BeOne Medicines Ltd. 10-Q

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.” 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 delivered another strong quarter across our global portfolio, driven by the ongoing successful launch of BRUKINSA ® , where we continue to see rapid uptake across all approved indications, including chronic lymphocytic leukemia (CLL). 29 Table of Contents We have regained the rights to TEVIMBRA ® worldwide, which is now approved in the EU and under regulatory review in 10 additional markets. We are now better positioned than ever before to execute on our global growth strategy while steadily improving operating leverage with moderate expense growth. Key highlights for the third quarter of 2023 are as follows: • Generated global sales of BRUKINSA of $357.7 million, an increase of 130.0% compared with the prior-year period, as global launch momentum continues across multiple indications, including CLL; • Received a positive opinion from the European Committee for Health and Medicinal Products (CHMP) of the European Medicines Agency for BRUKINSA for the treatment of adult patients with relapsed or refractory (R/R) follicular lymphoma (FL) who have received at least two prior systematic treatments; • Received positive guidance from the National Institute for Health and Care Excellence for reimbursement of BRUKINSA on the National Health Service in England and Wales for the treatment of adult patients with R/R CLL; • Regained global rights to the development, manufacture and commercialization of TEVIMBRA, strengthening the Company’s global portfolio in solid tumors; • Announced European Commission (EC) approval of TEVIMBRA as monotherapy for the treatment of adult patients with unresectable, locally advanced or metastatic ESCC after prior platinum-based chemotherapy; and • Announced U.S. Food and Drug Administration (FDA) acceptance for review of a Biologics License Application (BLA) for tislelizumab as a first-line treatment for patients with unresectable, recurrent, locally advanced, or metastatic ESCC with a target action date in July 2024, under the Prescription Drug User Fee Act (PDUFA). Recent Developments Recent Business Developments On October 20, 2023, we announced that the National Institute for Health and Care Excellence of the UK issued a final draft guidance recommending BRUKINSA (zanubrutinib) for the treatment of eligible adult patients with: untreated CLL if there is a 17p deletion or TP53 mutation (high risk) or untreated CLL without a 17p deletion or TP53 mutation, and fludarabine-cyclophosphamide-rituximab or bendamustine plus rituximab is unsuitable and relapsed or refractory CLL. On October 17, 2023, we announced results from the final analysis of the Phase 3 RATIONALE 305 trial showing tislelizumab plus chemotherapy significantly improved overall survival in the intent-to-treat population as a first-line treatment for patients with advanced gastric or gastroesophageal junction adenocarcinoma. On October 17, 2023, we announced that the Phase 3 RATIONALE 315 trial met primary endpoints of major pathological response rate and event-free survival for tislelizumab plus chemotherapy in patients with resectable non-small cell lung cancer (“NSCLC”). On October 13, 2023, we announced that the Committee for Medicinal Products for Human Use of the European Medicines Agency issued a positive opinion recommending approval of BRUKINSA (zanubrutinib), in combination with obinutuzumab for the treatment of adult patients with relapsed or refractory follicular lymphoma who have received at least two prior lines of systemic therapy. On September 19, 2023, we announced that the European Commission approved TEVIMBRA (tislelizumab) as monotherapy for the treatment of adult patients with unresectable, locally advanced or metastatic ESCC after prior platinum-based chemotherapy. Additionally, the U.S. Food and Drug Administration accepted for review a Biologics License Application for tislelizumab as a first-line treatment for patients with unresectable, recurrent, locally advanced, or metastatic ESCC. On September 19, 2023, we announced that we entered into a Mutual Termination and Release Agreement with Novartis to regain worldwide rights to develop, manufacture, and commercialize TEVIMBRA. 30 Table of Contents Results of Operations The following table summarizes our results of operations for the three and nine months ended September 30, 2023 and 2022: Three Months Ended Nine Months Ended September 30, Change September 30, Change 2023 2022 $ % 2023 2022 $ % (dollars in thousands) Revenues Product revenue, net $ 595,290 $ 349,506 $ 245,784 70.3 % $ 1,559,326 $ 915,590 $ 643,736 70.3 % Collaboration revenue 186,018 38,122 147,896 388.0 % 265,044 120,236 144,808 120.4 % Total revenues 781,308 387,628 393,680 101.6 % 1,824,370 1,035,826 788,544 76.1 % Expenses Cost of sales - product 96,309 76,543 19,766 25.8 % 274,088 212,953 61,135 28.7 % Research and development 453,259 426,363 26,896 6.3 % 1,284,607 1,194,485 90,122 7.5 % Selling, general and administrative 364,421 322,892 41,529 12.9 % 1,087,954 948,868 139,086 14.7 % Amortization of intangible assets 1,287 187 1,100 588.2 % 1,662 563 1,099 195.2 % Total expenses 915,276 825,985 89,291 10.8 % 2,648,311 2,356,869 291,442 12.4 % Loss from operations (133,968) (438,357) 304,389 (69.4) % (823,941) (1,321,043) 497,102 (37.6) % Interest income, net 26,649 12,759 13,890 108.9 % 57,735 34,261 23,474 68.5 % Other income (expense), net 336,657 (125,640) 462,297 (368.0) % 291,142 (243,290) 534,432 (219.7) % Income (loss) before income taxes 229,338 (551,238) 780,576 (141.6) % (475,064) (1,530,072) 1,055,008 (69.0) % Income tax expense 13,925 6,318 7,607 120.4 % 39,091 28,408 10,683 37.6 % Net income (loss) $ 215,413 $ (557,556) $ 772,969 (138.6) % $ (514,155) $ (1,558,480) $ 1,044,325 (67.0) % Comparison of the Three Months Ended September 30, 2023 and 2022 Revenue Total revenue increased to $781.3 million for the three months ended September 30, 2023, from $387.6 million for the three months ended September 30, 2022, due to an increase in sales of BRUKINSA and tislelizumab, as well as increased sales of our in-licensed products from Amgen. Additionally, collaboration revenue increased due to the recognition of the remaining deferred revenue associated with the Novartis collaborations upon termination of the agreements. The following table summarizes the components of revenue for the three months ended September 30, 2023 and 2022, respectively: Three Months Ended September 30, Changes 2023 2022 $ % (dollars in thousands) Product revenue $ 595,290 $ 349,506 $ 245,784 70.3 % Collaboration revenue: Material rights revenue 71,980 — 71,980 NM Research and development service revenue 59,052 9,834 49,218 500.5 % Right to access intellectual property revenue 51,978 26,249 25,729 98.0 % Other 3,008 2,039 969 47.5 % Total collaboration revenue 186,018 38,122 147,896 388.0 % Total Revenue $ 781,308 $ 387,628 $ 393,680 101.6 % 31 Table of Contents Net product revenues consisted of the following: Three Months Ended September 30, Changes 2023 2022 $ % (dollars in thousands) BRUKINSA ® $ 357,695 $ 155,495 $ 202,200 130.0 % Tislelizumab 144,352 128,206 16,146 12.6 % REVLIMID ® 14,960 19,046 (4,086) (21.5) % XGEVA ® 24,456 18,148 6,308 34.8 % POBEVCY ® 14,130 9,873 4,257 43.1 % BLINCYTO ® 14,870 6,214 8,656 139.3 % KYPROLIS ® 11,101 2,820 8,281 293.7 % VIDAZA ® 4,320 3,314 1,006 30.4 % Pamiparib 1,887 1,266 621 49.1 % Other 7,519 5,124 2,395 46.7 % Total product revenue $ 595,290 $ 349,506 $ 245,784 70.3 % Net product revenue increased 70.3% to $595.3 million for the three months ended September 30, 2023, compared to $349.5 million in the prior-year period, primarily due to continued increases in sales of BRUKINSA globally and tislelizumab in China. In addition, product revenues in the third quarter of 2023 were positively impacted by sales of in-licensed products from Amgen in China. During the quarter ended September 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 $357.7 million in the third quarter, representing a 130.0% increase compared to the prior-year period; U.S. sales of BRUKINSA totaled $270.1 million in the third quarter, compared to $108.1 million in the prior-year period, representing growth of 149.8%. U.S. sales continued to accelerate after the approval and launch of BRUKINSA in the first quarter of 2023 for adult patients with CLL and small lymphocytic lymphoma (SLL). BRUKINSA sales in China totaled $47.4 million, representing growth of 20.8% over the prior-year period, driven by increases in all approved indications. BRUKINSA rest of world sales totaled $40.2 million in the third quarter, representing growth of 410.2% compared to the prior-year period, primarily driven by an increase in all approved indications, including CLL and SLL in Europe. Sales of tislelizumab in China totaled $144.4 million in the third quarter, compared to $128.2 million in the prior-year period, representing a 12.6% increase. In the third 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 continue to increase our market share. Collaboration revenue totaled $186.0 million for the three months ended September 30, 2023, of which $183.0 million related to the recognition of the remaining deferred revenue associated with the Novartis collaborations upon termination of the agreements, consisting of $59.1 million recognized from deferred R&D service revenue under both the tislelizumab and ociperlimab collaborations, $52.0 million recognized from deferred revenue for Novartis' right to access ociperlimab over the option period prior to termination and $72.0 million recognized from deferred material right revenue associated with the ociperlimab collaboration upon termination. Additionally, $3.0 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 $38.1 million for the three months ended September 30, 2022, of which $9.8 million was recognized from deferred revenue for R&D services performed during the three months ended September 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 3 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q). Cost of Sales Cost of sales increased to $96.3 million for the three months ended September 30, 2023 from $76.5 million for the three months ended September 30, 2022, primarily due to increased product sales of BRUKINSA and tislelizumab, as well as sales of in-licensed products from Amgen in China. 32 Table of Contents Gross Margin Gross margin on global product sales increased to $499.0 million for the three months ended September 30, 2023, compared to $273.0 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 83.8% for the three months ended September 30, 2023, from 78.1% 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 tislelizumab in China. Research and Development Expense Research and development expense increased by $26.9 million, or 6.3%, to $453.3 million for the three months ended September 30, 2023 from $426.4 million for the three months ended September 30, 2022. The following table summarizes external clinical, external non-clinical and internal research and development expense for the three months ended September 30, 2023 and 2022, respectively: Three Months Ended September 30, Changes 2023 2022 $ % (dollars in thousands) External research and development expense: Cost of development programs $ 126,301 $ 128,635 $ (2,334) (1.8) % Upfront license fees 15,000 20,000 (5,000) (25.0) % Amgen co-development expense 1 15,832 25,463 (9,631) (37.8) % Total external research and development expenses 157,133 174,098 (16,965) (9.7) % Internal research and development expenses 296,126 252,265 43,861 17.4 % Total research and development expenses $ 453,259 $ 426,363 $ 26,896 6.3 % 1 Our co-funding obligation for the development of the pipeline assets under the Amgen collaboration for the three months ended September 30, 2023 totaled $31.7 million, of which $15.8 million was recorded as R&D expense. The remaining $15.9 million was recorded as a reduction of the R&D cost share liability . The decrease in external research and development expenses in the third quarter was primarily attributable to a decrease in Amgen co-development expense, external clinical trial costs for TEVIMBRA (tislelizumab) and ZW25 (zanidatamab) and preclinical trial costs for certain assets in our portfolio, partially offset by higher external clinical trial costs for BRUKINSA. Internal research and development expense increased $43.9 million, or 17.4%, to $296.1 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; • $7.7 million increase of share-based compensation expense, primarily attributable to our increased headcount of research and development employees, resulting in more awards being expensed; • $6.4 million net increase in depreciation, market access, and other expenses; • $6.0 million increase of consulting fees, which was mainly attributable to activities in the United States and Europe; and • $1.0 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. 33 Table of Contents Selling, General and Administrative Expense Selling, general and administrative expense increased by $41.5 million, or 12.9%, to $364.4 million for the three months ended September 30, 2023, from $322.9 million for the three months ended September 30, 2022. The increase was primarily attributable to the following: • $39.2 million increase of external commercial-related expenses, including grants and sponsorships, meetings, conferences and seminars, travel expenses, 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; • $20.0 million decrease in consulting expenses due primarily to lower external commercial expenses in China; • $11.5 million increase of employee salary and benefits, primarily attributable to hiring more commercial and medical affairs personnel to support our commercial expansion activities; • $10.1 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 • $0.7 million increase of professional fees and other administrative expenses. Interest Income, Net Interest income, net increased by $13.9 million, or 108.9%, to $26.6 million of net interest income for the three months ended September 30, 2023, from $12.8 million of net interest income for three months ended September 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 and a decrease in interest expense as a result of higher interest capitalized related to Hopewell construction in process. Other Income (Expense), Net Other income, net was $336.7 million for the three months ended September 30, 2023, primarily due to the noncash gain recorded for the receipt of ordinary shares resulting from the BMS settlement and government subsidy income, partially offset by 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 and unrealized losses on our equity investments. For the three months ended September 30, 2022, other expense, net, was $125.6 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 and unrealized losses on our equity investments. Income Tax Expense Income tax expense was $13.9 million for the three months ended September 30, 2023 as compared to $6.3 million for the three months ended September 30, 2022. The income tax expense for the three months ended September 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 Nine Months Ended September 30, 2023 and 2022 Revenue Total revenue increased to $1.8 billion, or 76.1%, for the nine months ended September 30, 2023, from $1.0 billion for the nine months ended September 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. Additionally, collaboration revenue increased due to the recognition of the remaining deferred revenue associated with the Novartis collaborations upon termination of the agreements. 34 Table of Contents The following table summarizes the components of revenue for the nine months ended September 30, 2023 and 2022, respectively: Nine Months Ended September 30, Changes 2023 2022 $ % (dollars in thousands) Product revenue $ 1,559,326 $ 915,590 $ 643,736 70.3 % Collaboration revenue: Material rights revenue 71,980 — 71,980 NM Research and development service revenue 79,432 34,074 45,358 133.1 % Right to access intellectual property revenue 104,475 78,746 25,729 32.7 % Other 9,157 7,416 1,741 23.5 % Total collaboration revenue 265,044 120,236 144,808 120.4 % Total Revenue $ 1,824,370 $ 1,035,826 $ 788,544 76.1 % Net product revenues consisted of the following: Nine Months Ended September 30, Changes 2023 2022 $ % (dollars in thousands) BRUKINSA ® 877,353 388,567 $ 488,786 125.8 % Tislelizumab 408,666 320,728 87,938 27.4 % REVLIMID ® 59,965 60,622 (657) (1.1) % XGEVA ® 68,621 47,156 21,465 45.5 % POBEVCY ® 41,894 29,671 12,223 41.2 % BLINCYTO ® 40,394 27,610 12,784 46.3 % KYPROLIS ® 27,096 11,225 15,871 141.4 % VIDAZA ® 11,439 12,260 (821) (6.7) % Pamiparib 5,612 5,843 (231) (4.0) % Other 18,286 11,908 6,378 53.6 % Total product revenue $ 1,559,326 $ 915,590 $ 643,736 70.3 % Net product revenue increased 70.3% to $1,559.3 million for the nine months ended September 30, 2023, compared to $915.6 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 $877.4 million in the nine months ended September 30, 2023, representing a 125.8% increase compared to the prior year period; U.S. sales of BRUKINSA totaled $632.4 million in the nine months ended September 30, 2023, compared to $264.4 million in the prior year period, representing growth of 139.2%. U.S. sales continued to accelerate in the period, driven by the approval and launch of BRUKINSA for adult patients with CLL and SLL. BRUKINSA sales in China totaled $144.0 million in the nine months ended September 30, 2023, representing growth of 31.6% compared to the prior year period, driven by an increase in all approved indications. BRUKINSA rest of world sales totaled $101.0 million in the nine months ended September 30, 2023, representing growth of 602.5% 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 $408.7 million in the nine months ended September 30, 2023, representing a 27.4% increase compared to $320.7 million in the prior year period. In the nine months ended September 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 $265.0 million for the nine months ended September 30, 2023, primarily related to the recognition of the remaining deferred revenue associated with the Novartis collaborations upon termination of the agreements 35 Table of Contents during the third quarter of 2023. Collaboration revenue for the nine months ended September 30, 2023 consisted of $79.4 million recognized from deferred revenue for R&D services performed during the nine months ended September 30, 2023 under both the tislelizumab and ociperlimab collaborations, $104.5 million recognized from deferred revenue for Novartis' right to access ociperlimab over the option period, $72.0 million recognized from deferred material right revenue associated with the ociperlimab collaboration upon termination and $9.2 million recognized primarily related to the sale of tislelizumab clinical supply to Novartis and revenue generated under the broad markets marketing and promotion agreement. Collaboration revenue totaled $120.2 million for the nine months ended September 30, 2022, of which $34.1 million was recognized from deferred revenue for R&D services performed during the nine months ended September 30, 2022, $78.7 million was recognized from deferred revenue for Novartis' right to access ociperlimab over the option period, and $7.4 million was recognized related to the sale of tislelizumab clinical supply to Novartis (see Note 3 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q). Cost of Sales Cost of sales increased to $274.1 million for the nine months ended September 30, 2023 from $213.0 million for the nine months ended September 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 $1.3 billion for the nine months ended September 30, 2023, compared to $702.6 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 82.4% for the nine months ended September 30, 2023, from 76.7% 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 $90.1 million, or 7.5%, to $1.3 billion for the nine months ended September 30, 2023 from $1.2 billion for the nine months ended September 30, 2022. The following table summarizes external clinical, external non-clinical and internal research and development expense for the nine months ended September 30, 2023 and 2022, respectively: Nine Months Ended September 30, Changes 2023 2022 $ % (dollars in thousands) External research and development expense: Cost of development programs $ 384,520 $ 360,644 $ 23,876 6.6 % Upfront license fees 15,000 20,000 (5,000) (25.0) % Amgen co-development expense 1 39,106 72,252 (33,146) (45.9) % Total external research and development expenses 438,626 452,896 (14,270) (3.2) % Internal research and development expenses 845,981 741,589 104,392 14.1 % Total research and development expenses $ 1,284,607 $ 1,194,485 $ 90,122 7.5 % 1 Our co-funding obligation for the development of the pipeline assets under the Amgen collaboration for the nine months ended September 30, 2023 totaled $77.7 million, of which $39.1 million was recorded as R&D expense. The remaining $38.6 million was recorded as a reduction of the R&D cost share liability . The decrease in external research and development expenses in the nine months ended September 30, 2023 was primarily attributable to decrease in Amgen co-development expense and lower external clinical trial costs for TEVIMBRA (tislelizumab) and ZW25 (zanidatamab), partially offset by increases in external clinical trial costs for BRUKINSA and sonrotoclax (BGB-11417) and preclinical trial costs for certain assets in our portfolio. Internal research and development expense increased $104.4 million, or 14.1%, to $846.0 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: 36 Table of Contents • $62.3 million increase of employee salary and benefits, primarily attributable to hiring more research and development personnel to support our expanding research and development activities; • $19.7 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; • $21.8 million increase of facilities, depreciation, consulting, regulatory, office expense, rental fees, lab consumables and other expenses to support the growth of our organization, partially offset by a $6.3 million decrease in clinical inventory; and • $6.9 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 $139.1 million, or 14.7%, to $1.1 billion, for the nine months ended September 30, 2023, from $948.9 million for the nine months ended September 30, 2022. The increase was primarily attributable to the following: • $73.0 million increase in external commercial-related expenses, including market research, sales and marketing, conference, meeting and seminar and travel 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; • $35.4 million increase in grants and donations; • $30.4 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; • $30.0 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; • $21.5 million decrease in consulting expenses due primarily to lower external commercial expenses in China; and • $8.2 million decrease in general and administrative and other expenses primarily attributable to increased legal fees related to increased arbitration activities for the prior nine months period ended September 30, 2022. Interest Income (Expense), Net Interest income (expense), net increased by $23.5 million, or 68.5%, to $57.7 million of net interest income for the nine months ended September 30, 2023, from $34.3 million of net interest income for nine months ended September 30, 2022. The increase in interest income was primarily attributable to higher interest rates earned on our cash, cash equivalents and short-term investments and lower interest expense due to an increase in interest capitalization related to Hopewell construction. Other Income (Expense), Net Other income, net was $291.1 million for the nine months ended September 30, 2023, primarily due to the noncash gain recorded for the receipt of ordinary shares as a result of the BMS settlement and government subsidy income, partially offset by foreign exchange 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 and unrealized losses on equity investments. For the nine months ended September 30, 2022, other expense, net was $243.3 million, which was primarily due 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 $39.1 million for the nine months ended September 30, 2023, from $28.4 million for the nine months ended September 30, 2022. The income tax expense for the nine months ended September 30, 2023 and September 37 Table of Contents 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. Liquidity and Capital Resources The following table represents our cash, short-term investments, and debt balances as of September 30, 2023 and December 31, 2022: As of September 30, December 31, 2023 2022 (dollars in thousands) Cash, cash equivalents and restricted cash $ 3,080,892 $ 3,875,037 Short-term investments $ 106,989 $ 665,251 Total debt $ 531,051 $ 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, and the current quarter where we recorded a large noncash gain from the BMS settlement and accelerated deferred revenue recognition from the Novartis terminations, 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 income of $215.4 million and net loss of $514.2 million for the three and nine months ended September 30, 2023, respectively, and net losses of $557.6 million and $1.6 billion for the three and nine months ended September 30, 2022, respectively. As of September 30, 2023, we had an accumulated deficit of $7.6 billion. To date, we have financed our operations principally through proceeds from public and private offerings of our securities and proceeds from our collaborations. Based on our current operating plan, we expect that our existing cash, cash equivalents and short-term investments as of September 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. The following table provides information regarding our cash flows for the nine months ended September 30, 2023 and 2022: Nine Months Ended September 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 (935,815) (1,178,428) Net cash provided by investing activities 122,588 1,038,587 Net cash provided by financing activities 69,430 91,395 Net effect of foreign exchange rate changes (50,348) (133,929) Net decrease in cash, cash equivalents, and restricted cash (794,145) (182,375) Cash, cash equivalents and restricted cash at end of period $ 3,080,892 $ 4,200,512 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 $935.8 million of cash in the nine months ended September 30, 2023, principally from our net loss of $514.2 million, an increase in our net operating assets and liabilities of $387.6 million, and non-cash charges of $34.1 million. 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 the BMS termination settlement and amortization of the research and development cost share liability, offset by share-based compensation expense, depreciation and amortization expense. 38 Table of Contents Operating activities used $1.2 billion of cash in the nine months ended September 30, 2022, which resulted principally from our net loss of $1.6 billion, partially offset by a decrease in our net operating assets and liabilities of $132.6 million and by non-cash charges of $247.5 million. Net loss for the three months ended September 30, 2022 includes $125.6 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 $122.6 million of cash in the nine months ended September 30, 2023, consisting of sales and maturities of investment securities of $567.5 million, partially offset by capital expenditures of $404.9 million, purchase of IPR&D assets of $15.0 million, purchase of intangible assets of $9.4 million and $15.6 million in purchases of investment securities. Investing activities provided $1.0 billion of cash in the nine months ended September 30, 2022, consisting of sales and maturities of investment securities of $1.4 billion, offset by $14.7 million in purchases of investment securities, capital expenditures of $204.1 million, and $95.0 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 $69.4 million of cash in the nine months ended September 30, 2023, consisting primarily of $22.5 million of net proceeds from long-term bank loans, $162.6 million of proceeds from short-term bank loans and $52.4 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 $159.6 million in repayments of short-term bank loans and $8.5 million in repayments of long-term bank loans. Financing activities provided $91.4 million of cash in the nine months ended September 30, 2022, consisting primarily of $163.8 million of proceeds from short-term bank loans, $37.4 million of proceeds from a long-term bank loan and $35.7 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 $145.4 million in repayment of short-term bank loans. 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 $50.3 million in the nine months ended September 30, 2023, compared to a negative impact of $133.9 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 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 2023, 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 39 Table of Contents 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 our investors' 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. Furthermore, our ability to raise additional capital may be adversely impacted by worsening global economic conditions, with disruptions to, and volatility in, the credit and financial markets in the U.S. and worldwide resulting from the effects of inflationary pressures, recent and potential future bank failures and otherwise. If these conditions persist and deepen, we could experience an inability to access additional capital or our liquidity could otherwise be impacted, which could in the future negatively affect our capacity for certain corporate development transactions or our ability to make other important, opportunistic investments. 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. Contractual and Other Obligations The following table summarizes our significant contractual obligations as of the payment due date by period as of September 30, 2023: Payments Due by Period Total Short Term Long Term (dollars in thousands) Contractual obligations Operating lease commitments $ 55,049 $ 6,981 $ 48,068 Purchase commitments 131,693 92,654 39,039 Debt obligations 531,052 328,561 202,491 Interest on debt 35,244 11,756 23,488 Co-development funding commitment 517,544 128,989 388,555 Funding commitment 10,553 2,625 7,928 Research and development commitment 16,498 6,004 10,494 Capital commitments 442,562 442,562 — Total $ 1,740,195 $ 1,020,132 $ 720,063 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 September 30, 2023, non-cancellable purchase commitments amounted to $131.7 million, of which $41.2 million related to minimum purchase requirements for supply purchased from contract manufacturers and $90.5 million related to 40 Table of Contents binding purchase 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 $328.6 million. Total long-term debt obligations are $202.5 million. See Note 10 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 September 30, 2023, our remaining co-development funding commitment was $517.5 million. Funding Commitment Funding commitment represents our committed capital related to two equity method investments. As of September 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 three years. As of September 30, 2023, the total research and development commitment amounted to $16.5 million. Capital Commitments We had capital commitments amounting to $442.6 million for the acquisition of property, plant and equipment as of September 30, 2023, which were mainly for our Hopewell facility, and additional capacity at the Guangzhou and Suzhou manufacturing facilities. 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 $419.5 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. 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 nine months ended September 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. 41 Table of Contents For new accounting policies adopted during the three and nine months ended September 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.