BEIGENE, LTD. 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 medicines and to obtain approvals in additional indications and territories for our medicines; our ability to successfully develop and commercialize our in-licensed medicines and drug candidates and any other medicines and drug candidates 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 and commercialize new medicines, if approved; our ability to maintain and expand regulatory approvals for our medicines and drug candidates, if approved; the pricing and reimbursement of our medicines 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 and obtain regulatory approvals; 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, 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 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 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; regulatory environment and regulatory developments inthe United States ,the People's Republic of China ("China" or "PRC"), theUnited Kingdom , theEuropean Union ("EU") and other 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 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 medicines for commercial sale; the rate and degree of market access and acceptance and the pricing and reimbursement of our medicines and drug candidates, if approved; developments relating to our competitors and industry, including competing therapies; the size of the potential markets for our medicines 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 our clinical development, commercial, manufacturing, 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 expand access for patients worldwide. We have delivered ten molecules into the clinic in our first ten years, including three commercial medicines, 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 are marketing BRUKINSA® in the world's two largest pharmaceutical markets, 31
--------------------------------------------------------------------------------
Table of Contents
the United States andthe People's Republic of China ("China" or the "PRC"), and tislelizumab and pamiparib inChina , with an established, science-based commercial organization. Additionally, we have licensed theChina rights to multiple medicines, including Amgen's XGEVA®, BLINCYTO®, and KYPROLIS®; BMS's ABRAXANE®, REVLIMID®, and VIDAZA®; and EUSA Pharma's SYLVANT® and QARZIBA®. We have built state-of-the-art biologic and small molecule manufacturing facilities inChina to support current and potential future demand of our medicines, and plan to build a commercial-stage biologics manufacturing and clinical R&D center inNew Jersey . We are also constructing a new small molecule manufacturing campus inSuzhou, China . We also work with high quality contract manufacturing organizations ("CMOs") to manufacture our internally developed clinical and commercial products. We are a leader inChina -inclusive global clinical development, which we believe can facilitate faster and more cost-effective development of innovative medicines. Our internal clinical development capabilities are deep, including a more than 1,800-person global clinical development team that is running more than 90 ongoing or planned clinical trials. This includes more than 30 pivotal or registration-enabling trials for three drug candidates that have enrolled more than 13,000 patients and healthy volunteers, of which approximately one-half have been outside ofChina , as ofSeptember 2021 . We have over 45 medicines and drug candidates in commercial stage or clinical development, including 10 approved medicines, 2 pending approval, and over 30 in clinical development. Supported by our development and commercial capabilities, we have entered into collaborations with world-leading biopharmaceutical companies such as Amgen and Novartis to develop and commercialize innovative medicines globally. Since our inception in 2010 inBeijing , we have become a fully integrated global organization of over 7,600 employees in 23 countries and regions as ofSeptember 30, 2021 , includingChina ,the United States ,Europe andAustralia . Recent Developments Recent Business Developments OnOctober 20, 2021 , we and Nanolek, a biopharmaceutical company specializing in the production of import-substituting and innovative drugs inRussia , announced that BRUKINSA® (zanubrutinib) received approval from theRussia Ministry of Health for the treatment of adult patients with mantle cell lymphoma (MCL) who have received at least one prior therapy.BeiGene and Nanolek entered into an exclusive distribution agreement for Nanolek to commercialize BRUKINSA® in theRussian Federation . OnOctober 10, 2021 , we announced that BRUKINSA® (zanubrutinib) was approved inAustralia for the treatment of adult patients with MCL who have received at least one prior therapy. OnOctober 7, 2021 , we announced that BRUKINSA® was approved inAustralia for the treatment of adult patients with Waldenström's macroglobulinemia (WM) who have received at least one prior therapy or in first line treatment for patients unsuitable for chemo-immunotherapy. Following registration of BRUKINSA® with theTherapeutic Goods Administration (TGA), these patients now have immediate access to BRUKINSA® through our sponsored post-approval, pre-reimbursement access program. OnOctober 6, 2021 , BMS-Celgene delivered a notice to us, which we dispute, purporting to terminate the license agreement with respect to ABRAXANE® and providing 180-days' notice that it was withdrawing ABRAXANE® from the range of products for sale or distribution inChina pursuant to Section 2.6 of the license agreement. We believe that the reasons stated in the notice do not provide a valid basis for terminating the license agreement with respect to ABRAXANE®, and that the notice is a tactical maneuver on the part of BMS-Celgene to reduce its damages in the on-going arbitration proceedings described in Part II-Item 1. Legal Proceedings. We intend to contest the purported termination vigorously. OnSeptember 17, 2021 , we announced the Committee for Medicinal Products for Human Use (CHMP) of theEuropean Medicines Agency (EMA) adopted a positive opinion, recommending approval of BRUKINSA® for the treatment of adult patients with WM who have received at least one prior therapy or first-line treatment for patients unsuitable for chemo-immunotherapy. OnSeptember 15, 2021 , we announced that BRUKINSA® received accelerated approval from theU.S. Food and Drug Administration (FDA) for the treatment of adult patients with relapsed or refractory (R/R) marginal zone lymphoma (MZL) who have received at least one anti-CD20-based regimen. OnSeptember 13, 2021 , we announced that the FDA accepted for review a Biologics License Application (BLA) for our anti-PD-1 antibody tislelizumab as a treatment for patients with unresectable recurrent locally advanced or metastatic esophageal squamous cell carcinoma (ESCC) after prior systemic therapy. The Prescription Drug User Fee Act (PDUFA) target action date isJuly 12, 2022 . 32
--------------------------------------------------------------------------------
Table of Contents
OnSeptember 1, 2021 , we announced that BRUKINSA® received approval from the FDA for the treatment of adult patients with WM. OnAugust 22, 2021 , we announced that theCenter for Drug Evaluation (CDE) of theChina National Medical Products Administration (NMPA) accepted a supplemental Biologics License Application (sBLA) for anti-PD-1 antibody tislelizumab in combination with chemotherapy as a first-line treatment for patients with recurrent or metastatic nasopharyngeal cancer (NPC). OnAugust 18, 2021 , we announced thatSwissmedic accepted the marketing authorization application (MAA) for BRUKINSA, a treatment option for adult patients with WM.Swissmedic has started the formal review of the MAA. BRUKINSA has already been granted orphan drug status bySwissmedic . OnAugust 16, 2021 , we announced that the NMPA granted QARZIBA® (dinutuximab beta) conditional approval 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, followed by myeloablative therapy and stem cell transplantation, as well as patients with a history of R/R neuroblastoma with or without residual disease. Dinutuximab beta is a targeted immunotherapy approved by the EMA. Components of Operating Results Revenue Product Revenue We began generating product revenue inSeptember 2017 through our in-license agreement with BMS (then Celgene) to distribute the approved cancer therapies REVLIMID®, VIDAZA®, and ABRAXANE® inChina . Following approval from the FDA inNovember 2019 , we launched our first internally developed medicine, BRUKINSA®, inthe United States . We launched our second internally developed medicine, tislelizumab, inChina inMarch 2020 and inJune 2020 , we launched BRUKINSA® inChina . We launched our third internally developed medicine, pamiparib, inChina inMay 2021 . InJuly 2020 , we began selling XGEVA® under our in-license agreement with Amgen. InDecember 2020 , we announced the inclusion of tislelizumab, BRUKINSA®, and XGEVA® in the updated National Reimbursement Drug List (the "NRDL") by theChina National Healthcare Security Administration ("NHSA"), which became effective onMarch 1, 2021 . We received approval for BLINCYTO® inChina inDecember 2020 , and received approval for KYPROLIS® inChina inJuly 2021 , and plan to launch additional in-licensed products from our collaborations, and continue to expand our efforts to promote our existing commercial products. 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 recognize collaboration revenues for amounts earned under collaborative and out-licensing arrangements. InJanuary 2021 , we entered into a collaboration and license agreement with Novartis, granting Novartis rights to develop, manufacture and commercialize tislelizumab inthe United States ,Canada ,Mexico , member countries of theEuropean Union ,United Kingdom ,Norway ,Switzerland ,Iceland ,Liechtenstein ,Russia , andJapan (the "Novartis Territory"). There were two performance obligations identified at the outset of the agreement: (1) the exclusive license to develop, manufacture, and commercialize tislelizumab in the Novartis Territory, transfer of know-how and use of the tislelizumab trademark and (2) conducting and completing ongoing trials of tislelizumab ("R&D services"). Under this agreement, we received an upfront cash payment, which was allocated between the two performance obligations identified in the agreement based on the relative standalone selling prices of the performance obligations. The portion allocated to the license was recognized upon the delivery of the license right and transfer of know-how. The portion of the upfront payment allocated to the R&D services was deferred and is being recognized as collaboration revenue as the R&D services are performed using a percentage of completion method. Estimated costs to complete are reassessed on a periodic basis and any updates to the revenue earned are recognized on a prospective basis. The potential milestone payments that we are eligible to receive under the Novartis collaboration were excluded from the initial transaction price, as all milestone amounts are variable consideration and were 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 reversal is remote. Sales-based milestones and royalties will be recognized when the underlying sales occur. 33
--------------------------------------------------------------------------------
Table of Contents
Expenses
Cost of Sales Cost of sales includes the costs to manufacture our internally developed commercial products, as well as costs to purchase tislelizumab fromBoehringer Ingelheim Biopharmaceuticals (China) Ltd. Additionally, cost of sales included the cost of products purchased from Amgen and BMS. Also included in cost of sales are amounts paid to Amgen for its share of net sales or gross margin earned on sales of products in-licensed from Amgen. 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 the consumption of the remaining pre-launch inventory on hand is not expected to have 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 ("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 medicines and drug candidates: •BRUKINSA® (zanubrutinib), a small molecule inhibitor of BTK; •tislelizumab, a humanized monoclonal antibody against PD-1; •pamiparib, a selective small molecule inhibitor of PARP1 and PARP2; •ociperlimab, an investigational humanized monoclonal antibody against TIGIT; •BGB-15025, an investigational hematopoietic progenitor kinase 1 (HPK1) inhibitor; •BGB-11417, an investigational small molecular inhibitor of Bcl-2; •BGB-A445, an investigational non-ligand competing OX40 monoclonal antibody; •BGB-16673, an investigational Chimeric Degradation Activating Compound, orCDAC , targeting BTK; and •BGB-A425, an investigational humanized monoclonal antibody against TIM-3. 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; 34
--------------------------------------------------------------------------------
Table of Contents
•sitravatinib, an investigational, spectrum-selective kinase inhibitor, licensed
from Mirati Therapeutics, Inc. ("Mirati");
•zanidatamab (ZW25) and ZW49, two investigational bispecific antibody-based
product candidates targeting HER2, licensed from Zymeworks Inc. ("Zymeworks");
•BAT1706, an investigational biosimilar to Avastin® (bevacizumab), licensed from
Bio-Thera Solutions, Ltd. ("Bio-Thera"); and
•DXP-593 and DXP-604, investigational anti-COVID-19 antibodies, licensed from
Singlomics (Beijing DanXu) Biopharmaceuticals Co., Ltd. ("Singlomics"). The
license rights of the candidate outside of the U.S. and the development rights
of the candidate in the U.S. have been returned to Singlomics under a reversion
agreement signed by the parties, with us retaining U.S. commercial rights.
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 medicines and drug candidates. We are
also unable to predict when, if ever, material net cash inflows will commence
from sales of our medicines and drug candidates, if approved. This is due to the
numerous risks and uncertainties associated with developing such medicines 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 thirdparty manufacturers;
•receipt of marketing and other required approvals from applicable regulatory
authorities;
•successfully launching and commercializing our medicines and drug candidates,
if and when approved, whether as monotherapies or in combination with our
internally developed medicines and drug candidates or thirdparty products;
•market acceptance, pricing and reimbursement;
•obtaining and maintaining patent and trade secret protection and regulatory
exclusivity for our medicines 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
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 medicines and drug candidates as treatments for various
cancers and as we move these medicines and drug candidates into additional
clinical trials, including potential pivotal trials. There are numerous factors
associated with the successful commercialization of any of our medicines 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,
35--------------------------------------------------------------------------------
Table of Contents
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 for our approved medicines, and the preparation for potential launch and commercialization of additional in-licensed products from our collaborations and 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 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 (Expense) Income, 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 bank loans, related party loan and shareholder loan. Other Income, Net Other income consists primarily of gains recognized related to 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 rates, unrealized gains and losses on equity securities, and realized gains and losses on the sale of investments. 36
--------------------------------------------------------------------------------
Table of Contents
Results of Operations The following table summarizes our results of operations for the three and nine months endedSeptember 30, 2021 and 2020: Three Months Ended Nine Months Ended September 30, Change September 30, Change 2021 2020 $ % 2021 2020 $ % (dollars in thousands) Revenues Product revenue, net$ 192,461 $ 91,080 $ 101,381 111.3 %$ 437,202 $ 208,774 $ 228,428 109.4 % Collaboration revenue 13,979 - 13,979 NM 525,102 - 525,102 NM Total revenues 206,440 91,080 115,360 126.7 % 962,304 208,774 753,530 360.9 % Expenses Cost of sales - product 47,413 21,123 26,290 124.5 % 116,361 49,579 66,782 134.7 % Research and development 351,937 349,070 2,867 0.8 % 1,028,754 939,340 89,414 9.5 % Selling, general and administrative 269,227 160,837 108,390 67.4 % 683,622 391,967 291,655 74.4 % Amortization of intangible assets 188 187 1 0.5 % 563 658 (95) (14.4) % Total expenses 668,765 531,217 137,548 25.9 % 1,829,300 1,381,544 447,756 32.4 % Loss from operations (462,325) (440,137) (22,188) 5.0 % (866,996) (1,172,770) 305,774 (26.1) % Interest (expense) income, net (2,230) (614) (1,616) 263.2 % (11,275) 7,184 (18,459) (256.9) % Other income, net 31,477 5,711 25,766 451.2 % 26,487 29,368 (2,881) (9.8) % Loss before income taxes (433,078) (435,040) 1,962 (0.5) % (851,784) (1,136,218) 284,434 (25.0) % Income tax benefit (19,223) (8,423) (10,800) 128.2 % (24,083) (8,344) (15,739) 188.6 % Net loss (413,855) (426,617) 12,762 (3.0) % (827,701) (1,127,874) 300,173 (26.6) % Less: Net loss attributable to noncontrolling interest - (1,393) 1,393 (100.0) % - (3,713) 3,713 (100.0) %
Net loss attributable to
$ 11,369 (2.7) %$ (827,701) $ (1,124,161) $ 296,460 (26.4) % Comparison of the Three Months EndedSeptember 30, 2021 and 2020 Revenue Total revenue increased to$206.4 million for the three months endedSeptember 30, 2021 , from$91.1 million for the three months endedSeptember 30, 2020 , primarily due to continued sales increases of our internally developed products and our in-licensed products from Amgen. The following table summarizes the components of revenue for the three months endedSeptember 30, 2021 and 2020, respectively: Three Months Ended September 30, Changes 2021 2020 $ % (dollars in thousands) Product revenue$ 192,461 $ 91,080 $ 101,381 111.3 % Collaboration revenue: Research and development service revenue 13,979 - 13,979 NM Total collaboration revenue 13,979 - 13,979 NM Total Revenue$ 206,440 $ 91,080 $ 115,360 126.7 % 37
--------------------------------------------------------------------------------
Table of Contents
Net product revenues consisted of the following:
Three Months Ended
September 30, Changes
2021 2020 $ %
(dollars in thousands)
Tislelizumab $ 76,980 $ 49,934 $ 27,046 54.2 %
BRUKINSA® 65,832 15,662 50,170 320.3 %
REVLIMID® 20,209 14,067 6,142 43.7 %
VIDAZA® 5,810 8,366 (2,556) (30.6) %
XGEVA® 15,699 3,051 12,648 414.6 %
BLINCYTO® 5,040 - 5,040 NM
Pamiparib 1,516 - 1,516 NM
Other 1,375 - 1,375 NM
Total product revenue $ 192,461 $ 91,080 $ 101,381 111.3 %
Net product revenue increased 111.3% to $192.5 million for the three months
ended September 30, 2021 , compared to $91.1 million in the prior year period,
primarily due to continued increases in sales of tislelizumab in China and
BRUKINSA® in the United States and China , as well as sales of pamiparib, which
we began selling in China in May 2021 , partially offset by decreased sales of
the BMS products distributed in China . In addition, product revenues in the
third quarter of 2021 were positively impacted by sales of Amgen's XGEVA® and
BLINCYTO® in China , which we began distributing in July 2020 and August 2021 ,
respectively.
Global sales of BRUKINSA® totaled $65.8 million in the third quarter,
representing a 320% increase compared to the prior year period; U.S. sales of
BRUKINSA® totaled $33.7 million in the third quarter compared to $5.7 million in
the comparable prior year period. U.S. sales continued to accelerate in the
quarter, driven by continued uptake in MCL and the recent FDA approvals in WM
and MZL. BRUKINSA® sales in China totaled $32.1 million in the third quarter,
representing growth of 223% compared to the prior year period, driven by a
significant increase in all approved indications, including CLL. Additionally,
we expect approval of our marketing authorization application for BRUKINSA® in
WM in the European Union in the fourth quarter of 2021 and are expanding our
commercial presence there in anticipation of launch.
Sales of tislelizumab in China totaled $77.0 million in the third quarter,
representing a 54% increase compared to the prior year period. In the third
quarter, new patient demand from broader reimbursement and further expansion of
our salesforce and hospital listings continued to drive increased market
penetration and market share for tislelizumab. We believe that our strategy
during 2021 of expanding our salesforce and hospital listings and continuing to
seek expanded labels in broad indications will allow us to increase our market
share during the remainder of 2021 and into 2022.
We are preparing for the upcoming NRDL negotiations in China for our eligible
medicines, including tislelizumab in first-line non-squamous non-small cell lung
cancer (NSCLC), first-line squamous NSCLC and second- or third-line
hepatocellular carcinoma (HCC), BRUKINSA® in WM, and pamiparib in 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. We expect the NRDL negotiations to be completed in the fourth
quarter of 2021. The inclusion of new indications or medicines may impact
pricing and result in distributor compensation, which could affect revenue in
the short term; however, we continue to believe in the opportunity for our
medicines in China , including tislelizumab, and that reimbursement of broader
indications will enable us to have further penetration and help many more
patients, given our established commercial infrastructure in the core and broad
markets.
We expect product revenue from the in-licensed products from BMS to continue to
be impacted by the NMPA's suspension of the importation, sales and use of
ABRAXANE® in China in March 2020 and the subsequent voluntary recall of
ABRAXANE® by BMS. In addition, BMS provided notice to us, which we dispute,
purporting to terminate the License and Supply Agreement entered into by us and
Celgene in July 2017 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 License and Supply
Agreement. We also expect revenues to be impacted by increased competition from
generic products for REVLIMID® and the loss of volume-based procurement ("VBP")
bidding for VIDAZA®. We do not expect revenue from ABRAXANE® until the NMPA
lifts its suspension on the importation, sale and use of ABRAXANE®, qualified
drug is manufactured and available for sale in China , and the dispute regarding
the termination notice is resolved. 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®.
38--------------------------------------------------------------------------------
Table of Contents
Although the impact of COVID-19 on commercial activities inChina lessened in the second half of 2020 and in the first nine months of 2021, there is continued uncertainty regarding the future potential impact of the pandemic both inChina andthe United States , as well as globally. Collaboration revenue totaled$14.0 million for the three months endedSeptember 30, 2021 , which was recognized from deferred revenue for R&D services performed during the three months endedSeptember 30, 2021 (see Footnote 3). We did not have any collaboration revenue during the three months endedSeptember 30, 2020 . Cost of Sales Cost of sales increased to$47.4 million for the three months endedSeptember 30, 2021 from$21.1 million for the three months endedSeptember 30, 2020 , primarily due to increased product sales of tislelizumab, BRUKINSA®, and XGEVA®. Gross Margin Gross margin on global product sales increased to$145.0 million for the three months endedSeptember 30, 2021 , compared to$70.0 million in the prior year period, primarily due to increased product revenue in the current year period. Gross margin as a percentage of product sales decreased to 75.4% for the three months endedSeptember 30, 2021 , from 76.8% in the comparable period of the prior year. The decrease is primarily due to the lower price resulting from the listing of tislelizumab on the NRDL inMarch 2021 and was partially offset by a proportionally higher sales mix of global BRUKINSA® and tislelizumab compared to lower margin sales of in-licensed products. Pre-launch inventory carried at zero or low cost consumed during the three months endedSeptember 30, 2021 andSeptember 30, 2020 was immaterial and did not have a significant impact on our gross margin. Research and Development Expense Research and development expense increased by$2.9 million , or 0.8%, to$351.9 million for the three months endedSeptember 30, 2021 from$349.1 million for the three months endedSeptember 30, 2020 . The following table summarizes external clinical, external non-clinical and internal research and development expense for the three months endedSeptember 30, 2021 and 2020, respectively: Three Months Ended September 30, Changes 2021 2020 $ % (dollars in thousands) External research and development expense: Cost of development programs$ 117,131 $ 111,037 $ 6,094 5.5 % Upfront license fees - 66,500 (66,500) (100.0) % Amgen co-development expense1 29,710 30,795 (1,085) (3.5) % Total external research and development expenses 146,841 208,332 (61,491) (29.5) % Internal research and development expenses 205,096 140,738 64,358 45.7 % Total research and development expenses$ 351,937 $ 349,070 $ 2,867 0.8 % 1 Our co-funding obligation for the development of the pipeline assets under the Amgen collaboration for the three months endedSeptember 30, 2021 totaled$58.7 million , of which$29.7 million was recorded as R&D expense. The remaining$28.9 million was recorded as a reduction of the R&D cost share liability. The decrease in external research and development expenses in the third quarter was primarily attributable to a decrease of$66.5 million related to upfront license fees under collaboration agreements as well as decreased spending on clinical trials related to BRUKINSA®, which were partially offset by milestone payments related to collaboration deals, as well as increased spending related to our early stage programs. Internal research and development expense increased$64.4 million , or 45.7%, to$205.1 million , and was primarily attributable to the expansion of our global development organization and our clinical and preclinical drug candidates, as well as our continued efforts to internalize research and clinical trial activities, and included the following: •$31.6 million increase of employee salary and benefits, primarily attributable to hiring more research and development personnel to support our expanding research and development activities; 39
--------------------------------------------------------------------------------
Table of Contents
•$18.4 million increase of facilities, depreciation, office expense, rental fees, and other expenses to support the growth of our organization; •$5.5 million increase of consulting fees, which was mainly attributable to increased travel and meeting expense related to scientific, regulatory and development consulting activities, in connection with the advancement of our drug candidates; •$6.3 million increase of share-based compensation expense, primarily attributable to our increased headcount of research and development employees, resulting in more awards being expensed related to the growing research and development employee population; and •$2.6 million increase of materials and reagent expenses, primarily in connection with the in-house manufacturing of drug candidates used for clinical purposes. Selling, General and Administrative Expense Selling, general and administrative expense increased by$108.4 million , or 67.4%, to$269.2 million for the three months endedSeptember 30, 2021 , from$160.8 million for the three months endedSeptember 30, 2020 . The increase was primarily attributable to the following: •$50.9 million increase of employee salary and benefits, which was primarily attributable to the expansion of our commercial organizations inChina ,the United States ,Canada ,Europe and emerging markets, and the hiring of more personnel to support our growing business; •$32.2 million increase in external commercial-related expenses, including market research, sales and marketing, consulting and conference related expenses, related to the growth of our global commercial organization, as we continue to build our worldwide footprint and capabilities; •$14.8 million increase of professional fees, consulting, recruiting, information technology, tax, accounting and audit services, and 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 ,the United States andEurope ; and •$10.5 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 sales and administrative employee population. Interest Expense, Net Interest expense, net increased by$1.6 million , or 263.2%, to$2.2 million for the three months endedSeptember 30, 2021 , from$0.6 million for three months endedSeptember 30, 2020 . The increase in interest expense, net, was primarily attributable to decreased interest income resulting from lower interest rates, as well as increased interest expense resulting from increased debt balances. Other Income, Net Other income, net increased to$31.5 million for the three months endedSeptember 30, 2021 , from$5.7 million for the three months endedSeptember 30, 2020 . The increase was primarily attributable to the unrealized gain on our equity investment in Leap Therapeutics. Income Tax Benefit Income tax benefit was$19.2 million for the three months endedSeptember 30, 2021 , as compared to$8.4 million for the three months endedSeptember 30, 2020 . The income tax benefit for three months endedSeptember 30, 2021 andSeptember 30, 2020 was primarily attributable to the deferred tax benefit ofU.S. stock-based compensation deductions in excess of tax expense on income reported in certainChina subsidiaries as adjusted for certain non-deductible expenses. Comparison of the Nine Months EndedSeptember 30, 2021 and 2020 Revenue Total revenue increased to$962.3 million , or 360.9%, for the nine months endedSeptember 30, 2021 , from$208.8 million for the nine months endedSeptember 30, 2020 , primarily due to collaboration revenue from the Novartis arrangement, 40
--------------------------------------------------------------------------------
Table of Contents
increased sales of our internally developed products, as well as sales of XGEVA®, the first product licensed under our collaboration with Amgen, which commenced sales inChina inJuly 2020 . The following table summarizes the components of revenue for the nine months endedSeptember 30, 2021 and 2020, respectively: Nine Months Ended September 30, Changes 2021 2020 $ % (dollars in thousands) Product revenue$ 437,202 $ 208,774 $ 228,428 109.4 % Collaboration revenue: License revenue 484,646 - 484,646 NM Research and development service revenue 40,456 - 40,456 NM Total collaboration revenue 525,102 - 525,102 NM Total Revenue$ 962,304 $ 208,774 $ 753,530 360.9 %
Net product revenues consisted of the following:
Nine Months Ended
September 30, Changes
2021 2020 $ %
(dollars in thousands)
Tislelizumab $ 200,738 $ 99,877 $ 100,861 101.0 %
BRUKINSA® 130,345 23,353 106,992 458.2 %
REVLIMID® 46,984 38,914 8,070 20.7 %
VIDAZA® 12,771 26,198 (13,427) (51.3) %
ABRAXANE® - 17,381 (17,381) (100.0) %
XGEVA® 33,491 3,051 30,440 997.7 %
BLINCYTO® 5,040 - 5,040 NM
Pamiparib 3,737 - 3,737 NM
Other 4,096 - 4,096 NM
Total product revenue $ 437,202 $ 208,774 $ 228,428 109.4 %
Net product revenue increased 109.4% to $437.2 million for the nine months ended
September 30, 2021 , compared to $208.8 million in the prior year period,
primarily due to increased sales of tislelizumab in China and BRUKINSA® in the
United States and China , as well as sales of pamiparib, which we began selling
in China in May 2021 , partially offset by decreased sales of the BMS products
distributed in China . In addition, product revenues in the nine months ended
September 30, 2021 were positively impacted by sales of Amgen's XGEVA® and
BLINCYTO® in China , which we began distributing in July 2020 and August 2021 ,
respectively.
Product revenues in the nine months ended September 30, 2021 were negatively
impacted by an adjustment of $28.1 million as a result of compensating
distributors for products that remained in the distribution channel which were
sold during the first quarter, prior to applying the lower prices of the NRDL,
due to the first inclusion of tislelizumab, BRUKINSA®, and XGEVA® in the updated
NRDL by the NHSA, which became effective on March 1, 2021 . In the nine months
ended September 30, 2021 , the inclusion of tislelizumab, BRUKINSA®, and XGEVA®
in the NRDL significantly increased patient demand that more than offset the net
effect of price reductions as a result of NRDL inclusion.
Global sales of BRUKINSA® totaled $130.3 million in the nine months ended
September 30, 2021 , representing a 458% increase compared to the prior year
period; U.S. sales of BRUKINSA® totaled $59.8 million in the nine months ended
September 30, 2021 compared to $9.5 million in the comparable prior year period.
U.S. sales continued to accelerate in the period, driven by continued uptake in
MCL and the recent FDA approvals in WM and MZL. BRUKINSA® sales in China totaled
$70.5 million in the nine months ended September 30, 2021 , representing growth
of 408% compared to the prior year period, driven by a significant increase in
all approved indications, including CLL.
41--------------------------------------------------------------------------------
Table of Contents
Sales of tislelizumab inChina totaled$200.7 million in the nine months endedSeptember 30, 2021 , representing a 101% increase compared to the prior year period. In the nine months endedSeptember 30, 2021 , new patient demand from broader reimbursement and further expansion of our salesforce and hospital listings continued to drive increased market penetration and market share for tislelizumab. Collaboration revenue totaled$525.1 million for the nine months endedSeptember 30, 2021 .$484.6 million was recognized upon delivery of the license right and transfer of know-how to Novartis under our collaboration and license agreement with Novartis, and$40.5 million was recognized from deferred revenue for R&D services performed during the nine months endedSeptember 30, 2021 (see Footnote 3). We did not have any collaboration revenue during the nine months endedSeptember 30, 2020 . Cost of Sales Cost of sales increased to$116.4 million for the nine months endedSeptember 30, 2021 from$49.6 million for the nine months endedSeptember 30, 2020 , primarily due to increased product sales of tislelizumab, BRUKINSA®, and Amgen products, and were partially offset by lower sales of BMS in-licensed products. Gross Margin Gross margin on global product sales increased to$320.8 million for the nine months endedSeptember 30, 2021 , compared to$159.2 million in the prior year period, primarily due to increased product revenue in the current year period. Gross margin as a percentage of product sales decreased to 73.4% for the nine months endedSeptember 30, 2021 , from 76.3% in the comparable period of the prior year. The decrease is primarily due to the impact of the accrued compensation in the first quarter of 2021 to customers for sales of tislelizumab, BRUKINSA®, and XGEVA® that remained in the channel and were sold at the pre-NRDL price, as well as the ongoing lower prices resulting from the listing on the NRDL. These negative impacts to our gross margin were partially offset by a proportionally higher sales mix of global BRUKINSA® sales compared to lower margin sales of in-licensed products. Pre-launch inventory carried at zero or low cost consumed during the nine months endedSeptember 30, 2021 andSeptember 30, 2020 was immaterial and did not have a significant impact on our gross margin. Research and Development Expense Research and development expense increased by$89.4 million , or 9.5%, to$1,028.8 million for the nine months endedSeptember 30, 2021 from$939.3 million for the nine months endedSeptember 30, 2020 . The following table summarizes external clinical, external non-clinical and internal research and development expense for the nine months endedSeptember 30, 2021 and 2020, respectively: Nine Months Ended September 30, Changes 2021 2020 $ % (dollars in thousands) External research and development expense: Cost of development programs$ 336,564 $ 353,953 $ (17,389) (4.9) % Upfront license fees 53,500 109,500 (56,000) (51.1) % Amgen co-development expense1 85,040 87,498 (2,458) (2.8) % Total external research and development expenses 475,104 550,951 (75,847) (13.8) % Internal research and development expenses 553,650 388,389 165,261 42.6 % Total research and development expenses$ 1,028,754 $ 939,340 $ 89,414 9.5 % 1 Our co-funding obligation for the development of the pipeline assets under the Amgen collaboration for the nine months endedSeptember 30, 2021 totaled$167.9 million , of which$85.0 million was recorded as R&D expense. The remaining$82.8 million was recorded as a reduction of the R&D cost share liability. The decrease in external research and development expenses in the nine months endedSeptember 30, 2021 was primarily attributable to a decrease of$56.0 million related to upfront license fees under collaboration agreements, decreases in external spending for BRUKINSA® and pamiparib, and a decrease in the expense recognized on co-development fees to Amgen. 42
--------------------------------------------------------------------------------
Table of Contents
Internal research and development expense increased$165.3 million , or 42.6%, to$553.7 million and was primarily attributable to the expansion of our global development organization and our clinical and preclinical drug candidates, as well as our continued efforts to internalize research and clinical trial activities, and included the following: •$84.1 million increase of employee salary and benefits, primarily attributable to hiring more research and development personnel to support our expanding research and development activities; •$39.2 million increase of facilities, depreciation, office expense, rental fees, and other expenses to support the growth of our organization; •$19.2 million increase of consulting fees, which was mainly attributable to increased travel and meeting expense related to scientific, regulatory and development consulting activities, in connection with the advancement of our drug candidates; •$14.2 million increase of share-based compensation expense, primarily attributable to our increased headcount of research and development employees, resulting in more awards being expensed related to the growing research and development employee population; and •$8.4 million increase of materials and reagent expenses, primarily in connection with the in-house manufacturing of drug candidates used for clinical purposes. Selling, General and Administrative Expense Selling, general and administrative expense increased by$291.7 million , or 74.4%, to$683.6 million , for the nine months endedSeptember 30, 2021 , from$392.0 million for the nine months endedSeptember 30, 2020 . The increase was primarily attributable to the following: •$128.4 million increase of employee salary and benefits, which was primarily attributable to the expansion of our commercial organizations inChina ,the United States ,Canada ,Europe and emerging markets, and the hiring of more personnel to support our growing business; •$99.1 million increase in external commercial-related expenses, including market research, sales and marketing, consulting and conference related expenses, related to the growth of our global commercial organization, as we continue to build our worldwide footprint and capabilities; •$34.7 million increase of professional fees, consulting, recruiting, information technology, tax, accounting and audit services, and 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 ,the United States andEurope ; and •$29.4 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 sales and administrative employee population. Interest (Expense) Income, Net Interest (expense) income, net decreased by$18.5 million , or 256.9%, to$11.3 million of net interest expense for the nine months endedSeptember 30, 2021 , from$7.2 million of net interest income for nine months endedSeptember 30, 2020 . The decrease in interest income, net, was primarily attributable to decreased interest income, as a result of lower interest rates, as well as increased interest expense, resulting from higher debt balances. Other Income, Net Other income, net decreased to$26.5 million for the nine months endedSeptember 30, 2021 , from$29.4 million for the nine months endedSeptember 30, 2020 . The income in the current year period was primarily due to the unrealized gain on our investment in Leap Therapeutics. The income in the prior year period resulted from unrealized gains on equity investments, as well as a gain recognized in conjunction with the deconsolidation of MapKure. Income Tax Benefit Income tax benefit was$24.1 million for the nine months endedSeptember 30, 2021 , as compared to$8.3 million for the nine months endedSeptember 30, 2020 . The income tax benefit for nine months endedSeptember 30, 2021 was primarily 43
--------------------------------------------------------------------------------
Table of Contents
attributable to the deferred tax benefit of
As of
September 30, December 31,
2021 2020
(dollars in thousands)
Cash, cash equivalents and restricted cash $ 1,389,696 $ 1,390,005
Short-term investments $ 2,533,617 $ 3,268,725
Total debt $ 643,278 $ 518,652
With the exception of the periods in which we received upfront payments from
out-licensing rights to tislelizumab to Novartis, and prior to that BMS, we have
incurred net losses and negative cash flows from operations since inception,
resulting from the funding of our research and development programs and selling,
general and administrative expenses associated with our operations, as well as
to support the commercialization of our products globally. We recognized net
losses of $413.9 million and $827.7 million , respectively, for the three and
nine months ended September 30, 2021 , and net losses of $426.6 million and $1.1
billion , respectively, for the three and nine months ended September 30, 2020 .
As of September 30, 2021 , we had an accumulated deficit of $4.4 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 . Based on our
current operating plan, we expect that our existing cash, cash equivalents and
short-term investments as of September 30, 2021 will enable us to fund our
operating expenses and capital expenditure requirements for at least the next 12
months after the date that the financial statements included in this report are
issued.
On June 28, 2021 , the Listing Committee of the Science and Technology Innovation
Board (the "STAR Market") of the Shanghai Stock Exchange (the "SSE") approved
the listing application which we submitted in January 2021 to the SSE for a
proposed public offering of our ordinary shares and listing of such shares on
the STAR Market of the SSE (the "STAR Offering"). The STAR Offering will be
conducted within the PRC, and such shares will be issued to and subscribed for
by investors in Renminbi ("RMB") in the PRC and listed and traded on the STAR
Market in RMB (the "RMB Shares"). The number of RMB Shares (including the
over-allotment option) to be issued will not exceed 132,313,549 ordinary shares,
representing no more than 10% of the sum of the total number of our issued
ordinary shares as of January 7, 2021 and the total number of RMB Shares to be
issued in the STAR Offering. On July 28, 2021 , we filed a registration
application for the STAR Offering with the China Securities Regulatory
Commission ("CSRC"), including an updated prospectus. The consummation of STAR
Offering is subject to, among other things, market conditions and additional
regulatory approvals, including registration granted by the China Securities
Regulatory Commission .
In January 2021 , we entered into a collaboration and license agreement with
Novartis Pharma AG ("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 subsequent to closing of the transaction on February 26, 2021 .
44--------------------------------------------------------------------------------
Table of Contents
The following table provides information regarding our cash flows for the
nine months ended
Nine Months Ended
September 30,
2021 2020
(dollars in thousands)
Cash, cash equivalents and restricted cash at beginning of period $ 1,390,005 $ 620,775
Net cash used in operating activities (790,884) (951,127)
Net cash provided by (used in) investing activities 531,549 (3,081,441)
Net cash provided by financing activities 252,257 4,877,168
Net effect of foreign exchange rate changes 6,769 4,340
Net (decrease) increase in cash, cash equivalents, and restricted cash
(309) 848,940 Cash, cash equivalents and restricted cash at end of period $
1,389,696
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$790.9 million of cash in the nine months endedSeptember 30, 2021 , which resulted principally from our net loss of$827.7 million and an increase in our net operating assets and liabilities of$107.0 million , partially offset by non-cash charges of$143.8 million . The non-cash charges 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 and deferred income tax benefits. The increase in working capital was driven largely by increases in accounts receivable, inventory and prepaid expenses, and a decrease in accounts payable and accrued expenses, partially offset by an increase in deferred revenue resulting from the upfront payment from Novartis. Operating activities used$951.1 million of cash in the nine months endedSeptember 30, 2020 , which resulted principally from our net loss of$1.1 billion , partially offset by non-cash charges of$133.3 million and a decrease in our net operating assets and liabilities of$43.5 million . The non-cash charges were primarily driven by share-based compensation expense, offset by amortization of the research and development cost share liability. The decrease in working capital was driven primarily by an increase in accounts payable and accrued expenses and a decrease in accounts receivable, partially offset by increases in inventories and other assets and a decrease in other long-term liabilities. Investing Activities Cash flows from investing activities consist primarily of capital expenditures, investment purchases, sales, maturities, and disposals, and upfront payments related to our collaboration agreements. Investing activities provided$531.5 million of cash in the nine months endedSeptember 30, 2021 , consisting of sales and maturities of investment securities of$2.8 billion , offset by$2.1 billion in purchases of investment securities, capital expenditures of$148.0 million ,$8.5 million of acquired in-process research and development, and a$7.5 million collaboration milestone payment. Investing activities used$3.1 billion of cash in the nine months endedSeptember 30, 2020 , consisting of$4.9 billion in purchases of investment securities,$89.5 million of acquired in-process research and development, capital expenditures of$82.8 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$2.0 billion . Financing Activities Cash flows from financing activities consist primarily of sale of ordinary shares and ADSs through equity offerings, issuance and repayment of short-term and long-term debt, and proceeds from the sale of ordinary shares and ADSs through employee equity compensation plans. Financing activities provided$252.3 million of cash in the nine months endedSeptember 30, 2021 , consisting primarily of$143.5 million from proceeds of short-term bank loans,$82.2 million from the exercise of employee share options and proceeds from the issuance of shares through our employee share purchase plan,$50.0 million from the sale of our shares to Amgen, and 45
--------------------------------------------------------------------------------
Table of Contents
$16.8 million from proceeds of long-term bank loans. These inflows were partially offset by$40.2 million of repayment of short-term bank loans. Financing activities provided$4.9 billion of cash in the nine months endedSeptember 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$2.1 billion from a registered direct offering of ordinary shares to certain existing investors,$75.8 million from the exercise of employee share options and proceeds issuance of shares through our employee share purchase plan,$64.3 million from proceeds of a long-term bank loan, and$49.0 million from proceeds of short-term bank loans. These inflows were partially offset by the repayment of the Shareholder Loan principal with GET and the prepayment$28.7 million of the remaining 5% minority interest inBeiGene Biologics. OnOctober 9, 2020 , the Company drew down$198.3 million of additional debt related to the JV share repurchase and Shareholder Loan repayment. 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 in exchange rates may have a significant impact on our consolidated cash balances. Operating Capital Requirements We expect to continue to incur losses for the foreseeable future and expect these losses to increase in the near term, as we continue to develop and seek regulatory approvals for our product candidates, expand our research and manufacturing facilities and activities, and commercialize both our internally developed and in-licensed products. The size of our future net losses will depend, in part, on the number and scope of our development programs and the associated costs of those programs, our ability to generate product revenue, and the timing and amount of payments we make or receive from arrangements with third parties. If any of our medicines and 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 future capital requirements will depend on many factors, including: •our ability to successfully commercialize our internally developed and in-licensed medicines and drug candidates, if approved; •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 medicines 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 propertyrelated claims; •the costs of establishing and expanding our commercial operations and the success of those operations; •the extent to which we acquire or inlicense other products and technologies; and •our ability to establish and maintain 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. InMay 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 46
--------------------------------------------------------------------------------
Table of Contents
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 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 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 medicines or drug candidates, 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. Contractual Obligations and Commitments The following table summarizes our significant contractual obligations as of the payment due date by period atSeptember 30, 2021 : Payments Due by Period Less Than More Than Total 1 Year 1-3 Years 3-5 Years 5 Years (dollars in thousands) Contractual obligations Operating lease commitments$ 61,174
268,498 190,897 33,184 30,757 13,660
Debt obligations 643,278 442,372 35,873 75,234 89,799
Interest on debt 71,513 36,592 17,390 12,162 5,369
Co-development funding commitment 851,124 311,750 539,374 - -
Funding commitment 13,500 4,500 4,500 4,500 -
Research and development commitment 74,392 50,617 11,744 12,031 -
Pension plan 7,863 1,285 2,570 2,570 1,438
Capital commitments 57,720 57,720 - - -
Total $ 2,049,062 $ 1,100,592 $ 681,642 $ 155,254 $ 111,574
Operating Lease Commitments
We lease office or manufacturing facilities in Beijing , Shanghai , Suzhou and
Guangzhou in China ; office facilities in California , Massachusetts , Maryland ,
and New Jersey in the United States ; and office facilities in Basel, Switzerland
under non-cancelable operating leases expiring on various dates. Payments under
operating leases are expensed on a straight-line basis over the respective lease
terms. The aggregate future minimum payments under these non-cancelable
operating leases are summarized in the table above.
Purchase Commitments
As of September 30, 2021 , purchase commitments amounted to $268.5 million , of
which $77.6 million related to minimum purchase requirements for supply
purchased from contract manufacturers and $190.9 million related to binding
purchase obligations of inventory from BMS and Amgen. We do not have any minimum
purchase requirements for inventory from BMS or Amgen.
47--------------------------------------------------------------------------------
Table of Contents
Debt Obligations The following table summarizes our short-term debt and long-term bank loans as ofSeptember 30, 2021 (amounts in thousands, except for percentage data): Lender Agreement Date Line of Credit Term Maturity Date Interest Rate September 30, 2021 $ RMB China Construction Bank April 4, 2018RMB580,000 9-year April 4, 2027 (1) 776 5,000 China Merchants Bank January 22, 2020 (2) 9-year January 20, 2029 (2) 1,164 7,500China Minsheng Bank (the "Senior Loan") September 24, 2020$200,000 (3) 5.8 % 198,320 1,277,835 Zhuhai Hillhouse (the "Related Party Loan") September 24, 2020RMB500,000 (4) 5.8 % 15,520 100,000 Other short-term debt (5) 226,592 1,460,000 Total short-term debt 442,372 2,850,335 China Construction Bank April 4, 2018RMB580,000 9-year April 4, 2027 (1) 89,085 574,000 China Merchants Bank January 22, 2020 (2) 9-year January 20, 2029 (2) 53,156 342,500 China Merchants Bank November 9, 2020RMB378,000 9-year November 8, 2029 (6)
58,665 378,000
Total long-term bank loans 200,906 1,294,500
1.The outstanding borrowings bear floating interest rates benchmarking RMB loan
interest rates of financial institutions in the PRC. The loan interest rate was
4.9% as of September 30, 2021 . The loan is secured by BeiGene Guangzhou
Factory's land use right and certain Guangzhou Factory fixed assets in the first
phase of the Guangzhou manufacturing facility's build out. The Company repaid
$155 (RMB1,000 ) during the nine months ended September 30, 2021 .
2.On January 22, 2020 , BeiGene Guangzhou Factory entered into a nine-year bank
loan with China Merchants Bank to borrow up to RMB1,100,000 at a floating
interest rate benchmarked against prevailing interest rates of certain PRC
financial institutions. The loan is secured by Guangzhou Factory's second land
use right and fixed assets that will be placed into service upon completion of
the second phase of the Guangzhou manufacturing facility's build out. In
connection with the Company's short-term loan agreements with China Merchants
Bank entered into during the year ended December 31, 2020 , the borrowing
capacity was reduced from RMB1,100,000 to RMB350,000 . The loan interest rate was
4.4% as of September 30, 2021 .
3.$120,000 of the Senior Loan was designated to fund the JV share purchase and
repayment of the shareholder loan and $80,000 was designated for general working
capital purposes. The Senior Loan has an original maturity date of October 8,
2021 , which is the first anniversary of the first date of utilization of the
loan. The Company may extend the original maturity date for up to two additional
12 month periods.
4.RMB100,000 of the Related Party Loan was designated for general corporate
purposes and RMB400,000 was designated for repayment of the Senior Loan,
including principal, interest and fees. The loan matures at the earlier of: (i)
November 9, 2021 , which is one month after the Senior Loan maturity date, if not
extended, or (ii) 10 business days after the Senior Loan is fully repaid. Zhuhai
Hillhouse is a related party of the Company, as it is an affiliate of Hillhouse
Capital . Hillhouse Capital is a shareholder of the Company, and a Hillhouse
Capital employee is a member of the Company's board of directors.
5.During the year ended December 31, 2020 , the Company entered into additional
short-term working capital loans with China Industrial Bank and China Merchants
Bank to borrow up to RMB1,480,000 in aggregate, with maturity dates ranging from
April 19, 2021 to September 8, 2022 . The Company drew down $143,456 (RMB930,082 )
during the nine months ended September 30, 2021 . The Company repaid $40,074
(RMB260,000 ) of the short-term loans in the nine months ended September 30,
2021 . The weighted average interest rate for the short-term working capital
loans was approximately 4.3% as of September 30, 2021 . One of the short-term
working capital loans outstanding in the amount of $9,312 (RMB60,000 ) is secured
by the Company's research and development facility in Beijing and the associated
land use right owned by its subsidiary, Beijing Innerway Bio-tech Co., Ltd.
6.The outstanding borrowings bear floating interest rates benchmarking RMB loan
interest rates of financial institutions in the PRC. The loan interest rate was
4.3% as of September 30, 2021 . The Company drew down $16,838 (RMB107,794 ) during
the nine months ended September 30, 2021 . The loan is secured by fixed assets
that will be placed into service upon completion of the third phase of the
Guangzhou manufacturing facility's build out.
Interest on Debt
Interest on bank loans and the Related Party Loan is paid quarterly until the
respective loans are fully settled. For the purpose of contractual obligations
calculation, current interest rates on floating rate obligations were used for
the remainder contractual life of the outstanding borrowings.
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
48--------------------------------------------------------------------------------
Table of Contents
contributing cash and development services. As ofSeptember 30, 2021 , our remaining co-development funding commitment was$0.85 billion . Funding Commitment Funding commitment represents our committed capital related to one of our equity method investments in the amount of$15.0 million . As ofSeptember 30, 2021 , our remaining capital commitment was$13.5 million and is expected to be paid from time to time over the investment period. Research and Development Commitment We entered into a long-term research and development agreement during the three months endedSeptember 30, 2021 , which includes obligations to make an upfront payment and fixed quarterly payments over the next five years. As ofSeptember 30, 2021 , the total research and development commitment amounted to$74.4 million . Pension Plan We maintain a defined benefit pension plan inSwitzerland . Funding obligations under the defined benefit pension plan are equivalent to$1.3 million per year based on annual funding contributions in effect as ofSeptember 30, 2021 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$57.7 million for the acquisition of property, plant and equipment as ofSeptember 30, 2021 , which was primarily forBeiGene Guangzhou Factory's manufacturing facility, expansion of BGC's research and development activities inGuangzhou, China , and research and development operations at our Changping facility inBeijing, China . Other Business Agreements We enter into agreements in the ordinary course of business with contract research organizations to provide research and development services. These contracts are generally cancellable 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 these 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 During the periods presented we did not have, and we do not currently have, any offbalance 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, valuation and recognition of 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 49
--------------------------------------------------------------------------------
Table of Contents
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 nine months endedSeptember 30, 2021 , as compared to those described in the section titled "Part I-Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . For new accounting policies adopted during the three and nine months endedSeptember 30, 2021 , 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$1.4 billion and$1.4 billion , restricted cash of$6.4 million and$8.1 million , and short-term investments of$2.5 billion and$3.3 billion atSeptember 30, 2021 andDecember 31, 2020 , respectively. AtSeptember 30, 2021 , 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. AtSeptember 30, 2021 , 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 shortterm 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 increase or decrease in market interest rates would result in a decrease of$19.6 million or an increase of$3.2 million , respectively, as ofSeptember 30, 2021 . 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. 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, Euro, and Australian dollar. 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. Since 2005, the RMB has been permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. The RMB compared to theU.S. dollar appreciated approximately 0.3% in the nine months endedSeptember 30, 2021 and appreciated approximately 6.3% in the year endedDecember 31, 2020 , 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. 50
--------------------------------------------------------------------------------
Table of Contents
To the extent that we need to convertU.S. dollars into RMB for capital expenditures, 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. In addition, a significant depreciation of the RMB against theU.S. dollar may significantly reduce theU.S. dollar equivalent of our 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. Currency Convertibility Risk A significant portion of our expenses, assets, and liabilities are denominated in RMB. In 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 nine months endedSeptember 30, 2021 . 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 ofSeptember 30, 2021 , 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 endedSeptember 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 51
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
