You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements (unaudited) and related notes included in the section of this Quarterly Report on Form 10-Q (this "Quarterly Report"), titled "Item 1-Financial Statements." This Quarterly Report contains forward-looking statements that are based on management's beliefs and assumptions and on information currently available to management. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by the following words: "aim," "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "goal," "intend," "may," "ongoing," "plan," "potential," "predict," "project," "seek," "should," "target," "will," "would," or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. These forward-looking statements, include, but are not limited to, statements regarding: our ability to successfully commercialize our approved drugs and to obtain approvals in additional indications and territories for our drugs; our ability to successfully commercialize our in-licensed drugs inChina and any other drugs we may in-license; our ability to successfully develop and commercialize oncology assets licensed from Amgen inChina pursuant to our global strategic oncology collaboration with Amgen; our ability to further develop sales and marketing capabilities and launch new drugs, if approved; our ability to maintain and expand regulatory approvals for our drugs and drug candidates, if approved; the pricing and reimbursement of our drugs 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; our reliance on the success of our 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, 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, 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, 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; regulatory developments inthe United States ,the People's Republic of China ("China" or "PRC"), theUnited Kingdom , theEuropean Union and other jurisdictions; 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 strategic arrangements; our ability to maintain and establish collaborations or licensing agreements; 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 drugs for commercial sale; the rate and degree of market access and acceptance and reimbursement for our drugs and drug candidates, if approved; developments relating to our competitors and industry, including competing therapies; the size of the potential markets for our drugs 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, expenses, capital expenditures, capital requirements and share performance; the future trading price of our ADSs and ordinary shares, and impact of securities analysts' reports on these prices; the impact of the COVID-19 pandemic on the Company's clinical development, commercial and other operations; and other risks and uncertainties, including those listed under "Part II-Item 1A-Risk Factors" of this Quarterly Report. These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those described in "Part II-Item 1A-Risk Factors" of this Quarterly Report. These forward-looking statements speak only as of the date hereof. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. Unless the context requires otherwise, in this Quarterly Report, the terms "BeiGene ," the "Company," "we," "us" and "our" refer toBeiGene, Ltd. and its subsidiaries, on a consolidated basis. Overview We are a global, commercial-stage biotechnology company focused on discovering, developing, manufacturing, and commercializing innovative medicines to improve treatment outcomes and access for patients worldwide. We started as a research and development company inBeijing 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. We have built substantial commercial capabilities inChina andthe United States and are currently marketing both internally developed drugs and in-licensed drugs. Inthe United States , we market BRUKINSA® (zanubrutinib) for adult patients with mantle cell lymphoma ("MCL") who have received at least one prior therapy. InChina , we market BRUKINSA® in two indications: for adult patients with chronic lymphocytic leukemia ("CLL") /small lymphocytic lymphoma ("SLL") who have received at least one prior therapy, and for adult patients with MCL who have received at least one prior therapy. InChina , 27
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we also market tislelizumab in two indications: for patients with classical Hodgkin's Lymphoma ("cHL") who have received at least two prior therapies, and for patients with locally advanced or metastatic urothelial carcinoma ("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. We have filed additional new or supplementary new drug applications for regulatory approvals inChina or elsewhere for our internally developed products and are planning for launches in these additional drugs or indications in 2020 and beyond. Our commercial portfolio also includes the following drugs in-licensed from third parties: REVLIMID®, VIDAZA® and ABRAXANE®, which we have been marketing inChina since 2017 under a license from Celgene Logistics Sàrl, a Bristol Myers Squibb company ("BMS"), and XGEVA® (denosumab), from Amgen Inc. ("Amgen"), which we began commercializing inJuly 2020 . OnMarch 25, 2020 , we announced that theNational Medical Products Administration ("NMPA") suspended the importation, sales and use of ABRAXANE® inChina supplied to us by Celgene Corporation, a BMS company, and the drug was subsequently recalled by BMS and is not currently available for sale inChina . We plan on launching additional in-licensed products inChina from our collaborations, including KYPROLIS® (carfilzomib) and BLINCYTO® (blinatumomab) from Amgen, and SYLVANT® (siltuximab) and QARZIBA® ? (dinutuximab beta), from EUSA Pharma ("EUSA"). We have built deep clinical development capabilities, including a more than 1,350-person global clinical development team that is running over 70 ongoing or planned clinical trials in more than 35 countries that have enrolled over 10,000 patients and healthy subjects. We are conducting late-stage clinical trials of BRUKINSA® and tislelizumab, including 27 registration or registration-enabling trials in at least 15 discrete cancer indications. Our internal research capabilities have yielded another late-stage asset, pamiparib, for which we have filed a new drug application ("NDA") inChina , and five other internally developed drug candidates that are currently in early-stage clinical development. In addition, we have been able to leverage our capabilities andChina's rising importance as a clinical science center and commercial market to expand our clinical and pre-clinical portfolio with in-licensed drug candidates. We are also working with high-quality contract manufacturing organizations ("CMOs") to manufacture our internally developed clinical and commercial products inChina and globally and have built state-of-the-art small molecule and biologic manufacturing facilities inChina to support the launches and potential future demand of our products. Based on the strength of ourChina -inclusive global development and commercial capabilities, we have entered into collaborations with leading pharmaceutical and biotechnology companies to develop and commercialize innovative medicines inChina and theAsia-Pacific region . InOctober 2019 , we entered into a strategic collaboration with Amgen pursuant to which we have agreed to collaborate on the commercialization of Amgen's oncology products XGEVA®, KYPROLIS® and BLINCYTO® inChina , and the global development and future commercialization inChina of a portfolio of Amgen's clinical- and late pre-clinical-stage pipeline products, including sotorasib (AMG 510), Amgen's investigational KRAS G12C inhibitor. Recent Developments Recent Business Developments OnJuly 27, 2020 , we announced that theCenter for Drug Evaluation ("CDE") of the NMPA granted priority review status to the accepted NDA of pamiparib, our investigational inhibitor of PARP1 and PARP2, for the treatment of patients with deleterious or suspected deleterious germline BRCA-mutated advanced ovarian, fallopian tube, or primary peritoneal cancer who have been treated with two or more lines of chemotherapy. OnJuly 20, 2020 , we announced that we entered into a collaboration inChina with Assembly Biosciences, Inc. ("Assembly") for Assembly's portfolio of three clinical-stage hepatitis B virus ("HBV") core inhibitor candidates for the treatment of patients with chronic HBV infection. Under the terms of the agreement, Assembly granted us exclusive rights to develop and commercialize ABI-H0731, ABI-H2158 and ABI-H3733 inChina , includingHong Kong ,Macau , andTaiwan . ABI-H0731 and ABI-H2158 are both in ongoing Phase 2 clinical trials and ABI-H3733 is in Phase 1 development. We will be responsible for development, regulatory submissions, and commercialization inChina . Assembly retains full worldwide rights outside of the partnered territory for its HBV portfolio. Assembly received an upfront cash payment and is eligible to receive milestone payments pending successful development and commercialization of the licensed candidates. In addition, Assembly is eligible to receive tiered royalties of net sales. We will contribute initial funding for clinical development inChina , after which the development costs for the territory will be shared equally by the parties. OnJuly 15, 2020 , we announced the closing of a registered direct offering of 145,838,979 ordinary shares to certain existing investors. Each ordinary share was sold for a purchase price of$14.2308 per share ($185 per American Depositary Share ("ADS")), resulting in gross proceeds of approximately$2.08 billion and net proceeds, after estimated offering expenses, of approximately$2.07 billion . The offering was made without an underwriter or a placement agent and as a result we did not pay any underwriting discounts or commissions in connection with this offering. 28
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OnJuly 1, 2020 , we announced that the CDE of the NMPA accepted a supplemental new drug application ("sNDA") of tislelizumab for the treatment of patients with previously treated unresectable hepatocellular carcinoma ("HCC"), the most common form of liver cancer. On July1, 2020, we began commercializing XGEVA® inChina for the treatment of giant cell tumor of bone ("GCTB"). This marked the first Amgen product that was transitioned to us for commercialization inChina since the commencement of our global strategic oncology collaboration inJanuary 2020 . Amgen gained approval from the NMPA for XGEVA® inMay 2019 for the treatment of adults and skeletally mature adolescents (defined by at least one mature long bone and with a body weight ? 45 kg) with GCTB that is unresectable or where surgical resection is likely to result in severe morbidity. In addition, an sNDA for XGEVA® as a prevention for skeletal-related events in patients with multiple myeloma and in patients with bone metastases from solid tumors was accepted by the CDE of the NMPA inApril 2020 and is currently under review. OnJune 19, 2020 , we announced that the CDE of the NMPA accepted an sNDA of tislelizumab in combination with chemotherapy for first-line treatment of patients with advanced non-squamous non-small cell lung cancer ("NSCLC"). OnJune 18, 2020 , we announced that our marketing authorization application ("MAA") for BRUKINSA® for the treatment of patients with Waldenström's macroglobulinemia (WM) who have received at least one prior therapy or as first-line treatment for patients unsuitable for chemo-immunotherapy was accepted for regulatory review by theEuropean Medicines Agency ("EMA"). OnJune 3, 2020 , we announced that BRUKINSA® received approval from the NMPA in two indications, which are (1) the treatment of adult patients with CLL/SLL who have received at least one prior therapy, and (2) the treatment of adult patients with MCL who have received at least one prior therapy. Both NDAs were previously granted priority review by the CDE of the NMPA. OnMay 26, 2020 , we announced that we entered into a clinical collaboration agreement withHutchison China MediTech Limited ("Chi-Med") to evaluate the safety, tolerability and efficacy of combining two of Chi-Med's drug candidates, surufatinib and fruquintinib, with tislelizumab, for the treatment of various solid tumor cancers, in theU.S. ,Europe ,China andAustralia . OnMay 21, 2020 , we announced an exclusive distribution agreement withMedison Pharma Ltd. ("Medison") for Medison to commercialize BRUKINSA® inIsrael and the acceptance of an NDA inIsrael for BRUKINSA® for the treatment of patients with MCL who have received at least one prior therapy. Coronavirus Disease 2019 (COVID-19) We expect that the worldwide health crisis of COVID-19 will continue to have a negative impact on our operations, including commercial sales, regulatory interactions and inspections, and clinical trial recruitment and participation. Although the impact of COVID-19 on our operations inChina lessened in the second quarter of 2020, there remains uncertainty regarding the future impact of the pandemic both inChina as well as globally. We are striving to minimize delays and disruptions, and continue to execute on our commercialization, regulatory and clinical development goals globally. Components of Operating Results Revenue We began generating product revenue inSeptember 2017 through our in-license agreement with BMS to distribute the approved cancer therapies REVLIMID®, VIDAZA®, and ABRAXANE® inChina . Following approval from theU.S. Food and Drug Administration ("FDA") onNovember 14, 2019 , we launched our first internally developed drug, BRUKINSA®, inthe United States . We launched our second internally developed drug, tislelizumab, inChina inMarch 2020 . InJune 2020 , we launched BRUKINSA® inChina . 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. We expect revenue from our internal product sales to increase throughout 2020. We began commercializing XGEVA® inChina in July of 2020 and plan on launching additional in-licensed products from our collaborations with Amgen and EUSA in 2020 and 2021, and continue to expand our efforts to promote our existing commercial products. 29
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To date, we also recorded revenue from our 2017 collaboration and license agreement with BMS for tislelizumab, which was terminated inJune 2019 . Under this agreement, we received an upfront payment related to the license fee, which was recognized upon the delivery of the license right. Additionally, the portion of the upfront payment related to the reimbursement of undelivered research and development services was deferred and recognized over the performance period of the collaboration arrangement. We recognized the remainder of the deferred research and development services revenue balance upon termination of the collaboration agreement. We also received research and development reimbursement revenue for the clinical trials that BMS opted into until the termination of the collaboration agreement. Pursuant to the terms of the termination agreement, we received a one-time payment of$150 million inJune 2019 , which was recognized in full at that time because we had no further performance obligations under the collaboration. Expenses Cost of Sales Cost of sales includes the cost of products purchased from BMS and distributed inChina and the costs to manufacture our internally developed commercial products. 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. 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 ("CROs"), CMOs, and consultants that conduct and support 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; •employee-related expenses, including salaries, benefits, travel and share-based compensation expense for research and development personnel; •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 developed drugs and drug candidates: •BRUKINSA® (zanubrutinib), a small molecule inhibitor of BTK; •tislelizumab, a humanized monoclonal antibody against PD-1; •pamiparib, an investigational selective small molecule inhibitor of PARP1 and PARP2; •lifirafenib, an investigational novel small molecule inhibitor of both the monomer and dimer forms of BRAF; •BGB-A333, an investigational humanized monoclonal antibody against PD-L1; •BGB-A425, an investigational humanized monoclonal antibody against TIM-3; •BGB-A1217, an investigational humanized monoclonal antibody against TIGIT; and •BGB-11417, an investigational small molecular inhibitor of Bcl-2. 30
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Research and development activities also include costs associated with in-licensed drug candidates, including: •sitravatinib, an investigational, spectrum-selective kinase inhibitor in clinical development by Mirati Therapeutics, Inc. ("Mirati"); •zanidatamab (ZW25) and ZW49, two bispecific antibody-based product candidates targeting HER2, under development by Zymeworks Inc.; •BA3071, an investigational CAB-CTLA-4 antibody, under development byBioAtla LLC ("BioAtla"); and •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 R&D cost share liability. We expense research and development costs when we incur them. 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 developed products that are used in clinical trials as they are incurred as research and development expense. We do not allocate employeerelated 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 developed drugs and drug candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales of our drugs and drug candidates, if approved. This is due to the numerous risks and uncertainties associated with developing such drugs and drug candidates, including the uncertainty of: •successful enrollment in and completion of clinical trials; •establishing an appropriate safety and efficacy profile; •establishing commercial manufacturing capabilities or making arrangements with thirdparty manufacturers; •receipt of marketing and other required approvals from applicable regulatory authorities; •successfully launching and commercializing our drugs and drug candidates, if and when approved, whether as monotherapies or in combination with our internally developed drugs and drug candidates or thirdparty products; •market acceptance, pricing and reimbursement; •obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our drugs 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 drugs and drug candidates would significantly change the costs, timing and viability associated with the commercialization or development of that drug or drug candidate. Research and development activities are central to our business model. We expect research and development costs to increase significantly for the foreseeable future as our development programs progress, as we continue to support the clinical trials of our drugs and drug candidates as treatments for various cancers and as we move these drugs and drug candidates into additional clinical trials, including potential pivotal trials. There are numerous factors associated with the successful commercialization of any of our drugs and drug candidates, including future trial design and 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. 31
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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 tislelizumab, BRUKINSA® and XGEVA® and the preparation for potential launch and commercialization of additional in-licensed products from our collaborations with Amgen and EUSA and internally developed drugs and drug candidates, 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 incur significant legal, compliance, accounting, insurance and investor and public relations expenses associated with being a public company with our ADSs and ordinary shares listed for trading onThe NASDAQ Global Select Market andThe Hong Kong Stock Exchange , respectively. Interest Income (Expense), Net Interest Income Interest income consists primarily of interest generated from our cash and short-term investments in money market funds, time deposits,U.S. Treasury securities andU.S. agency securities. Interest Expense Interest expense consists primarily of interest on our long-term bank loan and shareholder loan. Other Income, Net Other income consists primarily of gains recognized related to equity method 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 rates, unrealized gains and losses on equity securities, and realized gains and losses on the sale of investments. 32
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Results of Operations The following table summarizes our results of operations for the three and six months endedJune 30, 2020 and 2019: Three Months Ended Six Months EndedJune 30 , ChangeJune 30 , Change 2020 2019 $ % 2020 2019 $ % (dollars in thousands) Revenues Product revenue, net$ 65,635 $ 58,142 $ 7,493 12.9 %$ 117,694 $ 115,563 $ 2,131 1.8 % Collaboration revenue - 185,204 (185,204) (100.0) % - 205,616 (205,616) (100.0) % Total revenues 65,635 243,346 (177,711) (73.0) % 117,694 321,179 (203,485) (63.4) %
Expenses
Cost of sales 14,307 17,839 (3,532) (19.8) % 28,456 33,100 (4,644) (14.0) % Research and development 285,968 228,760 57,208 25.0 % 590,270 407,111 183,159 45.0 % Selling, general and administrative 124,049 82,248 41,801 50.8 % 231,130 139,893 91,237 65.2 % Amortization of intangible assets 188 332 (144) (43.4) % 471 663 (192) (29.0) % Total expenses 424,512 329,179 95,333 29.0 % 850,327 580,767 269,560 46.4 % Loss from operations (358,877) (85,833) (273,044) 318.1 % (732,633) (259,588) (473,045) 182.2 % Interest income, net 1,108 2,886 (1,778) (61.6) % 7,798 7,363 435 5.9 % Other income, net 19,976 (878) 20,854 (2,375.2) % 23,657 850 22,807 2,683.2 % Loss before income taxes (337,793) (83,825) (253,968) 303.0 % (701,178) (251,375) (449,803) 178.9 % Income tax (benefit) expense (1,475) 2,129 (3,604) (169.3) % 79 2,648 (2,569) (97.0) % Net loss (336,318) (85,954) (250,364) 291.3 % (701,257) (254,023) (447,234) 176.1 % Less: Net loss attributable to noncontrolling interest (1,116) (384) (732) 190.6 % (2,320) (813) (1,507) 185.4 % Net loss attributable toBeiGene, Ltd. $ (335,202) $ (85,570) $ (249,632) 291.7 %$ (698,937) $ (253,210) $ (445,727) 176.0 % 33
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Comparison of the Three Months EndedJune 30, 2020 and 2019 Revenue Total revenue decreased to$65.6 million for the three months endedJune 30, 2020 , from$243.3 million for the three months endedJune 30, 2019 , primarily due to the cessation of collaboration revenue following the termination of the BMS collaboration agreement in the second quarter of 2019. The following table summarizes the components of revenue for the three months endedJune 30, 2020 and 2019, respectively: Three Months Ended June 30, Changes 2020 2019 $ % (dollars in thousands) Product revenue$ 65,635 $ 58,142 $ 7,493 12.9 % Collaboration revenue: Reimbursement of research and development costs - 9,460 (9,460) (100.0) % Research and development service revenue - 25,744 (25,744) (100.0) % Other - 150,000 (150,000) (100.0) % Total$ 65,635 $ 243,346 $ (177,711) (73.0) %
Net product revenues consisted of the following:
Three Months Ended June 30, Changes 2020 2019 $ % (dollars in thousands) Tislelizumab$ 29,417 $ -$ 29,417 NM BRUKINSA® 6,974 - 6,974 NM REVLIMID® 17,219 16,373 846 5.2 % VIDAZA® 11,789 7,038 4,751 67.5 % ABRAXANE® 236 34,731 (34,495) (99.3) % Total product revenue$ 65,635 $ 58,142 $ 7,493 12.9 % Net product revenue increased 12.9% to$65.6 million for the three months endedJune 30, 2020 , compared to$58.1 million in the prior year period, primarily due to sales of tislelizumab inChina and BRUKINSA® inthe United States andChina , partially offset by decreased product sales of ABRAXANE®. Product revenues in the second quarter of 2020 were positively impacted by sales of our internally developed products, tislelizumab and BRUKINSA®, and the lessening impact of COVID-19 on our commercial activities inChina as the country gradually resumed regular business. We expect product revenue from our in-licensed products to continue to be impacted by the NMPA's suspension of the importation, sales and use of ABRAXANE® inChina inMarch 2020 and the subsequent voluntary recall of ABRAXANE® by BMS, together with increased competition from generic products. Although the impact of COVID-19 on commercial activities inChina lessened in the second quarter of 2020 compared to the first quarter of 2020, there remains uncertainty regarding the future impact of the pandemic both inChina as well as globally. We do not expect revenue from ABRAXANE® until the NMPA lifts its suspension on the importation, sale and use of ABRAXANE® and qualified drug is manufactured and available for sale inChina . We do not know when the NMPA suspension of ABRAXANE® will be lifted and when we will be able to re-commence sales of ABRAXANE® inChina . We did not have any collaboration revenue for the three months endedJune 30, 2020 due to the termination of the collaboration agreement with BMS for tislelizumab in the second quarter of 2019. Cost of Sales Cost of sales decreased to$14.3 million for the three months endedJune 30, 2020 from$17.8 million for the three months endedJune 30, 2019 , primarily due to a decreased volume of in-licensed sales compared to the prior year period. 34
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Research and Development Expense Research and development expense increased by$57.2 million , or 25.0%, to$286.0 million for the three months endedJune 30, 2020 from$228.8 million for the three months endedJune 30, 2019 . The following table summarizes external clinical, external non-clinical and internal research and development expense for the three months endedJune 30, 2020 and 2019, respectively: Three Months Ended June 30, Changes 2020 2019 $ % (dollars in thousands) External cost of clinical-stage programs$ 121,313 $ 102,960 $ 18,353 17.8 % Upfront license fees and milestones - 20,000 (20,000) (100.0) % External cost of non-clinical-stage programs 7,164 11,566 (4,402) (38.1) % Amgen co-development expense1 28,337 - 28,337 NM Internal research and development expenses 129,154 94,234 34,920 37.1 % Total research and development expenses$ 285,968 $ 228,760 $ 57,208 25.0 % 1 Our co-funding obligation for the development of the pipeline assets under the Amgen collaboration for the three months endedJune 30, 2020 totaled$55.9 million , of which$28.3 million was recorded as R&D expense. The remaining$27.6 million was recorded as a reduction of the R&D cost share liability. The increase in external research and development expense was primarily attributable to the advancement of our clinical drug candidates, and included the following: •increases of approximately$16.6 million and$4.1 million , respectively, for zanubrutinib and tislelizumab, primarily due to the continued enrollment and expansion of pivotal clinical trials; •an increase of$28.3 million related to expense recognized on co-development fees to Amgen; •a decrease of$20.0 million related to license fees under collaboration agreements; and •external spending for our non-clinical-stage programs was primarily related to manufacturing costs for pre-commercial activities and costs associated with our preclinical candidates. The increase in internal research and development expense was primarily attributable to the expansion of our global development organization and our clinical and preclinical drug candidates, and included the following: •$17.0 million increase of employee salary and benefits, primarily attributable to hiring more research and development personnel to support our expanding research and development activities; •$5.6 million increase of share-based compensation expense, primarily attributable to our increased headcount, resulting in more awards being expensed related to the growing employee population; •$12.7 million increase of materials and reagent expenses, primarily in connection with the in-house manufacturing of drug candidates used for clinical purposes; •$1.0 million decrease of consulting fees, which was mainly attributable to decreased travel and meeting expense related to scientific, regulatory and development consulting activities, in connection with the advancement of our drug candidates; and •$0.7 million increase of facilities, depreciation, office expense, rental fees, and other expenses to support the growth of our organization. 35
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Selling, General and Administrative Expense Selling, general and administrative expense increased by$41.8 million , or 50.8%, to$124.0 million for the three months endedJune 30, 2020 , from$82.2 million for the three months endedJune 30, 2019 . The increase was primarily attributable to the following: •$20.1 million increase of employee salary and benefits, which was primarily attributable to the hiring of more personnel to support our growing organization, including the expansion of our commercial organizations inChina andthe United States ; •$7.3 million increase of share-based compensation expense, primarily attributable to our increased headcount, resulting in more awards being expensed related to the growing employee population; •$6.8 million increase of professional fees and consulting for general and administrative activities, including legal, recruiting, information technology, tax, accounting and audit services, primarily in connection with our growing business; •$2.5 million increase in external selling and marketing expenses, including market access studies, meeting and seminar expenses, promotional activities, and sponsorship and grant expenses; and •$5.1 million increase in facility expenses, rental fees, office expenses, and other administrative expenses, primarily attributable to the global expansion of our business, including the expansion of our commercial operations inChina andthe United States . Interest Income, Net Interest income, net decreased by$1.8 million , or 61.6%, to$1.1 million for the three months endedJune 30, 2020 , from$2.9 million for three months endedJune 30, 2019 . The decrease in interest income, net, was primarily attributable to increased interest expense, compared to the prior year period. Other Income, Net Other income, net increased to$20.0 million of net other income for the three months endedJune 30, 2020 , from$0.9 million of net other expense for the three months endedJune 30, 2019 . The increase was mainly attributable to the gain recognized in conjunction with the deconsolidation of MapKure, changes in fair value on equity method investments where the fair value option was elected, and realized gains on sales of available-for-sale securities, offset by foreign currency exchange losses. Income Tax Expense Income tax benefit was$1.5 million for the three months endedJune 30, 2020 , as compared to an income tax expense of$2.1 million for the three months endedJune 30, 2019 . The income tax benefit for the three months endedJune 30, 2020 was primarily attributable to income reported in certainChina subsidiaries, offset by the tax benefit of deferredU.S. stock-based compensation deductions. The currentU.S. tax was reduced by windfall stock-based compensation deductions and research and development tax credits. The income tax expense for the three months endedJune 30, 2019 was primarily attributable to income reported inthe United States and certainChina subsidiaries, offset byU.S. research and development tax credits and other special tax deductions. 36
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Comparison of the Six Months EndedJune 30, 2020 and 2019 Revenue Total revenue decreased to$117.7 million for the six months endedJune 30, 2020 , from$321.2 million for the six months endedJune 30, 2019 , primarily due to the cessation of collaboration revenue following the termination of the BMS collaboration agreement in the second quarter of 2019, and the related$150.0 million termination fee that was recognized as revenue. The following table summarizes the components of revenue for the six months endedJune 30, 2020 and 2019, respectively: Six Months Ended June 30, Changes 2020 2019 $ % (dollars in thousands) Product revenue$ 117,694 $ 115,563 $ 2,131 1.8 % Collaboration revenue: Reimbursement of research and development costs - 27,634 (27,634) (100.0) % Research and development service revenue - 27,982 (27,982) (100.0) % Other - 150,000 (150,000) (100.0) % Total$ 117,694 $ 321,179 $ (203,485) (63.4) %
Net product revenues consisted of the following:
Six Months Ended June 30, Changes 2020 2019 $ % (dollars in thousands) Tislelizumab$ 49,943 $ -$ 49,943 NM BRUKINSA® 7,691 - 7,691 NM REVLIMID® 24,847 39,957 (15,110) (37.8) % VIDAZA® 17,832 13,741 4,091 29.8 % ABRAXANE® 17,381 61,865 (44,484) (71.9) % Total product revenue$ 117,694 $ 115,563 $ 2,131 1.8 % Net product revenue increased 1.8% to$117.7 million for the six months endedJune 30, 2020 , compared to$115.6 million in the prior year period, primarily due to sales of tislelizumab inChina in 2020, as well as sales of BRUKINSA® inthe United States andChina , partially offset by decreased sales of ABRAXANE® and REVLIMID®. Product revenues in the first half of 2020 were negatively impacted by the COVID-19 pandemic, increased generic competition, and the suspension of ABRAXANE® inChina by the NMPA inMarch 2020 . Product revenues in the first half of 2020 were positively impacted by sales of our internally developed products, tislelizumab and BRUKINSA®. Product revenue for tislelizumab reflects sales since its launch inChina inMarch 2020 , and product sales for BRUKINSA® reflect sales since its launch inChina inJune 2020 , as well as sales inthe United States during the period. We expect product revenue from our in-licensed products to continue to be impacted by the NMPA's suspension of the importation, sales and use of ABRAXANE® inChina inMarch 2020 and the subsequent voluntary recall of ABRAXANE® by BMS, as well as increased competition from generic products. Although the impact of COVID-19 on commercial activities inChina lessened in the second quarter of 2020 compared to the first quarter of 2020, there remains uncertainty regarding the future impact of the pandemic both inChina as well as globally. We do not expect revenue from ABRAXANE® until the NMPA lifts its suspension on the importation, sale and use of ABRAXANE® and qualified drug is manufactured and available for sale inChina . We do not know when the NMPA suspension of ABRAXANE® will be lifted and when we will be able to re-commence sales of ABRAXANE®. We did not have any collaboration revenue for the six months endedJune 30, 2020 due to the termination of the collaboration agreement with BMS for tislelizumab in the second quarter of 2019. 37
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Cost of Sales Cost of sales decreased to$28.5 million for the six months endedJune 30, 2020 from$33.1 million for the six months endedJune 30, 2019 , primarily due to a decreased volume of in-licensed sales compared to the prior year period. Research and Development Expense Research and development expense increased by$183.2 million , or 45.0%, to$590.3 million for the six months endedJune 30, 2020 from$407.1 million for the six months endedJune 30, 2019 . The following table summarizes external clinical, external non-clinical and internal research and development expense for the six months endedJune 30, 2020 and 2019, respectively: Six Months Ended June 30, Changes 2020 2019 $ % (dollars in thousands) External cost of clinical-stage programs$ 216,212 $ 181,661 $ 34,551 19.0 % Upfront license fees and milestones 48,000 30,000 18,000 60.0 % External cost of non-clinical-stage programs 18,999 21,623 (2,624) (12.1) % Amgen co-development expense1 56,703 - 56,703 NM Internal research and development expenses 250,356 173,827 76,529 44.0 % Total research and development expenses$ 590,270 $ 407,111 $ 183,159 45.0 % 1 Our co-funding obligation for the development of the pipeline assets under the Amgen collaboration for the six months endedJune 30, 2020 totaled$111.9 million , of which$56.7 million was recorded as R&D expense. The remaining$55.2 million was recorded as a reduction of the R&D cost share liability. The increase in external research and development expense was primarily attributable to the advancement of our clinical drug candidates, and included the following: •increases of approximately$21.1 million and$10.1 million , respectively, for zanubrutinib and tislelizumab, primarily due to the continued enrollment and expansion of pivotal clinical trials; •an increase of$56.7 million related to expense recognized on co-development fees to Amgen; •an increase of$18.0 million related to license fees under collaboration agreements, including$13.0 million of increased upfront payments compared to the same period last year, as well as a$5.0 million milestone payment accrued in the first quarter of 2020; and •external spending for our non-clinical-stage programs was primarily related to manufacturing costs for pre-commercial activities and costs associated with our preclinical candidates. The increase in internal research and development expense was primarily attributable to the expansion of our global development organization and development of our clinical and preclinical drug candidates, and included the following: •$30.0 million increase of employee salary and benefits, primarily attributable to hiring more research and development personnel to support our expanding research and development activities; •$10.2 million increase of share-based compensation expense, primarily attributable to our increased headcount, resulting in more awards being expensed related to the growing employee population; •$24.7 million increase of materials and reagent expenses, primarily in connection with the in-house manufacturing of drug candidates used for clinical purposes; •$3.0 million decrease of consulting fees, which was primarily attributable to decreased travel and meeting expense related to scientific, regulatory and development consulting activities, in connection with the advancement of our drug candidates; and •$14.6 million increase of facilities, depreciation, office expense, rental fees, and other expenses to support the growth of our organization. 38
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Selling, General and Administrative Expense Selling, general and administrative expense increased by$91.2 million , or 65.2%, to$231.1 million for the six months endedJune 30, 2020 , from$139.9 million for the six months endedJune 30, 2019 . The increase was primarily attributable to the following: •$41.0 million increase of employee salary and benefits, which was primarily attributable to the hiring of more personnel to support our growing organization, including the expansion of our commercial organizations inChina andthe United States ; •$14.5 million increase of share-based compensation expense, primarily attributable to our increased headcount, resulting in more awards being expensed related to the growing employee population; •$16.9 million increase of professional fees and consulting for general and administrative activities, including legal, recruiting, information technology, tax, accounting and audit services, primarily in connection with our growing business; •$2.0 million increase in external selling and marketing expenses, including market access studies, meeting and seminar expenses, promotional activities, and sponsorship and grant expenses; and •$16.8 million increase in facility expenses, rental fees, office expenses, and other administrative expenses, primarily attributable to the global expansion of our business, including the expansion of our commercial operations inChina andthe United States . Interest Income, Net Interest income, net increased by$0.4 million , or 5.9%, to$7.8 million for the six months endedJune 30, 2020 , from$7.4 million for six months endedJune 30, 2019 . The increase in interest income was primarily attributable to interest income on cash and short-term investment balances exceeding interest expense on our long-term debt. Other Income, Net Other income, net increased to$23.7 million of net other income for the six months endedJune 30, 2020 , from$0.9 million of net other income for the six months endedJune 30, 2019 . The increase was mainly attributable to the gain recognized in conjunction with the deconsolidation of MapKure, unrealized gains on equity securities and realized gains on sales of available-for-sale securities, offset by foreign currency exchange losses. Income Tax Expense Income tax expense was$0.08 million for the six months endedJune 30, 2020 , as compared to an income tax expense of$2.6 million for the six months endedJune 30, 2019 . The income tax expense for the six months endedJune 30, 2020 was primarily attributable to income reported in certainChina subsidiaries offset by the tax benefit of deferredU.S. stock-based compensation deductions. The currentU.S. tax was reduced by windfall stock-based compensation deductions and research and development tax credits. The income tax expense for the six months endedJune 30, 2019 was primarily attributable to income reported inthe United States and certainChina subsidiaries, offset byU.S. research and development tax credits and other special tax deductions. Liquidity and Capital Resources Since our inception in 2010, we have incurred annual net losses and negative cash flows from our operations. Substantially all of our operating losses have resulted from the funding of our research and development programs and selling, general and administrative expenses associated with our operations. We incurred net losses of$336.3 million and$701.3 million , respectively, for the three and six months endedJune 30, 2020 , and net losses of$86.0 million and$254.0 million for the three and six months endedJune 30, 2019 . As ofJune 30, 2020 , we had an accumulated deficit of$2.7 billion . Our primary use of cash is to fund our research and development activities and to support the commercialization of our products inChina andthe United States and planned additional product launches. Our operating activities used$604.9 million and$218.1 million during the six months endedJune 30, 2020 and 2019, respectively. We have financed our operations principally through proceeds from public and private offerings of our securities and proceeds from our collaboration agreements, together with product sales sinceSeptember 2017 . As ofJune 30, 2020 , we had cash, cash equivalents, restricted cash, and short-term investments of$3.2 billion , including approximately$118.2 million of cash, cash equivalents and restricted cash held by our joint venture,BeiGene Biologics, to continue phased construction of our commercial biologics facility inGuangzhou, China and to fund research and development 39
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of our biologics drug candidates inChina . Restricted cash of$4.9 million primarily consists of RMB-denominated cash deposits pledged in designated bank accounts as collateral for bank loans and letters of credit. OnJuly 15, 2020 , we received approximately$2.1 billion from a registered direct offering of ordinary shares to certain existing investors, which is not included in our financial statements for the three and six months endedJune 30, 2020 . The following table provides information regarding our cash flows for the six months endedJune 30, 2020 and 2019: Six Months Ended June 30, 2020 2019 (in thousands) Cash, cash equivalents and restricted cash at beginning of period$ 620,775 $ 740,713 Net cash used in operating activities (604,886) (218,076) Net cash (used in) provided by investing activities (1,544,864) 364,425 Net cash provided by financing activities 2,883,161 58,346 Net effect of foreign exchange rate changes (4,287) (2,732) Net increase in cash, cash equivalents, and restricted cash 729,124 201,963 Cash, cash equivalents and restricted cash at end of period $
1,349,899
Use of Funds The use of cash in all periods presented resulted primarily from our net losses, adjusted for non-cash charges and changes in components of working capital. The primary use of our cash, cash equivalents and short-term investments in all periods presented was to fund research and development, regulatory and other clinical trial costs, selling costs and related supporting administrative expenses. Our prepaid expenses and other current assets, accounts payable and accrued expense balances in all periods presented were affected by the timing of vendor invoicing and payments. Operating Activities Operating activities used$604.9 million of cash in the six months endedJune 30, 2020 , which resulted principally from our net loss of$701.3 million , partially offset by a decrease in our net operating assets and liabilities of$28.7 million and by non-cash charges of$67.7 million related primarily to stock-based compensation expense, depreciation and amortization and other non-cash charges. The decrease in our net operating assets and liabilities was primarily due to an increase of$79.3 million in accounts payable and accrued expenses related to external research and development costs, which includes our co-development obligations to Amgen, a decrease of$9.1 million in accounts receivable, net, on product sales, an increase in operating lease liabilities of$7.4 million , and a decrease in other non-current assets of$2.6 million , all of which had a positive impact on operating cash flow. These cash inflows were partially offset by an increase of$54.6 million in prepaid expenses and other current assets primarily related to prepayments to CROs for clinical trials, an increase of$7.5 million in operating lease right-of-use assets, a decrease of$3.0 million in taxes payable, and an increase of$4.7 million in inventory, all of which had a negative impact on operating cash flow. Our non-cash charges and other adjustments to our net loss during the six months endedJune 30, 2020 primarily consisted of$83.7 million of share-based compensation expense,$43.0 million of acquired in-process research and development related to license agreements in the period,$15.6 million of depreciation and amortization expense, and$5.1 million of interest expense, offset by$55.2 million for amortization of a research and development cost share liability related to the Amgen collaboration, and$11.3 million of unrealized gains from equity method investments. Operating activities used$218.1 million of cash in the six months endedJune 30, 2019 , which resulted principally from our net loss of 254.0 million, which was inclusive of the$150.0 million payment recognized in revenue in connection with the termination of the BMS collaboration agreement for tislelizumab, and an increase in our net operating assets and liabilities of$76.0 million , offset by non-cash charges of$112.0 million related primarily to stock-based compensation expense, depreciation and amortization and other non-cash charges. The increase in our net operating assets and liabilities was primarily due to an increase of$17.1 million related to collections on product sales from our collaboration with BMS, an increase of$32.8 million in inventories, an increase of$3.6 million in operating lease right-of-use assets, an increase of$10.3 million in other non-current assets primarily related to VAT prepayments, an increase of$14.5 million in prepaid expenses and other current assets primarily related to prepayments to CROs for clinical trials, a decrease of$3.7 million in taxes payable, and a decrease of$28.0 million in deferred revenue, all of which had a negative impact on operating cash flow. These cash uses were partially offset by an increase of$25.0 million in accounts payable and accrued expenses related to payments for external research and development costs, a decrease of$8.6 million in unbilled receivables related to the BMS collaboration, and an increase of$0.4 million in operating lease liabilities and other long-term liabilities, all of which had a positive impact on operating cash flows. Our non-cash charges and other adjustments to our net loss during the six months endedJune 30, 2019 40
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primarily consisted of$59.0 million of share-based compensation expense,$49.0 million of acquired in-process research and development related to our license agreements withAmbrx Inc. ("Ambrx") andBioAtla , and termination of the collaboration agreement with Merck KGaA, Darmstadt Germany,$7.1 million of depreciation and amortization expense, and$3.8 million of non-cash interest expense, offset by$3.7 million of bond discount amortization,$1.5 million related to deferred tax benefits, and$1.8 million of disposal gain on available-for-sale securities. Investing Activities Investing activities used$1.5 billion of cash in the six months endedJune 30, 2020 , consisting of$2.4 billion in purchases of investment securities,$43.0 million of acquired in-process research and development, capital expenditures of$54.1 million , and cash outflows for the deconsolidation of a subsidiary of$2.0 million , all of which were offset by sales and maturities of investment securities of$997.2 million . Investing activities provided$364.4 million of cash in the six months endedJune 30, 2019 , consisting of sales and maturities of investment securities of$1,167.5 million , which was offset by$710.8 million in purchases of investment securities,$49.0 million of acquired in-process research and development related to the license agreements withAmbrx andBioAtla and termination of the collaboration agreement with Merck KGaA, Darmstadt Germany, and capital expenditures of$43.3 million primarily related to ourGuangzhou andSuzhou manufacturing facilities. Financing Activities Financing activities provided$2.9 billion of cash in the six months endedJune 30, 2020 , consisting primarily of$2.8 billion received from our collaboration with Amgen, of which$2.2 billion was recorded as equity, and$0.6 billion was recorded as a research and development cost share liability. Additionally, we received$28.2 million from the exercise of employee share options and proceeds from the issuance of shares through our employee share purchase plan,$49.5 million from proceeds of a long-term bank loan, and$26.2 million from proceeds of a short-term bank loan. Financing activities provided$58.3 million of cash in the six months endedJune 30, 2019 , consisting of$43.7 million from a long-term bank loan to fund ourGuangzhou manufacturing facility, a$4.0 million capital contribution from investors for the noncontrolling interest of MapKure, and$10.6 million from the exercise of employee share options. Effects of Exchange Rates on Cash We have substantial operations in the PRC, which generate a significant amount of RMB-denominated cash from product sales and require a significant amount of RMB-denominated cash to pay our obligations. Since the reporting currency of the Company is theU.S. dollar, periods of volatility may have a significant impact on our consolidated cash balances. Operating Capital Requirements We have exclusive rights to distribute and promote three of BMS's approved cancer therapies inChina , for which we began recognizing revenue in the third quarter of 2017. OnNovember 14, 2019 , we received accelerated approval from the FDA for BRUKINSA® as a treatment for MCL in adult patients who have received at least one prior therapy; onDecember 26, 2019 , we received regulatory approval from the NMPA for tislelizumab as a treatment for patients with cHL who have received at least two prior therapies; and onJune 3, 2020 , we received approval from the NMPA for BRUKINSA® in two indications, (i) the treatment of adult patients with CLL/ SLL who have received at least one prior therapy, and (ii) the treatment of adult patients with MCL who have received at least one prior therapy. We launched BRUKINSA® inthe United States inNovember 2019 and launched tislelizumab inChina inMarch 2020 and BRUKINSA® inChina inJuly 2020 . However, we do not expect to generate significant revenue from product sales of our internally developed drugs and drug candidates unless and until we obtain regulatory approvals for additional indications of our currently approved drugs. We anticipate that we will continue to generate losses for the foreseeable future as we continue the development of, and seek regulatory approvals for, our drugs and drug candidates, commercialize our approved products and prepare for commercialization and begin to commercialize any future approved products. As a growing public company, we will continue to incur additional costs associated with our operations. In addition, we expect to incur significant commercialization expenses for product sales, marketing and manufacturing of our in-licensed drug products as well as our internally developed products that are either approved or in late-stage clinical trials. We may need additional funding prior to generating sufficient cash from operations to fund our continuing operations. Based on our current operating plan, we expect that our existing cash, cash equivalents and short-term investments as ofJune 30, 2020 , will enable us to fund our operating expenses and capital expenditures requirements for at least the next 12 months after the date that the financial statements included in this report are issued. We expect that our expenses will continue to increase substantially as we fund our ongoing research and clinical development efforts, including our ongoing and planned pivotal trials for zanubrutinib, tislelizumab and pamiparib, both inChina and globally, and the shared development 41
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costs of a portfolio of Amgen's oncology pipeline products and additional in-licensed drug candidates; our other ongoing and planned clinical trials; regulatory filings and registration of our late-stage drug candidates; expansion of our commercial operations inChina and theU.S. and the launch of our in-licensed commercial drug portfolio and late-stage drug candidates globally; business development and manufacturing activities; and working capital and other general corporate purposes. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we expect in our current operating plan. Because of the numerous risks and uncertainties associated with the development and commercialization of our drugs and drug candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development and commercialization of our drugs and drug candidates. Our future capital requirements will depend on many factors, including: •our ability to successfully commercialize our internally developed and in-licensed drugs; •the costs, timing and outcome of regulatory reviews and approvals; •the ability of our drug candidates to progress through clinical development successfully; •the initiation, progress, timing, costs and results of nonclinical studies and clinical trials for our other programs and potential drug candidates; •the number and characteristics of the drugs and drug candidates we pursue; •the costs of establishing or expanding commercial manufacturing capabilities or securing necessary supplies from third-party manufacturers; •the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; •the costs of establishing and expanding our commercial operations and the success of those operations; •the extent to which we acquire or in-license other products and technologies; and •our ability to maintain and establish collaboration arrangements on favorable terms, if at all. Until such time, if ever, as we can generate substantial product revenue, 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 theSEC , 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. OnMay 11, 2020 , we filed such a shelf registration statement with theSEC 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, prior to which time we plan to 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 or ordinary 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, future revenue streams or 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. 42
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Contractual Obligations and Commitments The following table summarizes our significant contractual obligations as of the payment due date by period atJune 30, 2020 : Payments Due by Period Less Than More Than Total 1 Year 1-3 Years 3-5 Years 5 Years (in thousands)
Contractual obligations Operating lease commitments$ 49,271 $ 15,396 $ 23,576 $ 10,181 $ 118 Purchase commitments 126,864 34,390 49,345 22,328 20,801 Debt obligations 317,716 26,061 167,099 40,238 84,318 Co-development funding commitment 1,138,057 292,557 623,000 222,500 - Capital commitments 61,017 61,017 - - - Total$ 1,692,925 $ 429,421 $ 863,020 $ 295,247 $ 105,237 Operating Lease Commitments We lease office or manufacturing facilities inBeijing ,Shanghai ,Suzhou ,Guangzhou and other cities inChina , and office facilities inthe United States inCalifornia, Maryland ,Massachusetts andNew Jersey , and inBasel, Switzerland under non-cancelable operating leases expiring on different dates. Payments under operating leases are expensed on a straight-line basis over the periods of the respective leases. The aggregate future minimum payments under these non-cancelable operating leases are summarized in the table above. Purchase Commitments As ofJune 30, 2020 , purchase commitments amounted to$126.9 million , of which$105.1 million related to minimum purchase requirements for supply purchased from CMOs and$21.7 million related to binding purchase obligations of inventory from BMS. We do not have any minimum purchase requirements for inventory from BMS or Amgen. Debt Obligations Short-term Bank Loans OnJanuary 13, 2020 ,BeiGene (Shanghai) Co., Ltd. entered into a one-year loan agreement withChina Industrial Bank to borrow up toRMB200.0 million at a fixed interest rate of 5.6%. During the six months endedJune 30, 2020 , we drew down$20.1 million (RMB140.0 million ) of the loan. Interest will be paid quarterly until the loan is fully settled. As ofJune 30, 2020 the amount outstanding under the loan agreement was$19.8 million (RMB140.0 million ). OnMay 21, 2020 ,BeiGene (Beijing) Co., Ltd. entered into a one-year loan agreement with China Merchants Bank to borrow up toRMB100.0 million . OnMay 27, 2020 , we drew down$3.0 million (RMB21.5 million ) at a fixed interest rate of 4.35%. OnJune 28, 2020 , we drew down an additional$3.1 million (RMB21.7 million ) of the loan at a fixed interest rate of 4.5%. Interest will be paid quarterly until the loan is fully settled. As ofJune 30, 2020 the amount outstanding under the loan agreement was$6.1 million (RMB43.1 million ). Long-term Bank Loans OnApril 4, 2018 ,BeiGene Guangzhou Biologics Manufacturing Co., Ltd. ("BeiGene Guangzhou Factory ") entered into a nine-year loan agreement with China Construction Bank to borrowRMB580.0 million at a floating interest rate benchmarked against prevailing interest rates of certain PRC financial institutions. The loan is secured byBeiGene Guangzhou Factory's land use right and certainGuangzhou Factory fixed assets of the first phase of theGuangzhou manufacturing facility build out with a total carrying amount of$142.1 million . Interest expense will be paid quarterly until the loan is fully settled. As ofJune 30, 2020 , we have drawn down the entire$82.1 million (RMB580.0 million ) in aggregate principal amount of this loan. Maturity dates range from 2021 to 2027. OnJanuary 22, 2020 ,BeiGene Guangzhou Factory entered into a nine-year bank loan with China Merchants Bank to borrow up toRMB1.1 billion at a floating interest rate benchmarked against prevailing interest rates of certain PRC financial institutions. The loan will be secured byGuangzhou Factory's second land use right and fixed assets that will be placed into service upon completion of the second phase of theGuangzhou manufacturing facility build out. Interest is paid quarterly until 43
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the loan is fully settled. As ofJune 30, 2020 , we have drawn down$49.5 million (RMB350.0 million ) of the loan. The loan interest rate was 4.4% for the six months endedJune 30, 2020 , and the maturity dates range from 2022 to 2029. Shareholder Loan OnMarch 7, 2017 ,BeiGene Biologics Co., Ltd. ("BeiGene Biologics") entered into a Shareholder Loan Contract withGuangzhou GET Technology Development Co., Ltd. (nowGuangzhou High-tech Zone Technology Holding Group Co., Ltd. ) ("GET"), pursuant to which, GET provided a shareholder loan to BeiGene Biologics in the principal amount ofRMB900.0 million at a fixed 8% annual interest rate. The term of the shareholder loan is 72 months, commencing from the actual drawdown date ofApril 14, 2017 and ending onApril 13, 2023 , unless converted earlier. OnApril 14, 2017 , we drew down the entireRMB900.0 million from GET. Co-development funding commitment Under the Amgen collaboration, we are responsible for co-funding global development costs for the licensed Amgen oncology pipeline assets up to a total cap of$1,250,000 . We are funding our portion of the co-development costs by contributing cash and development services. As ofJune 30, 2020 , our remaining co-development funding commitment was$1,138,057 . Capital Commitments We had capital commitments amounting to$61.0 million for the acquisition of property, plant and equipment as ofJune 30, 2020 , which was primarily forBeiGene Guangzhou Factory's manufacturing facility inGuangzhou, China . Other Business Agreements We enter into agreements in the ordinary course of business with CROs to provide research and development services. These contracts are generally cancelable 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 collaboration 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. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined underSEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our balance sheets. Critical Accounting Policies and Significant Judgments and Estimates Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles ("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. These include, but are not limited to, estimating the useful lives of long-lived assets, estimating variable consideration in product sales and collaboration revenue arrangements, estimating the incremental borrowing rate for operating lease liabilities, identifying separate accounting units and the standalone selling price of each performance obligation in the Company's revenue arrangements, assessing the impairment of long-lived assets, share-based compensation expenses, realizability of deferred tax assets and the fair value of financial instruments. 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. Our actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies as of and for the three and six months endedJune 30, 2020 , as compared to those described in the section titled "Part II-Item 7-Management's Discussion and Analysis of 44
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Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . For new accounting policies adopted during the three and six months endedJune 30, 2020 , see "Part I-Item 1. Financial Statements-Notes to the Condensed Consolidated Financial Statements-1. Description of Business, Basis of Presentation and Consolidation and Significant Accounting Policies-Significant accounting policies" in this Quarterly Report on Form 10-Q. Recent Accounting Pronouncements See Note 1 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for information regarding recent accounting pronouncements. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Interest and Credit Risk Financial instruments that are potentially subject to credit risk consist of cash, 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. We had cash and cash equivalents of$1.3 billion and$618.0 million , restricted cash of$4.9 million and$2.8 million , and short-term investments of$1.8 billion and$364.7 million atJune 30, 2020 andDecember 31, 2019 , respectively. AtJune 30, 2020 , the majority of our cash and cash equivalents is held inU.S. treasury securities andU.S. money market funds. We also have cash and cash equivalent deposits with various major reputable financial institutions located both within and outside 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. Restricted cash represents secured deposits held in designated bank accounts for issuance of letters of credit. AtJune 30, 2020 , our short-term investments consisted ofU.S. treasury securities. We believe that theU.S. treasury securities are 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 andU.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 change in market interest rates would impact the fair value of our investment portfolio as ofJune 30, 2020 by$7.4 million . We do not believe that our cash, cash equivalents and short-term investments have significant risk of default or illiquidity. While we believe that our cash, cash equivalents, restricted cash and short-term investments do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. Foreign Currency Exchange Rate Risk We are exposed to foreign exchange risk arising from various currency exposures. Our reporting currency is theU.S. dollar, but a portion of our operating transactions and assets and liabilities are in other currencies, such as RMB, 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. RMB is not freely convertible into foreign currencies for capital account transactions. The value of RMB against theU.S. dollar and other currencies is affected by, among other things, changes inChina's political and economic conditions andChina's foreign exchange prices. FromJuly 21, 2005 , the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. For the RMB againstU.S. dollars, there was depreciation of approximately 1.5% in the six months endedJune 30, 2020 and depreciation of approximately 1.3% in the year endedDecember 31, 2019 , respectively. It is difficult to predict how market forces or PRC orU.S. government policy may impact the exchange rate between the RMB and theU.S. dollar in the future. To the extent that we need to convertU.S. dollars into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against theU.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert RMB intoU.S. dollars for the purpose of making payments for dividends on our ordinary shares, strategic acquisitions or investments or other business purposes, appreciation of theU.S. dollar against RMB would have a negative effect on theU.S. dollar amount available to us. 45
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In addition, a significant depreciation of the RMB against theU.S. dollar may significantly reduce theU.S. dollar equivalent of our receivables, earnings or losses. Further, volatility in exchange rate fluctuations may have a significant impact on the foreign currency translation adjustments recorded in other comprehensive income (loss). Currency Convertibility Risk A significant portion of our expenses, assets and liabilities are denominated in RMB. OnJanuary 1, 1994 , the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by thePeople's Bank of China (the "PBOC"). However, the unification of exchange rates does not imply that the RMB may be readily convertible intoU.S. dollars 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. Effects of Inflation Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our results of operations during the six months endedJune 30, 2020 . Item 4. 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 ofJune 30, 2020 , 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 inU.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 control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures. 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 13a15(d) and 15d15(d) of the Exchange Act that occurred during the quarter endedJune 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 46
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