Item 7. Management’s Discussion and Analysis
Item 7. 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 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. Our actual results may differ materially from those anticipated in these forward‑looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under “Part I—Item 1A—Risk Factors” and under “Forward‑Looking Statements and Market Data” in this Annual Report.
Overview
We are a global, commercial-stage biotechnology company focused on discovering, developing, manufacturing, and commercializing innovative medicines to improve treatment outcomes and expand access for patients worldwide.
We 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) 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 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.
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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.
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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
Revenue
Product Revenue
We generate product revenue through the sale of our three internally developed products and our in-licensed medicines from our partners.
Revenues from product sales are recognized when there is a transfer of control from the Company to the customer. The Company determines transfer of control based on when the product is delivered, and title passes to the customer. Revenues from product sales are recognized net of variable consideration resulting from rebates, chargebacks, trade discounts and allowances, sales returns allowances and other incentives. Provisions for estimated reductions to revenue are provided for in the same period the related sales are recorded and are based on contractual terms, historical experience and trend analysis.
Collaboration Revenue
We recognize collaboration revenue for amounts earned under collaborative and out-licensing arrangements. 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.
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Expenses
Cost of Sales
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
Research and development expenses consist of the costs associated with our research and development activities, conducting preclinical studies and clinical trials, and activities related to regulatory filings. Our research and development expenses consist of:
• expenses incurred under agreements with contract research organizations (CROs), CMOs, and consultants that conduct and support clinical trials and preclinical studies;
• costs of comparator drugs in certain of our clinical trials;
• manufacturing costs related to pre-commercial activities;
• costs associated with preclinical activities and development activities;
• costs associated with regulatory operations;
• employee-related expenses, including salaries, benefits, travel and share-based compensation expense for research and development personnel;
• in-process research and development costs expensed as part of collaboration agreements entered into; and
• other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies used in research and development activities.
Our current research and development activities mainly relate to the clinical advancement of our internally developed medicines and drug candidates:
• BRUKINSA ® (zanubrutinib), a small molecule inhibitor of BTK;
• tislelizumab, a humanized monoclonal antibody against PD-1;
• ociperlimab, an investigational humanized monoclonal antibody against TIGIT;
• pamiparib, a selective small molecule inhibitor of PARP1 and PARP2;
• BGB-15025, an investigational hematopoietic progenitor kinase 1 (HPK1) inhibitor;
• BGB-11417, an investigational small molecular inhibitor of Bcl-2;
• BGB-A445, an investigational non-ligand competing OX40 monoclonal antibody;
• BGB-16673, an investigational Chimeric Degradation Activating Compound, or CDAC, targeting BTK; and
• BGB-A425, an investigational humanized monoclonal antibody against TIM-3.
Research and development activities also include costs associated with in-licensed drug candidates, including:
• R&D expense related to the co-development of pipeline assets under the Amgen collaboration agreement. Our total cost share obligation to Amgen is split between R&D expense and a reduction to the R&D cost share liability;
• sitravatinib, an investigational, spectrum-selective kinase inhibitor, licensed from Mirati Therapeutics, Inc. (Mirati);
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• ZW25 (zanidatamab) and ZW49, two investigational bispecific antibody-based product candidates targeting HER2, licensed from Zymeworks Inc. (Zymeworks); and
• POBEVCY ® (BAT1706), a biosimilar to Avastin ® (bevacizumab), licensed from Bio-Thera Solutions, Ltd. (Bio-Thera).
We expense research and development costs when incurred. We record costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information our vendors provide to us. We expense the manufacturing costs of our internally developed products that are used in clinical trials as they are incurred as research and development expense. We do not allocate 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 and in-licensed medicines and drug candidates. This is due to the numerous risks and uncertainties associated with developing such medicines and drug candidates, including the uncertainty of:
• successful enrollment in and completion of clinical trials;
• establishing an appropriate safety and efficacy profile;
• establishing and maintaining commercial manufacturing capabilities or making arrangements with 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 medicines and drug candidates or third‑party products;
• market acceptance, pricing and reimbursement;
• obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our medicines and drug candidates;
• continued acceptable safety and efficacy profiles of the products following approval;
• sufficient supply of the products following approval;
• competition from competing products; and
• retention of key personnel.
A change in the outcome of any of these variables with respect to the development of any of our medicines and drug candidates would significantly change the costs, timing and viability associated with the commercialization or development of that medicine or drug candidate.
Research and development activities are central to our business model. We expect research and development costs to increase for the foreseeable future as our development programs progress, as we continue to support the clinical trials of our medicines and drug candidates as treatments for various cancers and as we move these medicines and drug candidates into additional clinical trials, including potential pivotal trials. There are numerous factors associated with the successful commercialization of any of our medicines and drug candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control may impact our clinical development and commercial programs and plans.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of product promotion costs, distribution costs, salaries and related benefit costs, including share-based compensation for selling, general and administrative personnel. Other selling, general and administrative expenses include professional fees for legal, consulting, auditing and tax services as well as other direct and allocated expenses for rent and maintenance of facilities, travel costs, insurance and other supplies used in selling,
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general and administrative activities. We anticipate that our selling, general and administrative expenses will increase in future periods to support planned increases in commercialization activities for our approved medicines, and the preparation for potential launch and commercialization of additional in-licensed products from our collaborations and internally developed products, if approved. We also expect selling, general and administrative expenses to increase in future periods to support our research and development efforts, including the continuation of the clinical trials of our treatments for various cancers and the initiation of clinical trials for potential new indications or drug candidates. These cost increases will likely be due to increased promotional costs, increased headcount, increased share-based compensation expenses, expanded infrastructure and increased costs for insurance. We also incur significant legal, compliance, accounting, insurance and investor and public relations expenses associated with being a public company with our ADSs, ordinary shares and RMB Shares listed for trading on The NASDAQ Global Select Market, The Hong Kong Stock Exchange and The STAR Market of the Shanghai Stock Exchange, respectively.
Interest Income (Expense), Net
Interest Income
Interest income consists primarily of interest generated from our cash and short-term investments in money market funds, time deposits, U.S. Treasury securities and U.S. agency securities.
Interest Expense
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.
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Results of Operations
Comparison of the Years Ended December 31, 2021 and 2020
The following table summarizes our results of operations for the years ended December 31, 2021 and 2020:
Year Ended December 31, Change
2021 2020 $ %
(dollars in thousands)
Revenues
Product revenue, net $ 633,987 $ 308,874 $ 325,113 105.3 %
Collaboration revenue 542,296 — 542,296 NM
Total revenues 1,176,283 308,874 867,409 280.8 %
Expenses
Cost of sales - product 164,906 70,657 94,249 133.4 %
Research and development 1,459,239 1,294,877 164,362 12.7 %
Selling, general and administrative 990,123 600,176 389,947 65.0 %
Amortization of intangible assets 750 846 (96) (11.3) %
Total expenses 2,615,018 1,966,556 648,462 33.0 %
Loss from operations (1,438,735) (1,657,682) 218,947 (13.2) %
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 (25,234) (17,671) (7,563) 42.8 %
Net loss (1,413,354) (1,600,523) 187,169 (11.7) %
Less: Net loss attributable to noncontrolling interest — (3,617) 3,617 (100.0) %
Net loss attributable to BeiGene, Ltd. $ (1,413,354) $ (1,596,906) $ 183,552 (11.5) %
Revenue
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
2021 2020 $ %
(dollars in thousands)
Product revenue $ 633,987 $ 308,874 $ 325,113 105.3 %
Collaboration revenue:
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 %
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Net product revenue consisted of the following:
Year Ended December 31, Changes
2021 2020 $ %
(dollars in thousands)
Tislelizumab $ 255,119 $ 163,358 $ 91,761 56.2 %
BRUKINSA ®
217,987 41,702 176,285 422.7 %
REVLIMID ®
70,065 47,372 22,693 47.9 %
VIDAZA ®
19,591 29,975 (10,384) (34.6) %
ABRAXANE ®
— 17,770 (17,770) (100.0) %
XGEVA ®
45,956 8,496 37,460 440.9 %
BLINCYTO ®
12,515 — 12,515 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 $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; U.S. sales of BRUKINSA ® totaled $115.7 million for the year ended December 31, 2021 compared to $18.2 million in the prior year. U.S. 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.
Cost of Sales
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
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
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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
Research and development expense increased by $164.4 million, or 12.7%, to $1.5 billion for the year ended December 31, 2021, from $1,294.9 million for the year ended December 31, 2020. The following table summarizes the external cost of development programs, upfront license fees, and internal research and development expense for the years ended December 31, 2021 and 2020:
Year Ended December 31, Changes
2021 2020 $ %
(dollars in thousands)
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
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 %
Total research and development expenses $ 1,459,239 $ 1,294,877 $ 164,362 12.7 %
1. Our co-funding obligation for the development of the pipeline assets under the Amgen collaboration for the year ended December 31, 2021 totaled $228.0 million, of which $115.5 million was recorded as R&D expense. The remaining $112.5 million was recorded as a reduction for the R&D cost share liability.
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;
• $52.4 million increase of facilities, depreciation, office expense, rental fees, and other expenses to support the growth of our organization;
• $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; and
• $17.7 million increase of materials and reagent expenses, primarily in connection with the in-house manufacturing of drug candidates used for clinical purposes; and
• $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.
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Selling, General and Administrative Expense
Selling, general and administrative expense increased by $389.9 million, or 65.0%, to $990.1 million for the year ended December 31, 2021, from $600.2 million for the year ended December 31, 2020. The increase was primarily attributable to the following:
• $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; and
• $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 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
The following table represents our cash, short-term investments, and debt balances as of December 31, 2021:
Year Ended December 31,
2021 2020
(in thousands)
Cash, cash equivalents and restricted cash $ 4,382,887 $ 1,390,005
Short-term investments $ 2,241,962 $ 3,268,725
Total debt $ 629,678 $ 518,652
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 $1.4 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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To date, we have financed our operations principally through proceeds from public and private offerings of our securities and proceeds from our collaborations, together with product sales since September 2017. Based on our current operating plan, we expect that our existing cash, cash equivalents and short-term investments as of 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 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 December 2021, we expanded our collaboration with Novartis by entering into an option, collaboration and license agreement with Novartis to develop, manufacture and commercialize our investigational TIGIT inhibitor ociperlimab in the Novartis Territory. In addition, we and Novartis entered into an agreement granting us rights to market, promote and detail five approved Novartis oncology products. Under the terms of the agreement, we received an upfront cash payment of $300 million in January 2022, 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:
Year Ended December 31,
2021 2020
(in thousands)
Cash, cash equivalents and restricted cash at beginning of period $ 1,390,005 $ 620,775
Net cash used in operating activities (1,298,723) (1,283,461)
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 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
Operating Activities
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, 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.
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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.
Financing Activities
Cash flows from financing activities consist primarily of sale of ordinary shares, RMB Shares, and ADSs through equity offerings, issuance and repayment of short-term and long-term debt, and proceeds from the sale of 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. This consisted primarily of $2.8 billion received from our collaboration with Amgen and $2.1 billion from a registered direct offering of ordinary shares to certain existing investors. 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 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.
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. 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, ordinary shares, or RMB Shares. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends, and may require the issuance of warrants, which could potentially dilute your ownership interest. If we raise additional funds through collaboration agreements, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our medicines or drug candidates, future revenue streams or research programs, or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds
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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
Total Short-term Long-term
(in thousands)
Contractual obligations:
Operating lease commitments $ 70,218 $ 24,225 $ 45,993
Purchase commitments 168,687 110,345 58,342
Debt obligations 629,678 427,565 202,113
Interest on debt 57,299 24,336 32,963
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
Capital commitments 42,394 42,394 —
Total $ 1,807,884 $ 885,178 $ 922,706
Operating Lease Commitments
We lease office or manufacturing facilities in Beijing, Shanghai, Suzhou and Guangzhou in China; office facilities in California, Massachusetts, Maryland, and New Jersey in the United States; and in Basel, Switzerland under non-cancelable operating leases expiring on various dates. Payments under operating leases are expensed on a straight-line basis over the respective lease terms. The aggregate future minimum payments under these non-cancelable operating leases are summarized in the table above.
Purchase Commitments
As of December 31, 2021, purchase commitments amounted to $168.7 million, of which $76.0 million related to minimum purchase requirements for supply purchased from CMOs and $92.7 million related to binding purchase order obligations of inventory from BMS and Amgen. We do not have any minimum purchase requirements for inventory from BMS or Amgen.
Debt Obligations and Interest
Total debt obligations coming due in the next twelve months is $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. For the purpose of contractual obligations calculation, current interest rates on floating rate obligations were used for the remainder contractual life of the outstanding borrowings.
Co-Development Funding Commitments
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.
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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.
Pension Plan
We maintain a defined benefit pension plan in Switzerland. Funding obligations under the defined benefit pension plan are equivalent to $1.6 million per year based on annual funding contributions in effect as of December 31, 2021 to achieve fully funded status where the market value of plan assets equals the projected benefit obligations. Future funding requirements will be subject to change as a result of future changes in staffing and compensation levels, various actuarial assumptions and actual investment returns on plan assets.
Capital Commitments
We had capital commitments amounting to $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. We may be obligated to make future development, regulatory and commercial milestone payments and royalty payments on future sales of specified products associated with these agreements. Payments under these agreements generally become due and payable upon achievement of such milestones or sales. These commitments are not recorded on our balance sheet because the achievement and timing of these milestones are not fixed and determinable. When the achievement of these milestones or sales have occurred, the corresponding amounts are recognized in our financial statements. Future milestone payments potentially owed related to in-licensed technology totaled $5.7 billion as 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). The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses. We evaluate our estimates and judgments on an ongoing basis, and our actual results may differ from these estimates. 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.
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.
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Revenue Recognition
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
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.
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. For newly launched products where actual returns history is not yet available, the sales returns allowance is initially calculated based on benchmarking data from similar products and industry experience. If the historical or benchmarking data we use to calculate these estimates do not properly reflect future returns, then a change in the allowance would be made in the period in which such a determination is made and revenues in that period could be materially affected. Any changes from the historical trend rates are considered in determining the current sales return allowance. 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
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. 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
Clinical trial costs are a significant component of our research and development expenses. We have a history of contracting with third parties that perform various clinical trial activities on behalf of us in the ongoing development of our product candidates. Expenses related to clinical trials are accrued based on our estimates of the actual services performed by the third parties for the respective period. If the contracted amounts are modified (for instance, as a result of changes in the clinical trial protocol or scope of work to be performed), we will modify the related accruals accordingly on a prospective basis. 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.
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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; however, some require advanced payments. We make estimates of our expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting expenses that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of research and development expenses.
Income Taxes
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.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included in this Annual Report for information regarding recent accounting pronouncements.