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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-25 · 87 added, 91 removed, 286 unchanged (38% of the section changed)

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We are a global oncology company with a proprietary platform technology called Tumor Treating Fields ("TTFields"), which are electric fields tuned to specific frequencies that disrupt cancer cell division.

Our key priorities are to drive commercial adoption of Optune and Optune Lua, our commercial TTFields delivery systems, and to advance clinical and product development programs intended to extend overall survival in some of the most aggressive forms of cancer.

Our key priorities are to drive commercial adoption of Optune and Optune Lua, our commercial devices, and to advance clinical and product development programs intended to extend overall survival in some of the most aggressive forms of cancer.

Optune is approved by the U.S.

Food and Drug Administration ("FDA") under the Premarket Approval ("PMA") pathway for the treatment of adult patients with newly diagnosed GBM in combination with temozolomide, a chemotherapy drug, and for adult patients with GBM following confirmed recurrence after chemotherapy as monotherapy treatment.

We also have approval or a CE certificate to market Optune for the treatment of GBM in the European Union ("EU"), Japan and certain other countries.

We market Optune in the U.S., Austria, Germany, Israel, Japan, Sweden and Switzerland, which we refer to as our "active markets." With respect to GBM, our sales and marketing efforts are principally focused on driving adoption with both neuro-oncologists and radiation oncologists.

We are expanding our commercial operations into France with an initial focus on developing key opinion leader relationships in GBM and establishing a path to reimbursement for our Products.

Optune Lua is approved by the FDA under the Humanitarian Device Exemption ("HDE") pathway to treat MPM in combination with standard chemotherapies.

We have received CE certification to market Optune Lua (under the name " NovoTTF-100L ") in the EU and Switzerland.

We currently market Optune Lua in the U.S., and are evaluating plans to expand access to our therapy for MPM patients in other markets.

With respect to MPM, our commercial efforts are principally focused on generating awareness and on establishing a dialogue with third-party payers around access to Optune Lua.

We believe the mechanism of action behind TTFields therapy may be broadly applicable to solid tumor cancers.

Currently, we are conducting phase 3 pivotal trials evaluating the use of TTFields in brain metastases from non-small-cell lung cancer ("brain metastases"), non-small-cell lung cancer ("NSCLC"), ovarian cancer and pancreatic cancer.

In 2020, we enrolled our first patient in our global phase 4 TRIDENT trial to test the potential survival benefit of initiating Optune concurrent with radiation therapy versus following radiation therapy in patients with newly diagnosed GBM.

We are also conducting phase 2 pilot trials evaluating the use of TTFields in liver cancer and gastric cancer, as well as testing the potential incremental survival benefit of TTFields delivered using high-intensity arrays versus standard arrays.

Food and Drug Administration ("FDA") under the Premarket Approval ("PMA") pathway for the treatment of adult patients with newly diagnosed glioblastoma ("GBM") together with temozolomide, a chemotherapy drug, and for adult patients with GBM following confirmed recurrence after chemotherapy as monotherapy treatment.

We also have a CE certificate to market Optune for the treatment of GBM in the European Union ("EU"), as well as approval or local registration in the United Kingdom ("UK"), Japan and certain other countries.

Optune Lua is approved by the FDA under the Humanitarian Device Exemption ("HDE") pathway to treatment malignant pleural mesothelioma ("MPM") together with standard chemotherapies.

We have also received CE certification in the EU and approval or local registration to market Optune Lua in certain other countries.

We market Optune and Optune Lua in multiple countries around the globe with the majority of our revenues coming from the use of Optune in the U.S., Germany and Japan.

We are actively evaluating opportunities to expand our international footprint.

We believe the physical mechanism of action behind TTFields therapy may be broadly applicable to solid tumor cancers.

Currently, we are conducting phase 3 pivotal studies evaluating the use of TTFields in non-small cell lung cancer ("NSCLC"), ovarian cancer, brain metastases from non-small cell lung cancer ("brain metastases") and pancreatic cancer.

In 2021, we completed patient enrollment in our phase 3 pivotal NSCLC and ovarian cancer studies with data anticipated in 2022 and 2023, respectively.

Additionally, we have multiple ongoing phase 2 pilot studies evaluating the use of TTFields in gastric cancer, for which patient enrollment is complete, and stage 3 NSCLC, as well as testing the potential incremental survival benefit of TTFields delivered using high-intensity arrays versus standard arrays.

We are designing several phase 2 pilot studies in partnership with oncology leaders to further explore the capabilities of TTFields.

We are also currently conducting a global phase 4 post-marketing study testing the potential survival benefit of initiating Optune concurrent with radiation therapy versus following radiation therapy in patients with newly diagnosed GBM.

In 2021, we presented data from our phase 2 pilot study studying the use of TTFields in liver cancer and are currently evaluating protocol design options for a large, randomized study in this indication.

We anticipate expanding our clinical pipeline over time to study the safety and efficacy of TTFields for additional solid tumor indications and combinations with other cancer treatment modalities.

In the second quarter of 2021, we plan to launch the KEYNOTE B36 phase 2 pilot trial to study TTFields with pembrolizumab in first-line NSCLC through our clinical trial collaboration with MSD (a tradename of Merck & Co., Inc.).

The table below presents the current status of the ongoing clinical trials in our pipeline and anticipated timing of final data.

The table below presents the current status of the ongoing clinical studies in our pipeline and anticipated timing of data.

Our therapy is delivered through a medical device and we continue to advance our Products with the intention to extend survival and maintain quality of life for patients.

We have several product development programs underway that prioritize impact on both TTFields' dose and patient ease of use.

Our intellectual property portfolio contains over 185 issued patents and numerous patent applications pending worldwide.

We believe we own global commercialization rights to our Products in oncology and are well-positioned to extend those rights into the future as we continue to find innovative ways to improve our Products.

We have several product development programs underway that are designed to optimize TTFields delivery to the target tumor and enhance patient ease of use.

Our intellectual property portfolio contains hundreds of issued patents and numerous patent applications pending worldwide.

We believe we possess global commercialization rights to our Products in oncology and are well-positioned to extend those rights into the future as we continue to find innovative ways to improve our Products.

In 2018, we granted Zai Lab (Shanghai) Co., Ltd.

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The pandemic has had and is having an impact on our day-to-day operations, which varies by region based on factors such as geographical spread, stage of containment and recurrence of the pandemic in each region.

We believe the prolonged disruption caused by COVID-19 is resulting in increased volatility across global health care systems, such as fluctuations in patient volumes and changes in patterns of care in certain regions, which is currently impacting and might continue to impact our business and clinical trials in the future.

For example, we continue to see fluctuations in the timing of surgeries and radiation therapy in certain regions, which has had some adverse influence on the eligible patient population for Optune.

We have also have been impacted by staff disruptions and turnover internally and at treatment sites, clinical study sites and third-party providers, either directly as a result of illness or indirectly as a result of vaccine mandates and other changes in terms of employment.

TTFields is an emerging modality in cancer care and requires significant educational effort to drive awareness and acceptance of our therapy.

We have relied heavily on virtual engagement to manage these educational efforts for nearly a year, which poses challenges to our ability to effectively communicate and engage with our customers and partners around the world.

We have relied heavily on virtual engagement to manage these educational efforts since the onset of the pandemic, which poses challenges to our ability to effectively communicate and engage with our customers and partners around the world.

Given the aggressive nature of the cancers that we treat, we believe that the fundamental value proposition of the TTFields platform remains unchanged.

We continue to evaluate and plan for the potential effects of COVID-19 on our business moving forward.

The extent to which the COVID-19 pandemic may impact our business and clinical trials in the future will depend on further developments, which are highly uncertain and cannot be predicted with

The extent to which the COVID-19 pandemic may impact our business and clinical studies in the future will depend on further developments, which are highly uncertain and cannot be predicted with confidence.

The COVID-19 pandemic may also heighten many of the other risks described in our risk factors disclosed in this Annual Report.

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Our net revenues were $535.0 million for the year ended December 31, 2021, $494.4 million for the year ended December 31, 2020 and $351.3 million for the year ended December 31, 2019.

Our net income was $19.8 million for the year ended December 31, 2020 and net loss $7.2 million for the year ended December 31, 2019 and $63.6 million for the year ended December 31, 2018.

Our net loss was $58.4 million for the year ended December 31, 2021, net income was $19.8 million for the year ended December 31, 2020 and net loss was $7.2 million for the year ended December 31, 2019.

As of December 31, 2021, we had an accumulated deficit of $685.9 million.

Our net income resulted primarily from net revenue growth coupled with an ongoing commitment to disciplined management of expenses.

Commentary on Results of Operations

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Operating expenses

Our operating expenses consist of research, development and clinical trials, sales and marketing and general and administrative expenses.

Our operating expenses consist of research, development and clinical studies, sales and marketing and general and administrative expenses.

Personnel costs are a significant component for each category of operating expenses and consist of wages, benefits and bonuses.

Personnel costs also include share-based compensation.

Research, development and clinical trials

Our research, development and clinical trials activity is focused on advancing TTFields through clinical trials across multiple solid tumor types and improving the efficacy and usability of our delivery systems.

Research, development and clinical trials costs, including direct and allocated expenses, are expensed as incurred and consist primarily of the following:

• personnel costs for those employees involved in our preclinical and basic research, clinical development programs, medical affairs, product development and regulatory activities;

• costs to conduct research, product development and clinical trial activity through agreements with contract research organizations and other third parties;

• manufacturing expenses associated with our Products, including durable components and disposable arrays, utilized in clinical trials and other research;

Research, development and clinical studies

Our research, development and clinical studies activity is focused on advancing TTFields through clinical studies across multiple solid tumor types and improving the efficacy and usability of our devices.

Research, development and clinical studies costs, including direct and allocated expenses, are expensed as incurred and consist primarily of the following:

• personnel costs for those employees involved in our preclinical and basic research, clinical development programs, clinical affairs, product development and regulatory activities;

• costs to conduct research, product development and clinical study activity through agreements with contract research organizations and other third parties;

• manufacturing expenses associated with our Products, including durable components and disposable arrays, utilized in clinical studies and other research;

• costs associated with medical grants, publications, presentations and investigator-sponsored trials;

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• facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment and laboratory and other supplies.

The following table summarizes our research, development and clinical trial expenses by program for the years ended December 31, 2020, 2019 and 2018:

The following table summarizes our research, development and clinical study expenses by program for the years ended December 31, 2021, 2020 and 2019:

Year ended December 31,

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Clinical development programs:

METIS 5,147 4,699 3,640

LUNAR 9,069 8,261 7,243

PANOVA - 3 7,033 5,368 3,076

INNOVATE - 3 17,708 14,190 4,822

METIS 7,056 5,147 4,699

PANOVA - 3 15,026 7,033 5,368

TRIDENT 12,588 3,709 424

Other clinical trials 2,764 1,726 1,941

Other clinical studies 4,634 2,764 1,726

Clinical administration 19,764 13,158 8,834

Product development 15,248 9,710 4,944

Medical affairs 21,058 15,531 7,714

Clinical affairs 24,486 21,058 15,531

Other research and development costs (1) 32,547 16,776 10,968

Research, development and clinical trials $ 132,010 $ 79,003 $ 50,574

(1) Other research, development and clinical trial costs include regulatory affairs, quality assurance, intellectual property, product safety, allocated facilities, other overhead costs and share-based compensation.

Share based compensation 27,597 18,125 7,570

Research, development and clinical studies $ 201,303 $ 132,010 $ 79,003

(1) Other research, development and clinical study costs include regulatory affairs, quality assurance, intellectual property, product safety, allocated facilities and other overhead costs.

We are committed to investing strategically to maximize the growth potential of the TTFields platform.

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GAAP, in preparing our financial statements we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of net revenues and expenses during the reporting period.

We develop and periodically change these estimates and assumptions based on historical experience and on various

other factors that we believe are reasonable under the circumstances.

We develop and periodically change these estimates and assumptions based on historical experience and on various other factors that we believe are reasonable under the circumstances.

Actual results may differ from these estimates.

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The Company adopted the standard effective January 1, 2018 using the modified retrospective method for all contracts.

The reported results for 2018 and thereafter reflect the application of Accounting Standards Codification ("ASC") 606 guidance while the reported results for 2017 were prepared under the guidance of ASC 605, Revenue Recognition (ASC 605).

The amount of revenue recognized in 2018 and 2019 reflects the consideration to which the Company expects to be entitled to receive in exchange for our Products.

The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.

The reported results for 2018 and thereafter reflect the application of Accounting Standards Codification ("ASC") 606 guidance.

The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for our Products.

For additional information, see Note 2(m) to the Consolidated Financial Statements.

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110) as we have insufficient historical information regarding our stock options to provide a basis for an estimate;

• the expected share price volatility of our underlying ordinary shares, which we estimate based on the historical volatility of a representative group of publicly traded biopharmaceutical and medical technology companies with similar characteristics to us for a period matching the expected term assumption when there is not sufficient historical information for our ordinary shares;

• the expected share price volatility of our underlying ordinary shares, which since the beginning of 2021, we estimate based on a combination of our own stock price and a representative group of publicly traded biopharmaceutical and medical technology companies with similar characteristics to us ("peer-based companies") for a period matching the expected term assumption when there is not sufficient historical information for our ordinary shares (prior to 2021 our estimation was based on the historical volatility of peer-based companies);

• the risk-free interest rate, which we base on the yield curve of U.S.

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• the expected dividend yield, which we estimate to be zero based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends.

For information about our ESPP, see Note 14(b) to the Consolidated Financial Statements.

For information about our ESPP, see Note 14 to the Consolidated Financial Statements.

We recognize share-based compensation costs only for those shares expected to vest over the requisite vesting period of the award, which is generally the option vesting term of four years, using the accelerated method.

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We expect to continue to grant equity awards in the future, and to the extent that we do, our recognized share-based compensation expense will likely increase.

For additional information, see Note 14(b) to the Consolidated Financial Statements.

For additional information, see Note 14 to the Consolidated Financial Statements.

Long-lived assets

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We regularly evaluate the ability to realize the value of inventory.

If the inventories are deemed damaged, if actual demand for our delivery systems declines, or if market conditions are less favorable than those projected, inventory write-offs may be required.

If the inventories are deemed damaged, if actual demand for our devices declines, or if market conditions are less favorable than those projected, inventory write-offs may be required.

For additional information, see Note 2(h) to the Consolidated Financial Statements.

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For additional information, see Note 13 to the Consolidated Financial Statements.

Recently issued accounting pronouncements

For a description of our recently issued accounting pronouncements, see Note 2(aa) to the Consolidated Financial Statements.

Results of operations

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Operating costs and expenses:

Research, development and clinical trials 132,010 79,003 50,574

Research, development and clinical studies 201,303 132,010 79,003

Sales and marketing 137,057 118,017 96,675

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Cost of revenues $ 3,471 $ 2,221 $ 2,231

Research, development and clinical trials 18,125 7,570 4,709

Research, development and clinical studies 27,597 18,125 7,570

Sales and marketing 22,673 17,672 11,897

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An "active patient" is a patient who is receiving treatment under a commercial prescription order as of the measurement date, including patients who may be on a temporary break from treatment and who plan to resume treatment in less than 60 days.

Prescriptions are a leading indicator of demand.

Prescriptions are a leading indicator of

A "prescription received" is a commercial order for Optune or Optune Lua that is received from a physician certified to treat patients with our Products for a patient not previously on Optune or Optune Lua.

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Active patients at period end

United States 2,193 1,952 1,637

North America 2,272 2,193 1,952

Germany 563 562 493

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Prescriptions received in period

United States 3,871 3,833 3,741

North America 3,781 3,871 3,833

Germany 924 910 872

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Year ended December 31, 2021 compared to year ended December 31, 2020

The following discussion provides an analysis of our results of operations and reasons for material changes therein for 2020 as compared to 2019.

See "Results of Operations" in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2019 Annual Report on Form 10-K, filed with the SEC on February 27, 2019 (the "2019 Annual Report"), for analysis of the 2019 results as compared to 2018.

Year ended December 31,

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Net revenues increased by $40.7 million, or 8%, to $535.0 million for the year ended December 31, 2021 from $494.4 million for the year ended December 31, 2020.

This was primarily due to an increase of 502 active patients in our active markets, representing 17% growth, and an increase in the net revenues per active patient per month.

The increase in net revenues per active patient per month was primarily driven by improving reimbursement approval rates in the U.S.

This primarily was due to an increase of 176 active patients, representing 5% growth and increased efficiency in our revenue operations, offset by a reduction in net revenue per active patient in Germany.

For the year ended December 31, 2021, we recorded $40.3 million in revenues from Medicare fee-for-service beneficiaries billed under the coverage policy compared to $36.1 million for the year ended December 31, 2020.

We have gained a good understanding of how to ensure timely processing of Medicare claims and have sufficient experience to recognize approximately two-thirds of the expected contribution from Medicare beneficiaries.

We also recognized approximately $19 million in incremental net revenues in the second half of 2020 compared to the first half of 2020 resulting from the successful appeal of previously denied claims for Medicare fee-for-service beneficiaries billed prior to established coverage.

We believe we have completed our administrative ramp-up for processing Medicare claims and efficiently pursuing appeals.

In 2021, we did not record material revenue from the successful appeal of previously denied claims for Medicare fee-for-service beneficiaries billed prior to established coverage, compared to approximately $19 million in incremental net revenues recorded in 2020.

We continue to actively appeal and pursue previously denied claims for beneficiaries billed prior to established coverage, but the cadence and amount of these Medicare payments are impossible to predict.

Year ended December 31,

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Our cost of revenues increased by $8.4 million, or 8%, to $114.9 million for the year ended December 31, 2021 from $106.5 million for the year ended December 31, 2020.

The increase in cost of revenues was primarily due to the cost of shipping arrays to a higher volume of commercial patients.

The increase in cost of revenues primarily was due to increased array utilization and shipping costs to a higher volume of active patients, which

increased 5% in the year ended December 31, 2021 compared to the year ended December 31, 2020.

An increase of $5 million in product sales to Zai in the year ended December 31, 2021 compared to the year ended December 31, 2020 contributed to the increase in cost of revenues.

Excluding sales to Zai, cost of revenues per active patient per month decreased 5% to $2,474 for the year ended December 31, 2021 from $2,602 for the year ended December 31, 2020 due to on-going efficiency initiatives and scale.

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Gross margin was 79% for the year ended December 31, 2021 and 78% for the year ended December 31, 2020.

Gross margin continues to benefit from ongoing efficiency initiatives and increasing scale.

Gross margin is also improved with revenue resulting from the successful appeal of previously denied claims for Medicare fee-for-service beneficiaries and tempered by product sales to Zai.

Gross margin continues to benefit from ongoing efficiency initiatives and increasing scale and is tempered by product sales to Zai.

Year ended December 31,

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Operating expenses:

Research, development and clinical trials $ 132,010 $ 79,003 $ 53,007 67 %

Research, development and clinical studies $ 201,303 $ 132,010 $ 69,293 52 %

Sales and marketing 137,057 118,017 19,040 16 %

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Total operating expenses $ 464,487 $ 357,464 $ 107,023 30 %

Research, development and clinical trials expenses.

Research, development and clinical trials expenses increased by $53.0 million, or 67%, to $132.0 million for the year ended December 31, 2020 from $79.0 million for the year ended December 31, 2019.

The change is primarily due to increased investments in clinical trials and clinical administration personnel to advance and broaden our clinical development programs, preclinical and basic research to better understand the optimal use of TTFields, product development intended to optimize the delivery of TTFields therapy, and expanded medical affairs efforts to educate the clinical community.

Research, development and clinical studies expenses.

Research, development and clinical studies expenses increased by $69.3 million, or 52%, to $201.3 million for the year ended December 31, 2021 from $132.0 million for the year ended December 31, 2020.

The change is primarily due to an incremental $31.6 million in clinical studies and clinical administration expenses, $5.5 million in product development expenses, $3.5 million in preclinical and basic research expenses, and $3.4 million in clinical affairs expenses.

We expect growth in our research and development investments to continue into 2022 as we work to advance our pipeline programs and increase acceptance of Tumor Treating Fields across the global oncology community.

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Sales and marketing expenses increased by $19.0 million, or 16%, to $137.1 million for the year ended December 31, 2021 from $118.0 million for the year ended December 31, 2020.

The change was primarily due to an increase in personnel and professional services costs to support our growing commercial business and reimbursement efforts and an increase in marketing expenses related to the launch of Optune Lua for MPM.

The change primarily was due to increases of $7.0 million, $4.0 million and $2.6 million in health policy, marketing and sales expenses, respectively, which are intended to support our growing commercial business and reimbursement efforts, including an incremental $5.7 million invested in pre-commercial activities associated with potential commercial launches in additional cancer indications and expansion into new markets in our approved indications.

General and administrative expenses.

General and administrative expenses increased by $18.7 million, or 17%, to $126.1 million for the year ended December 31, 2021 from $107.4 million for the year ended December 31, 2020.

The change was primarily due to an increase in personnel costs, insurance premiums and professional services.

The change primarily was due to increase of $10.1 million in expenses associated with personnel costs and professional services, as well as an increase of $4.6 in expenses associated with supply chain optimization.

Year ended December 31,

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Financial expenses, net.

Financial expenses, net increased by $4.4 million, or 55%, to $12.3 million for the year ended December 31, 2020 from $7.9 million for the year ended December 31, 2019.

The change was primarily due to a prepayment premium related to the 2018 Credit Facility, amortization costs related to the issuance of our

convertible notes and expenses related to the senior secured revolving credit facility.

Financial expenses, net, decreased by $4.6 million, or 37%, to $7.7 million for the year ended December 31, 2021 from $12.3 million for the year ended December 31, 2020.

The change primarily was due to a prepayment premium related to the 2018 Credit Facility, amortization costs related to the issuance of our convertible notes and expenses related to the senior secured revolving credit facility.

See Note 10 to the Consolidated Financial Statements.

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Income taxes.

Income tax benefits increased by $0.1 million, or 7%, resulting in a tax benefit of $1.7 million for the year ended December 31, 2020 compared to a $1.6 million for the year ended December 31, 2019.

The change was primarily a result of the impact of the U.S.

CARES Act partially offset by business growth.

Income tax expenses increased by $8.0 million, or 468%, resulting in a tax expense of $6.3 million for the year ended December 31, 2021 compared to a tax benefit of $1.7 million for the year ended December 31, 2020.

The change was primary due to a net one-time tax benefit of $11.3 million which was recorded in the first quarter of 2020 in response to the changes in the U.S.

tax code related to the economic impact of the COVID-19 pandemic.

Without this one-time benefit in 2020, income taxes expenses decreased $3.3 million in 2021 driven by a change in the mix of applicable statutory tax rates in our active jurisdictions.

Non-GAAP financial measures

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Adjusted EBITDA $ 60,818 $ 115,272 $ 59,962

Adjusted EBITDA increased by $55.3 million, or 92%, to $115.3 million for the year ended December 31, 2020 from $60.0 million for the year ended December 31, 2019.

This improvement in fundamental financial performance was driven by net revenue growth coupled with an ongoing commitment to disciplined management of expenses.

Adjusted EBITDA decreased by $54.5 million, or 47%, to $60.8 million for the year ended December 31, 2021 from $115.3 million for the year ended December 31, 2020.

This decrease was in part due to a $59.8 million increase in investment in research, development and clinical studies expenses (net of share-based compensation expenses), intended to advance our pipeline programs and increase acceptance of TTFields across the global oncology community, as well as an incremental $5.7 million invested in pre-commercial activities associated with potential commercial launches in additional cancer indications and expansion into new markets in our approved indications.

Liquidity and capital resources

We have incurred significant losses and cumulative negative cash flows from operations since our founding in 2000.

We have incurred significant losses and cumulative negative cash flows from operations with only limited and intermittent operating profits since our founding in 2000.

As of December 31, 2021, we had an accumulated deficit of $685.9 million.

To date, we have primarily financed our operations through the issuance and sale of equity and the proceeds from long-term loans.

To date, we primarily have financed our operations through the issuance and sale of equity and the proceeds from long-term loans.

At December 31, 2021, we had $208.8 million in cash and cash equivalents and $728.9 million in short-term investments.

At December 31, 2021, our cash, cash equivalents and short-term investments totaled $937.7 million, an increase of $95.1 million compared to $842.6 million at December 31, 2020.

The increase in our cash, cash equivalents and short-term investments was primarily due to convertible notes issued, net cash provided by operating activities and the exercise of options.

The increase was primarily due to net cash generated by operating activities and the exercise of options.

We believe our cash, cash equivalents and short-term investments as of December 31, 2021 are sufficient for our operations for at least the next 12 months based on our existing business plan and our ability to control the timing of significant expense commitments.

We expect that our research, development and clinical trials expenses, sales and marketing expenses and general and administrative expenses will continue to increase over the next several years and may outpace our gross profit.

We expect that our research, development and clinical expenses, sales and marketing expenses and general and administrative expenses will continue to increase over the next several years and may outpace our gross profit.

As a result, we may need to raise additional capital to fund our operations.

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Net cash provided by operating activities was $82.8 million for the year ended December 31, 2021 compared to $99.1 million for the year ended December 31, 2020.

Gross profit increased by $125.2 million in 2020 versus 2019, fully funding incremental investments of $53.0 million in research and development and $40.8 million in sales, marketing, general and administrative expenses.

The year over year increase in cash provided by operating activities was driven primarily by higher cash earnings, lower interest payments, the receipt of income tax refunds and Zai Lab milestone payments, as well as the timing of receipts and payments in the ordinary course of business.

Upcoming uses of cash in operations will include payments in the normal course of business of $37.5 million in purchase obligations with certain of our suppliers, primarily for the purchase of Product components along with other commitments to purchase goods or services.

Gross profit increased by $32.3 million in 2021 versus 2020, partially funding incremental investments of $69.3 million in research and development and $37.7 million in sales, marketing, general and administrative expenses.

The year over year decrease in cash provided by operating activities was driven by lower cash earnings, offset by lower interest payments, as well as the timing of receipts and payments in the ordinary course of business.

Upcoming use of cash in operations will include payments in the normal course of business of $45.3 million in purchase obligations with certain of our suppliers, primarily for the purchase of Product components along with other commitments to purchase goods or services.

These amounts include approximately $34.4 million of commitments with three major suppliers.

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We also have employment agreements with certain employees that require the funding of a specific level of payments if certain events, such as a change in control or termination without cause, occur.

In the course of normal business operations, we also have agreements with contract service providers to assist in the performance of our research and development (including clinical trials) and manufacturing activities.

We could also enter into additional collaborative research, contract research, manufacturing and supplier agreements in the future, which may require up-front payments and even long-term commitments of cash.

Investing activities

Our investing activities consist primarily of capital expenditures to purchase property and equipment and field equipment, as well as investments in and redemptions of our short-term investments.

Our investing activities primarily consist of capital expenditures to purchase property and equipment and field equipment, as well as investments in and redemptions of our short-term investments.

Net cash used in investing activities was $144.8 million for the year ended December 31, 2021 compared to net cash used in investing activities of $472.8 million for the year ended December 31, 2020.

The net cash used in investing activities for 2020 was primarily attributable to $15.0 million in property and equipment and the purchase of $607.9 million in short-term investments, mostly upon receipt of proceeds from the convertible note issuance, partially offset by $150.0 million in proceeds of short term investments to repay the 2018 Credit Facility.

The net cash used in investing activities for 2021 was primarily attributable to $24.2 million in property and equipment and the net purchase of $120.7 million in short-term investments.

The net cash used in investing activities for 2020 was primary attributable to $15.0 million in property and equipment and the net purchase of $457.9 million in short-term investments.

Financing activities

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Net cash provided by financing activities was $25.7 million for the year ended December 31, 2021 compared to $440.2 million for the year ended December 31, 2020.

The net cash provided by financing activities for 2020 was primarily attributable to $558.4 million in proceeds from the convertible note issuance and $31.8 million in proceeds from exercise of options and shares related to the ESPP partially offset by $150.0 million in repayment of the 2018 Credit Facility (see below).

The net cash provided by financing activities for 2019 was primarily attributable to $61.7 million in proceeds from exercise of options and shares related to the ESPP.

The net cash provided by financing activities for 2021 was primary attributable to proceeds from exercise of options and issuance of shares pursuant to the ESPP.

The net cash provided by financing activities for 2020 primarily was attributable to $558.4 million in proceeds from the convertible note issuance and $31.8 million in proceeds from exercise of options and shares related to the ESPP partially offset by $150.0 million in repayment of the 2018 Credit Facility (as described below).

Convertible Notes

On November 5, 2020, we issued issued $575.0 million aggregate principal amount of 0% Convertible Senior Notes due 2025 (the “Notes”).

On November 5, 2020, we issued $575.0 million aggregate principal amount of 0% Convertible Senior Notes due 2025 (the “Notes”).

The net proceeds from the offering were approximately $558.4 million.

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On November 6, 2020, we entered into a new three-year $150.0 million senior secured revolving credit facility with a syndicate of relationship banks (the "2020 Credit Facility").

We may, subject to certain conditions and limitations, increase the revolving credit commitments outstanding under the 2020 Credit Facility or incur new incremental term loans in an aggregate principal amount not to exceed an additional $100 million.

The commitments under the 2020 Credit Facility are guaranteed by certain of our subsidiaries and secured by a first lien on our and certain of our subsidiaries’ assets.

Outstanding loans will bear interest at a sliding scale based on the our secured leverage ratio from LIBOR plus 2.75% to LIBOR plus 3.25% per annum.

Outstanding loans will bear interest per annum at a sliding scale based on the our secured leverage ratio from 2.75% to 3.25% above the applicable interbank borrowing reference rate for the currency in which the loan is denominated.

Additionally, the 2020 Credit Facility contains a fee for the unused revolving credit commitments at a sliding scale based on our secured leverage ratio from 0.35% to 0.45%.

9 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis