UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________
FORM 10-Q
___________________________________________________________
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended June 30, 2023
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from to
Commission File Number: 001-37686
BEIGENE, LTD.
(Exact name of registrant as specified in its charter)
| Cayman Islands | 98-1209416 | ||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| c/o Mourant Governance Services (Cayman) Limited | |||||
| 94 Solaris Avenue, Camana Bay | |||||
| Grand Cayman | |||||
| Cayman Islands | KY1-1108 | ||||
(Address of principal executive offices) | (Zip Code) | ||||
+1 (345) 949-4123
(Registrant's telephone number, including area code)
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||||||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| American Depositary Shares, each representing 13 Ordinary Shares, par value $0.0001 per share | BGNE | The NASDAQ Global Select Market | ||||||||||||
| Ordinary Shares, par value $0.0001 per share* | 06160 | The Stock Exchange of Hong Kong Limited | ||||||||||||
*Included in connection with the registration of the American Depositary Shares with the Securities and Exchange Commission. The ordinary shares are not listed for trading in the United States but are listed for trading on The Stock Exchange of Hong Kong Limited.
As of July 31, 2023, 1,376,270,056 ordinary shares, par value $0.0001 per share, were outstanding, of which 871,565,851 ordinary shares were held in the form of 67,043,527 American Depositary Shares, each representing 13 ordinary shares, and 115,055,260 were RMB shares.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
Emerging growth company | ☐ | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
BeiGene, Ltd.
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
| Page | ||||||||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BEIGENE, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of U.S. Dollars (“$”), except for number of shares and per share data)
| As of | ||||||||||||||||||||
| June 30, | December 31, | |||||||||||||||||||
| Note | 2023 | 2022 | ||||||||||||||||||
| $ | $ | |||||||||||||||||||
| (unaudited) | (audited) | |||||||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | 3,410,368 | 3,869,564 | ||||||||||||||||||
| Short-term restricted cash | 5 | 9,693 | 196 | |||||||||||||||||
| Short-term investments | 5 | 105,693 | 665,251 | |||||||||||||||||
| Accounts receivable, net | 10 | 299,282 | 173,168 | |||||||||||||||||
| Inventories | 6 | 321,333 | 282,346 | |||||||||||||||||
| Prepaid expenses and other current assets | 10 | 255,050 | 216,553 | |||||||||||||||||
| Total current assets | 4,401,419 | 5,207,078 | ||||||||||||||||||
| Long-term restricted cash | 5 | 1,513 | 5,277 | |||||||||||||||||
| Property, plant and equipment, net | 7 | 1,031,938 | 845,946 | |||||||||||||||||
| Operating lease right-of-use assets | 99,422 | 109,960 | ||||||||||||||||||
| Intangible assets, net | 8 | 46,895 | 40,616 | |||||||||||||||||
| Other non-current assets | 10 | 147,549 | 170,413 | |||||||||||||||||
| Total non-current assets | 1,327,317 | 1,172,212 | ||||||||||||||||||
| Total assets | 5,728,736 | 6,379,290 | ||||||||||||||||||
| Liabilities and shareholders' equity | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Accounts payable | 266,975 | 294,781 | ||||||||||||||||||
| Accrued expenses and other payables | 10 | 454,950 | 467,352 | |||||||||||||||||
| Deferred revenue, current portion | 4 | 159,034 | 213,861 | |||||||||||||||||
| Tax payable | 9 | 17,074 | 25,189 | |||||||||||||||||
| Operating lease liabilities, current portion | 23,508 | 24,041 | ||||||||||||||||||
| Research and development cost share liability, current portion | 4 | 62,516 | 114,335 | |||||||||||||||||
| Short-term debt | 11 | 421,052 | 328,969 | |||||||||||||||||
| Total current liabilities | 1,405,109 | 1,468,528 | ||||||||||||||||||
| Non-current liabilities: | ||||||||||||||||||||
| Long-term bank loans | 11 | 207,426 | 209,148 | |||||||||||||||||
| Deferred revenue, non-current portion | 4 | 24,276 | 42,026 | |||||||||||||||||
| Operating lease liabilities, non-current portion | 25,821 | 34,517 | ||||||||||||||||||
| Deferred tax liabilities | 9 | 15,652 | 15,996 | |||||||||||||||||
| Research and development cost share liability, non-current portion | 4 | 208,775 | 179,625 | |||||||||||||||||
| Other long-term liabilities | 10 | 43,118 | 46,095 | |||||||||||||||||
| Total non-current liabilities | 525,068 | 527,407 | ||||||||||||||||||
| Total liabilities | 1,930,177 | 1,995,935 | ||||||||||||||||||
| Commitments and contingencies | 18 | |||||||||||||||||||
| Equity: | ||||||||||||||||||||
Ordinary shares, US$0.0001 par value per share; 9,500,000,000 shares authorized; 1,376,251,336 and 1,356,140,180 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively | 137 | 135 | ||||||||||||||||||
| Additional paid-in capital | 11,752,019 | 11,540,979 | ||||||||||||||||||
| Accumulated other comprehensive loss | 15 | (143,687) | (77,417) | |||||||||||||||||
| Accumulated deficit | (7,809,910) | (7,080,342) | ||||||||||||||||||
| Total equity | 3,798,559 | 4,383,355 | ||||||||||||||||||
| Total liabilities and equity | 5,728,736 | 6,379,290 | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
BEIGENE, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands of U.S. Dollars (“$”), except for number of shares and per share data)
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||||||||
| Note | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||
| Product revenue, net | 12 | 553,745 | 304,511 | 964,036 | 566,084 | |||||||||||||||||||||||||||
| Collaboration revenue | 4 | 41,516 | 37,061 | 79,026 | 82,114 | |||||||||||||||||||||||||||
| Total revenues | 595,261 | 341,572 | 1,043,062 | 648,198 | ||||||||||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||||||||
| Cost of sales - product | 95,990 | 71,173 | 177,779 | 136,410 | ||||||||||||||||||||||||||||
| Research and development | 422,764 | 378,207 | 831,348 | 768,122 | ||||||||||||||||||||||||||||
| Selling, general and administrative | 395,034 | 331,403 | 723,533 | 625,976 | ||||||||||||||||||||||||||||
| Amortization of intangible assets | 188 | 188 | 375 | 376 | ||||||||||||||||||||||||||||
| Total expenses | 913,976 | 780,971 | 1,733,035 | 1,530,884 | ||||||||||||||||||||||||||||
| Loss from operations | (318,715) | (439,399) | (689,973) | (882,686) | ||||||||||||||||||||||||||||
| Interest income, net | 15,070 | 11,431 | 31,086 | 21,502 | ||||||||||||||||||||||||||||
| Other expense, net | (63,818) | (129,617) | (45,515) | (117,650) | ||||||||||||||||||||||||||||
| Loss before income taxes | (367,463) | (557,585) | (704,402) | (978,834) | ||||||||||||||||||||||||||||
| Income tax expense | 9 | 13,674 | 8,141 | 25,166 | 22,090 | |||||||||||||||||||||||||||
| Net loss | (381,137) | (565,726) | (729,568) | (1,000,924) | ||||||||||||||||||||||||||||
| Net loss per share | (0.28) | (0.42) | (0.54) | (0.75) | ||||||||||||||||||||||||||||
| Weighted-average shares outstanding—basic and diluted | 1,360,224,377 | 1,336,463,026 | 1,357,211,308 | 1,334,252,648 | ||||||||||||||||||||||||||||
| Net loss per American Depositary Share (“ADS”) | (3.64) | (5.50) | (6.99) | (9.75) | ||||||||||||||||||||||||||||
| Weighted-average ADSs outstanding—basic and diluted | 104,632,644 | 102,804,848 | 104,400,870 | 102,634,819 | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
BEIGENE, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands of U.S. Dollars (“$”))
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Net loss | (381,137) | (565,726) | (729,568) | (1,000,924) | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax of nil: | ||||||||||||||||||||||||||
| Foreign currency translation adjustments | (86,519) | (97,459) | (73,172) | (88,085) | ||||||||||||||||||||||
| Unrealized holding income (loss), net | 1,846 | (2,445) | 6,902 | (12,315) | ||||||||||||||||||||||
| Comprehensive loss | (465,810) | (665,630) | (795,838) | (1,101,324) | ||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
BEIGENE, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of U.S. Dollars (“$”))
(Unaudited)
| Six Months Ended June 30, | ||||||||||||||||||||
| Note | 2023 | 2022 | ||||||||||||||||||
| $ | $ | |||||||||||||||||||
| Operating activities: | ||||||||||||||||||||
| Net loss | (729,568) | (1,000,924) | ||||||||||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||||||
| Depreciation and amortization expense | 42,346 | 32,061 | ||||||||||||||||||
| Share-based compensation expenses | 14 | 178,693 | 146,860 | |||||||||||||||||
| Unrealized losses on equity investments | 5 | 2,178 | 23,529 | |||||||||||||||||
| Amortization of research and development cost share liability | 4 | (22,669) | (45,583) | |||||||||||||||||
| Deferred income tax (expense) benefits | (15) | 555 | ||||||||||||||||||
| Other items, net | 767 | 6,360 | ||||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||||
| Accounts receivable | (131,923) | 307,430 | ||||||||||||||||||
| Inventories | (53,598) | (31,633) | ||||||||||||||||||
| Other assets | (30,627) | 32,335 | ||||||||||||||||||
| Accounts payable | (32,678) | (30,362) | ||||||||||||||||||
| Accrued expenses and other payables | (8,082) | 21,168 | ||||||||||||||||||
| Deferred revenue | (72,577) | (76,737) | ||||||||||||||||||
| Other liabilities | 88 | (1,581) | ||||||||||||||||||
| Net cash used in operating activities | (857,665) | (616,522) | ||||||||||||||||||
| Investing activities: | ||||||||||||||||||||
| Purchases of property, plant and equipment | (247,055) | (95,421) | ||||||||||||||||||
| Purchase of intangible asset | — | — | ||||||||||||||||||
| Purchases of investments | (11,582) | (11,504) | ||||||||||||||||||
| Proceeds from sale or maturity of investments | 567,500 | 1,051,028 | ||||||||||||||||||
| Purchase of in-process research and development | — | (75,000) | ||||||||||||||||||
| Net cash provided by investing activities | 308,863 | 869,103 | ||||||||||||||||||
| Financing activities: | ||||||||||||||||||||
| Proceeds from long-term loan | 11 | 15,771 | — | |||||||||||||||||
| Repayment of long-term loan | 11 | — | — | |||||||||||||||||
| Proceeds from short-term loans | 11 | 161,846 | 67,586 | |||||||||||||||||
| Repayment of short-term loans | 11 | (66,574) | (115,405) | |||||||||||||||||
| Proceeds from option exercises and employee share purchase plan | 35,169 | 18,972 | ||||||||||||||||||
| Net cash provided by (used in) financing activities | 146,212 | (28,847) | ||||||||||||||||||
| Effect of foreign exchange rate changes, net | (50,873) | (71,212) | ||||||||||||||||||
| Net decrease in cash, cash equivalents, and restricted cash | (453,463) | 152,522 | ||||||||||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 3,875,037 | 4,382,887 | ||||||||||||||||||
| Cash, cash equivalents, and restricted cash at end of period | 3,421,574 | 4,535,409 | ||||||||||||||||||
| Supplemental cash flow information: | ||||||||||||||||||||
| Cash and cash equivalents | 3,410,368 | 4,531,137 | ||||||||||||||||||
| Short-term restricted cash | 9,693 | 333 | ||||||||||||||||||
| Long-term restricted cash | 1,513 | 3,939 | ||||||||||||||||||
| Income taxes paid | 32,529 | 24,436 | ||||||||||||||||||
| Interest paid | 10,015 | 12,899 | ||||||||||||||||||
| Supplemental non-cash information: | ||||||||||||||||||||
| Capital expenditures included in accounts payable and accrued expenses | 95,404 | 58,676 | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
BEIGENE, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Amounts in thousands of U.S. Dollars (“$”), except for number of shares)
(Unaudited)
| Attributable to BeiGene, Ltd. | |||||||||||||||||||||||||||||||||||
| Ordinary Shares | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 1,356,140,180 | 135 | 11,540,979 | (77,417) | (7,080,342) | 4,383,355 | |||||||||||||||||||||||||||||
| Use of shares reserved for share option exercises | (98,774) | — | — | — | — | — | |||||||||||||||||||||||||||||
| Exercise of options, ESPP and release of RSUs | 6,610,695 | 1 | 28,656 | — | — | 28,657 | |||||||||||||||||||||||||||||
| Share-based compensation | — | — | 75,322 | — | — | 75,322 | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 18,403 | — | 18,403 | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (348,431) | (348,431) | |||||||||||||||||||||||||||||
| Balance at March 31, 2023 | 1,362,652,101 | 136 | 11,644,957 | (59,014) | (7,428,773) | 4,157,306 | |||||||||||||||||||||||||||||
| Use of shares reserved for share option exercises | 220,116 | — | — | — | — | — | |||||||||||||||||||||||||||||
| Exercise of options, ESPP and release of RSUs | 13,379,119 | 1 | 3,691 | — | — | 3,692 | |||||||||||||||||||||||||||||
| Share-based compensation | — | — | 103,371 | — | — | 103,371 | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (84,673) | — | (84,673) | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (381,137) | (381,137) | |||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 1,376,251,336 | 137 | 11,752,019 | (143,687) | (7,809,910) | 3,798,559 | |||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 1,334,804,281 | 133 | 11,191,007 | 17,950 | (5,076,527) | 6,132,563 | |||||||||||||||||||||||||||||
| Cost from issuance of ordinary shares | — | — | (152) | — | — | (152) | |||||||||||||||||||||||||||||
| Use of shares reserved for share option exercises | (2,850,328) | — | — | — | — | — | |||||||||||||||||||||||||||||
| Exercise of options, ESPP and release of RSUs | 2,851,316 | — | 11,880 | — | — | 11,880 | |||||||||||||||||||||||||||||
| Share-based compensation | — | — | 65,555 | — | — | 65,555 | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (496) | — | (496) | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (435,198) | (435,198) | |||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 1,334,805,269 | 133 | 11,268,290 | 17,454 | (5,511,725) | 5,774,152 | |||||||||||||||||||||||||||||
| Use of shares reserved for share option exercises | 5,016,232 | — | — | — | — | — | |||||||||||||||||||||||||||||
| Exercise of options, ESPP and release of RSUs | 9,817,923 | 1 | 7,091 | — | — | 7,092 | |||||||||||||||||||||||||||||
| Share-based compensation | — | — | 81,305 | — | — | 81,305 | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (99,904) | — | (99,904) | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (565,726) | (565,726) | |||||||||||||||||||||||||||||
| Balance at June 30, 2022 | 1,349,639,424 | 134 | 11,356,686 | (82,450) | (6,077,451) | 5,196,919 | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
BEIGENE, LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”), except for number of shares and per share data)
(Unaudited)
1. Description of Business, Basis of Presentation and Consolidation and Significant Accounting Policies
Description of business
BeiGene, Ltd. (the “Company”, “BeiGene”, “it”, “its”) is a global biotechnology company that is discovering and developing innovative oncology treatments that are more accessible and affordable to cancer patients worldwide.
The Company currently has three approved medicines that were internally discovered and developed, including BRUKINSA®, a small molecule inhibitor of Bruton’s Tyrosine Kinase for the treatment of various blood cancers; tislelizumab, an anti-PD-1 antibody immunotherapy for the treatment of various solid tumor and blood cancers; and pamiparib, a selective small molecule inhibitor of PARP1 and PARP2. The Company has obtained approvals to market BRUKINSA in the United States, the People's Republic of China (“China” or the “PRC”), the European Union, the United Kingdom, Canada, Australia and additional international markets, and tislelizumab and pamiparib in China. By leveraging its strong commercial capabilities, the Company has in-licensed the rights to distribute an additional 14 approved medicines for the China market. Supported by its global clinical development and commercial capabilities, the Company has entered into collaborations with world-leading biopharmaceutical companies such as Amgen Inc. (“Amgen”) and Novartis Pharma AG (“Novartis”) to develop and commercialize innovative medicines.
The Company is committed to advancing best and first-in-class clinical candidates internally or with like-minded partners to develop impactful and affordable medicines for patients across the globe. The Company has conducted more than 120 clinical trials in-house, with over 21,000 subjects enrolled in approximately 45 regions. This includes more than 35 pivotal or potentially registration-enabling trials across its portfolio, including three internally discovered, approved medicines.
The Company has built, and is expanding, its internal manufacturing capabilities. The Company is building a commercial-stage biologics manufacturing and clinical R&D center in New Jersey, in addition to its state-of-the-art biologic and small molecule manufacturing facilities in China to support current and potential future demand of its medicines. The Company also works with high quality global contract manufacturing organizations (“CMOs”) to manufacture its internally developed clinical and commercial products.
Since its inception in 2010, the Company has become a fully integrated global organization of over 10,000 employees worldwide, including the United States, China, Europe and Australia.
Basis of presentation and consolidation
The accompanying condensed consolidated balance sheet as of June 30, 2023, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2023 and 2022, the condensed consolidated statements of cash flows for the six months ended June 30, 2023 and 2022, and the condensed consolidated statements of shareholders' equity for the three and six months ended June 30, 2023 and 2022, and the related footnote disclosures are unaudited. The accompanying unaudited interim condensed financial statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), including guidance with respect to interim financial information and in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”).
The unaudited interim condensed consolidated interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all normal recurring adjustments, necessary to present a fair statement of the results for the interim periods presented. Results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results expected for the full fiscal year or for any future annual or interim period.
The unaudited interim condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany transactions and balances between the Company and its subsidiaries are eliminated upon consolidation.
Use of estimates
8
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Areas where management uses subjective judgment include, but are not limited to, estimating the useful lives of long-lived assets, estimating variable consideration in product sales and collaboration revenue arrangements, identifying separate accounting units and determining 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, estimating uncertain tax positions, valuation of inventory, estimating the allowance for credit losses, determining defined benefit pension plan obligations, measurement of right-of-use assets and lease liabilities and the fair value of financial instruments. Management bases the estimates on historical experience, known trends and various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities and reported amounts of revenues and expenses. Actual results could differ from these estimates.
Revision of prior period financial statements
The Company evaluates the recoverability of its deferred tax assets on a jurisdiction-by-jurisdiction basis by assessing the adequacy of future expected taxable income from all sources, including reversal of temporary differences, forecasted operating earnings and available tax planning strategies in accordance with ASC 740. This assessment is subject to a high degree of subjectivity, as the sources of income rely heavily on estimates that are based on a number of factors, including historical experience and short-range and long-range business forecasts. A valuation allowance is provided when the Company determines that it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized.
Prior to the third quarter of 2022, the Company determined that the majority of its net deferred tax assets (primarily in the U.S.) were realizable on a more-likely-than-not basis, primarily due to cumulative pre-tax income at the taxpaying entity and the weighting of available positive and negative evidence. Accordingly, no valuation allowance was previously recorded related to those deferred tax assets. In October 2022, in connection with the preparation of its condensed consolidated financial statements for the three and nine months ended September 30, 2022, the Company reassessed its position on the realizability of its net deferred tax assets and determined that the negative evidence associated with cumulative losses at the consolidated financial statement level are not able to be overcome by other positive evidence, and therefore, a valuation allowance should be applied to its net deferred tax asset balance. The Company determined the previous conclusion to not apply a valuation allowance to certain net deferred tax assets was an error.
In accordance with Staff Accounting Bulletin (SAB) No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the error and determined that the related impact was not material to any of its previously issued financial statements, but that correcting the cumulative impact of the error would be significant to its statements of operations for the three and nine months ended September 30, 2022. Accordingly, the Company has revised the three and six months ended June 30, 2022 condensed consolidated financial statements and related notes included herein to record a valuation allowance against the Company’s net deferred tax asset balance for all periods presented. A summary of revisions to previously reported financial statements is presented in Note 2, Revision of Prior Period Financial Statements. Note 9, Income Taxes and Note 13, Loss Per Share have been updated to reflect the revision. The Company will also correct previously reported financial information for this error in its future filings, as applicable.
Recent accounting pronouncements
New accounting standards which have not yet been adopted
In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842): Common Control Arrangements. This update requires leasehold improvements associated with common control leases be amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset (the leased asset) through a lease. However, if the lessor obtained the right to control the use of the underlying asset through a lease with another entity not within the same common control group, the amortization period may not exceed the amortization period of the common control group. Further, leasehold improvements associated with common control leases be accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. Those leasehold improvements are subject to the impairment guidance in Topic 360, Property, Plant, and Equipment. This update is effective for annual periods beginning after December 15, 2023, and early application is permitted. This guidance should be applied either (i) prospectively to all new leasehold improvements recognized on or after the date of initial application; (ii) prospectively to all new and existing leasehold improvements recognized on or after the date of initial application, with any remaining unamortized balance of existing leasehold improvements amortized over their remaining useful life to the common control group determined at that date; or (iii) retrospectively to the beginning of the period in which the entity first applied Topic 842, with any leasehold improvements that otherwise would not have been amortized or impaired recognized through a cumulative-effect adjustment to the opening
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balance of retained earnings at the beginning of the earliest period presented in accordance with Topic 842. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.
Significant accounting policies
For a more complete discussion of the Company’s significant accounting policies and other information, the unaudited interim condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report for the year ended December 31, 2022.
There have been no material changes to the Company’s significant accounting policies as of and for the six months ended June 30, 2023, as compared to the significant accounting policies described in the Annual Report.
2. Revision of Prior Period Financial Statements
As discussed in Note 1, the Company revised certain prior period financial statements to correct an error related to the valuation of net deferred tax assets, the impact of which was immaterial to its previously filed financial statements for the three and six months ended June 30, 2022 (See Note 1). Specifically, a valuation allowance should have been recorded on all net deferred tax assets and such a valuation allowance was not previously recorded. A summary of revisions to the Company’s previously reported financial statements for the comparative periods presented within this Quarterly Report on Form 10-Q is presented below.
Condensed Consolidated Statements of Operations (unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||
| June 30, 2022 | June 30, 2022 | |||||||||||||||||||||||||||||||||||||
| As Reported | Adjustments | As Revised | As Reported | Adjustments | As Revised | |||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Income tax expense | 13,864 | (5,723) | 8,141 | 26,889 | (4,799) | 22,090 | ||||||||||||||||||||||||||||||||
| Net loss | (571,449) | 5,723 | (565,726) | (1,005,723) | 4,799 | (1,000,924) | ||||||||||||||||||||||||||||||||
| Net loss per share | (0.43) | 0.01 | (0.42) | (0.75) | — | (0.75) | ||||||||||||||||||||||||||||||||
| Net loss per American Depositary Share (“ADS”) | (5.56) | 0.06 | (5.50) | (9.80) | 0.05 | (9.75) | ||||||||||||||||||||||||||||||||
Condensed Consolidated Statements of Comprehensive Loss (unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||
| June 30, 2022 | June 30, 2022 | |||||||||||||||||||||||||||||||||||||
| As Reported | Adjustments | As Revised | As Reported | Adjustments | As Revised | |||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Net loss | (571,449) | 5,723 | (565,726) | (1,005,723) | 4,799 | (1,000,924) | ||||||||||||||||||||||||||||||||
| Comprehensive loss | (671,353) | 5,723 | (665,630) | (1,106,123) | 4,799 | (1,101,324) | ||||||||||||||||||||||||||||||||
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Condensed Consolidated Statement of Cash Flows (unaudited)
| Six Months Ended | ||||||||||||||||||||
| June 30, 2022 | ||||||||||||||||||||
| As Reported | Adjustments | As Revised | ||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
| Operating activities: | ||||||||||||||||||||
| Net loss | (1,005,723) | 4,799 | (1,000,924) | |||||||||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||||||
| Deferred income tax benefits | 7,550 | (6,995) | 555 | |||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||||
| Other assets | 32,315 | 20 | 32,335 | |||||||||||||||||
| Accrued expenses and other payables | 19,525 | 1,643 | 21,168 | |||||||||||||||||
| Other liabilities | (2,114) | 533 | (1,581) | |||||||||||||||||
| Net cash used in operating activities | (616,522) | — | (616,522) | |||||||||||||||||
Condensed Consolidated Statement of Stockholders' Equity (unaudited)
| Accumulated Deficit | Total Equity | |||||||||||||||||||||||||||||||||||||
| As Reported | Adjustments | As Revised | As Reported | Adjustments | As Revised | |||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | (4,966,103) | (110,424) | (5,076,527) | 6,242,987 | (110,424) | 6,132,563 | ||||||||||||||||||||||||||||||||
| Net loss | (434,274) | (924) | (435,198) | (434,274) | (924) | (435,198) | ||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | (5,400,377) | (111,348) | (5,511,725) | 5,885,500 | (111,348) | 5,774,152 | ||||||||||||||||||||||||||||||||
| Net loss | (571,449) | 5,723 | (565,726) | (571,449) | 5,723 | (565,726) | ||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | (5,971,826) | (105,625) | (6,077,451) | 5,302,544 | (105,625) | 5,196,919 | ||||||||||||||||||||||||||||||||
3. Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:
Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.
The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and considers an inactive market to be one in which there are infrequent or few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers.
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The following tables present the Company’s financial assets and liabilities measured and recorded at fair value on a recurring basis using the above input categories as of June 30, 2023 and December 31, 2022:
| Quoted Price in Active Market for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||||||
| As of June 30, 2023 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
| Cash equivalents | ||||||||||||||||||||
| Money market funds | 847,781 | — | — | |||||||||||||||||
| Short-term investments (Note 5): | ||||||||||||||||||||
| U.S. Treasury securities | 105,693 | — | — | |||||||||||||||||
| Prepaid expenses and other current assets (Note 5): | ||||||||||||||||||||
| Convertible debt instrument | — | — | 5,190 | |||||||||||||||||
| Other non-current assets (Note 5): | ||||||||||||||||||||
| Equity securities with readily determinable fair values | 2,300 | 1,077 | — | |||||||||||||||||
| Convertible debt instrument | — | — | 3,000 | |||||||||||||||||
| Total | 955,774 | 1,077 | 8,190 | |||||||||||||||||
| Quoted Price in Active Market for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||||||
| As of December 31, 2022 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
| Cash equivalents | ||||||||||||||||||||
| Money market funds | 758,114 | — | — | |||||||||||||||||
| Short-term investments (Note 5): | ||||||||||||||||||||
| U.S. Treasury securities | 665,251 | — | — | |||||||||||||||||
| Prepaid expenses and other current assets (Note 5): | ||||||||||||||||||||
| Convertible debt instrument | — | — | 5,190 | |||||||||||||||||
| Other non-current assets (Note 5): | ||||||||||||||||||||
| Equity securities with readily determinable fair values | 3,307 | 706 | — | |||||||||||||||||
| Convertible debt instrument | — | — | 3,000 | |||||||||||||||||
| Total | 1,426,672 | 706 | 8,190 | |||||||||||||||||
The Company's cash equivalents are highly liquid investments with original maturities of 3 months or less. Short-term investments represent the Company's investments in available-for-sale debt securities. The Company determines the fair value of cash equivalents and available-for-sale debt securities using a market approach based on quoted prices in active markets.
The Company's equity securities carried at fair value consist of holdings in common stock and warrants to purchase additional shares of common stock of Leap Therapeutics, Inc. (“Leap”), which were acquired in connection with a collaboration and license agreement entered into in January 2020 and in Leap's underwritten public offering in September 2021. The common stock investment in Leap, a publicly-traded biotechnology company, is measured and carried at fair value and classified as Level 1. The warrants to purchase additional shares of common stock in Leap are classified as a Level 2 investment and are measured using the Black-Scholes option-pricing valuation model, which utilizes a constant maturity risk-free rate and reflects the term of the warrants, dividend yield and stock price volatility, that is based on the historical volatility of similar companies. Refer to Note 5, Restricted Cash and Investments for details of the determination of the carrying amount of private equity investments without readily determinable fair values and equity method investments.
The Company holds convertible notes issued by two private biotech companies. The Company has elected the fair value option method of accounting for the convertible notes. Accordingly, the convertible notes are remeasured at fair value on a recurring basis using Level 3 inputs, with any changes in the fair value option recorded in other income, net.
As of June 30, 2023 and December 31, 2022, the fair values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and short-term debt approximated their carrying values due to their short-term nature. Long-term
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bank loans approximate their fair value due to the fact that the related interest rates approximate the rates currently offered by financial institutions for similar debt instrument of comparable maturities.
4. Collaborative and Licensing Arrangements
The Company has entered into collaborative arrangements for the research and development, manufacture and/or commercialization of medicines and drug candidates. To date, these collaborative arrangements have included out-licenses of and options to out-license internally developed products and drug candidates to other parties, in-licenses of products and drug candidates from other parties, and profit- and cost-sharing arrangements. These arrangements may include non-refundable upfront payments, contingent obligations for potential development, regulatory and commercial performance milestone payments, cost-sharing and reimbursement arrangements, royalty payments, and profit sharing.
Out-Licensing Arrangements
For the three and six months ended June 30, 2023 and 2022, the Company’s collaboration revenue primarily consisted of research and development services revenue and right to access intellectual property revenue from its collaboration agreements with Novartis for tislelizumab and ociperlimab.
The following table summarizes total collaboration revenue recognized for the three and six months ended June 30, 2023 and 2022:
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Revenue from Collaborators | $ | $ | $ | $ | ||||||||||||||||||||||
| Research and development service revenue | 13,563 | 10,813 | 20,380 | 24,240 | ||||||||||||||||||||||
| Right to access intellectual property revenue | 26,248 | 26,248 | 52,497 | 52,497 | ||||||||||||||||||||||
| Other | 1,705 | — | 6,149 | 5,377 | ||||||||||||||||||||||
| Total | 41,516 | 37,061 | 79,026 | 82,114 | ||||||||||||||||||||||
Novartis
Tislelizumab Collaboration and License
In January 2021, the Company entered into a collaboration and license agreement with Novartis, granting Novartis rights to develop, manufacture and commercialize tislelizumab in North America, Europe, and Japan (“Novartis Territory”). The Company and Novartis have agreed to jointly develop tislelizumab in these licensed countries, with Novartis responsible for regulatory submissions after a transition period and for commercialization upon regulatory approvals. In addition, both companies may conduct clinical trials globally to explore combinations of tislelizumab with other cancer treatments, and the Company has an option to co-detail the product in North America, funded in part by Novartis.
Under the agreement the Company received an upfront cash payment of $650,000 from Novartis. The Company is eligible to receive up to $1,300,000 upon the achievement of regulatory milestones, $250,000 upon the achievement of sales milestones, and royalties on future sales of tislelizumab in the licensed territory. Under the terms of the agreement, the Company is responsible for funding ongoing clinical trials of tislelizumab, Novartis has agreed to fund new registrational, bridging, or post-marketing studies in its territory, and each party will be responsible for funding clinical trials evaluating tislelizumab in combination with its own or third party products. Each party retains the worldwide right to commercialize its propriety products in combination with tislelizumab.
The Company evaluated the Novartis agreement under ASC 606 as all the material units of account within the agreement represented transactions with a customer. The Company identified the following material components under the agreement: (1) exclusive license for Novartis to develop, manufacture, and commercialize tislelizumab in the Novartis Territory, transfer of know-how and use of the tislelizumab trademark; (2) conducting and completing ongoing trials of tislelizumab (“tislelizumab R&D services”); and (3) supplying Novartis with required quantities of the tislelizumab drug product, or drug substance, upon receipt of an order from Novartis.
The Company determined that the license, transfer of know-how and use of trademarks are not distinct from each other and represent a single performance obligation. The tislelizumab R&D services represent a material promise and were determined to be a separate performance obligation at the outset of the agreement as the promise is distinct and has standalone value to Novartis. The Company evaluated the supply component of the contract and noted the supply will not be provided at a
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significant incremental discount to Novartis. The Company concluded that, for the purpose of ASC 606, the provision related to providing clinical and commercial supply of tislelizumab in the Novartis Territory was an option but not a performance obligation of the Company at the outset of the Novartis collaboration agreement. A performance obligation for the clinical and commercial supply will be established as quantities of drug product or drug substance are ordered by Novartis.
The Company determined that the transaction price as of the outset of the arrangement was the upfront payment of $650,000. The potential milestone payments that the Company is eligible to receive were excluded from the transaction price, as all milestone amounts were fully constrained due to uncertainty of achievement. The transaction price was allocated to the two identified performance obligations based on a relative fair value basis. The standalone selling price of the license, transfer of know-how and use of trademarks performance obligation was determined using the adjusted market assessment approach. Based on the valuation performed by the Company, the standalone selling price of the license, transfer of know-how and use of trademarks was valued at $1,231,000. The standalone selling price of the tislelizumab R&D services was valued at $420,000 using a cost plus margin valuation approach. Based on the relative standalone selling prices of the two performance obligations, $484,646 of the total transaction price was allocated to the license and $165,354 was allocated to the tislelizumab R&D services.
The Company satisfied the license performance obligation at a point in time when the license was delivered and the transfer of know-how completed which occurred during the six months ended June 30, 2021. As such, the Company recognized the entire amount of the transaction price allocated to the license as collaboration revenue during the six months ended June 30, 2021. The portion of the transaction price 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. The Company recognized R&D service revenue of $11,770 and $16,796 during the three and six months ended June 30, 2023, respectively, and $9,021 and $20,656 during the three and six months ended June 30, 2022, respectively. The Company also recognized other collaboration revenue of $1,344 and $5,013 during the three and six months ended June 30, 2023, respectively, and nil and $5,377 during the three and six ended June 30, 2022, respectively, related to the sale of tislelizumab clinical supply to Novartis in conjunction with the collaboration.
Ociperlimab Option, Collaboration and License Agreement and China Broad Market Development Agreement
In December 2021, the Company expanded its collaboration with Novartis by entering into an option, collaboration and license agreement with Novartis to develop, manufacture and commercialize the Company's investigational TIGIT inhibitor ociperlimab in the Novartis Territory. In addition, the Company and Novartis entered into an agreement granting the Company rights to market, promote and detail five approved Novartis oncology products, TAFINLAR® (dabrafenib), MEKINIST® (trametinib), VOTRIENT® (pazopanib), AFINITOR® (everolimus), and ZYKADIA® (ceritinib), across designated regions of China referred to as “broad markets.” In the first quarter of 2022, the Company initiated marketing and promotion of these five products.
Under the terms of the option, collaboration and license agreement, the Company received an upfront cash payment of $300,000 in January 2022 from Novartis and would have received an additional payment of $600,000 or $700,000 in the event Novartis exercised its exclusive time-based option prior to mid-2023 or between then and late-2023, respectively. Following option exercise, the Company is eligible to receive up to $745,000 upon the achievement of regulatory approval milestones, $1,150,000 upon the achievement of sales milestones, and royalties on future sales of ociperlimab in the Novartis Territory. Subject to the terms of the option, collaboration and license agreement, during the option period, Novartis has agreed to initiate and fund additional global clinical trials with ociperlimab and the Company has agreed to expand enrollment in two ongoing trials. Following the option exercise, Novartis has agreed to share development costs of global trials. Following approval, the Company has agreed to provide 50 percent of the co-detailing and co-field medical efforts in the United States, and has an option to co-detail up to 25 percent in Canada and Mexico, funded in part by Novartis. Each party retains the worldwide right to commercialize its propriety products in combination with ociperlimab, as is the case with tislelizumab under the tislelizumab collaboration and license agreement. The existing tislelizumab collaboration and license agreement was not modified as a result of the ociperlimab option, collaboration and license agreement.
The Company evaluated the Novartis agreements under ASC 606 as the units of account within the agreement represented transactions with a customer. The Company identified the following material promises under the agreement: (1) exclusive option for Novartis to license the rights to develop, manufacture, and commercialize ociperlimab in the Novartis Territory; (2) Novartis' right to access ociperlimab in its own clinical trials during the option period; (3) initial transfer of BeiGene know-how; and (4) conducting and completing ongoing trials of ociperlimab during the option period (“ociperlimab R&D Services”, together with “tislelizumab R&D services”, “R&D services”). The market development activities are considered immaterial in the context of the contracts.
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The Company concluded that, at the inception of the agreement, the option for the exclusive product license constitutes a material right as it represents a significant and incremental discount to the fair value of the exclusive product license that Novartis would not have received without entering into the agreement and is therefore considered a distinct performance obligation. The Company determined that Novartis' right to access ociperlimab in its own trials over the option period and the initial transfer of know-how were not distinct from each other, as the right to access ociperlimab has limited value without the corresponding know-how transfer, and therefore should be combined into one distinct performance obligation. The ociperlimab R&D Services represent a material promise and were determined to be a separate performance obligation at the outset of the agreement as the promise is distinct and has standalone value to Novartis.
The Company determined the transaction price at the outset of the arrangement as the upfront payment of $300,000. The option exercise fee is contingent upon Novartis exercising its right and is considered fully constrained until the option is exercised. Additionally, the milestone and royalty payments are not applicable until after the option is exercised, at which point the likelihood of meeting milestones, regulatory approval and meeting certain sales thresholds will be assessed. The transaction price was allocated to the three identified performance obligations based on a relative fair value basis. The standalone selling price of the material right for the option to the exclusive product license was calculated as the incremental discount between (i) the value of the license determined using a discounted cash flow method adjusted for probability of the option being exercised and (ii) the expected option exercise fee using the most-likely-amount method at option exercise. The standalone selling price of the combined performance obligation for Novartis' right to access ociperlimab for its own clinical trials during the option period and the initial transfer of BeiGene know-how was determined using a discounted cash flow method. The standalone selling price of the ociperlimab R&D Services was determined using an expected cost plus margin approach. Based on the relative standalone selling prices of the three performance obligations, $71,980 of the total transaction price was allocated to the material right, $213,450 was allocated to Novartis' right to use ociperlimab in its own clinical trials during the option period and the transfer of BeiGene know-how, and $14,570 was allocated to the ociperlimab R&D Services.
The Company will satisfy the material right performance obligation at a point in time at the earlier of when Novartis exercises the option and the license is delivered or the expiration of the option period. As such, the entire amount of the transaction price allocated to the material right was deferred. The portion of the transaction price allocated to Novartis' right to access ociperlimab in its own clinical trials during the option period and the initial transfer of BeiGene know-how was deferred and is being recognized over the 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 Company recognized collaboration revenue of $26,248 and $52,497 related to Novartis right to access ociperlimab in clinical trials and the transfer of know how performance obligation during the three and six months ended June 30, 2023, respectively, and $26,248 and $52,497 during the three and six months ended June 30, 2022, respectively. The Company recognized R&D service revenue of $1,792 and $3,583 during the three and six months ended June 30, 2023 and $1,792 and $3,584 during the three and six months ended June 30, 2022, respectively. The Company also recognized other collaboration revenue of $1,861 and $2,636 related primarily to revenue generated under the broad markets marketing and promotion agreement in conjunction with the collaboration during the three and six months ended June 30, 2023, respectively.
In July 2023, the Company entered into a Mutual Termination and Release Agreement (the "Termination Agreement") to mutually terminate the ociperlimab option, collaboration and license agreement with Novartis, effective immediately. Pursuant to the Termination Agreement, the Company regained full, global rights to develop, manufacture and commercialize ociperlimab.
In-Licensing Arrangements
Amgen
In October 2019, the Company entered into a global strategic oncology collaboration with Amgen (“Amgen Collaboration Agreement”) for the commercialization and development in China, excluding Hong Kong, Taiwan and Macau, of Amgen’s XGEVA®, KYPROLIS® and BLINCYTO®, and the joint global development of a portfolio of oncology assets in Amgen’s pipeline, with BeiGene responsible for development and commercialization in China. The agreement became effective on January 2, 2020, following approval by the Company's shareholders and satisfaction of other closing conditions.
Under the agreement, the Company is responsible for the commercialization of XGEVA, KYPROLIS and BLINCYTO in China for or seven years. Amgen is responsible for manufacturing the products globally and will supply the products to the Company at an agreed upon price. The Company and Amgen will share equally in the China commercial profits and losses during the commercialization period. Following the commercialization period, the Company has the right to retain one product and is entitled to receive royalties on sales in China for an additional five years on the products not retained. XGEVA was approved in China in 2019 for patients with giant cell tumor of the bone and in November 2020 for the prevention of skeletal-related events in cancer patients with bone metastases. In July 2020, the Company began commercializing XGEVA in China. In
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December 2020, BLINCYTO was approved in China for injection for the treatment of adult patients with relapsed or refractory (R/R) B-cell precursor acute lymphoblastic leukemia (ALL). In July 2021, KYPROLIS was conditionally approved in China for injection in combination with dexamethasone for the treatment of adult patients with R/R multiple myeloma. In April 2022, BLINCYTO was conditionally approved for injection for the treatment of pediatric patients with R/R CD19-positive B-cell precursor ALL.
Amgen and the Company are also jointly developing a portfolio of Amgen oncology pipeline assets under the collaboration. The Company is responsible for conducting clinical development activities in China and co-funding global development costs by contributing cash and development services up to a total cap of $1,250,000. Amgen is responsible for all development, regulatory and commercial activities outside of China. For each pipeline asset that is approved in China, the Company will receive commercial rights for seven years from approval. The Company has the right to retain approximately one out of every three approved pipeline assets, other than LUMAKRAS® (sotorasib), Amgen's KRAS G12C inhibitor, for commercialization in China. The Company and Amgen will share equally in the China commercial profits and losses during the commercialization period. The Company is entitled to receive royalties from sales in China for pipeline assets returned to Amgen for five years after the seven-year commercialization period. The Company is also entitled to receive royalties from global sales of each product outside of China (with the exception of LUMAKRAS).
On April 20, 2022, the parties entered into the First Amendment to Amgen Collaboration Agreement, which amends certain terms and conditions relating to the financial responsibilities of the parties in connections with the development and commercialization of certain Amgen proprietary products for the treatment of oncology-related diseases and conditions. In connection with the Company’s ongoing assessment of the Amgen Collaboration Agreement cost-share contributions, the Company determined that further investment in the development of LUMAKRAS was no longer commercially viable for BeiGene. As a result, in February 2023, the Company and Amgen entered into the Second Amendment to the Amgen Collaboration Agreement to (i) stop sharing costs with Amgen for the further development of LUMAKRAS during the period starting January 1, 2023 and ending August 31, 2023; and (ii) cooperate in good faith to prepare a transition plan with the anticipated termination of LUMAKRAS from the Amgen Collaboration Agreement.
The Amgen Collaboration Agreement is within the scope of ASC 808, as both parties are active participants and are exposed to the risks and rewards dependent on the commercial success of the activities performed under the agreement. The Company is the principal for product sales to customers in China during the commercialization period and recognizes 100% of net product revenue on these sales. Amounts due to Amgen for its portion of net product sales will be recorded as cost of sales. Cost reimbursements due to or from Amgen under the profit share will be recognized as incurred and recorded to cost of sales; selling, general and administrative expense; or research and development expense, based on the underlying nature of the related activity subject to reimbursement. Costs incurred for the Company's portion of the global co-development funding are recorded to research and development expense as incurred.
In connection with the Amgen Collaboration Agreement, a Share Purchase Agreement (“SPA”) was entered into by the parties in October 2019. On January 2, 2020, the closing date of the transaction, Amgen purchased 15,895,001 of the Company's ADSs for $174.85 per ADS, representing a 20.5% ownership stake in the Company. Per the SPA, the cash proceeds shall be used as necessary to fund the Company's development obligations under the Amgen Collaboration Agreement. Pursuant to the SPA, Amgen also received the right to designate one member of the Company's board of directors, and Anthony Hooper joined the Company's board of directors as the Amgen designee in January 2020. Amgen relinquished its right to appoint a designated director to the Company's board of directors in January 2023.
In determining the fair value of the common stock at closing, the Company considered the closing price of the common stock on the closing date of the transaction and included a lack of marketability discount because the shares are subject to certain restrictions. The fair value of the shares on the closing date was determined to be $132.74 per ADS, or $2,109,902 in the aggregate. The Company determined that the premium paid by Amgen on the share purchase represents a cost share liability due to the Company's co-development obligations. The fair value of the cost share liability on the closing date was determined to be $601,857 based on the Company's discounted estimated future cash flows related to the pipeline assets. The total cash proceeds of $2,779,241 were allocated based on the relative fair value method, with $2,162,407 recorded to equity and $616,834 recorded as a research and development cost share liability. The cost share liability is being amortized proportionately as the Company contributes cash and development services to its total co-development funding cap.
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Amounts recorded related to the Company's portion of the co-development funding on the pipeline assets for the three and six months ended June 30, 2023 and 2022 were as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Research and development expense | 5,457 | 24,393 | 23,274 | 46,789 | ||||||||||||||||||||||
| Amortization of research and development cost share liability | 5,271 | 23,764 | 22,669 | 45,583 | ||||||||||||||||||||||
| Total amount due to Amgen for BeiGene's portion of the development funding | 10,728 | 48,157 | 45,943 | 92,372 | ||||||||||||||||||||||
| As of | ||||||||||||||||||||||||||
| June 30, | ||||||||||||||||||||||||||
| 2023 | ||||||||||||||||||||||||||
| Remaining portion of development funding cap | 549,765 | |||||||||||||||||||||||||
As of June 30, 2023 and December 31, 2022, the research and development cost share liability recorded in the Company's balance sheet was as follows:
| As of | |||||||||||
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| $ | $ | ||||||||||
| Research and development cost share liability, current portion | 62,516 | 114,335 | |||||||||
| Research and development cost share liability, non-current portion | 208,775 | 179,625 | |||||||||
| Total research and development cost share liability | 271,291 | 293,960 | |||||||||
The total reimbursement due to (from) Amgen under the commercial profit-sharing agreement for product sales is classified in the income statement for the three and six months ended June 30, 2023 and 2022 as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Cost of sales - product | 4,011 | 2,449 | 1,184 | 3,478 | ||||||||||||||||||||||
| Research and development | (1,769) | 657 | 1,311 | 898 | ||||||||||||||||||||||
| Selling, general and administrative | (17,552) | (13,661) | (29,388) | (26,642) | ||||||||||||||||||||||
| Total | (15,310) | (10,555) | (26,893) | (22,266) | ||||||||||||||||||||||
The Company purchases commercial inventory from Amgen to distribute in China. Inventory purchases amounted to $20,146 and $39,277 during the three and six months ended June 30, 2023, respectively, and $22,462 and $30,061 during the three and six months ended June 30, 2022, respectively. Net amounts receivable from Amgen as of June 30, 2023 was $11,069 and net amounts payable to Amgen as of December 31, 2022 was $54,064, respectively.
5. Restricted Cash and Investments
Restricted Cash
The Company’s restricted cash balance of $11,206 and $5,473 as of June 30, 2023 and December 31, 2022, respectively, primarily consists of RMB-denominated cash deposits held in designated bank accounts for collateral for letters of credit. The Company classifies restricted cash as current or non-current based on the term of the restriction.
In addition to the restricted cash balances above, the Company is required by the PRC securities law to use the proceeds from the STAR Offering in strict compliance with the planned uses as disclosed in the PRC prospectus as well as those disclosed in the Company's proceeds management policy approved by the board of directors.
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Short-Term Investments
Short-term investments as of June 30, 2023 consisted of the following available-for-sale debt securities:
| Gross | Gross | Fair Value | ||||||||||||||||||||||||
| Amortized | Unrealized | Unrealized | (Net Carrying | |||||||||||||||||||||||
| Cost | Gains | Losses | Amount) | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| U.S. Treasury securities | 107,802 | — | 2,109 | 105,693 | ||||||||||||||||||||||
| Total | 107,802 | — | 2,109 | 105,693 | ||||||||||||||||||||||
Short-term investments as of December 31, 2022 consisted of the following available-for-sale debt securities:
| Gross | Gross | Fair Value | ||||||||||||||||||||||||
| Amortized | Unrealized | Unrealized | (Net Carrying | |||||||||||||||||||||||
| Cost | Gains | Losses | Amount) | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| U.S. Treasury securities | 674,262 | — | 9,011 | 665,251 | ||||||||||||||||||||||
| Total | 674,262 | — | 9,011 | 665,251 | ||||||||||||||||||||||
As of June 30, 2023, the Company's available-for-sale debt securities consisted entirely of short-term U.S. treasury securities, which were determined to have zero risk of expected credit loss. Accordingly, no allowance for credit loss was recorded as of June 30, 2023.
Equity Securities with Readily Determinable Fair Values
Leap Therapeutics, Inc. (Leap)
In January 2020, the Company purchased $5,000 of Series B mandatorily convertible, non-voting preferred stock of Leap in connection with a strategic collaboration and license agreement the Company entered into with Leap. The Series B shares were subsequently converted into shares of Leap common stock and warrants to purchase additional shares of common stock upon approval of Leap's shareholders in March 2020. In September 2021, the Company purchased $7,250 of common stock in Leap's underwritten public offering. As of June 30, 2023, the Company's ownership interest in the outstanding common stock of Leap was 6.2% based on information from Leap. Inclusive of the shares of common stock issuable upon the exercise of the currently exercisable warrants, the Company's interest is approximately 9.8% based on information from Leap. The Company measures the investment in the common stock and warrants at fair value, with changes in fair value recorded to other income, net. The Company recorded an unrealized gain of $470 and unrealized loss of $636 for the three and six months ended June 30, 2023, respectively, and unrealized losses of $5,908 and $22,661 for the three and six months ended June 30, 2022, respectively, in the consolidated statements of operations. As of June 30, 2023 and December 31, 2022, the fair value of the common stock and warrants were as follows:
| As of | ||||||||||||||
| June 30, | December 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| $ | $ | |||||||||||||
| Fair value of Leap common stock | 2,300 | 3,307 | ||||||||||||
| Fair value of Leap warrants | 1,077 | 706 | ||||||||||||
Private Equity Securities without Readily Determinable Fair Values
The Company invests in equity securities of certain companies whose securities are not publicly traded and fair value is not readily determinable and where the Company has concluded it does not have significant influence based on its ownership percentage and other factors. These investments are recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company held investments of $59,209 and $57,054 in equity securities without readily determinable fair values as of June 30, 2023 and December 31, 2022, respectively. The Company recorded no gain during the three months ended and a gain of $1,081 for the six months ended June 30, 2023, respectively, and a gain of $366 for the three and six months ended June 30, 2022, respectively, related to observable price changes in orderly transactions for similar investments of the same issuer to other income, net in the consolidated statements of operations.
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Equity-Method Investments
The Company records equity-method investments at cost and subsequently adjusts the basis based on the Company's ownership percentage in the investee's income and expenses, as well as dividends, if any. The Company holds equity-method investments totaling $30,020 and $27,710 as of June 30, 2023 and December 31, 2022, respectively, that it does not consider to be individually significant to its financial statements. The Company recorded net unrealized losses of $2,480 and $2,624 for the three and six months ended June 30, 2023, respectively, and net unrealized losses of $647 and $1,234 for the three and six months ended June 30, 2022, respectively, to other income, net in the consolidated statements of operations.
6. Inventories
The Company’s inventory balance consisted of the following:
| As of | ||||||||||||||
| June 30, | December 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| $ | $ | |||||||||||||
| Raw materials | 109,048 | 88,957 | ||||||||||||
| Work in process | 31,472 | 20,886 | ||||||||||||
| Finished goods | 180,813 | 172,503 | ||||||||||||
| Total inventories | 321,333 | 282,346 | ||||||||||||
7. Property, Plant and Equipment, Net
Property, plant and equipment, net are recorded at cost and consisted of the following:
| As of | ||||||||||||||
| June 30, | December 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| $ | $ | |||||||||||||
| Land | 65,485 | 65,485 | ||||||||||||
| Building | 214,080 | 222,448 | ||||||||||||
| Manufacturing equipment | 172,844 | 175,679 | ||||||||||||
| Laboratory equipment | 170,424 | 158,908 | ||||||||||||
| Leasehold improvement | 53,366 | 53,786 | ||||||||||||
| Software, electronics and office equipment | 72,839 | 47,483 | ||||||||||||
| Property, plant and equipment, at cost | 749,038 | 723,789 | ||||||||||||
| Less: accumulated depreciation | (201,406) | (171,470) | ||||||||||||
| Construction in progress | 484,306 | 293,627 | ||||||||||||
| Property, plant and equipment, net | 1,031,938 | 845,946 | ||||||||||||
In November 2021, the Company purchased a 42-acre site located in Hopewell, NJ for $75,197. The total purchase price was allocated between the land and an existing building on the property based on their relative fair values. The Company is constructing a biologics manufacturing facility and research and development center on the land. As of June 30, 2023, the Company has construction in process of $314,707 related to the Hopewell facility construction.
Depreciation expense was $21,307 and $40,332 for the three and six months ended June 30, 2023, respectively, and $14,461 and $30,041 for the three and six months ended June 30, 2022, respectively.
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8. Intangible Assets
Intangible assets as of June 30, 2023 and December 31, 2022 are summarized as follows:
| As of | ||||||||||||||||||||||||||||||||||||||
| June 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||
| Gross | Gross | |||||||||||||||||||||||||||||||||||||
| carrying | Accumulated | Intangible | carrying | Accumulated | Intangible | |||||||||||||||||||||||||||||||||
| amount | amortization | assets, net | amount | amortization | assets, net | |||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Finite-lived intangible assets: | ||||||||||||||||||||||||||||||||||||||
| Product distribution rights | 7,500 | (4,375) | 3,125 | 7,500 | (4,000) | 3,500 | ||||||||||||||||||||||||||||||||
| Developed products | 49,388 | (5,618) | 43,770 | 41,235 | (4,119) | 37,116 | ||||||||||||||||||||||||||||||||
| Trading license | 816 | (816) | — | 816 | (816) | — | ||||||||||||||||||||||||||||||||
| Total finite-lived intangible assets | 57,704 | (10,809) | 46,895 | 49,551 | (8,935) | 40,616 | ||||||||||||||||||||||||||||||||
Product distribution rights consist of distribution rights on the approved cancer therapies licensed from Bristol-Myers Squibb Company (“BMS”) as part of the BMS collaboration. The Company is amortizing the product distribution rights, as a single identified asset, over a period of 10 years from the date of acquisition. Developed products represent the post-approval milestone payments under license and commercialization agreements. The Company is amortizing the developed products over the remainder of the respective product patent or the term of the commercialization agreements. Trading license represents the Guangzhou drug distribution license acquired in September 2018. The Company amortized the drug distribution trading license over the remainder of the initial license term through February 2020. The trading license has been renewed through February 2024.
Amortization expense for developed products is included in cost of sales - product in the accompanying consolidated statements of operations. Amortization expense for product distribution rights and the trading licenses is included in operating expenses in the accompanying consolidated statements of operations.
The weighted-average life for each finite-lived intangible assets is approximately 12 years. Amortization expense was as follows:
Estimated amortization expense for each of the five succeeding years and thereafter, as of June 30, 2023 is as follows:
| Year Ending December 31, | Cost of Sales - Product | Operating Expenses | Total | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
2023 (remainder of year) | 1,857 | 375 | 2,232 | |||||||||||||||||
| 2024 | 3,714 | 750 | 4,464 | |||||||||||||||||
| 2025 | 3,714 | 750 | 4,464 | |||||||||||||||||
| 2026 | 3,714 | 750 | 4,464 | |||||||||||||||||
| 2027 | 3,714 | 500 | 4,214 | |||||||||||||||||
| 2028 and thereafter | 27,057 | — | 27,057 | |||||||||||||||||
| Total | 43,770 | 3,125 | 46,895 | |||||||||||||||||
9. Income Taxes
Income tax expense was $13,674 and $25,166 for the three and six months ended June 30, 2023, respectively. Income tax expense was $8,141 and $22,090 for the three and six months ended June 30, 2022. The income tax expense for the three and
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six months ended June 30, 2023 and 2022 was primarily attributable to current China tax expense due to certain non-deductible expenses and current U.S. tax expense determined after other special tax deductions and research and development tax credits.
On a quarterly basis, the Company evaluates the realizability of deferred tax assets by jurisdiction and assesses the need for a valuation allowance. In assessing the realizability of deferred tax assets, the Company considers historical profitability, evaluation of scheduled reversals of deferred tax liabilities, projected future taxable income and tax-planning strategies. Valuation allowances have been provided on deferred tax assets where, based on all available evidence, it was considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. After consideration of all positive and negative evidence, as of June 30, 2023, the Company will maintain a full valuation allowance against its net deferred tax assets.
As of June 30, 2023, the Company had gross unrecognized tax benefits of $12,524. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly change within the next 12 months. The Company’s reserve for uncertain tax positions increased by $559 and $969 in the three and six months ended June 30, 2023 primarily due to U.S. federal and state tax credits and incentives.
The Company has elected to record interest and penalties related to income taxes as a component of income tax expense. As of June 30, 2023 and December 31, 2022, the Company's accrued interest and penalties, where applicable, related to uncertain tax positions were not material.
The Company conducts business in a number of tax jurisdictions and, as such, is required to file income tax returns in multiple jurisdictions globally. As of June 30, 2023, Australia tax matters are open to examination for the years 2013 through 2023, China tax matters are open to examination for the years 2013 through 2023, Switzerland tax matters are open to examination for the years 2018 through 2023, and U.S. federal tax matters are open to examination for years 2015 through 2023. Various U.S. states and other non-US tax jurisdictions in which the Company files tax returns remain open to examination for 2012 through 2023.
10. Supplemental Balance Sheet Information
Prepaid expenses and other current assets consist of the following:
| As of | ||||||||||||||
| June 30, | December 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| $ | $ | |||||||||||||
| Prepaid research and development costs | 72,391 | 71,488 | ||||||||||||
| Prepaid manufacturing cost | 69,319 | 58,950 | ||||||||||||
| Prepaid taxes | 18,485 | 20,478 | ||||||||||||
| Other receivables | 36,866 | 22,777 | ||||||||||||
| Interest receivable | 1,992 | 3,039 | ||||||||||||
| Prepaid insurance | 7,593 | 3,664 | ||||||||||||
| Short-term deposit for sales rebates | 7,198 | 1,510 | ||||||||||||
| Other current assets | 41,206 | 34,647 | ||||||||||||
| Total | 255,050 | 216,553 | ||||||||||||
Other non-current assets consist of the following:
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| As of | ||||||||||||||
| June 30, | December 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| $ | $ | |||||||||||||
| Goodwill | 109 | 109 | ||||||||||||
| Prepayment of property and equipment | 13,140 | 22,025 | ||||||||||||
| Prepaid supply cost (1) | 30,539 | 48,642 | ||||||||||||
| Prepaid VAT | 1,734 | 804 | ||||||||||||
| Rental deposits and other | 6,420 | 7,054 | ||||||||||||
| Long-term investments | 95,607 | 91,779 | ||||||||||||
| Total | 147,549 | 170,413 | ||||||||||||
(1) Represents payments for future supply purchases under the license agreement with Luye Pharma Group and facility expansion under commercial supply agreements. The payments are providing future benefit to the Company through credits on commercial supply purchases.
Accrued expenses and other payables consist of the following:
| As of | ||||||||||||||
| June 30, | December 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| $ | $ | |||||||||||||
| Compensation related | 135,719 | 184,775 | ||||||||||||
| External research and development activities related | 91,108 | 139,168 | ||||||||||||
| Commercial activities | 65,506 | 51,806 | ||||||||||||
| Individual income tax and other taxes | 38,486 | 18,815 | ||||||||||||
| Sales rebates and returns related | 85,591 | 41,817 | ||||||||||||
| Other | 38,540 | 30,971 | ||||||||||||
| Total | 454,950 | 467,352 | ||||||||||||
Other long-term liabilities consist of the following:
| As of | ||||||||||||||
| June 30, | December 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| $ | $ | |||||||||||||
| Deferred government grant income | 34,865 | 38,176 | ||||||||||||
| Pension liability | 7,996 | 7,760 | ||||||||||||
| Other | 257 | 159 | ||||||||||||
| Total | 43,118 | 46,095 | ||||||||||||
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11. Debt
The following table summarizes the Company's short-term and long-term debt obligations as of June 30, 2023 and December 31, 2022:
| Lender | Agreement Date | Line of Credit | Term | Maturity Date | Interest Rate | As of | ||||||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | RMB | $ | RMB | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| China Construction Bank | April 4, 2018 | RMB580,000 | 9-year | April 4, 2027 | (1) | 10,343 | 75,000 | 7,250 | 50,000 | |||||||||||||||||||||||||||||||||||||||||||||||
| China Merchants Bank | January 22, 2020 | (2) | 9-year | January 20, 2029 | (2) | 5,024 | 36,429 | 1,450 | 10,000 | |||||||||||||||||||||||||||||||||||||||||||||||
| China Merchants Bank | November 9, 2020 | RMB378,000 | 9-year | November 8, 2029 | (3) | 5,516 | 40,000 | 5,437 | 37,500 | |||||||||||||||||||||||||||||||||||||||||||||||
| China Minsheng Bank (the “Senior Loan”) | September 24, 2020 | $200,000 | (4) | 4.3% | 150,000 | 1,087,666 | 150,000 | 1,034,554 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shanghai Pudong Development Bank | February 25, 2022 | $50,000 | 1-year | February 25, 2023 | 2.2% | — | — | 50,000 | 344,851 | |||||||||||||||||||||||||||||||||||||||||||||||
| China Merchants Bank | June 5, 2023 | RMB 400,000 | 1-year | June 4, 2024 | 3.2% | 55,164 | 400,000 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| HSBC Bank | May 4, 2023 | RMB 340,000 | 1-year | May 3, 2024 | 4.7% | 46,889 | 340,000 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| China Industrial Bank | May 30, 2023 | RMB 200,000 | 1-year | May 29, 2024 | 2.8% | 27,582 | 200,000 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Other short-term debt (5) | 120,534 | 874,000 | 114,832 | 792,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total short-term debt | 421,052 | 3,053,095 | 328,969 | 2,268,905 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| China Construction Bank | April 4, 2018 | RMB580,000 | 9-year | April 4, 2027 | (1) | 64,818 | 470,000 | 75,395 | 520,000 | |||||||||||||||||||||||||||||||||||||||||||||||
| China Merchants Bank | January 22, 2020 | (2) | 9-year | January 20, 2029 | (2) | 41,176 | 298,571 | 47,847 | 330,000 | |||||||||||||||||||||||||||||||||||||||||||||||
| China Merchants Bank | November 9, 2020 | RMB378,000 | 9-year | November 8, 2029 | (3) | 44,200 | 320,500 | 49,369 | 340,500 | |||||||||||||||||||||||||||||||||||||||||||||||
| China CITIC Bank | July 29, 2022 | RMB480,000 | 10-year | July 28, 2032 | (6) | 57,232 | 415,000 | 36,537 | 252,000 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total long-term bank loans | 207,426 | 1,504,071 | 209,148 | 1,442,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
1.The outstanding borrowings bear floating interest rates benchmarking RMB loan interest rates of financial institutions in the PRC. The loan interest rate was 4.5% as of June 30, 2023. 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 $3,483 (RMB25,000) during the six months ended June 30, 2023.
2.On January 22, 2020, BeiGene Guangzhou Biologics Manufacturing Co., Ltd.(“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 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 4.1% as of June 30, 2023. The Company repaid $731 (RMB5,000) during the six months ended June 30, 2023. BeiGene Guangzhou Biologics Manufacturing Co., Ltd. is a company incorporated under the laws of the PRC on March 3, 2017 and a wholly owned subsidiary of BeiGene Biologics.
3.The outstanding borrowings bear floating interest rates benchmarking RMB loan interest rates of financial institutions in the PRC. The loan interest rate was 4.0% as of June 30, 2023. The loan is secured by fixed assets placed into service upon completion of the third phase of the Guangzhou manufacturing facility's build out. The Company repaid $2,518 (RMB17,500) during the six months ended June 30, 2023.
4.In September 2020, the Company entered into a loan agreement with China Minsheng Bank for a total loan facility of up to $200,000 (“Senior Loan”), of which $120,000 was designated to fund the purchase of noncontrolling equity interest in BeiGene Biologics Co., Ltd. (“BeiGene Biologics”) from Guangzhou GET Technology Development Co., Ltd. (now Guangzhou High-tech Zone Technology Holding Group Co., Ltd.) (“GET”) and repayment of the loan provided by GET (“Shareholder Loan”) and $80,000 was designated for general working capital purposes. The Senior Loan had an original maturity date of October 8, 2021, which was 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. On October 8, 2021, the Company extended the maturity date for twelve months to October 8, 2022 and repurposed the Senior Loan for general working capital purposes. On September 30, 2022, the Company entered into an amendment and restatement agreement with China Minsheng Bank to extend the maturity date to October 9, 2023. BeiGene Biologics Co., Ltd. is a company incorporated under the laws of the PRC on January 25, 2017 and an indirectly wholly owned subsidiary of the Company.
5.During the years ended December 31, 2022 and 2021, the Company entered into short-term working capital loans with China Industrial Bank and China Merchants Bank to borrow up to RMB875,000 in aggregate, with maturity dates ranging from December 15, 2022 to September 18, 2023. The Company repaid $16,574 (RMB117,000) and drew down $28,174 (RMB199,000) during the six months ended June 30, 2023.The weighted average interest rate for the short-term working capital loans was approximately 2.6% as of June 30, 2023.
6.In July 2022, the Company entered into a 10-year bank loan agreement with China CITIC Bank to borrow up to RMB480,000 at a floating interest rate benchmarked against prevailing interest rates of certain PRC financial institutions. The Company drew down $22,502 (RMB163,000) during the six months ended June 30, 2023. The weighted average loan interest rate was 4.1% as of June 30, 2023. The loan is secured by BeiGene Suzhou Co., Ltd.'s land use right.
Interest Expense
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Interest expense recognized for the three and six months ended June 30, 2023 was $4,891 and $9,465, respectively, among which, $428 and $772 was capitalized, respectively. Interest expense recognized for the three and six months ended June 30, 2022 was $5,456 and $10,984, respectively, among which, $654 and $1,935 was capitalized, respectively.
12. Product Revenue
The Company’s product revenue is primarily derived from the sale of its internally developed products BRUKINSA in the United States China, and other regions, and tislelizumab and pamiparib in China; XGEVA, BLINCYTO and KYPROLIS in China under a license from Amgen; REVLIMID® and VIDAZA® in China under a license from BMS; and POBEVCY® in China under a license from Bio-Thera.
The table below presents the Company’s net product sales for the three and six months ended June 30, 2023 and 2022.
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Product revenue – gross | 667,328 | 342,885 | 1,176,933 | 638,273 | ||||||||||||||||||||||
| Less: Rebates and sales returns | (113,583) | (38,374) | (212,897) | (72,189) | ||||||||||||||||||||||
| Product revenue – net | 553,745 | 304,511 | 964,036 | 566,084 | ||||||||||||||||||||||
The following table disaggregates net product sales by product for the three and six months ended June 30, 2023 and 2022:
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
BRUKINSA® | 308,276 | 128,747 | 519,658 | 233,072 | ||||||||||||||||||||||
| Tislelizumab | 149,464 | 104,879 | 264,314 | 192,522 | ||||||||||||||||||||||
REVLIMID® | 21,847 | 19,916 | 45,005 | 41,576 | ||||||||||||||||||||||
XGEVA® | 23,968 | 15,509 | 44,165 | 29,008 | ||||||||||||||||||||||
POBEVCY® | 13,438 | 12,983 | 27,764 | 19,798 | ||||||||||||||||||||||
BLINCYTO® | 14,578 | 9,530 | 25,524 | 21,396 | ||||||||||||||||||||||
KYPROLIS® | 11,052 | 4,092 | 15,995 | 8,405 | ||||||||||||||||||||||
VIDAZA® | 3,930 | 3,434 | 7,119 | 8,946 | ||||||||||||||||||||||
| Pamiparib | 1,919 | 2,022 | 3,725 | 4,577 | ||||||||||||||||||||||
| Other | 5,273 | 3,399 | 10,767 | 6,784 | ||||||||||||||||||||||
| Total product revenue – net | 553,745 | 304,511 | 964,036 | 566,084 | ||||||||||||||||||||||
The following table presents the roll-forward of accrued sales rebates and returns for the six months ended June 30, 2023 and 2022:
| Six Months Ended | ||||||||||||||
| June 30, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| $ | $ | |||||||||||||
| Balance at beginning of the period | 41,817 | 59,639 | ||||||||||||
| Accrual | 212,897 | 72,189 | ||||||||||||
| Payments | (169,123) | (60,316) | ||||||||||||
| Balance at end of the period | 85,591 | 71,512 | ||||||||||||
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13. Loss Per Share
The following table reconciles the numerator and denominator in the computations of basic and diluted loss per share:
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||
| Net loss | (381,137) | (565,726) | (729,568) | (1,000,924) | ||||||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||||
| Weighted average shares outstanding—basic and diluted | 1,360,224,377 | 1,336,463,026 | 1,357,211,308 | 1,334,252,648 | ||||||||||||||||||||||
For the three and six months ended June 30, 2023 and 2022, the computation of basic loss per share using the two-class method was not applicable as the Company was in a net loss position, and the effects of all share options, restricted shares, restricted share units and ESPP shares were excluded from the calculation of diluted loss per share, as their effect would have been anti-dilutive.
14. Share-Based Compensation Expense
2016 Share Option and Incentive Plan
In January 2016, in connection with the Company's initial public offering (“IPO”) on the Nasdaq Stock Market, the board of directors and shareholders of the Company approved the 2016 Share Option and Incentive Plan (the “2016 Plan”), which became effective in February 2016. The Company initially reserved 65,029,595 ordinary shares for the issuance of awards under the 2016 Plan, plus any shares available under the 2011 Option Plan (the “2011 Plan”), and not subject to any outstanding options as of the effective date of the 2016 Plan, along with underlying share awards under the 2011 Plan that are cancelled or forfeited without issuance of ordinary shares. As of June 30, 2023, ordinary shares cancelled or forfeited under the 2011 Plan that were carried over to the 2016 Plan totaled 5,166,822. In December 2018, the shareholders approved an amended and restated 2016 Plan to increase the number of shares authorized for issuance by 38,553,159 ordinary shares, as well as amend the cap on annual compensation to independent directors and make other changes. In June 2020, the shareholders approved an Amendment No. 1 to the 2016 Plan to increase the number of shares authorized for issuance by 57,200,000 ordinary shares and to extend the term of the plan through April 13, 2030. The number of shares available for issuance under the 2016 Plan is subject to adjustment in the event of a share split, share dividend or other change in the Company’s capitalization.
During the six months ended June 30, 2023, the Company granted options for 9,396,660 ordinary shares and restricted share units for 29,453,021 ordinary shares under the 2016 Plan. As of June 30, 2023, options and restricted share units for ordinary shares outstanding under the 2016 Plan totaled 64,070,175 and 68,073,668, respectively. As of June 30, 2023, share-based awards to acquire 38,873,106 ordinary shares were available for future grant under the 2016 Plan.
In order to continue to provide incentive opportunities under the 2016 Plan, the Board of Directors and shareholders of the Company approved an amendment to the 2016 Plan (the “Amendment No. 2”), which became effective as of June 22, 2022, to increase the number of authorized shares available for issuance under the 2016 Plan by 66,300,000 ordinary shares, or 5% of the Company's outstanding shares as of March 31, 2022.
2018 Inducement Equity Plan
In June 2018, the board of directors of the Company approved the 2018 Inducement Equity Plan (the “2018 Plan”) and reserved 12,000,000 ordinary shares to be used exclusively for grants of awards to individuals that were not previously employees of the Company or its subsidiaries, as a material inducement to the individual’s entry into employment with the Company or its subsidiaries within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The 2018 Plan was approved by the board of directors upon recommendation of the compensation committee, without shareholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. The terms and conditions of the 2018 Plan, and the forms of award agreements to be used thereunder, are substantially similar to the 2016 Plan and the forms of award agreements thereunder. In August 2018, in connection with the Hong Kong IPO, the board of directors of the Company approved an amended and restated 2018 Plan to implement changes required by the listing rules of the Stock Exchange of Hong Kong Limited (“HKEX”).
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As of June 30, 2023, there were no options or restricted share units for ordinary shares outstanding under the 2018 Plan.
Upon the effectiveness of Amendment No. 2 to the 2016 Plan, on June 22, 2022, the 2018 Plan was terminated to the effect that no new equity awards shall be granted under the plan but the outstanding equity awards under the plan shall continue to vest and/or be exercisable in accordance with their terms.
2018 Employee Share Purchase Plan
In June 2018, the shareholders of the Company approved the 2018 Employee Share Purchase Plan (the “ESPP”). Initially, 3,500,000 ordinary shares of the Company were reserved for issuance under the ESPP. In December 2018, the board of directors of the Company approved an amended and restated ESPP to increase the number of shares authorized for issuance by 3,855,315 ordinary shares to 7,355,315 ordinary shares. In June 2019, the board of directors adopted an amendment to revise the eligibility criteria for enrollment in the plan. In June 2021, the board of directors of the Company adopted the third amended and restated ESPP to include certain technical amendments under U.S. tax rules and to consolidate the changes in the prior amendment, effective on September 1, 2021. The ESPP allows eligible employees to purchase the Company’s ordinary shares (including in the form of ADSs) at the end of each offering period, which will generally be six months, at a 15% discount to the market price of the Company’s ADSs at the beginning or the end of each offering period, whichever is lower, using funds deducted from their payroll during the offering period. Eligible employees are able to authorize payroll deductions of up to 10% of their eligible earnings, subject to applicable limitations.
As of June 30, 2023, 2,735,219 ordinary shares were available for future issuance under the ESPP.
The following tables summarizes the shares issued under the ESPP:
Market Price1 | Purchase Price2 | |||||||||||||||||||||||||||||||||||||
| Issuance Date | Number of Ordinary Shares Issued | ADS | Ordinary | ADS | Ordinary | Proceeds | ||||||||||||||||||||||||||||||||
| February 28, 2023 | 930,582 | $ | 171.10 | $ | 13.16 | $ | 145.44 | $ | 11.19 | $ | 10,414 | |||||||||||||||||||||||||||
| August 31, 2022 | 861,315 | $ | 171.66 | $ | 13.20 | $ | 145.91 | $ | 11.22 | $ | 9,667 | |||||||||||||||||||||||||||
| February 28, 2022 | 667,160 | $ | 210.52 | $ | 16.19 | $ | 178.94 | $ | 13.76 | $ | 9,183 | |||||||||||||||||||||||||||
1 The market price is the lower of the closing price on the Nasdaq Stock Market on the issuance date or the offering date, in accordance with the terms of the ESPP.
2 The purchase price is the price which was discounted from the applicable market price, in accordance with the terms of the ESPP.
The following table summarizes total share-based compensation expense recognized for the three and six months ended June 30, 2023 and 2022:
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Research and development | 45,948 | 37,107 | 79,976 | 52,082 | ||||||||||||||||||||||
| Selling, general and administrative | 57,381 | 44,198 | 98,741 | 58,542 | ||||||||||||||||||||||
| Total | 103,329 | 81,305 | 178,717 | 110,624 | ||||||||||||||||||||||
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15. Accumulated Other Comprehensive Loss
The movement of accumulated other comprehensive loss was as follows:
| Unrealized | ||||||||||||||||||||||||||
| Foreign Currency | Gains/(Losses) on | Pension | ||||||||||||||||||||||||
| Translation | Available-for-Sale | Liability | ||||||||||||||||||||||||
| Adjustments | Securities | Adjustments | Total | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Balance as of December 31, 2022 | (62,523) | (9,011) | (5,883) | (77,417) | ||||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | (73,172) | 6,902 | — | (66,270) | ||||||||||||||||||||||
| Net-current period other comprehensive (loss) income | (73,172) | 6,902 | — | (66,270) | ||||||||||||||||||||||
| Balance as of June 30, 2023 | (135,695) | (2,109) | (5,883) | (143,687) | ||||||||||||||||||||||
16. Shareholders’ Equity
Share Purchase Agreement
In September 2021, the Company issued an aggregate of 165,529 ADSs, representing 2,151,877 ordinary shares, to Amgen for a total consideration of $50,000, in a private placement pursuant to a Share Purchase Agreement dated October 31, 2019, as amended on December 6, 2019, September 24, 2020 and January 30, 2023 by and between Amgen and Company.
STAR Offering
In December 2021, the Company completed an initial public offering of (“STAR Offering”) on the Science and Technology Innovation Board (STAR Market) of the Shanghai Stock Exchange (“SSE”). The shares offered in the STAR Offering were issued to and subscribed for by permitted investors in the People’s Republic of China (“PRC”) in Renminbi (“RMB Shares”). The public offering price of the RMB Shares was RMB192.60 per ordinary share, or $391.68 per ADS. In this offering, the Company sold 115,055,260 ordinary shares. Net proceeds after deducting underwriting discounts and commission and offering expenses were $3,392,616. As required by the PRC securities laws, the net proceeds from the STAR Offering must be used in strict compliance with the planned uses as disclosed in the PRC prospectus as well as the Company's proceeds management policy for the STAR Offering approved by the board of directors.
17. Restricted Net Assets
The Company’s ability to pay dividends may depend on the Company receiving distributions of funds from its PRC subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by the Company’s PRC subsidiaries only out of the subsidiary's retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the condensed consolidated financial statements prepared in accordance with GAAP differ from those reflected in the statutory financial statements of the Company’s PRC subsidiaries.
In accordance with the company law of the PRC, a domestic enterprise is required to provide statutory reserves of at least 10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts. A domestic enterprise is also required to provide discretionary surplus reserve, at the discretion of the board of directors, from the profits determined in accordance with the enterprise’s PRC statutory accounts. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. The Company’s PRC subsidiaries were established as domestic enterprises and therefore are subject to the above-mentioned restrictions on distributable profits.
As a result of these PRC laws and regulations, including the requirement to make annual appropriations of at least 10% of after-tax income and set aside as general reserve fund prior to payment of dividends, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company.
Foreign exchange and other regulations in the PRC may further restrict the Company's PRC subsidiaries from transferring funds to the Company in the form of dividends, loans and advances. As of June 30, 2023 and December 31, 2022, the net assets of the Company’s PRC subsidiaries amounted to $3,305,583 and $3,548,881, respectively.
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18. Commitments and Contingencies
Purchase Commitments
As of June 30, 2023, the Company had purchase commitments amounting to $104,115, of which $40,295 related to minimum purchase requirements for supply purchased from contract manufacturing organizations and $63,820 related to binding purchase obligations of inventory from BMS and Amgen. The Company does not have any minimum purchase requirements for inventory from BMS or Amgen.
Capital Commitments
The Company had capital commitments amounting to $381,187 for the acquisition of property, plant and equipment as of June 30, 2023, which were mainly for the Company’s manufacturing and clinical R&D campus in Hopewell, NJ, additional capacity at the Guangzhou and Suzhou manufacturing facilities, and new building for Beijing Innerway Bio-tech Co., Ltd.
Co-Development Funding Commitment
Under the Amgen Collaboration Agreement, the Company is responsible for co-funding global development costs for the Amgen oncology pipeline assets up to a total cap of $1,250,000. The Company is funding its portion of the co-development costs by contributing cash and development services. As of June 30, 2023, the Company's remaining co-development funding commitment was $549,765.
Research and Development Commitment
The Company entered into a long-term research and development agreement in June 2021, which includes obligations to make an upfront payment and fixed quarterly payments over the next four years. As of June 30, 2023, the total research and development commitment amounted to $17,990.
Funding Commitment
The Company had committed capital related to two equity method investments in the amount of $15,057. As of June 30, 2023, the remaining capital commitment was $10,557 and is expected to be paid from time to time over the investment period.
Pension Commitment
The Company maintains a defined benefit pension plan in Switzerland. Funding obligations under the defined benefit pension plan are equivalent to $2,627 per year based on annual funding contributions in effect as of June 30, 2023 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.
Other Business Agreements
The Company enters into agreements with contract research organizations (“CROs”) to some extent to provide research and development services. These contracts are generally cancellable at any time by us with prior written notice.
The Company also enters into collaboration agreements with institutions and companies to license intellectual property. The Company may be obligated to make future development, regulatory and commercial milestone payments and royalty payments on future sales of specified products associated with its collaboration agreements. Payments under these agreements generally become due and payable upon achievement of such milestones or sales. These commitments are not recorded on the Company's 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 the Company’s financial statements.
Legal Proceedings
In the ordinary course of business, the Company may be subject to legal proceedings, claims and litigation as the Company operates in an industry susceptible to patent legal claims. The Company accounts for estimated losses with respect to legal proceedings and claims when such losses are probable and estimable. Legal costs associated with these matters are expensed when incurred.
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