom ("UK"), Canada, Australia and are currently marketing two internally-developed drugsadditional international markets, and threetislelizumab and pamiparib in China. By leveraging our China commercial capabilities, we have in-licensed drugs. We also anticipate introducing five more in-licensed drugs intothe rights to distribute 13 approved medicines for the China market in the next one to two years. In the United States, we market BRUKINSA™ (zanubrutinib) for adult patients with mantle cell lymphoma ("MCL") who have received at least one prior therapy and in China, we have received marketing approval and are in the process of launching tislelizumab for patients with classical Hodgkin’s Lymphoma ("cHL") who have received at least two prior therapies. We have filed four additional supplementary new drug applications ("sNDA") for regulatory approvals in China and are planning for launches in these additional indications in 2020. Our in-licensed portfolio includes ABRAXANE®, REVLIMID® and VIDAZA®, which we have been marketing in China since 2017 under a license from Celgene Logistics Sàrl, a Bristol-Myers Squibb company ("BMS"). We plan on launching additional in-licensed products in China frommarket. Supported by our collaborations, including XGEVA® (denosumab), KYPROLIS® (carfilzomib) and BLINCYTO® (blinatumomab) from Amgen Inc. ("Amgen"), and SYLVANT® (siltuximab) and QARZIBA®▼ (dinutuximab beta), from EUSA Pharma ("EUSA").
We are committed to advancing best and first-in-class clinical candidates internally or with like-minded partners to develop impactful and affordable medicines for patients across the globe. Our internal clinical development capabilities are deep, including a more than 2,700-person global clinical development and medical affairs team that is running more than 80 ongoing or planned clinical trials in over 50 medicines and drug candidates. This includes more than 30 pivotal or potentially registration-enabling trials across our portfolio, including our three internally discovered, approved medicines. We have enrolled in our clinical trials more than 18,000 subjects, of which approximately one-half have been outside of China.
We have built, and are expanding, our internal manufacturing capabilities through our state-of-the-art biologic and small molecule manufacturing facilities in China to support current and the Asia-Pacific region. In October 2019, we entered intopotential future demand of our medicines, and are building a strategic collaborationcommercial-stage biologics manufacturing and clinical R&D center in New Jersey. We also work with Amgen pursuanthigh quality contract manufacturing organizations ("CMOs") to whichmanufacture our internally developed clinical and commercial products.
Since our inception in 2010, we have agreed to collaborate onbecome a fully integrated global organization of over 9,000 employees in 29 countries and regions, including the commercializationUnited States, China, Europe, and Australia.
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Our Holding Company Structure
We are a holding company incorporated in the Cayman Islands with operations primarily conducted through our subsidiaries in the United States, China, United Kingdom, Switzerland and BLINCYTO in China, and the global development and future commercialization in ChinaAustralia. The following diagram depicts a summary of up to 20 of Amgen's clinical- and late pre-clinical-stage pipeline products, including AMG 510, Amgen’s first-in-class investigational KRAS G12C inhibitor.our corporate structure. Currently, our corporate structure contains no variable interest entities.
Our Strategy
We were founded with the vision to create an integrated biopharmaceutical company to transform the biotech industry, creating impactful medicines that will be affordable and accessible to far more patients around the world. We have made significant progress towards accomplishing this vision over our first 12 years and have five strategic competitive advantages positioning us for success both near- and long-term:
1.We have built one of the world's largest, most productive and cost-effective oncology research teams with more than 950 scientists. Their efforts have been validated by commercial approvals, clinical data, and collaborations that have secured $1.4 billion in collaboration payments to the company. We have successfully developed three commercially approved medicines from our internal discovery engine, including BRUKINSA and tislelizumab. We design each research program with a differentiated biological hypothesis or a first-in-class mechanism of action. Our mission islead medicine, BRUKINSA, has demonstrated superiority for both progression-free survival and overall response rate versus ibrutinib in relapsed or refractory CLL. Our broad pipeline also includes internally developed products with the potential to be best-in-class or first-in-class, including our BCL-2 inhibitor, BGB-11417, our HPK1 inhibitor, BGB-15025, and BGB-16673, a BTK-targeted CDAC program that has demonstrated its potential with early data. Our pipeline also includes many early-stage assets for targets like OX40, LAG-3, and TIM-3. We have invested in technology platforms, including CDAC protein degraders, bispecific antibodies, tri-specific antibodies, ADC, CAR-NK, and mRNA. Our research and innovation capabilities will ensure we discover high-quality and impactful medicines for patients.
2.We have built a substantial global clinical development team of 2,300 people on five continents, allowing us to run clinical trials predominantly without reliance on third party contract research organizations ("CROs"). Clinical development accounts for over 75% of the cost and most of the time to develop a medicine. We believe that by fully integrating these capabilities, we can create a strategic competitive advantage. By retaining clinical development activities internally, we can decrease the costs of our trials, increase enrollment speed, and leverage technology to ensure quality and consistency across trials and clinical sites. It also allows us to become a global leadermore inclusive in the discovery, development,location and commercializationnumber of innovative medicines forclinical sites to help improve the treatmentdiversity of cancer. Key elementspatients in our trials. Our demonstrated ability to complete large-scale, multi-regional clinical trials is one of our strategymost important strategic competitive advantages and addresses an immense challenge in the pharmaceutical industry.
3.We have built a strong commercial portfolio, centered around two cornerstone medicines, BRUKINSA and tislelizumab, that are as follows:
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additional combination therapies. Our hematological franchise is led by BRUKINSA, which is supported by a broad clinical program with over 4,800 patients in 35 trials in 29 markets. We ran two extensive head-to-head studies versus ibrutinib with over 800 patients enrolled. We are the first and only BTK inhibitor to demonstrate superior efficacy versus ibrutinib, and the data from the head-to-head ALPINE trial were selected for zanubrutinib,the prestigious late-breaker session at the American Society of Hematology ("ASH") meeting in late 2022, with near-termsimultaneous publication in The New England Journal of Medicine. Based on the pooled safety data readouts expected,generated from our trials, we have shown a very favorable safety profile, especially when compared to ibrutinib in cardiovascular safety, including atrial fibrillation, ventricle arrhythmia, and hypertension. We believe BRUKINSA allows us to build a strong position in heme-oncology with our pipeline medicines, including our BCL-2 inhibitor, in both as a monotherapy and in combination with other therapies.
settings. Our most recently approved drugsolid tumor franchise is tislelizumab, a wholly-ownedled by our anti-PD-1 monoclonal antibody, against the immune checkpoint receptor programmed cell death protein 1 ("PD-1") that was designed to minimize Fc-gamma receptor binding,tislelizumab, which is believed to play an essential rolecurrently approved in activating phagocytosisChina in macrophages, to minimize its negative impact on T effector cells. We received approval from China’s National Medical Products Administration ("NMPA")ten indications. Tislelizumab has achieved the commercial market leader position in December 2019 to market tislelizumab forChina in the treatmentPD-1/PDL-1 class. Outside of patientsChina, in conjunction with cHL who have received at least two prior therapies. In addition,our partner Novartis, we have filed an sNDAapplications for approval in China for tislelizumab in patients with previously treated locally advanced or metastatic urothelial carcinoma ("UC") which has been granted priority review by the Center for Drug Evaluation ("CDE") at the NMPA and is currently under review. We believe that there is a large and growing opportunity for novel cancer therapeutics in China and the market opportunity for PD-1/PD-L1 antibody therapies may be especially attractive, as this class of agents has demonstrated anti-tumor activity in all four of the most common tumors in China: lung cancer, gastric cancer ("GC"), liver cancer and esophageal cancer ("EC"). According to published reports, China has a higher proportion of PD-1 responsive tumors in its total annual cancer incidence in comparison to other geographies like the U.S. and Europe. AccordingEU. With tislelizumab and the potentially best-in-class or first-in-class pipeline assets targeting OX40, TIGIT, LAG-3, and TIM-3, we are well-positioned to build our immuno-oncology business and deliver innovative therapies and combinations to patients.
4.We have a published study (Chen et al., Cancer Statisticsdifferentiated international commercial organization of over 3,500 people to deliver medicines to patients around the globe. In China, the commercial team is actively driving the uptake of our internally developed and partnered medicines across solid tumors and hematology. BRUKINSA and tislelizumab have achieved market leadership positions in China 2015, CA: Cancer J. Clin. 2016; 66(2):115-32),in the BTKi and PD-1/PDL-1 classes, respectively, and we have launched and sell more than 13 products from our business partners around the globe. In North America, our U.S. team has continued to grow BRUKINSA sales as we launch new indications and expand to Canada. In Europe, we have built a targeted commercial team focused on medical thought leaders in blood cancer treatments. Altogether, BRUKINSA has been approved in over 65 markets, with additional filings pending or planned. Our strategy is to commercialize our medicines broadly throughout the world. Our commercial capabilities have expanded into the Asia Pacific region through our affiliates, the Latin America region, and other emerging markets through distribution partners. We have built a global commercial organization that will drive the delivery of highly effective and differentiated medicines to patients around the globe, and will collaborate with business partners to bridge health inequities.
5.We have financial strength. In a time when the cost of capital has risen, we are well positioned financially. We already have substantial revenue from our cornerstone assets, which we referexpect to as Chen et al. 2016,continue to grow significantly in 2023 and beyond. We expect product revenue growth to outpace our operating expense growth in the annual incidence of the top ten PD-1 responsive tumors in China is estimated to be 3.0 million out of 4.3 million in total annual cancer incidence. We believe that we are uniquely positioned to capture this opportunity with our strong presence and experience in China, our global clinical development capabilities, the breadth of our development plan,near-term, which has enrolled more than 5,000 patients to date, including 15 registration or potentially registration-enabling trials, and high-quality manufacturing.
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Our Commercial and Registration Stage Products
The following table summarizes the status of our commercial products and new products that are pending approval as of February 29, 2020:
27, 2023:
| PRODUCT | LEAD INDICATIONS | MECHANISM OF ACTION | REGULATORY STATUS | BEIGENE COMMERCIAL RIGHTS | PARTNER | ||||||||||||
  | U.S.: CLL/SLL, R/R | BTK inhibitor | Approved in | Global | N/A | ||||||||||||
 | 1L Squamous and Non-Squamous NSCLC/ 2/3 L NSCLC/ R/R classical Hodgkin’s lymphoma2 / 2/3 L HCC2/ R/R PD-L1+ UC2, MSI-H or dMMR solid tumors, 2L ESCC, 1L NPC, 1L GC/GEJC | Anti-PD-1 antibody | Approved in China; BLA accepted in U.S.4; MAA accepted in EU4 | Outside North America, Japan, EU and six other European countries |  | ||||||||||||
 | 3L BRCA-mutated ovarian cancer2 | PARP inhibitor | Approved in China | Global | N/A | ||||||||||||
  | Giant cell tumor of bone8 / Skeletal Related Events (SREs)8 | Approved in China | Mainland China |   | |||||||||||||
 | R/R Acute lymphocytic leukemia8 | Anti-CD19 x anti-CD3 bispecific T-cell engager (BiTE) | Approved in China | Mainland China | | ||||||||||||
 | R/R Multiple myeloma8 | Proteasome inhibitor | Approved in China | Mainland China | | ||||||||||||
 | R/R adult multiple myeloma, newly diagnosed multiple myeloma, previously treated follicular lymphoma | Anti-angiogenesis, immuno-modulation | Approved in China | Mainland China |   | ||||||||||||
 | Myelodysplastic syndromes, acute myeloid leukemia, chronic myelomonocytic leukemia | DNA hypomethylation | Approved in China | Mainland China |  | ||||||||||||
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 | Idiopathic multicentric Castleman disease | IL-6 antagonist | Greater China |   | |||||||||||||
 | High-risk neuroblastoma2 | Anti-GD2 antibody | Mainland China |  | |||||||||||||
POBEVCY® (Avastin biosimilar) | Colorectal and lung cancers | Anti-VEGF antibody | Approved in China | Greater China |  | ||||||||||||
TAFINLAR® (dabrafenib) | Melanoma5 | BRAF inhibitor | Approved in China | China Broad Markets7 | | ||||||||||||
MEKINIST® (trametinib) | Melanoma5 | MEK inhibitor | Approved in China | China Broad Markets7 | | ||||||||||||
VOTRIENT® (pazopanib) | Advance renal cell carcinoma | VEGFR inhibitor | Approved in China | China Broad Markets7 | | ||||||||||||
AFINITOR® (everolimus) | Advanced renal cell carcinoma6 | mTOR inhibitor | Approved in China | China Broad Markets7 | | ||||||||||||
ZYKADIA® (ceritinib) | ALK + NSCLC | ALK inhibitor | Approved in China | China Broad Markets7 | | ||||||||||||
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1. Approved under accelerated approval. Continued approval for this indication may be contingent upon verification and description of clinical benefit in a confirmatory trial. 2. Conditionally approved. Full approval for these indications is contingent upon results from ongoing randomized, controlled confirmatory clinical trials. 3. The approval is applicable to all 27 EU member states, plus Iceland, Lichtenstein and Norway. 4. U.S.: For patients with unresectable recurrent locally advanced or metastatic ESCC after prior systemic therapy. EU: For patients with advanced or metastatic ESCC after prior systemic chemotherapy and for patients with NSCLC including: locally advanced or metastatic NSCLC after prior chemo, in combination with chemotherapy for 1L advanced or metastatic squamous NSCLC, and in combination with chemotherapy for 1L locally advanced or metastatic non-squamous NSCLC with no EGFR or ALK positive mutations. 5. TAFINLAR and MEKINIST are being investigated in combination by Novartis for NSCLC indications. 6. Following progression on or after vascular endothelial growth factor (VEGF)-targeted therapy. 7. Rights to promote and market in China's broad markets pursuant to a Market Development Agreement with an affiliate of Novartis Pharma AG. 8. Conditionally approved. Full approval of any particular indication will depend on the results of required post-marketing study(ies) in China.
Abbreviations: ALK = anaplastic lymphoma kinase; BLA = Biologics License Application; BRAF = B-rapidly accelerated fibrosarcoma; CLL = chronic lymphocytic leukemia; EGFR = epidermal growth factor receptor; ESCC = esophageal squamous cell carcinoma; GC = gastric cancer; GEJC = gastroesophageal junction cancer; HCC = hepatocellular carcinoma; MAA = marketing aothorization application; MCL = mantle cell lymphoma; MEK = mitogen-activated protein kinase (MAPK) / Extracellular-signal regulated kinase (ERK); mTOR = Mammalian target of rapamycin; MZL = marginal zone lymphoma; NPC = nasopharyngeal cancer; NSCLC = non-small cell lung cancer; R/R = relapsed / refractory; SLL = small lymphocytic lymphoma; UC = urothelial carcinoma; VEGFR = vascular endothelial growth factor receptor; WM = Waldenström’s macroglobulinemia
We commercialize the following wholly-ownedinternally developed cancer medicines, for which we have worldwide commercial rights:medicines:
BRUKINSA
BRUKINSA is a second-generationnext-generation small molecule inhibitor of BTK inhibitor designed to maximize BTK occupancy and minimize off-target binding effects. On November 14, 2019,Zanubrutinib is an orally active inhibitor that covalently binds to BTK, resulting in irreversible inactivation of the enzyme.
We are marketing BRUKINSA in the United States, China, Europe, the United Kingdom, Canada, Australia and other markets.
In the United States, BRUKINSA received accelerated approval from the FDA as a treatment for MCLmantle cell lymphoma (MCL) in adult patients who have received at least one prior therapy.therapy (November 2019), and has since also been approved for patients with Waldenström’s macroglobulinemia (WM) and relapsed or refractory (R/R) marginal zone lymphoma (MZL) who have received at least one anti-CD20-based regimen. The MCL and MZL indications were approved under accelerated approval based on overall response rate. Continued approval for these indications may be contingent upon verification and description of clinical benefit in a confirmatory trial. In January 2023, BRUKINSA iswas approved by the first BeiGene-discovered product to be approved. Currently, weU.S. Food and Drug Administration (FDA) for the treatment of adult patients with CLL or small lymphocytic lymphoma (SLL).
In Europe, BRUKINSA has received approval from the European Commission ("EC") for the treatment of adult patients with WM who have a 100-plus person commercial team marketing BRUKINSA inreceived at least one prior therapy or for the United States. first-line treatment of patients unsuitable for chemo-immunotherapy, as well as for the treatment of patients with MZL and for the treatment of patients with CLL.
In China, weBRUKINSA has received conditional approval for adult patients with MCL who have filed NDAsreceived at least one prior therapy and adult patients with CLL or SLL who have received at least one prior therapy and for the treatment of patients with R/R MCL andWM. In addition, a supplemental new drug application ("sNDA") has been accepted for review by the China National Medical Products Administration ("NMPA") for the treatment of adult patients with R/R CLL/treatment-naïve CLL or SLL and those applicationsWM. In December 2021, we announced the inclusion of BRUKINSA for R/R WM in the updated National Reimbursement Drug List ("NRDL") by the China National Healthcare Security Administration ("NHSA"). Currently, all three approved indications for BRUKINSA are pending under priority review.included in the NRDL.
BRUKINSA is approved across several indications in more than 65 markets as of February 2023.
Market Opportunity and Competition
Lymphomas are blood-borne cancers involving lymphatic cells of the immune system. They can be broadly categorized into non-Hodgkin’s lymphoma ("NHL") and Hodgkin’s lymphoma ("HL"). Depending on the origin of the cancer cells, lymphomas can also be characterized as B-cell or T-cell lymphomas. B-cell lymphomas make up approximately 85% of NHLs and comprise a variety of specific diseases involving B-cells at differing stages of maturation or differentiation. According to statistics from the Surveillance, Epidemiology and End Results ("SEER") program of the U.S. National Cancer Institute, there were 74,200 new NHL cases and 19,970 deaths, and of these NHL cases the incidence of CLL was 20,720 and there were 3,930 deaths from CLL in 2019 in the United States. Similar SEER analyses calculated U.S. incidence rates of 3,000 for MCL and 1,350 for Waldenström’s macroglobulinemia ("WM"). According to Chen et al. 2016, and GLOBOCAN’s online Global Cancer Observatory analyses on cancer statistics in China, there are anlymphoma. In 2022, estimated 88,200 to 93,097 new lymphoma cases and 52,100 to 50,865 deaths in China each year, and of the lymphoma cases, approximately 90% are NHL and approximately 4.5% of the NHL cases are CLL/SLL.
Tislelizumab
Tislelizumab is a humanized IgG4 monoclonal antibody against the immune checkpoint receptor programmed cell death protein 1 (" PD-1"),(PD-1) that we specifically designed to minimize binding to Fc receptor gamma ("FcγR")(FcγR), which is believed to play an essential role in activating phagocytosis in macrophages, to minimize its negative impact on T effector cells.
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Tislelizumab is currently being evaluatedapproved in China in ten indications, including full approval for the first-line treatment of patients with locally advanced unresectable or metastatic gastric or gastroesophageal junction adenocarcinoma with high PD-L1 expression in combination with fluoropyrimidine and platinum chemotherapy, first-line treatment of patients with advanced squamous non-small cell lung cancer (NSCLC) in combination with chemotherapy, for first-line treatment of patients with advanced non-squamous NSCLC in combination with chemotherapy, for second- or third-line treatment of patients with locally advanced or metastatic NSCLC who progressed on prior platinum-based chemotherapy, for the treatment of patients with locally advanced or metastatic esophageal squamous cell carcinoma (ESCC) who have disease progression following or are intolerant to first-line standard chemotherapy, and for first-line treatment of patients with recurrent or metastatic nasopharyngeal cancer (NPC). The NMPA also granted conditional approval for the treatment of patients with classical Hodgkin’s lymphoma (cHL) who received at least two prior therapies, for the treatment of patients with locally advanced or metastatic urothelial carcinoma (UC) with PD-L1 high expression whose disease progressed during or following platinum-containing chemotherapy or within 12 months of neoadjuvant or adjuvant treatment with platinum-containing chemotherapy, for the treatment of patients with hepatocellular carcinoma (HCC) who have received at least one systemic therapy, for patients with previously treated, locally advanced unresectable or metastatic microsatellite instability-high (MSI-H) or mismatch repair-deficient (dMMR) solid tumors. Full approval for these indications is contingent upon results from ongoing randomized, controlled, confirmatory clinical trials. Tislelizumab was included in the NRDL in 2020 for cHL and UC, in 2021 for non-squamous NSCLC, squamous NSCLC and HCC, and in 2022 for locally advanced or metastatic NSCLC, for MSI-H solid tumors, for locally advanced or metastatic ESCC following progression or intolerance to prior first-line chemotherapy, and for first-line recurrent or metastatic NPC.
In addition, we have submitted two supplemental Biologics License Applications ("sBLAs") for tislelizumab that are under review by the Center for Drug Evaluation ("CDE") of the NMPA, including for patients with first-line unresectable or metastatic hepatocellular carcinoma (HCC), and in combination with chemotherapy as first-line treatment in patients with unresectable locally advanced, recurrent or metastatic esophageal squamous cell carcinoma.
We are evaluating tislelizumab in a broad pivotal clinical program for both solid tumor and hematological indications, both globally and in China. We submitted an NDA for approvalhave initiated or completed 17 potentially registration-enabling clinical trials in China in 2018 for the treatment of R/R cHL, which received priority review and was approved on December 26, 2019. We are planningglobally, including 13 Phase 3 trials and four pivotal Phase 2 trials.
In January 2021, we announced a collaboration and license agreement with Novartis to launchdevelop, manufacture and commercialize tislelizumab in Chinathe United States, Canada, Mexico, the EU, UK, Norway, Switzerland, Iceland, Liechtenstein, Russia and Japan (the "Novartis Territory"). We retained worldwide rights to commercialize outside of the Novartis Territory and with our proprietary products in combination with tislelizumab.
In the first quarter of 2020. WeUnited States, we have also filed a sNDA in ChinaBLA with the FDA for thetislelizumab as a treatment of urothelial bladder cancer ("UBC") in May 2019 and expect NMPA approval in 2020, and we expectfor patients with unresectable recurrent locally advanced or metastatic ESCC after prior systemic therapy. In addition, Novartis has disclosed plans to submit a sNDAadditional marketing applications in first line squamous non-small cell lung cancer ("NSCLC") in 2020 based on the positive interim analysis of our Phase 3 study announced in January 2020. Additionally, we plan to discuss with regulators our Phase 2 study in second- or third-line hepatocellular carcinoma ("HCC") in 2020, and we expect readouts from several studies of tislelizumab in 2020. We have full commercial rights to tislelizumab, following the termination of our collaboration agreement with Celgene prior to its acquisition by BMS.territory.
Market Opportunity and Competition
Globally, the top four PD-1/PD-L1 antibody drugsmedicines had salesrevenues of approximately $21$36 billion in 20192022 based on public reports. We believe that thereThe 2022 China PD-1/L1 market (net revenue) was approximately $2.2 billion.
Global revenues are projected to be more than $50 billion by 2025 according to published reports, driven by multiple factors including indication expansion, approvals and adoptions in earlier lines of therapies, further market penetration, and extension of duration of therapy.
Pamiparib
Pamiparib is a large commercial opportunityselective small molecule inhibitor of poly ADP-ribose polymerase 1 (PARP1) and PARP2 enzymes. Pamiparib has demonstrated pharmacological properties such as brain penetration and PARP-DNA complex trapping in preclinical models. Pamiparib is currently in global clinical development as a monotherapy or in combination with other agents for a variety of solid tumor malignancies. To date, more than 1,300 patients have been enrolled in clinical trials of pamiparib.
In China, pamiparib received conditional approval for treatment of patients with germline BRCA (gBRCA) mutation-associated recurrent advanced ovarian, fallopian tube, or primary peritoneal cancer who have been treated with two or more lines of chemotherapy in May 2021. Full approval for this indication is contingent upon results from ongoing corroborative trials confirming the clinical benefit of pamiparib in this population. Pamiparib was included in the 2021 NRDL in its approved indication.
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We are currently commercializing, or plan to commercialize, the following cancer medicines in China under an exclusive license from Amgen:
XGEVA®
XGEVA (denosumab) is an antibody-based RANK ligand (RANKL) inhibitor that was approved globally for PD-1the prevention of skeletal-related events ("SREs") in patients with bone metastases from solid tumors and PD-L1 antibody drugs. Currently available clinical data suggest that somein patients with multiple myeloma, and for the treatment of adults and skeletally mature adolescents with giant cell tumor of bone (GCTB). XGEVA is approved in over 70 countries worldwide. In China, XGEVA received conditional approval in the most prevalent cancersGCTB indication in May 2019 and received conditional approval for the SRE indications in November 2020. We began marketing XGEVA in China such as lung, gastric, liver and esophageal cancer, are responsive to this classin July 2020. In December 2020, we announced the inclusion of agents. According to the World Health Organization's GLOBOCAN online database, in 2018 China suffered 39%, 50%, 47%, and 56% of all deaths from lung, gastric, liver, and esophageal cancers, respectively,XGEVA in the world. Collectively, these four tumor types comprisedNRDL for the treatment of GCTB, which was successfully renewed for inclusion in 2023.
BLINCYTO®
BLINCYTO (blinatumomab), a bispecific CD-19 directed CD3 T-cell engager, is the first and only approved bi-specific T-cell engager (BiTE) immunotherapy. It has been approved in 60 countries for use in patients with acute lymphoblastic leukemia (ALL). In China, BLINCYTO received conditional approval as a treatment for adult patients with R/R ALL in December 2020 and was conditionally approved in April 2022 for pediatric patients with R/R B-cell precursor ALL. We began commercializing BLINCYTO in August 2021.
KYPROLIS®
KYPROLIS (carfilzomib), a proteasome inhibitor, has been approved in over 2.3 million new cases60 countries for use in 2016patients with R/R multiple myeloma (MM). It was approved in China alone, according to Chen et al. 2016. In addition, China hasas a higher proportion of PD-1 responsive tumorstreatment for patients with R/R MM in July 2021 and we began commercializing KYPROLIS in January 2022. KYPROLIS was included on the NRDL beginning in March 2023 for its total annual cancer incidenceapproved indication in comparison to other geographies like the U.S. or Europe. According to Chen et al. 2016, the annual incidence of the top 10 PD-1 responsive tumors in China is estimated to be 3.0 million out of 4.3 million in total annual cancer incidence. In comparison, the estimated annual incidence of the top 10 PD-1 responsive tumors is 0.9 million out of 1.7 million in total annual cancer incidence in the United States, and 0.9 million out of the 1.8 million total in the EU5 countries (United Kingdom, France, Germany, Spain and Italy) according to the SEER program of the U.S. National Cancer Institute and the World Health Organization.China.
We commercialize the following cancer drugsmedicines in China under an exclusive license from BMS:
REVLIMID (lenalidomide) is an oral immunomodulatory drugmedicine that was approved in China in 2013 for the treatment of multiple myeloma ("MM")(MM) in combination with dexamethasone in adult patients who have received at least one prior therapy. In February 2018, REVLIMID received NMPA approval of a new indication for the treatment of MM in combination with dexamethasone in adult patients with previously untreated MM who are not eligible for transplant.
REVLIMID was listed on the National Reimbursement Drug List ("NRDL")NRDL in June 2017. OnIn November 12, 2019, we announced that REVLIMID received formal inclusion on the NRDL in China for R/R multiple myeloma. On December 22, 2019 we announced thatIn November 2020 our sNDA for the use of REVLIMID in R/R indolentcombination with rituximab in adult patients with previously treated follicular lymphoma was acceptedapproved by the NMPA.
VIDAZA®
VIDAZA (azacitidine for injection) is a pyrimidine nucleoside analog that has been shown to reverse the effects of DNA hypermethylation and promote subsequent gene re-expression. VIDAZA was approved in China in April 2017 for the treatment of intermediate-2 and high-risk myelodysplastic syndromes ("MDS")(MDS), chronic myelomonocyte leukemia ("CMML")(CMML) and acute myeloid leukemia ("AML")(AML) with 20% to 30% blasts and multi-lineage dysplasia. In January 2018, VIDAZA became commercially available in China.
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We are commercializing or planning to commercialize the following cancer drugs in China under an exclusive license from Amgen:
SYLVANT®
SYLVANT (siltuximab), an interleikin-6interleukin-6 (IL-6) antagonist, that was approved as a treatment for patients with idiopathic multicentric Castleman disease (iMCD) who are human immunodeficiency virus ("HIV")(HIV) negative and human herpesvirus-8 ("HHV-8")(HHV-8) negative. It has been been listed for fast-track approvalSYLVANT was approved in China byin December 2021 for the NMPA under its Reviewtreatment of adult patients with multicentric Castleman disease (MCD) who are human immunodeficiency virus (HIV) negative and Approval Procedures for Urgently-Needed Pharmaceutical Drugs Developed Overseas.human herpes virus-8 (HHV-8) negative, also known as idiopathic MCD (iMCD).
QARZIBA®▼
QARZIBA (dinutuximab beta), a mouse-human chimeric monoclonal lgG1GD2 antibody, that was approved as agranted conditional approval by the NMPA for the treatment of high-risk neuroblastoma in patients aged 12 months and above who have previously received induction chemotherapy and achieved at least a partial response, ("PR"). It has been been listedfollowed by myeloablative therapy and stem cell transplantation, as well as patients with a history of relapsed or refractory (R/R) neuroblastoma with or without residual disease. We began commercializing QARZIBAin December 2021.
We commercialize the following product in China under an exclusive license from Bio-Thera:
POBEVCY® (BAT1706)
POBEVCY is a biosimilar to Avastin (bevacizumab) developed by Bio-Thera Solutions, Ltd., a commercial-stage biopharmaceutical company located in Guangzhou, China. In China, Avastin is approved for fast-track approval in Chinathe treatment of patients with metastatic colorectal cancer, liver cancer and NSCLC.
POBEVCY was approved by the NMPA in China in November 2021 and launched in late 2021 for the treatment of patients with advanced, metastatic or recurrent NSCLC and metastatic colorectal cancer.
We have acquired the right to develop, manufacture and commercialize POBEVCY in China, including Hong Kong, Macau, and Taiwan. Bio-Thera submitted a marketing application to the EMA and a BLA to the FDA in November 2020.
Reimbursement and Market Access
Our sales are largely dependent on the availability and extent of coverage and reimbursement by third party payors. In many markets these third parties are government health systems and in some markets such as the United States there are also private payors such as private health insurers and health systems. In 2022, we commercialized our products in 60 markets.
In China, there is one main payor, the government’s national health care coverage system, which provides Basic Medical Insurance to the majority (greater than 95%) of China’s approximately 1.4 billion people. There are three types of coverage plans in China at the national level that depend on if a resident lives in an urban or rural setting and if they are employed. The different plans have different characteristics in terms of how the plan is paid for and what it covers. Coverage and reimbursement of pharmaceuticals in China comes under the purview of the NHSA, which oversees the NRDL. The NRDL is composed of three lists. The ‘A’ and ‘B’ list are commonly referred to as the ‘regular’ lists. The A list generally includes older, off-patent medicines, while the B list generally includes newer medicines, some with remaining patent protection, which are reimbursed at a lower rate compared to the A list. In 2017, a third list was added to the system, often referred to as the ‘C’ list or the ‘negotiation’ list. This list generally includes newer innovative medicines which are accepted on the list after successful negotiation between the NHSA and the company. Typically, inclusion on the C list is accompanied by a discount to the prevailing list price in China for the medicine at the time of inclusion. The NRDL price for a medicine is its Reviewprevailing price in China, but the actual reimbursement rate that is used can be modified at the provincial level. Innovatively, in the 2022 NRDL, a price bidding process for non-exclusive drugs was undertaken on the C list to set the national reimbursement price benchmark.
Several of our medicines are listed on the NRDL. In the most recent NRDL list announced in January 2023, the following medicines were included in the NRDL, effective March 1, 2023:
•Tislelizumab in nine of its eligible approved indications:
–For the treatment of adult patients with locally advanced or metastatic non-squamous non-small cell lung cancer (NSCLC) who are negative for epidermal growth factor receptor (EGFR) and Approval Proceduresanaplastic mesenchymal lymphoma kinase (ALK) mutations and have progressed after or are intolerant of prior chemotherapy with platinum-containing regimens; and adult patients with locally advanced or metastatic squamous NSCLC who are negative
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or unknown for Urgently-Needed Pharmaceutical Drugs Developed Overseas.EGFR and ALK mutations and have progressed after or are intolerant of prior chemotherapy with platinum-containing regimens (approved in January 2022 and included in the NRDL in 2023);
–For the treatment of adult patients with advanced unresectable or metastatic microsatellite instability-high (MSI-H) or mismatch repair deficient (dMMR) solid tumors: patients with advanced colorectal cancer with disease progression after prior treatment with fluoropyrimidines, oxaliplatin and irinotecan; patients with other advanced solid tumors with disease progression after prior treatment and no satisfactory alternative treatment options (approved in March 2022 and included in the NRDL in 2023);
–As a first-line treatment for patients with recurrent or metastatic nasopharyngeal cancer (approved in June 2022 and included in the NRDL in 2023);
–For use in combination with pemetrexed and platinum chemotherapy as a first-line treatment in patients with unresectable, locally advanced or metastatic non-squamous non-small cell lung cancer (NSCLC), with EGFR genomic tumor aberrations negative and ALK genomic tumor negative (approved in June 2021 and included in the NRDL in 2021);
–For the treatment of patients with hepatocellular carcinoma (HCC) who have been previously treated with at least one systemic therapy (conditionally approved in June 2021 and included in the NRDL in 2021);
–For use in combination with paclitaxel and carboplatin as a first-line treatment in patients with unresectable, locally advanced or metastatic squamous NSCLC (approved in January 2021 and included in the NRDL in 2021);
–For the treatment of patients with locally advanced or metastatic urothelial carcinoma (UC) with PD-L1 high expression whose disease progressed during or following platinum-containing chemotherapy or within 12 months of neoadjuvant or adjuvant treatment with platinum-containing chemotherapy (conditionally approved in April 2020 and included in NRDL in 2020); and
–For the treatment of patients with classical Hodgkin’s lymphoma (cHL) who have received at least two prior therapies (conditionally approved in December 2019 and included in the NRDL in 2020).
•BRUKINSA in all three of its approved indications:
–For the treatment of adult patients with Waldenström’s macroglobulinemia (WM) who have received at least one prior therapy (conditionally approved in June 2021 and included in the NRDL in 2021);
–For the treatment of adult patients with MCL who have received at least one prior therapy (conditionally approved in June 2020 and included in the NRDL in 2020); and
–For the treatment of adult patients with chronic lymphocytic leukemia (CLL) /small lymphocytic lymphoma (SLL) who have received at least one prior therapy (conditionally approved in June 2020 and included in the NRDL in 2020).
•Pamiparib in its approved indication:
–For the treatment of patients with germline BRCA (gBRCA) mutation-associated recurrent advanced ovarian, fallopian tube, or primary peritoneal cancer who have been treated with two or more lines of chemotherapy (conditionally approved in May 2021 and included in the NRDL in 2021).
•KYPROLIS in its approved indication as of March 1, 2023:
–For the treatment of adult patients with relapsed or refractory multiple myeloma who have received at least two prior therapies, including a proteasome inhibitor and an immunomodulatory agent.
•XGEVA was successfully renewed in NRDL as of March 2023 in its approved indication:
–For the treatment of patients with giant cell tumor of the bone (GCTB) that is unresectable or where surgical resection is likely to result in severe morbidity (first included in NRDL in 2020).
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Additionally, two of our medicines were listed in past NRDLs: REVLIMID was included in the 2017 NRDL negotiation list and later received formal inclusion in the 2019 B list, while VIDAZA was listed in the 2018 NRDL negotiation list and later received formal inclusion to the 2020 B list.
In 2018, China started a new program to centrally purchase non-exclusive medicines for the nation’s health care system called "volume-based procurement", or "group purchasing organization" or "4+7" when the program was first piloted in 11 major cities. After the 2018 pilot program, it was implemented nationally in 2019. It is a tender-based system that provides guaranteed volume for lowered pricing. Participation in the program requires a product to have passed a generic quality consistency evaluation, which in turn requires passing a bioequivalence comparison to the reference listed drug (RLD). The system offers a major portion of a market’s volume to winning bidders. More than one company can win a given tender, and more guaranteed volume is awarded as more bidders win. The system is still evolving and, as such, the exact terms of how many bidders win and what amount of volume are won and at what price is also evolving.
It is common in China for pharmaceutical companies to employ patient assistance programs to help patients afford their innovative medicines. Usually these programs have been offered to patients who are self-paying. A typical program provides a certain number of free doses to patients after a certain number of doses have been paid for. Usually these programs end when a medicine is included in the NRDL. We offer these types of patient assistance programs to our patients.
In the United States, most health insurance coverage is provided by private insurers, often accessed via employer-sponsored plans, and the two main public insurance programs, Medicare and Medicaid. All three types of programs usually have some type of coverage for pharmaceutical products. Often this is through a pharmacy benefit manager ("PBM"). The structure of the pharmacy benefit can be quite different for different beneficiaries depending on the negotiations between plan sponsors and plan purchasers. There is no central list of covered pharmaceuticals in the United States, as there is no single payer system. As such, the prices paid for pharmaceuticals in the United States can vary.
We offer patient assistance programs in the United States under our myBeiGene program. This program seeks to enhance access to BRUKINSA by assisting with obtaining reimbursement, co-pay assistance when allowed, temporary supply of free product for insurance delays, and free product assistance for some uninsured and underinsured patients. The programs also seek to support patients and caregivers by providing education and information about BRUKINSA and its approved indications, nurse advocates, and connecting patients to sources of support such as support groups and transportation/lodging assistance.
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Our Pipeline Products
The following table summarizes the status of our internally-discovered drug candidates as of February 29, 2020:
27, 2023:
| TN MCL and R/R | ||||||||||||||||
| +/- venetoclax | TN CLL/SLL | |||||||||||||||
| + obinutuzumab | R/R FL | |||||||||||||||
| Tislelizumab | monotherapy | 2L advanced ESCC, 1L HCC, 2L/3L NSCLC | ||||||||||||||
| Previously treated HCC, R/R cHL | ||||||||||||||||
| + chemotherapy | 1L advanced ESCC, 1L GC/GEJC, 1L NPC | |||||||||||||||
| + zanidatamab + chemotherapy | 1L GEA | |||||||||||||||
| + sitravatinib | 2L NSCLC | |||||||||||||||
| Solid tumors | ||||||||||||||||
| + fruquintinib | Solid tumors | |||||||||||||||
| Ociperlimab | + tislelizumab | 1L PD-L1 high NSCLC | ||||||||||||||
| 2L PD-L1+ESCC, 2/3 L cervical cancer | ||||||||||||||||
| Solid tumors | ||||||||||||||||
| + tislelizumab + chemotherapy | 1L NSCLC | |||||||||||||||
| + tislelzumab + concurrent chemoradiotherapy | LA NSCLC (PD-L!+) | |||||||||||||||
| 1L LS-SCLC | ||||||||||||||||
| Surzebiclimab | + tislelizumab +/- LBL-007 | Solid tumors | ||||||||||||||
| BGB-A445 | + tislelizumab | Solid tumors | ||||||||||||||
| BGB-10188 | + tislelizumab | Solid tumors | ||||||||||||||
| +/- zanubrutinib | B-cell lymphoid malignancies | |||||||||||||||
| +/- tislelizumab | B-cell malignancies | |||||||||||||||
| BGB-15025 | + tislelizumab | Solid tumors | ||||||||||||||
| Pamiparib | monotherapy | 1L maintenance platinum-sensitive GC | ||||||||||||||
| + temozolomide | Solid tumors | |||||||||||||||
| BGB-3245 | monotherapy | Solid tumors with BRAF mutations | ||||||||||||||
| Lifirafenib | + mirdametinib | Solid tumors | ||||||||||||||
| BGB-11417 | monotherapy | R/R MCL, R/R CLL/SLL | ||||||||||||||
| Mature B-cell malignancies | ||||||||||||||||
| Myeloid malignancies | ||||||||||||||||
| + dexamethasone +/- carfilzomib | R/R | |||||||||||||||
| monotherapy | B-cell malignancies | |||||||||||||||
| Inflammation and immunology | ||||||||||||||||
| Solid tumors | ||||||||||||||||
| Solid tumors | ||||||||||||||||
Abbreviations: 1L = first line; 2L = second line; 3L = third line; AML = acute myeloid leukemia; Bcl-2 = B-cell lymphoma 2; BTK = Bruton's tyrosine kinase; cHL = classical Hodgkin’sHodgkin lymphoma; CLL = chronic lymphocytic leukemia; Dose Esc = dose escalation; ESCC = esophageal squamous cellsquamous-cell carcinoma; FL = follicular lymphoma; gBRCA = germline BRCA (Breast Cancer); GC = gastric cancer; GEA = gastroesophageal adenocarcinoma; GEJC = gastroesophaegeal junction cancer; HCC = hepatocellular carcinoma; MCL = mantle cell lymphoma; MZL = marginal zone lymphoma; NPC = nasopharyngeal carcinoma; NSCLC = non-small cell lung cancer; NDA = new drug application; NK = natural killer; NMPA = National Medical Products Administration; NPC = nasopharyngeal carcinoma; OC = ovarian cancer; PARP = poly ADP-ribose polymerase; PD-1 = programmed cell death protein 1; PD-L1 = programmed death-ligand 1; PH = Phase; R/R = relapsed / relapsed/refractory; RT = radiotherapy; SLL = small lymphocytic lymphoma; SCLC = small cell lung cancer; SqSLL = squamous; TIGITsmall lymphocytic lymphoma; TN = T-cell immunoreceptor with Ig and ITIM domains; TIM-3 = T-cell immunoglobulin and mucin-domain containing-3; TMZ = temozolomide; UC = urothelial carcinoma; WM = Waldenström’s macroglobulinemia.treatment treatment-naïve
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The following table summarizes the status of our in-licensed drug candidates as of February 29, 2020:
27, 2023:
| Sotorasib | Solid tumors, CRC, NSCLC | Phase 3 | China | |||||||||||
| tarlatamab ^^ | SCLC | Phase 2 | China | ||||||||||||
| acapatamab ^^ | Prostate cancer, NSCLC | Phase 1 | China | ||||||||||||
| AMG 176 | Hematologic malignancies | Phase | China | ||||||||||||
| AMG 427 ^^ | AML | Phase | China | ||||||||||||
| AMG 509 | Prostate cancer | Phase 1 | China | ||||||||||||
| AMG 199 ^^ | GC/GEJC | Phase 1 | China | ||||||||||||
| AMG 650 | Solid tumors | Phase 1 | China | ||||||||||||
| AMG 256 | Solid tumors | Phase 1 | China | ||||||||||||
 | Sitravatinib † + Tislelizumab | NSCLC | Phase 3 | Asia, Australia, New Zealand | |||||||||||
| Sitravatinib † + Tislelizumab | HCC, GC/GEJC | Phase 2 | Asia, Australia, New Zealand | ||||||||||||
| Sitravatinib † + Tislelizumab | Solid tumors | Phase 1 | Asia, Australia, New Zealand | ||||||||||||
 | Zanidatamab + chemo + Tislelizumab | GEA | Phase 3 | Asia, Australia, New Zealand | |||||||||||
| Zanidatamab (monotherapy) | BTC | Phase 2 | Asia, Australia, New Zealand | ||||||||||||
| Zanidatamab | BC, GC, GEA | Phase 2 | Asia, Australia, New Zealand | ||||||||||||
| ZW49 | HER2 expressing cancers | Phase 1 | Asia, Australia, New Zealand | ||||||||||||
 | Phase 1 | Asia | |||||||||||||
 | Phase 1 | Asia, Australia, New Zealand | |||||||||||||
 | DKN-01 + | Phase 2 | Asia, Australia, New Zealand | ||||||||||||
 | Advanced solid tumors | Ex-China | |||||||||||||
 | Chronic hepatitis B virus | ||||||||||||||
Abbreviations: ADC = antibody drug conjugate; AML = acute myeloidmyelogenous leukemia; AUBC = Australia; BCMAbreast cancer; BTC = B-cell maturation antigen; BiTEbiliary tract cancers; CRC = Bi-specific T-cell engager; BTKcolorectal cancer; GC = Bruton's tyrosine kinase; CD##gastric cancer; GEA = cluster of differentiation; DLL3gastroesophageal adenocarcinoma; GEJC = delta-like ligand 3; EGFRvIII = epidermal growth factor receptor variant III; FAP = familial adenomatous polyposis; FLT3 = fms-like tyrosine kinase 3; GEJ = gastro-esophageal junction; HER2 = human epidermal growth factor receptor 2;gastroesophaegeal junction cancer; HCC = hepatocellular carcinoma; HLEMDS = half-life extended; i.v. = intravenous; KRAS = gene for K version of Ras (rat sarcoma) protein; Mcl-1 = Myeloid cell leukemia-1; MEL = melanoma; MM = multiple myeloma;myelodysplastic syndromes; NSCLC = non-small cell lung cancer; NZ = New Zealand; OC = ovarian cancer; PH = Phase; PSMA = prostate-specific membrane antigen; RCC = renal cell carcinoma; SCLC = small cell lung cancer; SM = small molecule.cancer
Our Commercial- and Clinical-Stage Drug Candidates
A description of our commercial- and clinical-stage drug candidates and clinical data from selected clinical trials is set forth below. Historically, we have made available, and we intend to continue to make available, clinical data and/or topline results from clinical trials of our drug candidates in our press releases and/or filings with the U.S. Securities and Exchange Commission ("SEC") and, the Stock Exchange of Hong Kong Limited ("HKEx"), and the Shanghai Stock Exchange ("SSE"), copies of which are available on the Investors section of our website.
BRUKINSA (zanubrutinib), a BTK Inhibitor
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We presented two data sets in MCL athave announced BRUKINSA approvals around the 15th International Conference on Malignant Lymphoma that took place on June 18-22, 2019 in Lugano, Switzerland (the "2019 ICML"), and it was these two data sets that formed the basis for our accelerated approval in MCL in adult patients who have received at least one prior therapy that we received from the U.S. FDA in November 2019.
| Study BGB-3111-206 (N=86) | Study BGB-3111-AU-003 (N=32) | |
| ORR (95% CI) | 84% (74, 91) | 84% (67, 95) |
| CR | 59% | 22% * |
| PR | 24% | 62% |
| Median DoR in months (95% CI) | 19.5 (16.6, NE) | 18.5 (12.6, NE) |
Results included: | R/R | Overall | ||
| Efficacy | Zanubrutinib (N = 83) | Ibrutinib (N = 81) | Zanubrutinib (N = 102) | Ibrutinib (N = 99) |
| VGPR + CR Rate | 28.9% | 19.8% | 28.4% | 19.2% |
PFS (12 month) (CI) | 92.4% (88.9 - 98.8) | 85.9% (75.9 - 91.9) | 89.7% (81.7 - 94.3) | 87.2% (78.6 - 92.5) |
OS (12 month) (CI) | 98.8% (91.6 - 99.8) | 92.5% (84.1 - 96.6) | 97.0% (90.9 - 99.0) | 93.9% (86.8 - 97.2) |
| Zanubrutinib | Ibrutinib | |
| Safety | Overall (n = 101) | Overall (n = 98) |
| Grade >3 AEs | 58.4% | 63.3% |
| Treatment discontinuation due to AEs | 4 (4.0%) | 9 (9.2%) |
| Fatal AEs | 1 (1.0%) | 4 (4.1%) |
| Atrial fibrillation / flutter of any grade | 2.0% | 15.3% |
| Minor bleeding | 48.5% | 59.2% |
| Major hemorrhage | 5.9% | 9.2% |
| Diarrhea | 20.8% | 31.6% |
| Neutropenia | 29.7% | 13.3% |
Based on the clinical data to date, we believe that zanubrutinibBRUKINSA has a potentially best-in-class profile, and we are running a broad global pivotal program in multiple indications, including nine10 registration or registration-enabling clinical trials. FourFive of the nine studies10 trials are Phase 3 and five are designed to be registration-enabling Phase 2.2 trials.
We have an ongoingreported results from the monotherapy head-to-head Phase 3 trial versus ibrutinib in WM (ASPEN)(ASPEN, NCT03053440), which has been included in several filings globally. We have also reported topline results and study follow-up is underway. We plan to report full ASPEN study details at a medical conference in 2020. We are also conducting an ongoingfrom the Phase 3 trial comparedcomparing BRUKINSA to bendamustine and rituximab in patients with treatment-naive ("TN")treatment-naïve (TN) CLL/SLL (SEQUOIA)(SEQUOIA, NCT03336333) and athe head-to-head Phase 3 trial in R/R CLL/SLL versus ibrutinib (ALPINE)(ALPINE, NCT03734016). We have completed patient enrollmentBoth trials are the basis for our approvals in SEQUOIACLL in the U.S. and expect interim results as early as 2020. We also expect to finish expanded patient enrollment in ALPINE in 2020.EU. Our fourth Phase 3 trial is an ongoing Phase 3 confirmatory trial in patients with TN MCL.MCL (NCT04002297). Our fifth Phase 3 trial is an ongoing Phase 3 confirmatory trial in patients with R/R follicular lymphoma (FL) or R/R MZL (NCT05100862). Additionally, we have five filed or ongoing Phase 2 trials that are designed to be registration-enabling, including four monotherapy studies in R/R MCL, R/R WM, R/R CLL/SLL (NCT03206970, NCT03332173, NCT03206918), and R/R MZL (MAGNOLIA)(MAGNOLIA, NCT03846427) and an ongoing pivotal Phase 2 trial in combination with GAZYVA® (obinutuzumab) in patients with R/R FL (ROSEWOOD), which is designed as a pivotal(ROSEWOOD, NCT03332017). Data from the ROSEWOOD trial for accelerated or conditional approval and will require a confirmatory study.were presented at the European Hematology Association (EHA) 2022, meeting its primary endpoint. Finally, we are also investigating zanubrutinib in several combination studies in DLBCLMCL, MZL and CLL/SLL, including two studiesa Phase 3 trial in combination with venetoclax in front-line CLL/SLL.
We continue to pursue regulatory approvals for BRUKINSA globally. Besides our recent approvals in CLL/SLL investigating venetoclax combinations.
Tislelizumab, an anti-PD-1 Antibody
Tislelizumab is a humanized monoclonal antibody against the immune checkpoint receptor PD-1 that is currently being evaluated in pivotal clinical trials globally and in China and for which we plan to commence additional pivotal trials as a monotherapy and in combination with standard of care to treat various solid and hematological cancers.
BeiGene has initiated or completed 21 potentially registration-enabling clinical trials in China and globally, including 13 Phase 3 trials and four pivotal Phase 2 trials intended to support regulatory submissions globally and in China.
Our trials in lung cancer include:
•A global Phase 3 trial evaluating tislelizumab as a second- or third-line treatment compared to docetaxel in patients with locally advanced or metastatic NSCLC (NCT03358875);
•Two Phase 3 trials in China evaluating tislelizumab plus chemotherapy versus chemotherapy in squamous and non-squamous NSCLC (NCT03594747 and NCT03663205, respectively);
•A Phase 3 trial in China in 1L SCLC evaluating tislelizumab plus chemotherapy versus chemotherapy (NCT04005716); and
•A Phase 3 trial in China of tislelizumab in combination with platinum-based doublet chemotherapy as neoadjuvant treatment for patients with NSCLC (NCT04379635).
Our trials in liver cancer include:
•A global Phase 3 trial comparing tislelizumab with sorafenib as first-line treatment for patients with HCC (NCT03412773); and
•A global single-arm pivotal Phase 2 trial in second or third line unresectable HCC (NCT03419897).
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Our trials in gastric cancer include:
•A global Phase 3 trial of tislelizumab combined with chemotherapy versus placebo combined with chemotherapy as first-line treatment for patients with gastric cancer (NCT03777657).
Our trials in lymphoma include:
•A Phase 3 trial in China comparing tislelizumab to salvage chemotherapy in patients with relapsed or refractory classical Hodgkin Lymphoma (cHL; NCT04486391); and
•A Phase 2 trial in China in patients with relapsed or refractory cHL (NCT03209973).
Our trials in urothelial carcinoma include:
•A Phase 3 trial in China in patients with locally advanced or metastatic urothelial carcinoma (NCT03967977); and
•Phase 2 trial in China in patients with locally advanced or metastatic urothelial bladder cancer (NCT04004221).
Our trials in ESCC include:
•A global Phase 3 trial comparing tislelizumab with chemotherapy as second-line treatment for patients with advanced ESCC (NCT03430843);
•A global Phase 3 trial of tislelizumab in combination with chemotherapy as first-line treatment for patients with ESCC (NCT03783442); and
•A Phase 3 trial in China of tislelizumab versus placebo in combination with chemoradiotherapy in patients with localized ESCC (NCT03957590).
Finally, our trials in solid tumors and nasopharyngeal cancer include:
•A Phase 2 trial in China in patients with MSI-H/dMMR solid tumors (NCT03736889); and
•A Phase 3 trial in China and Thailand of tislelizumab combined with chemotherapy versus placebo combined with chemotherapy as first-line treatment in patients with nasopharyngeal cancer (NCT03924986).
As of January 15, 2020,December 2022, we had enrolled over 5,100 patients11,000 subjects in clinical trials of tislelizumab in 31 geographies, including combination trials.more than 4,000 subjects outside of China. These studies include 11 multi-regional registrational trials that are designed for global regulatory approvals. Data from our trials thus far suggested that tislelizumab was generally well-tolerated and exhibited anti-tumor activity in a variety of tumor types. All of the studies discussed below were presented at major medical conferences and were included in press releases issued at the time of the medical conferences and included in our current reports or announcements filed with the SEC and HKEx, respectively.
| Tislelizumab 200 mg every 3 weeks n=70^ | ||
| Preferred term^^ | All grades* % | ≥ Grade 3** % |
| General disorders and administration site conditions | ||
| Pyrexia | 54 | 0.0 |
Fatiguea | 10 | 0.0 |
| Chills | 5.7 | 0.0 |
| Endocrine disorders | ||
| Hypothyroidism | 33 | 0.0 |
| Investigations | ||
| Weight increased | 27 | 2.9 |
| Weight decreased | 8.6 | 0.0 |
| Skin and subcutaneous tissue disorders | ||
Pruritusb | 17 | 0.0 |
Rashc | 14 | 0.0 |
| Infections and infestations | ||
| Upper respiratory tract infection | 17 | 0.0 |
| Respiratory, thoracic and mediastinal disorders | ||
| Cough | 11 | 0.0 |
Pneumonitisd | 5.7 | 4.3 |
| Metabolism and nutrition disorders | ||
| Hyperlipidaemia | 7.1 | 0.0 |
| Hyperuricaemia | 5.7 | 0.0 |
| Musculoskeletal and connective tissue disorders | ||
Musculoskeletal paine | 7.1 | 1.4 |
| Pain in extremity | 7.1 | 0.0 |
| Gastrointestinal disorders | ||
| Diarrhea | 5.7 | 0.0 |
| Blood and lymphatic system disorders | ||
| Anemia | 5.7 | 0.0 |
| Nervous system disorders | ||
| Headache | 5.7 | 0.0 |
Pamiparib, (BGB-290), an inhibitor ofa PARP1 and PARP2 Inhibitor
Pamiparib is an investigational,a selective small molecule inhibitor of poly ADP-ribose polymerase 1 ("PARP1")(PARP1) and PARP2 enzymes that is being evaluated as a potential monotherapy and in combinations for the treatment of various solid tumors. We believe that pamiparib has the potential to be differentiated from other PARP inhibitors because of its brain penetration, greater selectivity, strong DNA-trapping activity, and good oral bioavailability demonstrated in preclinical models.
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Clinical-Stage
Ociperlimab (BGB-A1217), a TIGIT Inhibitor
Ociperlimab (BGB-A1217) is an investigational humanized IgG1-variant monoclonal antibody directed against TIGIT. An immune checkpoint molecule, ociperlimab is currently being investigated in OC with regulatory authorities and potentially submit an NDA in China for use of pamiparib in OC in 2020. We expect to announce top-line results from our pivotal Phase 2 germline BRCA ("gBRCA")-mutated OC as well as data from ourtwo global Phase 3 maintenance study in patients with platinum-sensitive recurrent OC. In addition, we expect to present data fromclinical trials, the OC cohort of the global Phase 1 studyAdvanTIG-301 (NCT04866017) and data from the Phase 1 study investigating pamiparibAdvanTIG-302 (NCT04746924) trials, in combination with tislelizumab in 2020.NSCLC. As of December 2022, more than 1,600 subjects have been enrolled across the ociperlimab development program, which includes eight global trials in patients with lung cancers, esophageal squamous cell carcinoma, and cervical cancer.
In December 2021 we announced an option, collaboration and license agreement with Novartis to develop, manufacture and commercialize ociperlimab in North America, Europe, and Japan, as discussed further below under "Novartis Collaboration — Option Collaboration and License Agreement for Ociperlimab".
We have completed patient enrollment in the AdvanTIG-202 trial (NCT04693234) in patients with previously treated recurrent or metastatic cervical cancer. We expect to initiate additional pivotal clinical trials and announce data from Phase 2 trial expansion cohorts in 2023 to inform our subsequent development for ociperlimab.
Lifirafenib (BGB-283) and BGB-3245, Inhibitors of RAF
Lifirafenib is an investigational novel small molecule inhibitor with RAF monomer and dimer inhibition activities. Lifirafenib has shown antitumor activities in preclinical models and in cancer patients with tumors harboring BRAF V600E mutations, non-V600E BRAF mutations or KRAS/NRAS mutations. We have been developing lifirafenib for the treatment of cancers with aberrations in the mitogen-activated protein kinase ("MAPK")(MAPK), pathway, including BRAF gene mutations and KRAS/NRAS gene mutations where first generation BRAF inhibitors are not effective. The MAPK pathway consists of proteins in the cell that transmit a signal from a receptor on the surface of the cell to the DNA in the nucleus of the cell. This pathway plays an essential role in regulating cell proliferation and survival. We believe that lifirafenib as monotherapy or in combination with other agents may have potential for treating various malignancies such as melanoma, NSCLC, and endometrial cancer.
In addition to the collaboration, the parties began a Phase 1b clinical trial in the third quarter of 2019 to evaluate this combination in patients with advanced or refractory solid tumors that harbor RAS mutations, RAF mutations, and other MAPK pathway aberrations.
Sitravatinib, (MGCD-0516), a Multi-Kinase Inhibitor
In January 2018, we entered into an exclusive license agreement with Mirati Therapeutics, Inc. ("Mirati")(Mirati) for the development, manufacturing and commercialization of Mirati’s sitravatinib in Asia (excluding Japan and certain other countries), Australia and New Zealand. Sitravatinib is an investigational spectrum-selective kinase inhibitor, which potently inhibits receptor tyrosine kinases, including RET, TAM family receptors (TYRO3, Axl, MER), and split family receptors
We are evaluating sitravatinib in Australia and China in the third quarter of 2018, and in the second quarter of 2019 we initiated a second study,multiple clinical trials including a Phase 1/2 (NCT03941873)3 trial combining sitravatinib with tislelizumab, this one focused on HCC or gastroesophageal junction cancer.
BGB-11417, a Small Molecule Bcl-2 Inhibitor
BGB-11417 is aan investigational small molecule Bcl-2 inhibitor. We have completed preclinical and investigational new drug (IND) -enabling studies of BGB-11417, which demonstrated potent activity and high selectivity against the pro-apoptotic protein Bcl-2. The molecule appears to be more potent than venetoclax and shows the potential to overcome resistance to venetoclax. Further, it is more selective than venetoclax for Bcl-2 relative to Bcl-xL. Finally, we believe that it is well-positioned to be combined with BRUKINSA. Phase 1 clinical data for non-Hodgkin's lymphoma, CLL, acute myeloid leukemia (AML) and multiple myeloma (MM) (NCT04883957, NCT04277637, NCT04771130, and NCT04973605) were presented at ASH 2022. We have initiated study start-up forpatient dosing in a Phase 1 trial (NCT04277637) in Australia and the United States2 study to investigate the safety, tolerability, pharmacokinetics, and preliminary antitumor activity ofevaluate BCL-2 inhibitor BGB-11417 in patients with mature B-cell malignancies.relapsed or
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refractory mantle cell lymphoma (NCT05471843) and relapsed or refractory chronic lymphocytic leukemia or small lymphocytic lymphoma (NCT05479994) in 2022 and expect data readouts from ongoing studies in 2023.
BGB-A445, an OX40 Agonist Antibody
BGB-A445 is an investigational agonistic antibody directed to the OX40 antigen. BGB-A445 is a non-ligand competing antibody that does not disrupt OX40 to OX40 ligand engagement. Preclinical experiments showed that BGB-A445 has increasing effectiveness at higher doses versus an antibody that was ligand-competing, which showed falling effectiveness at higher doses. BGB-A445 has also showed in preclinical tests the potential to be combined with several agents, such as tislelizumab, as well as a TLR9 agonist, a PI3Kδ inhibitor, sitravatinib, and chemotherapy. We have initiated aan ongoing Phase 1 trial (NCT04215978) of our OX40 antibodyBGB-A445 in combination with tislelizumab in patients with advanced solid tumors and initiated tumor-specific dose expansion cohorts in a Phase 1 monotherapy trial (NCT04215978) in patients with solid tumors in 2022. We initiated patient dosing in a Phase 2 basket trial in melanoma, renal cell cancer and bladder cancer (NCT05661955).
ZW25 (Zanidatamab), a bispecific HER2-targeted antibody
Zanidatamab, a novel investigational Azymetric™ bispecific antibody targeting HER2, is currently in late-stage clinical development with Zymeworks Inc. BeiGene has development and commercial rights to zanidatamab in Asia (excluding Japan), Australia, and New Zealand. We are participating in three ongoing clinical studies with zanidatamab. The first is a Phase 1/2 study (NCT04215978) in HER2-positive breast and gastric cancer. The breast cancer arm combines zanidatamab with docetaxel, and the gastric cancer arm combines zanidatamab with our PD-1 inhibitor tislelizumab and chemotherapy. The second study HERIZON-BTC-01 (NCT04466891) is a Phase 2b study in patients with advanced or metastatic HER2-amplified biliary tract cancers (BTC) in which zanidatamab is being used as monotherapy. Positive topline results from this trial were announced in 2022. We initiated a global Phase 3 clinical trial (NCT05152147) examining zanidatamab in combination with chemotherapy with and without tislelizumab in HER2-positive gastroesophageal cancer in late 2021. We completed enrollment in 2L biliary tract cancer in 2022.
Surzebiclimab (BGB-A425), a TIM-3 Inhibitor
Surzebiclimab (BGB-A425) is an investigational humanized IgG1-variant monoclonal antibody against T-cell immunoglobulin and mucin-domain containing-3 (TIM-3). We have an ongoing Phase 1/2 trial (NCT03744468) of surzebiclimab in combination with tislelizumab in various solid tumors.
BGB-15025, a Small Molecule HPK1 Inhibitor
BGB-15025 is an investigational small molecule inhibitor of HPK1, which is a key negative feedback regulator of TCR signaling. Inhibition of HPK1 leads to enhanced T-cell activation pre-clinically. In addition, preclinical studies showed that BGB-15025 exhibits combination activity with tislelizumab and has a wide therapeutic window. We initiated a Phase 1 trial (NCT04649385) of BGB-15025 alone and in combination with tislelizumab in patients with advanced solid tumors in 2021. This trial is being conducted in multiple countries globally. We expect to initiate dose-expansion for BGB-15025 in 2023.
BGB-16673, a BTK-targeted CDAC
BGB-16733 is an investigational BTK‑targeting chimeric degradation activation compound (CDAC) active against both wild‑type and mutant BTK. BGB‑16673 has demonstrated preclinical antitumor activity in models with wild‑type BTK and models with BTK inhibitor–resistant mutations commonly observed in patients who have progressed on prior BTK inhibitor treatment. A Phase 1 open‑label, dose‑escalation, and dose‑expansion trial (NCT05006716) in adult patients with relapsed/refractory (R/R) B‑cell malignancies is currently enrolling.
BGB-23339, a TYK2 inhibitor
BGB-23339 is a potent, highly selective, allosteric, investigational tyrosine kinase 2 (TYK2) inhibitor discovered and being developed by BeiGene. TYK2 is a member of the JAK family and functions as a critical mediator in cytokine signaling pathways implicated in multiple immune-mediated disorders. Designed to target the regulatory pseudokinase (JH2) domain on TYK2, BGB-23339 has demonstrated strong selectivity in preclinical studies with potent inhibition of interleukin (IL)-12, IL-23, and Type 1 interferons (IFNs)—pro-inflammatory cytokines that play a determinant role in the induction of inflammation. BGB-23339 is currently being evaluated in a Phase 1 clinical study (NCT05093270).
BGB-24714, a SMAC mimetic
BGB-24714 is an investigational Second Mitochondrial-derived Activator of Caspase (SMAC) mimetic currently enrolling in a Phase 1 clinical trial (NCT05381909) as monotherapy or in combination with paclitaxel in advanced solid tumors.
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BGB-B167, a CEA x 4-1BB bispecific
BGB-B167 is an investigational first-in-class CEA x 4-1BB bispecific antibody. It is currently enrolling in a Phase 1 clinical trial (NCT05494762) as a monotherapy and in combination with tislelizumab in patients with selected CEA-expressing advanced or metastatic solid tumors, including colorectal cancer (CRC).
BGB-10188 (PI3K inhibitor)
BGB-10188 is an investigational PI3Kδ inhibitor being evaluated in a Phase 1 clinical trial (NCT04282018) as monotherapy or in combination with BRUKINSA in hematology malignancies, or in combination with tislelizumab in solid tumors.
Our Preclinical Programs
We have a proprietary cancer biology research platform that has also allowed us to research and develop our clinical-stageboth small molecules and biologic molecules. In the last decade, this platform has generated more than 10 clinical stage assets, including three internally-developed molecules that have been approved by regulatory bodies in the United States, China, EU and other markets, with other filings pending globally and planned to be submitted. The platform is a full-process technology system spanning from early discovery to commercialization of oncology medicines based on multiple drug candidatestechnology platforms that can be applied to oncology and several additional preclinical-stage drug candidates in potentially important areas. These currently consist of targeted therapies and immuno-oncology agents.other fields. We have initiated first-in-human studiescore technology platforms for two drug candidates and have initiated study start-up activities for a third, BGB-11417, athe development of small molecule Bcl-2 inhibitor. and antibody medicines and the manufacturing of our own and potentially other medicines. Currently, we have over 60 pre-clinical programs and we believe the majority have best-in-class or first-in-class potential.
We anticipate advancing one or more ofmultiple our preclinical drug candidates into the clinic in the next 12 months. We believe that we have the opportunity to combine tislelizumab with our preclinical candidates to target multiple points in the cancer immunity cycle. We also may seek to develop companion diagnostics that will help identify patients who are most likely to benefit from the use of our medicines and drug candidates.
Manufacturing and Supply
We manufacture our drugsmedicines and drugsdrug candidates internally and in some cases with the help of third-party contract manufacturing organizations ("CMOs").CMOs. The manufacturing of our drugsmedicines and drug candidates is subject to extensive regulations that impose various procedural and documentation requirements governing recordkeeping, manufacturing processes and controls, personnel, quality control, and quality assurance, among others. Our manufacturing facilities and the facilities of the CMOs we use to manufacture our drugsmedicines and drug candidates operate under current good manufacturing practice regulations ("GMP"cGMP") conditions. GMPcGMP regulations are regulatory requirements for the production of pharmaceuticals that will be used in humans.
Our Manufacturing Facilities
We have an approximately 11,000 square meter multi-functionalmanufacturing facilities for small molecule drugs and large molecule biologics in Suzhou and Guangzhou, China, respectively, to support the commercialization and potential future demand of our internally developed or in-licensed products.
Our manufacturing facility in Suzhou China, where we produce small moleculeis over 13,000 square meters and biologics drug candidates for clinical supply and which we plan to use for commercial supply of our small molecule drug candidates in China and potentially outside of China, if approved. This facility consists of one oral-solid-dosage production linea manufacturing base for small molecule drug products with an annual production capacity of about 100 million tablets and one pilot plantcapsules and a biologics clinical development production facility with 2 x 500 liters capacity to produce biologics candidates for monoclonal antibody drug substances and is aligned with theclinical supply. The facility meets or exceeds design criteria of the United States, EU, and China regulatory requirements. The facility has received a manufacturing license which is requiredto produce commercial volumes of BRUKINSA and pamiparib for the China market. As a result of our growing commercial manufactureand clinical demands, we have broken ground on a new small molecule manufacturing facility nearby in Suzhou that will have the capability to produce up to 600 million solid oral dosages annually. This approximately 50,000 square meter facility is expected to replace our current Suzhou site and support our growing pipeline of zanubrutinibsmall molecule medicines and drug candidates.
We continue to invest in China following NDA approval.
We have also commenced construction on our commercial-stage manufacturing and are nowclinical R&D campus at the 42-acre site at the Princeton West Innovation Park in Hopewell, New Jersey. The property, located strategically in the processInterstate 95
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corridor of New Jersey, with a deep and rich talent pool, has more than one million square feet of developable real estate for global commercial supplies. Following regulatory inspectionpotential future expansion to cover our existing medicines and approval, the first commercial product to be manufactured at this facility is expected to be tislelizumab.
Contract Manufacturing Organizations
We currently rely on, and expect to continue to rely on, a limited number of third-party CMOs and CROs for the production of some drug products and drug substances and the supply of raw materials to meet the commercial, clinical, and preclinical needs of our drugsmedicines and drug candidates. We have adopted procedures to ensure that the production qualifications, facilities, and processes of ourthe third-party outsourced suppliers engaged by us comply with the relevant regulatory requirements and our internal quality and operationoperational guidelines. We select our third-party suppliers carefully by considering a number of factors, including their qualifications, relevant expertise, production capacity, geographic proximity, reputation, track record, product quality, reliability in meeting delivery schedules, and terms offered by such third-party outsourced suppliers.business terms.
We have frameworkcommercial supply and related agreements with most of our manufacturing service providers. For example, we entered into a commercial supply agreement with Catalent Pharma Solutions, LLC ("Catalent") to produce BRUKINSA at Catalent’s Kansas City, MOMissouri site for clinical and commercial use in the United States and clinicalother countries outside of China. We currently source the active pharmaceutical ingredient for BRUKINSA from a supplier in China and are in the process of bringing online an additional source of supply outside of China. In addition, we entered into a commercial supply agreement with Boehringer Ingelheim Biopharmaceuticals (China) Ltd. ("Boehringer Ingelheim") for our anti-PD-1 antibody tislelizumab, which is being manufactured at Boehringer Ingelheim’s facility in Shanghai, China as partChina. Additionally, our collaboration agreements with Novartis include the right for Novartis to manufacture tislelizumab and ociperlimab for its territory, to be managed by Novartis following tech transfer, and our right to conduct a specified percentage of a marketing authorization holder ("MAH") project pioneered by us and Boehringer Ingelheim.production at our planned U.S. manufacturing site, subject to the terms of the agreements. For our commercial and clinical stage products licensedin-licensed from Amgen, BMS and others, we rely on BMSthe licensors and its contract manufacturers outside of Chinatheir manufacturing facilities or their CMOs for the supply of those drugs. For our clinical and commercial products that are being commercialized in collaboration with Amgen, we expect to rely on Amgen and its contract manufacturers outside of China for the supply of those drugsmedicines and drug candidates.
Our agreements with ourthe outsourced suppliers engaged by us generally set out terms, including product quality or service details, technical standards or methods, delivery terms, agreed price and payment, and product inspection and acceptance criteria. We are generally allowed to return any products that fail to meet ourspecified quality standards. Our outsourced suppliers procure raw materials themselves. Typically, outsourced suppliers request settlement of payment within 30 days from the date of invoice. Either party may terminate the agreements by serving notice to the other party under certain circumstances.
We generally obtain raw materials for our manufacturing activities from multiplevarious suppliers who we believe have sufficient capacity to meet our demands. Raw materials and starting materials used at our facilities in Beijing and Suzhou include active pharmaceutical ingredients custom-made by our third-party CROs and excipients, which are commercially available from well-known vendors that meet the requirements of the relevant regulatory agencies. The core raw materials to be used in manufacturing at our Guangzhou facility are expected to be genetically modified cell lines that we have co-developed and licensed from Boehringer Ingelheim and other third parties.
We typically order raw materials on a purchase order basis and do not enter into long-term, dedicated capacity or minimum supply arrangements. We pay for our purchases of raw materials on credit. Credit periods granted to us by our suppliers generally range from 30 to 60 days. Our suppliers are generally not responsible for theany defects ofin our finished products.
Amgen Collaboration
Collaboration Agreement
On October 31, 2019, our wholly-owned subsidiary, BeiGene Switzerland GmbH (“("BeiGene Switzerland”Switzerland"), entered into a Collaboration Agreement with Amgen, which became effective on January 2, 2020 (the(as amended, the "Amgen Collaboration Agreement"). Pursuant to the terms of the Amgen Collaboration Agreement, BeiGene Switzerland will bewe are responsible for commercializing Amgen’s oncology products XGEVA, KYPROLISBLINCYTO and BLINCYTOKYPROLIS in China (excluding Hong Kong, Macao and Taiwan) for a period of five or seven years following each product’s regulatory approval in China, as specified in the Amgen Collaboration Agreement, with the commercialization period for XGEVA commencing following the transition of operational responsibilities for the product. In addition, as specified in the agreement, BeiGene Switzerland willwe have the option to retain one of the three products to commercialize for as long as the product is sold in China. The parties have agreed to equally share profits and losses for the products in China during each product’s commercialization period through BeiGene Switzerland.period. After expiration of the commercialization period for each product, the products not retained will be transitioned back to Amgen and BeiGene Switzerlandwe will be eligible to receive tiered mid-single to low-double digit royalties on net sales in China of each product for an additional five years.
Additionally, pursuant to the terms of the Amgen Collaboration Agreement, BeiGene Switzerlandwe and Amgen have agreed to collaborate on the global clinical development and commercialization in China of 20a portfolio of Amgen clinical- and late-preclinical-stage oncology
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pipeline products. Starting from the commencement of the Amgen Collaboration Agreement, BeiGene Switzerlandwe and Amgen will co-fund global development costs, with BeiGene Switzerland contributing up to $1.25 billion worth of development services and cash over the term of the collaboration. BeiGene SwitzerlandWe will be eligible to receive tiered mid-single digit royalties on net sales of each product globally outside of China, other than LUMAKRAS™ (sotorasib) ("AMG 510,510"), on a product-by-product and country-by-country basis, until the latest of the expiration of the last valid patent claim, the expiration of regulatory exclusivity, or the earlier of eight years after the first commercial sale of such product in the country of sale and 20 years from the date of first commercial sale of such product anywhere in the world.
For each pipeline product that is approved in China, BeiGene Switzerlandwe will have the right to commercialize the product for seven years, with the parties sharing profits and losses for the product in China equally. In addition, depending on how many of the 20 pipeline products receive approval in China, BeiGene Switzerlandwe will have the right to retain approximately one of every three approved products, up to a total of six, other than AMG 510, to commercialize for as long as each such product is sold in China. After the expiration of the seven-year commercialization period, each product will be transitioned back to Amgen and BeiGene Switzerlandwe will be eligible to received tiered mid-single to low-double digit royalties on net sales in China for an additional five years. The parties are subject to specified exclusivity requirements in China and the rest of the world.
BeiGene, Ltd. has guaranteed certain obligations of BeiGene Switzerland under the Amgen Collaboration Agreement pursuant to the terms of a separate Guarantee Agreement.
The Amgen Collaboration Agreement contains customary representations, warranties and covenants by the parties. The agreement will continue in effect on a product-by-product basis unless terminated by either party pursuant to its terms. The agreement may be terminated by mutual written consent of the parties, or by either party upon the other party’s uncured material breach, insolvency, failure to comply with specified compliance provisions, or subject to a specified negotiation mechanism, certain adverse economic impacts or the failure to meet commercial objectives. In addition, Amgen may terminate the agreement with respect to a pipeline product in the event it suspends development of such pipeline product on specified terms, subject to the parties determining whether to continue development of the pipeline product in China.
Share Purchase Agreement
In connection with the Amgen Collaboration Agreement, pursuant to a share purchase agreement dated October 31, 2019, as amended, by and between BeiGene, Ltd. and Amgen (the(as amended, the “Share Purchase Agreement”), we issued to Amgen 206,635,013 ordinary shares in the form of 15,895,001 American Depositary Shares (“ADSs”("ADSs") of BeiGene, Ltd. on January 2, 2020, representing approximately 20.5% of our then outstanding shares, to Amgen, for an aggregate cashpurchase price of $2.78 billion, or $13.45 per ordinary share, or $174.85 per ADS.
Pursuant to the Share Purchase Agreement, Amgen has agreed to (i) a lock-up on sales of its shares until the earliest of (a) the fourth anniversary of the closing, (b) the expiration or termination of the Collaboration Agreement and (c) a change of control of BeiGene, Ltd., (ii) a standstill until the later of (a) the first anniversary of the date as of which it ceases to have the right to appoint a director and (b) the date on which it holds less than 5% of our then outstanding shares, and (iii) a voting agreement to vote its shares on certain matters presented for shareholder approval until the later of (a) the fifth anniversary of the closing and (b) the expiration of the standstill period, all under specified circumstances and as set forth in the agreement.
Following the later of (i) the expiration of the lock-up period and (ii) the expiration of the standstill period, Amgen has agreed not to sell shares representing more than 5% of our then outstanding shares in any rolling 12-month period, subject to specified exceptions. In addition, Amgen will have the right to designate an independent director to serve on our board of directors until the earlier of (a) the date on which Amgen holds less than 10% of our then outstanding shares as a result of Amgen’s sale of ordinary shares or Amgen’s failure to participate in future offerings and (b) the third anniversary of the date of the expiration or termination of the Amgen Collaboration Agreement.period. Under the terms of the Share Purchase Agreement, Amgen will also have specified registration rights upon expiration of the lock-up. Additionally, we have agreed to use reasonable best efforts to provide Amgen with an opportunity to participate in subsequent new securities offerings upon the same terms and conditions as other purchasers in the offering in an amount needed to allow Amgen to hold 20.5%up to 20.6% of our shares, subject to applicable law and HKEx rules and other specified conditions.
On March 17, 2020, BeiGene, Ltd. and Amgen entered into an Amendment No. 2 (the “Second Amendment”) to the Share Purchase Agreement in order to account for periodic dilution from the issuance of shares by us, which agreement was restated in its entirety on September 24, 2020 (the “Restated Second Amendment”). Pursuant to the Restated Second Amendment, Amgen has an option (the “Direct Purchase Option”) to subscribe for additional ADSs in an amount necessary to enable it to increase (and subsequently maintain) its ownership at approximately 20.6% of our outstanding shares. The Direct Purchase Option is exercisable on a monthly basis, but only if Amgen’s interest in our outstanding shares at the monthly reference date is less than 20.4%. The Direct Purchase Option (i) is exercisable by Amgen solely as a result of dilution arising from issuance of
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new shares by us under our equity incentive plans from time to time, and (ii) is subject to annual approval by our independent shareholders each year during the term of the Restated Second Amendment. The exercise period of the Direct Purchase Option commenced on December 1, 2020 and will terminate on the earliest of: (a) the date on which Amgen and its affiliates collectively own less than 20% of the outstanding share capital of the Company as a result of Amgen’s sale of shares; (b) at least 60-day advance written notice from either Amgen or the Company that such party wishes to terminate the Direct Purchase Option; or (c) December 1, 2023. The Direct Purchase Option has no vesting period.
Novartis Collaboration
Collaboration and License Agreement for Tislelizumab
On January 11, 2021, our wholly-owned subsidiary, BeiGene Switzerland GmbH, entered into a Collaboration and License Agreement, which became effective on February 26, 2021 (the “Novartis Collaboration and License Agreement”) with Novartis, pursuant to which Novartis will have the right to develop, manufacture and commercialize tislelizumab in the United States, Canada, Mexico, member countries of the European Union, United Kingdom, Norway, Switzerland, Iceland, Liechtenstein, Russia, and Japan (the “Licensed Territory”).
Under the Novartis Collaboration and License Agreement, we received an upfront cash payment of $650 million from Novartis. Additionally, we are eligible to receive up to $1.3 billion upon the achievement of regulatory milestones, $250 million upon the achievement of sales milestones, and tiered royalties based on percentages of annual net sales of tislelizumab in the Licensed Territory ranging from the high-teens to high-twenties, with customary reductions in specified circumstances. Royalties are payable on a country-by-country basis from the time of the first commercial sale until the latest of the expiration of the last valid patent claim, the expiration of regulatory exclusivity, or 10 years after the first commercial sale of tislelizumab in the country of sale.
Under the Novartis Collaboration and License Agreement, we and Novartis have agreed to jointly develop tislelizumab in the Licensed Territory, with Novartis responsible for regulatory submissions after a transition period and for commercialization upon regulatory approvals. In addition, both companies may conduct clinical trials to explore potential combinations of tislelizumab with other cancer treatments. We will be responsible for funding the ongoing clinical trials of tislelizumab, and Novartis has agreed to fund any new registrational, bridging, or post-marketing studies in the Licensed Territory. Subject to specified conditions, both parties have agreed to jointly fund other new clinical trials in the Licensed Territory agreed by the parties, provided that each party will be responsible for funding clinical trials evaluating tislelizumab in combination with its own- or third-party cancer treatments. We will initially be responsible for supplying tislelizumab to Novartis, with Novartis having the right to conduct manufacturing for its use in the Licensed Territory after successful transfer of the manufacturing process. In addition, we have an option to co-detail the product in the United States, Canada and Mexico, on an indication-by-indication basis, funded in part by Novartis. Each party retains the worldwide right to commercialize its propriety products in combination with tislelizumab. We retain the rights to manufacture and supply a specified percentage of commercial supply of tislelizumab from our planned U.S. manufacturing facility to be built in Hopewell, New Jersey, subject to the terms of the agreement.
The Novartis Collaboration and License Agreement contains customary representations, warranties and covenants by the parties. Unless earlier terminated, the agreement will expire on a country-by-country basis upon expiration of the royalty term in such country and in its entirety upon the expiration of all applicable royalty terms in all countries in the Licensed Territory. We may terminate the agreement in its entirety upon written notice (i) if Novartis challenges the licensed BeiGene patents, or (ii) if Novartis files a biologics license application for its anti-PD-1 antibody, spartalizumab, in the Licensed Territory, and we do not elect to include spartalizumab as a licensed product under the agreement or Novartis does not divest the product candidate, in which case Novartis would pay us a specified termination fee. The agreement may be terminated by Novartis upon 120 days’ prior written notice if delivered before first commercial sale or 180 days’ prior written notice if delivered following first commercial sale of tislelizumab in the Licensed Territory, or by either party upon the other party’s bankruptcy or uncured material breach.
Option, Collaboration and License Agreement for Ociperlimab
On December 19, 2021, BeiGene Switzerland GmbH entered into an Option, Collaboration and License Agreement (the “Novartis Option, Collaboration and License Agreement”) with Novartis, pursuant to which we have granted Novartis an exclusive time-based option to receive an exclusive license to develop, manufacture and commercialize our investigational TIGIT inhibitor ociperlimab in the Licensed Territory.
Under the Novartis Option, Collaboration and License Agreement, we received an upfront cash payment of $300 million from Novartis and are eligible to receive an additional payment of $600 million or $700 million upon exercise by Novartis of an exclusive time-based option prior to mid-2023 or late-2023, respectively, subject to receipt of required antitrust approval.
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Additionally, following option exercise, we are eligible to receive up to $745 million upon the achievement of regulatory approval milestones, $1.15 billion upon the achievement of sales milestones, and tiered royalties based on percentages of annual net sales of ociperlimab in the Licensed Territory ranging from the high-teens to mid-twenties, with customary reductions in specified circumstances. Royalties are payable on a country-by-country basis from the time of the first commercial sale until the latest of the expiration of the last valid patent claim, the expiration of regulatory exclusivity, or 10 years after the first commercial sale of ociperlimab in the country of sale.
Under the Novartis Option, Collaboration and License Agreement, during the option period, Novartis has agreed to initiate, conduct and fund additional global clinical trials of ociperlimab in combination with tislelizumab in selected tumor types and we have agreed to expand enrollment in two ongoing trials. Additionally, following the option exercise, the companies have agreed to jointly develop ociperlimab in the Licensed Territory, with Novartis sharing development costs of global trials and responsible for regulatory submissions after a transition period and for commercialization upon regulatory approvals in the Licensed Territory. In addition, both companies may conduct clinical trials globally to explore potential combinations of ociperlimab with other cancer treatments. We will initially be responsible for supplying ociperlimab to Novartis, with Novartis having the right to conduct manufacturing for its use in the Licensed Territory after successful transfer of the manufacturing process. Following approval, we have agreed to provide 50% of the co-detailing and co-field medical efforts in the United States and have an option to co-detail up to 25% in Canada and Mexico, in each case funded in part by Novartis. Each party retains the worldwide right to commercialize its proprietary products in combination with ociperlimab, as is the case with tislelizumab under the parties' existing collaboration agreement. We retain the rights to manufacture and supply a specified percentage of commercial supply of ociperlimab from our planned U.S. manufacturing facility to be built in Hopewell, New Jersey, subject to the terms of the agreement.
The Novartis Option, Collaboration and License Agreement contains customary representations, warranties and covenants by BeiGene and Novartis. Unless earlier terminated, the agreement will expire on a country-by-country basis upon the expiration of the royalty term in such country. The Novartis Option, Collaboration and License Agreement will expire in its entirety upon the expiration of all applicable royalty terms under the agreement in all countries in the Licensed Territory. The agreement may be terminated by Novartis upon 120 days’ prior written notice if delivered before first commercial sale or 180 days’ prior written notice if delivered following first commercial sale of ociperlimab in the Licensed Territory, or by either party upon the other party’s bankruptcy or uncured material breach. BeiGene may terminate the agreement in its entirety upon written notice if Novartis challenges the licensed BeiGene patents. Either party may terminate the agreement in its entirety effective immediately upon written notice to the other party (i) if the option terminates or expires, or (ii) in the event that the license effective date has not occurred within six months after the date of the Hart-Scott-Rodino Antitrust Improvements Act filing, subject to extension.
Celgene License and Supply Agreement
On July 5, 2017, we and Celgene Logistics Sàrl, now a wholly-owned subsidiary of BMS, entered into a License and Supply Agreement, which we refer to as the China License Agreement and which became effective on August 31, 2017, pursuant to which we were granted the right to exclusively distribute and promote BMS’s approved cancer therapies, ABRAXANE, REVLIMID, VIDAZA and VIDAZAABRAXANE in China, excluding Hong Kong, Macau and Taiwan. In addition, if BMSCelgene decides to commercialize a new oncology product through a third party in the licensed territory during the first five years of the term, we have a right of first negotiation to obtain the right to commercialize the product, subject to certain conditions. We subsequently assigned the agreement to our wholly-owned subsidiary, BeiGene Switzerland.
On March 25, 2020, the NMPA suspended the importation, sales and use of ABRAXANE in China supplied to us by BMS, and the drug was subsequently recalled by BMS and is not currently available for sale in China. This suspension was based on inspection findings at BMS’s contract manufacturing facility in the United States. Additionally, in October 2021, BMS provided 180-days' notice to us, which we dispute, purporting to terminate our license to market ABRAXANE in China. We have not had any sales of ABRAXANE since the suspension and do not expect future revenue from ABRAXANE. We have initiated an arbitration proceeding against BMS asserting that it has breached and continues to breach the terms and conditions of the license and supply agreement. For additional information, please see the section of this Annual Report titled “Legal Proceedings”.
The term of the China License Agreement is 10 years and may be terminated by either party upon written notice in the event of uncured material breach or bankruptcy of the other party, or if the underlying regulatory approvals for the covered products are revoked. BMS also has the right to terminate the agreement with respect to REVLIMID at any time upon written notice to us under certain circumstances.
The China License Agreement contains customary representations and warranties and confidentiality and mutual indemnification provisions.
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Intellectual Property
The proprietary nature of, and protection for, our drugs,medicines, drug candidates, and their methods of use are an important part of our strategy to develop and commercialize novel medicines, as described in more detail below. We have obtained patents and filed patent applications and obtained patents in the United States and other countries and regions, such as China and Europe, relating to our drugsmedicines and certain of our drugs and drug candidates, and are pursuing additional patent protection for them and for our other drug candidates and technologies. We rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection, including our manufacturing processes. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen, and support our development programs.
As of January 29, 2020,30, 2023, we owned 2548 issued U.S. patents, 1132 issued China patents, a number of pending U.S. and China patent applications, and corresponding patents and patent applications internationally. In addition, we owned pending international patent applications under the Patent Cooperation Treaty ("PCT"), which we plan to file nationally in the United States and other jurisdictions, as well as additional priority PCT applications. With respect to any issued patents in the United States and Europe, we may be entitled to obtain a patent term extension to extend the patent expiration date, provided that we meet the applicable requirements for obtaining such patent term extensions. For example, in the United States, we can apply for a patent term extension of up to five years for one of the patents covering a drug product once the product is approved by the FDA. The exact duration of the extension depends on the time that we spend in clinical studies as well as getting approval from the FDA.
In China, the Amended PRC Patent Law provides a patent term extension of up to five years, similar to the United States.
The key patents for our drugsmedicines and late-stage clinical drug candidates as of January 29, 2020,30, 2023, are summarized below:
| Molecule | Territory | General Subject Matter | Expiration1 | ||||||||
BRUKINSA (Zanubrutinib) | U.S. | Compound and composition | 2034 | ||||||||
| U.S. | Use for the treatment of autoimmune diseases | 2034 | |||||||||
| Use for the treatment of B-cell proliferative disorder | 2034 | ||||||||||
| U.S. | Crystalline forms | 2037 | |||||||||
| China | Compound and composition | 2034 | |||||||||
| Tislelizumab | U.S. | Antibodies | 2033 | ||||||||
| U.S. | Use for the treatment of cancer | 2033 | |||||||||
| U.S. | Antibodies and use for the treatment of cancer | 2033 | |||||||||
| U.S. | Antibodies | 2033 | |||||||||
| Antibodies | 2033 | ||||||||||
| 2033 | |||||||||||
| China | Antibodies | 2033 | |||||||||
| China | Antibodies | 2033 | |||||||||
| China | Antibodies | 2033 | |||||||||
| China | Antibodies | 2033 | |||||||||
| Pamiparib | U.S. | Compound and composition | 2031 | ||||||||
| U.S. | Compound and composition | 2031 | |||||||||
| U.S. | Use for the treatment of cancer | 2031 | |||||||||
| U.S. | Compositions | 2031 | |||||||||
| U.S. | Crystalline forms | 2036 | |||||||||
| Crystalline forms | 2038 | ||||||||||
| China | Compound and composition | 2031 | |||||||||
| China | Use for the treatment of cancer | 2031 | |||||||||
| China | Crystalline forms | 2036 | |||||||||
| Ociperlimab | U.S. | Antibodies | 2038 | ||||||||
(1) The expected expiration does not include any additional term for patent term extensionsextensions.
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We currently have threetwo in-licensed drugsmedicines in China from BMS. The key patents for them in China as of January 29, 202030, 2023 are summarized below:
| Product | Territory | General Subject Matter | Expiration | ||||||||
REVLIMID® (lenalidomide) | China | Use for the treatment of multiple myeloma | 2023 | ||||||||
| China | Use for the treatment of multiple myeloma | 2023 | |||||||||
| China | Use for the treatment of multiple myeloma | 2023 | |||||||||
| China | Use for the treatment of multiple myeloma | 2023 | |||||||||
VIDAZA® (azacitidine) | China | No patent | N/A | ||||||||
Under our collaboration with Amgen, we have the right to commercialize three medicines in China one drug and, upon approval in China, two late-stage product candidates.China. The key patents necessary for these productsthem in China as of January 30, 2023 are summarized below:
| Product | Territory | General Subject Matter | Expiration | ||||||||
XGEVA® (denosumab) | China | Antibodies | 2022 | ||||||||
BLINCYTO® (blinatumomab) | China | Use for the treatment of pediatric acute lymphoblastic leukemia | 2029 | ||||||||
KYPROLIS® | China | Compound and Composition | 2025 | ||||||||
Although various extensions may be available, the life of a patent and the protection it affords, is limited. ABRAXANE, REVLIMIDand VIDAZA face or are expected to face competition from generic medications, and we may face similar competition for our drugsmedicines and any approved drugsdrug candidates even if we successfully obtain patent protection. The scope, validity or enforceability of our or our collaborators' patents may be challenged in court or other authorities, and we or they may not be successful in enforcing or defending those intellectual property rights and, as a result, may not be able to develop or market the relevant product exclusively, which would have a material adverse effect on any potential sales of that product. Additionally, in China, the NMPA may approve a generic version of a brand-name drugmedicine that still has patent protection, such as has occurred with ABRAXANE and REVLIMID. Under our license agreements with BMS and Amgen, they retain the responsibility for, but are not obligated, to prosecute, defend and enforce the patents for these in-licensed products. As such, any issued patents may not protect us from generic or biosimilar competition for these drugs.
medicines.
The term of individual patents may vary based on the countries in which they are obtained. In most countries in which we file, including the United States and China, the term of an issued patent is generally 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country. In the United States, a patent’s term may be lengthened in some cases by a patent term adjustment, which extends the term of a patent to account for administrative delays by the United States Patent and Trademark Office (the "USPTO"("USPTO"), in excess of a patent applicant’s own delays during the prosecution process, or may be shortened if a patent is terminally disclaimed over a commonly owned patent having an earlier expiration date. In addition, in certain instances, a patent term can be extended to recapture a portion of the term effectively lost in obtaining FDA regulatory approval. However, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years following FDA approval. In China, the Amended PRC Patent Law provides both patent term adjustment and patent term extension, similar to the United States.
In certain foreign jurisdictions similar extensions as compensation for regulatory delays are also available. The actual protection afforded by a patent varies on a claim by claim and country by country basis and depends upon many factors, including the type of patent, the scope of its coverage, the availability of any patent term extensions or adjustments, the availability of legal remedies in a particular country and the validity and enforceability of the patent.
We may rely, in some circumstances, on trade secrets and unpatented know-how to protect aspects of our technology. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with employees, consultants, scientific advisors and contractors and invention assignment agreements with our employees. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.
Additionally, we currently own a number of registered trademarks and pending trademark applications. We currently have registered trademarks for BeiGene, our corporate logo and product names and logos in the United States, China, the EU and other jurisdictions, and we are seeking further trademark protection for BeiGene, our corporate logo, product names and logos, and other marks in the United States and other countriesjurisdictions where available and appropriate.
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Competition
We operate in a highly competitive environment and our marketed products face intense competition in regulated markets around the world. Our main competitors include other global research-based biopharmaceutical companies as well as smaller regional and local companies. These companies participate in one or more activities including the development, production, and promotion of products that are intended to treat diseases or indications that are like products we currently market or are in the process of developing to market. For example:
BRUKINSA – Conventional methods of treating lymphomas vary according to the specific disease or histology, but generally include chemotherapy, antibodies directed at CD20, a molecular marker found on the surface of B-cells, and, less frequently, radiation. Recently, significant progress has been made in the development of new therapies for lymphomas, including BTK inhibitors. The BTK inhibitor IMBRUVICA (ibrutinib), marketed by AbbVie and Janssen, was first approved by the FDA in 2013 for the treatment of patients with MCL who have received at least one prior therapy. Since that time, ibrutinib has been approved in over 90 countries and regions and has expanded its indications. Another BTK inhibitor, AstraZeneca's CALQUENCE® (acalabrutinib), was approved by the FDA in 2017 under accelerated approval for the treatment of patients with MCL who have received at least one prior therapy, and in November 2019 for use in adults with CLL/SLL as a single agent or in combination with obinutuzumab. On January 27, 2023, the FDA approved Lilly's JAYPIRCA™ (pirtobrutinib, a reversible BTK inhibitor) for the treatment of adult patients with R/R MCL after at least two lines of systemic therapy, including a BTK inhibitor. In China, BRUKINSA competes with IMBRUVICA(ibrutinib), which received approval in 2017, and YINUOKAI® (orelabrutinib) from Innocare, which was approved in 2020.
Tislelizumab – A number of PD-1 or PD-L1 antibody medicines have been approved by the FDA. These include Merck’s KEYTRUDA® (pembrolizumab), BMS’s OPDIVO® (nivolumab), Roche’s TECENTRIQ® (atezolizumab), AstraZeneca’s IMFINZI® (durvalumab), Pfizer and Merck Sereno’s BAVENCIO® (avelumab), Regeneron and Sanofi’s LIBTAYO® (cemiplimab), and GSK's JEMPERLI® (dostarlimab). In the global setting, several PD-1 or PD-L1 antibody agents are in late-stage clinical development in addition to tislelizumab. In China, as of February 1, 2023, there are nine other approved PD-1 antibodies: OPDIVO® (nivolumab) and KEYTRUDA® (pembrolizumab), Junshi’s TUOYI® (toripalimab), Innovent’s TYVYT® (sintilimab), Hengrui’s AIRUIKA® (camrelizumab), Akeso's ANNIKE® (penpulimab), Gloria's YUTUO® (zimberelimab), Henlius's HANSIZHUANG® (serplulimab) and Lepu's PUYOUHENG® (pucotenlimab). There are four approved PD-L1 antibody agents: AstraZeneca's IMFINZI® (durvalumab), Roche's TECENTRIQ® (atezolizomab), CStone's ZEJIEMEI® (sugemalimab), and Alphamab's ENWEIDA® (envafolimab). Akeso's PD-1xCTLA-4 bispecific antibody, KAITANNI® (cadonilimab) was approved in China. There are approximately 40 more PD-1 and PD-L1 agents in clinical development in China.
Pamiparib – We are competing with multiple PARP inhibitors in China. AstraZeneca received approval for olaparib in August 2018. Zai Labs obtained development and commercial rights for niraparib in China, and its NDA was approved by the NMPA in December 2019. Fluzoparib from Hengrui/Hansoh was approved in December 2020.
Ociperlimab – We are aware of several pharmaceutical companies developing TIGIT antibodies, including Agenus, Arcus, BMS, Compugen, Roche/Genentech, Innovent, iTeos Therapeutics, Merck KGaA, Mereo BioPharma, Seagen, Junshi, Bio-Thera and Akeso. To our knowledge, there are currently no approved anti-TIGIT antibodies and the most advanced agent is in Phase 3 development.
Many of the larger companies we compete with are well-capitalized and dedicate a significant number of financial resources to support their research and development, while using business development to supplement their internal pipelines. As a result, we must continuously invest and gain experience in the development, acquisition, and marketing of innovative and branded medicines and drug candidates to compete effectively in both current and future markets. This requires us to devote substantial funds and resources to R&D to prevent or slow the erosion of the sales of our existing products and potential sales of products in development.
The main forms of competition include efficacy, safety, and cost. The long-term success of our products depends on our ability to effectively demonstrate the value that each one of them offers to physicians, patients, and third-party payers. This requires a much greater use of a direct sales force to realize significant revenues. We also have and will continue to enter into co-promotion, contract sales force or other such arrangements with third parties, for example, where our own direct sales force is not large enough or sufficiently well-aligned to achieve maximum market penetration.
Government Regulation
Government authorities in the United States, at the federal, stateChina, Europe and local level and in other countriesjurisdictions extensively regulate among other things, the research and clinical development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing, pricing and export and import of drugs such aslike those we are
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developing and commercializing. Some jurisdictions also regulate the pricing of drugs.drug pricing. Generally, beforefor a new drug canto be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific to each regulatory authority, submitted for review and approved by the regulatory authority.
U.S. Regulation
U.S. Government Regulation and Product Approval
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act ("FDCA"), and its implementing regulations, and biologics under the FDCA, its implementing regulations, and the Public Health Service Act ("PHSA"), and its implementing regulations.
Cancer therapies are sometimes characterized as firstaccording to line second line or third line,of therapy, and the FDA often approves new therapies initially only for second or third-line use. When cancer is detected early enough, first line therapy is sometimesmay be adequate to cure the cancer or prolong life without a cure. Whenever first line therapy, usually chemotherapy, hormone therapy, radiation, surgery or a combination of these, proves unsuccessful, second line therapy may be administered. Second line therapies often consist of more chemotherapy, radiation, antibody drugs, tumor targeted small molecule drugs or a combination of these. Third line therapies can include bone marrow transplantation, antibody and small molecule targeted therapies, and more invasive forms of surgerysurgery. In some cases, new technologies and new technologies.investigational medicines, as part of a clinical trial, may be used as any line of therapy.
U.S. Drug Development Process
The process required by the FDA before a drug or biologic may be marketed in the United States generally involves the following:
•completion of preclinical laboratory tests animal studies and formulationanimal studies according to Good Laboratory Practices ("GLP"), regulations; guidance;
•completion of extensive chemistry, manufacturing, and control ("CMC") studies;
•submission to the FDA of an investigational new drug ("IND")IND application, which must become effective before human clinical trials may begin;
•performance of adequate and well-controlled human clinical trials according to GCP,Good Clinical Practice ("GCP"), to establish the safety and efficacy of the proposed drug or safety, purity and potency of the proposed biologic, for the intended use;
•preparation and submission to the FDA of an NDA for a small molecule drug or a Biologics License Application ("BLA")BLA for a biologic;
•a determination by the FDA within 60 days of its receipt of an NDA or BLA to file the application for review;
•satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with cGMP;
•review of the product candidate by an FDA advisory committee, where appropriate and if applicable;
•payment of user fees for FDA review of the NDA or BLA (unless a fee waiver applies);
•FDA audits of some clinical trial sites to ensure compliance with GCPs; and
•FDA review and approval of the NDA or licensing of the BLA.
Preclinical Studies and Clinical Trials
Once a product candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity, formulation and stability, as well as in vitro and animal studies. The conduct of the preclinical tests must comply with federal regulations and requirements, including GLP. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data and any available clinical data or literature, to the FDA as part of the IND. The sponsor must also include a protocol detailing, among other things, the objectives of the initial clinical trial, dosing procedures, subject selection and exclusion criteria, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the initial clinical trial lends itself to an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions related to the proposed clinical trial and places the trial on a
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clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. ClinicalThe FDA may also impose clinical holds also may be imposed by the FDA at any time before or during clinical trials due to safety concerns or noncompliance and may be imposed on all products within a certain class of products. The FDA also can impose partial clinical holds, for example, prohibiting the initiation of clinical trials of a certain duration or for a certain dose.
All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCP regulations. These regulations include the requirementrequire that all research subjects provide informed consent in writing before their participation in any clinical trial. Further, an institutional review board ("IRB") must review and approve the plan for any clinical trial before it commences at any institution, and the IRB must conduct continuing review and reapprove the study at least annually. An IRB considers, among other things, whether the risks to individuals participating in the clinical trial are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the information regarding the clinical trial and the consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. Some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board or committee. This group provides authorization as to whether or not a trial may move forward at designated check points based on access that only the group maintains to available data from the trial and may recommend halting the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy.
Each new clinical protocol and any amendments to the protocol must be filed with the FDA as an IND amendment and submitted to the IRBs for approval.
A sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of a BLAan NDA or NDA.BLA. The FDA will accept a well-designed and well-conducted foreign clinical study not conducted under an IND if the study was conducted in accordance with GCP requirements, and the FDA is able to validate the data through an onsite inspection if deemed necessary.
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
•Phase 1. The product is initially introduced into a small number of healthy human subjects or patients and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion and, if possible, to gain early evidence on effectiveness. In the case of some products for severe or life-threatening diseases, especially when the product is suspected or known to be unavoidably toxic, the initial human testing may be conducted in patients with the target disease or condition.
•Phase 2. Involves clinical trials in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage and schedule.
•Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population. These clinical trials are intended to evaluate the overall risk/benefit relationship of the product and provide an adequate basis for product labeling.
In March 2022, the FDA released a final guidance entitled "Expansion Cohorts: Use in First-In-Human Clinical Trials to Expedite Development of Oncology Drugs and Biologics," which outlines how drug developers can utilize an adaptive trial design commonly referred to as a seamless trial design in early stages of oncology drug development (i.e., the first-in-human clinical trial) to compress the traditional three phases of trials into one continuous trial called an expansion cohort trial. Information to support the design of individual expansion cohorts are included in IND applications and assessed by the FDA. Expansion cohort trials can potentially bring efficiency to drug development and reduce developmental costs and time.
Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication and are commonly intended to generate additional safety data regarding use of the product in a clinical setting. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA or BLA. Failure to exhibit due diligence with regard to conducting required Phase 4 clinical trials could result in withdrawal of approval for products.
We refer to our Phase 1 programs as dose-escalation and dose-expansion trials. In addition, we refer to some of our Phase 2 programs as pivotal or registrational programs, where the results canmay be used to support regulatory approval in specific jurisdictions without the need to conduct a Phase 3 trial.
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Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and safety reports must be submitted to the FDA and the investigators for serious and unexpected suspected AEs, any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator’s brochure, or any findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the product drug.product. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines that the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after the sponsor's initial receipt of the information. Phase 1, Phase 2, and Phase 3 studies may not be completed successfully within any specified period, or at all. The FDA or the sponsor may suspend or terminate, or a data safety monitoring board may recommend the suspension or termination of, a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product has been associated with unexpected serious harm to subjects.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the product and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product does not undergo unacceptable deterioration over its shelf life.
U.S. Expanded Access
Expanded access, sometimes called “compassionate use,” is the use of investigational products outside of clinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative treatment options. There is no requirement for a company to provide expanded access to its investigational products. However, if a company decides to make one of its investigational products available for expanded access, the FDA reviews each request for expanded access and determines if treatment may proceed. A manufacturersponsor of an investigational drug for a serious disease or condition is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for individual patient access to such investigational drug. This requirement applies on the earlier of the first initiation of a Phase 2 or Phase 3 trial of the investigational drug or, as applicable, 15 days after the drug receives a designation as a breakthrough therapy, fast track product, or regenerative advanced therapy. We make available on our website the BeiGene contact information for requesting access to our investigational drugs and expected timeline for us to acknowledge receiving such requests.
U.S. Review and Approval Processes
The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process,CMC, analytical tests conducted on the product, proposed labeling and other relevant information, are submitted to the FDA as part of an NDA for a new small molecule drug or a BLA for a biologic, requesting approval to market the product. The submission of an NDA or BLA is subject to the payment of a substantial user fee, although a waiver of such fee may be obtained under certain limited circumstances. The sponsor of an approved NDA or BLA is also subject to an annual prescription drug product program fee.
The FDA reviews all NDAs and BLAs submitted to ensure that they are sufficiently complete for substantive review before it accepts them for filing. The FDA may request additional information rather than accept an NDA or BLA for filing. In this event, the NDA or BLA must be re-submitted with the additional information. The re-submitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use, and a BLA to determine whether the biologic is safe, pure, and potent for its intended use. The FDA also evaluates whether the product’s manufacturing is cGMP-compliant to assure the product’s identity, strength, quality and purity. Before approving an NDA or BLA, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA or BLA, the FDA may inspect one or more clinical trial sites to assure compliance with GCP and other requirements and the integrity of the clinical data submitted to the FDA.
The approval process iscan be lengthy and difficult, and the FDA may refuse to approve an NDA or BLA if the applicable regulatory criteria are not satisfied or may require additional clinical data or other data and information. Even if such data and information are submitted, the FDA may ultimately decide that the NDA or BLA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive, and the FDA may interpret data differently than we interpret the same
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data. The FDA will issue a complete response letter if the agency decides not to approve the NDA or BLA in its present form. The complete response letter usually describes all of the specific deficiencies that the FDA identified in the NDA or BLA that must be satisfactorily addressed before it can be approved. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete
response letter is issued, the applicant may either resubmit the NDA or BLA, addressing all of the deficiencies identified in the letter, or withdraw the application or request an opportunity for a hearing.
If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may require post-approval studies, including Phase 4 clinical trials, to further assess a product’s safety and effectiveness after NDA or BLA approval and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. The FDA may also approve an NDA or BLA with a Risk Evaluation and Mitigation Strategy ("REMS") program to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools.
Regulation of Combination Products in the United States
Certain products may be comprised of components that would normally be regulated under different types of regulatory authorities in certain jurisdictions, and in the United States by different centers at the FDA. These products are known as combination products. Under the FDCA, the FDA is charged with assigning a center with primary jurisdiction, or a lead center, for review of a combination product. That determination is based on the “primary mode of action” of the combination product. We are developing combination products using our own drug candidates and third-party drugs.
Regulation of Companion Diagnostics in the United States
If safe and effective use of a therapeutic depends on an in vitro diagnostic, then the FDA generally will require approval or clearance of that diagnostic, known as a companion diagnostic, at the same time that the FDA approves the therapeutic product. In August 2014, the FDA issued final guidance clarifying the requirements that will apply to approval of therapeutic products and in vitro companion diagnostics. According to the guidance, for novel drugs, a companion diagnostic device and its corresponding therapeutic should be approved or cleared contemporaneously by the FDA for the use indicated in the therapeutic product’s labeling. Once cleared or approved, the companion diagnostic must adhere to post-marketing requirements including the requirements of FDA’s quality system regulation, medical device reporting, recalls and corrections along with product marketing requirements and limitations. Companion diagnostic manufacturers are subject to unannounced FDA inspections at any time during which the FDA will conduct an audit of the product(s) and the company’s facilities for compliance with its authorities.
Expedited Programs
Fast Track Designation
The FDA has a fast track program that is intended to expedite or facilitate the process for reviewing new drugs, including biologics that meet certain criteria. Specifically, new drugs are eligible for Fast Track designation if they are intended to treat a serious or life-threatening disease or condition for which there is no effective treatment and demonstrate the potential to address unmet medical needs for the disease or condition. Fast track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new drug or biologic product candidate may request the FDA to designate the drugproduct candidate as a fast track product concurrently with, or at any time after, submission of an IND, and the FDA must determine if the drugproduct candidate qualifies for fast track designation within 60 days of receipt of the sponsor’s request.
In addition to other benefits, such as the ability to engage in more frequent interactions with the FDA, the FDA may initiate review of sections of a fast track drug’sproduct’s NDA or BLA before the application is complete. This rolling review is available if the applicant provides, and the FDA approves, a schedule for the submission of each portion of the NDA or BLA and the applicant pays the applicable user fee. However, the FDA’s time period goal for reviewing an application does not begin until the last section of the NDA or BLA is submitted. Additionally, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
Zanubrutinib was granted fast track designation status by the FDA for the treatment of WM.WM and MZL. Tislelizumab was granted fast track designation by the FDA for the treatment of 1L HCC.
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Accelerated Approval
Under FDA’s accelerated approval regulations, the FDA may approve a drug, including a biologic, forintended to treat a serious or life-threatening illnessdisease or condition that generally provides meaningful therapeutic benefit to patients over existingavailable treatments based uponand demonstrates an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. In clinical trials, a surrogate endpoint is a marker, such as a laboratory measurement or clinical signs of a disease or condition that is thought to predict clinical benefit but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A drugproduct candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of post-approval clinical trials sometimes referred to as Phase 4 trials to confirm the effect on irreversible morbidity or mortality or other clinical benefit. Under the clinical endpoint.Food and Drug Omnibus Reform Act of 2022 ("FDORA"), the FDA is now permitted to require, as appropriate, that post-approval confirmatory trials be underway prior to approval or within a specific time period after accelerated approval is granted. Failure to conduct required post-approval studies with due diligence, or to confirm a clinical benefit during post-marketing studies, will allow the FDA to withdraw the drug from the market on anand, under FDORA, the FDA has increased authority for expedited basis. Allprocedures to withdraw approval of a product granted accelerated approval. In general, all promotional materials for drug candidates approved under accelerated regulations are subject to prior review by the FDA.FDA unless otherwise informed by the agency.
Zanubrutinib was granted accelerated approval by FDA for the treatment of adult patients with MCL who have received at least one prior therapy.
therapy and for the treatment of adult patients with relapsed or refractory MZL who have received at least one anti-CD20-based regimen.
Breakthrough Designation
Breakthrough therapy designation is intended to expedite the development and review of a breakthrough therapy. A drug or biologic product candidate can be designated as a breakthrough therapy if it is intended to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that itthe drug or biologic, alone or in combination with one or more other drugs or biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. A sponsor may request that a product candidate be designated as a breakthrough therapy concurrently with, or at any time after, the submission of an IND, and the FDA must determine if the candidate qualifies for breakthrough therapy designation within 60 days of receipt of the sponsor’s request. If so designated, the FDA shall act to expedite the development and review of the product’sproduct candidate’s marketing application, including by meeting with the sponsor throughout the product’sproduct candidate’s development, providing timely advice to the sponsor to ensure that the development program to gather preclinical and clinical data is as efficient as practicable, involving senior managers and experienced review staff in a cross-disciplinary review, and assigning a cross-disciplinary project lead for the FDA review team to facilitate an efficient review of the development program and to serve as a scientific liaison between the review team and the sponsor. The designation may be rescinded if the drugproduct candidate does not continue to meet the criteria for breakthrough therapy designation.
Zanubrutinib was granted breakthrough therapy designation by the FDA for the treatment of adult patients with MCL who have received at least one prior therapy.
Priority Review
The FDA may grant an NDA for a new molecular entity or BLA a priority review designation, which sets the target date for FDA action on the application at six months after the FDA accepts the application for filing. Priority review is granted where there is evidence that the proposed product would be a significant improvement in the safety or effectiveness of the treatment, diagnosis, or prevention of a serious condition. If criteria are not met for priority review, the application is subject to the standard FDA review period of ten months after FDA accepts the application for filing. Priority review designation does not change the scientific/medical standard for approval or the quality of evidence necessary to support approval.
The NDA for zanubrutinib was granted priority review by the FDA for the treatment of adult patients with MCL who have received at least one prior therapy.
Designated Platform Technology
Under FDORA, a platform technology incorporated within or utilized by a drug or biologic is eligible for designation as a designated platform technology if (1) the platform technology is incorporated in, or utilized by, a product approved under an NDA or BLA; (2) preliminary evidence submitted by the sponsor of the approved or licensed product, or a sponsor that has been granted a right of reference to data submitted in the application for such product, demonstrates that the platform
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technology has the potential to be incorporated in, or utilized by, more than one product without an adverse effect on quality, manufacturing, or safety; and (3) data or information submitted by the applicable person indicates that incorporation or utilization of the platform technology has a reasonable likelihood to bring significant efficiencies to the drug development or manufacturing process and to the review process. A sponsor may request the FDA to designate a platform technology as a designated platform technology concurrently with, or at any time after, submission of an IND application for a product that incorporates or utilizes the platform technology that is the subject of the request. If so designated, the FDA may expedite the development and review of any subsequent original NDA or BLA for a product that uses or incorporates the platform technology. Designated platform technology status does not ensure that a product will be developed more quickly or receive FDA approval. In addition, the FDA may revoke a designation if the FDA determines that a designated platform technology no longer meets the criteria for such designation.
Pediatric Information
Under the Pediatric Research Equity Act, as amended ("PREA"), certain NDAs and BLAs and certain NDA and BLA supplements must contain data that can be used to assess the safety and efficacy of the product candidate for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of pediatric data or full or partial waivers. The FDCA requires that a sponsor who is planning to submit a marketing application for a product candidate that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an initial Pediatric Study Plan, or PSP, within 60 days of an end-of-Phase 2 meeting or, if there is no such meeting, as early as practicable before the initiation of the Phase 3 or Phase 2/3 study. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach an agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from preclinical studies, early phase clinical trials and/or other clinical development programs. Unless otherwise required by regulation, PREA does not apply to a drug or biologic for an indication for which orphan designation has been granted except that PREA will apply to an original NDA or BLA for a new active ingredient that is orphan-designated if the drug or biologic is a molecularly targeted cancer product intended for the treatment of an adult cancer and is directed at a molecular target that FDA determines to be substantially relevant to the growth or progression of a pediatric cancer.
Post-Approval Requirements
Any products for which we receive FDA approval are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying with FDA promotion and advertising requirements. The FDA strictly regulates labeling, advertising, promotion and other types of information on products that are placed on the market. Products may be promoted only for the approved indications and in accordance with the provisions of the approved label. Further, manufacturers must continue to comply with cGMP requirements, which are extensive and require considerable time, resources and ongoing investment to ensure compliance. In addition, changes to the manufacturing process generally require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval.
The Drug Supply Chain Security Act (“DSCSA”("DSCSA") was enacted in 2013 with the aim of building an electronic system to identify and trace certain prescription drugs distributed in the United States. The DSCSA mandates phased-in and resource-intensive obligations for pharmaceutical manufacturers, wholesale distributors, and dispensers over a 10-year period that is expected to culminate in November 2023. The law’s requirements include the quarantine and prompt investigation of a suspect product to determine if it is illegitimate, and notifying trading partners and FDA of any illegitimate product. Drug manufacturers and their collaborators areother parties involved in the supply chain must also requiredmeet chain of distribution requirements for product tracking and tracing, including a requirement to place a unique product identifier on prescription drug packages. This identifier consists of the National Drug Code, serial number, lot number and expiration date, in the form of a 2 dimensional data matrix barcode that can be read by humans and machines.
Manufacturers and other entities involved in the manufacturing and distribution of approved products are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. The cGMP requirements apply to all stages of the manufacturing process, including the production, processing, sterilization, packaging, labeling, storage and shipment of the
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product. Manufacturers must establish validated systems to ensure that products meet specifications and regulatory requirements and test each product batch or lot prior to its release.
The FDA may withdraw a product approval or revoke a biologics license if compliance with regulatory requirements is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a
product may result in restrictions on the product or even complete withdrawal of the product from the market. Further, the failure to maintain compliance with regulatory requirements may result in administrative or judicial actions, such as fines, untitled or warning letters, holds on clinical trials, product seizures, product detention or refusal to permit the import or export of products, refusal to approve pending applications or supplements, restrictions on marketing or manufacturing, injunctions or civil or criminal penalties. We may undertake or be required to undertake a product recall.
Patent Term Restoration and Regulatory Exclusivity
Depending upon the timing, duration and specifics of FDA approval of the use of our drug candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments.Act. The Hatch-Waxman Amendments permitAct permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA or BLA plus the time between the submission date of an NDA or BLA and the approval of that application, except that this review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, if available, we intend to apply for restorations of patent term for some of our currently owned patents beyond their current expiration dates, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA or BLA; however, there can be no assurance that any such extension will be granted to us.
Data exclusivity provisions under the FDCA can also delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent data exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated NDA, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, such an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of data exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Biosimilars and Exclusivity
The PHSA includes an abbreviated approval pathway for biological products shown to be similar to, or interchangeable with, an FDA-licensed reference biological product. Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity and potency, can be shown through analytical studies, animal studies, and a clinical trial or trials. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.
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A reference biologic is granted 12 years of exclusivity from the time of first licensure of the reference product. The first biologic product submitted under the abbreviated approval pathway that is determined to be interchangeable with the reference product hasis eligible for a period of exclusivity against other biologics submittingsubmitted under the abbreviated approval pathway during which time the FDA may not determine that another product is interchangeable with the same reference product for any condition of use. The FDA may approve multiple "first" interchangeable products so long as they are all approved on the same first day of marketing. This exclusivity period, which may be shared amongst multiple first interchangeable products, lasts for the lesser of (i) one year after the first commercial marketing, (ii) 18 months after approval if there is no legal challenge, (iii) 18 months after the
resolution in the applicant’s favor of a lawsuit challenging the biologic’s patents if an application has been submitted, or (iv) 42 months after the application has been approved if a lawsuit is ongoing within the 42-month period.
Orphan Drugs
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs, including biologics, intended to treat a rare disease or condition-generally a disease or condition that affects fewer than 200,000 individuals in the United States or that affects more than 200,000 individuals in the United States and for which there is no reasonable expectation that costs of research and development of the product for the indication can be recovered by sales of the product in the United States. Orphan drug designation must be requested before submitting an NDA or BLA.
After the FDA grants orphan drug designation, the generic identity of the drug or biologic and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA or BLA applicant to receive FDA approval for a particular active ingredient to treat a particular disease or condition with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the United States for that product, for that indication. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA or BLA application user fee.
During the exclusivity period, the FDA may not approve any other applications to market the same drug for the same disease or condition, except in limited circumstances, such as if the second applicant demonstrates the clinical superiority of its product to the product with orphan drug exclusivity through a demonstration of superior safety, superior efficacy, or a major contribution to patient care. “Same drug” means a drug that contains the same active moiety if it is a drug composed of small molecules, or the same principal molecular structural features if it is composed of macromolecules and is intended for the same use as a previously approved drug, except that if the subsequent drug can be shown to be clinically superior to the first drug, it will not be considered to be the same drug. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition.
Zanubrutinib was granted orphan drug designation status by the FDA for the treatment of WM, CLL, MCL and MCL.MZL (3 subtypes). Tislelizumab was granted orphan drug designation status by the FDA for the treatment of ESCC, HCC and HCC.GC.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA-regulated products, including drugs and biologics, are required to register and disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.
Pharmaceutical Coverage, Pricing, and Reimbursement
In the United States and in other countries, sales of any products for which we may receive regulatory approval for commercial sale will depend in part on the availability of coverage and reimbursement from third-party payors, including government authorities, managed care providers, private health insurers and other organizations. Patients generally rely on third-party payors to reimburse all or part of the associated healthcare costs and no uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor.
Additionally, the process for determining whether a payor will provide coverage for a product may be separate from the process for setting the reimbursement rate that the payor will pay for the product. Third-party payors may limit coverage to specific products on an approved list which might not include all of the FDA-approved products for a particular indication. Moreover, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.
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Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. In order to obtain coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of any products, in addition to the costs required to obtain regulatory approvals. If third-party payors do not consider a product to be cost-effective or medically-necessary compared to other available therapies,
they may not cover the product after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow a company to sell its products at a profit.
In some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product candidate to currently available therapies. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our product candidates. Historically, products launched in the European Union do not follow price structures of the United States and generally prices tend to be significantly lower.
Healthcare Reform
The U.S. government and state legislatures have shown significant interest in implementing cost containment programs to limit the growth of government-paid health care costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. Such adoption of government controls and tightening of restrictive policies could limit payments for pharmaceuticals. For example, the Affordable Care Act (the "ACA") contains provisions that may reduce the profitability of drug products, including for example, increased rebates for drugs reimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. AdoptionSince its enactment, some of government controlsthe provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial, Congressional, and measuresExecutive challenges. As a result, it is unclear how such efforts to challenge, repeal or replace the ACA, will impact our business.
Other legislative changes have been proposed and tighteningadopted in the United States since the ACA was enacted. For example, the Bipartisan Budget Act of restrictive policies2018 amended the ACA by increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in jurisdictions with existing controls and measures, could limit payments for pharmaceuticals.
The Centers for Medicare and Medicaid Services ("CMS") published a final rule that gives states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces. CMS also published a final rule to negotiateallow Medicare Advantage Plans the option of using step therapy for Part B drugs.
There has also been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed bills designed to bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for pharmaceutical products. At the federal level, President Biden directed the FDA to work with states and Indian Tribes that propose to develop section 804 Importation Programs in accordance with the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and the FDA’s implementing regulations.
The FDA released a final rule, which went into effect in November 2020, providing guidance for states to build and submit importation plans for drugs from Canada. Further, authorities in Canada have passed rules designed to safeguard the Canadian drug supply from shortages. If implemented, importation of drugs from Canada may adversely affect the price we receive for our medicines.
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In November 2020, the current administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The U.S. Department of Health and Human Services (the "HHS"("HHS") has already startedfinalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through PBMs, unless the process of soliciting feedback on some of these measures and,price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the same time, is immediately implementing otherspoint-of-sale, as well as a safe harbor for certain fixed fee arrangements between PBMs and manufacturers. Pursuant to court order, the removal and addition of the aforementioned safe harbors were delayed and recent legislation imposed a moratorium on implementation of the rule until January 1, 2032. Further, implementation of this change and new safe harbors for point-of-sale reductions in price for prescription pharmaceutical products and PBM service fees are currently under its existing authority. Although a number of these measuresreview by the Biden administration and other proposed measures will require authorization through additional legislation to become effective, U.S. Congress and the current administration have each indicated that it will continue to seek new legislative and/may be amended or administrative measures to control drug costs. repealed.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. While much of the focus of state pricing policies is limited to Medicaid, we cannot assess the impact that these and other measures such as state transparency policies will have on our business.
Other U.S. Healthcare Laws and Compliance Requirements
•the federal healthcare Anti-Kickback Statute ("AKS"), which prohibits, among other things, knowingly and willfully soliciting, receiving, providing, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation or arrangement of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs;programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are several statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, they are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. A person or entity can be found guilty of violating the AKS without actual knowledge of the statute or specific intent to violate it. In addition, the government may assert that a claim including items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the federal False Claims Act ("FCA") or federal civil money penalties statute. Violations of the AKS carry potentially significant civil fines and criminal penalties, including imprisonment, fines, administrative federal civil monetary penalties, and exclusion from participation in federal healthcare programs. This law applies to our marketing practices, educational programs, pricing policies and relationships with healthcare providers, by prohibiting, among other things, soliciting, receiving, offering or providing remuneration intended to induce the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare or Medicaid programs. There are safe harbor protections under the AKS for certain coordinated care and value-based arrangements among clinicians, providers, and others. We continue to evaluate what effect, if any, these rules will have on our business;
•the federal civil and criminal false claims and civil monetary penalty laws, such as the federal False Claims Act,FCA, which impose criminal and civil penalties and authorize civil whistleblower or qui tam actions, against individuals or entities for, among other things: knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false, fictitious or fraudulent; knowingly making or causing a false statement or record material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal government; or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay money to the federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback StatuteAKS constitutes a false of fraudulent claim for purposes of the False Claims Act;
FCA. The government may deem manufacturers to have “caused” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label. Companies that submit claims directly to payors may also be liable under the FCA for the direct submission of such claims. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery. When an entity is determined to have violated the federal civil FCA, the government may impose civil fines and penalties for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs. Our marketing and activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate
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information and other information affecting federal, state and third-party reimbursement for our products, and the sale and marketing of our products and any future product candidates are subject to scrutiny under this law;
•the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), which prohibits, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters;matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it;
•HIPAA, as further amended by the Health Information Technology for Economic and Clinical Health Act of 2009 ("HITECH"), and their respective implementing regulations, including the Final Omnibus Rule published in January 2013, which impose certain requirements on certain covered healthcare providers, health plans and healthcare clearinghouses as well as their respective business associates who perform services for them that involve the creation, maintenance, receipt, use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information;information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs. In addition, there may be additional federal, state and non-U.S. laws which govern the privacy and security of health and other personal information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts;
•the federal transparency requirements under the ACA, including the provision commonly referred to as the Physician Payments Sunshine Act, which require manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the HHSCenters for Medicare & Medicaid Services information related to payments or other transfers of value made to physicians, (defined to include doctors, dentists, optometrists, podiatristsnurse practitioners, certified nurse anesthetists, anesthesiologist assistants, physician assistants, clinical nurse specialists, and chiropractors) and teaching hospitals,certified nurse midwives as well as teaching hospitals. Manufacturers are also required to disclose ownership and investment interestsinterest held by physicians and their immediate family members. Effective January 1, 2022, thesemembers;
•federal price reporting obligations will extendlaws, which require manufacturers to include transfers of value madecalculate and report complex pricing metrics in an accurate and timely manner to certain non-physician providers such as physician assistants and nurse practitioners; andgovernment programs;
•federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers. consumers; and
Similarly, state privacy laws may be broader and require greater protections than HIPAA. These data privacy and security laws may differ from each other in significant ways and often are not pre-empted by HIPAA, which may complicate compliance efforts. For example, in June 2018, the State of California enacted the California Consumer Privacy Act of 2018 (“CCPA”("CCPA"), which came into effect on January 1, 2020 and provides new data privacy rights for consumers and new operational requirements for companies. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. Further, the California Privacy Rights Act ("CPRA") will create additional obligations with respect to processing and storing personal information that are scheduled to take effect on January 1, 2023 (with certain provisions having retroactive effect to January 1, 2022). We will continue to monitor developments related to the CPRA and anticipate additional costs and expenses associated with CPRA compliance. Other U.S. states also are considering omnibus privacy legislation and industry organizations regularly adopt and advocate for new standards in these areas. While there is currentlythe legislation and proposed regulations including the CCPA and CPRA contain an exception for protected health informationcertain activities that isinvolve PHI subject to HIPAA, we cannot yet determine the impact the CCPA, CPRA or other such future laws, regulations and clinical trial regulations, as currently written, CCPAstandards may impact certain of our business activities. CCPA could mark the beginning of a trend toward more stringent state privacy legislation in the United States, which could increase our potential liability and adversely affecthave on our business.
Additionally, we are subject to state equivalents of each of the healthcare laws described above, among others, some of which may be broader in scope and may apply to healthcare services reimbursed by any third-party payor, not just governmental payors, but also private insurers. These laws are enforced by various state agencies and through private actions. Some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General
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Compliance Program Guidance for Pharmaceutical Manufacturers and/or other voluntary industry codes of conduct that restrict the payments made to healthcare providers and other potential referral sources. Several states and local laws also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state, require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, and require the registration of pharmaceutical sales representatives. State and foreign laws, including for example the European Union General Data Protection Regulation, which became effective May 2018, also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. There are ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement we could be subject to penalties. Finally, there are state and foreign laws governing the privacy and security of health information, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Third party patient assistance programs that receive financial support from companies have become the subject of enhanced government and regulatory scrutiny. The OIG has established guidelines that suggest that it is lawful for pharmaceutical manufacturers to make donations to charitable organizations who provide co-pay assistance to Medicare patients, provided that such organizations, among other things, are bona fide charities, are entirely independent of and not controlled by the manufacturer, provide aid to applicants on a first-come basis according to consistent financial criteria and do not link aid to use of a donor's product. However, donations to patient assistance programs have received some negative publicity and been the subject of multiple government enforcement actions, related to allegations regarding their use to promote branded pharmaceutical products over other less costly alternatives. Specifically, in recent years, there have been multiple settlements resulting out of government claims challenging the legality of their patient assistance programs under a variety of federal and state laws.
The scope and enforcement of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws may be punishable by administrative, criminal and/or civil sanctions, including penalties, damages, disgorgement, fines, individual imprisonment, reputational harm, the curtailment or restructuring of our operations, and/or exclusion or suspension from federal and state healthcare programs such as Medicareregulations.
EU and Medicaid and debarment from contracting with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the U.S. government under the federal False Claims Act as well as under the false claims laws of several states.
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substantially increases the penalties to which we could be subject in the EU and substantial fines for breachesevent of the data protection rules,any non-compliance, including potential fines of up to €20 million€20,000,000 or 4% of total annual global revenues,revenue, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of GDPR. In addition, GDPR includes restrictions on cross-border data transfers. GDPR regulations may impose additionalincreases the responsibility and liability of pharmaceutical companies in relation to processing personal data, that we process where such processing is subject to GDPR, and wecompanies may be required to put in place additional mechanisms ensuringto ensure compliance with GDPR, including as implemented by individual countries. This may be onerous and adversely affect our business, financial condition, results of operations, and prospects. Further, the United Kingdom’s decisionnew EU data protection rules. In addition, further to leavethe UK’s exit from the EU oftenon January 31, 2020, the GDPR ceased to apply in the UK at the end of the transition period on December 31, 2020. However, as of January 1, 2021, the UK’s European Union (Withdrawal) Act 2018 incorporated the GDPR (as it existed on December 31, 2020 but subject to certain UK specific amendments) into UK law, referred to as Brexit, has created uncertainty with regard tothe UK GDPR. The UK GDPR and the UK Data Protection Act 2018 set out the UK’s data protection regulationregime, which is independent from but aligned to the EU’s data protection regime. Non-compliance with the UK GDPR may result in monetary penalties of up to £17.5 million or 4% of worldwide revenue, whichever is higher. Although the UK is regarded as a third country under the EU’s GDPR, the EC has now issued a decision recognizing the UK as providing adequate protection under the EU GDPR and, therefore, transfers of personal data originating in the United Kingdom. In particular, it is unclear howEU to the UK remain unrestricted. Like the EU GDPR, the UK GDPR restricts personal data transfers outside the UK to andcountries not regarded by the UK as providing adequate protection. The UK government has confirmed that personal data transfers from the United KingdomUK to the EEA remain free flowing.
To enable the transfer of personal data outside of the EEA or the UK, adequate safeguards must be implemented in compliance with European and UK data protection laws. On June 4, 2021, the EC issued new forms of standard contractual clauses for data transfers from controllers or processors in the EU/EEA (or otherwise subject to the GDPR) to controllers or processors established outside the EU/EEA (and not subject to the GDPR). The new standard contractual clauses replace the standard contractual clauses that were adopted previously under the EU Data Protection Directive. The UK is not subject to the EC’s new standard contractual clauses but has published a draft version of a UK-specific transfer mechanism, which, once finalized, will enable transfers from the UK. We will be regulated now thatrequired to implement these new safeguards when conducting restricted data transfers under the United Kingdom has left the EU.EU and UK GDPR and doing so will require significant effort and cost.
PRC Regulation
In the PRC, we operate in an increasingly complex legal and regulatory environment. We are subject to a variety of PRC laws, rules and regulations affecting many aspects of our business. This section summarizes the principal PRC laws, rules and regulations that we believe are relevant to our business and operations.
PRC Drug Regulation
Introduction
China heavily regulates the development, approval, manufacturing and distribution of drugs, including biologics. The legal framework for the administration of pharmaceutical products in China iswas established by the Drug Administration Law of the PRC (DAL) enacted by the Standing Committee of the National People’s Congress on September 20, 1984 and effective from July 1, 1985 (last amended on August 26, 2019, effective from December 1, 2019)(the "DAL"). The Drug Administration LawDAL applies to entities and individuals engaged in the development, production, trade, clinical use, as well as supervision and administration of pharmaceutical products by regulatory agencies. It provides for a framework for regulating pharmaceutical manufacturers, pharmaceutical trading companies, medical institutions, and the research, development, manufacturing, distribution, packaging, pricing, and advertisement activities related to pharmaceutical products. The Implementing Measures of the Drug Administration Law promulgated by the State Council on August 4, 2002 and effective from September 15, 2002 andas amended on February 6, 2016 and March 2,in 2019 provides detailed implementation regulations for the Drug Administration Law.DAL.
The Revised DAL
The DAL, revised on August 26,in 2019 (the "rDAL"), embodies an expected regulatory trend to strengthen the life-cycle management of drugs, to balance the development of innovative drugs and generic drugs, and to enhance drug review and enforcement. It also reflects legislative efforts to address prominent problems of the pharmaceutical industry, such as counterfeit and substandard drugs and high drug prices.
The rDAL contains a dedicated chapter on the Marketing Authorization Holder (“MAH”("MAH") system. The MAH system has been trialed in a pilot program across 10 provinces since 2016. Upon the enactment of the rDAL, the MAH system will no longer be a pilot program but will be implemented nationwide. Subject to approval by the NMPA, MAHs will be allowed to transfer their marketing authorizations. It is not sureuncertain whether the transferability of MAH will offer more flexibility in structuring cross-border transactions. In addition, the implementation of the MAH system will bewas accompanied by a range of new requirements for the MAHs. For example, a MAH must establish a quality assurance system and be responsible for the whole process and all aspects of preclinical research, clinical trials, manufacturing and distribution, post-marketing research, adverse drug reaction monitoring and reporting. A foreign MAH will beis required to engage a local agent to fulfill the MAH’s obligations and the foreign MAH shall beis subject to joint and several liability in the event of any wrongdoing. It is unclear how the scope of such joint liability will be defined.
The rDAL no longer requires the certification for GLP, good clinical practice ("GCP"),GCP, good supply practice ("GSP"), and GMP. However, drug manufacturers and drug distributors must still comply with current GMP and GSP requirements. Pursuant to the rDAL, NMPA
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and its local counterparts are directed to strengthen their surveillance of drug manufacturers and distributors, including through regular and continuous site inspections, to ensure their compliance. It remains to be seen how clinical trial institutions will ensure self-compliance with GCP requirements and whether there will be more inspections of clinical trial institutions.
The rDAL also requires MAHs, manufacturers, distributors, and medical institutions to establish and implement drug track and trace systems. The NMPA will issue related standards and regulations regarding drug track and trace system. A drug
pharmacovigilance system will also be established to monitor, identify, evaluate and control adverse drug reactions and other possible drug-related problems.
The rDAL creates an expanded access pathway for investigational drugs under which a company sponsor of a clinical trial in China can apply to establish an expanded access treatment program for patients with life-threatening disease who otherwise do not satisfy the inclusion criteria of a clinical trial. To quality for expanded access: (1) the drug must be used for life-threatening diseases that lack effective treatment; (2) the drug must have demonstrated its potential efficacy based on medical observations; (3) such use is in line with ethical principles; (4) such expanded use has been reviewed and approved (although the approval pathway not clear), and has obtained patients’ informed consent; and (5) the drug must be used within the clinical trial institution and used on patients with similar conditions.
The rDAL also significantly increases and expands penalties for violations. Depending on various types of violations, the DALrDAL imposes different penalties, including warnings, confiscation of illegal gains, fines of up to RMB5 million (about $725,000) or up to 30 times of illegal gains, revocation of required business and operating licenses, certificates or approval documents for drugs, suspension of business, temporary (10 years) or permanent debarment of companies, institutions and responsible persons, and criminal liabilities in the case of serious violations.
There are still uncertainties with respect to the interpretation and implementation of the rDAL. We plan to closely monitor the implementation of the rDAL and its impact on our operations in China.
Regulatory Authorities and Recent Government Reorganization
In China, the NMPA is the primary regulator for pharmaceutical products and businesses. The agency was newly formed from the prior China Food and Drug Administration ("CFDA") in 2018 as part of a complete government reorganization. The NMPA is no longer an independent agency. Its parent agency is now the newly organized SAMR,State Administration for Market Regulation (the "SAMR"), into which agencies responsible for, among other areas, consumer protection, advertising, anticorruption, antitrust, fair competition and intellectual property have been merged.
Like the CFDA, the NMPA is still the chief drug regulatory agency and implements the same laws, regulations, rules, and guidelines as the CFDA, and it regulates almost all of the key stages of the life-cycle of pharmaceutical products, including nonclinical studies, clinical trials, marketing approvals, manufacturing, advertising and promotion, distribution, and pharmacovigilance (i.e., post-marketing safety reporting obligations). The Center for Drug Evaluation ("CDE"),CDE, which remains under the NMPA, conducts the technical evaluation of each drug and biologic application for safety and efficacy.
The National Health Commission ("NHC") (formerly known by the names Ministry of Health ("MOH") and National Health and Family Planning Commission ("NHFPC")), is China’s chief healthcare regulator. It is primarily responsible for overseeing the operation of medical institutions, which also serve as clinical trial sites, and regulating the licensure of hospitals and other medical personnel. The NHC plays a significant role in drug reimbursement. Furthermore, the NHC and its local counterparts at or below the provincial-level of local government also oversee and organize public medical institutions’ centralized bidding and procurement programs for pharmaceutical products. This is the primary way that public hospitals and their internal pharmacies procure drugs.
Also, as part of the 2018 reorganization, the PRC government formed a newthe State Medical Insurance Bureau which focuses on regulating reimbursement under state-sponsored insurance plans.
Preclinical and Clinical Development
The NMPA requires preclinical data to support registration applications for new drugs. Preclinical work, including pharmacology and toxicologysafety assessment studies, must meet the GLP standards, issued on August 4,in 2003 and amended on July 27,in 2017. Although theThe rDAL no longer requires the NMPA to accredit GLP labs, it still requiresand that nonclinical studies of chemical drug substances and preparations and biologics that are not yet marketed in China be conducted in GLP-qualifiedGLP-certified labs. There are no approvals required from the NMPA to conduct preclinical studies.
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including (1) the environment and facilities for lab animals’ living and propagating must satisfy national requirements; (2) lab animals must be qualified and sourced from institutions with Certificates for Production of Lab Animals; and (3) the animals’ feeding and experimentation must be conducted by professionals, specialized and skilled workers, or other trained personnel.
Registration Categories
Prior to engaging with the NMPA on research and development and approval, an applicant will need to determine the registration category for its drug candidate (which will ultimately need to be confirmed with the NMPA), which will determine the requirements for its clinical trial and marketing application. There are five categories for small molecule drugs: Category 1 (“innovative drugs”)(innovative drugs) refers to drugs that have a new chemical entity that has not been marketed anywhere in the world, Category 2 (“improved(improved new drugs”)drugs) refers to drugs with a new indication, dosage form, route of administration, combination, or certain formulation changes not approved in the world, Categories 3 and 4 are for generics that reference an innovator drug (or certain well-known generic drugs) marketed either abroad or in China, respectively, and Category 5 refers to innovative or generic drugs that have already been marketed abroad but are not yet approved in China (i.e., imported drugs).
Therapeutic biologics follow a similar categorization, with Category 1 being new to the world, but with fifteen product-specific categories.world. Like with small molecule drugs, Category 1 is for innovative biologics that have not been approved inside or outside of China. A clear regulatory pathway for biosimilars does not yet exist, but something was proposed in a draft revision to an NMPA regulation in 2017.Biosimilars are under Category 3. Each of zanubrutinib, tislelizumab, pamiparib and lifirafenib is classified as Category 1 based on the respective clinical trial approval fromdefined registration category by the NMPA. Zanubrutinib, pamiparib and tislelizumab have been approved by the NMPA which is a favored category for clinical trial approval, or CTA, and marketing approval.as Category 1 drugs.
Expedited Programs
Priority Evaluation and Approval Programs to Encourage Innovation
The NMPA has adopted several expedited review and approval mechanisms since 2009 and created additional expedited programs in recent years that are intended to encourage innovation. Applications for these expedited programs can be submitted after the CTA is admitted for review by the CDE. Some of the currentThe NMPA’s Drug Registration Rules effective from July 1, 2020 ("DRR") provides certain categories of drugs that may be eligible for priority status, thatamong which, the following may be particularly relevant for us include:us: (1) Category 1drugs that are clinically and urgently needed but insufficient in supply; (2) innovative drugs that have not been approved inside or outside of China; (2) oncology drugs; (3) drugs using advanced technology, innovative treatment methods, and having clear therapeutic benefit; and (4)improved new drugs for which clinical trials are already approved inprevention and treatment of major contagious diseases and rare diseases; (3) new pediatric drugs, (4) drugs designated as breakthrough therapies, and (5) drugs that satisfy the United States or EU, or for which marketing authorization applications have been filed simultaneously in China and in the United States or EU and are manufactured in China using the same production line that passed FDA or EMA inspection.conditional approval criteria.
If admitted to one of these expedited programs, an applicant will be entitled to more frequent and timely communication with reviewers at the CDE, expedited review and approval, and more agency resources throughout the approval process. Each of our drug candidates, zanubrutinib,
Amgen's sBLA for BLINCYTO has been accepted by the CDE and granted priority status. Our sNDA for tislelizumab pamiparibfor MSI-H/dMMR solid tumor has been accepted by the CDE and lifirafenib, is classified as Category 1 based on the respective clinical trial approval from the NMPA.granted priority status.
Conditional Approval
NMPA also permits conditional approval of certain medicines based on early phase data. Post-approval the applicant may need to conduct a post-market study. The agency has done this for drugsmedicines that meet unmet clinicalmedical needs for life-threatening illnesses and also for drugsmedicines that treat orphan indications. In 2018, NMPA established a conditional approval program forUnder the DRR, drugs designated by the CDE that have been approved in the US, EU and Japan within the last 10 years and that meet one of the three criteria might be eligible for conditional approval: (1) orphan indications, (2) drugs that treat life threatening illnesses for which there are notno effective treatment or preventive methods, but their clinical trials already have the data to prove efficacy and (3)their clinical value is predictable, (2) drugs that are urgently needed for public health reasons, and their clinical trials already have the data to prove efficacy and their clinical value is predictable; or (3) vaccines that are urgently needed for major public health emergencies or otherwise deemed by the National Health Commission to be urgently needed, and it is concluded upon evaluation that their benefits outweigh their risks. Following approval, the MAH is required to take risk mitigation measures and complete a post-market study as required by the NMPA within a prescribed timeline.
BRUKINSA received conditional approval for the treatment of MCL in adult patients who have received at least one prior therapy, CLL or SLL in adult patients who have received at least one prior therapy, and for adult patients with WM who have received at least one prior therapy. Tislelizumab received conditional approval as a treatment for patients with cHL who have received at least two prior therapies and as a treatment for patients with locally advanced or metastatic UC, a form of bladder cancer, with PD-L1 high expression whose disease progressed during or following platinum-containing chemotherapy or within 12 months of neoadjuvant or adjuvant treatment with platinum-containing chemotherapy, and for the treatment of patients with hepatocellular carcinoma (HCC) who have been previously treated with at least one systemic therapy. Pamiparib received conditional approval for the treatment of patients with germline BRCA (gBRCA) mutation-associated recurrent advanced ovarian, fallopian tube, or primary peritoneal cancer who have been treated with two or more lines of chemotherapy. XGEVA received conditional approval for the treatment of adults and skeletally mature adolescents with giant cell tumor of the bone
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(GCTB) that is unresectable or where surgical resection is likely to result in severe morbidity and for the prevention of SREs in patients with bone metastases from solid tumors and in patients with multiple myeloma. BLINCYTO received conditional approvals for the treatment of both adult and pediatric patients with R/R B-cell precursor acute lymphoblastic leukemia. KYPROLIS received conditional approval for the treatment of adult patients with R/R multiple myeloma. QARZIBA received conditional approval for high-risk neuroblastoma.
Breakthrough Therapy Designation
Breakthrough therapy designation ("BTD") is a process designed to expedite the development and review of clinical stage, innovative or improved new drugs that meet the following criteria: (1) they are intended to treat life threatening illnesses andconditions or conditions that have a clear clinical advantage over other clinical therapies.
Amgen's KRASG12C inhibitor sotorasib was granted BTD in China for PD-1/L1 agents. In February 2018, the CDE released the Guideline on the Basic Requirements of Information and Data for NDA Submissions of anti-PD-1/L1 Monoclonal Antibody Products on recurrent and refractorypatients with KRAS p.G12C-mutated locally advanced cancers without standard-of-care therapies. Under the guideline, the sponsor mustor metastatic NSCLC who have a pre-NDA meeting with the CDE regarding the data and the NDA submission. The CDE will permit the following submission for these applicants: (1) an initial NDA submission with full preliminary safety data and effectiveness data, including the results ofreceived at least two independent therapeutic efficacy assessments of allone prior systemic therapy. BRUKINSA as a treatment for adult patients who are currently enrolled pursuant to all of the protocol’s requirements; (2) during the CDE’s substantive technical review of the NDA,
New Policies on Expediting Approval of Imported Oncology Drugs
The PRC government continues to establish measures and incentives to promote the development and swifter approval of marketing for oncology and other innovative drugs. Beginning in May 2018, the PRC eliminated tariffs on a significant number of imported innovative drugs, including oncology drugs, making the importation process more efficient. The PRC government has also stated that it will explore ways to expand access to reimbursement under the state health plans for innovative drugs (particularly for urgently needed oncology drugs).
Clinical Trials and Marketing Approval
Upon completion of preclinical studies and preliminary CMC studies, a sponsor typically needs to conduct clinical trials in China for registering a new drug. The materials required for this application and the data requirements are determined by the registration category. The NMPA has taken a number of steps to increase efficiency for approving CTAs, and it has also significantly increased monitoring and enforcement of GCP to ensure data integrity.
Clinical Trial Approval
All clinical trials conducted in China for the purpose of seeking marketing approvals must be approved by the NMPA and conducted at hospitals satisfying GCP requirements. In addition to a standalone China trial to support development, imported drug applicants may establish a site in China that isinclude Chinese clinical sites as part of an international multicenter trial ("IMCT") at the outset of the global trial.. Domestically manufactured drugs are not subject to foreign approval requirements, and in contrast to prior practice, the NMPA has decided to permit those drugs to conduct development via an IMCT as well.
The rDAL has now also adopted an implied approval system for clinical trials of new drugs. Trials can proceed if after 60 business days, the applicant has not received any objections from the CDE, as opposed to the lengthier previous clinical trial pre-approval process in which the applicant had to wait for affirmative approval. The rDAL also expands the number of trial sites by abolishing the GCP accreditation system and requiring trial sites to follow a more simplified notification procedure.
New Policies on Clinical Value-Oriented R&D for Oncology Drugs
The NMPA finalized in November 2011 the Guideline on Clinical Value-Oriented Research and Development for Oncology Drugs, as part of its policies intended to encourage the research and development of innovative oncology drugs with significant clinical value, and discourage repeated research and development of “me-too” drugs with minimal or no clinical value to patients.
Clinical Trial Register
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obtained within one year after obtaining the clinical trial approval, the applicant shall submit an explanation, and if the procedure is not completed within three years, the clinical trial approval automatically expires.
Human Genetic Resources Regulation
Another significant change is the HGR Regulation replaced the advance approval requirement with a record-filing procedure for international collaborations on clinical trials intended to support marketing approval of drugs in China that do not transfer HGR materials abroad, while the advance approval requirement still applies if such trials involve export of HGR
materials or the collection, testing, analysis or disposals of HGR samples during the trials are not solely conducted at the clinical trial sites. It is unclear howCompanies conducting global clinical trials may benefit little from this record-filingrecord filing procedure will be implemented in practicebecause those trials would often require cross-border transfer of HGR materials and to what extent companies will benefit from it.the advance approval requirement would still apply.
The HGR Regulation retains the provision in the Interim Measures for the Administration of Human Genetic Resources issued in 1998 (the "Interim Measures") that parties should jointly apply for and own the patent rights arising from the results generated from international collaborations that utilize China HGR. Subject to approval, the parties may contractually agree on how to dispose of their patent rights and non-patent proprietary rights arising from the collaboration. As the joint ownership requirement is rather broad, it is unclear how this requirement will be implemented in practice.
The HGR Regulation also significantly increases and expands penalties for various violations, including warnings, disgorgement of illegal gains, confiscation of illegal HGR, fines up to RMB10 million ($1,450,000) or 5-10 times of illegal gains in the event such illegal gains exceed RMB1 million ($145,000), and temporary (1-5 years) or permanent debarment of companies, institutions and responsible persons from future HGR projects regulated by the HGR Regulation.
Trial Exemptions and Acceptance of Foreign Data
The NMPA may reducebe flexible on the requirements forof trials and data generated in China, depending on the drug and the existing data. The NMPA has granted waivers for all or part of trials, and has stated that it will accept data generated abroad (even if not part of a global study), including early phase data, that meets its requirements. On July 6,In 2018, the NMPA issued the Technical Guidance Principles on Accepting Foreign Drug Clinical Trial Data (the “Guidance Principles”), as one of the implementing rules for the Opinions on Deepening the Reform of the Evaluation and Approval Systems and Encouraging Innovation on Drugs and Medical Devices (the “Innovation Opinion”). According to the Guidance Principles, the data offrom foreign clinical trials must meet the authenticity, completeness and accuracy requirements and such data must be obtained in compliance with the relevant requirements under the GCP of the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use ("ICH").Use. Sponsors must be attentive to potentially meaningful ethnic differences in the subject population.
The NMPA now officially permits, and its predecessor agencies have permitted on a case-by-case basis in the past, drugs approved outside of China to be approved in China on a conditional basis without the need for pre-approval clinical trials in China. Specifically, in 2018, the NMPA established a program permitting drugs that have been approved within the last ten years in the United States, EU or Japan to be approved in China on a conditional basis without local clinical trials if they (1) prevent or treat orphan diseases, (2) prevent or treat serious life-threatening illnesses for which there is either no effective therapy in China, or for which the foreign-approved drug would have clear clinical advantages. Applicants for such conditional approvals will be required to establish a risk mitigation plan and may be required to complete trials in China after the drug is approved. The CDE has developed a list of drugs that meet these criteria.
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Clinical Trial Process and Good Clinical Practices
Generic small molecule drugs are required to conduct a bioequivalence trial, in vitro studies or in some cases a clinical trial to demonstrate therapeutic equivalence to an innovator drug marketed either in China or abroad or an internationally accepted generic drug. The NMPA has released catalogues of reference products, and it released first installment of a Marketed Drug List (China’s “Orange Book”) with information about drugs that may serve as reference products.
Pursuant to GCP, the sponsorsponsors of a clinical trial shall betrials are responsible for proper packaging and labeling of drugs used for clinical trials, and in double-blinded clinical trials, the investigational drugs shall be consistent with the control drug or placebo in appearance, odor, packaging, labeling, and certain other features. According to the Measures for the Administration of
Pharmaceutical Packaging promulgated on February 12, 1988 and effective from September 1, 1988, pharmaceutical packaging must comply with national and professional standards. If there is no national or professional standard available, companies may formulate and implement its own standards after obtaining the approval of the provincial administration for medical products or bureau of standards. Changes in such approved packaging standards need to be re-approved. Drugs of which the packaging standards are not approved shall not be released or marketed in China, (exceptexcept for those specifically supplied to the military).military.
New Drug Application ("NDA")(NDA) and Approval
Upon completion of clinical trials, a sponsor may submit clinical trial data to support marketing approval for the drug.
For domestically manufactured drugs, NDA sponsors must submit data derived from domestically manufacturedthe submitted drugs in support of a drugtheir approval. Under the rDAL, upon approval of the registration application, the NMPA will issue a drug registration certificate to the applicant which is in fact the marketing approval of the drug, and the applicant is no longer required to be equipped with relevant manufacturing capability.
Manufacturing and Distribution
Similarly, to conduct sales, importation, shipping and storage, (“distribution activities”), a company must obtain a Drug Distribution License ("DDL") from the local drug regulatory authority, subject to renewal every five years. LikeAs with GMPs, companies are required to be in compliance with GSP. One exception is that the rDAL and relevant implementation rules allow the MAH to conduct wholesales of its drugs directly without holding a separate DDL for wholesale, however, a retail DDL would still be required if the MHA intends to conduct direct retail to patients.
China has formeddeveloped a “Two-Invoice System” to control distribution of prescription drugs. The “Two-Invoice System” generally requires that no more than two invoices may be issued throughout the distribution chain, with one from the manufacturer to a distributor and another from the distributor to the end-user hospital. This excludes the sale of products invoiced from the manufacturer to its wholly owned or controlled distributors, or for imported drugs, to their exclusive distributor, or from a distributor to its wholly owned or controlled subsidiary (or between the wholly owned or controlled subsidiaries). However, the system still significantly limits the options for companies to use multiple distributors to reach a larger geographic area in China. Compliance with the Two-Invoice System will becomeis a prerequisite for pharmaceutical companies to participate in procurement processes with public hospitals, which currently provide most of China’s healthcare. Manufacturers and distributors that fail to implement the Two-Invoice System may lose their qualifications to participate in the bidding process. Non-compliant manufacturers may also be blacklisted from engaging in drug sales to public hospitals in a locality.
Post-Marketing Surveillance
Under the rDAL, the MAH of a drug is ultimately responsible for pharmacovigilance, including quality assurance, adverse reaction reporting and monitoring, and product recalls. Distributors and user entities (e.g., hospitals) are also required to report, in their respective roles, adverse reactions of the products they sell or use, and assist the MAH with the manufacturerany product recalls. An
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MAH for a drug that is currently under the new drug monitoring period has to report all adverse drug reactions (as opposed to just serious adverse reactions) for that period.
Advertising and Promotion of Pharmaceutical Products
China has a strict regime for the advertising of approved medicines. No unapproved medicines may be advertised. The definition of an advertisement is very broad, and does not expressly exclude scientific exchange. It can be any media that directly or indirectly introduces the product to end users. There is no clear line between advertising and any other type of promotion.
An enterprise seeking to advertise a prescription drug may do so only in medical journals jointly approved by NMPA and the NHC, and each advertisement requires approval from a local drug regulatory authority. The content of an approved advertisement may not be altered without filing a new application for approval.
Prescription drug advertisements are subject to strict content restrictions, which prohibit recommendations by doctors and hospitals and guarantees of effectiveness. Advertising that includes content that is outside of the drug’s approval documentation (“off-label content”)(off-label content) is prohibited. False advertising can result in civil suits from end users and administrative liability,
including fines. In addition to advertisements, non-promotional websites that convey information about a drug must go through a separate approval process by a local drug regulatory authority.
Regulatory Intellectual Property Protections
Non-Patent Exclusivities
Regulatory Data Protection
The Innovation Opinion also lays theprovided a foundation to improve and implement thea system for regulatory data protection to protect innovators.innovative drugs. This protection will be available to thefor undisclosed clinical trial data of drugs falling into the following categories: innovative drugs, innovative therapeutic biologics, drugs that treat orphan diseases, pediatric drugs, and drugs for which there has been a successful patent challenge. In the Trade Agreement, China has committed to providing for effective protection of undisclosed testclinical trial or other data submitted as a condition of marketing approval.
The NMPA has published a draft on Implementing Regulations for Pharmaceutical Study Data Protectionregulations for public comment that would set regulatory data protection for innovative small molecule drugs at six years and for innovative therapeutic biologics at 12 years; pediatric and orphan drugs would receive six years to run concurrently from their approval dates. Full terms of protection would require reliance on local trials or sites of multi-center trials in China and simultaneous submissions of marketing applications in China and other countries. Submissions in China that are up to six years later than those abroad would result in the term being reduced to 1-5 years. Submissions over six years later in China may not receive protection.
Patent-Related Protections
Patent Linkage
The Innovation Opinion also sets forthAmended PRC Patent Law provides a cause of action to allow a patent holder to initiate a declarative action during the basic elementsregulatory review process of a drug to determine whether the drug falls within the patent scope, which may be comparable to the patent linkage system to protect innovators, in which a follow-on applicant will be required to specify patents that are relevant to its application and notify relevant patent right holders (including, innovators) within a specified period after filing its application, permitting them to sue to protect their rights.the United States. The system will requirerequires that the NMPA continue to review the potentially infringing follow-on application during any lawsuit by the innovator. However, the NMPA may not approve the follow-on application pending resolution of the patent litigation in favor of the follow-on application or for a specified period of time, whichever is shorter. Similarly, the Trade Agreement also adopts certain elements
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Patent Term Extension
Reimbursement and Pricing
China’s national medical insurance program was adopted pursuant tocurrently consists of two fundamental sub-programs: (1) the Decision of the State Council on the Establishment of the Urban Employee Basic Medical Insurance Program issued by the State Council in 1998,basic medical insurance program for urban employees, under which allurban employers in urban cities are required to enroll their employees in the basic medical insurance program. Theprogram and the insurance premium is jointly contributed by the employers and employees. In 2007,employees; and (2) the State Council promulgated Guiding Opinions ofbasic medical insurance program for urban and rural residents, which allows urban and rural residents who do not have employers to voluntarily participate in the State Council aboutbasic medical insurance program and the Pilot Urban Resident Basic Medical Insurance, under which urban residents ofinsurance premium is jointly contributed by the pilot district, rather than urban employees, may voluntarily join Urban Resident Basic Medical Insurance.participants and the government. Participants of the national medical insurance program and their employers, if any, are required to contribute to the payment of insurance premiums on a monthly basis. Program participants are eligible for full or partial reimbursement of the cost of medicines included in the National Reimbursement Drug List (the "NRDL").NRDL. A pharmaceutical product listed in the NRDL must be clinically needed, safe, effective, reasonably priced, easy to use, and available in sufficient quantity.
Factors that affect the inclusion of a pharmaceutical product in the NRDL include whether the product is consumedused in large volumes and commonly prescribed for clinical use in the PRC and whether it is considered to be important in meeting the basic healthcare needs of the general public. Since 2016, special consideration has been given to, among others, innovative drugs with high clinical value and drugs for serious diseases. In addition, the PRC Ministry of Human Resources and Social Securitygovernment has also been negotiating with manufacturers of expensiveexclusive drugs with high clinical demands and proven effectiveness for price cuts in exchange for inclusion into the NRDL. The version of the NRDL released in 20192023 covers 2,643approximately 3,000 drugs in total, including 148 new additions147 drugs for which the prices were determined through negotiations between the drug companies and 150 new deletions as compared with the previous version, with an emphasis on innovative drugs and drugs that treat cancer and other serious diseases.government. China has been pursuing a policy of expediting the addition of innovative oncology drugs to this list. In 2019, 17 more oncology drugs, including VIDAZA(azacytidine), were added intoREVLIMID has been included in the NRDL bysince 2017. VIDAZA has been included in the State Medical Insurance Bureau.NRDL since 2018. BRUKINSA (zanubrutinib), tislelizumab, and XGEVA (120-mg denosumab) have been included in the NRDL since 2021. PARP inhibitor pamiparib has been included in the NRDL since 2022. KYPROLIS was included for the first time in the NRDL in January 2023, which will take effect on March 1, 2023.
Government Price Controls
Centralized Procurement and Tenders
Under current regulations, public medical institutions owned by the government or owned by state-owned or controlled enterprises are required to purchase pharmaceutical products through centralized online procurement processes. There are exceptions for drugs on the National List of Essential Drugs, which must comply with their own procurement rules, and for certain drugs subject to the central government’s special control, such as toxic, radioactive and narcotic drugs, and traditional Chinese medicines.
The centralized procurement process takes the form of public tenders operatedthat are typically conducted once every year by provincial or municipal-level government agencies. The centralized tender process is typically conducted once every year. The bids are assessed by a committee randomly selected from a database of experts. The committee members assess the bids based on a number of factors, including but not limited to bid price, product quality, clinical effectiveness, product safety, level of technology, the manufacturer's qualifications and reputation, of the manufacturer, after-sale services and innovation.
Over the last decade, the government has been usingemployed various methods to ensure that drugs are offered at affordable prices.improve the affordability of drugs. In 2009, the central government announced a campaign to implement a “zero markup” policy on essential drugs among basic healthcare institutions, which has been fully implemented nationwide. In addition, some local governmentgovernments have begun to allow medical institutions to collectively negotiate with manufacturers for a second price to further lower the already agreed bid price. The newly adopted Two-Invoice System, described above, is also aimeddesigned to reduce price mark-ups brought about by multi-tier distribution chains.
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In 2019, the State Councilgovernment approved a volume-based, centralized drug procurement program as part of a trial in 11 major cities in an effort to deepen the reform of the medical and health sector and optimize the pricing of drugs. According to the State Council, in these 11 cities, drugs will beDrugs are selected from generic brands for volume-based, centralized drug procurement. The selected drugs must pass the equivalence evaluation on quality and efficacy. The program is aimed at further lowering drug costs for patients, reducing transaction costs for enterprises, regulating drug use by institutions, and improving the centralized drug procurement and pricing system. All approved enterprises that produce drugs on the procurement list in
China may participate. Clinical effects, adverse reactions, and batch stability of the drugs will be considered, and their consistency will be the main criteria for evaluation, while production capacity and stability of the supplier will also be considered. On September 30, 2019, nine ministry-level agencies (including the State Medical Insurance Bureau, NMPA, and NHC) jointly issued a plan intending to expand this program nationwide.
Other PRC National and Provincial Laws and Regulations
These laws and regulations governing both the disclosure and the use of confidential patient medical information may become more restrictive in the future, including restrictions on transfer of healthcare data. The Cybersecurity Law that took effect in 2017 designates healthcare as a priority area that is part of critical information infrastructure, and China’s cyberspace administration is working to finalize a draft rule on cross-border transfer of personal information.
PRC Regulation of Foreign Investment
The Foreign Investment Law and the Implementing Rules provide thatestablishes a system of pre-entry national treatment and negative list shall be appliedsystem for the administration of foreign investments, where “pre-entryinvestments. “Pre-entry national treatment” means that the treatment givenafforded to foreign investors and their investments at the market access stage isshall be no less favorable than that givenafforded to domestic investors and their investments, and “negativeinvestors. “Negative list” meansrefers to the special administrative measures for foreign investment’sinvestors' access to specific fields or industries, which will be proposed by the competent investment department of the State Council in conjunction with the competent commerce department of the State Council and other relevant departments, and be reported to the State Council for promulgation, or be promulgated by the competent investment department or competent commerce department of the State Council after being reported to the State Council for approval.industries. Foreign investments beyondoutside of the negative list will be granted national treatment. Foreign investors shall not invest in the prohibited fields as specified in the negative list, and foreign investors who invest in the restricted fields shall comply with thecertain special requirements onincluding the shareholding percentage and citizenship of senior management personnel, etc. In the meantime, relevant competent government departments will formulate a catalogue of industries for which foreign investments are encouraged according to the needs for national economic and social development, to list the specific industries, fields and regions in which foreign investors are encouraged and guided to invest.executives. The current industry entry clearance requirements governing foreign investment activities in the PRC by foreign investors are set out in two categories, namely the Special Entry Management Measures (Negative List) for the Access of Foreign Investment (2019(Negative List) (2022 version), and the Encouraged Industry Catalogue for Foreign Investment (2019(2022 version) (the “2019“2022 Encouraged Industry Catalogue”), both were promulgated by the National Development and Reform Commission and the Ministry of Commerce (the “MOFCOM”) and took effect on July 30, 2019.. Industries not listed in these two categories are generally deemed “permitted” for foreign investments unless specifically restricted by other applicable PRC laws.laws or regulations. Pursuant to the 20192022 Encouraged Industry Catalogue, the research, development and manufacture of innovative oncology drugs and certain other kindstypes of pharmaceutical products falls inbelongs to the encouraged industries for foreign investment.
Regulations Relating to Product Liability
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Regulations Relating to Commercial Bribery
Pharmaceutical companies involved in a criminal investigation or administrative proceedingsproceeding related to bribery are listed in the Adverse Records of Commercial Briberies by the provincial health and family planning administrative departments, which have been merged into the provincial health commissions. Pursuant to the Provisions on the Establishment of Adverse Records of Commercial Briberies in the Medicine Purchase and Sales Industry which became effective on March 1, 2014, provincial health commissions formulate the implementing measures for establishment of Adverse Records of Commercial Briberies. If a pharmaceutical company or its agent is listed, in the Adverse Records of Commercial Briberies at the provincial level, public medical institutions located in the local provincial level region are prohibited from making any purchase from the company for two years. Where a pharmaceutical company or its agent is listed in the adverse records on two or more occasions within five years, all public medical institutions in China are not permitted to purchase any products from that company for two years.
Regulations Relating to Foreign Exchange
The Foreign Exchange Administration Regulations are the principal regulations governing foreign currency exchange in China. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, may be made in foreign currencies without prior approval from the State Administration of Foreign Exchange ("SAFE") by complying with certain procedural requirements. In contrast, approval from or registration with appropriate government authorities or designated banks is required when RMB is to be converted into a foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans.
Under current regulations, the capital of a foreign-invested enterprise and capital in RMB obtained by the foreign-invested enterprise from foreign exchange settlement must not be used for the following purposes: directly or indirectly used for the payment beyond the business scope of the enterprises or the payment prohibited by relevant laws and regulations; directly or
indirectly used for investment in securities, unless otherwise provided by relevant laws and regulations; extending loans to non-related parties, unless permitted by the scope of business; and/or paying the expenses related to the purchase of real estate that is not for self-use, except for the real estate enterprises.
In 2017, new regulations were adopted which, among other things, relax the policy restrictionrestrictions on foreign exchange inflow to further enhance trade and investment facilitation and tighten genuineness and compliance verification of cross-border transactions and cross-border capital flows.
Regulations Relating to Dividend Distributions
Labor Laws and Social Insurance
In addition, according to the PRC Social Insurance Law, employers like our PRC subsidiaries in China must provide employees with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, medical insurance and housing funds. These payments are made to local administrative authorities, and any employer who fails to contribute may be fined and ordered to pay the deficit amount within a stipulated time limit.
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Regulations Relating to Overseas Listing
On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Overseas Listing Trial Measures, and five relevant guidelines, which will take effect from March 31, 2023, requiring Chinese domestic companies’ overseas offerings and listings of equity securities be filed with the CSRC.
The Overseas Listing Trial Measures clarify the scope of overseas offerings and listings by Chinese domestic companies which are subject to the filing and reporting requirements thereunder, and provide, among others, that Chinese domestic companies that have already directly or indirectly offered and listed securities in overseas markets prior to the effectiveness of the Overseas Listing Trial Measures shall fulfil their filing obligations and report relevant information to the CSRC within three working days after conducting a follow-on offering of equity securities on the same overseas market, and follow the relevant reporting requirements within three working days upon the occurrence of any specified circumstances provided thereunder.
According to the Overseas Listing Trial Measures, if we were deemed as an indirect overseas listed Chinese domestic company but fail to complete the filing procedures with the CSRC for any of our follow-on offerings or follow any other reporting requirements required thereunder, we may be subject to penalties, sanctions and fines imposed by the CSRC and relevant departments of the State Council.
Rest of World Regulation
For other countries outside of the United States and the PRC, the requirements governing the conduct of clinical trials, drug licensing, pricing and reimbursement, and other matters impacting our business vary from country to country. In all cases, the clinical trials must be conducted in accordance with GCP requirements, and the applicable regulatory requirements, and the ethical principles having their origin in the Declaration of Helsinki.
In December 2021, the SEC adopted rules (the “Final Rules”) to implement the Holding Foreign Companies Accountable Act (the “HFCAA”). The HFCAA includes requirements for the SEC to identify issuers who file annual reports with audit reports issued by independent registered public accounting firms located in foreign jurisdictions that the Public Company Accounting Oversight Board (“PCAOB”) is unable to inspect or investigate completely because of a position taken by a non-U.S. authority in the accounting firm’s jurisdiction (“Commission-Identified Issuers”). The HFCAA also requires that, to the extent that the PCAOB has been unable to inspect an issuer’s independent registered public accounting firm for three consecutive years since 2021, the SEC shall prohibit the issuer’s securities registered in the United States from being traded on any national securities exchange or over-the-counter markets in the United States. In December 2022, the Accelerating Holding Foreign Companies Accountable Act amended the HFCAA to shorten the three-year period to two years.
Under the Final Rules, the SEC adopted submission and disclosure requirements by amending Form 10-K and other annual reporting forms and established procedures to identify issuers and prohibit the trading of the securities of certain registrants as required by the HFCAA. Specifically, the Final Rules require each Commission-Identified Issuer to submit documentation to the SEC annually on or before its annual report due date that establishes that it is not owned or controlled by a government entity in its public accounting firm’s foreign jurisdiction and require additional specified disclosures by “foreign issuers” as defined in Rule 3b-4 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The SEC identifies an issuer as a Commission-Identified Issuer after the issuer files its annual report and on a rolling basis, and will impose an initial trading prohibition on an issuer as soon as practicable after it has been conclusively identified as a Commission-Identified Issuer for two consecutive years. To end an initial or subsequent trading prohibition, a Commission-Identified Issuer must certify that it has retained a registered public accounting firm that the PCAOB has determined it is able to inspect or investigate. To make that certification, the Commission-Identified Issuer must file financial statements that include an audit report signed by such a registered public accounting firm.
On March 30, 2022, as expected following its adoption of the Final Rules, the SEC added BeiGene, Ltd. to its conclusive list of issuers identified under the HFCAA, after being provisionally named as a Commission-Identified Issuer on March 8, 2022, following the filing of its annual report on Form 10-K with the SEC on February 28, 2022. Ernst & Young Hua Ming LLP, located in the PRC, served as our independent registered public accounting firm from 2014 to 2021, including for our annual report on Form 10-K for the year ended December 31, 2021. However, as our global business has expanded, we have built substantial organizational capabilities outside of the PRC and have evaluated, designed and implemented business processes and control changes. Therefore, on March 23, 2022, following a review process carried out by our audit committee, Ernst & Young Hua Ming LLP resigned as our independent registered public accounting firm for the audits of our financial statements and internal control over financial reporting to be filed with the SEC. On the same day, our audit committee approved the engagement of Ernst & Young LLP, located in Boston, Massachusetts, United States, as the Company’s
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independent registered public accounting firm for the audits of our financial statements and internal control over financial reporting for the fiscal year ending December 31, 2022. No changes were made to the accounting firms who audit our financial statements filed with the Shanghai Stock Exchange and the Hong Kong Stock Exchange, which will remain Ernst & Young Hua Ming LLP, located in Beijing, PRC, and Ernst & Young, located in Hong Kong, PRC, respectively.
In August 2022, the PCAOB signed a Statement of Protocol with the CSRC and the Ministry of Finance of the People's Republic of China, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. PCAOB staff members conducted on-site inspections and investigations from September to November 2022, and in December 2022, the PCAOB announced that it has secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and confirmed that until such time as the PCAOB issues any new determination, there are no Commission-Identified Issuers at risk of having their securities subject to a trading prohibition under the HFCAA.
Given that Ernst and Young LLP (United States) now serves as the principal accountant to audit our consolidated financial statements to be filed with the SEC, we believe we are compliant with the HFCAA, which should preclude a further finding by the SEC that we are a Commission-Identified Issuer and therefore the delisting of our American Depositary Shares from the NASDAQ Global Select Market. For a detailed description of risks related to our doing business in China and status under the HFCAA, see "Item 1A. Risk Factors - Risks Related to Our Doing Business in the PRC.".
Doing Business in the PRC
As a result of our operations in the PRC, the PRC government may exert influence over our operations at any time, which could result in a material change in our operations and/or the value of our ADSs, ordinary shares, or RMB Shares. For example, the PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding any industry that could adversely affect the business, financial condition and results of operations of our company.
Furthermore, the PRC government has also recently indicated an intent to exert more oversight and control over securities offerings and other capital markets activities that are conducted outside of China and over foreign investment in China-based companies. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China, including enforcement actions against illegal activities in the securities market, enhancing supervision over China-based companies listed outside of China using the variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. For example, in July 2021, the relevant PRC government authorities made public the Opinions on Intensifying Crack-Down on Illegal Securities Activities (the "Securities Opinions") which emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. In November 2021, the Cyberspace Administration of China (the “CAC”) released the draft Administrative Regulations on Cyber Data Security for public comments, which requires, among others, that a prior cybersecurity review should be required for listing abroad of data processors which process over one million users’ personal information, and the listing of data processors in Hong Kong which affects or may affect national security. On February 17, 2023, the CSRC released the Overseas Listing Trial Measures, and five relevant guidelines, which will take effect from March 31, 2023, requiring the Chinese domestic companies’ overseas offerings and listings of equity securities be filed with the CSRC.
The Chinese government may further promulgate relevant laws, rules and regulations that may impose additional and significant obligations and liabilities on overseas listed PRC companies regarding data security, cross-border data flow, anti-monopoly and unfair competition, and compliance with China’s securities laws. It is uncertain whether or how these new laws, rules and regulations and the interpretation and implementation thereof may affect us, but among other things, our ability to obtain external financing through the issuance of equity securities in the United States, Hong Kong or other markets could be negatively affected, and as a result, the trading prices of our ADSs, ordinary shares and RMB Shares could significantly decline or become worthless. For a detailed description of risks related to our doing business in China, please see the section of this Annual Report titled “Item 1A. Risk Factors—Risks Related to Our Doing Business in the PRC.”
Flow of Funds with our PRC Operations
We are a holding company incorporated in the Cayman Islands with operations primarily conducted through subsidiaries in the United States, China, United Kingdom, Switzerland and Australia. The intercompany flow of funds within the organization is effected through capital contributions and intercompany loans. Since our formation in 2010, BeiGene, Ltd. has raised over $10.0 billion in various public and private stock offerings as of December 31, 2022. Of this amount, $1.9 billion and RMB 18.6
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billion have been transferred as capital contributions to its operating subsidiaries; and $79 million and RMB 4.4 billion have been transferred as intercompany loans to its operating subsidiaries. BeiGene, Ltd., by itself or through its affiliates, is also the holder or licensee and developer of biopharmaceutical patents. Certain of these patents have been transferred to operating subsidiaries for further development and commercialization. BeiGene’s wholly owned subsidiaries compensate each other for the intercompany provision of goods and services on an arm’s length basis. As of December 31, 2022, BeiGene, Ltd. held $4.5 billion in cash, cash equivalents and short-term investments which are available for future investment in its programs and in our operating subsidiaries. To date, BeiGene, Ltd. has not received any dividends or distributions from its operating subsidiaries.
Further, our board of directors has adopted a dividend policy which provides that we currently intend to retain all available funds and earnings, if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Subject to applicable law and our amended and restated articles of association, any future determination to pay dividends will be made at the discretion of our board of directors and may be based on a number of factors, including our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our board of directors may deem relevant. This dividend policy reflects our board of directors’ current views on our financial and cash flow position. We intend to continue to review our dividend policy from time to time, and there can be no assurance that dividends will be paid in any particular amount, if at all, for any given period.
We have never declared or paid any dividends on our ordinary shares or any other securities. If we pay dividends in the future, in order for us to distribute dividends to our shareholders and holders of ADSs, we may rely to some extent on dividends distributed by our PRC subsidiaries. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us, and such distributions will be subject to PRC withholding tax. In addition, PRC regulations currently permit payment of dividends of a PRC company only out of accumulated distributable after-tax profits, as determined in accordance with our articles of association and the accounting standards and regulations in the PRC.
We may rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders or to service any debt we may incur. If any of our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. Under PRC laws and regulations, our PRC subsidiaries may pay dividends only out of their respective accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. Such reserve funds cannot be distributed to us as dividends. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to an enterprise expansion fund, or a staff welfare and bonus fund. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary. As of December 31, 2022, these restricted assets totaled $3.5 billion.
Our PRC subsidiaries generate primarily all of their revenue in RMB, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiaries to use their RMB revenues to pay dividends to us. However, conversion of RMB to other currencies are permitted for the purpose of dividends according to the PRC’s regulations on Foreign Exchange Control.
Further, in response to the persistent capital outflow in the PRC and RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and the SAFE promulgated a series of capital control measures, including stricter vetting procedures for domestic companies to remit foreign currency for overseas investments, dividends payments and shareholder loan repayments. Such measures were relaxed in mid-2017 with the slowdown of the capital outflow and stabilizing of the RMB. However, the PRC government may revert to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by the SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
The PRC Enterprise Income Tax Law and its implementation rules provide that China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its equity holders that are non-PRC resident enterprises, will normally be subject to PRC withholding tax at a rate of 10%, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a reduced withholding rate arrangement and such non-PRC resident enterprises constitute the beneficiary of such income.
Pursuant to an arrangement between Mainland China and the Hong Kong Special Administrative Region and relevant tax regulations of the PRC, subject to certain conditions, a reduced withholding tax rate of 5% will be available for dividends from
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PRC entities provided that the recipient can demonstrate it is a Hong Kong tax resident and it is the beneficial owner of the dividends. The government adopted regulations in 2018 which stipulate that in determining whether a non-resident enterprise has the status as a beneficial owner, comprehensive analysis shall be conducted based on the factors listed therein and the actual circumstances of the specific case shall be taken into consideration. Specifically, it expressly excludes an agent or a designated payee from being considered as a “beneficial owner.” We own the PRC subsidiaries through BeiGene HK. BeiGene HK currently does not hold a Hong Kong tax resident certificate from the Inland Revenue Department of Hong Kong, and there is no assurance that the reduced withholding tax rate will be available.
Permissions Required from the PRC Authorities for Our Operations
We conduct our business in the PRC through our PRC subsidiaries. Our operations in the PRC are governed by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries have obtained all requisite licenses and permits from the PRC government authorities that are material for their business operations in the PRC, including, among others, business licenses issued by local counterparts of the SAMR, drug manufacturing licenses, drug trade license, CTAs, drug registration certificates, licenses for use of experimental animals, pollutant discharge licenses and permits for urban sewage discharge into drainage pipe network. No material permissions have been denied to us by relevant government authorities in China. As of the date of this annual report, we do not operate our businesses in China or elsewhere through variable interest entities, or VIEs, and therefore are not subject to risks associated with contractual arrangements with VIEs. As of the date of this annual report, we have not received any inquiry, notice, warning, or sanctions regarding our business operations and corporate structure from the CSRC, CAC or any other PRC governmental agency that would have a material impact on our business, results of operations or financial condition. However, given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by government authorities, we cannot assure you that we have obtained all the permits or licenses required for conducting our business in the PRC. If (i) we have inadvertently concluded that such permissions, approvals, licenses or permits have been acquired or are not required, or (ii) applicable laws, regulations, or interpretations change and we are required to obtain such permissions, approvals, licenses or permits in the future, then we may have to expend time and costs to procure them. If we are unable to do so on commercially reasonable terms or in a timely manner, it could cause significant disruption to our business operations and damage our reputation, which would in turn have a material adverse effect on our business, results of operations and financial condition.
In connection with our previous issuance of securities to foreign investors in stock markets outside the PRC, under current PRC laws, regulations and regulatory rules, as of the date of this annual report, we and our PRC subsidiaries, (i) are not required to obtain permissions from the CSRC, (ii) are not required to go through cybersecurity review by the Cyberspace Administration of China, or the CAC, and (iii) have not received or were denied such requisite permissions by any PRC authority. On February 17, 2023, the CSRC released the Overseas Listing Trial Measures and five relevant guidelines, which will take effect from March 31, 2023. The Overseas Listing Trial Measures require the Chinese domestic companies’ overseas offerings and listings of equity shares, depositary receipts, convertible bonds, preferred shares or other equity securities be filed with the CSRC. See “Item 1. Business – Government Regulation – PRC Regulation – Regulations Relating to Overseas Listing”. If we were deemed as an indirect overseas listed Chinese domestic company subject to the filing requirements under the Overseas Listing Trial Measures, our offering of equity securities on the NASDAQ Global Select Market or Hong Kong Stock Exchange in the future would be required to be filed with the CSRC within three working days after the offering is completed.
As of the date of this annual report, we have not received any inquiry, notice, warning or sanction regarding obtaining approval, completing filing or other procedures in connection with offering our equity securities in overseas stock markets from the CSRC or any other PRC governmental or regulatory authorities that have jurisdiction over our operations. However, there remains significant uncertainty as to the interpretation and implementation of regulatory requirements related to overseas securities offerings and other capital markets activities, including the Overseas Listing Trial Measures. If it is determined that filing or other procedure with the CSRC or any other regulatory authority is required for issuing our equity securities in overseas stock markets, it is uncertain whether we will be able to and how long it would take for us to complete the filing despite our efforts. If we, for any reason, are unable to complete, or experience significant delays in completing the requisite filing or other procedure(s), we may face sanctions by the CSRC or other Chinese regulatory authorities as applicable. These regulatory authorities may impose fines and penalties on our operations in the PRC, limit our ability to pay dividends outside of China, limit our operations in the PRC, delay or restrict the repatriation of funds into the PRC or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our ADSs, ordinary shares and RMB Shares.
Cash Management Policies and Procedures
Under our Capitalization and Financing Policy, the frequency and amount of intercompany transfers of funds is determined based on the working capital needs of our subsidiaries and intercompany transactions, and is subject to internal approval
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processes and funding arrangements. Our management reviews and monitors our cash flow forecast and working capital needs of our subsidiaries on a regular basis. In addition, capital contributions and intercompany loan arrangements are subject to local jurisdiction and banking regulations. In this regard, we have not faced difficulties or limitations in our ability to transfer cash between subsidiaries in any of our operating jurisdictions.
During the normal course of our business, cash is transferred between our subsidiaries via wire transfer to and from bank accounts to pay certain business expenses. Cash is maintained by BeiGene, Ltd. in its bank account and transferred to its subsidiaries when necessary to strengthen our business capabilities, such as paying for new office development, or marketing expenses. In addition, cash may be used by BeiGene, Ltd. to meet corporate expenses such as audit fees, attorneys’ fees, stock exchange listing fees, IR/PR expenses, research and development costs and corporate administrative support expenses.
Cash is transferred between subsidiaries in the form of capital contributions or through intercompany advances or loans, as follows:
•Cash may be transferred between BeiGene HK and its operating subsidiaries in mainland China through intercompany loans and capital contributions, and there are currently no restrictions on transferring funds between BeiGene HK and its subsidiaries in mainland China. Cash generated from BeiGene HK is used to fund operations of its subsidiaries, and no funds were transferred from BeiGene HK’s subsidiaries in mainland China to fund operations of other BeiGene subsidiaries outside of mainland China for the year ended on December 31, 2021 and December 31, 2022. For the year ended December 31, 2021 and December 31, 2022, the amount of cash transferred between BeiGene HK and its subsidiaries in mainland China was $44 million and $351 million, respectively.
•Cash may be transferred between BeiGene UK and/or BeiGene Switzerland and their respective operating subsidiaries through intercompany fund advances and capital contributions. There are currently no restrictions on transferring funds between BeiGene UK or BeiGene Switzerland and their respective operating subsidiaries. Cash generated from BeiGene UK and BeiGene Switzerland are used to fund operations of their respective subsidiaries, and no funds were transferred from BeiGene UK’s subsidiaries or from BeiGene Switzerland’s subsidiaries to fund operations of other BeiGene subsidiaries (such as BeiGene HK and its subsidiaries in mainland China) for the year ended on December 31, 2021 and December 31, 2022. For the year ended December 31, 2021 and December 31, 2022, the amount of cash transferred between BeiGene UK to its respective subsidiaries was $2 million and $4 million, respectively. For the years ended December 31, 2021 and December 31, 2022, the amount of cash transferred between BeiGene Switzerland to its respective subsidiaries was $25 million and $65 million, respectively.
Human Capital Resources
We are committed to attracting and retaining exceptional, passionate people to work with a clear purpose: creating impactful, affordable and accessible medicines to help more patients around the world to live better. To this end, we support a team-oriented culture based on excellence that allows all colleagues to feel valued and challenged. We provide opportunities for employees to grow and develop in their careers, supported by competitive compensation, benefits and health and wellness programs, and by programs that build connections among our employees worldwide.
We believe that the success of our business is fundamentally connected to the well-being of our employees. Accordingly, we are committed to their health, safety and wellness. We offer our employees and their families innovative, flexible and convenient health and wellness programs, including benefits that confer peace of mind around events that may require time away from work or impact their financial well-being; that support their physical and mental health with tools and resources to help them improve or maintain their health status and encourage healthy behaviors; and that offer choice where possible so they can customize benefits to meet their needs and the needs of their families.
In order to support our employees during the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations. This included initiating a number of mental-health programs and offering supplemental resources that are available to all of our employees, having our employees work from home and implementing additional safety measures for employees continuing critical work at our offices or in the field, as well as encouraging employees to adhere to preventative measures recommended by the World Health Organization, U.S. Centers for Disease Control and Prevention, and similar public health authorities.
Our worldwide teams are united by a common mission. We are committed to encouraging a culture of open communication where employees can ask questions, raise concerns and contribute creative solutions. Our management team routinely makes themselves available to all employees, including in regular town hall events that encourage open dialogue. Fostering a culture of accountability and compliance is also central to our human resource management. All of our employees complete trainings
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on applicable corporate policies including our global Code of Conduct; Harassment, Discrimination, and Retaliation Policy; Conflicts of Interest Policy; Insider Trading Policy; and Anti-Corruption Policy.
We strive to provide competitive compensation and benefits programs to help meet the needs of our employees. In addition to base salaries, these programs include potential annual discretionary bonuses, equity awards, a 401(k) plan in the United States and pension plans in other jurisdictions, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, and flexible work schedules, among others. In addition to our broad-based equity award programs, we have used targeted equity-based grants with vesting conditions to facilitate retention of personnel. In addition to compensation and benefits, we provide our employees opportunities for growth through challenging job assignments, performance management and training opportunities. We seek to remain competitive in our compensation and benefits by routinely benchmarking against industry peers.
As part of our mission to create the innovative medicines to serve the patients, we continue to advance our environmental, social and governance ("ESG") efforts, including enhancing the diversity and inclusiveness of our workplace. We believe that diversity of backgrounds and ideas inspires creativity and helps us create the innovative medicines patients need. We appreciate one another’s differences and strengths, and are proud to be an equal opportunity employer. BeiGene does not discriminate on the basis of race, religion, color, sex, gender identity, sexual orientation, age, non-disqualifying physical or mental disability, national origin, veteran status or any other basis covered by applicable law. All employment is decided on the basis of qualifications, merit, and business need. Further, we have policies in place that prohibit harassment of all kinds. We maintain an inclusive culture where all voices are welcomed, heard, and respected.
As of January 31, 2020,2023, we had approximately 3,500 employees.9,200 full-time employees worldwide, with approximately 1,300 employees in the United States and approximately 7,900 employees outside of the United States. We have also engaged and may continue to engage independent contractors to assist us with our operations. None of our employees are represented by a labor union or covered by a collective bargaining agreement.agreement, except as required by local laws such as in some European countries. We have never experienced any employment-related work stoppages, we also track voluntary and involuntary turnover rates and we consider our relations with our employees to be good.
Environmental, Social and Governance Strategy
BeiGene’s mission is to expand access to high-quality, affordable medicines to billions more people globally. We are driven to deliver affordable medicines to all and create a more equitable and sustainable world for our patients, employees, and our communities. In 2022, we announced our global ESG strategy, Change Is the Cure, which guides our efforts across five focus areas: advancing global health, empowering people, innovating sustainably, supporting communities, and operating responsibly. Within each focus area, we have identified two strategic priorities against which we have set concrete targets. We will report our progress against these targets and announce new goals in our 2022 ESG Report which will be published in late April 2023.
While we are at the start of our ESG journey, we are proud of the progress we have made to date. We joined the United Nations Global Compact in 2022 and have aligned our efforts with UN Sustainable Development Goals. In 2022, we announced new measures to understand and further mitigate our climate impacts. We will share progress on those measures and announce new targets in our 2022 ESG Report.
We know that access to oncology treatments lags in many parts of the world, particularly in low-income countries. To help close this health equity gap, BeiGene became a founding member of the Union for International Cancer Control’s Access to Oncology Medicines Coalition which focuses on improving access to innovative medicines in lower-income countries and supporting them in developing the capacity to provide proper treatment for patients.
We believe that our people are critical to our success and, as a global company, we know that sharing diverse ideas and perspectives spurs greater innovation and enhances our ability to deliver results. Our culture celebrates and encourages the voices of all our employees and promotes a respectful, collaborative environment. In 2020, we formed the Inclusion, Diversity, Equity, and Awareness (“IDEA”) Council to provide a forum for U.S. employees to explore issues of diversity, equity, inclusion, and belonging. Introduced first in the U.S., the IDEA Council is now global, with members in geographies including Canada, Europe, China, and Australia. In 2022, we completed a three-year diversity, equity, inclusion and belonging strategy. Details will be shared in our 2022 ESG Report.
In addition to directly supporting patients through the delivery of cutting-edge therapies, we strive to support our communities through research, education, and sponsorships. We support patient advocacy organizations, charitable foundations, and hospitals through cash and in-kind donations.
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More details about our ESG strategy, goals and progress to date will be available in our 2022 ESG Report, which will be developed with reference to the Global Reporting Initiative Standards and published in late April 2023. Our previous ESG Reports can be found online at: https://hkexir.beigene.com/governance/esg-report/.
Financial Information
The financial information required under this Item 1 is incorporated herein by reference to the section of this Annual Report titled “Part II-Item 8-Financial Statements and Supplementary Data.” For financial information regarding our business, please see the section of this Annual Report titled “Part II-Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report and our consolidated audited financial statements and related notes included elsewhere in this Annual Report.
Corporate Information
We are an exempted company incorporated in the Cayman Islands with limited liability on October 28, 2010. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The principal executive office of our research and development operations is located at No. 30 Science Park Road, Zhong-Guan-Cun Life Science Park, Changping District, Beijing 102206, PRC. Our telephone number at this address is +86 10 58958000. Our current registered office in the Cayman Islands is located at the offices of Mourant Governance Services (Cayman) Limited, 94 Solaris Avenue, Camana Bay, Grand Cayman KY1-1108, Cayman Islands. Our website address is www.beigene.com. We do not incorporate the information on or accessible through our website into this Annual Report, and you should not consider any information on, or that can be accessed through, our website as part of this Annual Report.
We own various registered trademarks, trademark applications and unregistered trademarks and service marks, including the name "BeiGene" and our corporate logo. All other trade names, trademarks and service marks of other companies appearing in this Annual Report are the property of their respective holders. Solely for convenience, some of the trademarks and trade names in this document are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Available Information
We make available on or through our website certain reports and amendments to those reports that we file with or furnish to the SEC, in accordance with the Securities Exchange Act of 1934, as amended (the "Exchange Act").Act. These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. We also make available, free of charge on our website, the reports filed with the SEC by our executive officers, directors and 10% shareholders pursuant to Section 16 under the Exchange Act. Additionally, we make available on our website our securities filings with the HKEx.HKEx and the Shanghai Stock Exchange. We make this information available on or through our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC, the HKEx, and the HKEx.SSE. We use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD.
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Item 1A. Risk Factors
The following section includes the most significantmaterial factors that we believe may adversely affect our business and operations. You should carefully consider the risks and uncertainties described below and all information contained in this Annual Report, including our financial statements and the related notes and “Part II-Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our ADSs, ordinary shares, or ordinary shares.RMB Shares. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations, and growth prospects. In such an event, the market price of our ADSs, and ordinary shares, and RMB Shares could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. Please refer to the explanation of the qualifications and limitation on forward-looking statements set forth on page 1 hereof.
Risks Related to Clinical Development and Commercialization of Our DrugsMedicines and Drug Candidates
Our drugs and any future approved drug candidatesmedicines may fail to achieve and maintain the degree of market acceptance by physicians, patients, third-party payors, and others in the medical community necessary for commercial success.
Our drugs and any future approved drug candidatesmedicines may fail to gainachieve and maintain sufficient market acceptance by physicians, patients, third-party payors, and others in the medical community. For example, current cancer treatments like chemotherapy and radiation therapy are well established in the medical community, and doctors may continue to rely on these treatments to the exclusion of our drugs and drug candidates. In addition, physicians, patients and third-party payors may prefer other novel or generic products to ours.medicines. If our drugs and drug candidatesmedicines do not achieve and maintain an adequate level of market acceptance, the sales of our drugsmedicines may be limited and we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of our drugs and drug candidates, if approved for commercial sale,medicines will depend on a number of factors, including:
the clinical indications for which our drugs and drug candidatesmedicines are approved;
physicians, hospitals, cancer treatment centers, and patients considering our drugs and drug candidates asmedicines safe and effective treatments;
effective; government agencies, professional societies, practice management groups, insurance carriers, physicians’ groups, private health and science foundations, and organizations publishing guidelines and recommendations recommending our drugsmedicines and reimbursement;
the potential and perceived advantages of our drugs and drug candidates overrelative cost of alternative treatments;
the prevalence and severity of any side effects;
product labeling, including limitations or warnings, or product insert requirements of regulatory authorities;
the timing of market introduction of our drugs and drug candidatesmedicines as well as competitive drugs;
medicines; the availability of adequate coverage, reimbursement and pricing by third-party payors and government authorities;
the effectiveness of our sales and marketing efforts.
We have limited experience in launching and marketing our internally developed drugs and third-party drugs.in-licensed medicines. If we are unable to further develop marketing and sales capabilities or enter into agreements with third parties to market and sell our drugs and third-party drugs,medicines, we may not be able to generate substantial product sales revenue.
. In October 2019, we entered into a strategic collaboration with Amgen with respect tofor its commercial-stage oncology products XGEVA® (which received approval from the National Medical Products Administration ("NMPA") and was made available in China in September 2019), KYPROLIS® and BLINCYTO® and 20a portfolio of clinical- and late-preclinical-stage oncology pipeline products, andproducts. We received the agreement became effective on January 2, 2020. In connection with this strategic collaboration, we are authorized to commercialize the oncology products of Amgenfirst approvals for our internally developed drug candidates in China for five or seven years and have the option to retain one of the three oncology products to commercialize for as long as the product is sold in China. For each pipeline product that is approved in China, we will also have the right to commercialize the pipeline product for seven years in China and the right to retain approximately one of every three approved pipeline assets, up to a total of six, other than AMG 510, for commercialization in China.
There can be no assurance that we will be able to further develop and successfully maintain internal sales and commercial distribution capabilities or establish or maintain relationships with third-party collaborators to successfully commercialize any drug,medicine, and as a result, we may not be able to generate substantial product sales revenue.
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We face substantial competition, which may result in others discovering, developing, or commercializing competing drugsmedicines before or more successfully than we do.
The development and commercialization of new drugsmedicines is highly competitive. We face competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell drugsmedicines or are pursuing the development of drugsmedicines for the treatment of cancer for which we are commercializing our drugsmedicines or developing our drug candidates. For example, both BRUKINSA, tislelizumab, and tislelizumabpamiparib face substantial competition.competition, and some of our products face or are expected to face competition from generic therapies. Potential competitors also include academic institutions,
government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing, and commercialization.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize drugsmedicines that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any drugs that we commercialize or may develop.our medicines. Our competitors also may obtain approval from the U.S. Food and Drug Administration ("FDA"), NMPA, European Medicines Agency ("EMA") or other comparable regulatory authorities for their drugsmedicines more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market and and/or slow our regulatory approval.
Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugsmedicines than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, management and managementmarketing personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
The market opportunities for our drugs and drug candidatesmedicines may be limited to those patients who are ineligible for or have failed prior treatments and may be small.
In markets with approved therapies, we have and expect to initially seek approval of our drug candidates as a later stage therapy for patients who have failed other approved treatments. Subsequently, for those drugsmedicines that prove to be sufficiently beneficial, if any, we would expect to seek approval as a second linesecond-line therapy and potentially as a first-line therapy, but there is no guarantee that our drugsmedicines and drug candidates, even if approved, would be approved for second-line or first-line therapy.
Our projections of both the number of people who have the cancersdiseases we are targeting, as well as the subset of people with these cancersdiseases in a position to receive later stage therapy and who have the potential to benefit from treatment with our drugsmedicines and drug candidates, are based on our beliefs and estimates and may prove to be inaccurate or based on imprecise data. Further, new studies may change the estimated incidence or prevalence of these cancers. The number of patients may turn out to be lower than expected. Additionally, the potentially addressable patient population for our drugsmedicines and drug candidates may be limited or may not be amenable to treatment with our drugsmedicines and drug candidates. Even if we obtain significant market share for our drugsmedicines and drug candidates, because the potential target populations are small, we may never achieve profitability without obtaining regulatory approval for additional indications, including use as a first- or second-line therapy.
If we are not able to continue to obtain, or experience delays in obtaining, required regulatory approvals, we will not be able to commercialize our drugs and drug candidates, and our ability to generate revenue will be materially impaired.
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significant impact on the prescribing physicians’ willingness and ability to bring actionsprescribe our products. For additional information, please see the section of this Annual Report titled “Part I —Item 1 — Business — Government Regulation — Pharmaceutical Coverage, Pricing, and Reimbursement.”
A primary trend in the global healthcare industry is cost containment. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications.
In the United States, no uniform policy of coverage and reimbursement for drugs exists among third-party payors. As a result, obtaining coverage and reimbursement approval of a drug from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost- effectiveness data for the use of our medicines on behalfa payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. The principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare and Medicaid Services (the "CMS"). They decide whether and to what extent a new medicine will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. Factors payors consider in determining reimbursement are based on whether the product is: a covered benefit under its health plan; safe, effective and medically necessary; appropriate for the specific patient; cost-effective; and neither experimental nor investigational.
Coverage may be more limited than the purposes for which the medicine is approved by the FDA or comparable regulatory authorities in other countries. Even if we obtain coverage for a given medicine, the resulting reimbursement rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Additionally, third-party payors may not cover, or provide adequate reimbursement for, long-term follow-up evaluations required following the use of our medicines. Patients are unlikely to use our medicines unless coverage is provided and reimbursement is adequate to cover a significant portion of the U.S. government undercost of the federal False Claims Act as well as under the false claims laws of several states.
Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United StatesStates. Furthermore, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives.
We cannot be sure that reimbursement will also likely subject usbe available for any product candidate that we commercialize and, if reimbursement is available, the level of reimbursement. In addition, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to non-U.S. equivalents of the healthcare lawsgovernment, such as those mentioned above, among other non-U.S. laws. As with the state equivalents mentioned above,average sales price and best price. Penalties may apply in some of these non-U.S. laws may be broader in scope. Data privacycases when such metrics are not submitted accurately and security laws and regulations in non-U.S. jurisdictions may also be more stringenttimely.
In China, drug prices are typically lower than those in the United States (such asand Europe, and until recently, the European Union ("EU"market has been dominated by generic drugs. Government authorities regularly review the inclusion or removal of medicines from China’s National Drug Catalog for Basic Medical Insurance, Work-related Injury Insurance and Maternity Insurance, or the National Reimbursement Drug List (the "NRDL"), or provincial or local medical insurance catalogues for the National Medical Insurance Program, and the tier under which adopteda medicine will be classified, both of which affect the General Data Protection Regulation,amounts reimbursable to program participants for their purchases of those medicines. There can be no assurance that our medicines and any approved drug candidates will be included in the NRDL or provincial reimbursements lists, or if they are, that they will be included at a price that allows us to be commercially successful. Products included in the NRDL have typically been generic and essential drugs. Innovative drugs similar to our medicines and drug candidates have historically been more limited on their inclusion in the NRDL due to the affordability of the government’s Basic Medical Insurance, although this has been changing in recent years. For example, BRUKINSA, tislelizumab, pamiparib and XGEVA have been included in the NRDL. While the demand for these medicines has generally increased after inclusion in the NRDL, there can be no assurance that demand will continue to increase and such increases will be sufficient to offset the reduction in the prices and our margins, which became effectivecould have a material adverse effect on our business, financial condition and results of operations. We prepare for the NRDL negotiations in May 2018).
China for our eligible medicines/indications annually. If any of these medicines/indications are not included in the physiciansNRDL or included at a significantly lower price, the revenues for such medicines could be limited, which could have a material adverse effect on our business, financial condition and results of operations.
Increasingly, third-party payors are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any medicine that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Reimbursement may impact the demand for, or the price of, any medicine which we commercialize. Obtaining or maintaining reimbursement for our medicines may be particularly difficult because of the higher prices often associated with medicines administered under
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the supervision of a physician. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any medicine and drug candidate that we in-license or successfully develop.
There may be significant delays in obtaining reimbursement for approved medicines, and coverage may be more limited than the purposes for which the medicine is approved by regulatory authorities. Moreover, eligibility for reimbursement does not imply that any medicine will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new medicines, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment rates may vary according to the use of the medicine and the clinical setting in which it is used, may be based on payments allowed for lower cost medicines that are already reimbursed, and may be incorporated into existing payments for other providersservices. Net prices for medicines may be reduced by mandatory discounts or entities with whom we do business are found to be not in compliance with applicablerebates required by government healthcare programs or private payors and by any future weakening of laws that presently restrict imports of medicines from countries where they may be sold at lower prices than in the United States. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for our medicines and any new medicines that we develop could have a material adverse effect on our business, our operating results, and our overall financial condition.
We intend to seek approval to market our medicines and drug candidates in the United States, China, Europe and in other jurisdictions. In some countries, such as those in Europe, the pricing of drugs and biologics is subject to criminal, civil or administrative sanctions, including exclusionsgovernmental control, which can take considerable time even after obtaining regulatory approval. Market acceptance and sales of our medicines will depend significantly on the availability of adequate coverage and reimbursement from government funded healthcare programs, whichthird-party payors for our medicines and may also adversely affect our business.be affected by existing and future health care reform measures.
We may explorehave operations in the licensing of development and/United States, China, Europe, and other markets and plan to expand in these and new markets on our own or commercialization rights or other forms of collaboration worldwide,with collaborators, which will exposeexposes us to additional risks of conducting business in additional international markets.
•efforts to enter into collaboration or licensing arrangements with third parties in connection with our international sales, marketing and distribution efforts may increase our expenses or divert our management’s attention from the acquisition or development of drug candidates;
•difficulty of effective enforcement of contractual provisions in local jurisdictions;
•potential third-party patent rights or potentially reduced protection for intellectual property rights;
•unexpected changes in tariffs, trade barriers and regulatory requirements, including the loss of normal trade status between China and the United States;States or actions taken by U.S. or China governmental authorities on companies with significant operations in the U.S. and China, such as us;
•economic weakness, including inflation;
•compliance with tax, employment, immigration and labor laws for employees traveling abroad;
•the effects of applicable non-U.S. tax structures and potentially adverse tax consequences;
•currency fluctuations, which could result in increased operating expenses and reduced revenue;
•workforce uncertainty and labor unrest;
•failure of our employees and contracted third parties to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act and other anti-bribery and corruption laws; and
•business interruptions resulting from geo-political actions, including trade disputes, war and terrorism, disease or public health epidemics,pandemics, such as the coronavirus impacting China and elsewhere,COVID-19, or natural disasters, including earthquakes, volcanoes, typhoons, floods, hurricanes and fires.
These and other risks, including the risks described in "Risks Related to Our Doing Business in the PRC", may materially adversely affect our ability to attain or sustain revenue fromin international markets.
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The illegal distribution and sale by third parties of counterfeit versions of our drugsmedicines or stolen products could have a negative impact on our reputation and business.
Third parties might illegally distribute and sell counterfeit or unfit versions of our drugs,medicines, which do not meet our or our collaborators’ rigorous manufacturing and testing standards. A patient who receives a counterfeit or unfit drugmedicine may be at risk for a number of dangerous health consequences. Our reputation and business could suffer harm as a result of counterfeit or unfit drugsmedicines sold under our or our collaborators’ brand name(s). In addition, thefts of inventory at warehouses, plants or while in-transit,in- transit, which are not properly stored and which are sold through unauthorized channels, could adversely impact patient safety, our reputation and our business.
We depend substantially on the success of the clinical development of our drugsmedicines and drug candidates. If we are unable to successfully complete clinical development, obtain additional regulatory approvals and commercialize our drugsmedicines and drug candidates, or experience significant delays in doing so, our business will be materially harmed.
Our business depends on the successful development, regulatory approval and commercialization of our drugs and drug candidates for the treatment of patients with cancer, such as BRUKINSA, for which we obtained FDA approval for the treatment for MCL in adult patients who have received at least one prior therapy, and tislelizumab, for which we obtained NMPA approval for the treatment of patients with cHL who have received at least two prior therapies,medicines and other drug candidates we may develop. We have invested a significant portion of our efforts and financial resources in the development of our drugsmedicines and drug candidates. The success of our drugsmedicines and drug candidates depends on several factors, including:
•successful enrollment in, and completion of, clinical trials, as well as completion of preclinical studies;
•favorable safety and efficacy data from our clinical trials and other studies;
•receipt of regulatory approvals;
•the performance by contract research organizations ("CROs") or other third parties we may retain of their duties to us in a manner that complies with our protocols and applicable laws and that protects the integrity of the resulting data;
•obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity;
•ensuring that we do not infringe, misappropriate or otherwise violate the valid patent, trade secret or other intellectual property rights of third parties;
•successfully launching our drugsmedicines and drug candidates, if and when approved;
•obtaining favorable reimbursement from third-party payors for drugsour medicines and drug candidates, if and when approved;
•competition with other products;
•continued acceptable safety profile following regulatory approval; and
•manufacturing or obtaining sufficient supplies of our drugs,medicines, drug candidates and any competitorcompeting drug products that may be necessary for use in clinical trials for evaluation of our drug candidates and commercialization of our drugs.medicines.
If we do not achieve and maintain one or more of these factors in a timely manner or at all, we could experience significant delays in our ability or be unable to obtain additional regulatory approvals for and/or to successfully commercialize our drugsmedicines and drug candidates, which would materially harm our business and we may not be able to generate sufficient revenues and cash flows to continue our operations.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
Clinical testingdevelopment is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our drug candidates may not be predictive of the results of later-stage clinical trials, and initial or interim results of a trial may not be predictive of the final results. Drug candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same drug candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, including genetic differences, patient adherence to the dosing regimen and other trial protocol elements and the rate of dropout among clinical trial participants. In the case of any trials we conduct, results may differ from earlier trials due to the larger number of
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clinical trial sites and additional countries and languages involved in such trials. A number of companies in the pharmaceutical and biotechnology industriesour industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Our future clinical trial results may not be favorable.
Even if our future clinical trial results show favorable efficacy and impressive durability of anti-tumor responses, not all patients may benefit. For certain drugs, including checkpoint inhibitors, and in certain indications, it is likely that the majority of patients may not respond to the agents at all, some responders may relapse after a period of response, and certain tumor types may appear particularly resistant.
If clinical trials of our drug candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our drug candidates.
Before obtaining regulatory approval for the sale of our drug candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of our drug candidates in humans. We may experience numerous unexpected events during, or as a result of, clinical trials that could delay or prevent our ability to receive regulatory approval or commercialize our drug candidates, including but not limited to: regulators, institutional review boards ("IRBs"), or ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site; our inability to reach agreements on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;significantly; manufacturing issues, including problems with manufacturing, supply quality, compliance with current GMP, or obtaining sufficient quantities of a drug candidate for use in a clinical trial or for commercialization; clinical trials of our drug candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon drug development programs; the
number of patients required for clinical trials of our drug candidates may be larger than we anticipate, enrollment may be insufficient or slower than we anticipate or patients may drop out at a higher rate than we anticipate; our third-party contractors, including clinical investigators, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; we might have to suspend or terminate clinical trials of our drug candidates for various reasons, including a finding of a lack of clinical response or other unexpected characteristics or a finding that participants are being exposed to unacceptable health risks; regulators, IRBs or ethics committees may require that we or our investigators suspend or terminate clinical research or not rely on the results of clinical research for various reasons, including noncompliance with regulatory requirements; the cost of clinical trials of our drug candidates may be greater than we anticipate; and the supply or quality of our drugsmedicines and drug candidates, companion diagnostics or other materials necessary to conduct clinical trials of our drug candidates or commercialization of our drugsmedicines may be insufficient or inadequate.
If we are required to conduct additional clinical trials or other testing of our drug candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our drug candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if they raise safety concerns, we may:
may be delayed in obtaining regulatory approval for our drug candidates;
candidates, or not obtain regulatory approval at all;
obtain approval for indications that are not as broad as intended;
have the drug removed from the market after obtaining regulatory approval;
be subject to additional post-marketing testing requirements;
be subject to warning labels or restrictions on how the drug is distributed or used; or
be unable to obtain reimbursement or obtain reimbursement at a commercially viable level for use of the drug.
Significant clinical trial manufacturing or regulatory delays may also increase our development costs and could shorten any periods during which we have the exclusive right to commercialize our drug candidates or allow our competitors to bring drugs to market before we do. This could impair our ability to commercialize our drug candidates and may harm our business and results of operations.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion. We have and may continue to experience difficulties in patient enrollment in our clinical trials for a variety of reasons, including the size and nature of the patient population and the patient eligibility criteria defined in the protocol, competition from competing companies, and natural disasters or public health epidemics, such as the coronavirus impacting China and elsewhere.COVID-19 pandemic.
Our clinical trials will likely compete with other clinical trials for drug candidates that are in the same therapeutic areas as our drug candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Because the number of qualified clinical investigators and clinical trial sites is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites. Even if we are able to enroll a sufficient number of patients in our
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clinical trials, delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could delay or prevent completion of these trials and adversely affect our ability to advance the development of our drug candidates.
Risks Related to Regulatory Approval and Extensive Government Regulation
All material aspects of the research, development, manufacturing and commercialization of pharmaceutical products are heavily regulated.regulated, and we may face difficulties in complying with or be unable to comply with such regulations, which could have a material adverse effect on our business.
All jurisdictions in which we conduct or intend to conduct our pharmaceutical-industry activities regulate these activities in great depth and detail. We initially intend to focusare currently focusing our activities in the major markets of the United States, China, EU,Europe, and other select countries.countries and regions. These geopolitical areas all strictly regulate the pharmaceutical industry, and in doing so they employ broadly similar regulatory strategies, including regulation of product development and approval, manufacturing, and marketing, sales
and distribution of products. However, there are differences in the regulatory regimes-some minor, some significant-that make for a more complex and costly regulatory compliance burden for a company like ours that plans to operate in each of these regions. Additionally, the NMPA’s reform of the medicine and approval system may face implementation challenges. The timing and full impact of such reforms is uncertain and could prevent us from commercializing our medicines and drug candidates in a timely manner.
The process of obtaining regulatory approvals and compliance with appropriate laws and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable requirements at any time during the product development process, approval process, or after approval, may subject an applicantus to administrative or judicial sanctions. These sanctions could include a regulator’s refusal to approve pending applications, withdrawal of an approval, license revocation, a clinical hold, voluntary or mandatory product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement, or civil or criminal penalties. The failure to comply with these regulations could have a material adverse effect on our business. For example, on March 25, 2020, the NMPA suspended the importation, sales and use of ABRAXANE® in China supplied to us by BMS, and the drug was subsequently recalled by BMS and is not currently available for sale in China. This suspension was based on inspection findings at BMS’s contract manufacturing facility in the United States. We have not had any sales of ABRAXANE since the suspension and do not expect future revenue from ABRAXANE. For additional information, please see the section of this Annual Report titled “Legal Proceedings”. Additionally, although we have obtained FDA approvalregulatory approvals of BRUKINSA for the treatment of adult patients with MCL who have received at least one prior therapy and NMPA approval of tislelizumab for patients with cHL who have received at least two prior therapies, the FDA and NMPAour medicines, regulatory authorities could latersuspend or withdraw these approvals. In order to market approved products in any given jurisdiction, we must comply with numerous and varying regulatory requirements of such jurisdiction regarding safety, efficacy and quality. In any event, the receipt of FDA, NMPA or other regulatory approval does not assure ultimatethe success of our commercialization efforts for our medicines.
We may be subject to anti-kickback, false claims laws, physician payment transparency laws, fraud and abuse laws or similar healthcare and security laws and regulations in the United States and other jurisdictions, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished sales.
Healthcare providers, physicians and others play a primary role in the recommendation and prescription of any products for which we obtain regulatory approval. Our operations are subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act ("FCA"), and physician payment sunshine laws and regulations. These laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we are subject to patient privacy regulation by both the federal government and the states in which we conduct our business.
Additionally, we are subject to state equivalents of each of the healthcare laws described above, among others, some of which may be broader in scope and may apply to healthcare services reimbursed by any third-party payor, not just governmental payors, but also private insurers. These laws are enforced by various state agencies and through private actions. Some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and/or other voluntary industry codes of conduct that restrict the payments made to healthcare providers and other potential referral sources. Several states and local laws also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state, require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, and require the registration of pharmaceutical sales representatives. In addition, the approval, commercialization, and other activities for our medicines and drug candidates outside the United States subjects us to non-U.S. equivalents of the healthcare laws such as those mentioned above, among other non-U.S. laws. As with the state equivalents mentioned above, some of these non-U.S. laws may be broader in scope. There are ambiguities as to what is required to comply with these state requirements, and if we fail to comply with an applicable state law requirement, we could be subject to penalties.
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It is possible that we may make grants to independent charitable foundations that help financially needy patients with their premium, co-pay, and co-insurance obligations. If we choose to do so, and if we or our vendors or donation recipients are deemed to fail to comply with relevant laws or regulations in the operation of these programs, we could be subject to damages, fines, penalties, or other criminal, civil, or administrative sanctions or enforcement actions. We cannot ensure that our compliance controls and procedures will be sufficient to protect against acts of our employees, business partners, or vendors that may violate the laws or regulations of the jurisdictions in which we operate. Regardless of whether we have complied with the law, a government investigation could impact our business practices, harm our reputation, divert the attention of management, increase our expenses, and reduce the availability of foundation support for our patients who need assistance.
Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including penalties, fines and/or exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the U.S. government under the federal FCA as well as under the false claims laws of several states. Neither the U.S. government nor the U.S. courts have provided definitive guidance on the applicability of fraud and abuse laws to our business. Law enforcement authorities are increasingly focused on enforcing these laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, individual imprisonment, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws. Furthermore, if any of the physicians or other providers or entities with whom we do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs, which may adversely affect our business.
If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program or other governmental pricing programs, we could be subject to additional reimbursement requirements, penalties, sanctions and fines, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
We participate in the Medicaid Drug Rebate Program, the 340B program, the U.S. Department of Veterans Affairs, Federal Supply Schedule (“FSS”) pricing program, and the Tricare Retail Pharmacy program, which require us to disclose average manufacturer pricing, and, in the future may require us to report the average sales price for certain of our drugs to the Medicare program. Pricing and rebate calculations vary across products and programs, are complex, and are often subject to interpretation by us, governmental or regulatory agencies and the courts. Furthermore, regulatory and legislative changes, and judicial rulings relating to these programs and policies (including coverage expansion), have increased and will continue to increase our costs and the complexity of compliance, have been and will continue to be time-consuming to implement, and could have a material adverse effect on our results of operations, particularly if CMS or another agency challenges the approach we take in our implementation. For example, in the case of our Medicaid pricing data, if we become aware that our reporting for a prior quarter was incorrect or has changed as a result of recalculation of the pricing data, we are generally obligated to resubmit the corrected data for up to three years after those data originally were due. Such restatements increase our costs and could result in an overage or underage in our rebate liability for past quarters. Price recalculations also may affect the ceiling price at which we are required to offer our products under the 340B program and give rise to an obligation to refund entities participating in the 340B program for overcharges during past quarters impacted by a price recalculation.
Civil monetary penalties can be applied if we are found to have knowingly submitted any false price or product information to the government, if we are found to have made a misrepresentation in the reporting of our average sales price, if we fail to submit the required price data on a timely basis, or if we are found to have charged 340B covered entities more than the statutorily mandated ceiling price. Additionally, our agreement to participate in the 340B program or our Medicaid drug rebate agreement could be terminated, in which case federal payments may not be available under Medicaid or Medicare Part D for our covered outpatient drugs. Additionally, if we overcharge the government in connection with our arrangements with FSS or Tricare Retail Pharmacy, we are required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract overcharges can result in allegations against us under the FCA and other laws and regulations. Unexpected refunds to the government, and responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
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Further, legislation may be introduced that, if passed, would, among other things, further expand the 340B program to additional covered entities or would require participating manufacturers to agree to provide 340B discounted pricing on drugs used in an inpatient setting, and any additional future changes to the definition of average manufacturer price or the Medicaid rebate amount could affect our 340B ceiling price calculations and negatively impact our results of operations. Additionally, certain pharmaceutical manufacturers are involved in ongoing litigation regarding contract pharmacy arrangements under the 340B program. The outcome of those judicial proceedings and the potential impact on the way in which manufacturers extend discounts to covered entities through contract pharmacies remain uncertain.
The approval processes of regulatory authorities in the United States, China, Europe and other comparable regulatory authorities are lengthy, time consuming, costly, and inherently unpredictable. If we experience delays or are ultimately unable to obtain regulatory approval for our drug candidates, our business will be substantially harmed.
Before obtaining regulatory approvals for the commercial sale of any drug candidate for a target indication, we must demonstrate in preclinical studies and well-controlled clinical trials, and, with respect to approval in the United States, to the satisfaction of the United States Food and Drug Administration ("FDA"), that the drug candidate is safe and effective, or the biologic drug candidate is safe, pure, and potent, for use for that target indication and that the manufacturing facilities, processes and controls are adequate. In addition to preclinical and clinical data, the new drug application ("NDA") or biologics license application ("BLA") must include comprehensive information regarding the chemistry, manufacturing and controls ("CMC") for the drug candidate. Obtaining approval of an NDA or BLA is a lengthy, expensive and uncertain process, and approval may not be obtained. If we submit an NDA or BLA to the FDA, the FDA decides whether to accept or reject the submission for filing. We cannot be certain that a submission will be accepted for filing and review by the FDA.
Regulatory authorities outside of the United States, such as the China National Medical Products Administration ("NMPA") and European Medicines Agency ("EMA"), also have requirements for approval of medicines for commercial sale with which we must comply prior to marketing in those areas. Regulatory requirements, approval processes and review periods can vary from country to country and could delay or prevent the introduction of our drug candidates. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and obtaining regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Seeking regulatory approvals outside of the United States could require additional nonclinical studies or clinical trials, which could be costly and time consuming. For all of these reasons, we may not obtain regulatory approvals on a timely basis, if at all.
The timeprocesses required to obtain approval by the FDA, the NMPA, the EMA, and other comparable regulatory authorities is complex, costly, unpredictable and typically takes many years following the commencement of preclinical studies and clinical trials and depends on numerous factors, including the substantial discretion of the regulatory authorities. Regulatory approval is never guaranteed. Furthermore, we have limited experience in obtaining regulatory approvals for our drug candidates, including preparing the required materials for regulatory submission and navigating the regulatory approval process. As a result, our ability to successfully obtain regulatory approval for our drug candidates may involve more inherent risk, take longer, and cost more than it would if we were a company with substantial experience in obtaining regulatory approvals.
Our drug candidates could be delayed or fail to receive regulatory approval for many reasons, including:
•failure to begin or complete clinical trials due to disagreements with regulatory authorities;
•failure to demonstrate that a drug candidate is safe and effective or that a biologic candidate is safe, pure, and potent for its proposed indication;
•failure of clinical trial results to meet the level of statistical significance required for approval;
•reporting or data integrity issues related to our clinical trials;
•disagreement with our interpretation of data from preclinical studies or clinical trials;
•changes in approval policies or regulations that render our preclinical and clinical data insufficient for approval or require us to amend our clinical trial protocols;
•regulatory requests for additional analyses, reports, data, nonclinical studies and clinical trials, or questions regarding interpretations of data and results and the emergence of new information regarding our drug candidates or other products;
•failure to satisfy regulatory conditions regarding endpoints, patient population, available therapies and other requirements for our clinical trials in order to support marketing approval on an accelerated basis or at all;
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•a delay in or the inability of health authorities to complete regulatory inspections of our development activities, regulatory filings or manufacturing operations, whether as a result of the COVID-19 pandemic or other reasons, or our failure to satisfactorily complete such inspections;
•our failure to conduct a clinical trial in accordance with regulatory requirements or our clinical trial protocols; and
•clinical sites, investigators or other participants in our clinical trials deviating from a trial protocol, failing to conduct the trial in accordance with regulatory requirements, or dropping out of a trial.
Our development activities, and regulatory filings and manufacturing operations also could be harmed or delayed by a shutdown of the U.S. government, including the FDA, or other governments and regulatory authorities.authorities in other jurisdictions. Since March 2020 when foreign and domestic inspections of facilities were largely placed on hold, the FDA has been working to resume pre-pandemic levels of inspection activities, including routine surveillance, bioresearch monitoring and pre-approval inspections. Should the FDA determine that an inspection is necessary for approval and an inspection cannot be completed during the review cycle due to restrictions on travel, and the FDA does not determine a remote interactive evaluation to be adequate, the agency has stated that it generally intends to issue, depending on the circumstances, a complete response letter or defer action on the application until an inspection can be completed. During the COVID-19 pandemic, a number of companies announced receipt of complete response letters due to the FDA's inability to complete required inspections for their applications. Regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures in response to the ongoing COVID-19 pandemic and may experience delays in their regulatory activities. If the FDA or other health authorities are delayed or unable to complete required regulatory inspections of our development activities, regulatory filings or manufacturing operations, or we do not satisfactorily complete such inspections, our business could be materially harmed.
We believe that our drug candidates’ designation in China as Category 1 products should confer certain regulatory advantages to us. These advantagesare currently conducting and may not result in commercial benefits to us as we expect, and they might be changed in the future conduct clinical trials for our drug candidates outside the U.S., and the FDA and comparable foreign regulatory authorities may not accept data from such trials.
We are currently conducting and may in the future conduct clinical trials for our drug candidates outside the U.S., including in China. The acceptance of data from clinical trials conducted outside the U.S. or another jurisdiction by the FDA or comparable foreign regulatory authority may be subject to certain conditions or may not be accepted at all. The FDA will generally not consider the data from a foreign clinical trial not conducted under an IND unless (i) the trial was well-designed and well-conducted in accordance with GCP requirements, including requirements for the design, conduct, performance, monitoring, auditing, recording, analysis, and reporting of clinical trials in a manner adverseway that provides assurance that the data and reported results are credible and accurate and that the rights, safety, and well-being of trial subjects are protected, and (ii) the FDA is able to us.
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Our drugsmedicines and any future approved drug candidates will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our drugsmedicines and drug candidates.
Our drugsmedicines and any additional drug candidates that are approved will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, efficacy, and other post-marketpost-marketing information, including both federal and state requirements in the United States and requirements of comparable regulatory authorities in China, Europe and other countries. For example, BRUKINSA and tislelizumab will continue to be subject to post-approval development and regulatory requirements, which may limit how they are manufactured and marketed, and could materially impair our ability to generate revenue.regions. As such, we and our third-party manufacturerscollaborators will be subject to ongoing review and periodic inspections to assess compliance with applicable post-approval regulations. Additionally, to the extent we want to make certain changes to the approved products,medicines, product labeling, or manufacturing processes, we will need to submit new applications or supplements to regulatory authorities for approval.
Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, NMPA, EMA and comparable regulatory authority requirements, including, in the United States, ensuring that quality control and manufacturing procedures conform to GMP regulations. As such, we and our contract manufacturers are and will be subject to continual review and inspections to assess compliance with GMP and adherence to commitments made in any NDA, BLA or BLA, other marketing application, and previous responses to any inspection observations. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. The failure to comply with these requirements could have a material adverse effect on our business. For example, on March 25, 2020, the NMPA suspended the importation, sales and use of ABRAXANE in China supplied to us by BMS, and the drug was subsequently recalled by BMS and is not currently available for sale in China. This suspension was based on inspection findings at BMS’s contract manufacturing facility in the United States. We have not had any sales of ABRAXANE since the suspension and do not expect future revenue from ABRAXANE. For additional information, please see the section of this Annual Report titled “Legal Proceedings”.
The regulatory approvals for our drugsmedicines and any approvals that we receive for our drug candidates are and may be subject to limitations on the approved indicated uses for which the drugmedicine may be marketed or to the conditions of approval, which could adversely affect the drug’smedicine’s commercial potential or contain requirements for potentially costly post-marketing testing and surveillance to monitor the safety and efficacy of the drugmedicine or drug candidate. The FDA, NMPA, EMA or comparable regulatory authorities may also require a REMS program or comparable program as a condition of approval of our drug candidates or following approval, as is the case with REVLIMID.REVLIMID®. In addition, if the FDA, NMPA, EMA or a comparable regulatory authority approves our drug candidates, we will have to comply with requirements including, for example, submissions of safety and other post-marketing information and reports, establishment registration, as well as continued compliance with GMP and GCPgood clinical practice ("GCP") for any clinical trials that we conduct post-approval.
The FDA, NMPA, EMA or comparable regulatory authorities may seek to impose a consent decree or withdraw marketing approval if compliance with regulatory requirements is not maintained or if problems occur after the drug reaches the market. Later discovery of previously unknown problems with our drugsmedicines or drug candidates or with our drug’s manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:
•restrictions on the marketing or manufacturing of our drugs,medicines, withdrawal of the product from the market, or voluntary or mandatory product recalls;
•fines, untitled or warning letters, or holds on clinical trials;
•refusal by the FDA, NMPA, EMA or comparable regulatory authorities to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license approvals or withdrawal of approvals;
•product seizure or detention, or refusal to permit the import or export of our drugsmedicines and drug candidates; and
•injunctions or the imposition of civil or criminal penalties.
The FDA, NMPA, EMA and other regulatory authorities strictly regulate the marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for their approved indications and for use in accordance with the provisions of the approved label. The FDA, NMPA, EMA and other regulatory authorities actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted
off-label uses may be subject to significant liability. The policies of the FDA, NMPA, EMA and of other regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our
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drug candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad, particularly in China, where the regulatory environment is constantly evolving. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any regulatory approval that we may have obtained and we may not achieve or sustain profitability.
In addition, if we are able to obtain accelerated approval or conditional approval of any of our drug candidates, as we have done with the initialaccelerated approval of BRUKINSA in the United States the FDA would require usand China and certain approvals of tislelizumab, pamiparib, XGEVA, BLINCYTO, KYPROLIS and QARZIBA in China, we will be required to conduct a confirmatory study to verify the predicted clinical benefit and may also requirebe required to conduct post-marketing safety studies. Other comparable regulatory authorities outsideThe Food and Drug Omnibus Reform Act of 2022 (“FDORA”) recently granted the United States, suchFDA the authority to require, as the NMPA or EMA, may have similar requirements. The results from theappropriate, that a post-approval confirmatory study may not supportor studies be underway prior to granting accelerated approval or within a specified time period after the date accelerated approval is granted. FDORA also gave the FDA increased authority to withdraw approval of a drug granted accelerated approval on an expedited basis if the sponsor fails to conduct such studies in a timely manner or such studies fail to verify clinical benefit, which would result in the approval being withdrawn.benefit. While operating under accelerated approval, we will be subject to certain restrictions that we would not be subject to upon receiving regular approval.
The regulations that govern regulatory approvals, pricing and reimbursement for new therapeutic products vary widely from country to country. Historically, products launched in the EUEurope do not follow price structures of the U.S. and generally prices tend to be significantly lower. The EU providesCountries in Europe provide options for its Member States to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product candidate to currently available therapies. A Member StateCountries may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market.
Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or licensing approval is granted. In some non-U.S. markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain regulatory approval for a drug in a particular country, but then be subject to price regulations that delay our commercial launch of the drug and negatively impact our revenues and results of operations.
Our ability to commercialize any drugsour medicines successfully also will depend in part on the extent to which reimbursement for these drugsmedicines and related treatments will be available on adequate terms, or at all, from government health administration authorities, private health insurers and other organizations. InFor additional information, please see the United Statessection of this Annual Report titled “Part I — Item 1A — Risk Factors Risks Related to Clinical Development and markets in other countries, patients generally rely on third-party payorsCommercialization of Our Medicines and Drug Candidates — If we or any third parties with which we may collaborate to reimburse all or part of the costs associated with their treatment. Adequate coveragemarket and reimbursement from governmental healthcare programs, such as Medicaresell our medicines are unable to achieve and Medicaid, and commercial payors is critical to new product acceptance. Sales of our product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors.
Furthermore, there has been heightened governmentalcontinues to be scrutiny recentlyfrom federal and state governments over the manner in whichway drug manufacturers set prices for their marketed products. For example, there have been several recentare ongoing Congressional inquiries, proposed bills or announced plans intendedinvestigations, legislation, and regulations to, among other things, bring more transparency to drug pricing, set patient spending caps for Medicare beneficiaries, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer’s patient programs, reform federal and state government program reimbursement methodologies for drug products, and allow importimportation of lower-priced drugs from Canada, and set prices based on international reference pricing in other countries. While some proposedof these measures maycan be done through agency rulemaking, most will require additional authorizationstatutory changes by Congress. While addressing drug pricing and patient affordability remains a top priority for Congress, it remains to become effective, Congress and the Trump administration have each indicated that it will continue to seek newbe seen if any agreement can be reached on a legislative and/solution. It is therefore unclear if any regulations or administrative measures to control drug costs. We cannot be sure whether additional legislative changeslegislation will be enacted to implement changes to drug pricing or whether existing regulations, guidance or interpretations will be changed,federal and state government reimbursement programs or what the impact of such changes on the marketing approvals of our drug candidates, if any, may be.
In the United States, since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the Affordable Care Act (the “ACA”), and we expect there will be additional challenges and amendments to the ACA in the future. Various portions of the ACA are currently undergoing legal and constitutional challenges in the Fifth Circuit Court and the United States Supreme Court; the Trump Administration has issued various Executive Orders which eliminated cost sharing subsidies and various provisions that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices; and Congress has introduced several pieces of legislation aimed at significantly revising or repealing the ACA. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended. We cannot predict what affect further changes to the ACA would have on our business.
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program, one of the key determining factors for a successful bid is the price. The government will award a contract to the lowest bidders who are able to satisfy the quality and quantity requirements. The successful bidders will be guaranteed a sale volume for at least a year. A volume guarantee gives the winner an opportunity to gain or increase market share. The volume guarantee is intended to make manufacturers more willing to cut their prices to win a bid. It may also enable manufacturers to lower their distribution and commercial costs. Many types of drugs are covered under the program, including drugs made by international pharmaceutical companies and generics made by domestic Chinese manufacturers. For example, in January 2020, ABRAXANE and its generic forms were included in the program. We won the bid and became one of the three companies who were awarded a government contract, with a price for sales of ABRAXANE under the government contract that will bewould have been significantly lower than the price that we havehad been charging in 2019charging. On March 25, 2020, the NHSA removed ABRAXANE from the volume-based procurement list due to the NMPA’s decision to suspend the importation, sales and into 2020. Onceuse of ABRAXANE, is included in the centralized procurement process, we anticipate that demand will increase significantly, which could have a material impact onhas adversely impacted our commercialization effortsbusiness and results of operations. In August 2020, VIDAZA® and its generic forms were included for bidding in the program. We did not win the bid for VIDAZA, which has resulted in the drug being restricted from use in public hospitals, which account for a large portion of the market, and a decline in sales revenue. Moreover, the program may change how generic drugs are priced and procured in China and is likely to accelerate the replacement of originator drugs with generics. We cannot be sure whether there will be any changes to the program in the future. The implementation of the program may negatively impact our existing commercial operations in China as well as our strategies on how to commercialize our drugs in China, especially if one of our drugs is included in the program but does not win the bid, which could have a material adverse effect on our business, financial condition and results of operations.
In the United States, a law commonly referred to as “Hatch-Waxman Act” provides the opportunity for patent-term restoration of up to five years to reflect patent term lost during certain portions of product development and the FDA regulatory review process. The Hatch-Waxman Act also provides for patent linkage, pursuant to which FDA will stay approval of certain follow-on new drug applications during the pendency of litigation between the follow-on applicant and the patent holder or licensee, for a period of up to 30 months. Finally, the Hatch-Waxman Act provides for regulatory exclusivity that can prevent submission or approval of certain follow-on marketing applications. For example, U.S. law provides a five-year period of exclusivity to the first applicant to obtain approval of a new chemical entity and three years of exclusivity protecting certain innovations to previously approved active ingredients where the applicant was required to conduct new clinical trials to obtain approval for the modification. Similarly, the Orphan Drug Act provides seven years of market exclusivity for certain drugs to treat rare diseases. These provisions, which are requiringdesigned to promote innovation, can prevent competing products from entering the market for a certain period of time after marketing approval for the innovative product.
In China, however, laws on data exclusivity (referred to as regulatory data protection) are still developing. The PRC Patent Law (as amended in 2020, the “Amended PRC Patent Law”) contains both patent term extension and a mechanism for early resolution of patent disputes. Accordingly, NMPA and NIPA jointly issued the Implementation Measures for the Early Settlement Mechanism of Drug Patent Disputes (for Trial Implementation). However, the provisions for patent term extension are unclear and/or remain subject to the approval of implementing regulations that companies provide themare still in draft form or have not yet been proposed, leading to uncertainty about their scope and implementation. Until the relevant implementing regulations for patent term extension in the Amended PRC Patent Law are implemented, and until data exclusivity is adopted and implemented, we may be subject to earlier generic or biosimilar competition in China than in the United States and other jurisdictions with predetermined discountsstronger regulatory data protection for pharmaceutical products.
Undesirable adverse events caused by our medicines and drug candidates could interrupt, delay or halt clinical trials, delay or prevent regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following any regulatory approval.
Undesirable adverse events ("AEs") caused by our medicines and drug candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval, or could result in limitations or withdrawal following approvals. If the conduct or results of our trials or patient experience following approval reveal a high and unacceptable severity or prevalence of AEs, our trials could be suspended or terminated and regulatory authorities could order us to cease further development of, or deny approval of, our drug candidates or require us to cease commercialization following approval.
As is typical in the development of pharmaceutical products, drug-related AEs and serious AEs ("SAEs") have been reported in our clinical trials. Some of these events have led to patient deaths. Drug-related AEs or SAEs could affect patient recruitment or the ability of enrolled subjects to complete the trial and could result in product liability claims. Any of these occurrences may harm our reputation, business, financial condition and prospects significantly. In our periodic and current
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reports filed with the SEC and our press releases and scientific and medical presentations released from list pricestime to time we disclose clinical results for our drug candidates, including the occurrence of AEs and SAEs. Each such disclosure speaks only as of the date of the data cutoff used in such report, and we undertake no duty to update such information unless required by applicable law. Also, a number of immune-related adverse events ("IRAEs") have been associated with treatment with checkpoint inhibitors such as tislelizumab, including immune-mediated pneumonitis, colitis, hepatitis, endocrinopathies, nephritis and renal dysfunction, skin adverse reactions, and encephalitis. These IRAEs may be more common in certain patient populations (potentially including elderly patients) and may be exacerbated when checkpoint inhibitors are challengingcombined with other therapies.
Additionally, undesirable side effects caused by our medicines and drug candidates, or caused by our medicines and drug candidates when used in combination with other drugs, could potentially cause significant negative consequences, including:
•regulatory authorities could delay or halt pending clinical trials;
•we may suspend, delay or alter development of the prices chargeddrug candidate or marketing of the medicine;
•regulatory authorities may withdraw approvals or revoke licenses of the medicine, or we may determine to do so even if not required;
•regulatory authorities may require additional warnings on the label;
•we may be required to implement a Risk Evaluation Mitigation Strategy ("REMS") for the drug, as is the case with REVLIMID, or, if a REMS is already in place, to incorporate additional requirements under the REMS, or to develop a similar strategy as required by a regulatory authority;
•we may be required to conduct post-marketing studies; and
•we could be sued and held liable for harm caused to subjects or patients.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular drug or drug candidate, and could significantly harm our business, results of operations, financial condition, and prospects.
If safety, efficacy, or other issues arise with any medical products. product that is used in combination with our medicines, we may be unable to market such medicine or may experience significant regulatory delays or supply shortages, and our business could be materially harmed.
We cannot be sure that reimbursement will be availableplan to develop certain of our medicines and drug candidates for any druguse as a combination therapy. If a regulatory authority revokes its approval of the other therapeutic that we commercializeuse in combination with our medicines or drug candidates, we will not be able to market our medicines or drug candidates in combination with such revoked therapeutic. If safety or efficacy issues arise with these or other therapeutics that we seek to combine with our medicines and drug candidates in the future, we may experience significant regulatory delays, and we may be required to redesign or terminate the applicable clinical trials. In addition, if reimbursement is available, what the level of reimbursement will be. Reimbursement may impact the demand for,manufacturing or the priceother issues result in a supply shortage of any component of our combination medicines or drug which we commercialize. Obtaining or maintaining reimbursement for our drugs may be particularly difficult because of the higher prices often associated with drugs administered under the supervision of a physician. If reimbursement is not available or is available only to limited levels,candidates, we may not be able to successfully commercialize anycomplete clinical development of our drug and drug candidate that we in-license or successfully develop.
product or fail to do so at acceptable quality levels or prices.”
Recently enacted and future legislation may increase the difficulty and cost for us to obtain regulatory approval of and commercialize our drugsmedicines and drug candidates and affect the prices we may obtain.
In the United States, China, the EUEurope and some other jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding healthcare that could prevent or delay regulatory approval of our drug candidates, restrict or regulate post-approval activities and affect our ability to profitably sell our drugsmedicines and any drug candidates for which we obtain regulatory approval. We expect that healthcare reform measures may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved drug.medicine. For example, in August 2022, the Inflation Reduction Act of 2022 (the "IRA") was signed into law. The IRA includes several provisions that may impact our business to varying degrees, including provisions that create a $2,000 out-of-pocket cap for Medicare Part D beneficiaries,
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impose new manufacturer financial liability on all drugs in Medicare Part D, allow the U.S. government to negotiate Medicare Part B and Part D pricing for certain high-cost drugs and biologics without generic or biosimilar competition, require companies to pay rebates to Medicare for drug prices that increase faster than inflation, and delay the rebate rule that would require pass through of pharmacy benefit manager rebates to beneficiaries. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our drugsmedicines and drug candidates. For additional information, please see the section of this Annual Report titled “Part I — Item 1 — Business – Government Regulation – Healthcare Reform.”
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether FDAany regulations, guidance or interpretations will be changed, or what the impact of such changes on the regulatory approvals of our medicines and drug candidates if any, may be.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant net losses since our inception and anticipate that we will continue to incur net losses for the foreseeable future and may nevernot become profitable.
Investment in pharmaceutical drug development is highly capital-intensive and speculative. It entails substantial upfront capital expenditures and significant risk that a drug candidate will fail to gain regulatory approval or become commercially viable. We continue to incur significant expenses related to our ongoing operations. As a result, we have incurred losses in each period since our inception, except in the third quarter of 2017 and the first quarter of 2021, when we were profitable due to revenue recognized from an up-front license feefees from BMS.collaboration agreements. As of December 31, 2019 and 2018,2022, we had an accumulated deficit of $2.0 billion and $1.0 billion, respectively.$7.1 billion. Substantially all of our operating losses have resulted from costs incurred in connection with our research and development programs and from selling, general and administrative expenses associated with our operations.
We expect to continue to incur losses for the foreseeable future, andalthough we expect these losses to increasedecrease in the near term as product sales growth exceeds expense growth. We expect expenses to continue to increase as we continue andto expand our development of, and seek regulatory approvals for, our drug candidates, and our manufacturing facilities, commercialize our drugsmedicines and launch new drugs,medicines, if approved, maintain and expand regulatory approvals, contribute up to $1.25 billion to the global development of 20a portfolio of Amgen pipeline assets under our collaboration agreement, and commercialize the drugsmedicines that we have licensed from Amgen, BMS and drugs that we have the right to commercialize under our collaboration with Amgen in Chinaother parties and any other drugsmedicines that we may successfully develop or license. Typically, it takes many years to develop one new drug from the time it is discovered to when it is available for treating patients. In addition, we will continue to incur costs associated with operating as a public company in the United States and Hong Kong.company. We will also incur costs in support of our growth as a commercial-stage
global biotechnology company. The size of our future net losses will depend, in part, on the number and scope of our drug development programs and the associated costs of those programs, the cost of our manufacturing activities, the cost of commercializing our approved products, our ability to generate revenues and the timing and amount of milestones and other payments we make or receive with arrangements with third parties. If any ofwe fail to achieve market acceptance for our medicines or if promising drug candidates fail in clinical trials or do not gain regulatory approval, or if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research, development, manufacturing and commercialization efforts, expand our business or continue our operations.
We may need to obtain additional financing to fund our operations, and if we are unable to obtain such financing, we may be unable to complete the further development and commercialization of our drugs and drug candidates.candidates or achieve profitability.
Our drugs andportfolio of drug candidates will require the completion of clinical development, regulatory review, scale up and availability of manufacturing resources, significant marketing efforts and substantial investment before they can provide us with product sales revenue. Additionally, we are investing in the manufacturing and commercialization of our approved medicines. Our operations have consumed substantial amounts of cash since inception. Our operating activities used $750.3 million$1.5 billion, $1.3 billion and $547.7 million$1.3 billion of net cash during the years ended December 31, 20192022, 2021 and 2018,2020, respectively. We recorded negative net cash flows from operating activities in 20192022, 2021 and 20182020 primarily due to our net losses of $950.6 million$2.0 billion, $1.5 billion and $674.0 million,$1.6 billion, respectively. Although we recorded positive net cash flows from operating activities in 2017, primarily
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due to the upfront fees received from the BMS collaboration, we cannot assure you that we will be able to generate positive cash flows from operating activities in the future. In January 2020, we received gross proceeds of approximately $2.78 billion from the issuance of our ordinary shares in the form of ADSs to Amgen. Under the collaboration with Amgen, we will equally share profits/losses with Amgen for Amgen’s oncology products in China during each product’s respective commercialization period and will also be eligible to receive royalties on sales of Amgen’s products in China or outside of China in the future, based on specified terms.
Our liquidity and financial condition may be materially and adversely affected by the negative net cash flows, and we cannot assure you that we will have sufficient cash from other sources to fund our operations. If we resort to other financing activities to generate additional cash, we will incur financing costs and we cannot guarantee that we will be able to obtain the financing on terms acceptable to us, or at all, and if we raise financing by issuing further equity securities your interest in our company may be diluted. If we have negative operating cash flows in the future, our liquidity and financial condition may be materially and adversely affected.
We expect to continue to spend substantial amounts on drug discovery, advancing the clinical development of our drug candidates, contributing to the global development of 20a portfolio of Amgen pipeline assets, developing our manufacturing capabilities and securing drug supply, and launching and commercializing our and our collaborators' drugsmedicines and any additional drug candidates for which we receive regulatory approval, including building and maintaining a commercial organization to address markets in China, the United States and other countries.
Since September 2017, we have generated revenues from the sale of drugsmedicines in China licensed from BMS, and since the fourth quarter of 2019, we expect to begin generatinghave generated revenues from our internally developed products in 2020.medicines. These revenues are not sufficient to support our operations. Although it is difficult to predict our liquidity requirements, based upon our current operating plan, we believe that we have sufficient cash, cash equivalents and short-term investments to meet our projected operating requirements for at least the next 12 months. However, we believe that our existing cash, cash equivalents and short-term investments may not be sufficient to enable us to complete all global development or commercially launch all of our current drugsmedicines and drug candidates for the currently anticipated indications and to invest in additional programs. Accordingly, we may require further funding through public or private offerings, debt financing, collaboration and licensing arrangements or other sources. Our forecast of
With uncertainty in the period of time through which our financial resources will becapital markets, adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we currently expect. Our future funding requirements will depend on many factors, including:
Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our technologies or drug candidates.
We may seek additional funding through a combination of equity offerings, debt financings, collaborations and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a holder of our ordinary shares and/or ADSs.shares. The incurrence of additional indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in certain additional restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. In addition, issuance of additional equity securities, or the possibility of such issuance, may cause the market price of our ADSs and/or ordinary shares to decline. In the event that we enter into collaborations or licensing arrangements in order to raise capital, we may be required to accept unfavorable terms, including relinquishing or licensing to a third party on unfavorable terms our rights to technologies or drug candidates that we otherwise would seek to develop or commercialize ourselves or potentially reserve for future potential arrangements when we might be able to achieve more favorable terms.
Fluctuations in exchange rates could result in foreign currency exchange losses and could materially reduce the value of your investment.
We incur portions of our expenses, and derive revenues, in currencies other than the U.S. dollar or Hong Kong dollar, in particular, the RMB, the Euro, and Australian dollar. As a result, we are exposed to foreign currency exchange risk as our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates. We do not regularly engage in hedging transactions to protect against uncertainty in future exchange rates between particular foreign currencies and the U.S. dollar. A declineFluctuations in the value of the U.S. dollar against currencies in countries in which we conduct clinical trialsoperate could have a negative impact on our research and development costs.results of operations. We cannot predict the impact of foreign currency fluctuations, and foreign currency fluctuations in the future may adversely affect our financial condition, results of operations, and cash flows.
The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and the foreign exchange policy proposed or adopted by the PRC, Australia and other non-U.S. governments. It is difficult to predict how market forces or PRC, Australia, other non-U.S. governments outside the U.S. and U.S. government policies may impact the exchange rate of the RMB and the U.S. dollar or any other currencies in the future. There
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remains significant international pressure on the PRC governmentChina to adopt a more flexible currency policy, including from the U.S. government, which has threatened to label China as a “currency manipulator,” which could result in greater fluctuation of the RMB against the U.S. dollar.
Substantially all of our revenues are denominated in U.S. dollars and RMB, and our costs are denominated in U.S. dollars, Australian dollars RMB and Euro,RMB, and a large portion of our financial assets and a significant portion of our debt is denominated in U.S. dollars and RMB. Any significant revaluation of the RMB may materially reduce any dividends payable on our ordinary shares and/or ADSs in U.S. dollars. To the extent that we need to convert U.S. dollars into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive. Conversely, if we decide to convert RMB into U.S. dollars for the purpose of making payments for dividends on our
In addition, there are limited instruments available for us to reduce our foreign currency risk exposure at reasonable costs. Furthermore, we are also currently required to obtain the State Administration of Foreign Exchange ("SAFE")'s approval from or registration with appropriate government authorities or designated banks before converting significant sums of foreign currencies into RMB. All of these factors could materially and adversely affect our business, financial condition, results of operations, and prospects, and could reduce the value of, and any dividends payable on, our ordinary shares and/or ADSs in foreign currency terms.
Our business, profitability and liquidity may be adversely affected by deterioration in the credit quality of, or defaults by, our distributors and customers, and an impairment in the carrying value of our short-term investments could negatively affect our consolidated results of operations.
We are exposed to the risk that our distributors and customers may default on their obligations to us as a result of bankruptcy, lack of liquidity, operational failure or other reasons. As we continue to expand our business, the amount and duration of our credit exposure will be expected to increase, over the next few years, as will the breadth of the entities to which we have credit exposure. Although we regularly review our credit exposure to specific distributors and customers that we believe may present credit concerns, default risks may arise from events or circumstances that are difficult to detect or foresee.
Also, the carrying amounts of cash and cash equivalents, restricted cash and short-term investments represent the maximum amount of loss due to credit risk. We had cash and cash equivalents of $618.0 million and $712.9 million,$3.9 billion, restricted cash of $2.8 million and $27.8$5.5 million and short-term investments of $364.7$665.3 million and $1.1 billion atas of December 31, 2019 and 2018, respectively,2022, most of which are deposited in financial institutions outside of China. As required by the PRC securities laws, the net proceeds from the STAR Offering must be used in strict compliance with the planned uses as disclosed in the PRC prospectus for the STAR Offering as well as our proceeds management policy for the STAR Offering approved by our board of directors. Although our cash and cash equivalents in China are deposited with various major reputable financial institutions, the deposits placed with these financial institutions are not protected by statutory or commercial insurance. In the event of bankruptcy of one of these financial institutions, we may be unlikely to claim our deposits back in full. As of December 31, 2019 and 2018,2022, our short-term investments consisted of U.S. Treasury securities.
Although we believe that the U.S. Treasury securities are of high credit quality and continually monitor the credit worthiness of these institutions, concerns about, or a default by, one or more institutionsinstitution in the U.S. market, could lead to significant liquidity problems, losses or defaults by other institutions, which in turn could adversely affect us.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain patent protection for our medicines and drug candidates and drugs through intellectual property rights, or if the scope of such intellectual property rights obtained is not sufficiently broad, third parties may compete directly against us.
Our success depends in large part on our ability to protect our proprietary technology andmedicines, drug candidates and drugsproprietary technology from competition by obtaining, maintaining and enforcing our intellectual property rights, including patent rights. We seek to protect the drugs,medicines, drug candidates and technology that we consider commercially important by filing patent applications in the United States, the PRC, Europe and other countries,territories, relying on trade secrets or pharmaceutical regulatory protection or employing a combination of these methods. This process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.
Patents may be invalidated and patent applications may not be granted for a number of reasons, including known or unknown prior art, deficiencies in the patent applications or the lack of novelty of the underlying invention or technology. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific
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collaborators, contract manufacturers, consultants, advisors and any other third parties, any of these parties may breach such agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. In addition, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases, not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending
patent applications or that we were the first to file for patent protection of such inventions. Furthermore, the PRC and recently, the United States have adopted the “first-to-file” system under which whoever first files a patent application will be awarded the patent if all other patentability requirements are met. Under the first-to-file system, third parties may be granted a patent relating to a technology which we invented.
In addition, under the PRC Patent Law, any organization or individual that applies for a patent in a foreign country for an invention or utility model accomplished in China is required to report to the National Intellectual Property Administration, or NIPA, for security examination. Otherwise, if an application is later filed in China, the patent right will not be granted.
The coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications we license or own currently or in the future issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any competitive advantage. In addition, the patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States, the PRC and other countries. We may be subject to a third-party preissuance submission of prior art to the United States Patent and Trademark Office (the "USPTO") or become involved in opposition, derivation, revocation, re-examination, post-grant and inter partesreview, or interference proceedings or similar proceedings in foreign jurisdictions challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or drugsmedicines or drug candidates and compete directly with us without payment to us, or result in our inability to manufacture or commercialize drugsmedicines or drug candidates without infringing, misappropriating or otherwise violating third-party patent rights. Moreover, we may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as oppositions in a foreign patent office, that challenge the priority of our invention or other features of patentability of our patents and patent applications. Such challenges may result in loss of patent rights, loss of exclusivity, or in patent claims being narrowed, invalidated, or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology, drugs,medicines, and drug candidates. Such proceedings also may result in substantial costs and require significant time from our scientists and management, even if the eventual outcome is favorable to us. Consequently, we do not know whether any of our technology or drugsmedicines or drug candidates will be protectable or remain protected by valid and enforceable patents. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner.
Furthermore, although various extensions may be available, the life of a patent and the protection it affords, is limited. For example, the approved cancer therapies we have licensed from BMS in China ABRAXANE, REVLIMID, and VIDAZA, face or are expected to face competition from generic medications, and we may face similar competition for anyour approved drugsmedicines even if we successfully obtain patent protection. Manufacturers of generic drugs may challenge the scope, validity or enforceability of our patents, in court, and we may not be successful in enforcing or defending those intellectual property rights and, as a result, may not be able to develop or market the relevant product exclusively, which would have a material adverse effect on any potential sales of that product. The issued patents and pending patent applications, if issued, for our drugsmedicines and drug candidates are expected to expire on various dates as described in “Part I-Item 1-Business-Intellectual Property” of ourthis Annual Report on Form 10-K for the year ended December 31, 2019.Report. Upon the expiration of our issued patents or patents that may issue from our pending patent applications, we will not be able to assert such patent rights against potential competitors and our business and results of operations may be adversely affected.
Given the amount of time required for the development, testing and regulatory review of new drug candidates, patents protecting such drug candidates might expire before or shortly after such drug candidates are commercialized. As a result, our patents and patent applications may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. Moreover, some of our patents and patent applications are, and may in the future be, co-owned with or licensed from third parties. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such co-owners or the licensors of our patents in order to enforce such patents against third parties, and such cooperation
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may not be provided to us. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.
We may not be able to protect our intellectual property rights throughout the world. If we fail to adequately protect our intellectual property rights, our competitive position could be impaired and our business could be materially harmed.
Filing, prosecuting, maintaining and defending patents on drugs or drug candidates in all countries throughout the world could be prohibitively expensive for us, and our intellectual property rights in some non-U.S. countries can have a different scope and strength than do those in the United States. In addition, the laws of certain non-U.S. countries do not protect intellectual property rights to the same extent as U.S. federal and state laws do.do, particularly those relating to biopharmaceutical products. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing drugs made using our inventions in and into the United States or non-U.S.other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own drugs and further, may export otherwise infringing drugs to non-U.S. jurisdictions where we have patent protection, but where enforcement rights are not as strong as those in the United States. These drugs may compete with our drugsmedicines and drug candidates and our patent rights or other intellectual property rights may not be effective or adequate to prevent them from competing. In addition, we may not be able to enforce patents that we in-license from third parties, who may delay or decline to enforce patents in the licensed territory.
We currently hold issued trademark registrations and have trademark applications pending, any of which may be the subject of a governmental or third-party objection, which could prevent the maintenance or issuance of the same. If we are unsuccessful in obtaining trademark protection for our primary brands, we may be required to change our brand names, which could materially adversely affect our business. Moreover, as our products mature, our reliance on our trademarks to differentiate us from our competitors will increase, and as a result, if we are unable to prevent third parties from adopting, registering or using trademarks and trade dress that infringe, dilute or otherwise violate our trademark rights, our business could be materially adversely affected.
We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop.
We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful. Our patent rights relating to our drugsmedicines and drug candidates could be found invalid or unenforceable if challenged in court or before the USPTO or comparable non-U.S. authority.government patent authorities.
Competitors may infringe our patent rights or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of our own intellectual property rights or the proprietary rights of others. This can be expensive and time consuming. Any claims that we assert against perceived infringers could also provoke these parties to assert counterclaims against us challenging the validity or enforceability of our patents or alleging that we infringe their intellectual property rights.
In addition, generic drug companies may in the future file an Abbreviated New Drug Application (“ANDA”) with the FDA seeking approval to market a generic version of our products, or our competitors’ products, before the expiration of the patents covering such products, which may trigger ANDA litigation over the associated patent. Settlements and related licensing agreements resulting from ANDA litigation can be challenged and have the potential to generate additional litigation which can be costly. The success of such litigation depends on the strength of the patents covering the branded product and the manufacturer’s ability to prove infringement. The outcome of such litigation is inherently uncertain and may result in potential loss of market exclusivity for the product which may have a significant financial impact on product revenue. Furthermore, the Federal Trade Commission (“FTC”) has brought lawsuits to challenge ANDA litigation settlements as anti-competitive. If we engage in ANDA litigation, we may also face an FTC challenge with respect to the related settlement which may result in additional expense or penalty.
Many of our current and potential competitors have the ability to dedicate substantially greater resources to enforce and/or defend their intellectual property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. An adverse result in any litigation proceeding could put our patent,patents, as well as any patents that may issue in the future from our pending patent applications, at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.
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In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include ex partere-examination, inter partesreview, post-grant review, derivation and equivalent proceedings in non-U.S. jurisdictions, such as opposition proceedings. Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover and protect our drugsmedicines or drug candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity of our patents, for example, we cannot be certain that there is no invalidating prior art of which we, our patent counsel, and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our drugsmedicines or drug candidates. Such a loss of patent protection could have a material adverse impact on our business.
We may not be able to prevent misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States.
If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our drugsmedicines or drug candidates.
Our commercial success depends in part on our avoiding infringement of the valid patents and other intellectual property rights of third parties. We are aware of numerous issued patents and pending patent applications belonging to third parties that exist in fields of our drugsmedicines and drug candidates. There may also be third-party patents or patent applications of which we are currently unaware, and given the dynamic area in which we operate, additional patents are likely to issue that relate to aspects of our business. There is a substantial amount of litigation and other claims and proceedings involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries generally. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our drugsmedicines and drug candidates may give rise to claims of infringement of the patent rights of others.
Third parties may assert that we are using technology in violation of their patent or other proprietary rights. Defense of these claims, regardless of their merit, could involve substantial litigation expense and divert our technical personnel, management personnel, or both from their normal responsibilities. Even in the absence of litigation, we may seek to obtain licenses from third parties to avoid the risks of litigation, and if a license is available, it could impose costly royalty and other fees and expenses on us.
If third parties bring successful claims against us for infringement of their intellectual property rights, we may be subject to injunctive or other equitable relief, which could prevent us from developing and commercializing one or more of our drugsmedicines and drug candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim against us of infringement or misappropriation, or a settlement by us of any such claims, we may have to pay substantial damages, including treble damages and attorneys’ fees in the case of willful infringement, pay royalties or redesign our infringing drugsmedicines and drug candidates, which may be impossible or require substantial time and cost. In the event of an adverse result in any such litigation, or even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our drugsmedicines or drug candidates. Any such license might not be available on reasonable terms or at all. In the event that we are unable to obtain such a license, we would be unable to further develop and commercialize one or more of our drugmedicines and drug candidates, which could harm our business significantly. We may also elect to enter into license agreements in order to settle patent infringement claims or to resolve disputes prior to litigation, and any such license agreements may require us to pay royalties and other fees that could significantly harm our business.
We are aware of patents in the U.S. patentsand some other jurisdictions with claims covering certain antibodies that are relevant to tislelizumab for which patents are expected to expire in 2023 or 2024; complexes of irreversible BTK inhibitors that are relevant to BRUKINSA for which the patent is expected to expire in 2027; and the use of PARP inhibitors to treat certain cancers that are relevant to pamiparib for which patents are expected to expire between 2027 and 2031. We2031; and the use of TIGIT antagonist in combination with PD-1 binding antagonist to treat cancers that are also aware of issued patents in Europe and China relevant to pamiparib.the use of ociperlimab in combination with tislelizumab for which patents are expected to expire in 2034. Although we believe that the relevant claims of these patents would likely be held invalid, we can provide no assurance that a court or an administrative agency would agree with our assessment. If the validity of the relevant claims of one or more of these patents were to be upheld upon a validity challenge, and our related drug or drug candidatemedicine was to be approved for sale in the United States before the expiration of the relevant patents, we would need a license to commercialize the drug or drug candidatemedicine in the United States before the expiration of the relevant patents. In addition, depending upon the circumstances, we may need licenses for jurisdictions outside of the United States where we wish to commercialize a particular drug or drug candidatemedicine before the expiration of corresponding patents covering that drug or drug candidate.medicine. In such cases, we can provide no assurance that we would be able to obtain a license or licenses on commercially reasonable terms or at all, which could materially and adversely affect our business.
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Even if litigation or other proceedings are resolved in our favor, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the market price of the ordinary shares and/or ADSs.our shares. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and other patent agencies in several stages over the lifetime of the patent. The USPTO and various non-U.S. governmentalother patent agencies require compliance with a number of procedural, documentary, fee payment, and other similar provisions during the patent application process. Although an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit formal documents. In any such event, our competitors might be able to enter the market, which would have a material adverse effect on our business.
If we do not obtain patent term extension and regulatory exclusivity for any drugs or drug candidates we may develop,our medicines, our business may be materially harmed.
Depending upon the timing, duration and specifics of any FDA marketing approval of any drugs orour medicines and drug candidates, we may develop, one or more of our U.S. patents may be eligible for limited patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during clinical trials and the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of drug approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended.Act. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. In addition, noalthough the Amended PRC Patent Law includes patent term extension, system has been established in the PRC yet, and implementation of the patent term extension proposedprovision of the law is unclear and/or remains subject to the approval of implementing regulations that are still in the Innovation Opiniondraft form and the Trade Agreement may not occur quickly.soliciting comments, leading to uncertainty about its scope and implementation. As a result, the patents we have in the PRC are not yet eligible to be extended for patent term lost during clinical trials and the regulatory review process. If we are unable to obtain patent term extension or term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our business, financial condition, results of operations, and prospects could be materially harmed.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our drugsmedicines or drug candidates.
The United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained, if any. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. There could be similar changes in the laws of foreign jurisdictions that may impact the value of our patent rights or our other intellectual property rights.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
In addition to our issued patent and pending patent applications, we rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position and to protect our drugsmedicines and drug candidates. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties that have access to them, such as our employees, corporate collaborators, outside scientific collaborators, sponsored researchers, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. However, any of these parties may breach such agreements and disclose our proprietary information, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming,time- consuming, and the outcome is unpredictable. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them from using that technology or information to compete with us and our competitive position would be harmed.
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Furthermore, many of our employees, including our senior management, were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including each membermembers of our senior management, executed proprietary rights, non-disclosure and in some cases non-competition agreements in connection with suchtheir previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
In addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own, which may result in claims by or against us related to the ownership of such intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our management and scientific personnel.
If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could be required to pay monetary damages or could lose license rights that are important to our business.
We have entered into license agreements with third parties providing us with rights under various third-party patents and patent applications. These license agreements impose diligence, development or commercialization timelines and milestone payment, royalty, insurance and other obligations on us. If we fail to comply with our obligations under our current or future license agreements, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any drugmedicine or drug candidate that is covered by the licenses provided for under these agreements or we may face claims for monetary damages or other penalties under these agreements. Such an occurrence could diminish the value of these products and our company. Termination of the licenses provided for under these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.agreements.
Risks Related to Our Reliance on Third Parties
We rely on third parties to manufacture at least a portionsome of our commercial and clinical drug supplies. Our business could be harmed if those third parties fail to provide us with sufficient quantities of product or fail to do so at acceptable quality levels or prices.
Although we currently havemanufacture commercial supply of tislelizumab, zanubrutinib, and pamiparib at our manufacturing facilities that may be used for clinical-scalein China, and are constructing a commercial-stage biologics manufacturing and processingclinical R&D center in New Jersey and are building a biologicsnew small molecule manufacturing facilitycampus in Suzhou, China, we intendcontinue to at least partially rely on outside vendors to manufacture supplies and process some of our drugsmedicines and drug candidates. For example, we have entered into a commercial supply agreement for tislelizumab with Boehringer Ingelheim Biopharmaceuticals (China) Ltd. ("Boehringer Ingelheim") and entered into a commercial supply agreement for BRUKINSAwith Catalent Pharma Solutions, LLC ("Catalent"). In addition, we generally rely on BMSour collaboration partners and itstheir third-party manufacturers for supply of ABRAXANE, REVLIMID, and VIDAZAin-licensed medicines in China. We will be dependent on Amgen for the supply of the drugs that we plan to develop and commercialize in China under the collaboration with Amgen. We have limited experience in manufacturing or processing our drugsmedicines and drug candidates on a commercial scale, including BRUKINSA and tislelizumab.scale. Additionally, we have limited experience in managing the manufacturing process, and our process may be more difficult or expensive than the approaches currently in use.
Although we intend to further developuse our own manufacturing facilities, we also intend to use third parties as part of our manufacturing process and for the clinical and commercial supply of our drugsmedicines and drug candidates. Our anticipated reliance on a limited number of third-party manufacturers exposes us to the following risks:
•we may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited and the FDA, NMPA, EMA or other comparable regulatory authorities must evaluate and/or approve any manufacturers as part of their regulatory oversight of our drugsmedicines and drug candidates. This evaluation would require new testing and GMP-compliance inspections by FDA, NMPA, EMA or other comparable regulatory authorities;
•our manufacturers may have little or no experience with manufacturing our drugsmedicines and drug candidates, and therefore may require a significant amount of support from us in order to implement and maintain the infrastructure and processes required to manufacture our drugsmedicines and drug candidates;
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•our third-party manufacturers might be unable to timely manufacture our drugsmedicines and drug candidates or produce the quantity and quality required to meet our clinical and commercial needs, if any. For example, we encountered supply disruptions of ABRAXANE in 2019, whichThis may, recur in the future;future, require us to transfer manufacturing technology to a different manufacturer or use a different process, each of which would be both time consuming and costly and potentially require us to conduct comparative studies to determine bioequivalence of the new and prior manufacturers' products or the new and old processes;
•manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies in the United States to ensure strict compliance with GMPsgood manufacturing practice ("GMP") requirements and other government regulations and by other comparable regulatory authorities for corresponding non-U.S. requirements. Manufacturers may be unable to comply with these GMPs which may result in fines and civil penalties, suspension of production, suspension, delay or withdrawal of product approval, or product seizure or recall. We do not have control over third-party manufacturers’ compliance with these regulations and requirements;
•we may not own, or may have to share, the intellectual property rights to anysome of the technology used and improvements made by our third-party manufacturers in the manufacturing process for our drugsmedicines and drug candidates;
•raw materials and components used in the manufacturing process, particularly those for which we have no other source or supplier, may not be available or may not be suitable or acceptable for use due to material or component defects; and
•our contract manufacturers and critical drug component suppliers may be subject to disruptions in their business, including unexpected demand for or shortage of raw materials or components, cyber-attacks on supplier systems, labor disputes or shortage and inclement weather, as well as natural or man-made disasters.disasters or pandemics; and
•manufacturing partners may require us to fund capital improvements to support scale-up of manufacturing and related activities to the extent our drug candidates or medicines become approved for commercial sale.
For example, on March 25, 2020, the NMPA suspended the importation, sales and use of ABRAXANE in China supplied to us by BMS, and the drug was subsequently recalled by BMS and is not currently available for sale in China. This suspension was based on inspection findings at BMS’s contract manufacturing facility in the United States. We have not had any sales of ABRAXANE since the suspension and do not expect future revenue from ABRAXANE. For additional information, please see the section of this Annual Report titled “Legal Proceedings”.
Each of these risks could delay or prevent the completion of our clinical trials or the approval of any of our drug candidates, result in higher costs or adversely impact development of our drug candidates or commercialization of our drugs.medicines. In addition, we will rely on third parties to perform certain specification tests on our drugsmedicines and drug candidates prior to delivery to patients. If these tests are not appropriately done and test data are not reliable, patients could be put at risk of serious harm and regulatory authorities could place significant restrictions on our company until deficiencies are remedied.
Currently, the raw materials for our manufacturing activities are supplied by multiple source suppliers, although portions of our supply chain may rely on sole source suppliers. We have agreements for the supply of drug materials with manufacturers or suppliers that we believe have sufficient capacity to meet our demands. In addition, we believe that adequate alternative sources
for such supplies exist. However, there is a risk that, if supplies are interrupted, it would materially harm our business. For example, the COVID-19 outbreak could have a broad impact on the production and supplies of active ingredients or other raw materials and result in a potential shortage of supply, as a large portion of such active ingredients or raw materials used by drug manufacturers worldwide are from China. Therefore, drug manufacturers including us could be negatively impacted.
Manufacturers of drug and biological products often encounter difficulties in production, particularly in scaling up or out, validating the production process, and assuring high reliability of the manufacturing process (including the absence of contamination). These problems include logistics and shipping, difficulties with production costs and yields, quality control, including stability of the product, product testing, operator error, availability of qualified personnel, as well as compliance with strictly enforced federal, state and non-U.S. regulations. Furthermore, if contaminants are discovered in the supply of our drugsmedicines and drug candidates or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any stability failures or other issues relating to the manufacture of our drugsmedicines and drug candidates will not occur in the future. Additionally, our manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If our manufacturers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, our ability to provide our drugsmedicines for commercial sale and our drug candidates to patients in clinical trials would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to begin new clinical trials at additional expense or terminate clinical trials completely.
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We have entered into licensing and collaboration arrangements and may enter into additional collaborations, licensing arrangements, or strategic alliances in the future, and we may not realize the benefits of such arrangements.
We have entered into licensing and collaboration agreements and may enter into additional collaboration, licensing arrangements, or strategic alliances with third parties that we believe will complement or augment our research, development and commercialization efforts. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing shareholders, or disrupt our management and business.
In August 2017, we acquired Celgene's commercial operations in China and an exclusive license to Celgene's (now BMS’s) commercial cancer portfolio in China, REVLIMID, VIDAZA and ABRAXANE. On March 25, 2020, the NMPA suspended the importation, sales and use of ABRAXANE in China supplied to us by BMS, and the drug was subsequently recalled by BMS and is not currently available for sale in China. This suspension was based on inspection findings at BMS’s contract manufacturing facility in the United States. We have not had any sales of ABRAXANE since the suspension and do not expect future revenue from ABRAXANE. We have initiated an arbitration proceeding against BMS asserting that it has breached and continues to breach the terms and conditions of the license and supply agreement. For additional information, please see the section of this Annual Report titled “Legal Proceedings”.
In 2019, we entered into a strategic collaboration with Amgen with respect to its commercial-stage oncology products XGEVA, BLINCYTO and KYPROLIS and a portfolio of clinical- and late-preclinical-stage oncology pipeline products. In January 2021, we entered into a collaboration and license agreement with Novartis Pharma AG ("Novartis"), granting Novartis rights to develop, manufacture and commercialize our anti-PD-1 antibody tislelizumab in North America, Japan, the EU, and six other European countries. In December 2021, we entered into an option, collaboration and license agreement with Novartis to develop, manufacture and commercialize our investigational TIGIT inhibitor, ociperlimab, in North America, Europe, and Japan.
Our strategic collaborations with Amgen, Novartis and BMS involve numerous risks. We cannot be certain that we will achieve the financial and other benefits that led us to enter into the collaborations. Moreover, we may not achieve the revenue and cost synergies expected from our collaborations for their commercial products in China, and our management’s attention may be diverted from our drug discovery and development business. These synergies are inherently uncertain, and are subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and are beyond our control. If we achieve the expected benefits, they may not be achieved within the anticipated time frame. Lastly, strategic collaborations can be terminated for various reasons. For example, our strategic collaboration with Celgene for the development and commercialization of tislelizumab, which we entered into in connection with the license agreement in 2017, was terminated in June 2019 in advance of the acquisition of Celgene by BMS, and we received a termination notice in October 2021 to terminate our license agreement for ABRAXANE in China.
Additionally, from time to time, we may enter into joint ventures with other companies. Establishment of a joint venture involves significant risks and uncertainties, including (i) our ability to cooperate with our strategic partner, (ii) our strategic partner having economic, business, or legal interests or goals that are inconsistent with ours, and (iii) the potential that our strategic partner may be unable to meet its economic or other obligations, which may require us to fulfill those obligations alone.
We face significant competition in seeking appropriate strategic partners, and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic collaboration or other alternative arrangements for our medicines and drug candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our medicines and drug candidates as having the requisite potential to demonstrate safety and efficacy or commercial viability. If and when we collaborate with a third party for development and commercialization of a medicine or drug candidate, we can expect to relinquish some or all of the control over the future success of that medicine or drug candidate to the third party. For any medicines or drug candidates that we may seek to in-license from third parties, we may face significant competition from other pharmaceutical or biotechnology companies with greater resources or capabilities than us, and any agreement that we do enter may not result in the anticipated benefits.
Collaborations involving our medicines and drug candidates are subject to numerous risks, which may include the following:
•collaborators have significant discretion in determining the efforts and resources that they will apply to a collaboration;
•collaborators may not pursue development and commercialization of our drug candidates and medicines or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in their strategic focus due to the acquisition of competitive drugs, availability of funding, or other external factors, such as a business combination that diverts resources or creates competing priorities;
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•collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial, abandon a drug candidate, repeat or conduct new clinical trials, or require a new formulation of a drug candidate for clinical testing;
•collaborators could independently develop, or develop with third parties, drugs that compete directly or indirectly with our medicines or drug candidates;
•a collaborator with marketing and distribution rights to one or more medicines may not commit sufficient resources to their marketing and distribution or may set prices that reduce the profitability of the medicines;
•collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability;
•disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization of our medicines and drug candidates, or that result in costly litigation or arbitration that diverts management attention and resources;
•collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable medicines and drug candidates; and
•collaborators may own or co-own intellectual property covering our medicines and drug candidates that results from our collaborating with them, and in such cases, we would not have the exclusive right to commercialize such intellectual property.
As a result, we may not be able to realize the benefit of current or future collaborations, licensing arrangements or strategic alliances for our medicines and drug candidates if we are unable to successfully integrate such products with our existing operations and company culture, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic transaction or license, we will be able to fulfill all of our contractual obligations in a timely manner or achieve the revenue, specific net income or other goals that justify such transaction. If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a drug candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense.
If we fail to maintain an effective distribution channel for our medicines, our business and sales could be adversely affected.
We rely on third-party distributors to distribute our approved medicines. For example, we rely on sole third-party distributors to distribute some of our in-licensed approved medicines in China and multiple third-party distributors for the distribution of our internally developed medicines. We also expect to rely on third-party distributors to distribute our other internally developed and in-licensed medicines, if approved. Our ability to maintain and grow our business will depend on our ability to maintain an effective distribution channel that ensures the timely delivery of our medicines. However, we have relatively limited control over our distributors, who may fail to distribute our medicines in the manner we contemplate. For example, while we have long-standing business relationship with our sole distributor for the in-licensed products from BMS, the agreement we entered into with our sole distributor can be terminated by either party upon six months’ written notice. If price controls or other factors substantially reduce the margins our distributors can obtain through the resale of our medicines to hospitals, medical institutions and sub-distributors, they may terminate their relationship with us. While we believe alternative distributors are readily available, there is a risk that, if the distribution of our medicines is interrupted, our sales volumes and business prospects could be adversely affected.
If third-party manufacturers fail to comply with manufacturing regulations, our financial results and financial condition willcould be adversely affected.
Before a third party can begin commercial manufacture of our drugs and drug candidates, contract manufacturersmedicines, they are subject to regulatory inspections of their manufacturing facilities, processes and quality systems. Due to the complexity of the processes used to manufacture drug and biological products, and our drug candidates, any potential third-party manufacturer may be unable to initially pass federal, state or international regulatory inspections in a timely or cost-effective manner in order for us to obtain regulatory approval of our drug candidates.approval. If our contract manufacturers do not pass their inspections by the relevant regulatory authorities, our commercial supply of drug product or substance will be significantly delayed and may result in significant additional costs, including the delay or denial of any marketing application for our drug candidates or disruption in sales. In addition, drug and biological manufacturing facilities are continuously subject to inspection by regulatory authorities, before and after drug approval, and must comply with GMPs. Our or our collaborators' contract manufacturers may
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encounter difficulties in achieving quality control and quality assurance and may experience shortages in qualified personnel. In addition, contract manufacturers’ failure to achieve and maintain high manufacturing standards in accordance with applicable regulatory requirements, or the incidence of manufacturing errors, could result in patient injury, product liability claims, product shortages, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously harm our business. If a third-party manufacturer with whom we or our collaborators' contract is unable to comply with manufacturing regulations, we may also be subject to fines, unanticipated compliance expenses, recall or seizure of our drugs, product liability claims, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions could materially adversely affect our financial results and financial condition.
If we are not able to successfully develop and/or procedure,commercialize Amgen’s oncology products, the expected benefits of the collaboration will not materialize.
We have a collaboration agreement with Amgen pursuant to which we and Amgen have agreed to collaborate on the commercialization of Amgen’s oncology products XGEVA, BLINCYTO and KYPROLIS in China, and the global development and commercialization in China of a portfolio of Amgen's clinical- and late-preclinical-stage pipeline products. Amgen has paused or stopped development of some of the pipeline assets due to portfolio prioritization, and the parties expect that the development plan for the pipeline assets will continue to evolve over time. Additionally, Amgen has advised us that its applications to the Human Genetic Resources Administration of China ("HGRAC") to obtain approval to conduct clinical studies in China for the pipeline assets, including its application for LUMAKRAS (sotorasib) ("AMG 510"), a changefirst-in-class KRAS G12C inhibitor, were delayed between 2020 and 2022. Approval from the HGRAC is required for the initiation of clinical trials involving the collection of human genetic materials in China. In connection with our ongoing assessment of the Collaboration Agreement cost-share contributions, we determined that our further investment in the location wheredevelopment of AMG 510 was no longer commercially viable for BeiGene. As a result, in February 2023, we entered into an amendment to the product is manufactured orCollaboration Agreement to (i) stop sharing costs with Amgen for the further development of AMG 510 during the period starting January 1, 2023 and ending August 31, 2023; and (ii) cooperate in good faith to prepare a changetransition plan with the anticipated termination of a third-party manufacturer, could require prior review by regulatory authorities and/or approvalAMG 510 from the Collaboration Agreement. We do not expect the HGRAC delay to affect the conduct of the manufacturing process and proceduresclinical trials in accordance with applicable requirements. This review may be costly and time consuming and could delay or preventChina for our drug candidates, other than assets that are part of the launch of a product or impact commercialization or continuous supply of approved drugs.Amgen collaboration. The new facility will also be subject to pre-approval inspection. In addition, we have to demonstrate that the product made at the new facility is equivalent to the product made at the former facility by physical and chemical methods, which are costly and time consuming. It is also possible that regulatory authorities may require clinical testing as a way to prove equivalency, which would result in additionalAmgen collaboration involves numerous risks, including unanticipated costs and delay.diversion of our management’s attention from our other drug discovery and development business. There can be no assurance that we will be able to successfully develop and commercialize Amgen’s oncology products in China, which could disrupt our business and harm our financial results.
We rely on third parties to conduct our preclinical studies and clinical trials and we must work effectively with collaborators to develop our drug candidates.trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our drugsmedicines and drug candidates and our business could be substantially harmed.
We have relied upon and plan to continue to rely to some extent upon third-party CROs to monitor and manage data and provide other services for our ongoing preclinical and clinical programs. We rely on these parties for execution of our preclinical studies and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on the
CROs does not relieve us of our regulatory responsibilities. We, our CROs for our clinical programs and our clinical investigators are required to comply with GCPs, which are regulations and guidelines enforced by the FDA, NMPA, EMA and other comparable regulatory authorities for all of our drugsdrug candidates in clinical development. If we or any of our CROs or clinical investigators fail to comply with applicable GCPs and other regulatory requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, NMPA, EMA or comparable regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. In addition, our pivotal clinical trials must be conducted with drug product produced under GMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. We could also be subject to government investigationinvestigations and enforcement actions.
If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical and nonclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they or our
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clinical investigators obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our drug candidates. As a result, our results of operations and the commercial prospects for our drug candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.
Switching or adding additional CROs involves additional cost and delays, which can materially influence our ability to meet our desired clinical development timelines. There can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse effect on our business, financial condition and prospects.
Risks Related to Our Industry, Business and Operations
At the beginning of 2019,2022, we had 2,070approximately 8,000 employees, and we ended the year with 3,359more than 9,000 employees, an increase of approximately 62%15%. We expect to continue our growth. Most of our employees are full-time. As our research, development, manufacturing and commercialization plans and strategies evolve, we must add a significant number of additional managerial, operational, drug development, clinical, regulatory affairs, manufacturing, sales, marketing, financial and other personnel.personnel in the United States, China, Europe and other regions. Our recent growth and any anticipated future growth will impose significant added responsibilities on members of management, including:
•identifying, recruiting, integrating, maintaining, and motivating additional employees;
•managing the growth in our research, clinical operations, commercial, and supporting functions;
•managing our internal development efforts effectively, including the clinical and regulatory authority review process for our drug candidates, while complying with our contractual obligations to contractors and other third parties; and
•improving our operational, financial and management controls, reporting systems and procedures.
Our future financial performance and our ability to develop and commercialize our drugsmedicines and drug candidates will depend, in part, on our ability to effectively manage our recent growth and any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.
We currently rely, and for the foreseeable future will continue to rely, on certain independent organizations, advisors and consultants to provide certain services. There can be no assurance that the services of these independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, if at all.
If we are not able to effectively manage our growth and further expand our organization by hiring new employees and expanding our groups of consultants and contractors as needed, we may not be able to successfully implement the tasks necessary to further develop, manufacture and commercialize our drugsmedicines and drug candidates and, accordingly, may not achieve our research, development, manufacturing and commercialization goals.
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
Xiaodong Wang, Ph.D., our Co-Founder, Chairman of our scientific advisory board, and director; John V. Oyler, our Co-Founder, Chief Executive Officer and Chairman of the board of directors; Xiaobin Wu, Ph.D., our President, Chief Operating Officer and General Manager of China; and the other principal members of our management and scientific teams play a critical role in the Company's operation and development. Although we have employment agreements or offer letters with each of our executive officers, these agreements do not prevent our executives from terminating their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization objectives.
To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided share option, restricted share unit and restricted share grants that vest over time or based on performance conditions. The value to employees of these equity grants that may be significantly affected by movements in our share price that are beyond our control and may be insufficient to counteract more lucrative offers from other companies. Although we have employment agreements or offer letters with our key employees, any of our employees could leave our employment at any time, with or without notice.
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Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating and executing our discovery, clinical development, manufacturing and commercialization strategy. The loss of the services of our executive officers or other key employees and consultants could impede the achievement of our research, development, manufacturing and commercialization objectives and seriously harm our ability to successfully implement our business strategy.
Furthermore, replacing executives, key employees or consultants may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel or consultants on acceptable terms, given the competition among numerous pharmaceutical and biotechnology companies for similar personnel.
We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.
Our business is subject to complex and evolving industry-specific laws and regulations regarding the collection and transfer of personal data. These laws and regulations can be complex and stringent, and many are subject to change and uncertain interpretation, which could result in claims, changes to our data and other business practices, significant penalties, increased cost of operations, or otherwise adversely impact our business.
Regulatory authorities around the world have implemented industry-specific laws and regulations that affect the collection and transfer of personal data. For example, in China, the Regulation on the Administration of Human Genetic Resources promulgated by the State Council (the “HGR Regulation”), which became effective in 2019, applies to activities that involve sampling, biobanking, use of HGR materials and associated data, in China, and provision of such to foreign parties. The HGR Regulation prohibits both onshore or offshore entities established or actually controlled by foreign entities and individuals from sampling or biobanking any China HGR in China and require approval for the sampling of certain HGR and biobanking of all HGR by Chinese parties. Approval for any export or cross-border transfer of the HGR material is required, and transfer of China HGR data by Chinese parties to foreign parties or entities established or actually controlled by them also requires the Chinese parties to file, before the transfer, a copy of the data to the HGR administration for record. The HGR Regulation also requires that foreign parties ensure the full participation of Chinese parties in international collaborations and all records and data must be shared with the Chinese parties. For information about applications under the HGR Regulation for clinical studies in China that are part of the Amgen- BeiGene Collaboration, see the risk factor entitled “If we are not able to successfully develop and/or commercialize Amgen’s oncology products, the expected benefits of the collaboration will not materialize."
Further to the draft HGR implementing rules, the Cyberspace Administration of China ("CAC") released the final Measures of Cross-Border Data Transfer Security Assessment on July 7, 2022 (effective as of September 1, 2022), under which any transfer of certain "important data" out of China shall trigger a security assessment to be conducted by the government. The term "important data" is a broadly defined term under the Cybersecurity Law and Data Security Law, and further clarifications need to be put in place by the government before international companies could find a practical way to comply. However, under the latest draft Important Data Identification Guidance, HGR data is classified as "important data," and if the guidance is finalized as is, it can be expected that this new cross-border data transfer rule may create considerable additional regulatory burdens on international companies' human gene-involved R&D activities in China (i.e., adding a third layer of CAC's regulatory approval in addition to HGRAC's and NMPA's).
If the Chinese parties fail to comply with data protection laws, regulations and practice standards, and our research data is obtained by unauthorized persons, used or disclosed inappropriately or destroyed, it could result in a loss of our confidential information and subject us to litigation and government enforcement actions. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our or our collaborators’ practices, potentially resulting in suspension of relevant ongoing clinical trials or the initiation of new trials, confiscation of HGR samples and associated data and administrative fines, disgorgement of illegal gains, or temporary or permanent debarment of our or our collaborators’ entities and responsible persons from further HGR projects and, consequently, a de-facto ban on the debarred entities from initiating new clinical trials in China. So far, the HGR administration has disclosed a number of HGR violation cases. In one case, the sanctioned party was the Chinese subsidiary of a multinational pharmaceutical company that was found to have illegally transferred certain HGR materials to CROs for conducting certain unapproved research. In addition to a written warning and confiscation of relevant HGR materials, the Chinese subsidiary of the multinational pharmaceutical company was requested by the HGR administration to take rectification measures and at the same time banned from submitting any HGR applications until the HGR administration was satisfied with the rectification results, which rendered it unable to initiate new clinical trials in
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China until the ban was lifted. In another case, a public hospital was found to have illegally transferred certain HGR data to a university in Europe, and that hospital was eventually subject to the same ban.
To further tighten the control of China HGR, the Chinese government adopted amendments to the Criminal Code, effective as of March 1, 2021, which criminalize the illegal collection of China HGR, the illegal transfer of China HGR materials outside of China, and the transfer of China HGR data to foreign parties or entities established or actually controlled by them without going through security review and assessment. An individual who is convicted of any of these violations may be subject to public surveillance, criminal detention, a fixed-term imprisonment of up to 7 years, and/or a criminal fine. On April 15, 2021, the Biosecurity Law became effective. The Biosecurity Law establishes an integrated system to regulate biosecurity-related activities in China, including the security regulation of HGR and biological resources. The Biosecurity Law for the first time expressly declared that China has sovereignty over its HGR and further endorsed the HGR Regulation by recognizing the fundamental regulatory principles and systems established by it over the utilization of Chinese HGR by foreign entities in China. Although the Biosecurity Law does not provide any specific new regulatory requirements on HGR, as it is a law adopted by China’s highest legislative authority, it gives China’s major regulatory authority of HGR, i.e., the Ministry of Science and Technology, significantly more power and discretion to regulate HGR and it is expected that the overall regulatory landscape for Chinese HGR will evolve and become even more rigorous. In addition, the interpretation and application of data protection laws in China and elsewhere are often uncertain and in flux.
We expect that these areas will receive greater and continued attention and scrutiny from regulators and the public going forward, which could increase our compliance costs and subject us to heightened risks and challenges associated with data security and protection. If we are unable to manage these risks, we could become subject to significant penalties, including fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected.
We manufacture some of our medicines and intend to manufacture some of our drug candidates, if approved. Failure to comply with regulatory requirements could result in sanctions being imposed against us and delays in completing and receiving regulatory approvals for our manufacturing facilities, or damage to, destruction of or interruption of production at such facilities, could delay our development plans or commercialization efforts.
We currently have manufacturing facilities in Beijing, Guangzhou, and Suzhou, China. We are also constructing a commercial-stage biologics manufacturing and clinical R&D center in New Jersey, United States, and a new small molecule manufacturing campus in Suzhou, China. These facilities may encounter unanticipated delays and expenses due to a number of factors, including regulatory requirements. If construction or expansion, regulatory evaluation and/or approval of our facilities are delayed, we may not be able to manufacture sufficient quantities of our medicines and drug candidates, which would limit our development and commercialization activities and our opportunities for growth. Cost overruns associated with constructing or maintaining our facilities could require us to raise additional funds from other sources. For example, we may not be able to complete the construction and validation of and obtain regulatory approval for the new manufacturing and clinical R&D center in New Jersey, the new manufacturing campus in Suzhou and manufacturing facility expansion in Guangzhou in a timely or economic manner.
In addition to the similar manufacturing risks described in “Risks Related to Our Reliance on Third Parties,” our manufacturing facilities are subject to inspection in connection with clinical development and new drug approvals and ongoing, periodic inspection by the FDA, NMPA, EMA or other comparable regulatory agencies to ensure compliance with GMP and other regulatory requirements. Historically, some manufacturing facilities in China have had difficulty meeting the FDA’s, NMPA's or EMA's standards. Our failure to follow and document our adherence to such GMP regulations or other regulatory requirements may lead to significant delays in the availability of products for clinical or commercial use, may result in the termination of or a hold on a clinical trial, or may delay or prevent filing or approval of marketing applications for our drug candidates or the commercialization of our medicines. We also may encounter problems with the following:
•achieving adequate or clinical-grade materials that meet FDA, NMPA, EMA or other comparable regulatory agency standards or specifications with consistent and acceptable production yield and costs;
•shortages of qualified personnel, raw materials or key contractors; and
•ongoing compliance with GMP regulations and other requirements of the FDA, NMPA, EMA or other comparable regulatory agencies.
Failure to comply with applicable regulations could also result in sanctions being imposed on us, including fines, injunctions, civil penalties, a requirement to suspend or put on hold one or more of our clinical trials, failure of regulatory authorities to grant marketing approval of our drug candidates, delays, suspension or withdrawal of approvals, supply
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disruptions, license revocation, seizures or recalls of drug candidates or medicines, operating restrictions and criminal prosecutions, any of which could harm our business.
Developing advanced manufacturing techniques and process controls is required to fully utilize our facilities. Advances in manufacturing techniques may render our facilities and equipment inadequate or obsolete.
To supply commercial quantities for our marketed products, produce our medicines in the quantities that we believe will be required to meet anticipated market demand, and to supply clinical drug material to support the continued growth of our clinical programs, we will need to increase, or “scale up,” the production process by a significant factor over the initial level of production, which will require substantial additional expenditures and various regulatory approvals and permits. If we are unable to do so, are delayed, or if the cost of this scale up is not economically feasible for us or we cannot find a third-party supplier, we may not be able to produce our medicines in a sufficient quantity to meet future demand.
If our manufacturing facilities or the equipment in them is damaged or destroyed, we may not be able to quickly or inexpensively replace our manufacturing capacity or replace it at all. In the event of a temporary or protracted loss of the facilities or equipment, we might not be able to transfer manufacturing to a third party. Even if we could transfer manufacturing to a third party, the shift would likely be expensive and time-consuming, particularly since the new facility would need to comply with the necessary regulatory requirements and we would need regulatory agency approval before selling any medicines manufactured at that facility. Any interruption in manufacturing operations at our manufacturing facilities could result in our inability to satisfy the demands of our clinical trials or commercialization. Any disruption that impedes our ability to manufacture our drug candidates or medicines in a timely manner could materially harm our business, financial condition and operating results.
Currently, we maintain insurance coverage against damage to our property, plant and equipment in amounts we believe are reasonable. However, our insurance coverage may not reimburse us, or may not be sufficient to reimburse us, for any expenses or losses we may suffer. We may be unable to meet our requirements for our drug candidates and medicines if there were a catastrophic event or interruption or failure of our manufacturing facilities or processes.
We incur significant costs as a result of operating as a public company, in the United States and Hong Kong, and our management is required to devote substantial time to compliance requirements, including establishing and maintaining internal controls over financial reporting. We may be exposed to potential risks if we are unable to comply with these requirements.requirements.
As a public company listed in the United States, and Hong Kong and Shanghai, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the listing rules of the Nasdaq Stock Market ("Nasdaq")(Nasdaq), and The Stock Exchange of Hong Kong Limited (the "HKEx") and the STAR Market of the Shanghai Stock Exchange (the "SSE"), and incur significant legal, accounting and other expenses under the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), togetherto comply with rules implemented by the U.S. Securities and Exchange Commission, or SEC, and applicable market regulators, and the listing rules of the Nasdaq and HKEx.requirements. These rules impose various requirements on public companies, including requiring certain corporate governance practices. Our management and other personnel devote a substantial amount of time to these requirements. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly.
For example, the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluations and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. We have limited experience in complying with Section 404, and suchSuch compliance may require that we incur substantial accounting expenses and expend significant management efforts. Our testing may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner, the market price of our ordinary shares and/or ADSs could decline if investors and others lose confidence in the reliability of our financial statements, we could be subject to sanctions or investigations by the SEC, HKEx, China Securities Regulatory Commission (the "CSRC"), SSE or other applicable regulatory authorities, and our business could be harmed.
If we engage in acquisitions or strategic partnerships,collaborations, this may increase our capital requirements, dilute our shareholders, cause us to incur debt or assume contingent liabilities, and subject us to other risks.
From time to time, we may evaluate various acquisitions and strategic partnerships,collaborations, including licensing or acquiring complementary products, intellectual property rights, technologies or businesses. Any completed, in-process or potential acquisition or strategic partnershipcollaboration may entail numerous risks, including:
•increased operating expenses and cash requirements;
•the assumption of additional indebtedness or contingent or unforeseen liabilities;
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•the issuance of our equity securities;
•assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel;
•the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic merger or acquisition;
•retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships;
•risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing drugs or drug candidates and regulatory approvals; and
•our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.
In addition, if we undertake acquisitions or strategic collaborations, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. For example, in connection with theour transaction with Amgen, transaction, we issued to Amgen a total of 206,635,013 ordinary shares in the form of ADSs in January 2020, representing 20.5% of the then issued share capital of the Company after giving effect to the share issuance, which resulted in Amgen becoming our largest shareholder and the ownership of our existing shareholders being diluted.
PRC regulations and rules concerning mergers and acquisitions, including the Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors (the "M&A Rules"), and other recently adopted regulations and rules with respect to mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that the Ministry of Commerce of the PRC (the "MOFCOM") be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on the national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, according to the Anti-Monopoly Law of the PRC, which was amended in June 2022 and became effective as of August 1, 2022, and the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings (the "Prior Notification Rules") issued by the State Council, the concentration of business undertakings by way of mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to the State Administration offor Market Regulation (the "SAMR") when the threshold is crossed and such concentration shall not be implemented without the clearance of prior notification. In addition, the Measures for Security Review of Foreign Investment jointly issued by the National Development and Reform Commission and MOFCOM and the Regulations on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprise by Foreign Investors (the "Security Review Rules") issued by the MOFCOM specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire the de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOFCOM, and the rules prohibit any activities attempting to bypass a security review by structuring the transaction through, among other things, trusts, entrustment or contractual control arrangements.
We may also be subject to similar review and regulations in other jurisdictions, such as the laws and regulations on foreign investment in the United States under the jurisdiction of the Committee on Foreign Investment in the United States (the "CFIUS") and other agencies, including the Foreign Investment Risk Review Modernization Act (the "FIRRMA"), adoptedwhich became effective in August 2018.February 2020.
Furthermore, according to the Overseas Listing Trial Measures, if a Chinese overseas listed company issues overseas listed securities to acquire assets, such issuance would be subject to filing requirements with the CSRC.
In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval or filing processes, including obtaining approval from or filing with CFIUS, the SAMR, the MOFCOM, the CSRC or its local counterpartsother agencies may delay or inhibit our ability to complete such transactions. It is unclear whether those complementary businesses we may acquire in the future would be deemed to be in an industry that raises “national defense and security” or “national security” concerns.
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However, CFIUS, SAMR, MOFCOM, CSRC or other government agencies may publish explanations in the future determining that certain of the complementary business is in an industry subject to the security review, in which case our future acquisitions in the United States and the PRC, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely affected.
If we fail to comply with the U.S. Foreign Corrupt Practices Act or other anti-bribery and corruption laws, our reputation may be harmed and we could be subject to penalties and significant expenses that have a material adverse effect on our business, financial condition and results of operations.
We are subject to the U.S. Foreign Corrupt Practices Act (the "FCPA"). The FCPA generally prohibits us from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We are also subject to the anti-bribery and
corruption laws of other jurisdictions, particularly China. The anti-bribery laws in China generally prohibit companies and their intermediaries from making payments to government officials for the purpose of obtaining or retaining business or securing any other improper advantage. As our business has expanded, the applicability of the FCPA and other anti-bribery and corruption laws to our operations has increased.
We do not fully control the interactions our employees, distributors and third-party promoters have with hospitals, medical institutions and doctors, and they may try to increase sales volumes of our products through means that constitute violations of United States, PRC or other countries’ anti-corruption and related laws. If our employees, distributors or third-party promoters engage in corrupt or other improper conduct that results in violation of applicable anti-corruption laws in the United States, PRC or other jurisdictions, our reputation could be harmed. Furthermore, we could be held liable for actions taken by our employees, distributors or third-party promoters, which could expose us to regulatory investigations and penalties.
Although we have policies and procedures designed to ensure that we, our employees and our agents comply with anti-briberyanti- bribery laws, there is no assurance that such policies or procedures will prevent our agents, employees and intermediaries from engaging in bribery activities. Our procedures and controls to monitor anti-bribery and corruption compliance may fail to protect us from reckless or criminal acts committed by our employees or agents. If we, due to either our own deliberate or inadvertent acts or those of others, fail to comply with applicable anti-bribery and corruption laws, our reputation could be harmed and we could incur criminal or civil penalties, including but not limited to imprisonment, criminal and civil fines, suspension of our ability to do business with the government, denial of government reimbursement for our products and/or exclusion from participation in government healthcare programs, other sanctions and/or significant expenses, which could have a material adverse effect on our business, including our financial condition, results of operations, cash flows and prospects.business.
If we or our CROs or contract manufacturing organizations ("CMOs")(CMOs) fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
We and third parties, such as our CROs or CMOs, are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes.waste. In addition, our construction projects can only be put into operation after certain regulatory procedures with the relevant administrative authorities in charge of environmental protection, health and safety have been completed. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes.waste. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and anysuch liability could exceed our resources or insurance coverage. We also could incur significant costs associated with civil or criminal fines and penalties.
Although we maintain workers’ compensation insurance to cover us for costs and expenses that we may incur due to injuries to our employees resulting from the use of or exposure to hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage, use or disposal of biological or hazardous materials.
In addition, we may be required to incur substantial costs to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development, manufacturing or productioncommercialization efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Our internal information technology systems, or those used by our CROs, CMOs, or other collaborators, contractors or consultants,collaborators, may fail or suffer security breaches, which could result in a material disruption of our product development and commercialization programs.efforts.
Despite the implementation of security measures, our internal information technology systems and those of our CROs, CMOs and other collaborators, contractors and consultantscollaborators, are vulnerable to damage from internal or external events, such as computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failures, which can compromise the confidentiality, integrity and availability of the systems. Although to our knowledge we have not experienced any material system failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our research, development, manufacturing, gaining regulatory approval for our drug candidates and commercialization efforts and our business operations.
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In the ordinary course of our business, we collect and store sensitive data, including, among other things, legally protected patient health information, personally identifiable information about our employees, intellectual property, and proprietary business information. We manage and maintain our applications and data utilizing on-site systems and outsourced vendors.
These applications and data encompass a wide variety of business-critical information, including research and development information, commercial information and business and financial information. Because information systems, networks and other technologies are critical to many of our operating activities, shutdowns or service disruptions at our company or vendors that provide information systems, networks, or other services to us pose increasing risks. Such disruptions may be caused by events such as computer hacking, phishing attacks, ransomware, dissemination of computer viruses, worms and other destructive or disruptive software, denial of service attacks and other malicious activity, as well as power outages, natural disasters (including extreme weather), terrorist attacks or other similar events. Such events could cause loss of data, damage to systemsystems and data and leave us unable to utilize key business systems or access important data needed to operate our business, including conducting researchbusiness. Our contractors and development, gaining regulatory approval for our drug candidates or manufacturingcollaborators have and selling our products. Our CROs, CMOs or other collaborators, contractors or consultantsin the future may face similar risks, and service disruptions or security breaches of their systems could adversely affect our security, leave us without access to important systems, products, raw materials, components, services or information or expose our confidential data. In addition, system redundancy may be ineffective or inadequate, and our disaster recovery planning may not be sufficient to cover all eventualities. Significant events could result in a disruption of our operations, damage to our reputation or a loss of revenues. In addition, we may not have adequate insurance coverage to compensate for any losses associated with such events.
We could be subject to risks caused by misappropriation, misuse, leakage, falsification or intentional or accidental release or loss of information maintained in the information systems and networks of our company and our vendors, including personal information of our employees and patients, and company and vendor confidential data. In addition, outside parties may attempt to penetrate our systems or those of our vendors or fraudulently induce our personnel or the personnel of our vendors to disclose sensitive information in order to gain access to our data and/or systems. Like other companies, we and our third-party vendors have on occasion experienced, and will continue to experience, threats to our or their data and systems, including malicious codes and viruses, phishing, business email compromise attacks, ransomware, or other cyber-attacks. The number and complexity of these threats continue to increase over time. If a material breach of our information technology systems or those of our vendors occurs, the market perception of the effectiveness of our security measures could be harmed and our reputation and credibility could be damaged. Wewe could be required to expend significant amounts of money and other resources to respond to these threats or breaches and to repair or replace information systems or networks and could suffer financial loss or the loss of valuable confidential information. In addition, we could be subject to regulatory actions and/or claims made by individuals and groups in private litigation involving privacy issues related to data collection and use practices and other data privacy laws and regulations, including claims for misuse or inappropriate disclosure of data, as well as unfair or deceptive practices. Although we develop and maintain systems and controls designed to prevent these events from occurring, and we have a processprocesses to identify and mitigate threats, the development and maintenance of these systems, controls and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly sophisticated. Moreover, despite our efforts, the possibility of these events occurring cannot be eliminated entirely. As we outsource more of our information systems to vendors, engage in more electronic transactions with payors and patients, and rely more on cloud-based information systems, the related security risks will increase and we will need to expend additional resources to protect our technology and information systems. In addition, there can be no assurance that our internal information technology systems or those of our CROs, CMOscontractors and other collaborators, contractors, oras well as our consultants’and their efforts to implement adequate security and control measures, will be sufficient to protect us against breakdowns, service disruption,disruptions, data deterioration or loss in the event of a system malfunction, or prevent data from being stolen or corrupted in the event of a cyberattack, security breach, ransomware, industrial espionage attacksattack or insider threat attacksattack that could adversely affect our business and operations and/or result in the loss or exposure of critical, proprietary, private, confidential or otherwise sensitive data, which could result in financial, legal, business or reputational harm to us.
Our failure to comply with data protection laws and regulations could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results.
In the United States, Europe, China, and many other jurisdictions where we operate, we are subject to laws and regulations that address privacy, personal information protection and data security at both the federal and stateState levels. Numerous laws and regulations, including, without limitation, privacy laws (such as the European Union's General Data Protection Regulation ("GDPR") or similar laws), security breach notification laws (such as Australia's amendment to the Privacy Act), health information privacy laws (such as the United States' Health Insurance Portability and Accountability Act ("HIPAA") and the Human Genetic Resources Administration of China's rules), and consumer protection laws (such as the United States' Federal Trade Commission's unfair or deceptive practices rules or California's Consumer Privacy Act and California's Privacy Rights Act), govern the collection, use, disclosure and protection of health-related and other personal information. A subset of these laws also have strict requirements governing the cross-border transmission of personal information (see —“Compliance with the Data Security Law of the People’s Republic of China (the “Data Security Law”), Cybersecurity Review Measures, Personal Information Protection Law of the People’s Republic of China (the “PIPL”), regulations and guidelines relating to the multi-
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level protection scheme (the “MLPS”) and any other future laws and regulations may entail significant expenses and could materially affect our business.”).
The legal and regulatory landscape around data privacy is rapidly changing with countries and states passing new laws and regulations every year. Tracking and complying with these laws and regulations requires significant time and expenses and could materially affect our business. By way of example and without limitation, these laws may require updating of contracts, informed consent forms, clinical trial protocols and privacy notices; changes to company procedures; limiting what personal information we collect, who has access to it and how/where we use it; performing internal assessments; changes to the security and hosting solution of our systems; specific reporting and remediation efforts in the event of a data breach; and even opening our business up for external assessments by government bodies.
Given the variability and evolving state of these laws, we face uncertainty as to the exact interpretation of the new requirements, and we may be unsuccessfulface challenges in implementing all measures required by regulators or courts in their interpretation.
These laws apply not just to us, but also to those vendors working on our behalf, as well as our business partners. Any actual or perceived failure of them to comply with these laws and regulations could impact the services they provide to us, our collaborations with them and our reputation; additionally, there is a risk of liability flowing to us under certain contractual and/or legal conditions.
Compliance with the Data Security Law of the People’s Republic of China (the “Data Security Law”), Cybersecurity Review Measures, Personal Information Protection Law of the People’s Republic of China (the “PIPL”), regulations and guidelines relating to the multi-level protection scheme (the “MLPS”) and any other future laws and regulations may entail significant expenses and could materially affect our business.
China has implemented extensive data protection, privacy and information security rules and is considering a number of additional proposals relating to these subject areas. We face significant uncertainties and risks related to these laws, regulations and policies, some of which were only recently enacted, and the interpretation of these legal requirements by government regulators as applied to biotechnology companies like us. For example, we do not maintain, nor do we intend to maintain in the future, personally identifiable health information of patients in China. We do, however, collect and maintain de-identified or pseudonymized health data for clinical trials in compliance with local regulations. This data could be deemed “personal data” or “important data” by government regulators. With China’s growing emphasis of its sovereignty over data derived from China, the outbound transmission of de-identified or pseudonymized health data for clinical trials may be subject to the new national security legal regime, including the Data Security Law, the Cyber Security Law of the People’s Republic of China (the “Cyber Security Law”), the PIPL, and various implementing regulations and standards.
China’s Data Security Law provides that the data processing activities must be conducted based on “data classification and hierarchical protection system” for the purpose of data protection and prohibits entities in China from transferring data stored in China to foreign law enforcement agencies or judicial authorities without prior approval by the relevant PRC authority. The classification of data is based on its importance in economic and social development, as well as the degree of harm expected to be caused to national security, public interests, or the legitimate rights and interests of individuals or organizations if such data is tampered with, destroyed, leaked, or illegally acquired or used.
The Cyber Security Law requires companies to take certain measures to ensure the security of their networks and data stored on their networks. Specifically, the Cyber Security Law provides that companies adopt an MLPS, under which network operators are required to perform obligations of security protection to ensure that the network is free from interference, disruption or unauthorized access, and prevent network data from being disclosed, stolen or tampered. The CAC released draft amendments to the Cyber Security Law in September 2022, which propose to impose more stringent legal liabilities for violations. Under the MLPS, entities operating information systems must have a thorough assessment of the risks and the conditions of their information and network systems to determine the level to which the entity’s information and network systems belong, from the lowest Level 1 to the highest Level 5 pursuant to a series of national standards on the grading and implementation of the classified protection of cybersecurity. The grading result will determine the set of security protection obligations that entities must comply with and when relevant government authority examination and approval is required.
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Under the Cyber Security Law and Data Security Law, we are required to establish and maintain a comprehensive data and network security management system that will enable us to monitor and respond appropriately to data security and network security risks. We are obligated to notify affected individuals and appropriate Chinese regulators of and respond to any data security and network security incidents. Establishing and maintaining such systems takes substantial time, effort and cost, and we may not be able to establish and maintain such systems as fully as needed to ensure compliance with our legal obligations. Despite our investment, such systems may not adequately protect us or enable us to appropriately respond to or mitigate all data security and network security risks or incidents we may face.
Furthermore, under the Data Security Law, data categorized as “important data,” which will be determined by governmental authorities in the form of catalogs, is to be processed and handled with a higher level of protection. The notion of important data is not clearly defined by the Cyber Security Law or the Data Security Law. In order to comply with the statutory requirements, we will need to determine whether we possess important data, monitor the important data catalogs that are expected to be published by local governments and departments, perform risk assessments and ensure we are complying with reporting obligations to applicable regulators. We may also be required to disclose to regulators business sensitive or network security-sensitive details regarding our processing of important data and may need to pass the government security review or obtain government approval in order to share important data with offshore recipients, which can include foreign licensors, or share data stored in mainland China with judicial and law enforcement authorities outside of mainland China. If judicial and law enforcement authorities outside mainland China require us to provide data stored in mainland China, and we are not able to pass any required government security review or obtain any required government approval to do so, we may not be able to meet the foreign authorities’ requirements. The potential conflicts in legal obligations could have adverse impacts on our operations in and outside of mainland China. PRC regulatory authorities have also enhanced the supervision and regulation of cross-border data transmission. The Data Security Law prohibits entities and individuals in China from providing any foreign judicial or law enforcement authority with any data stored in China without approval from competent PRC authority, and sets forth the legal liabilities of entities and individuals found to be in violation of their data protection obligations, including rectification order, warning, fines, suspension of relevant business, and revocation of business permits or licenses. Moreover, the CAC promulgated the Measures for the Security Assessment of Cross-border Data Transmission, which became effective as of September 1, 2022. According to these measures, personal data processors are subject to security assessment prior to any cross-border transfer of data if the transfer involves (i) important data; (ii) personal information transferred overseas by operators of critical information infrastructure or a data processor that has processed personal data of more than one million persons; (iii) personal information transferred overseas by a data processor who has already provided personal data of 100,000 persons or sensitive personal data of 10,000 persons overseas since January 1 of last year; or (iv) other circumstances as requested by the CAC. Any cross-border data transfer activities conducted in violation of the Measures for the Security Assessment of Cross-border Data Transmission before the effectiveness of these measures are required to be rectified by March 2023. Though these measures have already taken effect, substantial uncertainties still exist with respect to the interpretation and implementation of these measures in practice and how they will affect our business operation.
The CAC has taken action against several Chinese internet companies listed on U.S. securities exchanges for alleged national security risks and improper collection and use of the personal information of Chinese data subjects. According to the official announcement, the action was initiated based on the National Security Law of the People’s Republic of China (the “National Security Law”), the Cyber Security Law and the Cybersecurity Review Measures. Effective February 15, 2022, the CAC, together with 12 other PRC governmental authorities, promulgated the Revised Cybersecurity Review Measures, pursuant to which critical information infrastructure operators procuring network products and services and online platform operators carrying out data processing activities, which affect or may affect national security, shall conduct a cybersecurity review. In addition, online platform operators possessing personal information of more than one million users seeking to be listed on foreign stock markets must apply for a cybersecurity review. The relevant competent governmental authorities may also initiate a cybersecurity review against the relevant operators if the authorities believe that the network product or service or data processing activities of such operators affect or may affect national security. There are still uncertainties as to the exact scope of network product or service or data processing activities that will or may affect national security, and the PRC government authorities may have discretion in the interpretation and enforcement of these measures.
Additionally, the CAC published the draft Administrative Regulations on Cyber Data Security (“Draft Cyber Data Security Regulations”), pursuant to which data processors shall apply for cybersecurity review if they engage in (i) merger, reorganization or division of internet platform operators with significant data resources related to national security, economic development or public interests that affects or may affect national security; (ii) overseas listing while processing over one million users’ personal information; (iii) Hong Kong listing that affects or may affect national security; or (iv) other data processing activities that affect or may affect national security. The Draft Cyber Data Security Regulations further require data processors processing important data or going public overseas to conduct annual data security self-assessment and submit an assessment report to the CAC before January 31 each year. As the Draft Cyber Data Security Regulations were released only for public comment, the final version and the effective date thereof may be subject to change with substantial uncertainty.
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It is unclear how widespread the cybersecurity review requirement and the enforcement action will be and what effect they will have on the life sciences sector generally and the Company in particular. China’s regulators may impose penalties for non-compliance ranging from fines or suspension of operations, and the imposition of any such penalties on our business could cause a material adverse effect on our business, financial condition, results of operations, prospects and the trading price of our ordinary shares, ADSs and RMB Shares, and could lead to our delisting from the Nasdaq. As of the date of this report, we have not received any notice from any Chinese regulatory authority identifying us as a “critical information infrastructure operator,” “online platform operator” or “data processor,” or requiring us to go through the cybersecurity review procedures pursuant to the Revised Cybersecurity Review Measures and the Draft Cyber Data Security Regulations. However, there remains uncertainty as to how the regulations if enacted as currently proposed, will be interpreted or implemented and whether the Chinese regulatory authorities will adopt additional regulations. We intend to closely monitor the evolving laws and regulations in this area and take all reasonable measures to mitigate compliance risks, we cannot guarantee that our business and operations will not be adversely affected by the potential impact of the Revised Cybersecurity Review Measures, the Draft Cyber Data Security Regulations or other laws and regulations related to privacy, data protection and information security.
Additionally, the Standing Committee of the National People’s Congress of the PRC promulgated the PIPL, which expands data protection compliance obligations to cover the processing of personal information of persons by organizations and individuals in China, and the processing of personal information of persons in China outside of China if such processing is for purposes of providing products and services to, or analyzing and evaluating the behavior of, persons in China. The PIPL also provides that critical information infrastructure operators and personal information processing entities that process personal information meeting a volume threshold are also required to store in China personal information generated or collected in China, and to pass a security assessment for any export of such personal information. Lastly, the PIPL contains proposals for significant fines for serious violations of up to RMB50 million, or 5% of annual revenues from the prior year, and penalties, including that companies found to have violated the PIPL may be ordered to suspend any related activity.
Interpretation, application and enforcement of these laws, rules and regulations evolve from time to time and their scope may continually change, through new legislation, amendments to existing legislation or changes in enforcement. Compliance with the Cyber Security Law, the Data Security Law and the PIPL could significantly increase the cost to us of providing our service offerings, require significant changes to our operations or even prevent us from providing certain service offerings in jurisdictions in which we currently operate or in which we may operate in the future. Despite our efforts to comply with applicable laws, regulations and other obligations relating to privacy, data protection and information security, it is possible that our practices, offerings or platform could fail to meet all of the requirements imposed by the Cyber Security Law, the Data Security Law and/or related implementing regulations. Any failure on our part to comply with such law or regulation, or any compromise of security that results in unauthorized access, use or release of personally identifiable information or other data, or the perception or allegation that any of the foregoing types of failure or compromise has occurred, could damage our reputation, discourage new and existing counterparties from contracting with us or result in investigations, fines, suspension or other penalties by Chinese government authorities and private claims or litigation, any of which could materially adversely affect our business, financial condition and results of operations. In addition,Even if our current and future
If we or parties on whom we rely fail to maintain the necessary licenses for the development, production, salesmanufacture, sale and distribution of our products, our ability to conduct our business could be materially impaired.
We are required to obtain, maintain and renew various permits, licenses and certificates to develop, produce,manufacture, promote and sell our products. Third parties, such as distributors, third-party promoters and third-party manufacturers, on whom we may rely to develop, produce,manufacture, promote, sell and distribute our products may be subject to similar requirements. We and third parties on whom we rely may be also subject to regular inspections, examinations, inquiries or audits by the regulatory authorities, and an adverse outcome of such inspections, examinations, inquiries or audits may result in the loss or non-renewal of the relevant permits, licenses and certificates. Moreover, the criteria used in reviewing applications for, or renewals of permits, licenses and certificates may change from time to time, and there can be no assurance that we or the parties on whom we rely will be able to meet new criteria that may be imposed to obtain or renew the necessary permits, licenses and certificates. Many of such permits, licenses and certificates are material to the operation of our business, and if we or parties on whom we rely fail to maintain or renew material permits, licenses and certificates, our ability to conduct our business could be materially impaired. Furthermore, if the interpretation or implementation of existing laws and regulations change, or new regulations come into effect, requiring us or parties on whom we rely to obtain any additional permits, licenses or certificates that were previously not required to operate our business, there can be no assurance that we or parties on whom we rely will successfully obtain such permits, licenses or certificates.
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Our financial and operating performance may be adversely affected by public health crises, natural catastrophes, or other disasters outside of our future revenue and financial condition and increase our costs and expenses.control.
Our global operations and those of our third-party research institution collaborators, CROs, CMOs, suppliers and other contractors and consultants, could be subjectcollaborators expose us to natural or man-made disasters, such as earthquakes, hurricanes, floods, fires, explosions, public health crises, such as epidemics or pandemics, terrorist activity, wars, or other business interruptions outside of our control. Furthermore, we do not maintain any insurance other than property insurance for some of our buildings, vehicles and equipment. Accordingly, unexpected business interruptions resulting from disasters could disrupt our operations and thereby result in substantial costs and diversion of resources. For example, our Guangzhou manufacturing facility was hit by a typhoon in 2019 and although the typhoon did not cause material damage to the facility, the boundary area and the adjacent land were flooded, causing a power outage for a few days. Afterwards, we built a gutter along the boundary and installed waterproof electricity cables to fortify the facility and to help prevent future interruptions. A significant disruption at either our Guangzhou or Suzhou manufacturing facilities, even on a short-term basis, could impair our ability to timely produce products, which could have a material adverse effect on our business, financial position and results of operations.
Our production process requires a continuous supply of electricity. We have encountered power shortages historically in China due to restricted power supply to industrial users during summers when the usage of electricity is high and supply is limited or as a result of damage to the electricity supply network. Because the duration of those power shortages was brief, they had no material impact on our operations. Longer interruptions of electricity supply could result in lengthy production shutdowns, increased costs associated with restarting production and the loss of production in progress. Any major suspension or termination of electricity or other unexpected business interruptions could have a material adverse impact on our business, financial condition and results of operations.
We also rely in part on third-party manufacturers to produce and process our medicines and drug candidates. Our ability to obtain supplies of our medicines and drug candidates could be disrupted if the operations of these suppliers are affected by man-made or natural disasters, public health epidemics or other business interruptions for which we are predominantly self-insured.could cause us to delay or cease development or commercialization of some or all of our medicines and drug candidates. In addition, we partially rely on our third-party research institution collaborators for conducting research and development of our drug candidates, and they may be affected by such business interruptions, government shutdowns or withdrawn funding. The occurrenceFor example, the ability of anythe FDA to review and approve new products can be affected by a variety of these business interruptions could seriously harmfactors, including government budget and funding levels, the ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and financial conditiondevelopment activities, is subject to the political process, which is inherently fluid and increaseunpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new product candidates to be reviewed and/or approved by necessary government agencies, which would adversely affect our costs and expenses. We partially rely on third-party manufacturersbusiness. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to producetimely review and process our drugs and drug candidates. Ourregulatory submissions, which could have a material adverse effect on our business. Further, future government shutdowns could impact our ability to access the public markets and obtain supplies ofnecessary capital in order to properly capitalize and continue our drugs and drug candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disasters, public health epidemics or other business interruptions. Damage or extended periods of interruption to our or our vendors' corporate, development, research or manufacturing facilities due to fire, natural disaster, power loss, communications failure, unauthorized entry, public health epidemics or other events could cause us to delay or cease development or commercialization of some or all of our drugs and drug candidates. Although we maintain insurance coverage on these facilities, our insurance might not cover all losses under such circumstances and our business may be seriously harmed by such delays and interruption. For example,operations.
In particular, the COVID-19 outbreakpandemic has impacted and could continue to negatively impact our business and our financial performance.performance, including causing a delay in or the inability of health authorities to complete regulatory inspections of our development activities, regulatory filings or manufacturing operations. Our clinical development and commercial efforts could be delayed or otherwise negatively impacted, as patients may be reluctant to go to the hospitals to receive treatment.treatment, or our regulatory inspections or regulatory filings and approvals could be delayed. We have already experienced delays in clinical trial recruitment. Additionally, the commercial or clinical supply of our drugsmedicines and drug candidates could be
negatively impacted due to reduced operations or a shutdown of our or our third-party manufacturing facilities, distribution channels and transportation systems, or shortages of raw materials and drug product.
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the pandemic, the severity of COVID-19, including the continued emergence of new variants, developments or perceptions regarding the safety of vaccines, or any additional preventative and we are closely monitoringprotective actions taken to contain the pandemic or treat its impact. Any resulting financial impact cannot be reasonably estimated at this time and may have a material adverse impact on us.our business, financial condition and results of operations.
Climate change manifesting as physical or transition risks, included related environmental regulation, could have a material adverse impact on our business operations, clients and customers.
The long-term effects of climate change are difficult to assess and predict. Our business and the activities of our clients and customers could be impacted by climate change. Climate change could manifest as a financial risk either through changes in the physical climate or from the process of transitioning to a low-carbon economy, including related environmental regulation of companies with respect to risks posed by climate change.
The physical impacts of climate change may include physical risks (such as rising sea levels or frequency and severity of extreme weather conditions), social and human effects (such as population dislocations or harm to health and well-being), compliance costs and transition risks (such as regulatory or technology changes) and other adverse effects. The effects could impair, for example, the availability and cost of certain products, commodities and energy (including utilities), which in turn may impact our ability to procure goods or services required for the operation of our business at the quantities and levels we require. Furthermore, related environmental regulation as a response to climate change could result in additional costs in the form of taxes and investments of capital to maintain complacent with such laws. We bear losses incurred as a result of, for example, physical damage to or destruction of our facilities, loss or spoilage of inventory, and business interruption due to weather events that may be attributable to climate change and could materially adversely affect our business operations, financial position or results of operations could be adversely affected directly, as well as to the extent that the COVID-19 outbreak or any other epidemic harms the Chinese, United States, and global economy in general.operation.
Product liability claims or lawsuits could cause us to incur substantial liabilities.
We face an inherent risk of product liability as a result of the commercialization of our drugsmedicines in China and the United States, China, Europe and other markets, and for the clinical testing and any future commercialization of our drug candidates globally. For example, we may be sued if our drugsmedicines or drug candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the drug,medicine, negligence, strict liability or a breach of warranties. Claims could also be asserted under applicable consumer protection acts. If we cannot successfully defend ourselves against or obtain indemnification from our collaborators for product liability claims, we may incur substantial liabilities or be required to limit commercialization of our drugsmedicines and drug candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in: decreased demand for our drugs;medicines; injury to our reputation; withdrawal of clinical trial participants and inability to continue clinical trials; initiation of investigations by regulators; costs to defend the related litigation; a diversion of our management’s time and our resources; substantial monetary awards to trial participants or patients; product recalls, withdrawals or labeling, marketing or promotional restrictions; loss of revenue; exhaustion of any available insurance and our capital resources; the inability to commercialize any drugmedicine or drug candidate; and a decline in our ADS or ordinary share price.
Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of our drugsmedicines and drug candidates. Although we currently hold product liability coverage which we believe to be sufficient in light of our current products and clinical programs, the amount of such insurance coverage may not be adequate, and we may be unable to maintain such insurance at a reasonable cost or in an amount adequate to satisfy any liability that may arise, or we may not be able to obtain additional or replacement insurance at a reasonable cost, if at all. Our insurance policies may also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.
We are subject to the risks and challenges of doing business globally.globally, which may adversely affect our business operations.
factors, including: changes in a specific country’s or region’s political and cultural climate or economic condition; unexpected changes in laws and regulatory requirements in local jurisdictions; challenges in replicating or adapting our company policies and procedures to operating environments different from that of the United States; difficulty of effective enforcement of contractual provisions in local jurisdictions; inadequate intellectual property protection in certain countries; enforcement of anti-corruption and anti-bribery laws, such as the FCPA; trade-protection measures or disputes, import or export licensing requirements, such as Export Administration Regulations promulgated by the United States Department of Commerce and fines, penalties or suspension or revocation
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of export privileges; laws and regulations on foreign investment in the United States under the jurisdiction of the CFIUS and other agencies, including the FIRRMA adopted in August 2018;agencies; the effects of applicable local tax regimes and potentially adverse tax consequences; the impact of public health epidemics on employees, our operations and the global economy, such as the COVID-19 outbreak impacting China and elsewhere;economy; restrictions on international travel and commerce; and significant adverse changes in local currency exchange rates. For example, the withdrawal of the United Kingdom from the EU effective on January 31, 2020, commonly referred to as “Brexit,” may cause increased economic volatility, affecting our operations and business. In addition, on July 27,in 2017 the United Kingdom Financial Conduct Authority ("UKFCA"), which regulates the London Interbank Offered Rate (“LIBOR”("LIBOR"), announced that it will no longer require banks to submit rates for the calculation of LIBOR to the LIBOR administrator after 2021. On November 30, 2020, the UKFCA announced a partial extension of this deadline, indicating its intention to cease the publication of the one-week and two-month USD LIBOR settings immediately following December 31, 2021, and it is anticipated thatthe remaining USD LIBOR will be phased out and replaced by 2022.settings immediately following the LIBOR publication on June 30, 2023. While various replacement reference rates have been proposed, an alternative reference rate to LIBOR has not yet been widely adopted. As such, the replacement of LIBOR could have an adverse effect on the market for, or value of, LIBOR-linked financial instruments.
Failure to comply with applicable regulationsmanage these risks and challenges could also result in sanctions being imposed on us, including fines, injunctions, civil penalties, a requirement to suspend or put on hold one or more of our clinical trials, failure of regulatory authorities to grant marketing approval of our drug candidates, delays, suspension or withdrawal of approvals, supply disruptions, license revocation, seizures or recalls of drug candidates or drugs, operating restrictions and criminal prosecutions, any of which could harm our business.
Future operating results could be negatively affected by changes in tax rates, the adoption of new tax legislation in the jurisdictions in which we operate, or exposure to additional tax liabilities.
The nature of our international operations subjects us to local, state, regional and national tax laws in jurisdictions around the world. Our future tax expense could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities or changes in tax laws or their interpretation. Additionally, tax rules governing cross-border activities are continually subject to modification intended to address concerns over base erosion and profit shifting (BEPS) and other perceived international tax avoidance techniques as a result of both coordinated actions by governments, such as the OECD/G20 Inclusive Framework on BEPS, and unilateral measures designed by individual countries, both intended to tackle concerns over base erosion and profit shifting (BEPS) and perceived international tax avoidance techniques.countries. For example, the Cayman Islands has enacted the International Tax Co-operation (Economic Substance) Law (2020 Revision) (the “Economic Substance Law”), which originally took effect on January 1, 2019, and which is accompanied by Guidance on Economic Substance for Geographically Mobile Activities (Version 2.0; April 30, 2019) published by the Cayman Islands Tax Information Authority. The Economic Substance Law embraces a global initiative to combat BEPS and demonstrates the continued commitment of the Cayman Islands to international best practice. The Economic Substance Law provides that relevant entities that existed before January 1, 2019 and that had been conducting relevant activities by that date must comply with the economic substance requirements from July 1, 2019, and relevant entities that are established from January 1, 2019 onwards have tomust comply with the requirements from the date they commence the relevant activity. Although we believe that we currently are not requiredobliged to comply withmeet the economic substance requirements under the Economic Substance Law, we cannot predict any changes to the legislation or its interpretation in the future. If we are subjectobliged to compliance with themeet certain economic substance requirements in the future, our business and results of operations could be negatively impacted if we are required to make changes to our business in order to gain compliance or if we fail to comply.
We have received tax rulings from various governments that have jurisdictional authority over our operations. If we are unable to meet the requirements of such agreements, or if they expire or are renewed on less favorable terms, the result could negatively impact our future earnings. Additionally, the European Commission has opened formal investigations into specific tax rulings granted by several countries to specific taxpayers. While we believe that our rulings are different than those being discussed,consistent with accepted tax ruling practices, the ultimate resolution of such activities cannot be predicted and could also have an adverse impact on future operating results.
Risks Related to Our Doing Business in the PRC
Changes in the political and economic policies of the PRC government or in relations between China and the United States or other governments and the significant oversight and discretion the PRC government has over the conduct of the business operations of our PRC subsidiaries may materially and adversely affect our business, financial condition, and results of operations and may result in our inability to sustain our growth and expansion strategies.
Due to our extensive operations in China, our business, results of operations, financial condition and prospects may be influenced to a significant degree by economic, political, legal and social conditions in the PRC or changes in government relations between China and the United States or other governments, such asgovernments. There is significant uncertainty about the ongoing trade warfuture relationship between the United States and China.China with respect to trade policies, treaties, government regulations and tariffs. China’s economy differs from the economies of developedother countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, amount of government involvement, control of foreign exchange and allocation of resources. While the PRCChina's economy has experienced significant growth over the past four decades, growth has been uneven across different regions and among various economic sectors of the PRC.sectors. The PRCChinese government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures may benefit the overall PRCChinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over
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capital investments or changes in tax regulations that are currently applicable to us. In addition, in the past the PRCChinese government implemented certain measures, including interest rate increases, to controlmanage the pace of economic growth.growth and prevent the economy from overheating. These measures may cause decreased economic activity in the PRC,China, which may adversely affect our business and results of operation. More generally, ifoperations.
The PRC government has the business environmentability to exert substantial control over any offering of securities conducted overseas and/or foreign investment in China-based issuers, and, as a result, may limit or completely hinder our ability to offer or continue to offer securities to investors, and may cause the value of such securities to significantly decline or be worthless.
The PRC government has recently indicated its intent to exert more oversight and control over securities offerings and other capital markets activities that are conducted overseas and foreign investment in China-based companies. If the PRC authorities attempt to exercise such control or influence through regulation over our PRC subsidiaries, we could be required to restructure our operations to comply with such regulations or potentially cease operations in the PRC deterioratesentirely, which could adversely affect our business, results of operations and financial condition. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless.
For example, the PRC government recently initiated a series of regulatory actions and statements to regulate business operations in China, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using the variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. For example, in July 2021, the relevant PRC government authorities made public the Opinions on Intensifying Crack Down on Illegal Securities Activities (the "Securities Opinions"), which emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas listed companies.
Furthermore, in July 2021, the PRC government provided guidance on China-based companies raising capital outside of China, including through arrangements called variable interest entities ("VIEs"). In light of such developments, the SEC has imposed enhanced disclosure requirements on China-based companies seeking to register securities with the SEC. Most recently, on February 17, 2023, the CSRC released the Overseas Listing Trial Measures and five relevant guidelines which will take effect from March 31, 2023. According to the Overseas Listing Trial Measures, where Chinese companies that have directly or indirectly listed securities in overseas markets conduct follow-on offering of equity securities in such overseas markets, they shall fulfill the filing procedures with and report relevant information to the CSRC. As the Overseas Listing Trial Measures have just been promulgated, there are substantial uncertainties as to its interpretation and implementation. We cannot assure you that we would not be deemed as an indirect overseas listed Chinese company under the Overseas Listing Trial Measures. If we are deemed as an indirect overseas listed Chinese company but fail to complete the filing procedures with the CSRC for any of our follow-on offerings or follow relevant reporting requirements thereunder, we may be subject to penalties, sanctions and fines imposed by the CSRC and relevant departments of the State Council. See also “Item 1. Business – Government Regulation – PRC Regulation – Regulations Relating to Overseas Listing”. We are currently evaluating the implications and potential impact of the Overseas Listing Trial Measures and will continue to closely monitor the interpretation and implementation of the Overseas Listing Trial Measures. Due to our operations in China and stock listings in and outside of China, the Overseas Listing Trial Measures and any future PRC, U.S. or other rules and regulations that place restrictions on capital raising could adversely affect our business and results of operations and could significantly limit or completely hinder our ability to offer or continue to offer our ADSs or ordinary shares to investors, and could cause the value of our ADSs or ordinary shares to significantly decline or become worthless.
On February 24, 2023, the CSRC and other PRC governmental authorities jointly issued the revised Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Revised Confidentiality Provisions”), which will come into effect on March 31, 2023. According to the Revised Confidentiality Provisions, Chinese companies that directly or indirectly conduct overseas offerings and listings, shall strictly abide by the laws and regulations on confidentiality when providing or publicly disclosing, either directly or through their overseas listed entities, materials to securities services providers. In the event such materials contain state secrets or working secrets of government agencies, the Chinese companies shall first obtain approval from authorities, and file with the secrecy administrative department at the same level with the approving authority; in the event that such materials, if divulged, will jeopardize national security or public interest, the Chinese companies shall comply with procedures stipulated by national regulations. The Chinese companies shall also provide a written statement of the specific sensitive information provided when providing materials to securities service providers, and such written statements shall be retained for inspection. As the Revised Confidentiality Provisions were recently promulgated and has not taken effect, their interpretation and implementation remain substantially uncertain.
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Currently, these statements and regulatory actions have had no impact on our daily business operations, the ability to accept foreign investments and list our securities on a U.S. or other foreign exchange. However, since these statements and regulatory actions are new, it is highly uncertain how the legislative or administrative regulation making bodies will further respond and what existing or new laws or regulations or detailed implementations and interpretations will be further modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operations, the ability to accept foreign investments and list our securities on a U.S., Hong Kong, or other stock exchanges. There are still substantial uncertainties as to how PRC governmental authorities will regulate overseas listing in practice and whether we are required to obtain any specific regulatory approvals from the perspectiveCSRC, CAC or any other PRC governmental authorities for our offshore offerings. If the CSRC, CAC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for our future offshore offerings, we may be unable to obtain such approvals in a timely manner, or at all, and such approvals may be rescinded even if obtained. Any such circumstance could significantly limit or completely hinder our ability to continue to offer securities to investors and cause the value of domesticsuch securities to significantly decline or international investment, or if relations between Chinabe worthless. In addition, implementation of industry-wide regulations directly targeting our operations could cause the value of our securities to significantly decline. Therefore, investors of our company face potential uncertainty from actions taken by the PRC government affecting our business.
The audit reports included in our previous annual reports on Form 10-K filed with the SEC have historically been prepared by auditors who are not inspected fully by the Public Company Accounting Oversight Board (the "PCAOB"), and as such, investors have previously been deprived of the benefits of such inspections.
Ernst & Young Hua Ming LLP, our auditor from fiscal year 2014 to fiscal year 2021, is required to undergo regular inspections by the PCAOB as an auditor of companies that are publicly traded in the United States or other governments deteriorate, our businessand a firm registered with the PCAOB. Since Ernst & Young Hua Ming LLP is located in China, a jurisdiction where the PCAOB had been unable to conduct inspections without the approval of the Chinese authorities, Ernst & Young Hua Ming LLP has not been and is not currently inspected by the PCAOB. Additionally, because we have substantial operations within the PRC, a jurisdiction where the PCAOB was previously unable to conduct inspections without the approval of the Chinese government authorities, Ernst & Young Hua Ming LLP and the audit work that it has carried out for us in the PRC has not historically been able to be inspected independently and fully by the PCAOB.
Inspections of other auditors conducted by the PCAOB outside the PRC have at times identified deficiencies in those auditors’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB inspections of audit work undertaken in the PRC prevents the PCAOB from regularly evaluating auditors’ audits and their quality control procedures. As a result, to the extent that any components of our auditor’s work papers had been located in China, such work papers had not been subject to inspection by the PCAOB. As a result, we and investors of our ADSs, ordinary shares and RMB Shares had been deprived of the benefits of such PCAOB inspections, which could cause investors and potential investors of our securities to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
Our ADSs may be delisted and our ADSs and ordinary shares prohibited from trading in the over-the-counter market to the extent the Holding Foreign Companies Accountable Act is further revised or similar legislation is enacted. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.
As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in particular China’s, the Holding Foreign Companies Accountable Act ("HFCAA"), was signed into law in December 2020. The HFCAA states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit securities from being traded on a national securities exchange or in the over-the-counter trading market in the U.S. On March 30, 2022, as expected following its adoption of implementing rules pursuant to the HFCAA, the SEC added us to its conclusive list of issuers identified under HFCAA, after being provisionally named as a Commission-Identified Issuer on March 8, 2022, following the filing of our annual report on Form 10-K, which annual report was audited by Ernst & Young Hua Ming LLP. In December 2022, the Accelerating Holding Foreign Companies Accountable Act ("AHFCAA") was signed into law, which amended the HFCAA to shorten the three-year period to two years.
However, as our global business has expanded, we built substantial organizational capabilities outside of the PRC and we have evaluated, designed and implemented business processes and control changes which has enabled us to engage Ernst & Young LLP, located in Boston, Massachusetts, United States, as our independent registered public accounting firm for the audits of our financial statements and internal control over financial reporting for the fiscal year ending December 31, 2022. We expect that this will satisfy the PCAOB inspection requirements for the audit of our consolidated financial statements, subject to compliance with SEC and other requirements prior to the two-year deadline of the AHFCAA.
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On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and the Ministry of Finance of the People's Republic of China, for opening access for the PCAOB to inspect and investigate completely registered public accounting firms in mainland China and Hong Kong. The PCAOB staff members conducted on-site inspections and investigations from September to November 2022. In December 2022, the PCAOB announced that it has secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and confirmed that until such time as the PCAOB issues any new determination, there are no Commission-identified Issuers at risk of having their securities subject to a trading prohibition under the HFCAA.
Given that Ernst and Young LLP (United States) now serves as the principal accountant to audit our consolidated financial statements, we expect to be able to comply with the HFCAA and AHFCAA and certify that we have retained a registered public accounting firm that the PCAOB has determined it is able to inspect or investigate, Ernst & Young LLP (United States), which would preclude a further finding by the SEC that we are a Commission-Identified Issuer and therefore the delisting of our ADSs from the Nasdaq Global Select Market.
Additionally, in October 2021, Nasdaq adopted additional listing criteria applicable to companies that primarily operate in jurisdictions where local regulators impose secrecy laws, national security laws or other laws that restrict U.S. regulators from accessing information relating to the issuer (a “Restrictive Market”). Under this rule, whether a jurisdiction permits PCAOB inspection would be a factor in determining whether a jurisdiction is deemed by Nasdaq to be a Restrictive Market. China will likely be determined to be a Restrictive Market and, as a result, Nasdaq may impose on us additional continued listing criteria or deny continued listing of our securities on Nasdaq, and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to our audit.
However, these efforts may not be sufficient and ultimately may not be successful. We may also be subject to enforcement under the HFCAA, the rules implementing the act that may be adopted by the SEC, and any other similar legislation that may be enacted into law or executive orders that may be adopted in the future. Although we are committed to complying with the rules and regulations applicable to listed companies in the United States, we are currently unable to predict the potential impact on our listed status by any rules that may be adopted by the SEC under the HFCAA in the future. If we failed to comply with those rules, it is possible that our ADSs would be delisted. The risk and uncertainty associated with a potential delisting would have a negative impact on the price of our ADSs, ordinary shares and RMB Shares. Delisting of our ADSs would force holders of our ADSs to sell their ADSs or convert them into our ordinary shares, which are listed for trading on the HKEx. Although our ordinary shares are listed in Hong Kong, investors may face difficulties in converting their ADSs into ordinary shares and migrating the ordinary shares to Hong Kong, or may have to incur increased costs or suffer losses in order to do so. Failure to adopt effective contingency plans may also have a material adverse impact on our business and the price of our ADSs, ordinary shares and RMB Shares.
Proceedings instituted by the SEC against five PRC-based accounting firms and any negative news about the proceedings against these audit firms, including Ernst & Young Hua Ming LLP, could adversely affect the market price of our ADSs, ordinary shares and/or RMB Shares.
In 2012, the SEC brought administrative proceedings against five accounting firms in China, including Ernst & Young Hua Ming LLP, alleging that they had refused to produce audit work papers and other documents related to certain other PRC-based companies under investigation by the SEC. In 2014, an initial administrative law decision was issued, censuring these accounting firms and suspending four of these firms from practicing before the SEC for a period of six months. In 2015, each of the four PRC-based accounting firms agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. These firms’ ability to continue to serve their clients was not affected by the settlement. The settlement required these firms to follow detailed procedures to seek to provide the SEC with access to Chinese firms’ audit documents via the CSRC. If these firms do not follow these procedures, the SEC could impose penalties such as suspensions, or it could restart the administrative proceedings. Our audit committee has been aware of the policy restriction and communicated with Ernst & Young Hua Ming LLP to ensure compliance during the completion of our audits from fiscal year 2014 to fiscal year 2021. The settlement did not require these firms to admit to any violation of law and preserves these firms’ legal defenses in the event the administrative proceeding is restarted. In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding PRC-based, U.S.-listed companies and the market price of the ADSs, ordinary shares and/or RMB Shares may be adversely affected. As discussed above, we have engaged Ernst & Young LLP, located in Boston, Massachusetts, United States, as our independent
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registered public accounting firm for the audits of our financial statements and internal control over financial reporting for the fiscal year ending December 31, 2022 to be filed with the SEC.
There are uncertainties regarding the interpretation and enforcement of PRCChinese laws, rules and regulations.
A large portion of our operations are conducted in the PRCChina through our PRC subsidiaries, and are governed by PRC laws, rules and regulations.Chinese subsidiaries. Our PRCChinese subsidiaries are subject to laws, rules and regulations applicable to foreign investment in China. The PRCChinese legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.
In 1979, the PRCChinese government began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in general. The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of foreign investment in China. However, China has not developed a fully integratedChina's legal system and recently enactedis still developing. The laws, rules and regulations may not sufficiently cover all aspects of economic activities in China or may beare subject to significant degrees of interpretation and enforcement by PRC regulatory agencies.agencies and courts. In particular, because these laws, rules and regulations are relatively new, because of the limited number of published decisions and the non-precedential nature of such decisions, and because the laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them, and because of the limited number of published decisions and the nonbinding nature of such decisions, the interpretation and
enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect. The regulations in China can change quickly. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation.
It may be difficult for overseas regulators to conduct investigations or collect evidence within China. In China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigations initiated outside China. According to Article 177 of the PRC Securities Law, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the PRC territory. According to the Revised Confidentiality and Archives Administration Provisions, where overseas securities regulators or relevant competent authorities request to inspect, investigate or collect evidence from Chinese domestic companies concerning their overseas offering and listing or their securities firms and securities service providers that undertake securities business for such Chinese domestic companies, such inspection, investigation and evidence collection must be conducted under the cross-border regulatory cooperation mechanism, and the CSRC or competent authorities of the Chinese government will provide necessary assistance pursuant to bilateral and multilateral cooperation mechanism. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of a mutual and practical cooperation mechanism. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigations or evidence collection activities within China may further increase the difficulties you face in protecting your interests. For risks associated with investing in us as a Cayman Islands company, see also “—Risks Related to Our Ordinary Shares, ADSs, and RMB Shares—We are a Cayman Islands company. Because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under Hong Kong law, Chinese law or U.S. law, our shareholders may have fewer shareholder rights than they would have under Hong Kong law, Chinese law or U.S. law and may face implementation challenges. The timing and full impactdifficulties in protecting their interests.”
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•tightening oversight of data security, cross-border data flow and administration of classified information, as well as amendments to relevant regulation to specify responsibilities of overseas listed China-based companies with respect to data security and information security;
•enhanced oversight of overseas listed companies as well as overseas equity fundraising and listing by China-based companies; and
•extraterritorial application of China’s securities laws.
There are great uncertainties with respect to the interpretation and implementation of the Securities Opinions and the newly promulgated Overseas Listing Trial Measures. The PRC government may promulgate relevant laws, rules and regulations to impose additional and significant obligations and liabilities on overseas listed China-based companies regarding data security, cross-border data flow, and compliance with China’s securities laws. As a company with operations in China and stock listings in and outside of China, it is uncertain whether or how these laws, rules and regulations and their interpretation and implementation may affect us. However, among other things, our ability to obtain external financing through the issuance of equity securities overseas could be adversely affected if restrictions on overseas fundraising are imposed on companies like us.
The filing or other procedures with, the CSRC or other Chinese regulatory authorities may be required in connection with issuing our equity securities to foreign investors under Chinese law, and, if required, we cannot predict whether we will be able, or how long it will take us, to complete such filing or other procedures.If we fail to complete a filing with the CSRC, our future offering application may be impacted and we may be subject to penalties, sanctions and fines imposed by the CSRC and relevant departments of the State Council.
Pursuant to the Securities Opinions, Chinese regulators are required to accelerate rulemaking related to the overseas issuance and listing of securities outside of China, and update the existing laws and regulations related to data security, cross-border data flow, and administration of classified information. The Securities Opinions emphasized the need to strengthen the administration over illegal securities activities and the need to strengthen the supervision over overseas listings by Chinese companies.
Numerous regulations, guidelines and other measures have been or are expected to be adopted under the umbrella of or in addition to the Cyber Security Law and Data Security Law. As there are still uncertainties regarding the interpretation and implementation of such regulatory guidance, we cannot assure investors that we will be able to comply with PRC regulations regardingnew regulatory requirements relating to our employee equity plansfuture overseas capital-raising activities outside of China and investmentswe may become subject to more stringent requirements with respect to matters including data privacy and cross-border investigation and enforcement of legal claims.
Furthermore, on February 17, 2023, the CSRC released the Overseas Listing Trial Measures and five relevant guidelines, which will take effect from March 31, 2023, requiring Chinese companies that have already directly or indirectly offered and listed securities in offshore companies by PRC residents may subjectoverseas markets to fulfil their filing obligations and report relevant information to the PRC plan participants and PRC-resident beneficial owners or us to fines and other legal or administrative sanctions.
As of the date of this report, we have not received any inquiry, notice, warning or sanction regarding completing filing or other procedures in Share Incentive Planconnection with offering our equity securities on the Nasdaq Global Select Market or Hong Kong Stock Exchange from the CSRC or any other Chinese regulatory authorities that have jurisdiction over our operations. However, there
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remains significant uncertainty as to which, employees, directors, supervisorsthe interpretation and implementation of regulatory requirements related to securities offerings and other management members participating in any share incentive plancapital markets activities outside of an overseas publicly listed company who are PRC citizens or who are non-PRC citizens residingChina. If it is determined in the PRCfuture that the filing or other procedure with the CSRC or any other regulatory authority is required for issuing our equity securities on the Nasdaq Global Select Market or Hong Kong Stock Exchange, it is uncertain whether we will be able to and how long it would take for us to complete the filing or other procedure, despite our best efforts. If we, for any reason, are unable to complete, or experience significant delays in completing, the requisite relevant filing or other procedure(s), we may face sanctions by the CSRC or other Chinese regulatory authorities. These regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of funds into China or take other actions that could have a continuous periodmaterial adverse effect on our business, financial condition, results of not less than one year, subjectoperations and prospects, as well as the trading price of our ADSs, ordinary shares, and RMB Shares. In addition, if the CSRC or other regulatory authorities later promulgate new rules requiring that we obtain their approvals or complete filing or other procedures for any future public offerings on the Nasdaq Global Select Market or Hong Kong Stock Exchange, we may be unable to limited exceptions,obtain a waiver of such requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding such a requirement could have a material adverse effect on the trading price of our ADSs, ordinary shares, and RMB Shares.
To operate our general business activities currently conducted in China, each of our Chinese subsidiaries is required to obtain a business license from the local counterpart of the SAMR. Each of our Chinese subsidiaries has obtained a valid business license from the local counterpart of the SAMR, and no application for any such license has been denied. The pharmaceutical industry in which we operate is also highly regulated in China. Our Chinese subsidiaries are required to register with the SAFE through a domestic qualified agent,obtain applicable licenses from competent Chinese government authorities for our operations in China, including drug manufacturing licenses, drug trade license, clinical trial authorizations, drug registration certificates, licenses for use of experimental animals, pollutant discharge licenses and permits for urban sewage discharge into drainage pipe network. We believe our PRC subsidiaries have obtained all applicable licenses and permits which are material to our business operations in China.
PRC regulations establish complex procedures for some acquisitions conducted by foreign investors, which could be a make it more difficult for us to pursue growth through acquisitions in China.
PRC subsidiary of such overseas listed company,regulations and complete certain other procedures. We also face regulatory uncertaintiesrules concerning mergers and acquisitions set forth additional procedures and requirements that could restrict our abilitymake merger and acquisition activities of PRC-based companies by foreign investors more time-consuming and complex. See also “—Risks Related to adopt additional equity incentive plans for our directorsOur Industry, Business and employees under PRC law.
In December 2020, the NDRC and the MOFCOM promulgated the Foreign Investment Security Review Measures, which came into effect on January 18, 2021. Under the Foreign Investment Security Review Measures, investments in military, national defense-related areas or in locations in proximity to military facilities, or investments that would result in acquiring the actual control of assets in certain key sectors, such as critical agricultural products, energy and resources, equipment manufacturing, infrastructure, transport, cultural products and services, IT, Internet products and services, financial services and technology sectors, are required to be approved by designated governmental authorities in advance. As these subsidiaries. Moreover, failuremeasures are recently promulgated, official guidance has not been issued by the designated office in charge of such security review yet, therefore there are great uncertainties with respect to the interpretation and implementation of the Foreign Investment Security Review Measures. If any of our business operations were to fall under the foregoing categories, we would need to take further actions in order to comply with the various foreign exchange registration requirements described above could result in liability under PRC law for circumventing applicable foreign exchange restrictions.these laws, regulations and rules, which may materially and adversely affect our current corporate structure, business, financial condition and results of operations.
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We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.
We are a holding company incorporated in the Cayman Islands, and we may rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders or to service any debt we may incur. If any of our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. Under PRC laws and regulations, our PRC subsidiaries may pay dividends only out of their respective accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-ownedforeign- owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. Such reserve funds cannot be distributed to us as dividends.dividends until the liquidation of the enterprise. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to an enterprise expansion fund, or a staff welfare and bonus fund. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary. As of December 31, 2019 and 2018,2022, these restricted assets totaled $109.6 million and $93.3 million, respectively.$3.5 billion.
Our PRC subsidiaries generate primarily all of their revenue in RMB, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiaries to use their RMB revenues to pay dividends to us.
In response to the persistent capital outflow in the PRC and RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, China’sthe People’s Bank of China ("PBOC") and the SAFEChina's State Administration of Foreign Exchange ("SAFE") promulgated a series of capital control measures, including stricter vetting procedures for domestic companies to remit foreign currency for overseas investments, dividends payments and shareholder loan repayments.
The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by the SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
The PRC Enterprise Income Tax Law (the "EIT Law") and its implementation rules provide that China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its equity holders that are non-PRC resident enterprises, will normally be subject to PRC withholding tax at a rate of 10%, unless any such foreign investor’s jurisdiction of incorporationtax residency has a tax treaty with China that provides for a differentreduced withholding arrangement. As a result, dividends paid to us by our PRC subsidiaries are expected to be subject to PRC withholding tax at a rate arrangement and such non-PRC resident enterprises constitute the beneficiary of 10%.such income.
Pursuant to the Arrangementan arrangement between Mainlandmainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income (the "Hong Kong Tax Treaty"), BeiGene HK, and relevant tax regulations of the shareholder of some of our PRC, subsidiaries, may be subject to a withholding tax at a rate of 5% on dividends received from our PRC operating subsidiaries as a Hong Kong tax resident. Pursuant to the Hong Kong Tax Treaty, subject to certain conditions, thisa reduced withholding tax rate of 5% will be available for dividends from PRC entities provided that the recipient holds at least 25% shares of the PRC entities and can demonstrate it is a Hong Kong tax resident and it is the beneficial owner of the dividends. The SAT promulgated SAT Circular 9 in February 2018,China government has adopted multiple regulations which became effective from April 2018 and stipulatesstipulate that in determining whether a non-resident enterprise has the status as a beneficial owner, comprehensive analysis shall be conducted based on the factors listed therein and the actual circumstances of the specific case shall be taken into consideration. Specifically, it expressly excludes an agent or a designated payee from being considered as a “beneficial owner.” We own the PRC subsidiaries through BeiGene (Hong Kong) Co., Limited ("BeiGene HK"), a company incorporated under the laws of Hong Kong on November 22, 2010 and a wholly owned subsidiary of the Company. BeiGene HK currently does not hold a Hong Kong tax resident certificate from the Inland Revenue Department of Hong Kong, and there is no assurance that the reduced withholding tax rate will be available.
We may be treated as a resident enterprise for PRC tax purposes under the EIT Law and we may therefore be subject to PRC income tax on our worldwide taxable income. Dividends payable to foreign investors and gains on the sale of our ADSs or ordinary shares by our foreign investors may become subject to PRC tax.
Under the EIT Law, an enterprise established outside the PRC with “de facto management bodies” within the PRC is considered a “resident enterprise,” meaning that it is treated in a manner similar to a Chinese enterprise for PRC enterprise income tax ("EIT") purposes. The implementing rules of the EIT Law define “de facto management bodies” as “management bodies that exercise substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. In addition, the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies ("Circular 82") specifiesregulations specify that certain Chinese-controlled offshore incorporated enterprises, defined as enterprises incorporated under the laws of foreign countries or territories and that have PRC enterprises
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or enterprise groups as their primary controlling shareholders, will be classified as resident enterprises if all of the following are located or resident in China: (i) senior management personnel and departments that are responsible for daily production, operation and management; (ii) financial and personnel decision-making bodies; (iii) key properties, accounting books, company seal, and minutes of board meetings and shareholders’ meetings; and (iv) half or more of senior management or directors having voting rights. The State Administration of Taxation (the "SAT") has subsequently provided further guidance on the implementation of Circular 82.
Although BeiGene, Ltd. does not have a PRC enterprise or enterprise group as its primary controlling shareholder and is therefore not a Chinese-controlled offshore incorporated enterprise within the meaning of Circular 82,these regulations, in the absence of guidance specifically applicable to us, we have applied the guidance set forth in Circular 82the regulations to evaluate the tax residence status of BeiGene, Ltd. and its subsidiaries organized outside of the PRC.
We are not aware of any offshore holding company with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities. Accordingly, we do not believe that our company or any of our overseas subsidiaries should be treated as a PRC resident enterprise.
However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term "de facto management body." If the PRC tax authorities determine that our Cayman Islands holding company is a resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow and we may be subject to enterprise income tax at a rate of 25% on our worldwide taxable income, as well as to PRC enterprise income tax reporting obligations. If we are deemed a PRC resident enterprise, dividends paid on our ordinary shares or ADSs, and any gain realized from the transfer of our ordinary shares or ADSs, may be treated as income derived from sources within the PRC. As a result, dividends paid to non-PRC resident enterprise ADS holders or shareholders may be subject to PRC withholding tax at a rate of 10% (or 20% in the case of non-PRC individual ADS holders or shareholders) and gains realized by non-PRC resident enterprises ADS holders or shareholders from the transfer of our ordinary shares or ADSs may be subject to PRC tax at a rate of 10% (or 20% in the case of non-PRC individual ADS holders or shareholders)., which may be reduced or exempted according to relevant tax treaties between PRC and the non-PRC resident enterprise/individual ADS holders' or shareholders' tax resident jurisdictions.
We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to a PRC establishment of a non-PRC company, or other assets attributable to a PRC establishment of a non-PRC company.
Pursuant to the Bulletin on Issues of Enterprise Income Tax and Indirect Transfers of Assets by Non-PRC Resident Enterprises ("Bulletin 7"), which was amended by the Announcement on Issues Relating to Withholding at Source of Income Tax on Non-resident Enterprises issued by SAT ("Announcement 37"),Chinese regulations, an “indirect transfer” of “PRC taxable assets,” including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be recharacterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, factors to be taken into consideration include: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in the PRC or if its income mainly derives from the PRC; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the business model and organizational structure; the replicability of the transaction by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable tax treaties or similar arrangements. In respect of an indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be reported on with the enterprise income tax filing of the PRC establishment or place of business being transferred and would consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident
enterprise, a PRC enterprise income tax at the rate of 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements. Late payment of applicable tax will subject the transferor to default interest. Gains derived from the sale of shares by investors through a public stock exchange are not subject to the PRC enterprise income tax pursuant to Bulletin 7 where such shares were acquired in a transaction through a public stock exchange. As such, the sale of the ADSs or ordinary shares on a public stock exchange will not be subject to PRC enterprise income tax pursuant to Bulletin 7.tax. However, the sale of our ordinary shares or ADSs originally purchased from a stock exchange by a non-PRC resident enterprise outside a public stock exchange may be subject to PRC enterprise income tax under Bulletin 7.these regulations.
There are uncertainties as to the application of Bulletin 7. Bulletin 7these regulations, which may be determined by the tax authorities to be applicable to sale of the shares of our offshore subsidiaries or investments where PRC taxable assets are involved. The transferors and transferees may be subject to the tax filing and withholding or tax payment obligation, while our PRC subsidiaries may be requested to assist in the filing. Furthermore, we, our non-resident enterprises and PRC subsidiaries may be required to spend valuable resources to comply with Bulletin 7these regulations or to establish that we and our non-resident enterprises should not be taxed under Bulletin 7,these regulations, for our previous and future restructuring or disposal of shares of our offshore subsidiaries, which may have a material adverse effect on our financial condition and results of operations.
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The PRC tax authorities have the discretion under Bulletin 7 to make adjustments to the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. If the PRC tax authorities make adjustments to the taxable income of the transactions under Announcement 37, or Bulletin 7,these regulations, our income tax costs associated with such potential acquisitions or disposals will increase, which may have an adverse effect on our financial condition and results of operations.
Restrictions on currency exchange may limit our ability to utilize our revenue effectively.
The PRC government imposes controls on the convertibilityconversion of RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC. A portion of our revenue is denominated in RMB. Shortages in availability of foreign currency may then restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to our offshore entities for our offshore entities to pay dividends or make other payments or otherwise to satisfy our foreign currency denominated obligations. The RMB is currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans, including loans we may secure from our onshore subsidiaries. Currently, our PRC subsidiaries may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of SAFE by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. Since a portion of our revenue is denominated in RMB, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in RMB to fund our business activities outside of the PRC or pay dividends in foreign currencies to holders of our ordinary shares and the ADSs. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities or designated banks. This could affect our ability to obtain foreign currency through debt or equity financing for our subsidiaries.
Our business benefits from certain financial incentives and discretionary policies granted by local governments. Expiration of, or changes to, these incentives or policies would have an adverse effect on our results of operations.
Local governments in the PRC have granted certain financial incentives from time to time to our PRC subsidiaries as part of their efforts to encourage the development of local businesses. The timing, amount and criteria of government financial incentives are determined within the sole discretion of the local government authorities and cannot be predicted with certainty before we actually receive any financial incentive. We generally do not have the ability to influence local governments in making these decisions. Local governments may decide to reduce or eliminate incentives at any time. In addition, some of the government financial incentives are granted on a project basis and subject to the satisfaction of certain conditions, including compliance with the applicable financial incentive agreements and completion of the specific project therein. We cannot guarantee that we will satisfy all relevant conditions, and if we do so we may be deprived of the relevant incentives. We cannot assure you of the continued availability of the government incentives currently enjoyed by us. Any reduction or elimination of incentives would have an adverse effect on our results of operations. Government grant
Any failure to comply with PRC regulations regarding our employee equity plans and subsidies recognizedinvestments in offshore companies by PRC residents may subject the income statement for the years ended December 31, 2019PRC plan participants and 2018 were $6.2 millionPRC-resident beneficial owners or us to fines and $4.4 million, respectively.other legal or administrative sanctions.
The pharmaceutical industry in China is highly regulated, and such regulations are subject to change, which may affect approval and commercialization of our medicines and drug candidates.
A large portion of our business is conducted in China. The pharmaceutical industry in China is subject to comprehensive government regulation and supervision, encompassing the approval, registration, manufacturing, packaging, licensing and marketing of new medicines. In recent years, the regulatory framework in China for pharmaceutical companies has undergone significant changes, which we expect will continue. While we believe our strategies regarding research, development, manufacturing and commercialization in China are aligned with the Chinese government's policies, they may in the future
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diverge, requiring a result, investors may be deprived of the benefits of PCAOB inspections and may lose confidencechange in our reported financial information and procedures and the quality of our financial statements.
Risks Related to Our American DepositaryOrdinary Shares, ADSs, and OrdinaryRMB Shares
The trading prices of our ordinary shares, ADSs, and/or ADSsRMB Shares can be volatile, which could result in substantial losses to you.
The trading price of our ordinary shares, ADSs, and/or ADSsRMB Shares can be volatile and fluctuate widely in response to a variety of factors, many of which are beyond our control. In addition, the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in Hong Kong or the United States may affect the volatility in the price of and trading volumes for our ordinary shares and/or ADSs. Some of these companies have experienced significant volatility. The trading performances of these PRC companies’ securities may affect the overall investor sentiment towards other PRC companies listed in Hong Kong or the United States and consequently may impact the trading performance of our ordinary shares and/or ADSs.
In addition, the stock market, in general, and pharmaceutical and biotechnology companies, in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our ordinary shares, ADSs, and/or ADSs,RMB Shares, regardless of our actual operating performance. Further, the current volatility in the financial markets and related factors beyond our control may cause the ordinary share and/or ADS price to decline rapidly and unexpectedly.
The characteristics of the U.S. capital markets in the United States, Hong Kong and Shanghai are different, which may cause volatility in the market price of our ordinary shares, ADSs, and RMB Shares.
Our ordinary shares are listed on the HKEx in Hong Kong under the stock code "06160", our ADSs are listed on the Nasdaq in the United States under the symbol “BGNE”, and our RMB Shares are listed on the STAR Market in the PRC under the stock code "688235". Under current PRC laws and regulations, our ADSs and ordinary shares listed on the Nasdaq and the Hong Kong capitalHKEx are not interchangeable or fungible with the RMB Shares listed on the STAR Market, and there is no trading or settlement between either the Nasdaq or the HKEx on the one hand, and the STAR Market on the other hand. The three markets are different.
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affect the price of the ordinary shares and/or RMB Shares, and vice versa. Because of the different characteristics of the U.S., Hong Kong and Hong KongShanghai equity markets, the historic market prices of our ordinary shares, ADSs, and ordinary sharesRMB Shares may not be indicative of the performance of our securities going forward.
We may be subject to securities litigation, which is expensive and could divert management attention.
Companies that have experienced volatility in the volume and market price of their shares have been subject to an increased incidence of securities class action litigation, particularly in our industry in recent years. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, and, if adversely determined, could have a material adverse effect on our business, financial condition, and results of operations.
Future sales of our ordinary shares, ADSs, and/or ADSsRMB Shares in the public market could cause the ordinary sharesshare, ADS, and/or ADSRMB Share price to fall.
The price of our ordinary shares, ADSs, and/or ADSsRMB Shares could decline as a result of sales of a large number of the ordinary shares, ADSs, and/or ADSsRMB Shares or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
As of February 14, 2020, 1,007,975,7112023, 1,356,140,180 ordinary shares, par value $0.0001 per share, were outstanding, of which 846,730,482863,876,312 ordinary shares were held in the form of 65,133,11466,452,024 ADSs, each representing 13 ordinary shares.shares, and 115,055,260 were RMB Shares.
We filed a registration statement on Form S-3 with the SEC on behalf of certain shareholders on May 26, 2017,11, 2020, registering 299,279,370300,197,772 ordinary shares, including 224,861,338 ordinary shares in the form of 23,021,49017,297,026 ADSs to be resold by the selling shareholders identified therein and in any related prospectus supplement from time to time. Amgen also has specified registration rights upon expiration of a lock-up period. Furthermore, we have registered or plan to register the offer and sale of all securities that we have issued and may issue in the future under our equity compensation plans, including upon the exercise of share options and vesting of restricted share units and under our employee share purchase plan. If these additional securities are sold, or if it is perceived that they will be sold, in the public market, the trading price of our ordinary shares, ADSs and/or ADSsRMB Shares could decline. We have also granted certain registration rights with respect to the shares issued to BMS in the event that they are not eligible for sale under Rule 144. Amgen also has specified registration rights upon expiration of the lock-up.
In addition, in the future, we may issue additional ordinary shares, ADSs, RMB Shares, or other equity or debt securities convertible into ordinary shares, ADSs, or ADSsRMB Shares in connection with a financing, acquisition, license, litigation settlement, employee arrangements or otherwise. Any such issuance could result in substantial dilution to our existing shareholders and could cause the ordinary share, ADS, and/or ADSRMB Share price to decline.
The triple listing of our ADSs, ordinary shares and RMB Shares may adversely affect the liquidity and value of our ADSs, ordinary shares and/or RMB Shares.
Our ADSs are traded on the Nasdaq, our existing ordinary shares maintained on our Cayman register in Cayman Islands and Hong Kong register in Hong Kong, are traded on the HKEx, and our RMB Shares are traded on the STAR Market. The triple listing of our ADSs, ordinary shares and RMB Shares may dilute the liquidity of these securities in one or all three markets and may adversely affect the maintenance of an active trading market for ADSs in the United States, the ordinary shares in Hong Kong, and/or the RMB Shares in the PRC. The price of our ADSs, ordinary shares and/or RMB Shares could also be adversely affected by trading of our securities on other markets. We may decide at some point in the future to delist our RMB Shares from the STAR Market, and our shareholders may approve such delisting. We cannot predict the effect such delisting of our RMB Shares on the STAR Market would have on the market price of our ADSs on the Nasdaq or our ordinary shares on the HKEx.
We face increased regulatory scrutiny and compliance costs due to our listing on the STAR Market of the SSE.
We are subject to the applicable laws, rules and regulations governing public companies listed on the STAR Market in addition to the various laws, rules and regulations that we are subject to in the United States and Hong Kong. The listing and trading of our equity securities in multiple jurisdictions and multiple markets will lead to increased compliance obligations and costs for us, and we may face the risk of significant intervention by regulatory authorities in these jurisdictions and markets, such as inquiries, investigations, enforcement actions and other regulatory proceedings by regulatory authorities. In addition, we may be subject to securities litigation filed with the courts in China by the investors with respect to the RMB Shares traded on the STAR Market.
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Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of the ordinary shares, ADSs and/or ADSsRMB Shares for return on your investment.
We intend to retain most, if not all, of our available funds and earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in the ordinary shares, ADSs and/or ADSsRMB Shares as a source for any future dividend income.
Our board of directors has significant discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual and regulatory restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in the ordinary shares, ADSs and/or ADSsRMB Shares will likely depend entirely upon any future price appreciation of the ordinary shares, ADSs and/or ADSs.RMB Shares. There is no guarantee that the ordinary shares, ADSs and/or ADSsRMB Shares will appreciate in value or even maintain the price at which you purchased the ordinary shares, ADSs and/or ADSs.RMB Shares. You may not realize a return on your investment in the ordinary shares, ADSs and/or ADSsRMB Shares and you may even lose your entire investment in the ordinary shares, ADSs and/or ADSs.RMB Shares.
If securities or industry analysts do not continue to publish research or publish inaccurate or unfavorable research about our business, the market price for the ordinary shares, ADSs and/or ADSsRMB Shares and trading volume could decline.
The trading market for the ordinary shares, ADSs and ADSsRMB Shares relies in part on the research and reports that equity research analysts publish about us or our business. We do not control these analysts. If research analysts do not maintain adequate research coverage or if one or more of the analysts who covers us downgrades the ordinary shares, ADSs and/or ADSsRMB Shares or publishes inaccurate or unfavorable research about our business, the market price for the ordinary shares, ADSs and/or ADSsRMB Shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the ordinary shares, ADSs and/or ADSsRMB Shares to decline significantly.
We are an exempted company with limited liability incorporated in the Cayman Islands. Our corporate affairs are governed by our amended and restated memorandum and articles of association (as may be further amended from time to time), the Companies Law (as amended) of the Cayman Islands, and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors are to a large extent governed by the common law of the Cayman Islands. This common law is derived in part from comparatively
limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a courtcourts in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in Hong Kong, mainland China and the United States. In particular, the Cayman Islands has a less developed body of securities law than Hong Kong, mainland China or the United States. In addition, some states in the United States, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.
In addition, as a Cayman Islands exempted company, our shareholders have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders, of these companies with the exception that the shareholders may request a copy of the current amended and restated memorandum and articles of association. Our directors have discretion under our amended and restated articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for youshareholders to obtain the information needed to establish any facts necessary for a shareholder motionaction or to solicit proxies from other shareholders in connection with a proxy contest. As a Cayman Islands company, we may not have standing to initiate a derivative action in a Hong Kong, mainland China or U.S. federal court. As a result, youshareholders may be limited in yourtheir ability to protect yourtheir interests if youthey are harmed in a manner that would otherwise enable youthem to sue in a United States federal court. In addition, shareholders of Cayman Islands companies may not have standing to initiate a shareholder derivative action in Hong Kong, mainland China or U.S. federal courts.
Some of our directors and executive officers reside outside of Hong Kong and the United States and a substantial portion of their assets are located outside of Hong Kong and the United States. As a result, it may be difficult or impossible for youshareholders to bring an action against us or against these individuals in Hong Kong or in the United States in the event that youshareholders believe that yourtheir rights have been infringed under the securities laws of Hong Kong, the United States or otherwise. To the extentIn addition, some of our directors and executive officers reside outside of China. To the extent our directors and
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executive officers reside outside of China or their assets are located outside of China, it may not be possible for investors to effect service of process upon us or our management inside China. Even if youshareholders are successful in bringing an action, the laws of the Cayman Islands and China may render youthem unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, Hong Kong or China, although the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.
As a result of the above, public shareholders may have more difficulty protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a Hong Kong company, a Chinese company or a U.S. company.
Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, youADS holders may not be able to exercise yourtheir right to vote and youthey may lack recourse if yourthe ordinary shares underlying their ADSs are not voted as youthey requested.
Under the deposit agreement for the ADSs, the depositary will give us a discretionary proxy to vote the ordinary shares underlying yourADS holders' ADSs at shareholders’ meetings if yousuch holders do not give voting instructions to the depositary, unless:
•we have failed to timely provide the depositary with our notice of meeting and related voting materials;
•we have instructed the depositary that we do not wish a discretionary proxy to be given;
•we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; or
•a matter to be voted on at the meeting would have a material adverse impact on shareholders.
The effect of this discretionary proxy is that, if youADS holders fail to give voting instructions to the depositary, youthey cannot prevent the ordinary shares underlying yourtheir ADSs from being voted, absent the situations described above, and it may make it more difficult for yousuch ADS holders to influence our management. Holders of our ordinary shares are not subject to this discretionary proxy.
Anti-takeover provisions in our constitutional documents may discourage our acquisition by a third party, which could limit our shareholders’ opportunity to sell their shares at a premium.
Our amended and restated memorandum and articles of association include provisions that could limit the ability of others to acquire control of our company, could modify our structure or could cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares, at a premium over prevailing market prices by discouraging third parties from seeking to obtain control in a tender offer or similar transaction.
For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix the powers and rights of these shares, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares. Preferred shares could thus be issued quickly with terms calculated to delay or prevent a change in control or make removal of management more difficult. In addition, if our board of directors authorizes the issuance of preferred shares, the
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market price of the ordinary shares and/or ADSs may fall and the voting and other rights of the holders of our ordinary shares and/or ADSs may be materially and adversely affected.
Furthermore, theour amended and restated articles of association permit theour directors to vary all or any of the rights attaching to any class of shares in issue without the consent of the shareholdershareholders but only if such variation is considered by the directors not to have a material adverse effect upon such holder. The directors cannot vary the rights of shares if such variation would have a material adverse effect of the holder.holders. The amended and restated articles of association provide that the holders must consent to any such material adverse changes in the manner set out therein.
Because our directors are divided into three classes with staggered terms of three years each, shareholders can only elect or remove a limited number of our directors in any given year. The length of these terms could present an obstacle to certain actions, such as a merger or other change of control, which could be in the interest of our shareholders.
Our amended and restated memorandum and articles of association designate specific courts in the Cayman Islands as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, which could limit our shareholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our amended and restated memorandum and articles of association provide that, unless we consent in writing to the selection of an alternative forum, the courts of Cayman Islands will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of us, any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of us to us or our shareholders, any action asserting a claim arising pursuant to any provision of the Companies Law of the Cayman Islands as amended from time to time, or the amended and restated memorandum and articles of association, or any action asserting a claim governed by the internal affairs doctrine (as such concept is recognized under the U.S. laws). This provisionIn connection with our offering and listing on the STAR Market, our shareholders approved the Sixth Amended and Restated Memorandum and Articles of Association, which became effective on December 15, 2021. The Sixth Amended and Restated Memorandum and Articles of Association provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (the "Securities Act"). In addition, the Sixth Amended and Restated Memorandum and Articles of Association provide that any person or entity purchasing or otherwise acquiring any interest in any of our securities is deemed to have notice of and consented to these provisions; provided, however, that shareholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and rules and regulations thereunder.
These provisions may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits. Alternatively, if a court were to find this provisionthese provisions of our amended and restated memorandum and articles of association inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions.
Our amended and restated memorandum and articles of association provide that any shareholder bringing an unsuccessful action against us may be obligated to reimburse us for any costs we have incurred in connection with such unsuccessful action.
Our amended and restated memorandum and articles of association provide that under certain circumstances the fees, costs, and expenses that we incur in connection with actions or proceedings brought by any person or entity, which we refer to as claiming parties, may be shifted to such person or entity. If a claiming party asserts any claim; initiates any proceeding; or joins, offers substantial assistance to, or has a direct financial interest in any claim or proceeding against us, and such claiming party or the third party that received substantial assistance from the claiming party or in whole claim the claiming party had a direct financial interest is unsuccessful in obtaining a judgment on the merits in which the claiming party prevails, then such claiming party shall (to the fullest extent permitted by law) be obligated to reimburse us for all fees, costs, and expenses,
including but not limited to all reasonable attorneys’ fees and other litigation expenses, that we may incur in connection with such claim or proceeding.
Fee-shifting articles are relatively new and untested in the Cayman Islands, the United States, Hong Kong and Hong Kong.mainland China. The case law and potential legislative action on fee-shifting articles are evolving and there exists considerable uncertainty regarding the validity of, and potential judicial and legislative responses to, such articles. The application of our fee-shifting article in connection with claims under the Cayman Islands, the United States, or Hong Kong or Chinese securities laws, if any, will depend in part on future developments of the law. We cannot assure you that we will or will not invoke our fee-shifting article in any particular dispute. Consistent with our directors’ fiduciary duties to act in the best interests of the Company, the directors may in their sole discretion from time to time decide whether or not to enforce this article. In addition, given the unsettled state of the law related to fee-shifting articles, such as ours, we may incur significant additional costs associated with resolving disputes with respect to such articles, which could adversely affect our business and financial condition.
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If a shareholder that brings any such claim or proceeding is unable to obtain the judgment sought, the attorneys’ fees and other litigation expenses that might be shifted to a claiming party may be significant. This fee-shifting article, therefore, may dissuade or discourage current or former shareholders (and their attorneys) from initiating lawsuits or claims against us. In addition, it may impact the fees, contingency or otherwise, required by potential plaintiffs’ attorneys to represent our shareholders or otherwise discourage plaintiffs’ attorneys from representing our shareholders at all. As a result, this article may limit the ability of shareholders to affect the management and direction of our company, particularly through litigation or the threat of litigation.
Holders of the ADSs may be subject to limitations on transfer of their ADSs.
In addition, youholders of ADSs may not be able to cancel yourtheir ADSs and withdraw the underlying ordinary shares when youthey owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities.
The depositary for the ADSs is entitled to charge holders fees for various services, including annual service fees. Dealings in the ordinary shares registered in our Hong Kong register of members will be subject to Hong Kong stamp duty.
The depositary for the ADSs is entitled to charge holders fees for various services, including for the issuance of ADSs upon deposit of ordinary shares, cancellation of ADSs, distributions of cash dividends or other cash distributions, distributions of ADSs pursuant to share dividends or other free share distributions, distributions of securities other than ADSs, and annual service fees. In the case of ADSs issued by the depositary into The Depository Trust Company ("DTC"), the fees will be charged by the DTC participant to the account of the applicable beneficial owner in accordance with the procedures and practices of the DTC participant as in effect at the time. Additionally, dealings
Dealings in the ordinary shares registered in our Hong Kong register of members will be subject to Hong Kong stamp duty. There is uncertainty as to whether Hong Kong stamp duty will apply to the trading or conversion of the ADSs.
In connection with our Hong Kong public offering in 2018, we established a branch register of members in Hong Kong (the “Hong Kong share register”). Our ordinary shares that are traded on the HKEx, including those that may be converted from ADSs, are registered on the Hong Kong share register, and the trading of these ordinary shares on the HKEx are subject to Hong Kong stamp duty. To facilitate ADS to ordinary share conversion and trading between the Nasdaq and the HKEx, we moved a portion of our issued ordinary shares from our Cayman share register to our Hong Kong share register.
Under the Hong Kong Stamp Duty Ordinance, any person who effects a sale or purchase of Hong Kong stock, defined as stock the transfer of which is required to be registered in Hong Kong, is required to pay Hong Kong stamp duty. The stamp duty is currently set at a total rate of 0.2% of the greater of the consideration for, or the value of, shares transferred, with 0.1% payable by each of the buyer and the seller.
To the best of our knowledge, Hong Kong stamp duty has not been levied in practice on the trading or conversion of ADSs of companies that are listed in both the United States and Hong Kong and that have maintained all or a portion of their ordinary shares, including ordinary shares underlying ADSs, in their Hong Kong share registers. However, it is unclear whether, as a matter of Hong Kong law, the trading or conversion of ADSs of these dual-listed companies constitutes a sale or purchase of the underlying Hong Kong registered ordinary shares that is subject to Hong Kong stamp duty. We advise investors to consult their own tax advisors on this matter. If Hong Kong stamp duty is determined by the competent authority to apply to the trading or conversion of the ADSs, the trading price and the value of your investment in our ADSs or ordinary shares may be affected.
Holders of the ADSs may not receive distributions on our ordinary shares or any value for them if it is illegal or impractical to make them available to you.available.
The depositary of the ADSs has agreed to pay youADS holders the cash dividends or other distributions it or the custodian for the ADSs receives on our ordinary shares or other deposited securities after deducting its fees and expenses. YouADS holders will receive these distributions in proportion to the number of our ordinary shares that yourtheir ADSs represent. However, the
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depositary is not responsible for making such payments or distributions if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act, of 1933, as amended (the "Securities Act"), but that are not properly registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration required for such distribution cannot be obtained after reasonable efforts made by the depositary. We have no obligation to take any other action to permit the distribution of the ADSs, ordinary shares, rights or anything else to holders of the ADSs. This means that youholders of ADSs may not receive the distributions we
make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you.such holders. These restrictions may materially reduce the value of yourour ADSs.
Holders of the ADSs may not be able to participate in rights offerings and may experience dilution of their holdings.
From time to time, we may distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs or are registered under the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to try to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.
Our corporate actions are substantially controlled by our directors, executive officers and other principal shareholders, who can exert significant influence over important corporate matters, which may reduce the price of theour ordinary shares, ADSs, and/or ADSsRMB Shares and deprive youshareholders of an opportunity to receive a premium for yourtheir ordinary shares, ADSs, and/or ADSs.RMB Shares.
Our directors, executive officers and principal shareholders beneficially owned approximately 68%55% of our outstanding ordinary shares as of February 14, 2020.2023. These shareholders, if acting together, could exert substantial influence over matters such as electing directors and approving material mergers, acquisitions or other business combination transactions. This concentration of ownership may also discourage, delay or prevent a change in control of our company, which could have the dual effect of depriving our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and reducing the price of our ordinary shares, ADSs, and/or ADSs.RMB Shares. These actions may be taken even if they are opposed by our other shareholders. In addition, these persons could divert business opportunities away from us to themselves or others.
We may be a passive foreign investment company in future taxable years, which may have adverse U.S. federal income tax consequences for U.S. shareholders.
A non-U.S. corporation will be classified as a “passive foreign investment company” (“PFIC”("PFIC") for any taxable year if either (1) 75% or more of its gross income consists of certain types of passive income or (2) 50% or more of the average quarterly value of its assets during such year produce or are held for the production of passive income. Based upon the current and expected composition of our income and assets, we dobelieve that we were not presently expect to be a PFIC for the current taxable year.year ended December 31, 2022. Nevertheless, because our PFIC status must be determined annually with respect to each taxable year and will depend on the composition and character of our assets and income, including our use of proceeds from any equity offerings, and the value of our assets (which may be determined, in part, by reference to the market value of our ADSs and ordinary shares, which may be volatile) over the course of such taxable year, we may be a PFIC in any taxable year. The determination of whether we will be or become a PFIC may also depend, in part, on how, and how quickly, we use our liquid assets and the cash raised in equity offerings. If we determine not to deploy significant amounts of cash for active purposes, our risk of being a PFIC may substantially increase. Because there are uncertainties in the application of the relevant rules and PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year. In addition, it is possible that the Internal Revenue Service may challenge our classification of certain income and assets as non-passive, which may result in our being or becoming a PFIC in the current or subsequent years. Further, U.S. investors should be aware that we determined we were a PFIC for 2016.
If we are a PFIC for any taxable year during a U.S. shareholder’s holding period of the ordinary shares or ADSs, then such U.S. shareholder may incur significantly increased United States income tax on gain recognized on the sale or other disposition of the ordinary shares or ADSs and on the receipt of distributions on the ordinary shares or ADSs to the extent such distribution is treated as an “excess distribution” under the United States federal income tax rules. In addition, such holders may be subject to burdensome reporting requirements.
Further, if we are classified as a PFIC for any year during which a U.S. shareholder holds our ordinary shares or ADSs, we generally will generally continue to be treated as a PFIC for all succeeding years during which such U.S. shareholder holds such ordinary
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shares or ADSs. Each U.S. shareholder should consult its tax advisor regarding the PFIC rules and the U.S. federal income tax consequences of the acquisition, ownership and disposition of the ordinary shares and ADSs.
If you are a “Ten Percent Shareholder,” you may be subject to adverse U.S. federal income tax consequences if we are classified as a Controlled Foreign Corporation.
Each “Ten Percent Shareholder” (as defined below) in a non-U.S. corporation that is classified as a “controlled foreign corporation,” or a CFC,corporation” ("CFC"), for U.S. federal income tax purposes is generally required to include in income for U.S. federal tax purposes such Ten Percent Shareholder’s pro rata share of the CFC’s “Subpart F income” and investment of earnings in U.S. property, even if the CFC has made no distributions to its shareholders. Each Ten Percent Shareholder is also required to
include in gross income its “global intangible low-taxed income,” which is determined by reference to the income of CFCs of which such Ten Percent Shareholder is a Ten Percent Shareholder. Ten Percent Shareholders that are corporations may be entitled to a deduction equal to the foreign portion of any dividend when a dividend is paid. A non-U.S. corporation will generally be classified as a CFC for U.SU.S. federal income tax purposes if Ten Percent Shareholders own in the aggregate, directly or indirectly, more than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation. A “Ten Percent Shareholder” is a U.S. person (as defined by the Internal Revenue Code of 1986, as amended), who owns or is considered to own 10% or more of the total combined voting power of all classes of stock entitled to vote of such corporation or 10% of the value of all classes of stock of such corporation. The determination of CFC status is complex and includes attribution rules, the application of which is not entirely certain.
Although we believe we are not a CFC now, we may become one or own interests in one in the future. Holders are urged to consult their own tax advisors with respect to our potential CFC status and the consequences thereof.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
We lease all of our facilities, other than the following facilities that we own: our offices and laboratories in Changping, Beijing, our manufacturing facility in Guangzhou, China, and the site for our officesplanned manufacturing facility and laboratoriesclinical R&D center at the Princeton Innovation Park in Changping, Beijing, and believe that our facilities are currently suitable and sufficient to meet our needs.Hopewell, New Jersey. We also lease an aggregate of approximately 53,00091,000 square meters of office space at approximately 2542 other locations across China, the United States, China, and Europe, in cities such as Beijing, Shanghai, Suzhou, and Guangzhou, China; Cambridge, Massachusetts; Ridgefield Park, New Jersey; and Emeryville and San Mateo, California;California in the United States; Beijing, Shanghai, Suzhou, and Guangzhou in China; and Basel, Switzerland, primarily for our offices and for our manufacturing facility in Suzhou, China, pursuant to leases with various expiration dates, with the latest expiring in 2024.2027. We believe that our facilities are currently suitable and sufficient to meet our needs. We intend to add new facilities or expand existing facilities as we add employees and enter new locations, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations.
Please refer to “Note 23: Commitments and Contingencies”9: Leases” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for further information on our real property leases.
Item 3. Legal Proceedings
From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
On June 26, 2020, following the suspension and recall of ABRAXANE® in China supplied to us by Celgene Logistics Sàrl, a Bristol Myers Squibb Company (referred to elsewhere in this report as BMS, but for this paragraph only, "BMS-Celgene"), we initiated an arbitration proceeding at the International Chamber of Commerce (the ICC) against BMS-Celgene asserting that it had breached and continues to breach the terms and conditions of the License and Supply Agreement entered into by BeiGene and BMS-Celgene in July 2017 and a related quality agreement (collectively, the “BMS-Celgene License”). Under the BMS-Celgene License, we allege that BMS-Celgene is obligated, among other things, to ensure the continuity and adequacy of its supply of ABRAXANE to us. In the arbitration proceeding, we are seeking (i) a declaration that BMS-Celgene was and is in breach of the BMS-Celgene License, (ii) a declaration that BMS-Celgene acted with gross negligence and/or willful misconduct, (iii) an award of damages, and (iv) such other relief as the arbitrators deem appropriate. BMS-Celgene responded in part by submitting a counterclaim against us seeking to recover approximately $30 million in costs that it contends it incurred
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as part of the ABRAXANE recall. We believe that the allegations contained in the counterclaim are without merit and are defending the counterclaim vigorously. On October 6, 2021, BMS-Celgene delivered a notice to us purporting to terminate the BMS-Celgene License with respect to ABRAXANE and providing 180-days' notice that it was withdrawing ABRAXANE from the range of products for sale or distribution in China pursuant to Section 2.6 of the BMS-Celgene License. We believe that the reasons stated in the notice do not provide a valid basis for terminating the BMS-Celgene License with respect to ABRAXANE, and that the notice is a tactical maneuver on the part of BMS-Celgene to reduce its damages in the arbitration proceedings, and we have amended our claims to add a claim for wrongful termination of the BMS-Celgene License with respect to ABRAXANE. A hearing was held in the arbitration in June 2022, and no decision has been issued.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our American Depositary Shares ("ADSs"(“ADSs”) have been publicly traded on the NASDAQ Global Select Market under the symbol “BGNE” since February 3, 2016. Our ordinary shares have been publicly traded on the HKExStock Exchange of Hong Kong Limited under the stock code “06160” since August 8, 2018. Our ordinary shares traded in Renminbi (the “RMB Shares”) have been publicly traded on the Science and Technology Innovation Board of the Shanghai Stock Exchange in China under the stock code "688235" since December 15, 2021.
Shareholders
As of January 31, 2020,2023, we had approximately 16047,084 holders of record of our ordinary shares, 46,932 of which are holders of record of our RMB Shares, and nine8 holders of record of our ADSs. ThisThese number doesdo not include beneficial owners whose ordinary shares or ADSs are held by nominees in street name. Because many ordinary shares and ADSs are held by broker nominees, we are unable to estimate the total number of beneficial holders represented by these record holders.
Dividend Policy
Our board of directors has adopted a dividend policy. As stated in such policy which provides that we currently intend to retain all available funds and earnings, if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Subject to the applicable law and our amended and restated articles of association, any future determination to pay dividends will be made at the discretion of our board of directors and may be based on a number of factors, including our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that theour board of directors may deem relevant. If we pay dividends in the future, in order for us to distribute dividends to its shareholders and holders of ADSs, we may rely to some extent on any dividends distributed by our PRC subsidiaries. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. This dividend policy reflects our board of directors’ current views on our financial and cash flow position. We intend to continue to review our dividend policy from time to time, and there can be no assurance that dividends will be paid in any particular amount, if at all, for any given period.
We have never declared or paid any dividends on our ordinary shares or any other securities. We currently intend to retain all available funds and earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. If we pay dividends in the future, in order for us to distribute dividends to our shareholders and holders of ADSs, we willmay rely to some extent on any dividends distributed by our PRC subsidiaries. Any dividend distributions fromPRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us, and such distributions will be subject to PRC withholding tax. In addition, PRC regulations currently permit payment of dividends of a PRC company only out of accumulated distributable after-tax profits, as determined in accordance with itsour articles of association and the accounting standards and regulations in China.the PRC.
Investors should not purchase our ordinary shares, RMB Shares, or ADSs with the expectation of receiving cash dividends.
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Performance Comparison Graph
This graph is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
The following graph shows the total stockholdershareholder return of an investment of $100 in cash at market close on February 3, 2016 (the first day of trading of our ADSs)December 31, 2017 through December 31, 20192022 for our ADSs, the NASDAQ Composite Index (U.S.), and the NASDAQ Biotechnology Index.
Pursuant to applicable SEC rules, all values assume reinvestment of the full amount of any dividends, although no dividends have been declared or paid to date. The stockholdershareholder return shown on the graph below is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future stockholdershareholder returns.
| 12/31/17 | 12/31/18 | 12/31/19 | 12/31/20 | 12/31/21 | 12/31/22 | |||||||||||||||||||||||||||||||||
| BeiGene, Ltd. | 100.00 | 143.53 | 169.63 | 264.42 | 277.25 | 225.07 | ||||||||||||||||||||||||||||||||
| NASDAQ Composite | 100.00 | 97.16 | 132.81 | 192.47 | 235.15 | 158.65 | ||||||||||||||||||||||||||||||||
| NASDAQ Biotechnology | 100.00 | 91.14 | 114.02 | 144.15 | 144.18 | 129.59 | ||||||||||||||||||||||||||||||||
| 2/3/16 | 3/31/16 | 6/30/16 | 9/30/16 | 12/31/16 | 3/31/17 | 6/30/17 | 9/30/17 | 12/31/17 | 3/31/18 | 6/30/18 | 9/30/18 | 12/31/18 | 3/31/19 | 6/30/19 | 9/30/19 | 12/31/19 | ||||||||||||||||||||||||||||||||||
| BeiGene, Ltd. | 100.00 | 103.50 | 105.23 | 108.79 | 107.20 | 129.27 | 158.90 | 365.32 | 345.06 | 593.22 | 542.83 | 608.12 | 495.27 | 466.10 | 437.68 | 432.42 | 585.31 | |||||||||||||||||||||||||||||||||
| NASDAQ Composite | 100.00 | 105.84 | 105.60 | 116.17 | 118.10 | 130.06 | 135.47 | 143.69 | 153.10 | 157.06 | 167.44 | 179.86 | 148.75 | 173.75 | 180.47 | 180.80 | 203.33 | |||||||||||||||||||||||||||||||||
| NASDAQ Biotechnology | 100.00 | 97.63 | 96.54 | 108.60 | 99.57 | 110.37 | 116.84 | 125.89 | 121.12 | 121.19 | 124.92 | 138.91 | 110.38 | 127.54 | 124.67 | 113.92 | 138.10 | |||||||||||||||||||||||||||||||||
Equity Compensation Plan Information
Our equity compensation plan information required by this item is incorporated by reference to the information in “Part III—Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report.
Recent Sales of Unregistered Securities
None.
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Issuer Purchases of Equity Securities
None.
Taxation
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation, and there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of the ADSs, ordinary shares and ordinary shares.RMB Shares. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within, the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on the issue of shares by, or any transfers of shares of, Cayman Islands companies (except those which hold interests in land in the Cayman Islands). The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of the ADSs, and ordinary shares and RMB Shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of the ADSs, or ordinary shares or RMB Shares, as the case may be, nor will gains derived from the disposal of the ADSs, or ordinary shares or RMB Shares be subject to Cayman Islands income or corporation tax.
PRC Taxation
Under the Enterprise Income Tax Law or (“EIT Law,Law”), an enterprise established outside the PRC with a “de facto management body” within the PRC is considered a “resident enterprise,” which means that it is treated in a manner similar to a Chinese enterprise for PRC enterprise income tax purposes. The implementation rules of the EIT Law define “de facto management body” as a managing body that exercises substantial and overall management and control over the production and operations, personnel, accounting and properties of an enterprise. In addition, the Notice Regarding the Determination of Chinese‑Controlled Offshore Incorporated Enterprise as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies or (“Circular 82,82)”, issued by the State Administration of Taxation, which provides guidance on the determination of the tax residence status of a Chinese‑controlled offshore incorporated enterprise, defines Chinese-controlled offshore incorporated enterprise as an enterprise that is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling shareholder. Although BeiGene, Ltd. does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a Chinese‑controlled offshore incorporated enterprise within the meaning of Circular 82, in the absence of guidance specifically applicable to us, we have applied the guidance set forth in Circular 82 to evaluate the tax residence status of BeiGene, Ltd. and its subsidiaries organized outside the PRC.
According to Circular 82, a Chinese‑controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following criteria are met:
•the primary location of the enterprise’s senior executives of the day‑to‑day operational management and senior management departments performing their duties is in the PRC;
•decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC;
•the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder meeting minutes are located or maintained in the PRC; and
•50% or more of voting board members or senior executives habitually reside in the PRC.
Currently, some of the members of our management team are located in China. However, we do not believe that we meet all of the conditions outlined in the immediately preceding paragraph. BeiGene, Ltd. and its offshore subsidiaries are incorporated outside the PRC. As a holding company, our key assets and records, including the resolutions and meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outside the PRC. We are not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities. Accordingly, we believe that BeiGene, Ltd. and its offshore subsidiaries should not be treated as a “resident enterprise” for PRC tax purposes if the criteria for “de facto management body” as set forth in Circular 82 were deemed applicable to us. However, as the tax residency status of an enterprise is subject to determination by
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the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body” as applicable to our offshore entities, we will continue to monitor our tax status.
The implementation rules of the EIT Law provide that, (1) if the enterprise that distributes dividends is domiciled in the PRC or (2) if gains are realized from transferring equity interests of enterprises domiciled in the PRC, then such dividends or
capital gains are treated as China‑sourced income. It is not clear how “domicile” may be interpreted under the EIT Law, and it may be interpreted as the jurisdiction where the enterprise is a tax resident. Therefore, if we are considered as a PRC tax resident enterprise for PRC tax purposes, any dividends we pay to our overseas shareholders or ADS holders as well as gains realized by such shareholders or ADS holders from the transfer of our shares or ADSs may be regarded as China‑sourced income. As a result, dividends paid to non‑PRC resident enterprise ADS holders or shareholders may be subject to PRC withholding tax at a rate of up to 10% (or 20% in the case of non‑PRC individual ADS holders or shareholders) and gains realized by non‑PRC resident enterprise ADS holders or shareholders from the transfer of our ordinary shares or ADSs may be subject to PRC tax at a rate of 10% (or 20% in the case of non‑PRC individual ADS holders or shareholders). It is also unclear whether, if we are considered a PRC resident enterprise, holders of our shares or ADSs would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas.
Item 6. Selected Consolidated Financial DataReserved
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| Year Ended December 31, | |||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| (in thousands, except share and per share data) | |||||||||||||||||||
| Statements of Operations: | |||||||||||||||||||
| Revenue: | |||||||||||||||||||
| Product revenue, net | $ | 222,596 | $ | 130,885 | $ | 24,428 | $ | — | $ | — | |||||||||
| Collaboration revenue | 205,616 | 67,335 | 213,959 | 1,070 | 8,816 | ||||||||||||||
| Total revenues | 428,212 | 198,220 | 238,387 | 1,070 | 8,816 | ||||||||||||||
| Expenses | |||||||||||||||||||
| Cost of sales - product | (71,190 | ) | (28,705 | ) | (4,974 | ) | — | — | |||||||||||
| Research and development (1) | (927,338 | ) | (679,005 | ) | (269,018 | ) | (98,033 | ) | (58,250 | ) | |||||||||
| Selling, general and administrative | (388,249 | ) | (195,385 | ) | (62,602 | ) | (20,097 | ) | (7,311 | ) | |||||||||
| Amortization of intangible assets | (1,326 | ) | (894 | ) | (250 | ) | — | — | |||||||||||
| Total expenses | (1,388,103 | ) | (903,989 | ) | (336,844 | ) | (118,130 | ) | (65,561 | ) | |||||||||
| Loss from operations | (959,891 | ) | (705,769 | ) | (98,457 | ) | (117,060 | ) | (56,745 | ) | |||||||||
| Interest income (expense), net | 9,131 | 13,947 | (4,108 | ) | 383 | 559 | |||||||||||||
| Changes in fair value of financial instruments | — | — | — | (1,514 | ) | (1,826 | ) | ||||||||||||
| Other income (expense), net | 7,174 | 1,993 | 11,501 | (972 | ) | 910 | |||||||||||||
| Loss before income tax expense | (943,586 | ) | (689,829 | ) | (91,064 | ) | (119,163 | ) | (57,102 | ) | |||||||||
| Income tax (expense) benefit | (6,992 | ) | 15,796 | (2,235 | ) | (54 | ) | — | |||||||||||
| Net loss | (950,578 | ) | (674,033 | ) | (93,299 | ) | (119,217 | ) | (57,102 | ) | |||||||||
| Less: net loss attributable to noncontrolling interest | (1,950 | ) | (264 | ) | (194 | ) | — | — | |||||||||||
| Net loss attributable to BeiGene, Ltd. | $ | (948,628 | ) | $ | (673,769 | ) | $ | (93,105 | ) | $ | (119,217 | ) | $ | (57,102 | ) | ||||
| Loss per share attributable to BeiGene, Ltd, basic and diluted (2) | $ | (1.22 | ) | $ | (0.93 | ) | $ | (0.17 | ) | $ | (0.30 | ) | $ | (0.52 | ) | ||||
| Weighted-average shares outstanding, basic and diluted | 780,701,283 | 720,753,819 | 543,185,460 | 403,619,446 | 110,597,263 | ||||||||||||||
| As of December 31, | |||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| (in thousands) | |||||||||||||||||||
| Balance Sheet Data: | |||||||||||||||||||
| Cash, cash equivalents, and restricted cash | $ | 620,775 | $ | 740,713 | $ | 239,602 | $ | 87,514 | $ | 17,869 | |||||||||
| Short-term investments | 364,728 | 1,068,509 | 597,914 | 280,660 | 82,617 | ||||||||||||||
| Working capital | 862,384 | 1,697,390 | 763,509 | 339,341 | 71,097 | ||||||||||||||
| Total assets | 1,612,289 | 2,249,684 | 1,046,479 | 405,813 | 116,764 | ||||||||||||||
| Total liabilities | 633,934 | 496,037 | 362,248 | 52,906 | 42,445 | ||||||||||||||
| Preferred shares | — | — | — | — | 176,084 | ||||||||||||||
| Noncontrolling interest | 16,150 | 14,445 | 14,422 | — | — | ||||||||||||||
| Total equity (deficit) | 978,355 | 1,753,647 | 684,231 | 352,907 | (101,765 | ) | |||||||||||||
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with “Item 6—Selected Consolidated Financial Data” and our consolidated financial statements and related notes appearing elsewhere in this Annual Report. In addition to historical information, this discussion and analysis contains forward‑looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward‑looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under “Part I—Item 1A—Risk Factors” and under “Forward‑Looking Statements and Market Data” in this Annual Report.
Overview
We are a global commercial-stage biotechnology company focused onthat is developing and commercializing innovative molecularly-targeted and immuno-oncology cancer therapeutics. We started as a researchaffordable oncology medicines to improve treatment outcomes and development company in Beijing in 2010. Over the last ten years, we have developed into a fully-integrated global biotechnology company, with significant commercial, manufacturing, and research and development capabilities.access for patients worldwide.
We currently have built substantial commercial capabilitiesthree approved medicines that were discovered and developed in Chinaour own labs, including BRUKINSA®, a small molecule inhibitor of Bruton’s Tyrosine Kinase (BTK) for the treatment of various blood cancers; tislelizumab, an anti-PD-1 antibody immunotherapy for the treatment of various solid tumor and blood cancers; and pamiparib, a selective small molecule inhibitor of PARP1 and PARP2. We have obtained approvals to market BRUKINSA in the United States, China, EU, the UK, Canada, Australia and are currently marketing two internally-developed drugsadditional international markets, and threetislelizumab in China. By leveraging our China commercial capabilities, we have in-licensed drugs. We also anticipate introducing five more in-licensed drugs intothe rights to distribute 13 approved medicines for the China market in the next one to two years. In the United States, we market BRUKINSA™ (zanubrutinib) for adult patients with mantle cell lymphoma ("MCL") who have received at least one prior therapy and in China, we have received marketing approval and are in the process of launching tislelizumab for patients with classical Hodgkin’s Lymphoma ("cHL") who have received at least two prior therapies. We have filed four additional supplementary new drug applications ("sNDA") for regulatory approvals in China and are planning for launches in these additional indications in 2020. Our in-licensed portfolio includes ABRAXANE®, REVLIMID® and VIDAZA®, which we have been marketing in China since 2017 under a license from Celgene Logistics Sàrl, a Bristol-Myers Squibb company (“BMS”). We plan on launching additional in-licensed products in China frommarket. Supported by our collaborations, including XGEVA® (denosumab), KYPROLIS® (carfilzomib) and BLINCYTO® (blinatumomab) from Amgen Inc. ("Amgen"), and SYLVANT® (siltuximab) and QARZIBA®▼ (dinutuximab beta), from EUSA Pharma ("EUSA").
We are committed to advancing best and first-in-class clinical candidates internally or with like-minded partners to develop impactful and affordable medicines for patients across the globe. Our internal clinical development capabilities are deep, including a more than 2,700-person global clinical development team that is running close to 80 ongoing or planned clinical trials in over 50 medicines and drug candidates. This includes more than 30 pivotal or potentially registration-enabling trials across our portfolio, including our three internally discovered, approved medicines. We have enrolled in our clinical trials more than 18,000 subjects, of which approximately one-half have been outside of China.
We have built, and are expanding, our internal manufacturing capabilities through our state-of-the-art biologic and small molecule manufacturing facilities in China to support current and the Asia-Pacific region. In October 2019, we entered intopotential future demand of our medicines, and are building a strategic collaborationcommercial-stage biologics manufacturing and clinical R&D center in New Jersey. We also work with Amgen pursuanthigh quality contract manufacturing organizations (CMOs) to whichmanufacture our internally developed clinical and commercial products.
Since our inception in 2010, we have agreed to collaborate onbecome a fully integrated global organization of over 9,000 employees in 29 countries and regions, including the commercialization of Amgen’s oncology products XGEVA, KYPROLISUnited States, China, Europe, and BLINCYTO in China, and the global development and future commercialization in China of up to 20 of Amgen's clinical- and late pre-clinical-stage pipeline products, including AMG 510, Amgen’s first-in-class investigational KRAS G12C inhibitor.Australia.
Recent Business Developments
On January 13, 2020, we entered into an exclusive development and commercialization agreement for the orphan biologic products SYLVANT and QARZIBA in Greater China with EUSA Pharma ("EUSA"). Under the terms of the agreement, EUSA has granted us exclusive rights to SYLVANT in Greater China and to QARZIBA in mainland China. Under the agreement, we have agreed to fund and undertake all clinical development and regulatory submissions in the territories, and plan to launch and commercialize both products once approved. EUSA received a $40 million upfront payment and will be eligible to receive payments upon the achievement of regulatory and commercial milestones up to a total of $160 million. EUSA will also be eligible to receive tiered royalties on future product sales.
On December 22, 2019,January 19, 2023, we announced that the NMPA accepted a supplemental new drug application (sNDA) for REVLIMID (lenalidomide), in combination with rituximab,U.S. Food and Drug Administration ("FDA") approved our Bruton’s tyrosine kinase inhibitor BRUKINSA (zanubrutinib) for the treatment of adult patients with relapsedchronic lymphocytic leukemia ("CLL") or refractory indolentsmall lymphocytic lymphoma (follicular lymphoma or marginal zone lymphoma)("SLL").
On November 14, 2019,January 19, 2023, we announced that the Medicines and Healthcare products Regulatory Agency granted marketing authorizations for BRUKINSA received accelerated approval fromin Great Britain for both the United States Food and Drug Administration (FDA) as a treatment for MCL inof adult patients with CLL and the treatment of adult patients with marginal zone lymphoma ("MZL") who have received at least one prior anti-CD20-based therapy.
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On December 30, 2022, we announced that the Center for Drug Evaluation of the coronavirus disease (COVID-19) willChina National Medical Products Administration accepted a supplemental biologics license application for tislelizumab in patients with first-line unresectable or metastatic hepatocellular carcinoma.
On November 17, 2022, we announced that the European Commission approved BRUKINSA for the treatment of adult patients with treatment-naïve or relapsed/refractory ("R/R") CLL.
On November 10, 2022, we announced that BRUKINSA was approved in Brazil for the treatment of adult patients with Waldenström’s macroglobulinemia ("WM") and adult patients with R/R MZL who have a negative impact on our operations in China, including clinical trial recruitment and participation, regulatory interactions and inspections, and commercial revenue, particularly in the first quarter of 2020 and possibly longer depending on the scope and duration of the disruption. We continue to execute on our clinical development, regulatory and commercialization goals in China and are working to minimize delays and disruptions.received at least one anti-CD20-based regimen.
Components of Operating Results
Revenue
Product Revenue
We began generatinggenerate product revenue in September 2017 through the sale of our in-license agreement with BMS to distribute the approved cancer therapies ABRAXANE, REVLIMID and VIDAZA in China. Following FDA approval on November 14, 2019, we launched our firstthree internally developed drug, BRUKINSA, in the United States. products and our in-licensed medicines from our partners.
Revenues from product sales are recognized when there is a transfer of control from the Company to the customer. The Company determines transfer of control based on when the product is delivered, and title passes to the customer. Revenues from product sales are recognized net of variable consideration resulting from rebates, chargebacks, trade discounts and allowances, sales returns allowances and other incentives. Provisions for estimated reductions to revenue are provided for in the same period the related sales are recorded and are based on contractual terms, historical experience and trend analysis.
Collaboration Revenue
We expectrecognize collaboration revenue from product sales to increase in 2020 as we launch our internally developed drugs, BRUKINSAfor amounts earned under collaborative and tislelizumab, and launch additional in-licensed products from our collaborations with Amgen and EUSA and continue to expand our efforts to promote our existing commercial products.
out-licensing arrangements. In January 2020,2021, we were notified that our tender offer for ABRAXANE was one of the winning tenders in China’s centralized procurement process, withentered into a reduction from the current pricing, which is expected to take effect in the second quarter of 2020. Once ABRAXANE is included in the centralized procurement process, we anticipate that demand will increase significantly, although at a significantly lower price than we have been charging during 2019 and into 2020, which could have a material impact on our commercialization efforts and results of operations.
In December 2021, we expanded our collaboration with Novartis by entering into an option, collaboration and license agreement with Novartis to develop, manufacture and commercialize our investigational TIGIT inhibitor ociperlimab in the Novartis Territory. In addition, we entered into an agreement with Novartis which granted us rights to market, promote and detail five approved Novartis oncology products, TAFINLAR® (dabrafenib), MEKINIST® (trametinib), VOTRIENT® (pazopanib), AFINITOR® (everolimus), and ZYKADIA® (ceritinib), across designated regions of China referred to as “broad markets.” There were three performance obligations identified at the outset of the arrangement: (1) a material right for the option to the exclusive product license, (2) the right to access ociperlimab in clinical trials during the option period provided to Novartis, combined with the initial transfer of BeiGene know-how, and (3) conducting ociperlimab R&D services. The market development activities are considered immaterial in the context of the agreements. Under this agreement, we received an upfront cash payment, which was allocated between the three performance obligations identified in the agreement based on the relative standalone selling prices of the performance obligations. The portion allocated to the material right was deferred and will be recognized at the earlier of when Novartis exercises the option and the license is delivered or the expiration of the option period. The portion of the transaction price allocated to Novartis' right to access ociperlimab in its own clinical trials during the option period and the initial transfer of BeiGene know-how was deferred and is being recognized over the performance periodexpected option period. The portion of the transaction price allocated to the ociperlimab R&D services was deferred and is being recognized as collaboration arrangement. We recognizedrevenue as the remainderociperlimab R&D services are performed over the expected option period.
The option exercise fee under the ociperlimab agreement is contingent upon Novartis exercising its right, and is considered fully constrained until the option is exercised. The potential milestone payments that we are eligible to receive under both of the deferred research
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Novartis collaborations were excluded from the initial transaction prices, as all milestone amounts are variable consideration and development serviceswere fully constrained due to uncertainty of achievement. Performance-based milestones will be recognized when the milestone event is achieved or when the risk of revenue balance upon termination ofreversal is remote. Sales-based milestones and royalties will be recognized when the collaboration agreement. We also received research and development reimbursement revenue for the basket study trials that BMS opted into through the termination of the collaboration agreement. Pursuant to the terms of the termination agreement, we received a one-time payment of $150 million in June 2019. The entire payment was recognized in the period the termination occurred, as we had no further performance obligations under the collaboration. We also recognized revenue for upfront license fees and milestone payments from a prior collaboration agreement with Merck KGaA, Darmstadt Germany during the years ended December 31, 2017 and 2018, respectively.underlying sales occur.
Expenses
Cost of Sales
Cost of sales includes the acquisition costs ofto manufacture our internally developed commercial products, that have been sold during the period. To date,as well as costs to purchase tislelizumab from Boehringer Ingelheim. Additionally, cost of sales has consisted ofincluded the cost of in-licensed products purchased from BMS and distributedfor sale in the People's Republic of China ("PRC" or "China").PRC. Costs to manufacture inventory in preparation for commercial launch of a product incurred prior to regulatory approval are expensed to research and development expense as incurred. Cost of sales for newly launched products will not be recorded until the initial pre-launch inventory is depleted and additional inventory is manufactured. To date, the Company's initial pre-launch inventory for its commercial products has been immaterial and has not had a significant impact on the Company's gross margin.
Research and Development Expenses
Research and development expenses consist of the costs associated with our research and development activities, conducting preclinical studies and clinical trials, and activities related to regulatory filings. Our research and development expenses consist of:
•expenses incurred under agreements with contract research organizations or CROs, contract manufacturing organizations,(CROs), CMOs, and consultants that conduct and support our clinical trials and preclinical studies;
•costs of comparator drugs in certain of our clinical trials;
•manufacturing costs related to pre-commercial activities;
•costs associated with preclinical activities and development activities;
•costs associated with regulatory operations;
•in-process research and development costs expensed as part of collaboration agreements entered into; and
•other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies used in research and development activities.
Our current research and development activities mainly relate to the clinical advancement of our internally-developedinternally developed medicines and drug candidates:
•tislelizumab, a humanized monoclonal antibody against PD-1;
•ociperlimab, an investigational humanized monoclonal antibody against PD‑1;TIGIT;
•pamiparib, an investigationala selective small molecule inhibitor of PARP1 and PARP2;
•BGB-11417, an investigational small moleculemolecular inhibitor of both the monomer and dimer forms of BRAF;Bcl-2;
•BGB-16673, an investigational Chimeric Degradation Activating Compound ("CDAC"), targeting BTK; and
•BGB-A425, an investigational humanized monoclonal antibody against TIM-3;
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•BGB-23339, a potent, allosteric investigational tyrosine kinase 2 (TYK2) inhibitor; and
•LBL-007, a novel investigational antibody against TIGIT; and
Research and development activities also include costs associated with in-licensed drug candidates, including:
•R&D expense related to the co-development of pipeline assets under the Amgen collaboration agreement. Our total cost share obligation to Amgen is split between R&D expense and a reduction to the R&D cost share liability;
•sitravatinib, an investigational, spectrum-selective kinase inhibitor, in clinical development bylicensed from Mirati Therapeutics, Inc. ("Mirati");
•ZW25 (zanidatamab) and ZW49, two investigational bispecific antibody-based product candidates targeting HER2, under development bylicensed from Zymeworks Inc. ("Zymeworks"); and
We expense research and development costs when we incur them.incurred. We record costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information our vendors provide to us. We expense the manufacturing costs of our internally-
internally developed products that are used in clinical trials as they are incurred as research and development expense. We do not allocate employee‑related costs, depreciation, rental and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under research and development and, as such, are separately classified as unallocated research and development expenses.
At this time, it is difficult to estimate or know for certain, the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our internally-discovered drugsinternally developed and drug candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales of our drugsin-licensed medicines and drug candidates. This is due to the numerous risks and uncertainties associated with developing such drugsmedicines and drug candidates, including the uncertainty of:
•successful enrollment in and completion of clinical trials;
•establishing an appropriate safety and efficacy profile;
•establishing and maintaining commercial manufacturing capabilities or making arrangements with third‑party manufacturers;
•receipt of marketing and other required approvals from applicable regulatory authorities;
•successfully launching and commercializing our drugsmedicines and drug candidates, if and when approved, whether as monotherapies or in combination with our internally discoveredmedicines and drug candidates or third‑party products;
•market acceptance, pricing and reimbursement;
•obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our drugsmedicines and drug candidates;
•continued acceptable safety and efficacy profiles of the products following approval;
•sufficient supply of the products following approval;
•competition from competing products; and
•retention of key personnel.
A change in the outcome of any of these variables with respect to the development of any of our medicines and drug candidates would significantly change the costs, timing and viability associated with the commercialization or development of that medicine or drug candidate.
Research and development activities are central to our business model. We expect continued substantial investment in research and development costs to increase significantly for the foreseeable future as our discovery and development programs progress, as we continue to support the clinical trials of our drugsmedicines and drug candidates as treatments for various cancers and as we move these drugsmedicines and drug candidates into additional clinical trials, including potential pivotal trials. There are numerous factors associated with the successful commercialization of any of our drugsmedicines and drug candidates, including future trial design and
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various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control may impact our clinical development and commercial programs and plans.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of product promotion costs, distribution costs, salaries and related benefit costs, including share-based compensation for selling, general and administrative personnel. Other selling, general and administrative expenses include professional fees for legal, consulting, auditing and tax services as well as other direct and allocated expenses for rent and maintenance of facilities, travel costs, insurance and other supplies used in selling, general and administrative activities. We anticipate that our selling, general and administrative expenses will increase in future periods to support planned increases in commercialization activities with respect to ABRAXANE , REVLIMID , VIDAZA and tislelizumab in China and BRUKINSA in the United Statesfor our approved medicines, and the preparation for potential launch and potential commercialization of ouradditional in-licensed products from our collaborations with Amgen and EUSA and internally-discovered drugs and drug candidates,internally developed products, if approved. We also expect selling, general and administrative expenses to increase in future periods to support our research and development efforts, including the continuation of the clinical trials of our drugs and drug candidates as treatments for various cancers and the initiation of clinical trials for potential new indications or drug candidates. These cost increases will likely be due to increased promotional costs, increased headcount, increased share-based compensation expenses, expanded infrastructure and increased costs for insurance. We also anticipate increasedincur significant legal, compliance, accounting, insurance and investor and public relations expenses associated with being a public company with our ADSs, and ordinary shares and RMB Shares listed for trading on The NASDAQNasdaq Global Select Market, andThe Hong Kong Stock Exchange and The STAR Market of the Shanghai Stock Exchange, respectively.
Interest Income (Expense), Net
Interest Income
Interest income consists primarily of interest generated from our RMB-denominated cash deposits and short‑termshort-term investments in money market funds, time deposits, U.S. treasuryTreasury securities and U.S. agency securities.
Interest Expense
Interest expense consists primarily of interest on our long‑term bank loans and shareholderrelated party loan.
Other (Expense) Income, (Expense), Net
Other (expense) income consists primarily of gains and losses recognized related to fluctuations in foreign currency exchange rates, gains and losses on equity investments, government grants and subsidies received that involve no conditions or continuing performance obligations by us, realized and unrealized gains and losses related to foreign currency exchange rateson equity securities, and realized gains and losses on the sale of investments. We hold significant cash in the form of RMB-denominated deposits at U.S. functional currency entities, including a large portion of the cash generated from the STAR Market offering in December 2021. Other (expense) income includes the revaluation gains and losses of these cash deposits based on foreign currency exchange rates.
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Results of Operations
Comparison of the Years Ended December 31, 20192022 and 20182021
The following table summarizes our results of operations for the years ended December 31, 20192022 and 2018:2021:
| Year Ended December 31, | Change | ||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | Change | 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||
| 2019 | 2018 | $ | % | (dollars in thousands) | |||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||
| Revenues | Revenues | ||||||||||||||||||||||||||||||||||||
| Product revenue, net | $ | 222,596 | $ | 130,885 | $ | 91,711 | 70 | % | Product revenue, net | $ | 1,254,612 | $ | 633,987 | $ | 620,625 | 97.9 | % | ||||||||||||||||||||
| Collaboration revenue | 205,616 | 67,335 | 138,281 | 205 | % | Collaboration revenue | 161,309 | 542,296 | (380,987) | (70.3) | % | ||||||||||||||||||||||||||
| Total revenues | 428,212 | 198,220 | 229,992 | 116 | % | Total revenues | 1,415,921 | 1,176,283 | 239,638 | 20.4 | % | ||||||||||||||||||||||||||
| Expenses | Expenses | ||||||||||||||||||||||||||||||||||||
| Cost of sales - product | (71,190 | ) | (28,705 | ) | (42,485 | ) | 148 | % | Cost of sales - product | 286,475 | 164,906 | 121,569 | 73.7 | % | |||||||||||||||||||||||
| Research and development | (927,338 | ) | (679,005 | ) | (248,333 | ) | 37 | % | Research and development | 1,640,508 | 1,459,239 | 181,269 | 12.4 | % | |||||||||||||||||||||||
| Selling, general and administrative | (388,249 | ) | (195,385 | ) | (192,864 | ) | 99 | % | Selling, general and administrative | 1,277,852 | 990,123 | 287,729 | 29.1 | % | |||||||||||||||||||||||
| Amortization of intangible assets | (1,326 | ) | (894 | ) | (432 | ) | 48 | % | Amortization of intangible assets | 751 | 750 | 1 | 0.1 | % | |||||||||||||||||||||||
| Total expenses | (1,388,103 | ) | (903,989 | ) | (484,114 | ) | 54 | % | Total expenses | 3,205,586 | 2,615,018 | 590,568 | 22.6 | % | |||||||||||||||||||||||
| Loss from operations | (959,891 | ) | (705,769 | ) | (254,122 | ) | 36 | % | Loss from operations | (1,789,665) | (1,438,735) | (350,930) | 24.4 | % | |||||||||||||||||||||||
| Interest income (expense), net | 9,131 | 13,947 | (4,816 | ) | (35 | )% | Interest income (expense), net | 52,480 | (15,757) | 68,237 | (433.1) | % | |||||||||||||||||||||||||
| Other income, net | 7,174 | 1,993 | 5,181 | 260 | % | ||||||||||||||||||||||||||||||||
| Other (expense) income, net | Other (expense) income, net | (223,852) | 15,904 | (239,756) | (1,507.5) | % | |||||||||||||||||||||||||||||||
| Loss before income tax expense | (943,586 | ) | (689,829 | ) | (253,757 | ) | 37 | % | Loss before income tax expense | (1,961,037) | (1,438,588) | (522,449) | 36.3 | % | |||||||||||||||||||||||
| Income tax (expense) benefit | (6,992 | ) | 15,796 | (22,788 | ) | (144 | )% | ||||||||||||||||||||||||||||||
| Income tax expense | Income tax expense | 42,778 | 19,228 | 23,550 | 122.5 | % | |||||||||||||||||||||||||||||||
| Net loss | (950,578 | ) | (674,033 | ) | (276,545 | ) | 41 | % | Net loss | (2,003,815) | (1,457,816) | (545,999) | 37.5 | % | |||||||||||||||||||||||
| Less: Net loss attributable to noncontrolling interest | (1,950 | ) | (264 | ) | (1,686 | ) | 639 | % | Less: Net loss attributable to noncontrolling interest | — | — | — | NM | ||||||||||||||||||||||||
| Net loss attributable to BeiGene, Ltd. | $ | (948,628 | ) | $ | (673,769 | ) | $ | (274,859 | ) | 41 | % | Net loss attributable to BeiGene, Ltd. | $ | (2,003,815) | $ | (1,457,816) | $ | (545,999) | 37.5 | % | |||||||||||||||||
Revenue
Total revenue increased by $230.0$239.6 million to $428.2$1.4 billion for the year ended December 31, 2022, from $1.2 billion for the year ended December 31, 2021, primarily due to increases in sales of our internally developed products and in-licensed products, partially offset by a decrease in collaboration revenue, as the prior year period included the recognition of the majority of the $650 million upfront payment from Novartis as license revenue.
The following table summarizes the components of revenue for the year ended December 31, 2022 and 2021, respectively:
| Year Ended December 31, | Changes | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Product revenue | $ | 1,254,612 | $ | 633,987 | $ | 620,625 | 97.9 | % | |||||||||||||||
| Collaboration revenue: | |||||||||||||||||||||||
| License revenue | — | 484,646 | (484,646) | (100.0) | % | ||||||||||||||||||
| Research and development service revenue | 46,822 | 53,671 | (6,849) | (12.8) | % | ||||||||||||||||||
| Right to access intellectual property revenue | 104,994 | 3,979 | 101,015 | 2,538.7 | % | ||||||||||||||||||
| Other | 9,493 | — | 9,493 | NM | |||||||||||||||||||
| Total collaboration revenue | 161,309 | 542,296 | (380,987) | (70.3) | % | ||||||||||||||||||
| Total Revenue | $ | 1,415,921 | $ | 1,176,283 | $ | 239,638 | 20.4 | % | |||||||||||||||
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Net product revenue consisted of the following:
| Year Ended December 31, | Changes | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
BRUKINSA® | $ | 564,651 | $ | 217,987 | $ | 346,664 | 159.0 | % | |||||||||||||||
| Tislelizumab | 422,885 | 255,119 | 167,766 | 65.8 | % | ||||||||||||||||||
REVLIMID® | 79,049 | 70,065 | 8,984 | 12.8 | % | ||||||||||||||||||
XGEVA® | 63,398 | 45,956 | 17,442 | 38.0 | % | ||||||||||||||||||
POBEVCY® | 38,124 | 1,353 | 36,771 | 2,717.7 | % | ||||||||||||||||||
BLINCYTO® | 36,107 | 12,515 | 23,592 | 188.5 | % | ||||||||||||||||||
VIDAZA® | 15,213 | 19,591 | (4,378) | (22.3) | % | ||||||||||||||||||
KYPROLIS® | 13,696 | — | 13,696 | NM | |||||||||||||||||||
| Pamiparib | 5,460 | 3,661 | 1,799 | 49.1 | % | ||||||||||||||||||
| Other | 16,029 | 7,740 | 8,289 | 107.1 | % | ||||||||||||||||||
| Total product revenue | $ | 1,254,612 | $ | 633,987 | $ | 620,625 | 97.9 | % | |||||||||||||||
Net product revenue was $1.3 billion for the year ended December 31, 2022, compared to $634.0 million in the prior year, primarily due to increased sales of BRUKINSA in the United States and China and tislelizumab in China, in-licensed sales of Amgen's BLINCYTO®, which we began distributing in August 2021, and XGEVA, as well as Bio-Thera's POBEVCY. During 2022, we continued to see increased patient demand in China for tislelizumab and BRUKINSA due to the inclusion on the National Reimbursement Drug List ("NRDL"), and this demand more than offset the effect of the related price reductions.
Global sales of BRUKINSA totaled $564.7 million for the year ended December 31, 2019, from $198.22022, representing a 159.0% increase compared to the prior year; U.S. sales of BRUKINSA totaled $389.7 million for the year ended December 31, 2018. The following table summarizes2022 compared to $115.7 million in the componentsprior year, representing growth of our revenue for237.0%. U.S. sales accelerated in the year ended December 31, 2019period, driven by increased uptake in MCL, WM and 2018, respectively:
| Year Ended | ||||||||||||||
| December 31, | Changes | |||||||||||||
| 2019 | 2018 | $ | % | |||||||||||
| Product revenue | $ | 222,596 | $ | 130,885 | $ | 91,711 | 70 | % | ||||||
| Collaboration revenue: | ||||||||||||||
| Reimbursement of research and development costs | 27,634 | 56,776 | (29,142 | ) | (51 | )% | ||||||||
| Research and development service revenue | 27,982 | 10,559 | 17,423 | 165 | % | |||||||||
| Other | 150,000 | — | 150,000 | NM | ||||||||||
| Total collaboration revenue | 205,616 | 67,335 | 138,281 | 205 | % | |||||||||
| Total | $ | 428,212 | $ | 198,220 | $ | 229,992 | 116 | % | ||||||
Sales of ABRAXANE, REVLIMID and VIDAZAin China. We began recognizing product revenue with sales to our distributorstislelizumab in China beginning in September 2017 following the closing of our strategic collaboration with BMS. For the year ended December 31, 2019, ABRAXANE, REVLIMID and VIDAZA represented 50%, 36% and 14%, respectively, of net product revenue for our marketed products in China. Following FDA approval on November 14, 2019, we launched our first internally developed drug, BRUKINSA, in the United States. We had $130.9 million product revenue for the year ended December 31, 2018. Collaboration revenue totaled $205.6$422.9 million for the year ended December 31, 2019,2022, representing a 65.8% increase compared to the prior year. During the year ended December 31, 2022, new patient demand from broader reimbursement and was comprised primarilyfurther expansion of our salesforce and hospital listings continued to drive increased market penetration and market share for tislelizumab. Full year 2021 sales of tislelizumab included two negative adjustments totaling $45.6 million for distributor channel inventory compensation as a $150.0result of inclusion in the March 2021 and January 2022 NRDL lists.
Product revenues for the year ended December 31, 2021 were negatively impacted by adjustments of $57.5 million payment received upon terminationas a result of compensating distributors for products previously sold at the collaboration agreement with BMSpre-NRDL price, which remained in the distribution channel, due to the first inclusion of tislelizumab, BRUKINSA, and XGEVA in the updated NRDL effective March 1, 2021 and additional indications for tislelizumab, BRUKINSAand pamiparib effective January 1, 2022. During the year ended December 31, 2021, the inclusion of tislelizumab, BRUKINSA, XGEVA, and pamiparib in the NRDL significantly increased patient demand that more than offset the net effect of price reductions as well as the revenue recognitiona result of previously deferred amounts. Additionally, we recognized $27.6 million for the reimbursement of research and development costs for the clinical trials that BMS had opted into prior to the agreement being terminated.NRDL inclusion.
Collaboration revenue was $67.3totaled $161.3 million for the year ended December 31, 2018,2022, of which $46.8 million was recognized from deferred revenue for R&D services performed during the year ended December 31, 2022 under both the tislelizumab and ociperlimab collaborations, $105.0 million was comprised of $56.8recognized from deferred revenue for Novartis' right to access ociperlimab over the option period, and $9.5 million for the reimbursement of research and development costs for the clinical trials that BMS had opted into, $9.1 millionwas recognized related to the recognitionsale of deferredtislelizumab clinical supply to Novartis. Collaboration revenue for upfront fees allocated to undelivered research and development services to BMS and $1.5 million research and development services for achieving a milestone under the collaboration agreement with Merck KGaA, Darmstadt Germany.
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Cost of Sales
Cost of sales increased to $286.5 million for the year ended December 31, 2018, primarily due to increased volume of sales compared to the prior year. Cost of sales2022 from $164.9 million for the year ended December 31, 2019 consisted entirely2021, primarily due to increased product sales of tislelizumab, BRUKINSA and XGEVA, as well as initial sales of BLINCYTO®, which we began selling in August 2021, and initial sales of KYPROLIS and POBEVCY.
Gross Margin
Gross margin on global product sales increased to $968.1 million for the cost of products purchased from BMS and distributedyear ended December 31, 2022, compared to $469.1 million for the year ended December 31, 2021, primarily due to increased product revenue in the PRC.current year period. Gross margin as a percentage of product sales increased to 77.2% for the year ended December 31, 2022, from 74.0% in the prior year. The increase is primarily due to proportionally higher sales mix of global BRUKINSA sales and sales of tislelizumab in China compared to lower margin sales of in-licensed products and lower costs per unit for both BRUKINSA and tislelizumab, partially offset by a lower average selling price for both BRUKINSA and tislelizumab.
Research and Development Expense
Research and development expense increased by $248.3$181.3 million, or 36.6%12.4%, to $927.3 million$1.6 billion for the year ended December 31, 2019,2022, from $679.0 million$1.5 billion for the year ended December 31, 2018.2021. The following table summarizes the external clinical, external non-clinicalcost of development programs, upfront license fees, and internal research and development expense for the years ended December 31, 2022 and 2021:
| Year Ended December 31, | Changes | ||||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| External research and development expense: | |||||||||||||||||||||||
| Cost of development programs | $ | 469,497 | $ | 477,761 | $ | (8,264) | (1.7) | % | |||||||||||||||
| Upfront license fees | 68,665 | 83,500 | (14,835) | (17.8) | % | ||||||||||||||||||
Amgen co-development expenses1 | 98,955 | 115,464 | (16,509) | (14.3) | % | ||||||||||||||||||
| Total external research and development expenses | 637,117 | 676,725 | (39,608) | (5.9) | % | ||||||||||||||||||
| Internal research and development expenses | 1,003,391 | 782,514 | 220,877 | 28.2 | % | ||||||||||||||||||
| Total research and development expenses | $ | 1,640,508 | $ | 1,459,239 | $ | 181,269 | 12.4 | % | |||||||||||||||
1. Our co-funding obligation for the development of the pipeline assets under the Amgen collaboration for the year ended December 31, 2019 and 2018:
| Year Ended | ||||||||||||||
| December 31, | Changes | |||||||||||||
| 2019 | 2018 | $ | % | |||||||||||
| (dollars in thousands) | ||||||||||||||
| External cost of clinical-stage programs | $ | 410,670 | $ | 291,176 | $ | 119,494 | 41 | % | ||||||
| In-process research and development expense | 50,000 | 89,000 | (39,000 | ) | (44 | )% | ||||||||
| External cost of non-clinical-stage programs | 79,153 | 55,600 | 23,553 | 42 | % | |||||||||
| Internal research and development expenses | 387,515 | 243,229 | 144,286 | 59 | % | |||||||||
| Total research and development expenses | $ | 927,338 | $ | 679,005 | $ | 248,333 | 37 | % | ||||||
2022 totaled $195.4 million, of which $99.0 million was recorded as R&D expense. The remaining $96.4 million was recorded as a reduction for the R&D cost share liability.
The increasedecrease in external research and development expenseexpenses for the year ended December 31, 2022 was primarily attributable to the advancement of our clinical and preclinical drug candidates, and included the following:
Internal research and development expense dueincreased $220.9 million, or 28.2%, to lower upfront payments made under collaboration agreements compared to the prior year;$1.0 billion and
•$66.2114.7 million increase inof employee salary and benefits, which was primarily attributable to hiring more research and development personnel to support our expanding research and development activities;
•$21.957.6 million increase in share-based compensation expense, primarily attributable to our increased headcount, resulting in more awards being expensed related to the growing employee population;
•$6.947.6 million increase of facilities, depreciation, office expense, rental fees, and other expenses to support the growth of our organization;
•$25.0 million increase of share-based compensation expense, primarily attributable to our increased headcount of research and development employees, resulting in more awards being expensed; and
•$24.0 million decrease of consulting fees, which was mainly attributableincluding decreased meeting expense related to increased scientific, regulatory and development consulting activities, in connection with the advancement of our drug candidates;candidates.
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Selling, General and Administrative Expense
Selling, general and administrative expense increased by $192.9$287.7 million, or 98.7%29.1%, to $388.2$1,277.9 million for the year ended December 31, 2019,2022, from $195.4$990.1 million for the year ended December 31, 2018.2021. The increase was primarily attributable to the following:
•$55.7176.4 million increase inof employee salary and benefits, which was primarily attributable to the hiring of more personnel to support our growing organization,business, including the expansion of our commercial organizations in China, and the United States;States, Canada, Europe and emerging markets;
•$25.146.0 million increase in external commercial-related expenses, including market research, market access studies and promotional activities, related to the growth of our global commercial organization, as we continue to build our worldwide footprint and capabilities;
•$37.5 million increase of share-based compensation expense, primarily attributable to our increased headcount of sales and administrative employees, resulting in more awards being expensed related to the growing employee population;expensed; and
•$28.3 million27.8 increase inof professional fees, and consulting, for general and administrative activities, including legal, recruiting, information technology, tax, accounting and audit services, mainly in connection with our growing business;
Interest Income (Expense), Net
Interest income (net)(expense), net increased by $68.2 million, or 433.1%, to $52.5 million of net interest income for the year ended December 31, 2022, from $15.8 million of net interest expense for the year ended December 31, 2021. The increase in interest income (expense), net, was primarily attributable to increased interest income resulting from the increase in cash balances resulting from the STAR Offering proceeds in the fourth quarter of 2021, as well as higher interest rates earned on our cash, cash equivalents and short-term investments.
Other (Expense) Income, Net
Other (expense) income, net decreased by $239.8 million to $9.1$223.9 million of expense for the year ended December 31, 2022, from $15.9 million of income for the year ended December 31, 2021. The increase in expense for the year ended December 31, 2022 was primarily related to foreign exchange losses resulting from the strengthening of the U.S. dollar and the revaluation impact of foreign currencies held in U.S. functional currency subsidiaries. Also contributing to the increase in expense was an increase in the unrealized loss on our equity investments. These losses were partially offset by increased income from government subsidies.
Income Tax Expense
Income tax expense was $42.8 million for the year ended December 31, 2019, from $13.92022 compared with $19.2 million for the year ended December 31, 2018.2021. The decrease in interest income was primarily attributable to a decrease in interest income on our short-term investment balances.
Liquidity and Capital Resources
| Year Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (in thousands) | |||||||||||
| Cash, cash equivalents and restricted cash | $ | 3,875,037 | $ | 4,382,887 | |||||||
| Short-term investments | $ | 665,251 | $ | 2,241,962 | |||||||
| Total debt | $ | 538,117 | $ | 629,678 | |||||||
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We have incurred annual net losses and negative cash flows from our operations. Substantially all of our losses have resultedoperations since inception, resulting from the funding of our research and development programs and selling, general and administrative expenses associated with our operations. We incurred net losses of $950.6 million and $674.0 million for the years ended December 31, 2019 and 2018, respectively. As of December 31, 2019, we had an accumulated deficit of $2.0 billion. Our primary use of cash is to fund our research and development activities andoperations, as well as to support the commercialization of our products in Chinaglobally. We incurred net losses of $2.0 billion and the United States and planned additional product launches in China and the United States. Our operating activities used $750.3 million and $547.7 million$1.5 billion for the years ended December 31, 20192022 and 2018,2021, respectively. WeAs of December 31, 2022, we had an accumulated deficit of $7.1 billion.
To date, we have financed our operations principally through proceeds from public and private offerings of our securities and proceeds from our collaborations, together with product sales since September 2017.
On December 15, 2021, we hadcompleted the initial public offering on the SSE. The shares offered in the STAR Offering were issued to and subscribed for by permitted investors in the People’s Republic of China ("PRC") in Renminbi ("RMB Shares"). The public offering price of the RMB Shares was RMB192.60 per ordinary share, or $391.68 per ADS. In this offering, we sold 115,055,260 ordinary shares. Net proceeds after deducting underwriting commissions and offering expenses were $3.4 billion. As required by the PRC securities laws, the net proceeds from the STAR Offering must be used in compliance with the planned uses as disclosed in the PRC prospectus as well as our proceeds management policy for the STAR Offering approved by our board of directors.
In January 2021, we entered into a collaboration and license agreement with Novartis, granting Novartis rights to develop, manufacture and commercialize tislelizumab in North America, Europe, and Japan. Under the agreement, we received an upfront cash payment of $650 million from Novartis. In December 2021, we expanded our collaboration with Novartis by entering into an option, collaboration and license agreement with Novartis to develop, manufacture and commercialize our investigational TIGIT inhibitor ociperlimab in the Novartis Territory. In addition, we and Novartis entered into an agreement granting us rights to market, promote and detail five approved Novartis oncology products. Under the terms of the agreement, we received an upfront cash equivalents, restricted cash and short-term investmentspayment of $985.5 million, including approximately $123.7$300 million in cash and cash equivalents and $2.0 million of restricted cash held by our joint venture, BeiGene Biologics, to continue phased construction of our commercial biologics facility in Guangzhou, China and to fund research and development of our biologics drug candidates in China. On January 2, 2020, we received approximately $2.8 billion from the sale of our ADSs to Amgen in connection with the closing of our strategic collaboration, which is not included in our December 31, 2019 financial statements.2022.
The following table provides information regarding our cash flows for the years ended December 31, 20192022 and 2018:2021:
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||
| 2019 | 2018 | 2022 | 2021 | |||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | $ | 740,713 | $ | 239,602 | Cash, cash equivalents and restricted cash at beginning of period | $ | 4,382,887 | $ | 1,390,005 | |||||||||
| Net cash (used in) provided by operating activities | (750,269 | ) | (547,717 | ) | ||||||||||||||
| Net cash provided by (used in) investing activities | 554,163 | (637,613 | ) | |||||||||||||||
| Net cash provided by financing activities | 85,680 | 1,690,537 | ||||||||||||||||
| Net cash used in operating activities | Net cash used in operating activities | (1,496,619) | (1,298,723) | |||||||||||||||
| Net cash provided by investing activities | Net cash provided by investing activities | 1,077,123 | 640,659 | |||||||||||||||
| Net cash (used in) provided by financing activities | Net cash (used in) provided by financing activities | (18,971) | 3,636,911 | |||||||||||||||
| Net effect of foreign exchange rate changes | (9,512 | ) | (4,096 | ) | Net effect of foreign exchange rate changes | (69,383) | 14,035 | |||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | (119,938 | ) | 501,111 | Net (decrease) increase in cash, cash equivalents and restricted cash | (507,850) | 2,992,882 | ||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 620,775 | $ | 740,713 | Cash, cash equivalents and restricted cash at end of period | $ | 3,875,037 | $ | 4,382,887 | |||||||||
Operating Activities
Cash flows from operating activities is net loss adjusted for certain non-cash items and changes in assets and liabilities.
Operating activities used $750.3 million$1.5 billion of cash for the year ended December 31, 2019,2022, which resulted principally from our net loss of $950.6$2.0 billion, inclusive of $223.9 million of other losses due primarily to the strengthening of the U.S. dollar and the related revaluation of foreign currencies held by U.S. functional currency subsidiaries, partially offset by non-cash charges and adjustments of $374.8 million, and by a decrease in our net operating assets and liabilities of $132.4 million. The non-cash charges and adjustments were primarily driven by share-based compensation expense, charges for acquired in-process research and development costs, and depreciation and amortization expense, offset by amortization of the research and development cost share liability. The decrease in working capital was driven largely by decreases in accounts receivable and prepaid expenses and an increase in taxes payable, partially offset by a decrease in deferred revenue and an increase in inventories.
Operating activities used $1.3 billion of cash for the year ended December 31, 2021, which resulted principally from our net loss of $1.5 billion and an increase in our net operating assets and liabilities of $10.8$118.3 million, partially offset by non-cash charges and adjustments of $211.1$277.4 million. The increase in our net operating assets wasnon-cash charges and adjustments were primarily due to an increase of $8.6 million in prepaid expenses and other current assets primarily related to prepayments to CROsdriven by share-based compensation expense, charges for clinical trials, an increase of $20.8 million in
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largely by increases in accounts receivable, inventory and prepaid expenses, to support our growing business, an increaseoffset by increases in accounts payable, accrued expenses and other liabilities and deferred revenue resulting from the upfront option payment from Novartis.
Investing Activities
Cash flows from investing activities consist primarily of $8.5 million in other long-term liabilities primarycapital expenditures, investment purchases, sales, maturities, and disposals, and upfront payments related to government subsidies, and a decrease in unbilled receivablesour collaboration agreements.
Investing activities provided $1.1 billion of $8.6 million related to the BMS collaboration, an increase of $7.6 million in taxes payable, and an increase of $9.2 million in operating lease liabilities, all of which have a positive impact on operating cash flow. Our non-cash charges and other adjustments to our net loss duringfor the year ended December 31, 2019 primarily consisted2022, consisting of $134.2$1.6 billion in sales and maturities of investment securities, partially offset by $325.4 million of share-based compensation expense, $69.0capital expenditures, $143.7 million upfront collaboration payments, $15.9 million in purchases of acquired in-process researchlong-term investments and development related to upfront payments$1.5 million in our license agreements with Ambrx, BioAtla, Seattle Genetics and terminationpurchases of our collaboration agreement with Merck KGaA, Darmstadt Germany, $8.0 million of non-cash interest expense and $18.6 million of depreciation expense, offset by $9.2 million related to deferred tax benefits, $3.9 million of amortization of bond discount and $5.6 million of disposal gain on available-for-sale securities and property and equipment.short-term investment securities.
Financing Activities
Cash flows from financing activities consist primarily of sale of ordinary shares, RMB Shares, and ADSs through equity offerings, issuance and repayment of short-term and long-term debt, and proceeds from the sale of ADSs through employee equity compensation plans.
Financing activities provided $85.7used $19.0 million of cash for the year ended December 31, 2019, which was2022, consisting primarily due to $67.5of $417.1 million of repayment of short-term loans, partially offset by $313.8 million from bankproceeds of short-term loans, to fund our Guangzhou manufacturing facility and Shanghai working capital and $47.0 million from the exercise of employee share options. These sourcesoptions and proceeds from the issuance of cash were partially offset by $32.8shares through our employee share purchase plan and $37.4 million for repaymentsfrom proceeds of our Suzhou manufacturing facility and Shanghai working capitallong-term bank loans.
Financing activities provided $1.7$3.6 billion of cash for the year ended December 31, 2018, which was2021, consisting primarily due to $757.6 millionof $3.4 billion of net proceeds from our follow-on public offering of ADSsSTAR Offering in January 2018, $869.7 million of net proceeds from our follow-on public offering in August 2019 and the initial listing of our ordinary shares on The Hong Kong Stock Exchange Limited in August 2018, $42.3December 2021, $406.4 million from a new long-term bank loan to fund our Guangzhou manufacturing
Effects of Exchange Rates on Cash
We have substantial operations in the PRC, which generate a significant amount of RMB-denominated cash (fromfrom product sales)sales and require a significant amount of RMB-denominated cash to pay our obligations. Additionally, on December 15, 2021, we received RMB21.7 billion in net proceeds from the STAR Offering. Since the reporting currency of the Company is the U.S. dollar, periods of volatility in exchange rates may have a significant impact on our consolidated cash balances.
Until such time, if ever, as we can generate substantial product revenue sufficient to cover our costs and capital investments, we may be required to finance our cash needs through a combination of equity offerings, debt financings, collaboration agreements, strategic alliances, licensing arrangements, government grants, and other available sources. Under the rules of the SEC, rules, we currently qualify as a “well-known seasoned issuer,” which allows us to file shelf registration statements to register an unspecified amount of securities that are effective upon filing. OnIn May 26, 2017,2020, we filed such a shelf registration statement with the SEC for the issuance of an unspecified amount of ordinary shares (including in the form of ADSs), preferred shares, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, from time to time at prices and on terms to be determined at the time of any such offering. This registration statement was effective upon filing and will remain in effect for up to three years from filing, atprior to which time we may file another shelf registration statement that will be effective for up to three years from filing.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a holder of ADSs, ordinary shares, or ordinary shares.RMB Shares. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends, and may require the issuance of warrants, which could potentially dilute your ownership interest. If we raise additional funds through collaboration agreements, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies,medicines or drug candidates, future revenue streams or
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research programs, or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings, collaborations or other sources when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market products or drug candidates that we would otherwise prefer to develop and market ourselves.
Our material cash requirements in the short- and long-term consist of the following operational, capital, and manufacturing expenditures, a portion of which contain contractual or other obligations. We plan to fund our material cash requirements with our current financial resources together with our anticipated receipts of accounts receivable, product sales and royalty revenues, and reimbursements we expect to receive under our existing collaboration and license agreements.
Contractual Obligations and CommitmentsOther Obligations
The following table summarizes our significant contractual obligations as of payment due date by period at December 31, 2019:2022:
| Payments Due by Period | ||||||||||||||||||||||||||||||||||||
| Payments Due by Period | Total | Short-term | Long-term | |||||||||||||||||||||||||||||||||
| Less Than | More Than | (in thousands) | ||||||||||||||||||||||||||||||||||
| Total | 1 Year | 1–3 Years | 3–5 Years | 5 Years | ||||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||
| Contractual obligations | ||||||||||||||||||||||||||||||||||||
| Contractual obligations: | Contractual obligations: | |||||||||||||||||||||||||||||||||||
| Operating lease commitments | $ | 41,319 | 13,064 | 20,519 | 7,609 | 127 | Operating lease commitments | $ | 63,024 | $ | 26,278 | $ | 36,746 | |||||||||||||||||||||||
| Purchase commitments | 128,532 | 46,850 | 43,089 | 26,793 | 11,800 | Purchase commitments | 117,293 | 74,449 | 42,844 | |||||||||||||||||||||||||||
| Debt obligations | 240,695 | — | 1,436 | 178,930 | 60,329 | Debt obligations | 538,117 | 328,969 | 209,148 | |||||||||||||||||||||||||||
| Interest on debt | Interest on debt | 45,947 | 16,632 | 29,315 | ||||||||||||||||||||||||||||||||
| Co-development funding commitment | Co-development funding commitment | 595,702 | 231,697 | 364,005 | ||||||||||||||||||||||||||||||||
| Funding commitment | Funding commitment | 16,000 | 7,000 | 9,000 | ||||||||||||||||||||||||||||||||
| Research and development commitment | Research and development commitment | 22,327 | 5,829 | 16,498 | ||||||||||||||||||||||||||||||||
| Pension plan | Pension plan | 7,760 | 2,553 | 5,207 | ||||||||||||||||||||||||||||||||
| Capital commitments | 42,074 | 42,074 | — | — | — | Capital commitments | 404,914 | 404,914 | — | |||||||||||||||||||||||||||
| Total | $ | 452,620 | $ | 101,988 | $ | 65,044 | $ | 213,332 | $ | 72,256 | Total | $ | 1,811,084 | $ | 1,098,321 | $ | 712,763 | |||||||||||||||||||
Operating Lease Commitments
We lease office or manufacturing facilities in Beijing, Shanghai, Suzhou and Guangzhou PRC andin China; office facilities in the United States in California, Massachusetts, Maryland, and New Jersey in the United States; and in Basel, Switzerland under non-cancelable operating leases expiring on differentvarious dates. Payments under operating leases are expensed on a straight-line basis over the periods of the respective leases.lease terms. The aggregate future minimum payments under these non-cancelable operating leases are summarized in the table above.
Purchase Commitments
As of December 31, 2019,2022, purchase commitments amounted to $128.5$117.3 million, of which $97.2$55.3 million related to minimum purchase requirements for supply purchased from contract manufacturing organizationsCMOs and $31.3$61.9 million related to binding purchase order obligations of inventory from BMS.BMS and Amgen. We do not have any minimum purchase requirements for inventory from BMS.
BMS or Amgen.
Debt Obligations and Interest
Co-Development Funding Commitments
Under our collaboration with Amgen, we are responsible for co-funding global clinical development costs for the licensed oncology pipeline assets, up to a total cap of $1.25 billion. We are funding our portion of the co-development costs by contributing cash and/or development services. As of December 31, 2019, we have drawn down2022, our remaining co-development funding commitment was $0.6 billion.
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Funding Commitment
Funding commitment represents our committed capital related to two of our equity method investments in the entire $83.3 million (RMB580.0 million) in aggregate principal amount of this loan. Maturity dates range$19.0 million. As of December 31, 2022, our remaining capital commitment was $16.0 million and is expected to be paid from 2021time to 2027.time over the investment period.
Pension Plan
We maintain a Shareholder Loan Contract with Guangzhou GET Technology Development Co., Ltd. (now Guangzhou High-tech Zone Technology Holding Group Co., Ltd.) ("GET"), pursuantdefined benefit pension plan in Switzerland. Funding obligations under the defined benefit pension plan are equivalent to which, GET provided a shareholder loan to BeiGene Biologics$2.6 million per year based on annual funding contributions in the principal amount of RMB900.0 million at a fixed 8% annual interest rate. The term of the shareholder loan is 72 months, commencing from the actual drawdown date of April 14, 2017 and ending on April 13, 2023, unless converted earlier. On April 14, 2017, we drew down the entire RMB900.0 million from GET, which remains outstandingeffect as of December 31, 2019.2022 to achieve fully funded status where the market value of plan assets equals the projected benefit obligations. Future funding requirements will be subject to change as a result of future changes in staffing and compensation levels, various actuarial assumptions and actual investment returns on plan assets.
Capital Commitments
We had capital commitments amounting to $42.1$404.9 million for the acquisition of property, plant and equipment as of December 31, 2019,2022, which was primarilywere mainly for BeiGeneour manufacturing and clinical R&D campus in Hopewell, NJ, additional capacity at the Guangzhou Factory’sand Suzhou manufacturing facilities, and new building for Beijing Innerway Bio-tech Co., Ltd.
Other Obligations
We expect to make a significant investment in our future manufacturing facility in the United States, a 42-acre site that will be constructed in Hopewell, NJ, and expansion of BGC's research and development activities in Guangzhou, China.
We also enter into agreements in the ordinary course of business with CROs to provide research and development services. These contracts are generally cancelablecancellable at any time by us with prior written notice.
We also enter into collaboration agreements with institutions and companies to license intellectual property. We may be obligated to make future development, regulatory and commercial milestone payments and royalty payments on future sales of specified products associated with its collaborationthese agreements. Payments under these agreements generally become due and payable upon achievement of such milestones or sales. These commitments are not recorded on our balance sheet because the achievement and timing of these milestones are not fixed and determinable. When the achievement of these milestones or sales have occurred, the corresponding amounts are recognized in our financial statements.
Critical Accounting PoliciesEstimates
Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP")(GAAP). The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses. We evaluate our estimates and judgments on an ongoing basis, and our actual results may differ from these estimates. We base our estimates on historical experience, known trends and events, contractual milestones and other various factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Certain of these estimates are considered critical as they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our consolidated financial statements. Our most critical accounting policiesestimates are summarized below. See Note 2 to our consolidated financial statements included in this Annual Report for a description of our other significant accounting policies.
Revenue Recognition
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Product Revenue
We base our sales returns allowance on estimated distributor inventories, customer demand as reported by third-party sources, and actual returns history, as well as other factors, as appropriate. For newly launched products where actual returns history is not yet available, the sales returns allowance is initially calculated based on benchmarking data from similar products and industry experience. If the historical or benchmarking data we use to calculate these estimates do not properly reflect future returns, then a change in the allowance would be made in the period in which such a determination is made and revenues in that period could be materially affected. Any changes from the historical trend rates are considered in determining the current sales return allowance. To date, sales returns have not been significant.
Our collaborative arrangements may contain more than one unit of account, or performance obligation, including grants of licenses to intellectual property rights, agreements to provide research and development services and other deliverables. The collaborative arrangements do not include a right of return for any deliverable. As part of the accounting for these arrangements, we must develop assumptions that require judgmentsignificant judgments to determine the stand-alonestandalone selling price for each performance obligation identified in the contract. In developing the stand-alone
Standalone selling priceprices for a performance obligation, we consider competitor pricing for a similar or identical product, market awarenesslicenses of and perception of the product, expected product life and current market trends. In general, the consideration allocated to each performance obligation is recognized when the respective obligation is satisfied either by delivering a good or providing a service, limited to the consideration that is not constrained. Non-refundable payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers.
The estimates of standalone selling prices involve management's key assumptions such as revenue growth rate, estimated clinical trial costs, mark-up rate, probability of technical and circumstances surrounding the clinical trials. Upon changes to constraint associated with the developmental milestones, variable consideration willregulatory success, and discount rates. These significant assumptions are forward looking and could be included in the transaction price when a significant reversal of revenue recognized is not expected to occuraffected by future economic, regulatory and allocated to the separate performance obligations. Regulatory milestones are fully constrained until the period in which those regulatory approvals are achieved due to the inherent uncertainty with the approval process. Regulatory milestones are included in the transaction price in the period regulatory approval is obtained.
Research and Development Expenses
Clinical trial costs are a significant component of our research and development expenses. We have a history of contracting with third parties that perform various clinical trial activities on behalf of us in the ongoing development of our product candidates. Expenses related to clinical trials are accrued based on our estimates of the actual services performed by the third parties for the respective period. If the contracted amounts are modified (for instance, as a result of changes in the clinical trial
protocol or scope of work to be performed), we will modify the related accruals accordingly on a prospective basis. Revisions in the scope of a contract are charged to expense in the period in which the facts that give rise to the revision become reasonably certain.
The process of estimating our external research and development expenses involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre‑determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our expenses as of each balance sheet date in our financial statements based on facts and circumstances known to
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us at that time. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting expenses that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of research and development expenses.
| Year Ended December 31, | |||
| 2019 | 2018 | ||
| Risk-free interest rate | 1.5% ~ 2.8% | 2.5% ~ 3.1% | |
| Expected exercise multiple | 2.2 ~ 2.8 | 2.2 ~ 2.8 | |
| Expected volatility | 58% ~ 60% | 60% ~ 64% | |
| Expected dividend yield | 0% | 0% | |
| Contractual life (years) | 10 | 10 | |
| Year Ended December 31, | |||||||
| 2019 | 2018 | ||||||
| (in thousands) | |||||||
| Research and development | $ | 76,293 | $ | 54,384 | |||
| Selling, general and administration | 57,861 | 32,743 | |||||
| Total | $ | 134,154 | $ | 87,127 | |||
Income Taxes
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included in this Annual Report for information regarding recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest and Credit Risk
Financial instruments that are potentially subject to credit risk consist of cash and cash equivalents, restricted cash, and short term investments. The carrying amounts of cash, cash equivalents, restricted cash and short term investments represent the maximum amount of loss due to credit risk. and accounts receivable.
We had cash and cash equivalents of $618.0 million, $712.9 million$3.9 billion, $4.4 billion and $239.6 million,$1.4 billion, restricted cash of $2.8$5.5 million, $27.8$7.2 million and nil,$8.1 million, and short-term investments of $364.7 million, $1.1$0.7 billion, $2.2 billion and $597.9 million$3.3 billion, at December 31, 2019, 20182022, 2021 and 2017,2020, respectively. Our cash and cash equivalents are deposited with various major reputable financial institutions located within or without the PRC. The deposits placed with these financial institutions are not protected by statutory or commercial insurance. In the event of bankruptcy of one of these financial institutions, we may be unlikely to claim our deposits back in full. We believe that these financial institutions are of high credit quality, and we continually monitor the credit worthiness of these financial institutions. At December 31, 2019,2022, our short termshort-term investments consisted primarily of U.S. treasury securities. We believe that the U.S. treasury securities isare of high credit quality and continually monitor the credit worthiness of these institutions.
The primary objectives of our investment activities are to preserve principal, provide liquidity, and maximize income without significant increasing risk. Our primary exposure to market risk relates to fluctuations in the interest rates, which are affected by changes in the general level of PRC and U.S. interest rates. Given the short‑term nature of our cash equivalents, we believe that a sudden change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operation. We estimate that a hypothetical 100‑basis point changeincrease or decrease in market interest rates would impactresult in a decrease of $2.1 million or increase of $2.1 million, respectively, in the fair value of our investment portfolio as of December 31, 2019 by $1.1 million.
2022.
We do not believe that our cash, cash equivalents, and short‑term investments have significant risk of default or illiquidity. While we believe our cash, cash equivalents, and short-term investments do not contain excessive risk, we cannot provide absolute assurance that in the future investments will not be subject to adverse changes in market value.
We had accounts receivable, net of $173.2 million, $483.1 million and $60.4 million at December 31, 2022, 2021 and 2020, respectively. Accounts receivable at December 31, 2021 included the upfront fee from Novartis of $300.0 million under the ociperlimab agreement. Accounts receivable, net represent amounts arising from product sales and amounts due from the our collaboration partners. We monitor economic conditions to identify facts or circumstances that may indicate receivables are at risk of collection. To date, we have not experienced any significant losses with respect to the collection of our accounts receivable.
Currency Convertibility Risk
A significant portion of our expenses, assets, and liabilities are denominated in RMB. On January 1,In 1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People’s Bank of China (the "PBOC")PBOC). However, the unification of exchange rates does not imply that the RMB may be readily convertible into U.S. dollars or other foreign currencies. All foreign exchange transactions continue to take place either through the PBOC or other banks
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authorized to buy and sell foreign currencies at the exchange rates quoted by the PBOC. Approvals of foreign currency payments by the PBOC or other institutions require submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.
Additionally, the value of the RMB is subject to changes in central government policies and international economic and political developments affecting supply and demand in the PRC foreign exchange trading system market.
Foreign Currency Exchange Rate Risk
We are exposed to foreign exchange risk arising from various currency exposures. Our reporting currency is the U.S. dollar, but a portion of our operating transactions and assets and liabilities are in other currencies, such as RMB, Euro, and Australian dollar and Euro. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk.dollar.
RMB is not freely convertible into foreign currencies for capital account transactions. The value of RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange prices. From July 21,Since 2005, the RMB ishas been permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. ForThe RMB compared to the RMB against U.S. dollars, there were depreciation ofdollar depreciated approximately 1.3%8.2%, depreciation ofappreciated approximately 5.7%2.3%, and appreciation ofappreciated approximately 6.5% in6.3% for the yearyears ended December 31, 2019, 20182022, 2021 and 2017.2020, respectively. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.
To the extent that we need to convert U.S. dollars into RMB for capital expenditures, and working capital and other business purposes, appreciation of RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares, strategic acquisitions or investments or other business purposes, appreciation of the U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to us.
In addition, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our receivables, earnings or losses.foreign cash balances and trade receivables. Further, volatility in exchange rate fluctuations may have a significant impact on the foreign currency translation adjustments recorded in other comprehensive income (loss). We have not used derivative financial instruments to hedge exposure to foreign exchange risk.
Effects of Inflation
Inflation generally affects us by increasing our cost of labor and clinical trialdevelopment costs. We do not believe that inflation has had a material effect on our results of operations during the year ended December 31, 2019.2022.
Item 8. Financial Statements and Supplementary Data
The financial statements required to be filed pursuant to this item are appended to this Annual Report. An index of those financial statements is in “Part IV—Item 15—Exhibits, Financial Statement Schedules.”
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on their evaluation, required by paragraph (b) of Rules 13a-15 or 15d-15, promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act are
effective, at a reasonable assurance level, as of December 31, 2019,2022, to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in U.S. Securities and Exchange Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired
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control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment and those criteria, management concluded that we maintained effective internal control over financial reporting as of December 31, 2019.2022.
The effectiveness of our internal control over financial reporting as of December 31, 2019,2022, has been tested by Ernst & Young Hua Ming LLP, our independent registered public accounting firm, as stated in their report which is included in “Item 8—Financial Statements and Other Supplementary Data” in this Annual Report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a‑15(d) and 15d‑15(d) of the Exchange Act that occurred during the three months ended December 31, 20192022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
On March 30, 2022, the SEC added us to its conclusive list of issuers identified under the HFCAA following the filing of our annual report on Form 10-K with the SEC on February 28, 2022, which annual report was audited by Ernst & Young Hua Ming LLP, a registered public accounting firm in mainland China that the PCAOB previously was unable to inspect or investigate completely, because of a position taken by an authority in the foreign jurisdiction. However, as our global business has expanded, we have evaluated, designed and implemented business processes and control changes and built substantial organizational capabilities outside of China. Therefore, on March 23, 2022, following a review process carried out by our audit committee, Ernst & Young Hua Ming LLP resigned as our independent registered public accounting firm for the audit of our financial statements and internal control over financial reporting to be filed with the SEC. On the same day, our audit committee approved the engagement of Ernst & Young LLP, located in Boston, Massachusetts, United States, as the Company’s independent registered public accounting firm for the audit of our financial statements and internal control over financial reporting for the fiscal year ending December 31, 2022. Given that Ernst & Young LLP (United States) now serves as the principal accountant to audit our consolidated financial statements, we expect to be able to comply with the HFCAA and AHFCAA and certify that we have retained a registered public accounting firm that the PCAOB has determined it is able to inspect or investigate which would preclude a further finding by the SEC that we are a Commission-Identified Issuer.
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Furthermore, in August 2022, the PCAOB signed a Statement of Protocol with the CSRC and the Ministry of Finance of the People's Republic of China, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. PCAOB staff members conducted on-site inspections and investigations from September to November 2022, and in December 2022, the PCAOB announced that it has secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and confirmed that until such time as the PCAOB issues any new determination, there are no Commission-Identified Issuers at risk of having their securities subject to a trading prohibition under the HFCAA.
To the extent known by the Company, the Company is not aware of and has no reason to believe that: any governmental entity in the foreign jurisdiction in which the Company is incorporated or otherwise organized owns shares of any capital stock of record of the Company; any official of the Chinese government or Hong Kong SAR is a board member or officer of the Company or its operating subsidiaries; or that the Company’s articles of incorporation, as amended, contain any provisions known by the Company to include any charter or charter provisions of the Chinese Communist Party. The Company has determined that no governmental entity in mainland China or Hong Kong, directly or indirectly, possesses the power to direct or cause the direction of the management and policies of the Company or has a controlling financial interest. The Company has made this determination based on the fact that as of the date of this annual report, no such governmental entity has filed a Schedule 13D or 13G, there are no material contracts with such a foreign governmental party, and there is no such foreign government representative on the Company’s Board.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the U.S. Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2019.2022.
Item 11. Executive Compensation
The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the U.S. Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2019.2022.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the U.S. Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2019.2022.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the U.S. Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2019.2022.
Item 14. Principal Accounting Fees and Services
Our independent public accounting firm is Ernst & Young LLP (PCAOB ID: 0042), located in Boston, Massachusetts, United States. Our independent public accounting firm for the years ended December 31, 2021 and 2020 was Ernst & Young Hua Ming LLP (PCAOB ID: 1408), located in Beijing, People's Republic of China.
The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the U.S. Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2019.2022.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
The financial statements listed in the Index to Consolidated Financial Statements beginning on page F-1 are filed as part of this Annual Report.
No financial statement schedules have been filed as part of this Annual Report because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.
The exhibits filed as part of this Annual Report are set forth on the Exhibit Index immediately following our consolidated financial statements. The Exhibit Index is incorporated herein by reference.
Item 16. Form 10‑K Summary
Not applicable.
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BEIGENE, LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | |||||
1
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of BeiGene, Ltd.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetssheet of BeiGene, Ltd. and subsidiaries (the Company) as of December 31, 2019 and 2018,2022, the related consolidated statements of operations, comprehensive loss, shareholders' equity and cash flows and shareholders' equity for each of the three years in the periodyear ended December 31, 2019,2022, and the related notes (collectively referred to as the "consolidated“consolidated financial statements"statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018,2022, and the results of its operations and its cash flows for each of the three years in the periodyear ended December 31, 2019,2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 2, 2020February 27, 2023 expressed an unqualified opinion thereon.
These financial statements are the responsibility of New Accounting Standardthe Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the Company changed its methodcritical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
2
Accrued Clinical Trial Expenses
| Description of the Matter | As of December 31, 2022, the Company recorded $138 million of accrued external research and development expenses. As discussed in Note 2 to the consolidated financial statements, accrued external research and development expenses consist of various costs including clinical and pre-clinical trials, cost to develop product candidates, research services and other research and development related costs. Expenses related to clinical trials are accrued based on estimates of the actual services performed by third parties for the respective period. As the majority of clinical service providers invoice the Company in arrears for services performed, the Company determines estimates based on reviewing open contracts and purchase orders, assessing services that have been performed on its behalf, and estimating the level of service performed and the associated costs incurred for the services. Auditing the Company’s accrued external clinical trial expenses is especially challenging as the determination of clinical trial activities requires judgment and estimates resulting from delays in reporting from vendors. While the Company’s estimates of accrued clinical trial expenses are primarily based on information received related to each study from its vendors, the Company may need to make an estimate for additional costs incurred. These estimates are based on several factors, including management’s knowledge of the clinical trial timelines associated with activities, invoicing to date and the provisions in the contracts. Additionally, due to the long duration of clinical trials and the timing of invoicing received from vendors, the actual amounts incurred are not typically known at the time the financial statements are issued. | |||||||
| How We Addressed the Matter in Our Audit | We evaluated and tested the design and operating effectiveness of internal controls over the Company’s process used in determining the valuation and completeness of accrued clinical trial expenses. This included testing controls over management’s review of the significant assumptions and other inputs used in the estimation of accrued external clinical trial expenses, including contractual terms, estimated expenses incurred, and total invoicing to date. To test the accrued clinical trial expenses, our audit procedures included, among others, testing the accuracy and completeness of the underlying data used in determining the accrued clinical trial expenses and evaluating the assumptions and estimates used by management. To evaluate the completeness and valuation of the accrual, we corroborated the progress of clinical trials with the Company’s research and development personnel that oversee the clinical trials and obtained actual cost information directly from vendors. We also tested subsequent invoices received and evaluated contractual arrangements with vendors, including any pending change orders to assess the impact to the accrual. | |||||||
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2022
Boston, Massachusetts
February 27, 2023
3
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of BeiGene, Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of BeiGene, Ltd. (the Company) as of December 31, 2021, the related consolidated statements of operations, comprehensive loss, cash flows and shareholders' equity for accounting for revenue from contracts with customerseach of the two years in the yearperiod ended December 31, 20182021, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its methodcash flows for accounting for leaseseach of the two years in the yearperiod ended December 31, 2019.2021, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includeincluded examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young Hua Ming LLP
We have served as the Company’s auditor sincefrom 2014 to 2022.
Beijing, People’s Republic of China
except for the effects on the consolidated financial statements of the correction of an error as described in Notes 2 2020and 3, as to which the date is
February 27, 2023
4
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of BeiGene, Ltd.:
Opinion on Internal Control overOver Financial Reporting
We have audited BeiGene, Ltd.’s internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control - Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, BeiGene, Ltd. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheetssheet of the Company as of December 31, 2019 and 2018,2022, the related consolidated statementsstatement of operations, comprehensive loss, shareholders' equity and cash flows and shareholders' equity for each of the three years in the periodyear ended December 31, 2019,2022, and the related notes and our report dated March 2, 2020February 27, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young Hua Ming LLP
February 27, 2023
5
BEIGENE, LTD.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of U.S. Dollars (“$”), except for number of shares and per share data)
| As of December 31, | As of December 31, | |||||||||||||||||||||||
| Note | 2019 | 2018 | Note | 2022 | 2021 | |||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||
| Assets | Assets | |||||||||||||||||||||||
| Current assets: | Current assets: | |||||||||||||||||||||||
| Cash and cash equivalents | 618,011 | 712,937 | Cash and cash equivalents | 3,869,564 | 4,375,678 | |||||||||||||||||||
| Short-term restricted cash | 5 | 288 | 14,544 | Short-term restricted cash | 5 | 196 | 328 | |||||||||||||||||
| Short-term investments | 6 | 364,728 | 1,068,509 | Short-term investments | 6 | 665,251 | 2,241,962 | |||||||||||||||||
| Accounts receivable | 70,878 | 41,056 | ||||||||||||||||||||||
| Accounts receivable, net | Accounts receivable, net | 173,168 | 483,113 | |||||||||||||||||||||
| Inventories | 7 | 28,553 | 16,242 | Inventories | 7 | 282,346 | 242,626 | |||||||||||||||||
| Prepaid expenses and other current assets | 13 | 90,238 | 90,554 | Prepaid expenses and other current assets | 13 | 216,553 | 270,173 | |||||||||||||||||
| Total current assets | 1,172,696 | 1,943,842 | Total current assets | 5,207,078 | 7,613,880 | |||||||||||||||||||
| Long-term restricted cash | 5 | 2,476 | 13,232 | Long-term restricted cash | 5 | 5,277 | 6,881 | |||||||||||||||||
| Property and equipment, net | 10 | 242,402 | 157,061 | |||||||||||||||||||||
| Land use right, net | 2 | — | 45,058 | |||||||||||||||||||||
| Property, plant and equipment, net | Property, plant and equipment, net | 10 | 845,946 | 587,605 | ||||||||||||||||||||
| Operating lease right-of-use assets | 9 | 82,520 | — | Operating lease right-of-use assets | 9 | 109,960 | 117,431 | |||||||||||||||||
| Intangible assets, net | 11 | 5,846 | 7,172 | Intangible assets, net | 11 | 40,616 | 46,679 | |||||||||||||||||
| Deferred tax assets | 12 | 37,894 | 29,542 | |||||||||||||||||||||
| Other non-current assets | 13 | 68,455 | 53,777 | Other non-current assets | 13 | 170,413 | 163,049 | |||||||||||||||||
| Total non-current assets | 439,593 | 305,842 | Total non-current assets | 1,172,212 | 921,645 | |||||||||||||||||||
| Total assets | 1,612,289 | 2,249,684 | Total assets | 6,379,290 | 8,535,525 | |||||||||||||||||||
| Liabilities and shareholders' equity | Liabilities and shareholders' equity | |||||||||||||||||||||||
| Current liabilities: | Current liabilities: | |||||||||||||||||||||||
| Accounts payable | 122,488 | 113,283 | Accounts payable | 294,781 | 262,400 | |||||||||||||||||||
| Accrued expenses and other payables | 13 | 163,556 | 100,414 | Accrued expenses and other payables | 13 | 467,352 | 558,055 | |||||||||||||||||
| Deferred revenue, current portion | — | 18,140 | Deferred revenue, current portion | 4 | 213,861 | 187,414 | ||||||||||||||||||
| Tax payable | 12 | 13,454 | 5,888 | Tax payable | 12 | 25,189 | 21,395 | |||||||||||||||||
| Operating lease liabilities, current portion | 9 | 10,814 | — | Operating lease liabilities, current portion | 9 | 24,041 | 21,925 | |||||||||||||||||
| Long-term bank loans, current portion | 14 | — | 8,727 | |||||||||||||||||||||
| Research and development cost share liability, current portion | Research and development cost share liability, current portion | 4 | 114,335 | 120,801 | ||||||||||||||||||||
| Short-term debt | Short-term debt | 14 | 328,969 | 427,565 | ||||||||||||||||||||
| Total current liabilities | 310,312 | 246,452 | Total current liabilities | 1,468,528 | 1,599,555 | |||||||||||||||||||
| Non-current liabilities: | Non-current liabilities: | |||||||||||||||||||||||
| Long-term bank loans, non-current portion | 14 | 83,311 | 40,785 | |||||||||||||||||||||
| Shareholder loan | 15 | 157,384 | 148,888 | |||||||||||||||||||||
| Long-term debt | Long-term debt | 14 | 209,148 | 202,113 | ||||||||||||||||||||
| Deferred revenue, non-current portion | Deferred revenue, non-current portion | 4 | 42,026 | 220,289 | ||||||||||||||||||||
| Operating lease liabilities, non-current portion | 9 | 25,833 | — | Operating lease liabilities, non-current portion | 9 | 34,517 | 43,041 | |||||||||||||||||
| Deferred tax liabilities | 12 | 10,532 | 11,139 | Deferred tax liabilities | 12 | 15,996 | 14,169 | |||||||||||||||||
| Research and development cost share liability, non-current portion | Research and development cost share liability, non-current portion | 4 | 179,625 | 269,561 | ||||||||||||||||||||
| Other long-term liabilities | 13 | 46,562 | 48,773 | Other long-term liabilities | 13 | 46,095 | 54,234 | |||||||||||||||||
| Total non-current liabilities | 323,622 | 249,585 | Total non-current liabilities | 527,407 | 803,407 | |||||||||||||||||||
| Total liabilities | 633,934 | 496,037 | Total liabilities | 1,995,935 | 2,402,962 | |||||||||||||||||||
| Commitments and contingencies | 23 | Commitments and contingencies | 22 | |||||||||||||||||||||
| Equity: | Equity: | |||||||||||||||||||||||
| Ordinary shares, $0.0001 par value per share; 9,500,000,000 shares authorized; 801,340,698 and 776,263,184 shares issued and outstanding as of December 31, 2019 and 2018, respectively | 79 | 77 | ||||||||||||||||||||||
| Ordinary shares, 0.0001 par value per share; 9,500,000,000 shares authorized; 1,356,140,180 and 1,334,804,281 shares issued and outstanding as of December 31, 2022 and 2021, respectively | Ordinary shares, 0.0001 par value per share; 9,500,000,000 shares authorized; 1,356,140,180 and 1,334,804,281 shares issued and outstanding as of December 31, 2022 and 2021, respectively | 135 | 133 | |||||||||||||||||||||
| Additional paid-in capital | 2,925,970 | 2,744,814 | Additional paid-in capital | 11,540,979 | 11,191,007 | |||||||||||||||||||
| Accumulated other comprehensive (loss) income | 19 | (8,001 | ) | 1,526 | Accumulated other comprehensive (loss) income | 18 | (77,417) | 17,950 | ||||||||||||||||
| Accumulated deficit | (1,955,843 | ) | (1,007,215 | ) | Accumulated deficit | (7,080,342) | (5,076,527) | |||||||||||||||||
| Total BeiGene, Ltd. shareholders’ equity | 962,205 | 1,739,202 | ||||||||||||||||||||||
| Noncontrolling interest | 16,150 | 14,445 | ||||||||||||||||||||||
| Total equity | 978,355 | 1,753,647 | Total equity | 4,383,355 | 6,132,563 | |||||||||||||||||||
| Total liabilities and equity | 1,612,289 | 2,249,684 | Total liabilities and equity | 6,379,290 | 8,535,525 | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
BEIGENE, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands of U.S. Dollars (“$”), except for number of shares and per share data)
| Year Ended December 31, | |||||||||||||||||||||||||||||||||
| Year Ended December 31, | Note | 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||
| Note | 2019 | 2018 | 2017 | $ | $ | $ | |||||||||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||||
| Revenues | Revenues | ||||||||||||||||||||||||||||||||
| Product revenue, net | 16 | 222,596 | 130,885 | 24,428 | Product revenue, net | 15 | 1,254,612 | 633,987 | 308,874 | ||||||||||||||||||||||||
| Collaboration revenue | 3 | 205,616 | 67,335 | 213,959 | Collaboration revenue | 4 | 161,309 | 542,296 | — | ||||||||||||||||||||||||
| Total revenues | 428,212 | 198,220 | 238,387 | Total revenues | 1,415,921 | 1,176,283 | 308,874 | ||||||||||||||||||||||||||
| Expenses | Expenses | ||||||||||||||||||||||||||||||||
| Cost of sales - product | (71,190 | ) | (28,705 | ) | (4,974 | ) | Cost of sales - product | 286,475 | 164,906 | 70,657 | |||||||||||||||||||||||
| Research and development | (927,338 | ) | (679,005 | ) | (269,018 | ) | Research and development | 1,640,508 | 1,459,239 | 1,294,877 | |||||||||||||||||||||||
| Selling, general and administrative | (388,249 | ) | (195,385 | ) | (62,602 | ) | Selling, general and administrative | 1,277,852 | 990,123 | 600,176 | |||||||||||||||||||||||
| Amortization of intangible assets | (1,326 | ) | (894 | ) | (250 | ) | Amortization of intangible assets | 11 | 751 | 750 | 846 | ||||||||||||||||||||||
| Total expenses | (1,388,103 | ) | (903,989 | ) | (336,844 | ) | Total expenses | 3,205,586 | 2,615,018 | 1,966,556 | |||||||||||||||||||||||
| Loss from operations | (959,891 | ) | (705,769 | ) | (98,457 | ) | Loss from operations | (1,789,665) | (1,438,735) | (1,657,682) | |||||||||||||||||||||||
| Interest income (expense), net | 9,131 | 13,947 | (4,108 | ) | Interest income (expense), net | 52,480 | (15,757) | 1,998 | |||||||||||||||||||||||||
| Other income, net | 7,174 | 1,993 | 11,501 | ||||||||||||||||||||||||||||||
| Loss before income tax expense | (943,586 | ) | (689,829 | ) | (91,064 | ) | |||||||||||||||||||||||||||
| Income tax (expense) benefit | 12 | (6,992 | ) | 15,796 | (2,235 | ) | |||||||||||||||||||||||||||
| Other (expense) income, net | Other (expense) income, net | 6 | (223,852) | 15,904 | 37,490 | ||||||||||||||||||||||||||||
| Loss before income taxes | Loss before income taxes | (1,961,037) | (1,438,588) | (1,618,194) | |||||||||||||||||||||||||||||
| Income tax expense | Income tax expense | 12 | 42,778 | 19,228 | 10,397 | ||||||||||||||||||||||||||||
| Net loss | (950,578 | ) | (674,033 | ) | (93,299 | ) | Net loss | (2,003,815) | (1,457,816) | (1,628,591) | |||||||||||||||||||||||
| Less: net loss attributable to noncontrolling interests | (1,950 | ) | (264 | ) | (194 | ) | Less: net loss attributable to noncontrolling interests | — | — | (3,617) | |||||||||||||||||||||||
| Net loss attributable to BeiGene, Ltd. | (948,628 | ) | (673,769 | ) | (93,105 | ) | Net loss attributable to BeiGene, Ltd. | (2,003,815) | (1,457,816) | (1,624,974) | |||||||||||||||||||||||
| Net loss per share attributable to BeiGene, Ltd., basic and diluted | 17 | (1.22 | ) | (0.93 | ) | (0.17 | ) | Net loss per share attributable to BeiGene, Ltd., basic and diluted | 16 | (1.49) | (1.21) | (1.50) | |||||||||||||||||||||
| Weighted-average shares outstanding, basic and diluted | 17 | 780,701,283 | 720,753,819 | 543,185,460 | Weighted-average shares outstanding, basic and diluted | 16 | 1,340,729,572 | 1,206,210,049 | 1,085,131,783 | ||||||||||||||||||||||||
| Net loss per American Depositary Share (“ADS”), basic and diluted | (15.80 | ) | (12.15 | ) | (2.23 | ) | |||||||||||||||||||||||||||
| Net loss per American Depositary Share (ADS), basic and diluted | Net loss per American Depositary Share (ADS), basic and diluted | (19.43) | (15.71) | (19.47) | |||||||||||||||||||||||||||||
| Weighted-average ADSs outstanding, basic and diluted | 60,053,945 | 55,442,601 | 41,783,497 | Weighted-average ADSs outstanding, basic and diluted | 103,133,044 | 92,785,388 | 83,471,676 | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
BEIGENE, LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands of U.S. Dollars (“$”), except for number of shares and per share data)
| Year Ended December 31, | |||||||||||||||||||||||
| Note | 2022 | 2021 | 2020 | ||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||
| Net loss | (2,003,815) | (1,457,816) | (1,628,591) | ||||||||||||||||||||
| Other comprehensive (loss) income, net of tax of nil: | |||||||||||||||||||||||
| Foreign currency translation adjustments | 18 | (90,421) | 13,714 | 23,603 | |||||||||||||||||||
| Pension liability adjustments | 21 | 365 | 1,865 | (8,113) | |||||||||||||||||||
| Unrealized holding loss, net | 18 | (5,311) | (4,571) | (419) | |||||||||||||||||||
| Comprehensive loss | (2,099,182) | (1,446,808) | (1,613,520) | ||||||||||||||||||||
| Less: comprehensive loss attributable to noncontrolling interests | — | — | (3,489) | ||||||||||||||||||||
| Comprehensive loss attributable to BeiGene, Ltd. | (2,099,182) | (1,446,808) | (1,610,031) | ||||||||||||||||||||
| Year Ended December 31, | ||||||||
| 2019 | 2018 | 2017 | ||||||
| $ | $ | $ | ||||||
| Net loss | (950,578 | ) | (674,033 | ) | (93,299 | ) | ||
| Other comprehensive loss, net of tax of nil: | ||||||||
| Foreign currency translation adjustments | (9,424 | ) | (478 | ) | 851 | |||
| Unrealized holding (loss) gain, net | (448 | ) | 2,133 | (296 | ) | |||
| Comprehensive loss | (960,450 | ) | (672,378 | ) | (92,744 | ) | ||
| Less: comprehensive loss attributable to noncontrolling interests | (2,295 | ) | (352 | ) | (105 | ) | ||
| Comprehensive loss attributable to BeiGene, Ltd. | (958,155 | ) | (672,026 | ) | (92,639 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
8
BEIGENE, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||||
| Note | 2019 | 2018 | 2017 | |||||||
| $ | $ | $ | ||||||||
| Cash flows from operating activities: | ||||||||||
| Net loss | (950,578 | ) | (674,033 | ) | (93,299 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||
| Depreciation and amortization expense | 18,617 | 10,388 | 4,758 | |||||||
| Share-based compensation expense | 18 | 134,154 | 87,127 | 42,863 | ||||||
| Acquired in-process research and development | 69,000 | 70,000 | — | |||||||
| Non-cash interest expense | 8,046 | 7,820 | 7,035 | |||||||
| Deferred income tax benefits | (9,232 | ) | (21,949 | ) | (5,845 | ) | ||||
| Other items, net | (9,443 | ) | (9,856 | ) | 41 | |||||
| Changes in operating assets and liabilities: | ||||||||||
| Accounts receivable | (29,822 | ) | (11,628 | ) | (29,428 | ) | ||||
| Inventories | (12,311 | ) | (5,312 | ) | (10,930 | ) | ||||
| Prepaid expenses and other current assets | 45 | (38,607 | ) | (28,880 | ) | |||||
| Operating lease right-of-use assets | (11,484 | ) | — | — | ||||||
| Other non-current assets | (20,782 | ) | (40,228 | ) | (29,701 | ) | ||||
| Accounts payable | 2,224 | 23,470 | 55,298 | |||||||
| Accrued expenses and other payables | 64,030 | 50,543 | 24,978 | |||||||
| Tax payable | 7,566 | (3,355 | ) | 7,426 | ||||||
| Deferred revenue | (27,982 | ) | (9,059 | ) | 37,041 | |||||
| Operating lease liabilities | 9,201 | — | — | |||||||
| Other long-term liabilities | 8,482 | 16,962 | 31,395 | |||||||
| Net cash (used in) provided by operating activities | (750,269 | ) | (547,717 | ) | 12,752 | |||||
| Cash flows from investing activities: | ||||||||||
| Purchases of property and equipment | (89,612 | ) | (70,283 | ) | (46,374 | ) | ||||
| Purchase of intangible assets | — | (553 | ) | — | ||||||
| Payment for asset acquisition, net of cash acquired | 4 | — | (38,298 | ) | — | |||||
| Payment for the acquisition of land use right | — | — | (12,354 | ) | ||||||
| Cash acquired in business combination, net of cash paid | 4 | — | — | 19,916 | ||||||
| Purchases of investments | (1,169,300 | ) | (2,635,686 | ) | (741,296 | ) | ||||
| Proceeds from sale or maturity of available-for-sale securities | 1,882,075 | 2,177,207 | 423,789 | |||||||
| Purchase of in-process research and development | (69,000 | ) | (70,000 | ) | — | |||||
| Net cash provided by (used in) investing activities | 554,163 | (637,613 | ) | (356,319 | ) | |||||
| Cash flows from financing activities: | ||||||||||
| Proceeds from public offering, net of underwriter discount | 20 | — | 758,001 | 189,191 | ||||||
| Payment of public offering cost | 20 | — | (414 | ) | (674 | ) | ||||
| Proceeds from public offering and HK IPO, net of underwriter discount | 20 | — | 875,368 | — | ||||||
| Payment of public offering and HK IPO costs | 20 | — | (5,659 | ) | — | |||||
| Proceeds from sale of ordinary shares, net of cost | 20 | — | — | 149,928 | ||||||
| Proceeds from long-term bank loans | 14 | 67,489 | 42,315 | — | ||||||
| Repayment of long-term bank loans | 14 | (32,813 | ) | (8,736 | ) | — | ||||
| Proceeds from short-term loan | — | — | 2,470 | |||||||
| Repayment of short-term loan | — | — | (2,470 | ) | ||||||
| Capital contribution from noncontrolling interest | 4,000 | — | 14,527 | |||||||
| Proceeds from shareholder loan | 15 | — | — | 132,757 | ||||||
| Proceeds from option exercises and employee share purchase plan | 47,004 | 29,662 | 4,627 | |||||||
| Net cash provided by financing activities | 85,680 | 1,690,537 | 490,356 | |||||||
| Effect of foreign exchange rate changes, net | (9,512 | ) | (4,096 | ) | 5,299 | |||||
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (119,938 | ) | 501,111 | 152,088 | ||||||
| Cash, cash equivalents, and restricted cash, beginning of year | 740,713 | 239,602 | 87,514 | |||||||
| Cash, cash equivalents, and restricted cash, end of year | 620,775 | 740,713 | 239,602 | |||||||
| Year Ended December 31, | |||||||||||||||||||||||||||||||||
| Year Ended December 31, | Note | 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||
| Note | 2019 | 2018 | 2017 | $ | $ | $ | |||||||||||||||||||||||||||
| Cash flows from operating activities: | Cash flows from operating activities: | ||||||||||||||||||||||||||||||||
| Net loss | Net loss | (2,003,815) | (1,457,816) | (1,628,591) | |||||||||||||||||||||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||||||||||||||||||
| Depreciation and amortization expense | Depreciation and amortization expense | 66,278 | 46,457 | 31,789 | |||||||||||||||||||||||||||||
| Share-based compensation expense | Share-based compensation expense | 17 | 303,162 | 240,712 | 183,481 | ||||||||||||||||||||||||||||
| Acquired in-process research and development | Acquired in-process research and development | 4 | 68,665 | 83,500 | 109,500 | ||||||||||||||||||||||||||||
| Amortization of research and development cost share liability | Amortization of research and development cost share liability | 4 | (96,402) | (112,486) | (113,986) | ||||||||||||||||||||||||||||
| Unrealized losses (gains) on equity investments | Unrealized losses (gains) on equity investments | 6 | 21,996 | (7,632) | (11,826) | ||||||||||||||||||||||||||||
| Deferred income tax expense | Deferred income tax expense | 2,059 | 3,377 | 261 | |||||||||||||||||||||||||||||
| Other items, net | Other items, net | 9,047 | 23,510 | (4,673) | |||||||||||||||||||||||||||||
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | ||||||||||||||||||||||||||||||||
| Accounts receivable | Accounts receivable | 304,112 | (423,019) | 10,363 | |||||||||||||||||||||||||||||
| Inventories | Inventories | (56,689) | (153,333) | (58,906) | |||||||||||||||||||||||||||||
| Other assets | Other assets | (3,282) | (107,128) | (56,217) | |||||||||||||||||||||||||||||
| Accounts payable | Accounts payable | (4,352) | 20,008 | 95,835 | |||||||||||||||||||||||||||||
| Accrued expenses and other payables | Accrued expenses and other payables | 45,627 | 140,044 | 185,012 | |||||||||||||||||||||||||||||
| Deferred revenue | Deferred revenue | (151,816) | 407,703 | — | |||||||||||||||||||||||||||||
| Other liabilities | Other liabilities | (1,209) | (2,620) | (25,503) | |||||||||||||||||||||||||||||
| Net cash used in operating activities | Net cash used in operating activities | (1,496,619) | (1,298,723) | (1,283,461) | |||||||||||||||||||||||||||||
| Cash flows from investing activities: | Cash flows from investing activities: | ||||||||||||||||||||||||||||||||
| Purchases of property and equipment | Purchases of property and equipment | (325,434) | (262,942) | (117,508) | |||||||||||||||||||||||||||||
| Purchases of short-term investments | Purchases of short-term investments | (1,485) | (2,147,881) | (5,663,727) | |||||||||||||||||||||||||||||
| Proceeds from sale or maturity of short-term investments | Proceeds from sale or maturity of short-term investments | 1,563,618 | 3,146,891 | 2,751,075 | |||||||||||||||||||||||||||||
| Purchase of in-process research and development | Purchase of in-process research and development | (143,665) | (8,500) | (109,500) | |||||||||||||||||||||||||||||
| Purchase of intangible assets | Purchase of intangible assets | 11 | — | (43,409) | — | ||||||||||||||||||||||||||||
| Purchase of long-term investments | Purchase of long-term investments | 6 | (15,911) | (43,500) | (26,681) | ||||||||||||||||||||||||||||
| Other investing activities | Other investing activities | — | — | (2,025) | |||||||||||||||||||||||||||||
| Net cash provided by (used in) investing activities | Net cash provided by (used in) investing activities | 1,077,123 | 640,659 | (3,168,366) | |||||||||||||||||||||||||||||
| Cash flows from financing activities: | Cash flows from financing activities: | ||||||||||||||||||||||||||||||||
| Proceeds from public offering, net of cost | Proceeds from public offering, net of cost | 19 | — | 3,392,616 | — | ||||||||||||||||||||||||||||
| Proceeds from sale of ordinary shares, net of cost | Proceeds from sale of ordinary shares, net of cost | 19 | — | 50,000 | 4,232,017 | ||||||||||||||||||||||||||||
| Proceeds from research and development cost share liability | Proceeds from research and development cost share liability | 4 | — | — | 616,834 | ||||||||||||||||||||||||||||
| Payment to acquire joint venture (JV) minority interest | Payment to acquire joint venture (JV) minority interest | 8 | — | — | (28,723) | ||||||||||||||||||||||||||||
| Proceeds from long-term loan | Proceeds from long-term loan | 14 | 37,372 | 16,838 | 110,208 | ||||||||||||||||||||||||||||
| Repayment of long-term loan | Repayment of long-term loan | 14 | — | — | (132,061) | ||||||||||||||||||||||||||||
| Proceeds from short-term loans | Proceeds from short-term loans | 14 | 313,774 | 406,449 | 323,697 | ||||||||||||||||||||||||||||
| Repayment of short-term loans | Repayment of short-term loans | 14 | (417,081) | (321,754) | (12,247) | ||||||||||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||||||||||||
| Proceeds from option exercises and employee share purchase plan | Proceeds from option exercises and employee share purchase plan | 46,964 | 92,762 | 93,101 | |||||||||||||||||||||||||||||
| Net cash (used in) provided by financing activities | Net cash (used in) provided by financing activities | (18,971) | 3,636,911 | 5,202,826 | |||||||||||||||||||||||||||||
| Effect of foreign exchange rate changes, net | Effect of foreign exchange rate changes, net | (69,383) | 14,035 | 18,231 | |||||||||||||||||||||||||||||
| Net (decrease) increase in cash, cash equivalents, and restricted cash | Net (decrease) increase in cash, cash equivalents, and restricted cash | (507,850) | 2,992,882 | 769,230 | |||||||||||||||||||||||||||||
| Cash, cash equivalents, and restricted cash, beginning of year | Cash, cash equivalents, and restricted cash, beginning of year | 4,382,887 | 1,390,005 | 620,775 | |||||||||||||||||||||||||||||
| Cash, cash equivalents, and restricted cash, end of year | Cash, cash equivalents, and restricted cash, end of year | 3,875,037 | 4,382,887 | 1,390,005 | |||||||||||||||||||||||||||||
| Supplemental cash flow disclosures: | Supplemental cash flow disclosures: | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 618,011 | 712,937 | 239,602 | Cash and cash equivalents | 3,869,564 | 4,375,678 | 1,381,950 | ||||||||||||||||||||||||||
| Short-term restricted cash | 288 | 14,544 | — | Short-term restricted cash | 196 | 328 | 307 | ||||||||||||||||||||||||||
| Long-term restricted cash | 2,476 | 13,232 | — | Long-term restricted cash | 5,277 | 6,881 | 7,748 | ||||||||||||||||||||||||||
| Income taxes paid | 8,984 | 12,361 | 29,286 | Income taxes paid | 29,500 | 15,695 | 10,596 | ||||||||||||||||||||||||||
| Interest paid | 4,315 | 2,209 | 1,260 | Interest paid | 25,169 | 29,967 | 44,130 | ||||||||||||||||||||||||||
| Non-cash activities: | |||||||||||||||||||||||||||||||||
| Discount provided on sale of ordinary shares for business combination | 4 | — | — | 23,606 | |||||||||||||||||||||||||||||
| Acquisitions of equipment included in accounts payable | 29,086 | 22,105 | 2,215 | ||||||||||||||||||||||||||||||
| Supplemental non-cash activities: | Supplemental non-cash activities: | ||||||||||||||||||||||||||||||||
| Accruals for capital expenditures | Accruals for capital expenditures | 95,346 | 53,197 | 42,762 | |||||||||||||||||||||||||||||
| Purchase of in-process research and development included in accounts payable | — | 19,000 | — | Purchase of in-process research and development included in accounts payable | — | 75,000 | — | ||||||||||||||||||||||||||
| Changes in operating assets and liabilities adjusted through accumulated deficit | — | 2,291 | — | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statemstatements.
9
BEIGENE, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Amounts in thousands of U.S. Dollars (“$”), except for number of shares and per share data)
| Attributable to BeiGene, Ltd. | |||||||||||||||||||||||
| Ordinary Shares | Additional Paid-In Capital | Accumulated OCI | Accumulated Deficit | Total | Non- Controlling Interests | ||||||||||||||||||
| Shares | Amount | Total | |||||||||||||||||||||
| Balance at December 31, 2016 | 515,833,609 | 52 | 591,213 | (946 | ) | (237,412 | ) | 352,907 | — | 352,907 | |||||||||||||
| Issuance of ordinary shares in secondary follow-on offering, net of transaction costs | 36,851,750 | 4 | 188,513 | — | — | 188,517 | — | 188,517 | |||||||||||||||
| Proceeds from sale of ordinary shares, net of cost | 32,746,416 | 3 | 149,925 | — | — | 149,928 | — | 149,928 | |||||||||||||||
| Discount on the sale of ordinary shares | — | — | 23,606 | — | — | 23,606 | — | 23,606 | |||||||||||||||
| Contributions from shareholders (Note 8) | — | — | — | — | — | — | 14,527 | 14,527 | |||||||||||||||
| Share-based compensation | — | — | 42,863 | — | — | 42,863 | — | 42,863 | |||||||||||||||
| Issuance of shares reserved for share option exercises | 787,571 | — | — | — | — | — | — | — | |||||||||||||||
| Exercise of options | 5,852,984 | — | 4,627 | — | — | 4,627 | — | 4,627 | |||||||||||||||
| Other comprehensive income | — | — | — | 466 | — | 466 | 89 | 555 | |||||||||||||||
| Net loss | — | — | — | — | (93,105 | ) | (93,105 | ) | (194 | ) | (93,299 | ) | |||||||||||
| Balance at December 31, 2017 | 592,072,330 | 59 | 1,000,747 | (480 | ) | (330,517 | ) | 669,809 | 14,422 | 684,231 | |||||||||||||
| Adjustment to opening balance of equity | — | — | — | 263 | (2,929 | ) | (2,666 | ) | 375 | (2,291 | ) | ||||||||||||
| Balance at January 1, 2018 | 592,072,330 | 59 | 1,000,747 | (217 | ) | (333,446 | ) | 667,143 | 14,797 | 681,940 | |||||||||||||
| Issuance of ordinary shares in connection with follow-on public offering | 102,970,400 | 10 | 757,577 | — | — | 757,587 | — | 757,587 | |||||||||||||||
| Issuance of ordinary shares in connection with global offering and HK IPO | 65,600,000 | 7 | 869,702 | — | — | 869,709 | — | 869,709 | |||||||||||||||
| Issuance of shares reserved for share option exercises | 1,299,186 | — | — | — | — | — | — | — | |||||||||||||||
| Share-based compensation | — | — | 87,127 | — | — | 87,127 | — | 87,127 | |||||||||||||||
| Exercise of options and release of RSUs | 14,321,268 | 1 | 29,661 | — | — | 29,662 | — | 29,662 | |||||||||||||||
| Other comprehensive income | — | — | — | 1,743 | — | 1,743 | (88 | ) | 1,655 | ||||||||||||||
| Net loss | — | — | — | — | (673,769 | ) | (673,769 | ) | (264 | ) | (674,033 | ) | |||||||||||
| Balance at December 31, 2018 | 776,263,184 | 77 | 2,744,814 | 1,526 | (1,007,215 | ) | 1,739,202 | 14,445 | 1,753,647 | ||||||||||||||
| Contributions from shareholders | — | — | — | — | — | — | 4,000 | 4,000 | |||||||||||||||
| Exercise of options, ESPP and release of RSUs | 20,571,675 | 2 | 47,002 | — | — | 47,004 | — | 47,004 | |||||||||||||||
| Issuance of shares reserved for share option exercises | 4,505,839 | — | — | — | — | — | — | — | |||||||||||||||
| Share-based compensation | — | — | 134,154 | — | — | 134,154 | — | 134,154 | |||||||||||||||
| Other comprehensive loss | — | — | — | (9,527 | ) | — | (9,527 | ) | (345 | ) | (9,872 | ) | |||||||||||
| Net loss | — | — | — | — | (948,628 | ) | (948,628 | ) | (1,950 | ) | (950,578 | ) | |||||||||||
| Balance at December 31, 2019 | 801,340,698 | 79 | 2,925,970 | (8,001 | ) | (1,955,843 | ) | 962,205 | 16,150 | 978,355 | |||||||||||||
| Attributable to BeiGene, Ltd. | |||||||||||||||||||||||||||||||||||||||||||||||
| Ordinary Shares | Additional Paid-In Capital | Accumulated Other Comprehensive Income/(Loss) | Accumulated Deficit | Total | Non- Controlling Interests | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 801,340,698 | 79 | 2,925,970 | (8,001) | (1,993,737) | 924,311 | 16,150 | 940,461 | |||||||||||||||||||||||||||||||||||||||
| Proceeds from issuance of ordinary shares, net of cost | 145,838,979 | 14 | 2,069,596 | — | — | 2,069,610 | — | 2,069,610 | |||||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares in connection with collaboration | 206,635,013 | 21 | 2,162,386 | — | — | 2,162,407 | — | 2,162,407 | |||||||||||||||||||||||||||||||||||||||
| Exercise of options, ESPP and release of RSUs | 38,020,892 | 3 | 93,098 | — | — | 93,101 | — | 93,101 | |||||||||||||||||||||||||||||||||||||||
| Use of shares reserved for share option exercises and RSU releases | (1,013,641) | 1 | — | — | — | 1 | — | 1 | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 183,481 | — | — | 183,481 | — | 183,481 | |||||||||||||||||||||||||||||||||||||||
| Deconsolidation of a subsidiary | — | — | — | — | — | — | (3,545) | (3,545) | |||||||||||||||||||||||||||||||||||||||
| Acquisition of joint venture (JV) minority interest | — | — | (19,599) | — | — | (19,599) | (9,116) | (28,715) | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 14,943 | — | 14,943 | 128 | 15,071 | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (1,624,974) | (1,624,974) | (3,617) | (1,628,591) | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 1,190,821,941 | 118 | 7,414,932 | 6,942 | (3,618,711) | 3,803,281 | — | 3,803,281 | |||||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares in connection with STAR Offering | 115,055,260 | 12 | 3,392,604 | — | — | 3,392,616 | — | 3,392,616 | |||||||||||||||||||||||||||||||||||||||
| Proceeds from issuance of ordinary shares, net of cost | 2,151,877 | — | 50,000 | — | — | 50,000 | — | 50,000 | |||||||||||||||||||||||||||||||||||||||
| Exercise of options, ESPP and release of RSUs | 28,778,893 | 3 | 92,759 | — | — | 92,762 | — | 92,762 | |||||||||||||||||||||||||||||||||||||||
| Use of shares reserved for share option exercises | (2,003,690) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 240,712 | — | — | 240,712 | — | 240,712 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 11,008 | — | 11,008 | 11,008 | ||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (1,457,816) | (1,457,816) | — | (1,457,816) | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 1,334,804,281 | 133 | 11,191,007 | 17,950 | (5,076,527) | 6,132,563 | — | 6,132,563 | |||||||||||||||||||||||||||||||||||||||
| Cost from issuance of ordinary shares | — | — | (152) | — | — | (152) | — | (152) | |||||||||||||||||||||||||||||||||||||||
| Use of shares reserved for share option exercises | 1,375,621 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Exercise of options, ESPP and release of RSUs | 19,960,278 | 2 | 46,962 | — | — | 46,964 | — | 46,964 | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 303,162 | — | — | 303,162 | — | 303,162 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (95,367) | — | (95,367) | — | (95,367) | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (2,003,815) | (2,003,815) | — | (2,003,815) | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 1,356,140,180 | 135 | 11,540,979 | (77,417) | (7,080,342) | 4,383,355 | — | 4,383,355 | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
10
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019, 20182022, 2021 AND 20172020
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
1. Organization
BeiGene, Ltd. (the “Company”"Company", "BeiGene", "it", "its") is a global commercial-stage biotechnology company focused onthat is developing and commercializing innovative molecularly-targetedaffordable oncology medicines to improve treatment outcomes and immuno-oncology cancer therapeutics. access for patients worldwide.
The Company startedcurrently has three approved medicines that were discovered and developed in its own labs, including BRUKINSA®, a small molecule inhibitor of Bruton’s Tyrosine Kinase (BTK) for the treatment of various blood cancers; tislelizumab, an anti-PD-1 antibody immunotherapy for the treatment of various solid tumor and blood cancers; and pamiparib, a selective small molecule inhibitor of PARP1 and PARP2. The Company has obtained approvals to market BRUKINSA in the United States, the People's Republic of China (China or the PRC), the European Union (EU), the United Kingdom ("UK"), Canada, Australia and additional international markets, and tislelizumab and pamiparib in China. By leveraging its China commercial capabilities, the Company has in-licensed the rights to distribute 13 approved medicines for the China market. Supported by its global clinical development and commercial capabilities, the Company has entered into collaborations with world-leading biopharmaceutical companies such as Amgen Inc. ("Amgen") and Novartis Pharma AG ("Novartis") to develop and commercialize innovative medicines.
The Company is committed to advancing best and first-in-class clinical candidates internally or with like-minded partners to develop impactful and affordable medicines for patients across the globe. Its internal clinical development capabilities are deep, including a researchmore than 2,700-person global clinical development and development companymedical affairs team that is running close to 80 ongoing or planned clinical trials in Beijingover 50 medicines and drug candidates. This includes more than 30 pivotal or potentially registration-enabling trials across its portfolio, including three internally discovered, approved medicines. The Company has enrolled in 2010. Over the last ten years, it has developed into a fully-integrated global biotechnology company, with significant commercial, manufacturing, and research and development capabilities.its clinical trials more than 18,000 subjects, of which approximately one-half have been outside of China.
The Company has built, substantial commercialand is expanding, its internal manufacturing capabilities, through its state-of-the-art biologic and small molecule manufacturing facilities in China to support current and potential future demand of its medicines, and is building a commercial-stage biologics manufacturing and clinical R&D center in New Jersey. The Company also works with high quality contract manufacturing organizations ("CMOs") to manufacture its internally developed clinical and commercial products.
Since its inception in 2010, the Company has become a fully integrated global organization of over 9,000 employees in 29 countries and regions, including the United States, China, Europe and is currently marketing two internally-developed drugs and three in-licensed drugs. The Company also anticipates introducing five more in-licensed drugs into the China market in the next one to two years. In the United States, the Company markets BRUKINSA™ (zanubrutinib) for adult patients with mantle cell lymphoma ("MCL") who have received at least one prior therapy and in China, the Company has received marketing approval and are in the process of launching tislelizumab for patients with classical Hodgkin’s Lymphoma ("cHL") who have received at least two prior therapies. The Company has filed four additional supplementary new drug applications ("sNDA") for regulatory approvals in China and is planning for launches in these additional indications in 2020. The Company's in-licensed portfolio includes ABRAXANE®, REVLIMID® and VIDAZA®, which it has been marketing in China since 2017 under a license from Celgene Logistics Sàrl, a Bristol-Myers Squibb company (“BMS”). The Company plans on launching additional in-licensed products in China from its collaborations, including XGEVA® (denosumab), KYPROLIS® (carfilzomib) and BLINCYTO® (blinatumomab) from Amgen Inc. ("Amgen"), and SYLVANT® (siltuximab) and QARZIBA®▼ (dinutuximab beta), from EUSA Pharma ("EUSA").Australia.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)(GAAP). The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany transactions and balances between the Company and its wholly-owned subsidiaries are eliminated upon consolidation.
Noncontrolling interests are recognized to reflect the portion of the equity of subsidiaries which are not attributable, directly or indirectly, to the controlling shareholders. ThePrior to 2020, the Company consolidatesconsolidated its interests in its joint ventures, BeiGene Biologics Co., Ltd. (BeiGene Biologics) and MapKure, LLC (MapKure), under the voting model and recognizesrecognized the minority shareholders' equity interest as a noncontrolling interest in its consolidated financial statements. In June 2020, the Company deconsolidated MapKure and recorded an equity method investment for its remaining ownership interest in the joint venture (see Note 6). In November 2020, the Company acquired the remaining equity interest in BeiGene Biologics. Subsequent to the share purchase, BeiGene Biologics is a wholly owned subsidiary of the Company (see Note 8).
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Areas where management uses subjective judgment include, but are not limited to, estimating the useful lives of long-lived assets, estimating variable consideration in product sales and collaboration revenue arrangements, identifying separate accounting units and the
11
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
standalone selling price of each performance obligation in the Company’s revenue arrangements, estimating the fair value of net assets acquired in business combinations, assessing the impairment of long-lived assets, valuation and recognition of share-based compensation expenses, realizability of deferred tax assets, estimating uncertain tax positions, valuation of inventory, estimating the allowance for credit losses, determining defined benefit pension plan obligations, measurement of right-of-use assets and lease liabilities and the fair value of financial instruments. Management bases the estimates on historical experience, known trends and various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates.
Functional Currency and Foreign Currency Translation
Functional currency
The Company uses the United States dollar ("$" or "U.S. dollar")U.S. dollar) as its reporting currency. Operations in subsidiaries are recorded in the functional currency of the respective subsidiary. The determination of functional currency is based on the criteria of Accounting Standard Codification (“ASC”)(ASC) 830, Foreign Currency Matters.
Foreign currency translation
For subsidiaries whose functional currencies are not the U.S. dollar, the Company uses the average exchange rate for the year and the exchange rate at the balance sheet date, to translate the operating results and financial position to U.S. dollar, the reporting currency, respectively. Translation differences are recorded in accumulated other comprehensive loss, a component of shareholders’ equity. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing on the transaction dates. Foreign currency denominated financial assets and liabilities are remeasured at the exchange rates prevailing at the balance sheet date. ExchangeRemeasurement exchange gains and losses are included in the consolidated statements of comprehensive loss.operations.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and bank deposits, which are unrestricted as to withdrawal and use. The Company considers all highly liquid investments with an original maturity date of three months or less at the date of purchase to be cash equivalents. Cash equivalents which consist primarily of money market funds are stated at fair value.
Restricted cash
Restricted cash primarily consists of RMB-denominated cash deposits pledged in designated bank accounts as collateral for bank loans and letters of credit. The Company classifies restricted cash as current or non-current based on the term of the restriction.
In addition to the restricted cash balances above, the Company is required by the PRC securities law to use the proceeds from the STAR offering in strict compliance with the planned uses as disclosed in the PRC prospectus as well as those disclosed in the Company's proceeds management policy approved by the board of directors.
Accounts Receivable and Allowance for Credit Losses
Trade accounts receivable are recorded at their invoiced amounts, net of trade discounts and allowances as well as allowances for doubtful accounts. Anan allowance for doubtful accounts is recorded whencredit losses. The allowance for credit losses reflects the collectionCompany's current estimate of credit losses expected to be incurred over the life of the full amount is no longer probable. In evaluating the collectability of receivable balances, thereceivables. The Company considers specific evidencevarious factors in establishing, monitoring, and adjusting its allowance for credit losses including the aging of the receivable, the customer's payment history, its currentreceivables and aging trends, customer creditworthiness and currentspecific exposures related to particular customers. The Company also monitors other risk factors and forward-looking information, such as country specific risks and economic trends.factors that may affect a customer's ability to pay in establishing and adjusting its allowance for credit losses. Accounts receivable are written off after all collection efforts have ceased. The Company regularly reviews the adequacy and appropriateness of any allowance for doubtful accounts. NaN allowance for doubtful accounts was recorded as of December 31, 2019.
Inventory
Prior to the regulatory approval of product candidates, the Company may incur expenses for the manufacture of drug product to support the commercial launch of those products. Until the date at which regulatory approval has been received or is otherwise considered probable, all such costs are recorded as research and development expenses as incurred.
12
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(Amounts in thousands of U.S. Dollar (“$”). and Renminbi (“RMB”),
except for number of shares and per share data)
Inventories are stated at the lower of cost and net realizable value, with cost determined onin a weighted-average basis.manner that approximates the first-in, first-out method. The Company periodically analyzes its inventory levels, and writes down inventory that has become obsolete, inventory that has a cost basis in excess of its estimated realizable value and inventory in excess of expected sales requirements as cost of product sales. The determination of whether inventory costs will be realizable requires estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required, which would be recorded in the consolidated statements of operations. There have been no write-downs or reserves against inventory to date.
Available-for-sale debt securities are stated at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive loss. The net carrying value of debt securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is computed using the effective interest method and included in interest income. Interest and dividends are included in interest income. Available-for-sale debt securities with original maturities greater than three months at the date of purchase and less than one year from the date of the balance sheet are classified as short-term. Available-for-sale debt securities with maturities beyond one year may be classified as short-term marketable securities due to their highly liquid nature and because they represent the Company’s investments that are available for current operations.
•Public equity securities with readily determinable fair values are recorded at fair value. Subsequent changes in fair value are recorded in other (expense) income, net. Derivative financial instruments to purchase public equity securities are recorded at fair value. The estimated fair value of derivative financial instruments is less than its amortized cost,determined based on the Black-Scholes valuation model. Changes in fair value of derivative instruments are recorded in other (expense) income, net.
•Private equity securities without readily determinable fair values and where the Company assesses whetherdoes not have significant influence are measured at cost minus impairment, if any, plus or not: (i) it hasminus changes resulting from observable price changes in orderly transactions for the intentidentical or a similar investment of the same issuer. Adjustments to sell the securityprivate equity securities are recorded in other (expense) income, net.
•Equity investments in common stock or (ii) it is more likely than not thatin-substance common stock where the Company willhas significant influence over the financial and operating policies of the investee are accounted for as equity-method investments. Equity-method investments are initially recorded at cost and subsequently adjusted based on the Company's percentage ownership in the investee's income and expenses, as well as dividends, if any. The Company records its share of the investee's results of operations in other (expense) income, net. The Company records impairment losses on our equity method investments if it deems the impairment to be requiredother-than-temporary. The Company deems an impairment to sellbe other-than-temporary based on various factors, including but not limited to, the security beforelength of time the fair value is below the carrying value and ability to retain the investment to allow for a recovery in fair value.
Realized gains or losses on sales of investments are determined based on the specific identification method.
The Company regularly evaluates its anticipated recovery. If eitherinvestments in debt and equity for impairment. The Company recognizes an allowance on available-for-sale debt securities when a portion of these conditionsthe unrealized loss is met, the Company must recognize an other-than-temporary impairment through earnings for the difference between the debt security’s amortized cost basisattributable to a credit loss and its fair value.a corresponding credit loss in net income. No impairment losses or allowance for credit losses on investments were recorded for any periods presented.
13
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computedProperty, plant and equipment, other than land and construction in progress, are depreciated using the straight-line method over the estimated useful lives of the respective assets as follows:
| Useful | |||||
| Building | 20 years | ||||
| Manufacturing equipment | 3 to 10 years | ||||
| Laboratory Equipment | 3 to 5 years | ||||
| Software, Electronic and Office Equipment | 3 to 5 years | ||||
| Leasehold Improvements | Lesser of useful life or lease term | ||||
Leases
At the commencement date of a lease, the Company determines the classification of the lease based on the relevant factors present and records a right-of-use ("ROU")(ROU) asset and lease liability. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and lease liabilities are calculated as the present value of the lease payments not yet paid. Variable lease payments not dependent on an index or rate are excluded from the ROU asset and lease liability calculations and are recognized in expense in the period which the obligation for those payments is incurred. As the rate implicit in the Company’s leases is not typically readily available, the Company uses an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. This incremental borrowing rate reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. ROU assets include any lease prepayments and are reduced by lease incentives. Operating lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease terms are based on the non-cancelable term of the lease and may contain options to extend the lease when it is reasonably certain that the Company will exercise that option.
Operating leases are included in operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheet. Lease liabilities that become due within one year of the balance sheet date are classified as current liabilities.
Leases with an initial lease term of 12 months or less are not recorded on the consolidated balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.
Land Use Right, Net
All land in the PRC is owned by the PRC government. The PRC government may sell land use rights for a specified period of time. Land use rights represent operating leases in accordance with ASC 842. The purchase price of land use rights represents lease prepayments to the PRC government and is recorded as an operating lease ROU asset on the balance sheet. The ROU asset is amortized over the remaining lease term.
In 2017, the Company acquired a land use right from the local Bureau of Land and Resources in Guangzhou for the purpose of constructing and operating the Company's biologics manufacturing facility in Guangzhou. In 2019, the Company acquired a second Guangzhou land use right from the local Bureau of Land and Resources. In 2021, the Company acquired two land use rights from the local Bureau of Land and Resources to expand its biologics manufacturing facility in Guangzhou. Both Guangzhou land use rights are being amortized over the respective terms of the land use rights, which are each 50 years.
14
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
In 2018, the Company acquired a land use right in conjunction with the acquisition of Beijing Innerway asset acquisition (see Note 4).Bio-tech Co., Ltd. The land use right is being amortized over the term of the land use right, which is 36 years.
In 2020, the Company acquired a land use right from the local Bureau of Land and Resources in Suzhou to construct its research, development and manufacturing facility in Suzhou. In 2022, the Company acquired a second Suzhou land use right from the local Bureau of Land and Resources. The Company accounts for its business combinations usingland use rights are being amortized over the acquisition method of accounting in accordance with ASC topic 805 (“ASC 805”): Business Combinations. The acquisition method of accounting requires allrespective terms of the following steps: (i) identifying the acquirer, (ii) determining the acquisition date, (iii) recognizing and measuring the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, and (iv) recognizing and measuring goodwill or a gain from a bargain purchase. The consideration transferred in a business combination is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date.
Goodwill and Other Intangible Assets
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The Company allocates the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price for acquisitions over the fair value of the net assets acquired, including other intangible assets, is recorded as goodwill. Goodwill is not amortized, but is tested for impairment at least annually or more frequently if events or changes in circumstances would indicate a potential impairment.
The Company has elected to first assess qualitative factors to determine whether it is more likely than not that the fair value of the Company's reporting unit is less than its carrying amount, including goodwill. The qualitative assessment includes the Company's evaluation of relevant events and circumstances affecting the Company's single reporting unit, including macroeconomic, industry, and market conditions, the Company's overall financial performance, and trends in the market price of the Company's ADSs. If qualitative factors indicate that it is more likely than not that the Company's reporting unit’s fair value is less than its carrying amount, then the Company will perform the quantitative impairment test by comparing the reporting unit’s carrying amount, including goodwill, to its fair value. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess. For the years ended December 31, 2019, 20182022, 2021 and 20172020 the Company determined that there were no indicators of impairment of goodwill.
Intangible assets acquired through business combinations are recognized as assets separate from goodwill and are measured at fair value upon acquisition. Intangible assets acquired in transactions that are not business combinations are recorded at the allocated portion of total consideration transferred based on their relative fair value in relation to net assets acquired. Acquired identifiableIntangible assets associated with milestone payments made to third parties subsequent to regulatory approval are recorded at cost. Identifiable intangible assets consist of distribution rights for approved cancer therapies licensed from BMS ABRAXANE®, REVLIMID®, and VIDAZA®, andthat are amortized on a straight-line basis over the estimated useful lives of the assets, which is 10 years,years; post-approval milestone payments under license and the trading license which represents the Guangzhou drug distribution license acquired on September 21, 2018 (see Note 4). The Company is amortizing the trading licensecommercialization agreements, that are amortized over the remainder of the product patent or the term of the commercialization agreements; and trading licenses that are amortized over the initial license term through February 2020.term.
Intangible assets with finite useful lives are tested for impairment when events or circumstances occur that could indicate that the carrying amount of an asset may not be recoverable. When these events occur, the Company evaluates the recoverability of the intangible assets by comparing the carrying amount of the assets to the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Company recognizes an impairment loss based on the excess of the carrying amount of the assets over their fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available. For the years ended December 31, 2019, 20182022, 2021 and 2017,2020, the Company determined that there were 0no indicators of impairment of its other intangible assets.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment in accordance with authoritative guidance for impairment or disposal of long-lived assets. Long-lived assets are reviewed for events or changes in circumstances, which indicate that their carrying value may not be recoverable. Long-lived assets are reported at the lower of carrying amount or fair value less cost to sell. For the years ended December 31, 2019, 20182022, 2021 and 2017,2020, there was 0no impairment of the value of the Company’s long-lived assets.
15
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
Fair Value Measurements
Fair value of financial instruments
The Company applies ASC topic 820 (“ASC 820”)(ASC 820), Fair Value Measurements and Disclosures, in measuring fair value. ASC 820 defines fair value, establishes a framework for measuring fair value and requires disclosures to be provided on fair value measurement. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1—1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—2 — Include other inputs that are directly or indirectly observable in the marketplace.
Level 3—3 — Unobservable inputs which are supported by little or no market activity.
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1)market approach; (2) income approachapproach; and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
Financial instruments measured at fair value on a recurring basis
The following tables set forth assets and liabilities measured at fair value on a recurring basis as of December 31, 20192022 and 2018:2021:
| As of December 31, 2022 | Quoted Price in Active Market for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||
| Money market funds | 758,114 | — | — | |||||||||||||||||
| Short-term investments (Note 6): | ||||||||||||||||||||
| U.S. treasury securities | 665,251 | — | — | |||||||||||||||||
| Other non-current assets (Note 6): | ||||||||||||||||||||
| Equity securities with readily determinable fair values | 3,307 | 706 | — | |||||||||||||||||
| Convertible debt instrument | — | — | 3,000 | |||||||||||||||||
| Prepaid expenses and other current assets (Note 6): | ||||||||||||||||||||
| Convertible debt instrument | — | — | 5,190 | |||||||||||||||||
| Total | 1,426,672 | 706 | 8,190 | |||||||||||||||||
16
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
| As of December 31, 2021 | Quoted Price in Active Market for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
| Cash equivalents | ||||||||||||||||||||
| U.S. treasury securities | 107,855 | — | — | |||||||||||||||||
| Money market funds | 315,564 | — | — | |||||||||||||||||
| Short-term investments (Note 6): | ||||||||||||||||||||
| U.S. treasury securities | 2,241,962 | — | — | |||||||||||||||||
| Other non-current assets (Note 6): | ||||||||||||||||||||
| Equity securities with readily determinable fair values | 23,809 | 10,306 | — | |||||||||||||||||
| Total | 2,689,190 | 10,306 | — | |||||||||||||||||
The Company's cash equivalents are highly liquid investments with original maturities of 3 months or less. Short-term investments represent the Company's investments in available-for-sale debt securities. The Company determines the fair value of cash equivalents and available-for-sale debt securities using a market approach based on quoted prices in active markets.
in Active Market for Identical Assets (Level 1) | Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | |||||||
The Company holds convertible notes issued by two private biotech companies. The Company has elected the fair value option method of accounting for the convertible notes. Accordingly, the convertible notes are remeasured at fair value on a recurring basis using Level 3 inputs.
As of December 31, 2022 and 2021, the fair values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and short-term debt approximated their carrying values due to their short-term nature. Long-term debt approximates its fair value due to the fact that the related interest rates approximate the rates currently offered by financial institutions for similar debt instrument of comparable maturities.
Revenue Recognition
Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.
Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations it must deliver and which of these performance obligations are distinct. The
17
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
Company recognizes as revenue the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied.
Product revenueRevenue
The Company'sCompany generates product revenues in China through the sale of its internally developed drugs tislelizumab, BRUKINSAand pamiparib, and the sale of in-licensed products through its agreements with Amgen, BMS, Bio-Thera and EUSA Pharma. Under the commercial profit share arrangement with Amgen, the Company is the principal for in-licensed product sales to customers in China during the commercialization period and recognizes 100% of net product revenue on these sales. Amounts due to Amgen for its portion of net product sales are generatedrecorded as cost of sales. In the United States, the Company generates product revenues from the sale of ABRAXANE, REVLIMID, and VIDAZA to its product distributor inBRUKINSA.
In China, the Company's sole customerCompany sells its internally developed products to multiple distributors, who in China. The turn sell the product to hospitals or pharmacies within their authorized territories to be sold ultimately to patients. In-licensed products are sold to a first tier distributor who subsequently resells the products to second tier distributors who ultimately sell the products to health care providers and patients. Following FDA approval on November 14, 2019, the Company began selling its first internally developed drug, BRUKINSA, inIn the United States, tothe Company distributes BRUKINSA through specialty pharmacies and specialty distributors, the Company's U.S. customers.distributors. The specialty pharmacies and specialty distributors subsequently resell the product to health care providers and patients.
The Company is the principal under the product sales as the Company controls the products with the ability to direct the use of, and obtain substantially all the remaining benefits from the products before they are sold to the customer. For product sales transactions, the Company has a single performance obligation which is to sell the products to its customer. The Company includes variable consideration in the transaction price to the extent it is probable that a significant reversal will not occur and estimates variable consideration from rebates, chargebacks, trade discounts and allowances, sales returns allowances and other incentives using the expected value method. Revenues for product sales are recognized at a point in time when the single performance obligation is satisfied upon delivery to the customer. The Company's payment terms are approximately 60-9045-90 days. Actual amounts of consideration ultimately received may differ from the Company’s estimates. The Company will reassess estimates for variable consideration periodically. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.
The Company bases its sales returns allowance on estimated distributor inventories, customer demand as reported by third-party sources, and actual returns history, as well as other factors, as appropriate. For newly launched products where actual returns history is not yet available, the sales returns allowance is initially calculated based on benchmarking data from similar products and industry experience. If the historical or benchmarking data the Company uses to calculate these estimates do not properly reflect future returns, then a change in the allowance would be made in the period in which such a determination is made and revenues in that period could be materially affected. Any changes from the historical trend rates are considered in determining the current sales return allowance. To date, sales returns have not been significant.
Collaboration revenueRevenue
At contract inception, the Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) (ASC 808) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and therefore within the scope of ASC 606. For elements of
18
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019, 20182022, 2021 AND 20172020
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently.
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs the five-step model under ASC 606 noted above.
The Company’s collaborative arrangements may contain more than one unit of account, or performance obligation, including grants of licenses to intellectual property rights, agreement to provide research and development services and other deliverables. The collaborative arrangements do not include a right of return for any deliverable. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. In developing the stand-alone selling price for a performance obligation, the Company considers competitor pricing for a similar or identical product, market awareness of and perception of the product, expected product life and current market trends. In general, the consideration allocated to each performance obligation is recognized when the respective obligation is satisfied either by delivering a good or providing a service, limited to the consideration that is not constrained. Non-refundable payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers.
Licenses of Intellectual Property: Upfront non-refundable payments for licensing the Company’s intellectual property are evaluated to determine if the license is distinct from the other performance obligations identified in the arrangement. For licenses determined to be distinct, the Company recognizes revenues from non-refundable up-front fees allocated to the license at a point in time, when the license is transferred to the licensee and the licensee is able to use and benefit from the license.
Options to License Intellectual Property: Upfront non-refundable payments for options to license the Company’s intellectual property are evaluated to determine if the option represents a material right and is distinct from the other performance obligations identified in the arrangement. For options determined to be a material right and distinct, the Company defers the non-refundable up-front fees allocated to the option and recognizes revenues at a point in time, at the earlier of when the option is exercised or the option period expires.
Right to Access Intellectual Property during the Option Period: The portion of a transaction price allocated to the other parties right to access the Company's intellectual property to generate their own data during an option period is deferred and recognized as collaboration revenue over the option period on a straight-line basis as the right to use the intellectual property is provided and the data generated.
Research and Development Services: The portion of thea transaction price allocated to research and development services performance obligations is deferred and recognized as collaboration revenue over time as delivery or performance of such services occurs. R&D reimbursement revenue for revenue attributable to the clinical trials that BMS had opted into is recognized as delivery or performance of such services occurs.
Milestone Payments: At the inception of each arrangement that includes development milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestones related to the Company’s development-based activities may include initiation of various phases of clinical trials. Due to the uncertainty involved in meeting these development-based targets, they are generally fully constrained at contract inception. The Company will assess whether the variable consideration is fully constrained each reporting period based on the facts and circumstances surrounding the clinical trials. Upon changes to constraint associated with the developmental milestones, variable consideration will be included in the transaction price when a significant reversal of revenue recognized is not expected to occur and allocated to the separate performance obligations. Regulatory milestones are fully constrained until the period in which those regulatory approvals are achieved due to the inherent uncertainty with the approval process. Regulatory milestones are included in the transaction price in the period regulatory approval is obtained.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
19
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
Research and Development Expenses
Research and development expenses representconsist of the costs associated with the collaborative arrangements,our research and development activities, conducting preclinical studies and clinical trials, and activities related to regulatory filings, which primarily include (i) payroll and related costs (including share-based compensation) associated with research and development personnel, (ii) costs related to clinical trials and preclinical testing of the Company’s technologies under development, (iii) costs to develop the product candidates, including raw materials and supplies, product testing, depreciation, and facility related expenses, (iv) expenses for research services provided by universities and contract laboratories, including sponsored research funding, and (v) other research and development expenses. Research and development expenses are charged to expense as incurred when these expenditures relate to the Company’s research and development services and have no alternative future uses.
Clinical trial costs are a significant component of the Company’s research and development expenses. The Company has a history of contracting with third parties that perform various clinical trial activities on behalf of the Company in the ongoing
development of the Company’s product candidates. Expenses related to clinical trials are accrued based on the Company’s estimates of the actual services performed by the third parties for the respective period. If the contracted amounts are modified (for instance, as a result of changes in the clinical trial protocol or scope of work to be performed), the Company will modify the related accruals accordingly on a prospective basis. Revisions in the scope of a contract are charged to expense in the period in which the facts that give rise to the revision become reasonably certain.
The process of estimating the Company's research and development expenses involves reviewing open contracts and purchase orders, communicating with its personnel to identify services that have been performed on its behalf and estimating the level of service performed and the associated costs incurred for the services when the Company has not yet been invoiced or otherwise notified of the actual costs. The majority of the Company's service providers invoice it in arrears for services performed, on a pre‑determined schedule or when contractual milestones are met; however, some require advanced payments. The Company makes estimates of the expenses as of each balance sheet date in its financial statements based on facts and circumstances known to the Company at that time. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in the Company reporting expenses that are too high or too low in any particular period. There were no material adjustments for a change in estimate to research and development expenses in the accompanying consolidated financial statements for the years ended December 31, 2019, 20182022, 2021 and 2017.2020.
Acquired In-Process Research and Development Expense
The Company has acquired rights to develop and commercialize product candidates. Upfront payments that relate to the acquisition of a new drug compound, as well as pre-commercial milestone payments, are immediately expensed as acquired in-process research and development in the period in which they are incurred, provided that the new drug compound did not also include processes or activities that would constitute a “business” as defined under GAAP, the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no established alternative future use. Milestone payments made to third parties subsequent to regulatory approval are capitalized as intangible assets and amortized over the estimated remaining useful life of the related product. Royalties owed on sales of the products licensed pursuant to the agreements are expensed in the period the related revenues are recognized.
Government Grants
Government financial incentives that involve no conditions or continuing performance obligations of the Company are recognized as other non-operating(expense) income, net upon receipt. In the event government grants or incentives involve continuing performance obligations, the Company will capitalize the payment as a liability and recognize the same financial statement caption as the performance obligation relates over the performance period.
The Company received government assistance in the form of cash primarily to support the Guangzhou manufacturing facility build-out and research and development programs. Government assistance received related to the Guangzhou manufacturing facility build-out was recognized as other long-term liabilities and is amortized over the same useful lives of the related assets as depreciation expense. As of December 31, 2022 and 2021, other long-term liabilities related to the Guangzhou manufacturing facility build-out totaled $38,118 and $44,593, respectively. For the year ended December 31, 2022, depreciation expense is presented net of amortization of government assistance of $3,169.
20
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
Government assistance received to support research and development programs was recorded as other long-term liabilities upon receipt and is recognized as other (expense) income, net when the associated research and development programs are completed. As of December 31, 2022 and 2021, other long-term liabilities related to research and development programs totaled $58 and $1,759, respectively. For the year ended December 31, 2022, the Company recognized other income of $1,664 upon the completion of a designated research and development program.
Comprehensive Loss
Comprehensive loss is defined as the changes in equity of the Company during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. Among other disclosures, ASC 220, Comprehensive Income, requires that all items that are required to be recognized under current accounting standards as components of comprehensive loss be reported in a financial statement that is displayed with the same prominence as other financial statements. For each of the periods presented, the Company’s comprehensive loss includes net loss, foreign currency translation adjustments, pension liability adjustments and unrealized holding gains/losses associated with the available-for-sale debt securities, and is presented in the consolidated statements of comprehensive loss.
Share-Based Compensation
Awards granted to employees
The Company applies ASC 718, Compensation—Stock Compensation (“ASC 718”) (ASC 718), to account for its employee share-based payments. In accordance with ASC 718, the Company determines whether an award should be classified and accounted for as a liability award or equity award. All the Company’s grants of share-based awards to employees were classified as equity awards and are recognized in the financial statements based on their grant date fair values. Specifically, the grant date fair value of share options is calculated using an option pricing model. The fair value of restricted shares and restricted share units are based on the closing market price of our ADSs on the NASDAQ Global Select Market on the date of grant. The Company has elected to recognize compensation expense using the straight-line method for all employee equity awards granted with graded vesting based on service conditions provided that the amount of compensation cost recognized at any date is at least equal to the portion of the grant-date value of the options that are vested at that date. The Company uses the accelerated method for all awards granted with graded vesting based on performance conditions. To the extent the required vesting conditions are not met resulting in the forfeiture of the share-based awards, previously recognized compensation expense relating to those awards are reversed. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in the subsequent period if actual forfeitures differ from initial estimates.
Forfeiture rates are estimated based on historical and future expectations of employee turnover rates and are adjusted to reflect future changes in circumstances and facts, if any. Share-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those share-based awards that are expected to vest. To the extent the Company
revises these estimates in the future, the share-based payments could be materially impacted in the period of revision, as well as in following periods. The Company, with the assistance of an independent third-party valuation firm, determined the estimated fair value of the stock options granted to employees using the binomial option pricing model.
Awards granted to non-employees
The Company has accounted for equity instruments issued to non-employees in accordance with the provisions of ASC 718 and ASC 505, Equity.Equity. All transactions in which goods or services are received in exchange for equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The grant date is the measurement date of the fair value of the equity instrument issued is the date on which the counterparty’s performance is completed as there is no associated performance commitment.issued. The expense is recognized in the same manner as if the Company had paid cash for the services provided by the non-employees in accordance with ASC 505-50, Equity-based payments to non-employees.non-employees. The Company estimated the fair value of share options granted to non-employees using the same method as employees.
Modification of awards
A change in any of the terms or conditions of the awards is accounted for as a modification of the award. Incremental compensation cost is measured as the excess, if any, of the fair value of the modified award over the fair value of the original award immediately before its terms are modified, measured based on the fair value of the awards and other pertinent factors at the modification date. For vested awards, the Company recognizes incremental compensation cost in the period the
21
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
modification occurs. For unvested awards, the Company recognizes over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on the modification date. If the fair value of the modified award is lower than the fair value of the original award immediately before modification, the minimum compensation cost the Company recognizes is the cost of the original award.
Income Taxes
The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using enacted tax rates that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The Company evaluates its uncertain tax positions using the provisions of ASC 740, Income Taxes, which prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements. The Company recognizes in the financial statements the benefit of a tax position which is “more likely than not” to be sustained under examination based solely on the technical merits of the position assuming a review by tax authorities having all relevant information. Tax positions that meet the recognition threshold are measured using a cumulative probability approach, at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. It is the Company’s policy to recognize interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense.
Loss Per Share
Loss per share is calculated in accordance with ASC 260, Earnings per Share. Basic loss per ordinary share is computed by dividing net loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period using the two-class method. Under the two-class method, net income is allocated between ordinary shares and participating securities based on dividends declared (or accumulated) and participating rights in undistributed earnings as if all the earnings for the reporting period had been distributed. The Company’s restricted shares are participating securities because they have contractual rights to share in the profits of the Company.
However, the restricted shares do not have contractual rights and obligations to share in the losses of the Company. For the periods presented herein, the computation of basic loss per share using the two-class method is not applicable as the Company is in a net loss position.
Diluted loss per share is calculated by dividing net loss attributable to ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares
outstanding during the period. Ordinary equivalent shares consist of the ordinary shares issuable upon the conversion of the Company’s convertible preferred shares, if any, using the if-converted method, and ordinary shares issuable upon the conversion of the share options and unvested restricted shares, using the treasury stock method.
Ordinary share equivalents are excluded from the computation of diluted loss per share if their effects would be anti-dilutive. Basic and diluted loss per ordinary share is presented in the Company’s consolidated statements of operations.
Segment Information
In accordance with ASC 280, Segment Reporting, the Company’s chief operating decision maker, the Chief Executive Officer, reviews the consolidated results when making decisions about allocating resources and assessing performance of the Company as a whole and hence, the Company has only 1one reportable segment: pharmaceutical products.
Concentration of Risks
Concentration of credit risk
Financial instruments that are potentially subject to credit risk consist of cash and cash equivalents, and short-term investments. The carrying amounts of cash and cash equivalents and short-term investments, represent the maximum amount of loss due to credit risk. and accounts receivable.
As of December 31, 20192022 and 2018, $618,0112021, $3,869,564 and $712,937$4,375,678 were deposited with various major reputable financial institutions located in the PRC and international financial institutions outside of the PRC.PRC, respectively. The deposits placed with
22
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
financial institutions are not protected by statutory or commercial insurance. In the event of bankruptcy of one of these financial institutions, the Company may be unlikelyunable to claim its deposits back in full. Management believes that these financial institutions are of high credit quality and continually monitors the credit worthiness of these financial institutions. As of December 31, 20192022 and 2018,2021, the Company had short-term investments amounting to $364,728$665,251 and $1,068,509,$2,241,962, respectively.
At December 31, 2019,2022 and 2021, the Company’s short-term investments were comprised of U.S. treasury securities. The Company believes that U.S. treasury securities are of high credit quality and continually monitormonitors the credit worthiness of these institutions.
As of December 31, 2022 and 2021, the Company had accounts receivable, net of $173,168 and $483,113, respectively. Accounts receivable, net represent amounts arising from product sales and amounts due from its collaboration partners. The Company monitors economic conditions to identify facts or circumstances that may indicate receivables are at risk of collection.
Customer concentration risk
For the yearsyear ended December 31, 2019, 20182022, sales to the Company's four largest product distributors, Sinopharm, Shanghai Pharmaceutical, ASD Specialty Healthcare and 2017, substantially allChina Resources represented approximately 18.1%, 15.5%, 14.2% and 12.1% of product revenue, respectively, and collectively, represented approximately 57.0% of trade accounts receivable as of December 31, 2022. For the year ended December 31, 2022, the Company's collaboration revenue consisted entirely of revenue recognized under its out-licensing collaboration agreements with Novartis.
For the year ended December 31, 2021, sales to the Company's three largest product distributors, Sinopharm, China Resources, and Shanghai Pharmaceutical represented approximately 26.0%, 19.9% and 16.7% of product revenue, respectively, and collectively, represented approximately 23.4% of trade accounts receivable as of December 31, 2021. For the year ended December 31, 2021, the Company's collaboration revenue consisted entirely of revenue recognized under its out-licensing collaboration agreements with Novartis. Receivables from Novartis represented approximately 66.4% of trade accounts receivable as of December 31, 2021, primarily due to the invoicing of the $300,000 upfront fee related to the Ociperlimab option, collaboration and license agreement.
For the year ended December 31, 2020, sales to the Company's revenue was from BMS and ourtwo largest product distributor,distributors, China Resources in China.and Sinopharm, represented approximately 38.7% and 25.4% of product revenue, respectively, and collectively, represented approximately 59.6% of trade accounts receivable as of December 31, 2020.
Business, customer, political, social and economic risks
The Company participates in a dynamic biopharmaceutical industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operations, or cash flows: changes in the overall demand for services and products; competitive pressures due to existing competitors and new entrants; advances and new trends in new drugs and industry standards; changes in clinical research organizations, contract manufacturers and other key vendors; changes in certain strategic relationships or customer relationships; regulatory considerations; intellectual property considerations; and risks associated with the Company’s ability to attract and retain employees necessary to support its growth. The Company’s operations could be also adversely affected by significant political, economic and social uncertainties in the PRC.PRC and in relations between the PRC and United States.
Currency convertibility risk
A significant portion of the Company’s expenses, assets and liabilities are denominated in RMB. On January 1,In 1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People’s Bank of China (the “PBOC”)PBOC). However, the unification of the exchange rates does not imply that the RMB may be readily convertible into U.S. dollar or other foreign currencies. All foreign exchange transactions continue to take place either through the PBOC or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the PBOC. Approvals of foreign currency payments by the PBOC or other institutions require submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.
Additionally, the value of the RMB is subject to changes in central government policies and international economic and political developments affecting supply and demand in the PRC foreign exchange trading system market.
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019, 20182022, 2021 AND 20172020
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
Foreign currency exchange rate risk
RMB is not freely convertible into foreign currencies for capital account transactions. The value of RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange prices. Since July 21, 2005, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. For RMB against U.S. dollar, there was depreciation of approximately 1.3%8.2%, depreciationappreciation of approximately 5.7%2.3% and appreciation of approximately 6.5%6.3%, in the years ended December 31, 2019, 20182022, 2021 and 2017.2020. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.
To the extent that the Company needs to convert U.S. dollar into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against U.S. dollar would have an adverse effect on the RMB amount the Company would receive from the conversion. Conversely, if the Company decides to convert RMB into U.S. dollar for the purpose of making payments for dividends on ordinary shares, strategic acquisitions or investments or other business purposes, appreciation of U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to the Company.
In addition, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of the Company’s earnings or losses.
Revision of prior period financial statements as its date of initial application.
The Company adoptedevaluates the new standard effective January 1, 2019 usingrecoverability of its deferred tax assets on a jurisdiction-by-jurisdiction basis by assessing the effective date methodadequacy of future expected taxable income from all sources, including reversal of temporary differences, forecasted operating earnings and didavailable tax planning strategies in accordance with ASC 740. This assessment is subject to a high degree of subjectivity, as the sources of income rely heavily on estimates that are based on a number of factors, including historical experience and short-range and long-range business forecasts. A valuation allowance is provided when the Company determines that it is more-likely-than-not that some portion or all of a deferred tax asset will not restate comparative periods.be realized.
Prior to the third quarter of 2022, the Company determined that the majority of its net deferred tax assets (primarily in the U.S.) were realizable on a more-likely-than-not basis, primarily due to cumulative pre-tax income at the taxpaying entity and the weighting of available positive and negative evidence. Accordingly, no valuation allowance was previously recorded related to those deferred tax assets. In October 2022, in connection with the preparation of its condensed consolidated financial statements for the three and nine months ended September 30, 2022, the Company reassessed its position on the realizability of its net deferred tax assets and determined that the negative evidence associated with cumulative losses at the consolidated financial statement level are not able to be overcome by other positive evidence, and therefore, a valuation allowance should be applied to its net deferred tax asset balance. The Company electeddetermined the packageprevious conclusion to not apply a valuation allowance to certain net deferred tax assets was an error.
In accordance with Staff Accounting Bulletin (SAB) No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of practical expedients permitted under the transition guidance within the new standard, which permitsPrior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the error and determined that the related impact was not material to reassess underany of its previously issued financial statements, but that correcting the new standard its prior conclusions about lease identification, lease classification and initial direct costs. Upon adoption, the Company recognized a lease liability of $27,446, with corresponding ROU assets of $25,978 based on the present valuecumulative impact of the remaining minimum rental payments under existing operating leases. The difference between the lease liability and right-of-use asset relateserror would be significant to the reversal of existing deferred rent and prepaid rent balances of $1,739 and $271, respectively. Additionally, the Company reclassified its land use rights of $45,058 to ROU assets upon adoption. The adoption of the standard did not impact the Company’s consolidated statements of operations or cash flows.
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019, 20182022, 2021 AND 20172020
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
| Balance at | Adjustments | Balance at | |||||||
| December 31, | Due to | January 1, | |||||||
| 2018 | Lease ASUs | 2019 | |||||||
| $ | $ | $ | |||||||
| Assets: | |||||||||
| Prepaid expenses and other current assets | 90,554 | (271 | ) | 90,283 | |||||
| Land use right, net | 45,058 | (45,058 | ) | — | |||||
| Operating lease right-of-use assets | — | 71,036 | 71,036 | ||||||
| Liabilities: | |||||||||
| Accrued expenses and other payables | 100,414 | (888 | ) | 99,526 | |||||
| Current portion of operating lease liabilities | — | 8,684 | 8,684 | ||||||
| Operating lease liabilities | — | 18,762 | 18,762 | ||||||
| Other long-term liabilities | 48,773 | (851 | ) | 47,922 | |||||
reflect the revision. The Company will also correct previously reported financial information for this error in its future filings, as applicable.
Recent Accounting Pronouncements
New accounting standards which have not yet been adopted
In June 2016,November 2021, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses ("ASU 2016-13"). Subsequently, the FASB issued ASU 2019-05, Financial Instruments- Credit Losses2021-10, Government Assistance (Topic 326)832): Targeted Transition Relief and ASU 2019-11 Codification Improvements to Topic 326, Financial Instruments- Credit Losses. The amendments in ASU 2016-13Disclosures by Business Entities about Government Assistance. This update guidance on reporting credit losses for financial assets. These amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. For public business entitiesrequires certain annual disclosures about transactions with a government that are U.S. SEC filers, ASU 2016-13 is effectiveaccounted for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not currently anticipate the adoption of this ASU to haveby applying a material impact to its financial statements.
3. Revision of Prior Period Financial Statements
As discussed in Note 2, the Company revised certain prior period financial statements to correct an error related to the valuation of net deferred tax assets, the impact of this guidancewhich was immaterial to our previously filed financial statements in the annual periods of fiscal 2021 and 2020 (See Note 2). Specifically, a valuation allowance should have been recorded on all net deferred tax assets and such a material impact onvaluation allowance was not previously recorded. A summary of revisions to the Company’s consolidatedpreviously reported financial statements.statements for the comparative periods presented within this Annual Report on Form 10-K is presented below.
Consolidated Balance Sheet
| As of | ||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||
| As Reported | Adjustments | As Revised | ||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
| Deferred tax assets | 110,424 | (110,424) | — | |||||||||||||||||
| Total non-current assets | 1,032,069 | (110,424) | 921,645 | |||||||||||||||||
| Total assets | 8,645,949 | (110,424) | 8,535,525 | |||||||||||||||||
| Accumulated deficit | (4,966,103) | (110,424) | (5,076,527) | |||||||||||||||||
| Total equity | 6,242,987 | (110,424) | 6,132,563 | |||||||||||||||||
| Total liabilities and equity | 8,645,949 | (110,424) | 8,535,525 | |||||||||||||||||