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 "Part I - 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 our partners pursuant to our global strategic oncology collaborations; 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 ,China ,UK , 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, ordinary shares and RMB Shares, and impact of securities analysts' reports on these prices; our foreign currency risk exposure due to fluctuations in exchange rates; 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. , aCayman Islands holding company with operations conducted by its subsidiaries, and its subsidiaries, on a consolidated basis.
Overview
We are a global biotechnology company focused on developing and commercializing innovative and affordable oncology medicines to improve treatment outcomes and expand access for patients worldwide. We currently have three approved medicines that were discovered and developed in our own labs, including BRUKINSA®, a small molecule inhibitor of Bruton's Tyrosine Kinase (BTK) for the treatment of various blood cancers; tislelizumab, an anti-PD-1 antibody immunotherapy for the treatment of various solid tumor and blood cancers; and pamiparib, a selective small molecule inhibitor of PARP1 and PARP2. We have obtained approvals to market BRUKINSA® inthe United States ,China , 29
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EU, theUK ,Canada ,Australia and additional international markets, and tislelizumab and pamiparib inChina . By leveraging ourChina commercial capabilities, we have in-licensed the rights to distribute 13 approved medicines for theChina market. Supported by our global clinical development and commercial capabilities, we have entered into collaborations with world-leading biopharmaceutical companies such as Amgen Inc. ("Amgen") andNovartis Pharma AG ("Novartis") to develop and commercialize innovative medicines. We are committed to advancing best and first-in-class clinical candidates internally or with like-minded partners to develop impactful and affordable medicines for patients across the globe. Our internal clinical development capabilities are deep, including a more than 2,500-person global clinical development team that is running close to 80 ongoing or planned clinical trials in over 40 medicines and drug candidates. This includes more than 30 pivotal or potentially registration-enabling trials across our portfolio, including our three internally discovered, approved medicines. We have enrolled in our clinical trials more than 16,000 subjects, of which approximately one-half have been outside ofChina .
We have built, and are expanding, our internal manufacturing capabilities
through our state-of-the-art biologic and small molecule manufacturing
facilities in
Since our inception in 2010, we have become a fully integrated global
organization of over 8,600 employees in 29 countries and regions, including
Recent Developments
Recent Business Developments
OnJuly 14, 2022 , we announced that theU.S. Food and Drug Administration (FDA) has deferred action on the Biologics License Application (BLA) for tislelizumab as a second-line treatment for patients with unresectable or metastatic esophageal squamous cell carcinoma. In theFDA's general advice letter communicating the deferral of action, the FDA cited only the inability to complete inspections due to restrictions on travel as the reason for the deferral and did not provide a new anticipated action date as they continue to monitor the public health situation and travel restrictions. OnJune 30, 2022 , we announced new data from RATIONALE 306, a global Phase 3 trial evaluating tislelizumab plus chemotherapy in adult patients with advanced or metastatic esophageal squamous cell carcinoma (ESCC) without prior systemic treatment for advanced disease, presented as a late-breaking oral presentation at the 2022European Society for Medical Oncology (ESMO) World Congress on Gastrointestinal Cancer . OnJune 21, 2022 , we announced that theCenter for Drug Evaluation (CDE) of theChina National Medical Products Administration (NMPA) has accepted a supplemental biologics license application (sBLA) for the our anti-PD-1 inhibitor, tislelizumab, in combination with chemotherapy as a first-line treatment for patients with advanced or metastatic gastric or gastroesophageal junction adenocarcinoma whose tumors express PD-L1. OnJune 13, 2022 , we announced that our BTK inhibitor BRUKINSA® (zanubrutinib) has been approved by the Ministry of Health inKuwait , theNational Health Regulatory Authority inBahrain and theMinistry of Public Health inQatar for the treatment of adult patients with mantle cell lymphoma (MCL) who have received at least one prior therapy. We are working withNewBridge Pharmaceuticals , a specialty company in theMiddle East andNorth Africa (MENA) regions established to bridge the access gap by partnering with global pharma and biotech companies, to bring BRUKINSA® to patients inKuwait ,Bahrain ,Qatar ,Saudi Arabia ,United Arab Emirates , and other markets in the MENA region following regulatory approvals. OnJune 13, 2022 , we announced that the FDA has extended the Prescription Drug User Fee Act (PDUFA) goal date for the supplementary new drug application (sNDA) for BRUKINSA® as a treatment for adult patients with chronic lymphocytic leukemia (CLL) or small lymphocytic lymphoma (SLL) by three months toJanuary 20, 2023 . The FDA extended the PDUFA goal date to allow time to review additional clinical data submitted by us, which was deemed a major amendment to the sNDA. The submission included final response analysis from the global ALPINE clinical trial showing BRUKINSA® demonstrated superiority versus ibrutinib in overall response rate (ORR) as assessed by an Independent Review Committee (IRC) in adult patients with relapsed or refractory (R/R) CLL or SLL. We announced this final response analysis onApril 11, 2022 . OnJune 10, 2022 , we announced that the NMPA approved our anti-PD-1 antibody, tislelizumab, in combination with chemotherapy as a first-line treatment for patients with recurrent or metastatic nasopharyngeal cancer (NPC).
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Components of Operating Results
Revenue
Product Revenue
We generate product revenue through the sale of our three internally developed products and our in-licensed medicines from our partners.
Revenues from product sales are recognized when there is a transfer of control from the Company to the customer. The Company determines transfer of control based on when the product is delivered, and title passes to the customer. Revenues from product sales are recognized net of variable consideration resulting from rebates, chargebacks, trade discounts and allowances, sales returns allowances and other incentives. Provisions for estimated reductions to revenue are provided for in the same period the related sales are recorded and are based on contractual terms, historical experience and trend analysis.
Collaboration Revenue
We recognize collaboration revenue 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 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 tislelizumab R&D services was deferred and is being recognized as collaboration revenue as the tislelizumab 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. InDecember 2021 , we expanded our collaboration with Novartis by entering into an option, collaboration and license agreement with Novartis to develop, manufacture and commercialize our investigational TIGIT inhibitor ociperlimab in the Novartis Territory. In addition, we entered into an agreement with Novartis which granted us rights to market, promote and detail five approved Novartis oncology products, TAFINLAR® (dabrafenib), MEKINIST® (trametinib), VOTRIENT® (pazopanib), AFINITOR® (everolimus), and ZYKADIA® (ceritinib), across designated regions ofChina referred to as "broad markets." There were three performance obligations identified at the outset of the arrangement: (1) a material right for the option to the exclusive product license, (2) the right to access ociperlimab in clinical trials during the option period provided to Novartis, combined with the initial transfer ofBeiGene know-how, and (3) conducting ociperlimab R&D services. The market development activities are considered immaterial in the context of the agreements. Under this agreement, we received an upfront cash payment, which was allocated between the three performance obligations identified in the agreement based on the relative standalone selling prices of the performance obligations. The portion allocated to the material right was deferred and will be recognized at the earlier of when Novartis exercises the option and the license is delivered or the expiration of the option period. The portion of the transaction price allocated to Novartis' right to access ociperlimab in its own clinical trials during the option period and the initial transfer ofBeiGene know-how was deferred and is being recognized over the expected option period. The portion of the transaction price allocated to the ociperlimab R&D services was deferred and is being recognized as collaboration revenue as the ociperlimab R&D services are performed over the expected option period. The option exercise fee under the ociperlimab agreement is contingent upon Novartis exercising its right, and is considered fully constrained until the option is exercised. The potential milestone payments that we are eligible to receive under both of the Novartis collaborations were excluded from the initial transaction prices, 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.
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 . Additionally, cost of sales included the cost of in-licensed products purchased for sale
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in the PRC. Costs to manufacture inventory in preparation for commercial launch of a product incurred prior to regulatory approval are expensed to research and development expense as incurred. Cost of sales for newly launched products will not be recorded until the initial pre-launch inventory is depleted and additional inventory is manufactured. To date, the Company's initial pre-launch inventory for its commercial products has been immaterial and has not had a significant impact on the Company's gross margin.
Research and Development Expenses
Research and development expenses consist of the costs associated with our research and development activities, conducting preclinical studies and clinical trials, and activities related to regulatory filings. Our research and development expenses consist of:
•expenses incurred under agreements with contract research organizations (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;
•ociperlimab, an investigational humanized monoclonal antibody against TIGIT;
•pamiparib, a selective small molecule inhibitor of PARP1 and PARP2;
•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 ("CDAC"), targeting BTK; and
•BGB-A425, an investigational humanized monoclonal antibody against TIM-3;
•BGB-10188, an investigational PI3K? inhibitor;
•BGB-23339, a potent, allosteric investigational tyrosine kinase 2 (TYK2) inhibitor; and
•LBL-007, a novel investigational antibody targeting the LAG-3 pathway
Research and development activities also include costs associated with in-licensed drug candidates, including:
•R&D expense related to the co-development of pipeline assets under the Amgen collaboration agreement. Our total cost share obligation to Amgen is split between R&D expense and a reduction to the R&D cost share liability;
•sitravatinib, an investigational, spectrum-selective kinase inhibitor, licensed from Mirati Therapeutics, Inc. ("Mirati");
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•ZW25 (zanidatamab) and ZW49, two investigational bispecific antibody-based
product candidates targeting HER2, licensed from Zymeworks Inc. ("Zymeworks");
and
•POBEVCY® (BAT1706), a biosimilar to Avastin® (bevacizumab), licensed from Bio-Thera Solutions, Ltd. (Bio-Thera).
We expense research and development costs when incurred. We record costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information our vendors provide to us. We expense the manufacturing costs of our internally 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 and in-licensed medicines and drug candidates. 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 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 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, 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,
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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, ordinary shares and RMB Shares listed for trading on The Nasdaq Global Select Market,The Hong Kong Stock Exchange and The STAR Market of theShanghai Stock Exchange , respectively.
Interest Income (Expense), Net
Interest Income
Interest income consists primarily of interest generated from our
RMB-denominated cash deposits and short-term investments in money market funds,
time deposits,
Interest Expense
Interest expense consists primarily of interest on our bank loans and related party loan.
Other Income (Expense), Net Other income (expense) consists primarily of gains and losses recognized related to fluctuations in foreign currency exchange rates, gains and losses on equity investments, government grants and subsidies received that involve no conditions or continuing performance obligations by us, unrealized gains and losses on equity securities, and realized gains and losses on the sale of investments. We hold significant cash in the form of RMB-denominated deposits atU.S. functional currency entities, including a large portion of the cash generated from the STAR Market offering inDecember 2021 . Other income (expense) includes the revaluation gains and losses of these cash deposits based on foreign currency exchange rates.
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Results of Operations
The following table summarizes our results of operations for the three and six
months ended
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(dollars in thousands)
Revenues
Product revenue, net $ 304,511 $ 138,624 $ 165,887 119.7 % $ 566,084 $ 244,741 $ 321,343 131.3 %
Collaboration revenue 37,061 11,368 25,693 226.0 % 82,114 511,123 (429,009) (83.9) %
Total revenues 341,572 149,992 191,580 127.7 % 648,198 755,864 (107,666) (14.2) %
Expenses
Cost of sales - product 71,173 36,263 34,910 96.3 % 136,410 68,948 67,462 97.8 %
Research and development 378,207 356,091 22,116 6.2 % 768,122 676,817 91,305 13.5 %
Selling, general and administrative 331,403 232,289 99,114 42.7 % 625,976 414,395 211,581 51.1 %
Amortization of intangible assets 188 187 1 0.5 % 376 375 1 0.3 %
Total expenses 780,971 624,830 156,141 25.0 % 1,530,884 1,160,535 370,349 31.9 %
Loss from operations (439,399) (474,838) 35,439 (7.5) % (882,686) (404,671) (478,015) 118.1 %
Interest income (expense), net 11,431 (4,866) 16,297 (334.9) % 21,502 (9,045) 30,547 (337.7) %
Other expense, net (129,617) (867) (128,750) 14,850.1 % (117,650) (4,990) (112,660) 2,257.7 %
Loss before income taxes (557,585) (480,571) (77,014) 16.0 % (978,834) (418,706) (560,128) 133.8 %
Income tax expense (benefit) 13,864 (230) 14,094 (6,127.8) % 26,889 (4,860) 31,749 (653.3) %
Net loss $ (571,449) $ (480,341) $ (91,108) 19.0 % $ (1,005,723) $ (413,846) $ (591,877) 143.0 %
Comparison of the Three Months Ended
Revenue
Total revenue increased to$341.6 million for the three months endedJune 30, 2022 , from$150.0 million for the three months endedJune 30, 2021 , primarily due to an increase in sales of BRUKINSA and tislelizumab, as well as increased sales of our in-licensed products from Amgen and sales of POBEVCY from Bio-Thera.
The following table summarizes the components of revenue for the three months
ended
Three Months Ended
June 30, Changes
2022 2021 $ %
(dollars in thousands)
Product revenue $ 304,511 $ 138,624 $ 165,887 119.7 %
Collaboration revenue:
Research and development service revenue 10,813 11,368 (555) (4.9) %
Right to access intellectual property revenue 26,248 - 26,248 NM
Total collaboration revenue 37,061 11,368 25,693 226.0 %
Total Revenue $ 341,572 $ 149,992 $ 191,580 127.7 %
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Net product revenues consisted of the following:
Three Months Ended
June 30, Changes
2022 2021 $ %
(dollars in thousands)
BRUKINSA® $ 128,747 $ 42,423 $ 86,324 203.5 %
Tislelizumab 104,879 74,879 30,000 40.1 %
REVLIMID® 19,916 10,146 9,770 96.3 %
XGEVA® 15,509 3,338 12,171 364.6 %
POBEVCY® 12,983 - 12,983 NM
BLINCYTO® 9,530 - 9,530 NM
KYPROLIS® 4,092 - 4,092 NM
VIDAZA® 3,434 3,255 179 5.5 %
Pamiparib 2,022 2,221 (199) (9.0) %
Other 3,399 2,362 1,037 43.9 %
Total product revenue $ 304,511 $ 138,624 $ 165,887 119.7 %
Net product revenue increased 119.7% to $304.5 million for the three months
ended June 30, 2022 , compared to $138.6 million in the prior year period,
primarily due to continued increases in sales of BRUKINSA® in the United States
and China and tislelizumab in China . In addition, product revenues in the second
quarter of 2022 were positively impacted by sales of Amgen's BLINCYTO® and
KYPROLIS® in China , which we began distributing in August 2021 and January 2022 ,
respectively, as well as Bio-Thera's POBEVCY®, which we began selling in January
2022 . During the quarter ended June 30, 2022 , we continued to see increased
patient demand in China for tislelizumab and BRUKINSA® due to the inclusion on
the National Reimbursement Drug List (NRDL), and this demand more than offset
the effect of the related price reductions.
Global sales of BRUKINSA® totaled $128.7 million in the second quarter,
representing a 203.5% increase compared to the prior year period; U.S. sales of
BRUKINSA® totaled $88.4 million in the second quarter, compared to $15.9 million
in the prior year period, representing growth of 456.3%. U.S. sales continued to
accelerate in the quarter, driven by continued uptake in all approved
indications. BRUKINSA® sales in China totaled $36.7 million in the second
quarter, representing growth of 38.7% compared to the prior year period, driven
by a significant increase in all approved indications, including chronic
lymphocytic leukemia (CLL) and small lymphocytic lymphoma (SLL).
Sales of tislelizumab in China totaled $104.9 million in the second quarter,
compared to $74.9 million in the prior year period, representing a 40.1%
increase. In the second 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 2022.
Collaboration revenue totaled $37.1 million for the three months ended June 30,
2022 , of which $10.8 million was recognized from deferred revenue for R&D
services performed during the three months ended June 30, 2022 under both the
tislelizumab and ociperlimab collaborations, and $26.2 million was recognized
from deferred revenue for Novartis' right to access ociperlimab over the option
period. Collaboration revenue totaled $11.4 million for the three months ended
June 30, 2021 , which was recognized from deferred revenue for R&D services
performed during the three months ended June 30, 2021 (see Footnote 3).
Cost of Sales
Cost of sales increased to$71.2 million for the three months endedJune 30, 2022 from$36.3 million for the three months endedJune 30, 2021 , primarily due to increased product sales of BRUKINSA® and tislelizumab, as well as initial sales of BLINCYTO®, which we began selling inAugust 2021 , and initial sales of KYPROLIS® and POBEVCY®, which we began selling inJanuary 2022 .
Gross Margin
Gross margin on global product sales increased to$233.3 million for the three months endedJune 30, 2022 , compared to$102.4 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 increased to 76.6% for the three months endedJune 30, 2022 , from 73.8% in the comparable period
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of the prior year. The increase is primarily due to a proportionally higher sales mix of global BRUKINSA® compared to lower margin sales of in-licensed products, which offset the impact of the lower prices resulting from the listing of tislelizumab and BRUKINSA® on the updated NRDL inJanuary 2022 . Pre-launch inventory carried at zero or low cost consumed during the three months endedJune 30, 2022 andJune 30, 2021 was immaterial and did not have a significant impact on our gross margin.
Research and Development Expense
Research and development expense increased by$22.1 million , or 6.2%, to$378.2 million for the three months endedJune 30, 2022 from$356.1 million for the three months endedJune 30, 2021 . The following table summarizes external clinical, external non-clinical and internal research and development expense for the three months endedJune 30, 2022 and 2021, respectively: Three Months Ended June 30, Changes 2022 2021 $ % (dollars in thousands) External research and development expense: Cost of development programs$ 106,111 $ 96,487 $ 9,624 10.0 % Upfront license fees - 45,000 (45,000) (100.0) % Amgen co-development expense1 24,393 27,687 (3,294) (11.9) % Total external research and development expenses 130,504 169,174 (38,670) (22.9) % Internal research and development expenses 247,703 186,917 60,786 32.5 % Total research and development expenses$ 378,207 $ 356,091 $ 22,116 6.2 % 1 Our co-funding obligation for the development of the pipeline assets under the Amgen collaboration for the three months endedJune 30, 2022 totaled$48.2 million , of which$24.4 million was recorded as R&D expense. The remaining$23.8 million was recorded as a reduction of the R&D cost share liability. The decrease in external research and development expenses in the second quarter was primarily attributable to a decrease of$45.0 million related to upfront license fees under collaboration agreements, partially offset by increases external clinical and preclinical trial costs for certain assets in our portfolio. Internal research and development expense increased$60.8 million , or 32.5%, to$247.7 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:
•$31.8 million increase of materials and reagent expenses, primarily in connection with the in-house manufacturing of drug candidates used for clinical purposes;
•$24.6 million increase of employee salary and benefits, primarily attributable to hiring more research and development personnel to support our expanding research and development activities;
•$6.9 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;
•$5.2 million increase of facilities, depreciation, office expense, rental fees, and other expenses to support the growth of our organization; and
•$7.7 million decrease of consulting fees, which was mainly attributable to decreased meeting expense related to scientific, regulatory and development consulting activities, in connection with the advancement of our drug candidates.
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Selling, General and Administrative Expense
Selling, general and administrative expense increased by$99.1 million , or 42.7%, to$331.4 million for the three months endedJune 30, 2022 , from$232.3 million for the three months endedJune 30, 2021 . The increase was primarily attributable to the following: •$54.9 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 personnel to support our growing business;
•$18.7 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 in
•$15.9 million increase of 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; and
•$9.6 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 Income (Expense), Net
Interest income (expense), net increased by$16.3 million , or 334.9%, to$11.4 million of net interest income for the three months endedJune 30, 2022 , from$4.9 million of net interest expense for three months endedJune 30, 2021 . The increase in interest income, net, was primarily attributable to increased interest income resulting from the increase in cash balances resulting from the STAR Offering proceeds in the fourth quarter of 2021, as well as increased interest rates earned on our cash, cash equivalents and short-term investments.
Other Expense, Net
Other expense, net increased to$129.6 million for the three months endedJune 30, 2022 , from$0.9 million for the three months endedJune 30, 2021 . The increase in expense was primarily related to foreign exchanges losses resulting from the strengthening of theU.S. dollar and the revaluation impact of foreign currencies held inU.S. functional currency subsidiaries. Also contributing to the increase in expense was an increase in the unrealized loss on our equity investment in Leap Therapeutics. These losses were partially offset by increased income from government subsidies.
Income Tax Expense (Benefit)
Income tax expense was$13.9 million for the three months endedJune 30, 2022 as compared to an income tax benefit of$0.2 million for the three months endedJune 30, 2021 . The income tax expense for the three months endedJune 30, 2022 relating to income reported by certain subsidiaries was primarily attributable toChina tax expense determined after certain non-deductible expenses andU.S. tax expense determined after research and development tax credits, other special tax deductions and non-deductibleU.S. stock compensation. The income tax benefit for the three months endedJune 30, 2021 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 Six Months Ended
Revenue
Total revenue decreased to$648.2 million , or 14.2%, for the six months endedJune 30, 2022 , from$755.9 million for the six months endedJune 30, 2021 , primarily due to a decrease in collaboration revenue, as the prior year period included the recognition of the majority of the$650 million upfront payment from Novartis as license revenue.
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The following table summarizes the components of revenue for the six months
ended
Six Months Ended
June 30, Changes
2022 2021 $ %
(dollars in thousands)
Product revenue $ 566,084 $ 244,741 $ 321,343 131.3 %
Collaboration revenue:
License revenue - 484,646 (484,646) (100.0) %
Research and development service
revenue 24,240 26,477 (2,237) (8.4) %
Right to access intellectual property
revenue 52,497 - 52,497 NM
Other 5,377 - 5,377 NM
Total collaboration revenue 82,114 511,123 (429,009) (83.9) %
Total Revenue $ 648,198 $ 755,864 $ (107,666) (14.2) %
Net product revenues consisted of the following:
Six Months Ended
June 30, Changes
2022 2021 $ %
(dollars in thousands)
BRUKINSA® $ 233,072 $ 64,513 $ 168,559 261.3 %
Tislelizumab 192,522 123,758 68,764 55.6 %
REVLIMID® 41,576 26,775 14,801 55.3 %
XGEVA® 29,008 17,792 11,216 63.0 %
BLINCYTO® 21,396 - 21,396 NM
POBEVCY® 19,798 - 19,798 NM
VIDAZA® 8,946 6,961 1,985 28.5 %
KYPROLIS® 8,405 - 8,405 NM
Pamiparib 4,577 2,221 2,356 106.1 %
Other 6,784 2,721 4,063 149.3 %
Total product revenue $ 566,084 $ 244,741 $ 321,343 131.3 %
Net product revenue increased 131.3% to $566.1 million for the six months ended
June 30, 2022 , compared to $244.7 million in the prior year period, primarily
due to increased sales of BRUKINSA® in the United States and China and increased
sales of tislelizumab in China , as well as sales of pamiparib. In addition,
product revenues in the first half of 2022 were positively impacted by sales of
Amgen's BLINCYTO® and KYPROLIS® in China , which we began distributing in August
2021 and January 2022 , respectively, as well as Bio-Thera's POBEVCY®, which we
began selling in January 2022 . During the six months ended June 30, 2022 , we
continued to see increased patient demand in China for tislelizumab and
BRUKINSA® due to the inclusion on the National Reimbursement Drug List (NRDL),
and this demand more than offset the effect of the related price reductions.
Global sales of BRUKINSA® totaled $233.1 million in the six months ended June
30, 2022 , representing a 261.3% increase compared to the prior year period; U.S.
sales of BRUKINSA® totaled $156.3 million in the six months ended June 30, 2022 ,
compared to $26.0 million in the prior year period, representing growth of
500.5%. U.S. sales continued to accelerate in the period, driven by continued
uptake in all approved indications. BRUKINSA® sales in China totaled $70.2
million in the six months ended June 30, 2022 , representing growth of 82.7%
compared to the prior year period, driven by a significant increase in all
approved indications, including chronic lymphocytic leukemia (CLL) and small
lymphocytic lymphoma (SLL).
Sales of tislelizumab in China totaled $192.5 million in the six months ended
June 30, 2022 , compared to $123.8 million representing a 55.6% increase compared
to the prior year period. In the six months ended June 30, 2022 , 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.
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Product revenues in the first half of 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 onMarch 1, 2021 . In the first half of 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. Collaboration revenue totaled$82.1 million for the six months endedJune 30, 2022 , of which$24.2 million was recognized from deferred revenue for R&D services performed during the six months endedJune 30, 2022 under both the tislelizumab and ociperlimab collaborations,$52.5 million was recognized from deferred revenue for Novartis' right to access ociperlimab over the option period, and$5.4 million was recognized related to the sale of tislelizumab clinical supply to Novartis. Collaboration revenue totaled$511.1 million for the six months endedJune 30, 2021 , of which$484.6 million was recognized upon delivery of the tislelizumab license right and transfer of know-how to Novartis, and$26.5 million was recognized from deferred revenue for R&D services performed during the six months endedJune 30, 2021 (see Footnote 3).
Cost of Sales
Cost of sales increased to$136.4 million for the six months endedJune 30, 2022 from$68.9 million for the six months endedJune 30, 2021 , primarily due to increased product sales of tislelizumab, BRUKINSA® and XGEVA®, as well as initial sales of BLINCYTO®, which we began selling inAugust 2021 , and initial sales of KYPROLIS® and POBEVCY®, which we began selling inJanuary 2022 .
Gross Margin
Gross margin on product sales increased to$429.7 million for the six months endedJune 30, 2022 , compared to$175.8 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 increased to 75.9% for the six months endedJune 30, 2022 , from 71.8% in the comparable period of the prior year. The increase is primarily due to a proportionally higher sales mix of global BRUKINSA® compared to lower margin sales of in-licensed products and lower per unit costs for BRUKINSA® and tislelizumab, which offset the impact of lower prices resulting from the listing of tislelizumab and BRUKINSA® on the updated NRDL in Juanuary 2022. Pre-launch inventory carried at zero or low cost consumed during the six months endedJune 30, 2022 and 2021 was immaterial and did not have a significant impact on our gross margin.
Research and Development Expense
Research and development expense increased by$91.3 million , or 13.5%, to$768.1 million for the six months endedJune 30, 2022 from$676.8 million for the six months endedJune 30, 2021 . The following table summarizes external clinical, external non-clinical and internal research and development expense for the six months endedJune 30, 2022 and 2021, respectively: Six Months Ended June 30, Changes 2022 2021 $ % (dollars in thousands) External research and development expense: Cost of development programs$ 232,009 $ 219,433 $ 12,576 5.7 % Upfront license fees - 53,500 (53,500) (100.0) % Amgen co-development expense1 46,789 55,330 (8,541) (15.4) % Total external research and development expenses 278,798 328,263 (49,465) (15.1) % Internal research and development expenses 489,324 348,554 140,770 40.4 % Total research and development expenses$ 768,122 $ 676,817 $ 91,305 13.5 % 1 Our co-funding obligation for the development of the pipeline assets under the Amgen collaboration for the six months endedJune 30, 2022 totaled$92.4 million , of which$46.8 million was recorded as R&D expense. The remaining$45.6 million was recorded as a reduction of the R&D cost share liability. The decrease in external research and development expenses in the six months endedJune 30, 2022 was primarily attributable to decrease of$53.5 million related to upfront license fees under collaboration agreements and a decrease in the expense recognized on co-development fees to Amgen, partially offset by increases external clinical and preclinical trial costs for certain assets in our portfolio.
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Internal research and development expense increased$140.8 million , or 40.4%, to$489.3 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:
•$65.0 million increase of employee salary and benefits, primarily attributable to hiring more research and development personnel to support our expanding research and development activities;
•$43.2 million increase of materials and reagent expenses, primarily in connection with the in-house manufacturing of drug candidates used for clinical purposes;
•$25.7 million increase of facilities, depreciation, office expense, rental fees, and other expenses to support the growth of our organization;
•$15.9 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
•$9.1 million decrease of consulting fees, which was mainly attributable to decreased meeting expense related to scientific, regulatory and development consulting activities, in connection with the advancement of our drug candidates.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by
•$117.4 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 personnel to support our growing business;
•$37.1 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 in
•$36.7 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; and
•$20.3 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 Income (Expense), Net
Interest income (expense), net increased by$30.5 million , or 337.7%, to$21.5 million of net interest income for the six months endedJune 30, 2022 , from$9.0 million of net interest expense for six months endedJune 30, 2021 . The increase in interest income (expense), net, was primarily attributable to increased interest income resulting from the increase in cash balances resulting from the STAR Offering proceeds in the fourth quarter of 2021, as well as higher interest rates earned on our cash, cash equivalents and short-term investments.
Other Expense, Net
Other expense, net increased to$117.7 million of net other expense for the six months endedJune 30, 2022 , from$5.0 million for the six months endedJune 30, 2021 . The increase in expense was primarily related to foreign exchanges losses resulting from the strengthening of theU.S. dollar and the revaluation impact of foreign currencies held inU.S. functional currency subsidiaries. Also contributing to the increase in expense was an increase in the unrealized loss on our equity investment in Leap Therapeutics. These losses were partially offset by increased income from government subsidies.
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Income Tax Expense (Benefit)
Income tax expense was$26.9 million for the six months endedJune 30, 2022 as compared to an income tax benefit of$4.9 million for the six months endedJune 30, 2021 . The income tax expense for six months endedJune 30, 2022 relating to income reported by certain subsidiaries was primarily attributable toChina tax expense determined after certain non-deductible expenses andU.S. tax expense determined after research and development tax credits, other special tax deductions and non-deductibleU.S. stock compensation. The income tax benefit for six months endedJune 30, 2021 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.
Liquidity and Capital Resources
The following table represents our cash, short-term investments, and debt
balances as of
As of
June 30, December 31,
2022 2021
(dollars in thousands)
Cash, cash equivalents and restricted cash $ 4,535,409 $ 4,382,887
Short-term investments $ 1,172,554 $ 2,241,962
Total debt $ 565,936 $ 629,678
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 $571.4 million and $1.0 billion for the three and six months ended
June 30, 2022 , respectively, and net losses of $480.3 million and $413.8 million
for the three and six months ended June 30, 2021 , respectively. As of June 30,
2022 , we had an accumulated deficit of $6.0 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 June 30, 2022 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.
In January 2021 , we entered into a collaboration and license agreement with
Novartis, granting Novartis rights to develop, manufacture and commercialize
tislelizumab in North America , Europe , and Japan . Under the agreement, we
received an upfront cash payment of $650 million from Novartis. In December
2021 , we expanded our collaboration with Novartis by entering into an option,
collaboration and license agreement with Novartis to develop, manufacture and
commercialize our investigational TIGIT inhibitor ociperlimab in the Novartis
Territory. In addition, we and Novartis entered into an agreement granting us
rights to market, promote and detail five approved Novartis oncology products.
Under the terms of the agreement, we received an upfront cash payment of $300
million in January 2022 .
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The following table provides information regarding our cash flows for the
six months ended
Six Months Ended
June 30,
2022 2021
(dollars in thousands)
Cash, cash equivalents and restricted cash at beginning of period $ 4,382,887 $ 1,390,005
Net cash used in operating activities (616,522) (295,171)
Net cash provided by investing activities 869,103 543,544
Net cash (used in) provided by financing activities (28,847) 143,050
Net effect of foreign exchange rate changes (71,212) 5,257
Net increase in cash, cash equivalents, and restricted cash 152,522 396,680
Cash, cash equivalents and restricted cash at end of period $
4,535,409
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$616.5 million of cash in the six months endedJune 30, 2022 , principally from our net loss of$1.0 billion , partially offset by a decrease in our net operating assets and liabilities of$218.4 million and by non-cash charges of$170.8 million . Net loss for the three months endedJune 30, 2022 includes$129.6 million of other losses due primarily to the strengthening of theU.S. dollar and the related revaluation of foreign currencies held byU.S. functional currency subsidiaries. The decrease in working capital was driven largely by decreases in accounts receivable (due to the receipt of the upfront from Novartis related to the ociperlimab collaboration), decreases in prepaid assets and other non-current assets, and an increase in taxes payable, partially offset by increases in inventories and decreases in accounts payable, accrued expenses, deferred revenue and other long-term liabilities. The non-cash charges were primarily driven by share-based compensation expense, depreciation and amortization expense, and unrealized loss on our Leap investment, offset by amortization of the research and development cost share liability and deferred income tax benefits. Operating activities used$295.2 million of cash in the six months endedJune 30, 2021 , which resulted principally from our net loss of$413.8 million and an increase in our net operating assets and liabilities of$17.6 million , partially offset by non-cash charges of$136.3 million . The non-cash charges were primarily driven by share-based compensation expense and charges for acquired in-process research and development costs, 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 an increase in prepaid expenses, a decrease in accounts payable, and an increase in inventories, partially offset by an increase in deferred revenue resulting from the upfront payment from Novartis. 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$869.1 million of cash in the six months endedJune 30, 2022 , consisting of sales and maturities of investment securities of$1.1 billion , offset by$11.5 million in purchases of investment securities, capital expenditures of$95.4 million , and$75.0 million of acquired in-process research and development. Investing activities provided$543.5 million of cash in the six months endedJune 30, 2021 , consisting of sales and maturities of investment securities of$2.0 billion , offset by$1.4 billion in purchases of investment securities, capital expenditures of$80.9 million ,$8.5 million of acquired in-process research and development, and a$7.5 million collaboration milestone payment.
Financing Activities
Cash flows from financing activities consist primarily of sale of ordinary shares, RMB Shares and ADSs through equity offerings, issuance and repayment of short-term and long-term debt, and proceeds from the sale of ordinary shares and ADSs through employee equity compensation plans.
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Financing activities used$28.8 million of cash in the six months endedJune 30, 2022 , consisting primarily of$115.4 million of repayment of short-term bank loans, partially offset by$67.6 million from proceeds of short-term bank loans and$19.0 million from the exercise of employee share options and proceeds from the issuance of shares through our employee share purchase plan. Financing activities provided$143.1 million of cash in the six months endedJune 30, 2021 , consisting primarily of$112.6 million from proceeds of short-term bank loans,$35.6 million from the exercise of employee share options and proceeds from the issuance of shares through our employee share purchase plan,$10.8 million from proceeds of long-term bank loans, partially offset by$16.0 million repayment of short-term bank loans.
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. We hold a significant amount of RMB-denominated deposits at ourChina subsidiaries. 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 as they are translated intoU.S. dollars. The impact of foreign currency deposits being translated into theU.S. dollar negatively impacted ending cash by$71.2 million in the six months endedJune 30, 2022 , compared to a positive impact of$5.3 million in the prior year period.
Future Liquidity and Material Cash Requirements
Until such time, if ever, as we can generate substantial product revenue sufficient to cover our costs and capital investments, we may be required to finance our cash needs through a combination of equity offerings, debt financings, collaboration agreements, strategic alliances, licensing arrangements, government grants, and other available sources. Under the rules of 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 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, ordinary shares, or RMB Shares. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends, and may require the issuance of warrants, which could potentially dilute your ownership interest. If we raise additional funds through collaboration agreements, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our 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. Our material cash requirements in the short- and long-term consist of the following operational, capital, and manufacturing expenditures, a portion of which contain contractual or other obligations. We plan to fund our material cash requirements with our current financial resources together with our anticipated receipts of accounts receivable, product sales and royalty revenues, and reimbursements we expect to receive under our existing collaboration and license agreements.
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Contractual and Other Obligations
The following table summarizes our significant contractual obligations as of the
payment due date by period as of
Payments Due by Period
Total Short Term Long Term
(dollars in thousands)
Contractual obligations
Operating lease commitments $ 71,364 $ 14,282 $ 57,082
Purchase commitments 109,700 51,358 58,342
Debt obligations 565,936 380,729 185,207
Interest on debt 40,909 13,896 27,013
Co-development funding commitment 698,687 254,109 444,578
Funding commitment 12,750 4,250
8,500
Research and development commitment 25,173 5,743 19,430 Pension plan 7,484 1,536 5,948 Capital commitments 308,141 308,141 - Total$ 1,840,144 $ 1,034,044 $ 806,100 Operating Lease Commitments We lease office or manufacturing facilities inBeijing ,Shanghai ,Suzhou andGuangzhou inChina ; office facilities inCalifornia ,Massachusetts ,Maryland , andNew Jersey inthe United States ; and office facilities inBasel, 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 ofJune 30, 2022 , purchase commitments amounted to$109.7 million , of which$65.0 million related to minimum purchase requirements for supply purchased from contract manufacturers and$44.7 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.
Debt Obligations and Interest
Total debt obligations coming due in the next twelve months is$380.7 million . Total long-term debt obligations are$185.2 million . See Note 10 in the Notes to the Financial Statements for further detail of our debt obligations. 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$1.25 billion . We are funding our portion of the co-development costs by contributing cash and development services. As ofJune 30, 2022 , our remaining co-development funding commitment was$698.7 million .
Funding Commitment
Funding commitment represents our committed capital related to one of our equity method investments in the amount of$15.0 million . As ofJune 30, 2022 , our remaining capital commitment was$12.8 million and is expected to be paid from time to time over the investment period.
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Research and Development Commitment
We entered into a long-term research and development agreement inJune 2021 , which includes obligations to make fixed quarterly payments over the next four years. As ofJune 30, 2022 , the total research and development commitment amounted to$25.2 million .
Pension Plan
We maintain a defined benefit pension plan inSwitzerland . Funding obligations under the defined benefit pension plan are equivalent to$1.5 million per year based on annual funding contributions in effect as ofJune 30, 2022 to achieve fully funded status where the market value of plan assets equals the projected benefit obligations. Future funding requirements will be subject to change as a result of future changes in staffing and compensation levels, various actuarial assumptions and actual investment returns on plan assets.
Capital Commitments
We had capital commitments amounting to$308.1 million for the acquisition of property, plant and equipment as ofJune 30, 2022 , which were mainly for our manufacturing and clinical R&D campus inHopewell, NJ and additional capacity at theGuangzhou andSuzhou manufacturing facilities.
Other Business Agreements
We expect to make a significant investment in our future manufacturing and
clinical R&D center in
We also 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. Future milestone payments potentially owed related to in-licensed technology totaled$5.7 billion as ofJune 30, 2022 .
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 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, 2022 , 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, 2021 . For new accounting policies adopted during the three and six months endedJune 30, 2022 , 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.
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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.
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