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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-02-25 · 233 added, 280 removed, 219 unchanged (70% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with “Item 6—Selected Consolidated Financial Data” and our consolidated financial statements and related notes appearing elsewhere in this Annual Report.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report.

In addition to historical information, this discussion and analysis contains forward‑looking statements that involve risks, uncertainties and assumptions.

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We are a global, commercial-stage biotechnology company focused on discovering, developing, manufacturing, and commercializing innovative medicines to improve treatment outcomes and expand access for patients worldwide.

Our research organization has delivered ten molecules into the clinic in our first ten years, including our two lead commercial medicines, BRUKINSA ® , a small molecule inhibitor of Bruton’s Tyrosine Kinase (“BTK”) for the treatment of various blood cancers, and tislelizumab, an anti-PD-1 antibody immunotherapy for the treatment of various solid tumor and blood cancers.

We are marketing BRUKINSA ® in the world’s two largest pharmaceutical markets, the United States and China, and tislelizumab in China, with an established, science-based commercial organization.

We have built state-of-the-art biologic and small molecule manufacturing facilities in China to support the potential future demand of our products, and we also work with high quality contract manufacturing organizations (“CMOs”) to manufacture our internally developed clinical and commercial products.

We are a leader in China-inclusive global clinical development, which we believe can facilitate faster and more cost-effective development of innovative medicines.

Our internal clinical development capabilities are deep, including a more than 1,600-person global clinical development team that is running more than 60 ongoing or planned clinical trials.

This includes more than 25 pivotal or registration-enabling trials for three product candidates that have enrolled more than 12,000 patients and healthy volunteers, of which approximately one-half have been outside of China, as of January 2021.

We have over 45 products and product candidates in commercial stage or clinical development, including 7 approved medicines, 5 pending approval, and over 30 in clinical development.

Supported by our development and commercial capabilities, we have entered into collaborations with world-leading biopharmaceutical companies such as Amgen and Novartis to develop and commercialize innovative medicines globally.

Since our inception in 2010 in Beijing, we have become a fully integrated global organization of over 5,300 employees in 14 countries and regions, including China, the United States, Europe and Australia.

Recent Developments

We currently have three approved medicines that were discovered and developed in our own labs, including BRUKINSA ® , a small molecule inhibitor of Bruton’s Tyrosine Kinase (BTK) for the treatment of various blood cancers;

tislelizumab, an anti-PD-1 antibody immunotherapy for the treatment of various solid tumor and blood cancers;

and pamiparib, a selective small molecule inhibitor of PARP1 and PARP2.

We have obtained approvals to market BRUKINSA ® in the United States, the People's Republic of China (China or the PRC), the European Union (EU), the United Kingdom (U.K.), Canada, Australia and additional international markets, and tislelizumab and pamiparib in China.

By leveraging our China commercial capabilities, we have in-licensed the rights to distribute 13 approved medicines for the China market.

Supported by our global clinical development and commercial capabilities, we have entered into collaborations with world-leading biopharmaceutical companies such as Amgen and Novartis Pharma AG (Novartis) to develop and commercialize innovative medicines.

We are committed to advancing best and first-in-class clinical candidates internally or with like-minded partners to develop impactful and affordable medicines for patients across the globe.

Our internal clinical development capabilities are deep, including a more than 2,200-person global clinical development team that is running more than 90 ongoing or planned clinical trials in over 30 medicines and drug candidates.

This includes more than 30 pivotal or potentially registration-enabling trials across our portfolio, including our three internally discovered, approved medicines.

We have enrolled in our clinical trials more than 14,500 subjects, of which approximately one-half have been outside of China.

We have built, and are expanding, our internal manufacturing capabilities through our state-of-the-art biologic and small molecule manufacturing facilities in China to support current and potential future demand of our medicines, and plan to build a commercial-stage biologics manufacturing and clinical R&D center in New Jersey.

We also work with high quality contract manufacturing organizations (CMOs) to manufacture our internally developed clinical and commercial products.

Since our inception in 2010, we have become a fully integrated global organization of over 8,000 employees in 23 countries and regions, including the United States, China, Europe, and Australia.

Recent Business Developments

On February 22, 2022, we announced that the U.S.

Food and Drug Administration ("FDA") accepted a supplemental new drug application ("sNDA") for BRUKINSA ® for the treatment of adult patients with Waldenström’s macroglobulinemia ("WM").

Food and Drug Administration (FDA) has accepted a supplemental new drug application (sNDA) for BRUKINSA® (zanubrutinib) for the treatment of adult patients with chronic lymphocytic leukemia (CLL) or small lymphocytic lymphoma (SLL).

CLL is the most common form of adult leukemia.

The Prescription Drug User Fee Act (PDUFA) target action date is October 22, 2022.

On January 29, 2021, we announced that the Shanghai Stock Exchange (the "SSE") had accepted our listing application for a proposed public offering of our ordinary shares and listing of such shares on the Science and Technology Innovation Board (the “STAR Market”) of the SSE (the “STAR Offering”).

The consummation of the STAR Offering is subject to, among other things, market conditions, shareholder approval, and applicable regulatory approvals.

On January 13, 2021, we announced that our anti-PD-1 antibody tislelizumab received approval from the China National Medical Products Administration ("NMPA") for use in combination with chemotherapy as a first-line treatment for patients with advanced squamous non-small cell lung cancer ("NSCLC").

This is the third approval in China for tislelizumab, and its first in a lung cancer indication.

On January 11, 2021, we announced a collaboration and license agreement with Novartis Pharma AG ("Novartis") to develop, manufacture and commercialize tislelizumab in the United States, Canada, Mexico, member countries of the European Union, United Kingdom, Norway, Switzerland, Iceland, Liechtenstein, Russia, and Japan.

We have agreed to jointly develop tislelizumab with Novartis 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 we have an option to co-detail the product in North America, funded in part by Novartis.

The transaction is expected to close in the first quarter of 2021, subject to expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.

On December 27, 2020, we announced that three of our innovative oncology medicines were included in the updated National Reimbursement Drug List ("NRDL") by the China National Healthcare Security Administration (NHSA), including our internally-developed anti-PD1 antibody tislelizumab, our internally-developed BTK inhibitor BRUKINSA ® (zanubrutinib), and XGEVA ® (120-mg denosumab) from our strategic collaboration with Amgen.

On December 7, 2020, we announced that the NMPA approved BLINCYTO ® (blinatumomab) for injection for the treatment of adult patients with relapsed or refractory ("R/R") B-cell precursor acute lymphoblastic leukemia (ALL).

The biologics license application ("BLA") had been submitted by Amgen and received priority review by the Center for Drug Evaluation ("CDE") of the NMPA.

Developed by Amgen and licensed to us in China under a strategic collaboration commenced earlier in 2020, this is the first approval for BLINCYTO ® in China and our first product licensed from Amgen to be newly approved.

With this approval, BLINCYTO ® has become the first bispecific immunotherapy approved in China.

On November 19, 2020, we announced that the NMPA approved XGEVA ® (denosumab) for the prevention of skeletal-related events ("SREs") in patients with bone metastases from solid tumors and in patients with multiple myeloma ("MM").

Developed by Amgen and licensed to BeiGene in China under a strategic collaboration commenced earlier in 2020, XGEVA ® is also approved and marketed in China for the treatment of adults and skeletally mature adolescents with giant cell tumor of the bone ("GCTB") that is unresectable or where surgical resection is likely to result in severe morbidity.

On February 22, 2022, we announced that the European Medicines Agency (EMA) has accepted for review two new indication applications for our BTK inhibitor BRUKINSA ® (zanubrutinib), for the treatment of patients with CLL and for the treatment of patients with marginal zone lymphoma (MZL).

On February 17, 2022, we announced that BRUKINSA ® (zanubrutinib) received approval from Swissmedic for the treatment of adult patients with Waldenström’s macroglobulinemia (WM) who have received at least one prior line of therapy, or for treatment-naïve patients who are not suited for standard chemo-immunotherapy.

BRUKINSA ® had previously been granted orphan drug status.

On January 28, 2022, we announced that the Center for Drug Evaluation (CDE) of the China National Medical Products Administration (NMPA) has accepted an sNDA for BRUKINSA ® (zanubrutinib) as a treatment for adult patients with CLL or SLL and granted BRUKINSA ® breakthrough therapy designation (BTD).

On January 20, 2022, we announced that the CDE of the NMPA accepted an sNDA for BRUKINSA ® as a treatment for adult patients with WM.

On January 6, 2022, we announced that the NMPA approved our anti-PD-1 antibody tislelizumab as a second- or third-line treatment for patients with locally advanced or metastatic non-small cell lung cancer (NSCLC).

On December 20, 2021, we announced an option, collaboration and license agreement with Novartis to develop, manufacture and commercialize our investigational TIGIT inhibitor ociperlimab in North America, Europe, and Japan.

We granted Novartis an exclusive time-based option under which, upon exercise by Novartis prior to late 2023, we agreed to jointly develop ociperlimab, with Novartis responsible for regulatory submissions after a transition period and for commercialization upon regulatory approvals in the licensed territory.

During the option period Novartis will conduct and fund additional global clinical trials of ociperlimab in combination with tislelizumab in selected tumor types.

In addition, following option exercise, both companies may conduct clinical trials globally to explore combinations of ociperlimab with other cancer treatments.

Following approval, we will co-detail the product in the U.S.

In addition, the companies entered into an agreement granting BeiGene rights to market, promote and detail five approved Novartis oncology products, TAFINLAR ® (dabrafenib), MEKINIST ® (trametinib), VOTRIENT ® (pazopanib), AFINITOR ® (everolimus), and ZYKADIA ® (ceritinib).

On December 20, 2021, we announced the official launch of the BeiGene Bioisland Innovation Center (BIC) in Guangzhou, China to enable scientists and entrepreneurs to accelerate development of highly differentiated, cutting-edge medical innovations.

The BIC is an innovator-centric incubator built on BeiGene’s goal of supporting exploration of new paths to meet patient needs around the world.

On December 15, 2021, we announced that the United Kingdom (UK) Medicines and Healthcare products Regulatory Agency (MHRA) has granted a marketing authorization for BRUKINSA ® in Great Britain, for the treatment of eligible adult patients with Waldenström’s macroglobulinemia (WM) who have received at least one prior therapy or for the first-line treatment of eligible patients unsuitable for chemo-immunotherapy.

On December 13, 2021, we announced that we entered into a collaboration agreement with Nanjing Leads Biolabs, Inc.

(Leads Biolabs) granting BeiGene worldwide research, development and manufacturing rights and exclusive commercialization rights outside of China to LBL-007, a novel investigational antibody targeting the LAG-3 pathway.

Leads Biolabs received an upfront cash payment and is eligible to receive additional milestone payments and royalties pending successful development, regulatory approval and commercialization of the licensed candidates.

On December 2, 2021, we announced inclusion in the NRDL of anti-PD-1 antibody tislelizumab in three new indications, including in lung and liver cancers;

BRUKINSA ® in one new indication;

and the initial listing for PARP inhibitor pamiparib.

The changes to the NRDL were effective on January 1, 2022.

On December 2, 2021, we announced the NMPA approved SYLVANT ® (siltuximab for injection), licensed from EUSA Pharma (EUSA), for the treatment of adult patients with multicentric Castleman disease (MCD) who are human immunodeficiency virus (HIV) negative and human herpes virus-8 (HHV-8) negative, also known as idiopathic MCD (iMCD).

Siltuximab is a monoclonal antibody approved in the United States, European Union, and other countries and regions around the world.

On November 23, 2021, we announced the commencement of an initial public offering (the "STAR Offering") on the Science and Technology Innovation Board (the "STAR Market") of the Shanghai Stock Exchange (the SSE).

The total number of shares offered in the STAR Offering was 115,055,260 ordinary shares, par value $0.0001 per share, which represents 8.62% of our total outstanding ordinary shares as of October 31, 2021, after giving effect to the shares being offered.

The shares offered in the STAR Offering (the RMB Shares) were issued to and subscribed for by permitted investors in the PRC and listed and traded on the STAR Market in Renminbi.

On November 30, 2021, we announced the public offering price of the RMB Shares was RMB192.60 per ordinary share, which equates to HK$234.89 per ordinary share and $391.68 per ADS, based on an assumed exchange rate of RMB0.81996 to HK$1.00 and RMB6.3924 to $1.00.

On December 14, 2021, we announced that we completed the STAR Offering and the RMB Shares began trading on the STAR Market under the stock code "688235" on December 15, 2021.

The gross proceeds from the STAR Offering, before deducting underwriting commissions and other estimated offering expenses, were approximately RMB22.2 billion, or approximately $3.5 billion.

On November 23, 2021, we announced that the European Commission (EC) approved BRUKINSA ® for the treatment of adult patients with Waldenström’s macroglobulinemia (WM) who have received at least one prior therapy or for the first-line treatment of patients unsuitable for chemo-immunotherapy.

The approval is applicable to all 27 European Union (EU) member states, plus Iceland and Norway.

On November 23, 2021, we announced that we purchased a 42-acre site at the Princeton West Innovation Park in Hopewell, N.J.

to house a new state-of-the-art manufacturing campus and clinical R&D center.

On November 14, 2021, we and NewBridge Pharmaceuticals, a specialty company in the Middle East and North Africa regions established to bridge the access gap by partnering with global pharma and biotech companies, announced that BRUKINSA ® was approved in Saudi Arabia for the treatment of adult patients with mantle cell lymphoma (MCL) who have received at least one prior therapy.

Components of Operating Results

Product Revenue

We began generating product revenue in September 2017 through our in-license agreement with BMS to distribute the approved cancer therapies REVLIMID ® , VIDAZA ® , and ABRAXANE ® in China.

Following approval from the FDA in November 2019, we launched our first internally developed medicine, BRUKINSA ® , in the United States.

We launched our second internally developed medicine, tislelizumab, in China in March 2020 and in June 2020, we launched BRUKINSA ® in China.

In July 2020, we began selling XGEVA ® under our in-license agreement with Amgen.

We generate product revenue through the sale of our three internally developed products and our in-licensed medicines from our partners.

Revenues from product sales are recognized when there is a transfer of control from the Company to the customer.

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Provisions for estimated reductions to revenue are provided for in the same period the related sales are recorded and are based on contractual terms, historical experience and trend analysis.

We expect revenue from our internal product sales to increase during 2021.

We received approval for BLINCYTO ® in China in December 2020 and plan to launch additional in-licensed products from our collaborations in 2021, and continue to expand our efforts to promote our existing commercial products.

Collaboration Revenue

We recognize collaboration revenues for amounts earned under collaborative and out-licensing arrangements.

Prior to the third quarter of 2019, we recorded revenue from our 2017 collaboration and license agreement with BMS for tislelizumab, which was terminated in June 2019.

Under this agreement, we received an upfront payment related to the license fee, which was recognized upon the delivery of the license right.

Additionally, the portion of the upfront payment related to the reimbursement of undelivered research and development services was deferred and recognized over the performance period of the collaboration arrangement.

We recognized the remainder of the deferred research and development services revenue balance upon termination of the collaboration agreement.

We also received research and development reimbursement revenue for the clinical trials that BMS opted into until the termination of the collaboration agreement.

Pursuant to the terms of the termination agreement, we received a one-time payment of $150 million in June 2019, which was recognized in full at that time because we had no further performance obligations under the collaboration.

We also recognized revenue for upfront license fees and milestone payments from a prior collaboration agreement with Merck KGaA, Darmstadt Germany during the year ended December 31, 2018.

We recognize collaboration revenue for amounts earned under collaborative and out-licensing arrangements.

In January 2021, we entered into a collaboration and license agreement with Novartis, granting Novartis rights to develop, manufacture and commercialize tislelizumab in the United States, Canada, Mexico, member countries of the European Union, United Kingdom, Norway, Switzerland, Iceland, Liechtenstein, Russia, and Japan (the "Novartis Territory").

There were two performance obligations identified at the outset of the agreement:

(1) the exclusive license to develop, manufacture, and commercialize tislelizumab in the Novartis Territory, transfer of know-how and use of the tislelizumab trademark and (2) conducting and completing ongoing trials of tislelizumab (R&D services).

Under this agreement, we received an upfront cash payment, which was allocated between the two performance obligations identified in the agreement based on the relative standalone selling prices of the performance obligations.

The portion allocated to the license was recognized upon the delivery of the license right and transfer of know-how.

The portion of the upfront payment allocated to the R&D services was deferred and is being recognized as collaboration revenue as the R&D services are performed using a percentage of completion method.

Estimated costs to complete are reassessed on a periodic basis and any updates to the revenue earned are recognized on a prospective basis.

In December 2021, we expanded our collaboration with Novartis by entering into an option, collaboration and license agreement with Novartis to develop, manufacture and commercialize our investigational TIGIT inhibitor ociperlimab in the Novartis Territory.

In addition, we entered into an agreement with Novartis which granted us rights to market, promote and detail five approved Novartis oncology products, TAFINLAR ® (dabrafenib), MEKINIST ® (trametinib), VOTRIENT ® (pazopanib), AFINITOR ® (everolimus), and ZYKADIA ® (ceritinib), across designated regions of China referred to as “broad markets.” There were three performance obligations identified at the outset of the arrangement:

(1) a material right for the option to the exclusive product license, (2) the right to access ociperlimab in clinical trials during the option period provided to Novartis, combined with the initial transfer of BeiGene know-how, and (3) conducting clinical trials of ociperlimab during the option period (R&D services).

The market development activities are considered immaterial in the context of the agreements.

Under this agreement, we received an upfront cash payment, which was allocated between the three performance obligations identified in the agreement based on the relative standalone selling prices of the performance obligations.

The portion allocated to the material right was deferred and will be recognized at the earlier of when Novartis exercises the option and the license is delivered or the expiration of the option period.

The portion of the transaction price allocated to Novartis' right to access ociperlimab in its own clinical trials during the option period and the initial transfer of BeiGene know-how was deferred and is being recognized over the expected option period.

The portion of the transaction price allocated to the R&D services was deferred and is being recognized as collaboration revenue as the R&D services are performed over the expected option period.

The option exercise fee under the ociperlimab agreement is contingent upon Novartis exercising its right, and is considered fully constrained until the option is exercised.

The potential milestone payments that we are eligible to receive under both of the Novartis collaborations were excluded from the initial transaction prices, as all milestone amounts are variable consideration and were fully constrained due to uncertainty of achievement.

Performance-based milestones will be recognized when the milestone event is achieved or when the risk of revenue reversal is remote.

Sales-based milestones and royalties will be recognized when the underlying sales occur.

Cost of Sales

Cost of sales includes the cost of products purchased from Amgen and BMS and distributed in China and the costs to manufacture our internally developed commercial products.

Also included in cost of sales are amounts paid to Amgen for its share of net sales or gross margin earned on sales of their in-licensed products.

Cost of sales includes the costs to manufacture our internally developed commercial products, as well as costs to purchase tislelizumab from Boehringer Ingelheim.

Additionally, cost of sales included the cost of in-licensed products purchased for sale in the PRC.

Costs to manufacture inventory in preparation for commercial launch of a product incurred prior to regulatory approval are expensed to research and development expense as incurred.

Cost of sales for newly launched products will not be recorded until the initial pre-launch inventory is depleted and additional inventory is manufactured.

To date, the Company's initial pre-launch inventory for its commercial products has been immaterial and has not had a significant impact on the Company's gross margin.

Research and Development Expenses

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• tislelizumab, a humanized monoclonal antibody against PD-1;

• pamiparib, an investigational selective small molecule inhibitor of PARP1 and PARP2;

• BGB-A1217, an investigational humanized monoclonal antibody against TIGIT;

• ociperlimab, an investigational humanized monoclonal antibody against TIGIT;

• pamiparib, a selective small molecule inhibitor of PARP1 and PARP2;

• BGB-15025, an investigational hematopoietic progenitor kinase 1 (HPK1) inhibitor;

• BGB-11417, an investigational small molecular inhibitor of Bcl-2;

• lifirafenib, an investigational novel small molecule inhibitor of both the monomer and dimer forms of BRAF;

• BGB-A333, an investigational humanized monoclonal antibody against PD-L1;

• BGB-A445, an investigational non-ligand competing OX40 monoclonal antibody;

• BGB-16673, an investigational Chimeric Degradation Activating Compound, or CDAC, targeting BTK;

• BGB-A425, an investigational humanized monoclonal antibody against TIM-3.

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• sitravatinib, an investigational, spectrum-selective kinase inhibitor, licensed from Mirati Therapeutics, Inc.

• zanidatamab (ZW25) and ZW49, two investigational bispecific antibody-based product candidates targeting HER2, licensed from Zymeworks Inc.

("Zymeworks");

• BA3071, an investigational CAB-CTLA-4 antibody, licensed from BioAtla, Inc.

• BAT1706, an investigational biosimilar to Avastin ® (bevacizumab), licensed from Bio-Thera Solutions, Ltd.

("Bio-Thera");

• DXP-593 and DXP-604, investigational anti-COVID-19 antibodies, licensed from Singlomics (Beijing DanXu) Biopharmaceuticals Co., Ltd.

("Singlomics").

We expense research and development costs when we incur them.

• ZW25 (zanidatamab) and ZW49, two investigational bispecific antibody-based product candidates targeting HER2, licensed from Zymeworks Inc.

• POBEVCY ® (BAT1706), a biosimilar to Avastin ® (bevacizumab), licensed from Bio-Thera Solutions, Ltd.

We expense research and development costs when incurred.

We record costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information our vendors provide to us.

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We do not allocate employee‑related costs, depreciation, rental and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under research and development and, as such, are separately classified as unallocated research and development expenses.

At this time, it is difficult to estimate or know for certain, the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our internally developed medicines and drug candidates.

We are also unable to predict when, if ever, material net cash inflows will commence from sales of our medicines and drug candidates, if approved.

This is due to the numerous risks and uncertainties associated with developing such medicines and drug candidates, including the uncertainty of:

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• establishing an appropriate safety and efficacy profile;

• establishing commercial manufacturing capabilities or making arrangements with third‑party manufacturers;

• establishing and maintaining commercial manufacturing capabilities or making arrangements with third‑party manufacturers;

• receipt of marketing and other required approvals from applicable regulatory authorities;

• successfully launching and commercializing our medicines and drug candidates, if and when approved, whether as monotherapies or in combination with our internally developed medicines and drug candidates or third‑party products;

• successfully launching and commercializing our medicines and drug candidates, if and when approved, whether as monotherapies or in combination with our medicines and drug candidates or third‑party products;

• market acceptance, pricing and reimbursement;

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Research and development activities are central to our business model.

We expect research and development costs to increase significantly for the foreseeable future as our development programs progress, as we continue to support the clinical trials of our medicines and drug candidates as treatments for various cancers and as we move these medicines and drug candidates into additional clinical trials, including potential pivotal trials.

We expect research and development costs to increase for the foreseeable future as our development programs progress, as we continue to support the clinical trials of our medicines and drug candidates as treatments for various cancers and as we move these medicines and drug candidates into additional clinical trials, including potential pivotal trials.

There are numerous factors associated with the successful commercialization of any of our medicines and drug candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development.

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Selling, general and administrative expenses consist primarily of product promotion costs, distribution costs, salaries and related benefit costs, including share-based compensation for selling, general and administrative personnel.

Other selling,

general and administrative expenses include professional fees for legal, consulting, auditing and tax services as well as other direct and allocated expenses for rent and maintenance of facilities, travel costs, insurance and other supplies used in selling, general and administrative activities.

We anticipate that our selling, general and administrative expenses will increase in future periods to support planned increases in commercialization activities with respect to tislelizumab, BRUKINSA ® , XGEVA ® and BLINCYTO ® and the preparation for potential launch and commercialization of additional in-licensed products from our collaborations and internally developed products, if approved.

Other selling, general and administrative expenses include professional fees for legal, consulting, auditing and tax services as well as other direct and allocated expenses for rent and maintenance of facilities, travel costs, insurance and other supplies used in selling,

general and administrative activities.

We anticipate that our selling, general and administrative expenses will increase in future periods to support planned increases in commercialization activities for our approved medicines, and the preparation for potential launch and commercialization of additional in-licensed products from our collaborations and internally developed products, if approved.

We also expect selling, general and administrative expenses to increase in future periods to support our research and development efforts, including the continuation of the clinical trials of our treatments for various cancers and the initiation of clinical trials for potential new indications or drug candidates.

These cost increases will likely be due to increased promotional costs, increased headcount, increased share-based compensation expenses, expanded infrastructure and increased costs for insurance.

We also incur significant legal, compliance, accounting, insurance and investor and public relations expenses associated with being a public company with our ADSs and ordinary shares listed for trading on The NASDAQ Global Select Market and The Hong Kong Stock Exchange, respectively.

We also incur significant legal, compliance, accounting, insurance and investor and public relations expenses associated with being a public company with our ADSs, ordinary shares and RMB Shares listed for trading on The NASDAQ Global Select Market, The Hong Kong Stock Exchange and The STAR Market of the Shanghai Stock Exchange, respectively.

Interest Income (Expense), Net

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Interest Expense

Interest expense consists primarily of interest on our bank loans and shareholder loan.

Interest expense consists primarily of interest on our bank loans and related party loan.

Other Income (Expense), Net

Other income consists primarily of gains recognized related to equity investments, government grants and subsidies received that involve no conditions or continuing performance obligations by us, realized and unrealized gains and losses related to foreign currency exchange rates, unrealized gains and losses on equity securities, and realized gains and losses on the sale of investments.

We hold significant cash in the form of RMB-denominated deposits, including the cash generated from the STAR Market offering in December 2021.

Other income (expense) includes foreign currency remeasurement gains and losses based on foreign currency exchange rates.

Results of Operations

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Product revenue, net $ 633,987 $ 308,874 $ 325,113 105.3 %

Collaboration revenue — 205,616 (205,616) (100.0) %

Collaboration revenue 542,296 — 542,296 NM

Total revenues 1,176,283 308,874 867,409 280.8 %

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Loss from operations (1,438,735) (1,657,682) 218,947 (13.2) %

Interest income, net 1,998 9,131 (7,133) (78.1) %

Interest (expense) income, net (15,757) 1,998 (17,755) (888.6) %

Other income, net 15,904 37,490 (21,586) (57.6) %

Loss before income tax expense (1,438,588) (1,618,194) 179,606 (11.1) %

Income tax (benefit) expense (17,671) 6,992 (24,663) (352.7) %

Income tax benefit (25,234) (17,671) (7,563) 42.8 %

Net loss (1,413,354) (1,600,523) 187,169 (11.7) %

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$ (1,413,354) $ (1,596,906) $ 183,552 (11.5) %

Total revenue decreased by $119.3 million to $308.9 million for the year ended December 31, 2020, from $428.2 million for the year ended December 31, 2019, primarily due to the cessation of collaboration revenue following the termination of the BMS collaboration agreement in the second quarter of 2019, and the related $150.0 million termination fee that was recognized as revenue.

The following table summarizes the components of our revenue for the year ended December 31, 2020 and 2019, respectively:

Total revenue increased by $867.4 million to $1.2 billion for the year ended December 31, 2021, from $308.9 million for the year ended December 31, 2020, primarily due to collaboration revenue from the Novartis arrangement, increased sales of our internally developed products, and increased sales from our in-licensed products.

The following table summarizes the components of revenue for the year ended December 31, 2021 and 2020, respectively:

Year Ended December 31, Changes

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Collaboration revenue:

Reimbursement of research and development costs — 27,634 (27,634) (100.0) %

Research and development service revenue — 27,982 (27,982) (100.0) %

Other — 150,000 (150,000) (100.0) %

Total collaboration revenue — 205,616 (205,616) (100.0) %

Total $ 308,874 $ 428,212 $ (119,338) (27.9) %

License revenue 484,646 — 484,646 NM

Research and development service revenue 53,671 — 53,671 NM

Right to access intellectual property revenue 3,979 — 3,979 NM

Total collaboration revenue 542,296 — 542,296 NM

Total Revenue $ 1,176,283 $ 308,874 $ 867,409 280.8 %

Net product revenue consisted of the following:

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(dollars in thousands)

Tislelizumab $ 163,358 $ — $ 163,358 NM

Tislelizumab $ 255,119 $ 163,358 $ 91,761 56.2 %

217,987 41,702 176,285 422.7 %

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— 17,770 (17,770) (100.0) %

45,956 8,496 37,460 440.9 %

12,515 — 12,515 NM

Other 201 — 201 NM

Other 12,754 201 12,553 6,245.3 %

Total product revenue $ 633,987 $ 308,874 $ 325,113 105.3 %

Net product revenue was $308.9 million for the year ended December 31, 2020, compared to $222.6 million in the prior year, primarily due to increased sales of our internally-developed products, BRUKINSA ® and tislelizumab, as well as initial sales of Amgen's XGEVA ® , offset by decreased sales of the BMS products in China.

Product revenue for tislelizumab reflects sales since its launch in China in March 2020.

Product revenue for BRUKINSA ® reflects sales in China since its launch in June 2020, as well as sales in the United States since its launch in November 2019.

Product revenue for XGEVA ® reflects sales in China since July 2020.

In December 2020, we announced the inclusion of tislelizumab, BRUKINSA ® , and XGEVA ® in the updated NRDL by the NHSA, effective March 2021.

The NRDL’s inclusion is expected to help expand access to these high-quality oncology treatments across China, but we expect net product revenue in China in the first quarter of 2021 to be impacted as the lower NRDL price is applied to tislelizumab, BRUKINSA ® and XGEVA ® product in the distribution channel.

Overall, we expect our internally-developed products and in-licensed products from Amgen to lead to total product revenue growth in 2021, driven by an increase in sales volumes as our launches mature.

We expect product revenue from the in-licensed products from BMS to continue to be impacted by the NMPA’s suspension of the importation, sales and use of ABRAXANE ® in China in March 2020 and the subsequent voluntary recall of ABRAXANE ® by BMS, as well as increased competition from generic products for REVLIMID ® and the loss of VBP status for VIDAZA ® .

Although the impact of COVID-19 on commercial activities in China lessened in the second half of 2020, there is continued uncertainty regarding the future potential impact of the pandemic both in China and the United States, as well as globally.

We do not expect revenue from ABRAXANE ® until the NMPA lifts its suspension on the importation, sale and use of ABRAXANE ® and qualified drug is manufactured and available for sale in China.

We do not know when the NMPA suspension of ABRAXANE ® will be lifted and when we will be able to re-commence sales of ABRAXANE ® .

Net product revenue was $634.0 million for the year ended December 31, 2021, compared to $308.9 million in the prior year, primarily due to increased sales of BRUKINSA ® in the United States and China and tislelizumab in China and in-licensed sales of Amgen's XGEVA ® and BLINCYTO ® in China, which we began distributing in July 2020 and August 2021, respectively.

Product revenues for the year ended December 31, 2021 were negatively impacted by adjustments of $57.5 million as a result of compensating distributors for products previously sold at the pre-NRDL price, which remained in the distribution channel, due to the first inclusion of tislelizumab, BRUKINSA ® , and XGEVA ® in the updated NRDL effective March 1, 2021 and additional indications for tislelizumab, BRUKINSA ® and pamiparib effective January 1, 2022.

During the year ended December 31, 2021, the inclusion of tislelizumab, BRUKINSA ® , XGEVA ® , and pamiparib in the NRDL significantly increased patient demand that more than offset the net effect of price reductions as a result of NRDL inclusion.

Global sales of BRUKINSA ® totaled $218.0 million for the year ended December 31, 2021, representing a 422.7% increase compared to the prior year;

sales of BRUKINSA ® totaled $115.7 million for the year ended December 31, 2021 compared to $18.2 million in the prior year.

sales accelerated in the period, driven by continued uptake in MCL and FDA approvals in WM and MZL.

BRUKINSA ® sales in China totaled $101.2 million for the year ended December 31, 2021, representing growth of 331% compared to the prior year, driven by a significant increase in all approved indications, including CLL/SLL.

Sales of tislelizumab in China totaled $255.1 million for the year ended December 31, 2021, representing a 56.2% increase compared to the prior year.

During the year ended December 31, 2021, new patient demand from broader reimbursement and further expansion of our salesforce and hospital listings continued to drive increased market penetration and market share for tislelizumab.

Full year 2021 sales of tislelizumab included two negative adjustments totaling $45.6 million for distributor channel inventory compensation as a result of inclusion in the March 2021 and January 2022 NRDL lists.

Collaboration revenue totaled $542.3 million for the year ended December 31, 2021.

$484.6 million was recognized upon delivery of the tislelizumab license right and transfer of know-how to Novartis under our collaboration and license agreement with Novartis, $53.7 million was recognized from deferred revenue for R&D services performed during the year ended December 31, 2021 under both the tislelizumab and ociperlimab collaborations, and $4.0 million was recognized from deferred revenue for Novartis' right to access ociperlimab over the option period (see Footnote 3).

We did not have any collaboration revenue during the year ended December 31, 2020.

Collaboration revenue totaled $205.6 million for the year ended December 31, 2019, comprised primarily of a $150.0 million payment received upon termination of the collaboration agreement with BMS for tislelizumab, as well as the revenue recognition of previously deferred amounts.

Additionally, we recognized $27.6 million for the reimbursement of research and development costs for the clinical trials that BMS had opted into prior to the agreement being terminated.

Cost of Sales

Cost of sales decreased to $70.7 million for the year ended December 31, 2020 from $71.2 million for the year ended December 31, 2019, primarily due to a change in sales mix from lower margin in-licensed products to higher margin internally-developed products.

Cost of sales increased to $164.9 million for the year ended December 31, 2021 from $70.7 million for the year ended December 31, 2020, primarily due to increased product sales of BRUKINSA ® , tislelizumab, and Amgen products.

Gross margin on global product sales increased to $469.1 million for the year ended December 31, 2021, compared to $238.2 million for the year ended December 31, 2020, primarily due to increased product revenue in the current year period.

Gross margin as a percentage of product sales decreased to 74.0% for the year ended December 31, 2021, from 77.1% in the prior year.

The decrease is primarily due to the impact of the accrued compensation in the first and fourth quarters of 2021 to

customers for sales of tislelizumab, BRUKINSA ® , and XGEVA ® that remained in the channel and were sold at the pre-NRDL price, as well as the ongoing lower prices resulting from the listing on the NRDL.

These negative impacts to our gross margin were partially offset by a proportionally higher sales mix of global BRUKINSA ® sales and sales of tislelizumab in China compared to lower margin sales of in-licensed products.

Pre-launch inventory carried at zero or low cost consumed during the year ended December 31, 2021 and December 31, 2020 was immaterial and did not have a significant impact on our gross margin.

Research and Development Expense

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(dollars in thousands)

External cost of development programs $ 502,399 $ 483,526 $ 18,873 3.9 %

External research and development expense:

Cost of development programs $ 477,761 $ 502,399 $ (24,638) (4.9) %

Upfront license fees 83,500 109,500 (26,000) (23.7) %

Amgen co-development expenses 1

117,005 — 117,005 NM

115,464 117,005 (1,541) (1.3) %

Total external research and development expenses 676,725 728,904 (52,179) (7.2) %

Internal research and development expenses 782,514 565,973 216,541 38.3 %

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The remaining $112.5 million was recorded as a reduction for the R&D cost share liability.

The increase in research and development expenses for the year December 31, 2020 was primarily attributable to:

• an increase of $117.0 million related to expense recognized on co-development fees to Amgen;

• an increase of $59.5 million related to license fees under collaboration agreements;

• an increase of $18.9 million in external clinical program costs, primarily due to the continued enrollment and expansion of pivotal clinical trials for our tislelizumab program and increases due to the expansion and advancement of and manufacturing costs for our earlier-stage clinical drug candidates.

The decrease in external research and development expenses for the year ended December 31, 2021 was primarily attributable to lower upfront license fees under collaboration agreements, lower external spending related to fees paid to external CROs as we internalize previously outsourced activities, and a decrease in the expense recognized on co-development fees to Amgen.

Internal research and development expense increased $216.5 million, primarily attributable to the expansion of our global development organization including the internalization of previously outsourced activities and the continued development of our clinical and preclinical drug candidates, and included the following:

• $109.0 million increase of employee salary and benefits, primarily attributable to hiring more research and development personnel to support our expanding research and development activities;

• $60.3 million increase of materials and reagent expenses, primarily in connection with the in-house manufacturing of drug candidates used for clinical purposes;

• $16.7 million increase of share-based compensation expense, primarily attributable to our increased headcount, resulting in more awards being expensed related to the growing employee population;

• $52.4 million increase of facilities, depreciation, office expense, rental fees, and other expenses to support the growth of our organization;

These expense increases were partially offset by a $2.9 million decrease of consulting fees, which was primarily attributable to decreased travel, meeting and seminar expenses related to scientific, regulatory and development consulting activities.

• $21.4 million increase of share-based compensation expense, primarily attributable to our increased headcount, resulting in more awards being expensed related to the growing employee population;

• $17.7 million increase of materials and reagent expenses, primarily in connection with the in-house manufacturing of drug candidates used for clinical purposes;

• $16.1 million increase of consulting fees, which was mainly attributable to increased travel and meeting expense related to scientific, regulatory and development consulting activities, in connection with the advancement of our drug candidates.

Selling, General and Administrative Expense

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The increase was primarily attributable to the following:

• $117.5 million increase in employee salary and benefits, which was primarily attributable to the expansion of our commercial organizations in China and the United States and the hiring of more personnel to support our growing business;

• $36.2 million increase in external commercial expenses, including selling and marketing, market access studies, meeting and seminar expenses, promotional activities, and sponsorship and grant expenses;

• $32.6 million increase in share-based compensation expense, primarily attributable to our increased headcount, resulting in more awards being expensed related to the growing employee population;

• $25.6 million increase in professional fees, consulting, recruiting, information technology, tax, accounting and audit services;

and facility expenses, rental fees, office expenses, and other administrative expenses, primarily attributable to

the global expansion of our business, including the expansion of our commercial operations in China and the United States.

Interest Income, Net

Interest income, net decreased to $2.0 million for the year ended December 31, 2020, from $9.1 million for the year ended December 31, 2019.

The decrease in interest income, net, was primarily attributable to higher interest expense related to larger loan balances in 2020 and lower interest earned on our investments.

• $175.7 million increase of employee salary and benefits, which was primarily attributable to the expansion of our commercial organizations in China, the United States, Canada, Europe and emerging markets, and the hiring of more personnel to support our growing business;

• $119.1 million increase in external commercial-related expenses, including market research, sales and marketing, consulting and conference related expenses, related to the growth of our global commercial organization, as we continue to build our worldwide footprint and capabilities;

• $59.3 million increase of professional fees, consulting, recruiting, information technology, tax, accounting and audit services, and facility expenses, rental fees, office expenses, and other administrative expenses, primarily attributable to the global expansion of our business, including the expansion of our commercial operations in China, the United States and Europe;

• $35.9 million increase in share-based compensation expense, primarily attributable to our increased headcount of sales and administrative employees, resulting in more awards being expensed related to the growing sales and administrative employee population.

Interest (Expense) Income, Net

Interest (expense) income, net decreased by $17.8 million, or 888.6%, to $15.8 million of net interest expense for the year ended December 31, 2021, from $2.0 million of net interest income for the year ended December 31, 2020.

The decrease in interest income, net, was primarily attributable to decreased interest income, as a result of lower interest rates, as well as increased interest expense, resulting from higher debt balances.

Other Income, Net

Other income, net increased by $30.3 million to $37.5 million for the year ended December 31, 2020, from $7.2 million for the year ended December 31, 2019.

The increase was mainly attributable to the gain recognized in conjunction with the deconsolidation of MapKure, unrealized gains on equity securities, and realized gains on sales of available-for-sale securities, as well as foreign currency exchange gains.

Income Tax (Benefit) Expense

Income tax benefit was $17.7 million for the year ended December 31, 2020 compared with income tax expense of $7.0 million for the year ended December 31, 2019.

The income tax benefit for the year ended December 31, 2020 was primarily attributable to the tax benefit of U.S.

share-based compensation deductions in excess of the tax expense on income reported in certain China subsidiaries as adjusted for certain non-deductible expenses.

Other income, net decreased by $21.6 million to $15.9 million for the year ended December 31, 2021, from $37.5 million for the year ended December 31, 2020.

The income for the year ended December 31, 2021 was primarily due to the unrealized gain on our investment in Leap Therapeutics, as well as a realized foreign exchange loss on the proceeds received from the STAR Market offering.

The income for the year ended December 31, 2020 resulted from unrealized gains on equity investments, as well as a gain recognized in conjunction with the deconsolidation of MapKure LLC.

Income Tax Benefit

Income tax benefit was $25.2 million for the year ended December 31, 2021 compared with income tax benefit of $17.7 million for the year ended December 31, 2020.

The income tax benefit for the year ended December 31, 2021 was primarily attributable to the deferred tax benefit of U.S.

stock-based compensation deductions in excess of tax expense on income reported in certain China subsidiaries as adjusted for certain non-deductible expenses.

Liquidity and Capital Resources

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We have incurred annual net losses and negative cash flows from operations since inception, resulting from the funding of our research and development programs and selling, general and administrative expenses associated with our operations, as well as to support the commercialization of our products globally.

We incurred net losses of $1.6 billion and $950.6 million for the years ended December 31, 2020 and 2019, respectively.

We incurred net losses of $1.4 billion and $1.6 billion for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, we had an accumulated deficit of $5.0 billion.

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Based on our current operating plan, we expect that our existing cash, cash equivalents and short-term investments as of December 31, 2021 will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months after the date that the financial statements included in this report are issued.

On January 29, 2021, the Shanghai Stock Exchange (the "SSE") accepted our listing application for a proposed public offering of our ordinary shares and listing of such shares on the Science and Technology Innovation Board (the “STAR Market”) of the SSE (the “STAR Offering”).

The STAR Offering will be conducted within the PRC, and such shares will be issued to and subscribed for by investors in Renminbi (“RMB”) in the PRC and listed and traded on the STAR Market in RMB (the “RMB Shares”).

The number of RMB Shares (including the over-allotment option) to be issued will not exceed 132,313,549 ordinary shares, representing no more than 10% of the sum of the total number of our issued ordinary shares as of January 7, 2021 and the total number of RMB Shares to be issued in the STAR Offering.

The STAR Offering is subject to, among other things, market conditions, the approval of our shareholders, and applicable regulatory approvals.

On January 11, 2021, we entered into a collaboration and license agreement with Novartis Pharma AG ("Novartis") to develop, manufacture and commercialize tislelizumab in the United States, Canada, Mexico, member countries of the European Union, United Kingdom, Norway, Switzerland, Iceland, Liechtenstein, Russia, and Japan.

Under the agreement, we will receive an upfront cash payment of $650 million from Novartis, which is not included in our cash balance as of December 31, 2020, upon closing of the transaction, which is subject to the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.

On June 28, 2021, the Listing Committee of the Science and Technology Innovation Board (the “STAR Market") of the Shanghai Stock Exchange (the SSE) approved the listing application which we submitted in January 2021 to the SSE for a proposed public offering of our ordinary shares and listing of such shares on the STAR Market of the SSE (the “STAR Offering”).

On December 15, 2021, we completed the initial public offering on the 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, we sold 115,055,260 ordinary shares.

Net proceeds after deducting underwriting discounts and commissions and offering expenses were $3.4 billion.

As required by the PRC securities laws, the net proceeds from the STAR Offering must be used in compliance with the planned uses as disclosed in the PRC prospectus as well as our proceeds management policy for the STAR Offering approved by our board of directors.

In January 2021, we entered into a collaboration and license agreement with Novartis, granting Novartis rights to develop, manufacture and commercialize tislelizumab in North America, Europe, and Japan.

Under the agreement, we received an upfront cash payment of $650 million from Novartis.

In addition, we and Novartis entered into an agreement granting us rights to market, promote and detail five approved Novartis oncology products.

Under the terms of the agreement, we received an upfront cash payment of $300 million in January 2022, which is not included in our cash balance at December 31, 2021.

The following table provides information regarding our cash flows for the years ended December 31, 2021 and 2020:

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Net cash used in operating activities (1,298,723) (1,283,461)

Net cash (used in) provided by investing activities (3,168,366) 554,163

Net cash provided by (used in) investing activities 640,659 (3,168,366)

Net cash provided by financing activities 3,636,911 5,202,826

Net effect of foreign exchange rate changes 14,035 18,231

Net increase (decrease) in cash, cash equivalents and restricted cash 769,230 (119,938)

Net increase in cash, cash equivalents and restricted cash 2,992,882 769,230

Cash, cash equivalents and restricted cash at end of period $ 4,382,887 $ 1,390,005

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Cash flows from operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.

Operating activities used $1.3 billion of cash for the year ended December 31, 2020, which resulted principally from our net loss of $1.6 billion, partially offset by non-cash charges of $166.5 million and a decrease in our net operating assets and liabilities of $150.6 million.

The non-cash charges were primarily driven by share-based compensation expense, offset by amortization of the research and development cost share liability.

The decrease in working capital were driven largely by increases in accounts payable, accrued expenses and other liabilities, offset by increases in inventory and prepaid expenses.

Operating activities used $750.3 million of cash for the year ended December 31, 2019, which resulted principally from our net loss of $950.6 million and an increase in our net operating assets and liabilities of $10.8 million, partially offset by non-cash charges of $211.1 million.

The increase in working capital was driven primarily by increases in accounts receivable and other non-current assets, as well as a decrease in deferred revenue, offset by increases in accounts payable and accrued expenses.

Operating activities used $1.3 billion of cash for the year ended December 31, 2021, which resulted principally from our net loss of $1.4 billion and an increase in our net operating assets and liabilities of $118.3 million, partially offset by non-cash charges and adjustments of $233.0 million.

The non-cash charges and adjustments were primarily driven by share-based compensation expense, charges for acquired in-process research and development costs, and depreciation and amortization expense, offset by amortization of the research and development cost share liability and deferred income tax benefits.

The increase in working capital was driven largely by increases in accounts receivable, inventory and prepaid expenses, offset by increases in accounts payable, accrued expenses and other liabilities and deferred revenue resulting from the upfront option payment from Novartis.

Operating activities used $1.3 billion of cash for the year ended December 31, 2020, which resulted principally from our net loss of $1.6 billion, partially offset by non-cash charges and adjustments of $166.5 million and a decrease in our net operating assets and liabilities of $150.6 million.

The non-cash charges and adjustments were primarily driven by share-based compensation expense, offset by amortization of the research and development cost share liability.

The decrease in working capital was driven largely by increases in accounts payable, accrued expenses and other liabilities, offset by increases in inventory and prepaid expenses.

Investing Activities

Cash flows from investing activities consist primarily of capital expenditures, investment purchases, sales, maturities, and disposals, and upfront payments related to our collaboration agreements.

Investing activities provided $640.7 million of cash for the year ended December 31, 2021, consisting of $2.1 billion in purchases of short-term investment securities, $262.9 million of capital expenditures, $43.4 million in purchases of intangible assets, $43.5 million in purchases of long-term investments and $8.5 million upfront collaboration payments, all of which were offset by sales and maturities of investment securities of $3.1 billion.

Investing activities used $3.2 billion of cash for the year ended December 31, 2020, consisting of $5.7 billion in purchases of investment securities, $117.5 million of capital expenditures, and $109.5 million upfront collaboration payments, all of which were offset by sales and maturities of investment securities of $2.8 billion.

Investing activities provided $554.2 million of cash for the year ended December 31, 2019, which was primarily due to cash proceeds from the sale and maturities of investment securities of $1.9 billion, partially offset by purchases of investment securities of $1.2 billion, $69.0 million of upfront payments related to our license agreements and the termination of our collaboration agreement with Merck KGaA, Darmstadt Germany, and capital expenditures of $89.6 million.

Financing Activities

Cash flows from financing activities consist primarily of sale of ordinary shares and ADSs through equity offerings, issuance and repayment of short-term and long-term debt, and proceeds from the sale of ordinary shares and ADSs through employee equity compensation plans.

Cash flows from financing activities consist primarily of sale of ordinary shares, RMB Shares, and ADSs through equity offerings, issuance and repayment of short-term and long-term debt, and proceeds from the sale of ADSs through employee equity compensation plans.

Financing activities provided $3.6 billion of cash for the year ended December 31, 2021, consisting primarily of $3.4 billion of net proceeds from our STAR Offering in December 2021, $406.4 million from proceeds of short-term loans, $92.8 million from the exercise of employee share options and proceeds from the issuance of shares through our employee share purchase plan, $50.0 million from the sale of our shares to Amgen, and $16.8 million from proceeds of long-term bank loans.

These inflows were partially offset by $321.8 million of repayment of short-term loans.

Financing activities provided $5.2 billion of cash for the year ended December 31, 2020.

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Other inflows included $93.1 million from the exercise of employee share options and proceeds from the issuance of shares through our employee share purchase plan, and $433.9 million from loan proceeds.

These inflows were partially offset by $144.3 million of repayment of principal under the Shareholder Loan with GET and $28.7 million of cash consideration paid for the acquisition of the remaining 5% minority interest in our subsidiary BeiGene Biologics Co., Ltd.("BeiGene Biologics").

Financing activities provided $85.7 million of cash for the year ended December 31, 2019.

This consisted primarily of $67.5 million from bank loans to fund our Guangzhou manufacturing facility and working capital requirements and $47.0 million from the exercise of employee share options.

These inflows were partially offset by $32.8 million for repayments of our Suzhou manufacturing facility and working capital bank loans.

These inflows were partially offset by $144.3 million of repayment of principal under the loan between Guangzhou High-tech Zone Technology Holding Group Co., Ltd.

(GET) BeiGene Biologics (the Shareholder Loan) and $28.7 million of cash consideration paid for the acquisition of the remaining 5% minority interest in our subsidiary BeiGene Biologics Co., Ltd.(BeiGene Biologics).

Effects of Exchange Rates on Cash

We have substantial operations in the PRC, which generate a significant amount of RMB-denominated cash from product sales and require a significant amount of RMB-denominated cash to pay our obligations.

Additionally, on December 15, 2021, we received RMB21.7 billion in net proceeds from the STAR Offering.

Since the reporting currency of the Company is the U.S.

dollar, periods of volatility in exchange rates may have a significant impact on our consolidated cash balances.

Operating Capital Requirements

We expect to continue to incur losses for the foreseeable future and expect these losses to increase in the near term, as we continue to develop and seek regulatory approvals for our product candidates, expand our research and manufacturing facilities and activities, and commercialize both our internally developed and in-licensed products.

The size of our future net losses will depend, in part, on the number and scope of our development programs and the associated costs of those programs, our ability to generate product revenue, and the timing and amount of payments we make or receive from arrangements with third parties.

If any of our products and product candidates fail in clinical trials or do not gain regulatory approval, or if approved, fail to achieve market acceptance, we may never become profitable.

Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.

Our future capital requirements will depend on many factors, including:

• our ability to successfully commercialize our internally developed and in-licensed medicines and drug candidates, if approved;

• the costs, timing and outcome of regulatory reviews and approvals;

• the ability of our drug candidates to progress through clinical development successfully;

• the initiation, progress, timing, costs and results of nonclinical studies and clinical trials for our other programs and potential drug candidates;

• the number and characteristics of the medicines and drug candidates we pursue;

• the costs of establishing or expanding commercial manufacturing capabilities or securing necessary supplies from third-party manufacturers;

• the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property‑related claims;

• the costs of establishing and expanding our commercial operations and the success of those operations;

• the extent to which we acquire or in‑license other products and technologies;

• our ability to establish and maintain collaboration arrangements on favorable terms, if at all.

Until such time, if ever, as we can generate substantial product revenue, we may be required to finance our cash needs through a combination of equity offerings, debt financings, collaboration agreements, strategic alliances, licensing arrangements, government grants, and other available sources.

Future Liquidity and Material Cash Requirements

Until such time, if ever, as we can generate substantial product revenue sufficient to cover our costs and capital investments, we may be required to finance our cash needs through a combination of equity offerings, debt financings, collaboration agreements, strategic alliances, licensing arrangements, government grants, and other available sources.

Under the rules of the SEC, we currently qualify as a “well-known seasoned issuer,” which allows us to file shelf registration statements to register an unspecified amount of securities that are effective upon filing.

On May 11, 2020, we filed such a shelf registration statement with the SEC for the issuance of an unspecified amount of ordinary shares (including in the form of ADSs), preferred shares, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, from time to time at prices and on terms to be determined at the time of any such offering.

In May 2020, we filed such a shelf registration statement with the SEC for the issuance of an unspecified amount of ordinary shares (including in the form of ADSs), preferred shares, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, from time to time at prices and on terms to be determined at the time of any such offering.

This registration statement was effective upon filing and will remain in effect for up to three years from filing, prior to which time we may file another shelf registration statement that will be effective for up to three years from filing.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a holder of ADSs or ordinary shares.

Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends, and may require the issuance of warrants, which could potentially dilute your ownership interest.

If we raise additional funds through collaboration agreements, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our products or drug candidates, future revenue streams or research programs, or to grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity

or debt financings, collaborations or other sources when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market products or drug candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Commitments

The following table summarizes our significant contractual obligations as of payment due date by period at December 31, 2020:

If we raise additional funds through collaboration agreements, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our medicines or drug candidates, future revenue streams or research programs, or to grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds

through equity or debt financings, collaborations or other sources when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market products or drug candidates that we would otherwise prefer to develop and market ourselves.

Our material cash requirements in the short- and long-term consist of the following operational, capital, and manufacturing expenditures, a portion of which contain contractual or other obligations.

We plan to fund our material cash requirements with our current financial resources together with our anticipated receipts of accounts receivable, product sales and royalty revenues, and reimbursements we expect to receive under our existing collaboration and license agreements.

Contractual and Other Obligations

The following table summarizes our significant contractual obligations as of December 31, 2021:

Payments Due by Period

Less Than More Than

Total 1 Year 1–3 Years 3–5 Years 5 Years

Total Short-term Long-term

(in thousands)

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Co-development funding commitment 791,059 244,800 546,259

Funding commitment 12,750 4,250 8,500

Research and development commitment 27,985 5,659 22,326

Pension plan 7,814 1,604 6,210

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We do not have any minimum purchase requirements for inventory from BMS or Amgen.

Debt Obligations

The following table summarizes our short-term debt and long-term bank loans as of December 31, 2020 (amounts in thousands, except for percentage data):

Lender Agreement Date Line of Credit Term Maturity Date Interest Rate December 31, 2020

China Construction Bank April 4, 2018 RMB580,000 9-year April 4, 2027 (1) 307 2,000

China Minsheng Bank (the "Senior Loan") September 24, 2020 $200,000 (2) 5.8% 198,320 1,294,010

Zhuhai Hillhouse (the "Related Party Loan") September 24, 2020 RMB500,000 (3) 5.8% 15,326 100,000

Other short-term debt (4) 121,062 789,918

Total short-term debt 335,015 2,185,928

China Construction Bank April 4, 2018 RMB580,000 9-year April 4, 2027 (1) 88,584 578,000

China Merchants Bank January 22, 2020 (5) 9-year January 20, 2029 (5) 53,641 350,000

China Merchants Bank November 9, 2020 RMB378,000 9-year November 8, 2029 (6) 41,412 270,206

Total long-term bank loans 183,637 1,198,206

The outstanding borrowings bear a floating interest rate benchmarking RMB loan interest rates of financial institutions in the PRC.

The loan interest rate was 4.9% as of December 31, 2020.

$120.0 million of the Senior Loan was designated to fund the JV share repurchase and repayment of the shareholder loan and $80.0 million was designated for general working capital purposes.

The Senior Loan has an original maturity date of October 8, 2021, which is the first anniversary of the first date of utilization of the loan.

We may extend the original maturity date for up to two additional twelve-month periods.

On October 9, 2020, we drew down $80.0 million of the working capital facility and $118.3 million of the acquisition facility to be used for the JV share repurchase.

RMB100.0 million of the Related Party Loan was designated for general corporate purposes and RMB400.0 million was designated for repayment of the Senior Loan, including principal, interest and fees.

The loan matures at the earlier of:

(i) November 9, 2021, which is one month after the Senior Loan maturity date, if not extended, or (ii) ten business days after the Senior Loan is fully repaid.

On September 30, 2020, we drew down the first tranche of $14.7 million (RMB100.0 million).

We entered into additional short-term working capital loans with China Industrial Bank and China Merchants Bank to borrow up to RMB1.5 billion in aggregate, with maturity dates ranging from April 19, 2021 to December 16, 2021 during the year ended December 31, 2020.

The weighted average interest rate for the short-term working capital loans was approximately 4.4% as of December 31, 2020.

On January 22, 2020, our BeiGene Guangzhou Factory subsidiary entered into a nine-year bank loan with China Merchants Bank to borrow up to RMB1.1 billion at a floating interest rate benchmarked against prevailing interest rates of certain PRC financial institutions.

In connection with our short-term loan agreements with China Merchants Bank entered into during the year ended December 31, 2020, the line of credit was reduced from RMB1.1 billion to RMB350.0 million.

The loan interest rate was 4.4% as of December 31, 2020.

The outstanding borrowings bear a floating interest rate benchmarking RMB loan interest rates of financial institutions in the PRC.

The loan interest rate was 4.3% as of December 31, 2020.

Interest on Debt

Debt Obligations and Interest

Total debt obligations coming due in the next twelve months is $427.6 million.

Total long-term debt obligations are $202.1 million.

See Note 13 in the Notes to the Financial Statements for further detail of our debt obligations.

Interest on bank loans and the Related Party Loan is paid quarterly until the respective loans are fully settled.

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Co-Development Funding Commitments

Under our collaboration with Amgen, we are responsible for co-funding global development costs for the licensed oncology pipeline assets, up to a total cap of $1.25 billion.

Under our collaboration with Amgen, we are responsible for co-funding global clinical development costs for the licensed oncology pipeline assets, up to a total cap of $1.25 billion.

We are funding our portion of the co-development costs by contributing cash and/or development services.

As of December 31, 2021, our remaining co-development funding commitment was $0.8 billion.

Funding Commitment

Funding commitment represents our committed capital related to one of our equity method investments in the amount of $15.0 million.

As of December 31, 2021, our remaining capital commitment was $12.8 million and is expected to be paid from time to time over the investment period.

Research and Development Commitment

We entered into long-term research and development agreements, which includes obligations to make upfront payments and fixed quarterly payments over the next five years.

As of December 31, 2021, the total research and development commitment amounted to $28.0 million.

We maintain a defined benefit pension plan in Switzerland.

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Capital Commitments

We had capital commitments amounting to $45.0 million for the acquisition of property, plant and equipment as of December 31, 2020, which was primarily for BeiGene Guangzhou Factory’s manufacturing facility, expansion of BGC's research and development activities in Guangzhou, China, and research and development operations at our Changping facility in Beijing, China.

Other Business Agreements

We enter into agreements in the ordinary course of business with CROs to provide research and development services.

These contracts are generally cancelable at any time by us with prior written notice.

We had capital commitments amounting to $42.4 million for the acquisition of property, plant and equipment as of December 31, 2021, which were mainly for our biologics manufacturing facility in Guangzhou, China, small molecule manufacturing facility in Suzhou, China, and research and development operations at the Changping facility in Beijing, China.

Other Obligations

We expect to make a significant investment in our future manufacturing facility in the United States, a 42-acre site that will be constructed in Hopewell, NJ, and for which we purchased for $75.2 million.

We expect significant capital expenditures as we build out the Hopewell facility over the next several years.

We also enter into agreements in the ordinary course of business with CROs to provide research and development services.

These contracts are generally cancellable at any time by us with prior written notice.

We also enter into collaboration agreements with institutions and companies to license intellectual property.

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When the achievement of these milestones or sales have occurred, the corresponding amounts are recognized in our financial statements.

Off‑Balance Sheet Arrangements

During the periods presented we did not have, and we do not currently have, any off‑balance sheet arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to

as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our balance sheets.

Critical Accounting Policies

Future milestone payments potentially owed related to in-licensed technology totaled $5.7 billion as of December 31, 2021.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).

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We base our estimates on historical experience, known trends and events, contractual milestones and other various factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Our most critical accounting policies are summarized below.

See Note 2 to our consolidated financial statements included in this Annual Report for a description of our other significant accounting policies.

Certain of these estimates are considered critical as they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our consolidated financial statements.

Our critical accounting estimates are summarized below.

See Note 2 to our consolidated financial statements included in this Annual Report for a description of our significant accounting policies.

Revenue Recognition

Effective January 1, 2018, we adopted Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective approach.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price, including variable consideration, if any;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.

Once a contract is determined to be within the scope of ASC 606 at contract inception, we review the contract to determine which performance obligations it must deliver and which of these performance obligations are distinct.

We recognize as revenue the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied.

We recognize revenue when we transfer control of goods or services to our customers.

Revenue is measured as the amount of consideration we expect to receive in exchange for goods and services.

We generate revenue from product sales and revenue transactions with our collaboration partners.

Product Revenue

The Company generates product revenue in China through the sale of its internally developed drugs tislelizumab and BRUKINSA ® , and the sale of in-licensed products in China through its agreements with Amgen and BMS.

Under the commercial profit share arrangement with Amgen, the Company is the principal for in-licensed 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 are recorded as cost of sales.

In the United States, the Company generates product revenue from the sale of BRUKINSA ® .

In China, the Company sells its internally developed products to multiple distributors, who in turn sell the products to hospitals or pharmacies within their authorized territories to be sold ultimately to patients.

In-licensed products are sold to a first-tier distributor who subsequently resells the products to second-tier distributors who ultimately sell the products to health care providers and patients.

In the United States, the Company distributes BRUKINSA ® through specialty pharmacies and specialty distributors.

The specialty pharmacies and specialty distributors subsequently resell the product to health care providers and patients.

We are the principal under the product sales, as we control the products with the ability to direct the use of, and obtain substantially all the remaining benefits, from the products before they are sold to the customer.

For product sales transactions, we have a single performance obligation, which is to sell the products to our customer.

To determine the appropriate transaction price for our product sales at the time we recognize a sale to a direct customer, we estimate any rebates, chargebacks or discounts that ultimately will be due to the direct customer and other customers in the distribution chain under the terms of our contracts.

Significant judgments are required in making these estimates.

We include variable consideration in the transaction price to the extent it is probable that a significant reversal will not occur and estimate variable consideration from rebates, chargebacks, trade discounts and allowances, sales returns allowances, and other incentives using the expected value method.

Revenues for product sales are recognized at a point in time when the single performance obligation is satisfied upon delivery to the customer.

Our payment terms are approximately 45-90 days.

Actual amounts of consideration ultimately received may differ from our estimates.

We will reassess estimates for variable consideration periodically.

If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

In China, rebates are offered to distributors.

We record a provision for rebates at the time of sale based on contracted rates and historical redemption rates.

Assumptions used to establish the provision include the level of distributor inventories, sales volumes and contract pricing and estimated acceptance of government pricing or reimbursement amounts (such as provincial acceptance of the NRDL pricing in the PRC).

We regularly review the information related to these estimates and adjust the provision accordingly.

In the United States, estimates for variable consideration for which reserves are established at the time of sale include government rebates, chargebacks, trade discounts and allowances, sales returns allowances and other incentives that are offered within contracts between the Company and our U.S.

customers, health care providers and other indirect customers.

Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns.

Estimates for variable consideration for which reserves are established at the time of sale include government and commercial rebates, provisions for acceptance of NRDL pricing, chargebacks, trade discounts and allowances, sales returns allowances and other incentives that are offered within contracts between the Company and our customers, health care providers and other indirect customers.

Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, channel inventory levels, specific known market events and trends, industry data and forecasted customer buying and payment patterns.

We base our sales returns allowance on estimated distributor inventories, customer demand as reported by third-party sources, and actual returns history, as well as other factors, as appropriate.

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To date, sales returns have not been significant.

Actual amounts of consideration ultimately received may differ from our estimates.

We will reassess estimates for variable consideration periodically.

If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

Collaboration Revenue

At contract inception, we analyze our collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities.

For collaboration arrangements within the scope of ASC 808 that contain multiple elements, we first determine which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and therefore within the scope of ASC 606.

For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently.

In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our agreements, we perform the five-step model under ASC 606 noted above.

Our collaborative arrangements may contain more than one unit of account, or performance obligation, including grants of licenses to intellectual property rights, agreements to provide research and development services and other deliverables.

The collaborative arrangements do not include a right of return for any deliverable.

As part of the accounting for these arrangements, we must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract.

In developing the stand-alone selling price for a performance obligation, we consider competitor pricing for a similar or identical product, market awareness of and perception of the product, expected product life and current market trends.

In general, the consideration allocated to each performance obligation is recognized when the respective obligation is satisfied either by delivering a good or providing a service, limited to the consideration that is not constrained.

Non-refundable payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers.

Licenses of Intellectual Property:

Upfront non-refundable payments for licensing our intellectual property are evaluated to determine if the license is distinct from the other performance obligations identified in the arrangement.

For licenses determined to be distinct, we recognize revenues from non-refundable up-front fees allocated to the license at a point in time, when the license is transferred to the licensee and the licensee is able to use and benefit from the license.

Research and Development Services :

The portion of the transaction price allocated to research and development services performance obligations is deferred and recognized as collaboration revenue overtime as delivery or performance of such services occurs.

R&D reimbursement revenue for revenue attributable to the clinical trials that BMS had opted into is recognized as delivery or performance of such services occurs.

Milestone Payments:

At the inception of each arrangement that includes development milestone payments, we evaluate whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method.

If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price.

Milestones related to our development-based activities may include initiation of various phases of clinical trials.

Due to the uncertainty involved in meeting these development-based targets, they

are generally fully constrained at contract inception.

We will assess whether the variable consideration is fully constrained each reporting period based on the facts and circumstances surrounding the clinical trials.

Upon changes to constraint associated with the developmental milestones, variable consideration will be included in the transaction price when a significant reversal of revenue recognized is not expected to occur and allocated to the separate performance obligations.

Regulatory milestones are fully constrained until the period in which those regulatory approvals are achieved due to the inherent uncertainty with the approval process.

Regulatory milestones are included in the transaction price in the period regulatory approval is obtained.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisf ied ( or partially satisfied).

As part of the accounting for these arrangements, we must develop assumptions that require significant judgments to determine the standalone selling price for each performance obligation identified in the contract.

Standalone selling prices for licenses of intellectual property and the right to access and use intellectual property during an option period performance obligations are determined based on the probability-weighted present value of forecasted cash flows associated with the intellectual property.

Stand-alone selling prices for research and development services performance obligations are based on the present value of estimated clinical trial costs plus a reasonable margin.

The estimates of standalone selling prices involve management's key assumptions such as revenue growth rate, estimated clinical trial costs, mark-up rate, probability of technical and regulatory success, and discount rates.

These significant assumptions are forward looking and could be affected by future economic, regulatory and market conditions.

Research and Development Expenses

Research and development expenses represent costs associated with our research and development activities, which primarily include (1) payroll and related costs (including share‑based compensation) associated with research and development personnel;

(2) costs related to clinical trials and preclinical testing of our technologies under development;

(3) costs to develop the product candidates, including raw materials and supplies, product testing, depreciation, and facility related expenses;

(4) expenses for research services provided by universities and contract laboratories, including sponsored research funding;

and (5) other research and development expenses.

Research and development expenses are charged to expense as incurred when these expenditures relate to our research and development services and have no alternative future uses.

Clinical trial costs are a significant component of our research and development expenses.

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Revisions in the scope of a contract are charged to expense in the period in which the facts that give rise to the revision become reasonably certain.

The process of estimating our research and development expenses involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs.

The process of estimating our external research and development expenses involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs.

The majority of our service providers invoice us in arrears for services performed, on a pre‑determined schedule or when contractual milestones are met;

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To date, we have not made any material adjustments to our prior estimates of research and development expenses.

Acquired In-Process Research and Development Expense

We have acquired rights to develop and commercialize drug products and product candidates.

Upfront payments that relate to the acquisition of a new drug compound, as well as pre-commercial milestone payments, are immediately expensed as acquired in-process research and development in the period in which they are incurred, provided that the new drug compound did not also include processes or activities that would constitute a “business” as defined under GAAP, the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no established alternative future use.

Milestone payments made to third parties subsequent to regulatory approval are capitalized as intangible assets and amortized over the estimated remaining useful life of the related product.

Royalties owed on sales of the products licensed pursuant to the agreements are expensed in the period the related revenues are recognized.

We use the liability method of accounting for income taxes.

Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using enacted tax rates that will be in effect when the differences are expected to reverse.

Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years.

Such assets arise because of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as from net operating losses and tax credit carryforwards.

We evaluate the recoverability of these future tax deductions and credits 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.

These 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 it is more likely than not that some portion or all of a deferred tax asset will not be realized.

We evaluate our uncertain tax positions using the provisions of ASC 740, Income Taxes , which prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements.

We recognize in the

financial statements the benefit of a tax position which is “more likely than not” to be sustained under examination based solely on the technical merits of the position assuming a review by tax authorities having all relevant information.

Tax positions that meet the recognition threshold are measured using a cumulative probability approach, at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement.

It is our policy to recognize interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense.

Recent Accounting Pronouncements

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Item 7. Management’s Discussion and Analysis