Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Note Regarding Forward-Looking Statements
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements (unaudited) and related notes included in the section of this Quarterly Report on Form 10-Q (this “Quarterly Report”), titled “Part I – Item 1 – Financial Statements.” We have revised our prior period financial statements to reflect the correction of an error, the impact of which was immaterial to our previously filed financial statements, as described in this Quarterly Report in “Notes to the Condensed Consolidated Financial Statements, Note 1. Description of Business, Basis of Presentation and Consolidation and Significant Accounting Policies” and “Note 2. Revision of Prior Period Financial Statements”. This Quarterly Report contains forward-looking statements t hat involve substantial risks and uncertainties. These forward-looking statements are based on management’s current expectations and projections about future events and trends that may affect the business, financial condition, and operating results. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. Forward-looking statements often include words such as “aim,” “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these terms or other similar expressions. These forward-looking statements, include, but are not limited to, statements regarding: our ability to successfully commercialize our approved medicines and to obtain approvals in additional indications and territories for our medicines; our ability to successfully develop and commercialize our in-licensed medicines and drug candidates and any other medicines and drug candidates we may in-license; our ability to further develop sales and marketing capabilities and launch and commercialize new medicines, if approved; our ability to maintain and expand regulatory approvals for our medicines and drug candidates, if approved; the pricing and reimbursement of our medicines and drug candidates, if approved; the initiation, timing, progress and results of our preclinical studies and clinical trials and our research and development programs; our ability to advance our drug candidates into, and successfully complete, clinical trials and obtain regulatory approvals; our reliance on the success of our clinical stage drug candidates; our plans, expected milestones and the timing or likelihood of regulatory filings and approvals; the implementation of our business model, strategic plans for our business, medicines, drug candidates and technology; the scope of protection we (or our licensors) are able to establish and maintain for intellectual property rights covering our medicines, drug candidates and technology; our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights and proprietary technology of third parties; costs associated with enforcing or defending against intellectual property infringement, misappropriation or violation, product liability and other claims; the regulatory environment and regulatory developments in the United States, China, the United Kingdom (“UK”), Switzerland, the European Union ("EU") and other jurisdictions in which we operate; the accuracy of our estimates regarding expenses, revenues, capital requirements and our need for additional financing; the potential benefits of strategic collaboration and licensing agreements and our ability to enter into strategic arrangements; our plans and expectations to build significant technical operations and independent production capabilities for small molecule medicines and large molecule biologics to support the global demand for both commercial and clinical supply; our reliance on third parties to conduct drug development, manufacturing and other services; our ability to manufacture and supply, or have manufactured and supplied, drug candidates for clinical development and medicines for commercial sale; the rate and degree of market access and acceptance of our medicines and drug candidates, if approved; developments relating to our competitors and our industry, including competing therapies; the size of the potential markets for our medicines and drug candidates and our ability to serve those markets; our ability to effectively manage our growth; our ability to attract and retain qualified employees and key personnel; statements regarding future revenue, hiring plans, key milestones, expenses, capital expenditures, capital requirements and share performance; and the future trading price of our ADSs, ordinary shares and RMB Shares, and impact of securities analysts’ reports on these prices. These statements involve risks and uncertainties, including those that are described in “Part II – Item 1A – Risk Factors” of this Quarterly Report, that may cause actual future events or results to differ materially from those expected. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date hereof. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. This Quarterly Report includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, you are cautioned not to give undue weight to this information. Unless the context requires otherwise, in this Quarterly Report, the terms “BeiGene,” the “Company,” “we,” “us” and “our” refer to BeiGene, Ltd., a Cayman Islands holding company with operations conducted by its subsidiaries, and its subsidiaries, on a consolidated basis.
Overview
We are a global biotechnology company that is discovering and developing innovative oncology treatments that are more accessible and affordable to cancer patients worldwide.
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We currently have three approved medicines that were internally discovered and developed, 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, China, the EU, the UK, Canada, Australia and additional international markets, and tislelizumab and pamiparib in China. By leveraging our strong commercial capabilities, we have in-licensed the rights to distribute an additional 14 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 Inc. (“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. We have conducted more than 120 clinical trials in-house, with over 21,000 subjects enrolled in approximately 45 regions. This includes more than 35 pivotal or potentially registration-enabling trials across our portfolio, including our three internally discovered, approved medicines.
We have built, and are expanding, our internal manufacturing capabilities. The Company is building a commercial-stage biologics manufacturing and clinical R&D center in New Jersey, in addition to our state-of-the-art biologic and small molecule manufacturing facilities in China to support current and potential future demand of our medicines. We also work with high quality global 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 10,000 employees worldwide, including the United States, China, Europe, and Australia.
Recent Developments
Recent Business Developments
On July 21, 2023, we announced that the Committee for Medicinal Products for Human Use of the European Medicines Agency issued a positive opinion recommending approval for tislelizumab as monotherapy for the treatment of adult patients with unresectable, locally advanced or metastatic esophageal squamous cell carcinoma after prior platinum-based chemotherapy.
On July 12, 2023, we announced the U.S. Food and Drug Administration ("FDA") accepted for review our supplemental new drug application for BRUKINSA in combination with obinutuzumab for the treatment of adult patients with relapsed or refractory follicular lymphoma after at least two prior lines of therapy. BRUKINSA was previously granted Fast Track and Orphan designation for this indication. The FDA has assigned a target action date in the first quarter of 2024, under the Prescription Drug User Fee Act.
On July 10, 2023, we announced entering into an agreement with DualityBio for BeiGene to acquire an exclusive option for a global clinical and commercial license to an investigational, preclinical antibody drug conjugate therapy for patients with select solid tumors.
On July 10, 2023, we announced we regained full, global rights to develop, manufacture and commercialize investigational TIGIT inhibitor ociperlimab as a result of a mutual decision with Novartis to terminate the Option, Collaboration and License Agreement with Novartis pursuant to which BeiGene granted Novartis an exclusive time-based option to receive such rights in North America, Europe, and Japan.
On July 4, with Luye Pharma Group ("Luye"), we announced that Luye's 's innovative formulation, Goserelin Microspheres for Injection (Baituowei), was approved by China’s National Medical Products Administration on June 30, 2023, for the treatment of prostate cancer in patients who need to be treated with an androgen deprivation therapy. This product is the world’s first and only formulation of long-acting goserelin microspheres approved for launch, and the two companies have officially kicked off a strategic partnership for its commercialization.
On May 30, 2023, we announced that BRUKINSA was approved by Health Canada for the treatment of adult patients with chronic lymphocytic leukemia.
On May 6, 2023, we announced that the China National Medical Products Administration approved four applications for BRUKINSA, including two supplemental new drug applications for treatment-naïve adults with chronic lymphocytic leukemia or small lymphocytic lymphoma and Waldenström's macroglobulinemia, and two supplemental applications for conversions from conditional approval to regular approval.
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Components of Operating Results
Revenue
Product Revenue
We generate product revenue through the sale of our three internally developed products and our in-licensed medicines from our partners.
Revenues from product sales are recognized when there is a transfer of control from the Company to the customer. The Company determines transfer of control based on when the product is delivered, and title passes to the customer. Revenues from product sales are recognized net of variable consideration resulting from rebates, chargebacks, trade discounts and allowances, sales returns allowances and other incentives. Provisions for estimated reductions to revenue are provided for in the same period the related sales are recorded and are based on contractual terms, historical experience and trend analysis.
Collaboration Revenue
We recognize collaboration revenue for amounts earned under collaborative and out-licensing arrangements. 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 EU, UK, 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 tislelizumab R&D services. Under this agreement, we received an upfront cash payment, which was allocated between the two performance obligations identified in the agreement based on the relative standalone selling prices of the performance obligations. The portion allocated to the license was recognized upon the delivery of the license right and transfer of know-how. The portion of the upfront payment allocated to the tislelizumab R&D services was deferred and is being recognized as collaboration revenue as the tislelizumab R&D services are performed using a percentage of completion method. Estimated costs to complete are reassessed on a periodic basis and any updates to the revenue earned are recognized on a prospective basis.
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 ociperlimab R&D services. The market development activities are considered immaterial in the context of the agreements. Under this agreement, we received an upfront cash payment, which was allocated between the three performance obligations identified in the agreement based on the relative standalone selling prices of the performance obligations. The portion allocated to the material right was deferred and will be recognized at the earlier of when Novartis exercises the option and the license is delivered or the expiration or termination of the option. The portion of the transaction price allocated to Novartis' right to access ociperlimab in its own clinical trials during the option period and the initial transfer of BeiGene know-how was deferred and is being recognized over the expected option period. The portion of the transaction price allocated to the ociperlimab R&D services was deferred and is being recognized as collaboration revenue as the ociperlimab R&D services are performed over the expected option period.
The option exercise fee under the ociperlimab agreement is contingent upon Novartis exercising its right, and is considered fully constrained until the option is exercised or terminated. 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.
In July 2023, we entered into a Mutual Termination and Release Agreement (the "Termination Agreement") to mutually terminate the ociperlimab option, collaboration and license agreement with Novartis, effective immediately. Pursuant to the Termination Agreement, we regained full, global rights to develop, manufacture and commercialize ociperlimab.
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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 our internally developed products from commercial manufacturing organizations. 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;
• Sonrotoclax (BGB-11417), an investigational small molecular inhibitor of Bcl-2;
• BGB-16673, an investigational Chimeric Degradation Activating Compound (CDAC), targeting BTK;
• pamiparib, a selective small molecule inhibitor of PARP1 and PARP2;
• BGB-15025, an investigational hematopoietic progenitor kinase 1 (HPK1) inhibitor;
• BGB-A445, an investigational non-ligand competing OX40 monoclonal antibody;
• Surzebiclimab (BGB-A425), an investigational humanized monoclonal antibody against TIM-3;
• BGB-10188, an investigational PI3Kδ inhibitor;
• Lifirafenib, an investigational small molecule inhibitor with RAF monomer and dimer inhibition activities;
• BGB-24714, an investigational second mitochondrial-derived activator of caspase (SMAC) mimetic;
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• BGB-B167, an investigational carcinoembryonic antigen (CEA) and 4-1BB bispecific antibody (CEA x 4-1BB bispecific); and
• LBL-007, a novel investigational antibody targeting the LAG-3 pathway.
The Company stopped clinical development of BGB-23339, a potent, allosteric investigational tyrosine kinase 2 inhibitor, in systematic use due to change in the competitive landscape and prioritization of our internal R&D portfolio during the three months ended June 30, 2023.
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.; and
• ZW25 (zanidatamab), an investigational bispecific antibody-based product candidates targeting HER2, licensed from Zymeworks Inc.
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 our medicines and drug candidates could 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 continued substantial investment in research and development for the foreseeable future as our discovery and 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 our medicines
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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, 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 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 RMB-denominated cash deposits 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 (expense), net consists primarily of gains and losses recognized related to fluctuations in foreign currency exchange rates, gains and losses on equity investments, government grants and subsidies received that involve no conditions or continuing performance obligations by us, unrealized gains and losses on equity securities, and realized gains and losses on the sale of investments. We hold significant cash in the form of RMB-denominated deposits at U.S. functional currency entities, including a large portion of the cash generated from the STAR Market offering in December 2021. Other income (expense), net includes the revaluation gains and losses of these cash deposits based on foreign currency exchange rates.
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Results of Operations
The following table summarizes our results of operations for the three and six months ended June 30, 2023 and 2022:
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2023 2022 1
$ % 2023 2022 1
$ %
(dollars in thousands)
Revenues
Product revenue, net $ 553,745 $ 304,511 $ 249,234 81.8 % $ 964,036 $ 566,084 $ 397,952 70.3 %
Collaboration revenue 41,516 37,061 4,455 12.0 % 79,026 82,114 (3,088) (3.8) %
Total revenues 595,261 341,572 253,689 74.3 % 1,043,062 648,198 394,864 60.9 %
Expenses
Cost of sales - product 95,990 71,173 24,817 34.9 % 177,779 136,410 41,369 30.3 %
Research and development 422,764 378,207 44,557 11.8 % 831,348 768,122 63,226 8.2 %
Selling, general and administrative 395,034 331,403 63,631 19.2 % 723,533 625,976 97,557 15.6 %
Amortization of intangible assets 188 188 — — % 375 376 (1) (0.3) %
Total expenses 913,976 780,971 133,005 17.0 % 1,733,035 1,530,884 202,151 13.2 %
Loss from operations (318,715) (439,399) 120,684 (27.5) % (689,973) (882,686) 192,713 (21.8) %
Interest income, net 15,070 11,431 3,639 31.8 % 31,086 21,502 9,584 44.6 %
Other expense, net (63,818) (129,617) 65,799 (50.8) % (45,515) (117,650) 72,135 (61.3) %
Loss before income taxes (367,463) (557,585) 190,122 (34.1) % (704,402) (978,834) 274,432 (28.0) %
Income tax expense 13,674 8,141 5,533 68.0 % 25,166 22,090 3,076 13.9 %
Net loss $ (381,137) $ (565,726) $ 184,589 (32.6) % $ (729,568) $ (1,000,924) $ 271,356 (27.1) %
1 We revised certain prior period financial statements for an error related to the valuation of net deferred tax assets, the impact of which was immaterial to our previously filed financial statements in the second quarter of 2022 (see “Notes to the Condensed Consolidated Financial Statements, Note 1. Description of Business, Basis of Presentation and Consolidation and Significant Accounting Policies” and “Note 2. Revision of Prior Period Financial Statements” included in this Quarterly Report on Form 10-Q).
Comparison of the Three Months Ended June 30, 2023 and 2022
Revenue
Total revenue increased to $595.3 million for the three months ended June 30, 2023, from $341.6 million for the three months ended June 30, 2022, primarily due to an increase in sales of BRUKINSA and tislelizumab, as well as increased sales of our in-licensed products from Amgen, and additional collaboration revenue from our agreements with Novartis.
The following table summarizes the components of revenue for the three months ended June 30, 2023 and 2022, respectively:
Three Months Ended
June 30, Changes
2023 2022 $ %
(dollars in thousands)
Product revenue $ 553,745 $ 304,511 $ 249,234 81.8 %
Collaboration revenue:
Research and development service revenue 13,563 10,813 2,750 25.4 %
Right to access intellectual property revenue 26,248 26,248 — — %
Other 1,705 — 1,705 NM
Total collaboration revenue 41,516 37,061 4,455 12.0 %
Total Revenue $ 595,261 $ 341,572 $ 253,689 74.3 %
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Net product revenues consisted of the following:
Three Months Ended
June 30, Changes
2023 2022 $ %
(dollars in thousands)
BRUKINSA ®
$ 308,276 $ 128,747 $ 179,529 139.4 %
Tislelizumab
149,464 104,879 44,585 42.5 %
REVLIMID ®
21,847 19,916 1,931 9.7 %
XGEVA ®
23,968 15,509 8,459 54.5 %
POBEVCY ®
13,438 12,983 455 3.5 %
BLINCYTO ®
14,578 9,530 5,048 53.0 %
KYPROLIS ®
11,052 4,092 6,960 170.1 %
VIDAZA ®
3,930 3,434 496 14.4 %
Pamiparib 1,919 2,022 (103) (5.1) %
Other 5,273 3,399 1,874 55.1 %
Total product revenue $ 553,745 $ 304,511 $ 249,234 81.8 %
Net product revenue increased 81.8% to $553.7 million for the three months ended June 30, 2023, compared to $304.5 million in the prior-year period, primarily due to continued increases in sales of BRUKINSA in the United States and China and tislelizumab in China. In addition, product revenues in the second quarter of 2023 were positively impacted by sales of in-licensed products from Amgen in China. During the quarter ended June 30, 2023, we continued to see increased patient demand in China for tislelizumab and BRUKINSA due to broader reimbursement and increase in market share, and this demand more than offset the effect of the related price reductions.
Global sales of BRUKINSA totaled $308.3 million in the second quarter, representing a 139.4% increase compared to the prior-year period; U.S. sales of BRUKINSA totaled $223.5 million in the second quarter, compared to $88.4 million in the prior-year period, representing growth of 152.9%. U.S. sales continued to accelerate in the first full quarter after the approval and launch of BRUKINSA for adult patients with chronic lymphocytic leukemia (CLL) and small lymphocytic lymphoma (SLL). BRUKINSA sales in China totaled $48.5 million, representing growth of 32.2% over the prior-year period, driven by increases in all approved indications. BRUKINSA rest of world sales totaled $36.3 million in the second quarter, representing growth of 880.0% compared to the prior-year period, primarily driven by a significant increase in all approved indications, including chronic lymphocytic leukemia (CLL) and small lymphocytic lymphoma (SLL) in Europe.
Sales of tislelizumab in China totaled $149.5 million in the second quarter, compared to $104.9 million in the prior-year period, representing a 42.5% increase. In the second quarter, new patient demand from broader reimbursement and hospital listings continued to drive increased market penetration and market share for tislelizumab. We believe that our strategy of expanding our salesforce and hospital listings and continuing to seek expanded labels in broad indications will allow us to increase our market share.
Collaboration revenue totaled $41.5 million for the three months ended June 30, 2023, of which $13.6 million was recognized from deferred revenue for R&D services performed during the three months ended June 30, 2023 under both the tislelizumab and ociperlimab collaborations, $26.2 million was recognized from deferred revenue for Novartis' right to access ociperlimab over the option period and $1.7 million was recognized primarily related to the sale of tislelizumab and ociperlimab clinical supply to Novartis and revenue generated under the broad markets marketing and promotion agreement. Collaboration revenue totaled $37.1 million for the three months ended June 30, 2022, of which $10.8 million was recognized from deferred revenue for R&D services performed during the three months ended June 30, 2022 under both the tislelizumab and ociperlimab collaborations and $26.2 million was recognized from deferred revenue for Novartis' right to access ociperlimab over the option period (see Note 4 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q).
Cost of Sales
Cost of sales increased to $96.0 million for the three months ended June 30, 2023 from $71.2 million for the three months ended June 30, 2022, primarily due to increased product sales of BRUKINSA and tislelizumab, as well as sales of in-licensed products from Amgen in China.
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Gross Margin
Gross margin on global product sales increased to $457.8 million for the three months ended June 30, 2023, compared to $233.3 million in the prior-year period, primarily due to increased product sales in the current year period. Gross margin as a percentage of product sales increased to 82.7% for the three months ended June 30, 2023, from 76.6% in the comparable period of the prior year. The increase is primarily due to proportionally higher sales mix of global BRUKINSA compared to lower margin sales of in-licensed products, as well as lower costs per unit for both BRUKINSA and tislelizumab in China.
Research and Development Expense
Research and development expense increased by $44.6 million, or 11.8%, to $422.8 million for the three months ended June 30, 2023 from $378.2 million for the three months ended June 30, 2022. The following table summarizes external clinical, external non-clinical and internal research and development expense for the three months ended June 30, 2023 and 2022, respectively:
Three Months Ended
June 30, Changes
2023 2022 $ %
(dollars in thousands)
External research and development expense:
Cost of development programs $ 129,623 $ 106,111 $ 23,512 22.2 %
Amgen co-development expense 1
5,457 24,393 (18,936) (77.6) %
Total external research and development expenses 135,080 130,504 4,576 3.5 %
Internal research and development expenses 287,684 247,703 39,981 16.1 %
Total research and development expenses $ 422,764 $ 378,207 $ 44,557 11.8 %
1 Our co-funding obligation for the development of the pipeline assets under the Amgen collaboration for the three months ended June 30, 2023 totaled $10.8 million, of which $5.5 million was recorded as R&D expense. The remaining $5.3 million was recorded as a reduction of the R&D cost share liability .
The increase in external research and development expenses in the second quarter was primarily attributable to increases in external clinical trial costs for BRUKINSA and sonrotoclax (BGB-11417) and preclinical trial costs for certain assets in our portfolio, partially offset by a decrease in Amgen co-development expense and lower external clinical trial costs for tislelizumab.
Internal research and development expense increased $40.0 million, or 16.1%, to $287.7 million, and was primarily attributable to the expansion of our global discovery and development organization, as well as our continued efforts to internalize research and clinical trial activities, and included the following:
• $22.8 million increase of employee salary and benefits, primarily attributable to hiring more research and development personnel to support our expanding research and development activities;
• $15.0 million increase in facilities, depreciation, office expense, rental fees, and other expenses, which was partially offset by a $14.1 million decrease in clinical inventory in the period for tislelizumab;
• $8.8 million increase of share-based compensation expense, primarily attributable to our increased headcount of research and development employees, resulting in more awards being expensed;
• $4.6 million increase of travel and meeting expenses, which was mainly due to travel normalizing and key conferences in connection with the advancement of our drug candidates; and
• $2.9 million increase of consulting fees, which was mainly attributable to activities in the United States and Europe.
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Selling, General and Administrative Expense
Selling, general and administrative expense increased by $63.6 million, or 19.2%, to $395.0 million for the three months ended June 30, 2023, from $331.4 million for the three months ended June 30, 2022. The increase was primarily attributable to the following:
• $40.1 million increase of external commercial-related expenses, including grants and sponsorships, meetings, conferences and seminars, marketing and promotional activities, and market access studies and analytics, related to commercial expansion in the United States and Europe driven by the launch of BRUKINSA in CLL;
• $18.8 million increase of employee salary and benefits, primarily attributable to hiring more commercial and medical affairs personnel to support our commercial expansion activities;
• $13.2 million increase of share-based compensation expense, primarily attributable to our increased headcount of sales and administrative employees, resulting in more awards being expensed; and
• $8.5 million decrease of professional fees, consulting and other administrative expenses, primarily attributable to increased legal fees related to increased arbitration activities for the three months ended June 30, 2022.
Interest Income, Net
Interest income, net increased by $3.6 million, or 31.8%, to $15.1 million of net interest income for the three months ended June 30, 2023, from $11.4 million of net interest income for three months ended June 30, 2022. The increase in interest income, net, was primarily attributable to increased interest income resulting from higher interest rates on our cash and short-term investment balances.
Other Expense, Net
Other expense, net was $63.8 million for the three months ended June 30, 2023, primarily due to foreign exchange losses resulting from the strengthening of the U.S. dollar compared to the RMB in the period and the revaluation impact of foreign currencies held in U.S. functional currency subsidiaries, partially offset by government subsidy income. The decrease in other expense, net, was primarily due to reduced RMB-denominated cash held by U.S. functional currency entities compared to the prior year period.
For the three months ended June 30, 2022, other expense, net, was $129.6 million, which was primarily due to foreign exchange losses resulting from the strengthening of the U.S. dollar compared to the RMB in the period and the revaluation impact of foreign currencies held in U.S. functional currency subsidiaries, partially offset by unrealized losses on our equity investments.
Income Tax Expense
Income tax expense was $13.7 million for the three months ended June 30, 2023 as compared to $8.1 million for the three months ended June 30, 2022. The income tax expense for the three months ended June 30, 2023 and 2022 was primarily attributable to current China tax expense due to certain non-deductible expenses and current U.S. tax expense determined after other special tax deductions and research and development tax credits.
Comparison of the Six Months Ended June 30, 2023 and 2022
Revenue
Total revenue increased to $1,043.1 million, or 60.9%, for the six months ended June 30, 2023, from $648.2 million for the six months ended June 30, 2022, primarily due to increased sales of our internally developed products, BRUKINSA and tislelizumab, as well as increased sales of in-licensed products, most notably from the Amgen products.
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The following table summarizes the components of revenue for the six months ended June 30, 2023 and 2022, respectively:
Six Months Ended
June 30, Changes
2023 2022 $ %
(dollars in thousands)
Product revenue $ 964,036 $ 566,084 $ 397,952 70.3 %
Collaboration revenue:
Research and development service revenue 20,380 24,240 (3,860) (15.9) %
Right to access intellectual property revenue 52,497 52,497 — — %
Other 6,149 5,377 772 14.4 %
Total collaboration revenue 79,026 82,114 (3,088) (3.8) %
Total Revenue $ 1,043,062 $ 648,198 $ 394,864 60.9 %
Net product revenues consisted of the following:
Six Months Ended
June 30, Changes
2023 2022 $ %
(dollars in thousands)
BRUKINSA ®
519,658 233,072 $ 286,586 123.0 %
Tislelizumab
264,314 192,522 71,792 37.3 %
REVLIMID ®
45,005 41,576 3,429 8.2 %
XGEVA ®
44,165 29,008 15,157 52.3 %
POBEVCY ®
27,764 19,798 7,966 40.2 %
BLINCYTO ®
25,524 21,396 4,128 19.3 %
KYPROLIS ®
15,995 8,405 7,590 90.3 %
VIDAZA ®
7,119 8,946 (1,827) (20.4) %
Pamiparib 3,725 4,577 (852) (18.6) %
Other 10,767 6,784 3,983 58.7 %
Total product revenue $ 964,036 $ 566,084 $ 397,952 70.3 %
Net product revenue increased 70.3% to $964.0 million for the six months ended June 30, 2023, compared to $566.1 million in the prior year period, primarily due to increased sales of BRUKINSA in the United States and China and increased sales of tislelizumab in China. In addition, there were increased sales of our in-licensed products from Amgen.
Global sales of BRUKINSA totaled $519.7 million in the six months ended June 30, 2023, representing a 123.0% increase compared to the prior year period; U.S. sales of BRUKINSA totaled $362.3 million in the six months ended June 30, 2023, compared to $156.3 million in the prior year period, representing growth of 131.8%. U.S. sales continued to accelerate in the period, driven by the approval and launch of BRUKINSA for adult patients with chronic lymphocytic leukemia (CLL) and small lymphocytic lymphoma (SLL). BRUKINSA sales in China totaled $96.5 million in the six months ended June 30, 2023, representing growth of 37.6% compared to the prior year period, driven by an increase in all approved indications. BRUKINSA rest of world sales totaled $60.8 million in the six months ended June 30, 2023, representing growth of 814.4% compared to the prior-year period, driven by a significant increase in all approved indications, including CLL and SLL in Europe.
Sales of tislelizumab in China totaled $264.3 million in the six months ended June 30, 2023, compared to $192.5 million representing a 37.3% increase compared to the prior year period. In the six months ended June 30, 2023, 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.
Collaboration revenue totaled $79.0 million for the six months ended June 30, 2023, of which $20.4 million was recognized from deferred revenue for R&D services performed during the six months ended June 30, 2023 under both the tislelizumab and ociperlimab collaborations, $52.5 million was recognized from deferred revenue for Novartis' right to access ociperlimab over the option period, and $6.1 million was recognized primarily related to the sale of tislelizumab clinical supply
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to Novartis and revenue generated under the broad markets marketing and promotion agreement. Collaboration revenue totaled $82.1 million for the six months ended June 30, 2022, of which $24.2 million was recognized from deferred revenue for R&D services performed during the six months ended June 30, 2022, $52.5 million was recognized from deferred revenue for Novartis' right to access ociperlimab over the option period, and $5.4 million was recognized related to the sale of tislelizumab clinical supply to Novartis (see Note 4 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q).
Cost of Sales
Cost of sales increased to $177.8 million for the six months ended June 30, 2023 from $136.4 million for the six months ended June 30, 2022, primarily due to increased product sales of BRUKINSA and tislelizumab as well as sales of in-licensed products from Amgen in China.
Gross Margin
Gross margin on product sales increased to $786.3 million for the six months ended June 30, 2023, compared to $429.7 million in the prior year period, primarily due to increased product revenue in the current year period. Gross margin as a percentage of product sales increased to 81.6% for the six months ended June 30, 2023, from 75.9% in the comparable period of the prior year. The increase is primarily due to a proportionally higher sales mix of global BRUKINSA compared to lower margin sales of in-licensed products and lower per unit costs for BRUKINSA and tislelizumab, partially offset by the impact of lower selling prices in China from the listing of tislelizumab and BRUKINSA on the updated NRDL.
Research and Development Expense
Research and development expense increased by $63.2 million, or 8.2%, to $831.3 million for the six months ended June 30, 2023 from $768.1 million for the six months ended June 30, 2022. The following table summarizes external clinical, external non-clinical and internal research and development expense for the six months ended June 30, 2023 and 2022, respectively:
Six Months Ended
June 30, Changes
2023 2022 $ %
(dollars in thousands)
External research and development expense:
Cost of development programs $ 258,219 $ 232,009 $ 26,210 11.3 %
Amgen co-development expense 1
23,274 46,789 (23,515) (50.3) %
Total external research and development expenses 281,493 278,798 2,695 1.0 %
Internal research and development expenses 549,855 489,324 60,531 12.4 %
Total research and development expenses $ 831,348 $ 768,122 $ 63,226 8.2 %
1 Our co-funding obligation for the development of the pipeline assets under the Amgen collaboration for the six months ended June 30, 2023 totaled $45.9 million, of which $23.3 million was recorded as R&D expense. The remaining $22.7 million was recorded as a reduction of the R&D cost share liability .
The increase in external research and development expenses in the six months ended June 30, 2023 was primarily attributable to increases in external clinical trial costs for BRUKINSA and sonrotoclax (BGB-11417) and preclinical trial costs for certain assets in our portfolio, partially offset by a decrease in Amgen co-development expense and lower external clinical trial costs for tislelizumab.
Internal research and development expense increased $60.5 million, or 12.4%, to $549.9 million and was primarily attributable to the expansion of our global development organization and our clinical and preclinical drug candidates, as well as our continued efforts to internalize research and clinical trial activities, and included the following:
• $39.5 million increase of employee salary and benefits, primarily attributable to hiring more research and development personnel to support our expanding research and development activities;
• $12.0 million increase of share-based compensation expense, primarily attributable to our increased headcount of research and development employees, resulting in more awards being expensed related to the growing research and development employee population;
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• $11.0 million increase of facilities, depreciation, office expense, rental fees, lab consumables and other expenses to support the growth of our organization, partially offset by a $7.0 million decrease in clinical inventory; and
• $5.0 million increase in meetings, seminars and travel expenses mainly attributable to increased meetings and conferences travel normalizing.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by $97.6 million, or 15.6%, to $723.5 million, for the six months ended June 30, 2023, from $626.0 million for the six months ended June 30, 2022. The increase was primarily attributable to the following:
• $68.2 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, including commercial expansion of BRUKINSA in CLL in the United States and Europe, as we continue to build our worldwide footprint and capabilities;
• $18.9 million increase of employee salary and benefits, which was primarily attributable to the expansion of our commercial organizations in the United States, Europe, Canada, China and emerging markets, and the hiring of personnel to support our growing business;
• $19.9 million increase of share-based compensation expense, primarily attributable to our increased headcount of sales and administrative employees, resulting in more awards being expensed related to the growing sales and administrative employee population;
• $9.4 million decrease in general and administrative and other expenses primarily attributable to increased legal fees related to increased arbitration activities for the prior six months period ended June 30, 2022.
Interest Income (Expense), Net
Interest income (expense), net increased by $9.6 million, or 44.6%, to $31.1 million of net interest income for the six months ended June 30, 2023, from $21.5 million of net interest expense for six months ended June 30, 2022. The increase in interest income was primarily attributable to higher interest rates earned on our cash, cash equivalents and short-term investments.
Other Expense, Net
Other expense, net decreased to $45.5 million of net other expense for the six months ended June 30, 2023, from $117.7 million for the six months ended June 30, 2022. The decrease in expense was primarily related to foreign exchanges losses resulting from the strengthening of the U.S. dollar compared to the RMB and the revaluation impact of RMB-denominated deposits held in U.S. functional currency subsidiaries being greater in the prior-year period. Also contributing to the decrease in expense was decrease in the unrealized loss on our equity investment in Leap Therapeutics.
Income Tax Expense
Income tax expense increased to $25.2 million for the six months ended June 30, 2023, from $22.1 million for the six months ended June 30, 2022. The income tax expense for the six months ended June 30, 2023 and June 30, 2022 was primarily attributable to current China tax expense due to certain non-deductible expenses and current U.S. tax expense determined after other special deductions and research and development tax credits.
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Liquidity and Capital Resources
The following table represents our cash, short-term investments, and debt balances as of June 30, 2023 and December 31, 2022:
As of
June 30, December 31,
2023 2022
(dollars in thousands)
Cash, cash equivalents and restricted cash $ 3,421,574 $ 3,875,037
Short-term investments $ 105,693 $ 665,251
Total debt $ 628,478 $ 538,117
With the exception of the periods in which we received upfront payments from out-licensing rights to tislelizumab to Novartis, and prior to that BMS, we have incurred net losses and negative cash flows from operations since inception, resulting from the funding of our research and development programs and selling, general and administrative expenses to support the commercialization of our products and our global operations. We recognized net losses of $381.1 million and $729.6 million for the three and six months ended June 30, 2023, respectively, and net losses of $565.7 million and $1.0 billion for the three and six months ended June 30, 2022, respectively. As of June 30, 2023, we had an accumulated deficit of $7.8 billion.
To date, we have financed our operations principally through proceeds from public and private offerings of our securities and proceeds from our collaborations, together with product sales since September 2017. Based on our current operating plan, we expect that our existing cash, cash equivalents and short-term investments as of June 30, 2023 will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months after the date that the financial statements included in this report are issued.
In January 2021, we entered into a collaboration and license agreement with Novartis, granting Novartis rights to develop, manufacture and commercialize tislelizumab in North America, Europe, and Japan. Under the agreement, we received an upfront cash payment of $650 million from Novartis. In December 2021, we expanded our collaboration with Novartis by entering into an option, collaboration and license agreement with Novartis to develop, manufacture and commercialize our investigational TIGIT inhibitor ociperlimab in the Novartis Territory. In addition, we and Novartis entered into an agreement granting us rights to market, promote and detail five approved Novartis oncology products, in certain areas of China, referred to as the "broad markets". Under the terms of the agreement, we received an upfront cash payment of $300 million in January 2022. The ociperlimab option, collaboration and license agreement was terminated in July 2023.
The following table provides information regarding our cash flows for the six months ended June 30, 2023 and 2022:
Six Months Ended
June 30,
2023 2022
(dollars in thousands)
Cash, cash equivalents and restricted cash at beginning of period $ 3,875,037 $ 4,382,887
Net cash used in operating activities (857,665) (616,522)
Net cash provided by investing activities 308,863 869,103
Net cash provided by (used in) financing activities 146,212 (28,847)
Net effect of foreign exchange rate changes (50,873) (71,212)
Net (decrease) increase in cash, cash equivalents, and restricted cash (453,463) 152,522
Cash, cash equivalents and restricted cash at end of period $ 3,421,574 $ 4,535,409
Operating Activities
Cash flows from operating activities is net loss adjusted for certain non-cash items and changes in assets and liabilities.
Operating activities used $857.7 million of cash in the six months ended June 30, 2023, principally from our net loss of $729.6 million and an increase in our net operating assets and liabilities of $329.4 million, partially offset by non-cash charges of $201.3 million.
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The increase in net operating assets and liabilities was primarily driven by increased working capital associated with our growth in product sales. The non-cash charges were primarily the result of share-based compensation expense, depreciation and amortization expense, offset by amortization of the research and development cost share liability. Net loss for the three months ended June 30, 2023 includes $63.8 million of other losses due primarily to the strengthening of the U.S. dollar and the related revaluation of RMB-denominated deposits held by U.S. functional currency subsidiaries.
Operating activities used $616.5 million of cash in the six months ended June 30, 2022, which resulted principally from our net loss of $1.0 billion, partially offset by a decrease in our net operating assets and liabilities of $220.6 million and by non-cash charges of $163.8 million. Net loss for the three months ended June 30, 2022 includes $129.6 million of other losses due primarily to the strengthening of the U.S. dollar and the related revaluation of RMB-denominated deposits held by U.S. functional currency subsidiaries.
The decrease in working capital was driven largely by decreases in accounts receivable (due to the receipt of the upfront from Novartis related to the ociperlimab collaboration), decreases in prepaid assets and other non-current assets, and an increase in taxes payable, partially offset by increases in inventories and decreases in accounts payable, accrued expenses, deferred revenue and other long-term liabilities. The non-cash charges were primarily driven by share-based compensation expense, depreciation and amortization expense, and unrealized loss on our Leap investment, offset by amortization of the research and development cost share liability and deferred income tax benefits.
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 $308.9 million of cash in the six months ended June 30, 2023, consisting of sales and maturities of investment securities of $567.5 million, partially offset by capital expenditures of $247.1 million, and $11.6 million in purchases of investment securities.
Investing activities provided $869.1 million of cash in the six months ended June 30, 2022, consisting of sales and maturities of investment securities of $1,051.0 million, offset by $11.5 million in purchases of investment securities, capital expenditures of $95.4 million, and $75.0 million of acquired in-process research and development.
Financing Activities
Cash flows from financing activities consist primarily of sale of ordinary shares, RMB Shares and ADSs through equity offerings, issuance and repayment of short-term and long-term debt, and proceeds from the sale of ordinary shares and ADSs through employee equity compensation plans.
Financing activities provided $146.2 million of cash in the six months ended June 30, 2023, consisting primarily of $15.8 million of net proceeds from long-term bank loans, $161.8 million of proceeds from short-term bank loans and $35.2 million from the exercise of employee share options and proceeds from the issuance of shares through our employee share purchase plan, which were partially offset by $66.6 million in repayments of short-term bank loans.
Financing activities used $28.8 million of cash in the six months ended June 30, 2022, consisting primarily of $115.4 million repayment of short-term bank loans, which were partially offset by $67.6 million of proceeds from short-term bank loans and $19.0 million from the exercise of employee share options and proceeds from the issuance of shares through our employee share purchase plan.
Effects of Exchange Rates on Cash
We have substantial operations in the PRC, which generate a significant amount of RMB-denominated cash from product sales and require a significant amount of RMB-denominated cash to pay our obligations. We hold a significant amount of RMB-denominated deposits at our China subsidiaries. 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 as they are translated into U.S. dollars. The impact of foreign currency deposits being translated into the U.S. dollar negatively impacted ending cash by $50.9 million in the six months ended June 30, 2023, compared to a negative impact of $71.2 million in the prior-year period.
Future Liquidity and Material Cash Requirements
Until such time, if ever, as we can generate substantial product revenue sufficient to cover our costs and capital investments, we may be required to finance our cash needs through a combination of equity offerings, debt financings, collaboration agreements, strategic alliances, licensing arrangements, government grants, and other available sources. Under the
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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 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 the payment due date by period as of June 30, 2023:
Payments Due by Period
Total Short Term Long Term
(dollars in thousands)
Contractual obligations
Operating lease commitments $ 53,220 $ 13,074 $ 40,146
Purchase commitments 104,115 63,820 40,295
Debt obligations 628,478 421,052 207,426
Interest on debt 46,169 17,246 28,923
Co-development funding commitment 549,765 126,688 423,077
Funding commitment 10,557 2,625 7,932
Research and development commitment 17,990 5,959 12,031
Pension plan 7,986 2,627 5,359
Capital commitments 381,187 381,187 —
Total $ 1,799,467 $ 1,034,278 $ 765,189
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 office facilities 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 June 30, 2023, purchase commitments amounted to $104.1 million, of which $40.3 million related to minimum purchase requirements for supply purchased from contract manufacturers and $63.8 million related to binding purchase obligations of inventory from BMS and Amgen. We do not have any minimum purchase requirements for inventory from BMS or Amgen.
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Debt Obligations and Interest
Total debt obligations coming due in the next twelve months is $421.1 million. Total long-term debt obligations are $207.4 million. See Note 11 in the Notes to the Financial Statements for further detail of our debt obligations.
Interest on bank loans is paid quarterly until the respective loans are fully settled. For the purpose of contractual obligations calculation, current interest rates on floating rate obligations were used for the remainder contractual life of the outstanding borrowings.
Co-Development Funding Commitment
Under the Amgen collaboration, we are responsible for co-funding global development costs for the licensed Amgen oncology pipeline assets up to a total cap of $1.25 billion. We are funding our portion of the co-development costs by contributing cash and development services. As of June 30, 2023, our remaining co-development funding commitment was $549.8 million.
Funding Commitment
Funding commitment represents our committed capital related to two equity method investments. As of June 30, 2023, our remaining capital commitment was $10.6 million and is expected to be paid from time to time over the investment period.
Research and Development Commitment
We entered into a long-term research and development agreement in June 2021, which includes obligations to make fixed quarterly payments over the next four years. As of June 30, 2023, the total research and development commitment amounted to $18.0 million.
Pension Plan
We maintain a defined benefit pension plan in Switzerland. Funding obligations under the defined benefit pension plan are equivalent to $2.6 million per year based on annual funding contributions in effect as of June 30, 2023 to achieve fully funded status where the market value of plan assets equals the projected benefit obligations. Future funding requirements will be subject to change as a result of future changes in staffing and compensation levels, various actuarial assumptions and actual investment returns on plan assets.
Capital Commitments
We had capital commitments amounting to $381.2 million for the acquisition of property, plant and equipment as of June 30, 2023, which were mainly for our manufacturing and clinical R&D campus in Hopewell, NJ, and additional capacity at the Guangzhou and Suzhou manufacturing facilities.
Other Business Agreements
We are making a significant investment in our future manufacturing and clinical R&D center in the United States, a 42-acre site that is being constructed in Hopewell, NJ. We purchased this site for $75.2 million, announced its groundbreaking on April 29, 2022 and have $314.7 million of construction in process related to the project. We expect continued significant capital expenditures as we build out the Hopewell facility over the next several years.
We also enter into agreements with contract research organizations to some extent 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.
Legal Proceedings
In the ordinary course of business, the Company may be subject to legal proceedings, claims and litigation as the Company operates in an industry susceptible to patent legal claims. The Company accounts for estimated losses with respect to legal
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proceedings and claims when such losses are probable and estimable. Legal costs associated with these matters are expensed when incurred.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses. We evaluate our estimates and judgments on an ongoing basis, and our actual results may differ from these estimates. These include, but are not limited to, estimating the useful lives of long-lived assets, estimating variable consideration in product sales and collaboration revenue arrangements, estimating the incremental borrowing rate for operating lease liabilities, identifying separate accounting units and the standalone selling price of each performance obligation in the Company's revenue arrangements, assessing the impairment of long-lived assets, valuation and recognition of share-based compensation expenses, realizability of deferred tax assets and the fair value of financial instruments. We base our estimates on historical experience, known trends and events, contractual milestones and other various factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting policies as of and for the three and six months ended June 30, 2023, as compared to those described in the section titled “Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022.
For new accounting policies adopted during the three and six months ended June 30, 2023 , see “Part I – Item 1 – Financial Statements—Notes to the Condensed Consolidated Financial Statements—1. Description of Business, Basis of Presentation and Consolidation and Significant Accounting Policies—Significant accounting policies” in this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
See Note 1 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for information regarding recent accounting pronouncements.