Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. In addition to historical information, this discussion and analysis contains forward‑looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward‑looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under “Part I—Item 1A—Risk Factors” and under “Forward‑Looking Statements and Market Data” in this Annual Report.
Non-GAAP Financial Measures
We provide certain financial measures that are not defined under accounting principals generally accepted in the United States of America (“GAAP”), commonly referred to as non-GAAP financial measures, including Adjusted Operating Expenses and Adjusted Income (Loss) from Operations and certain other non-GAAP measures, each of which include adjustments to GAAP figures. These non-GAAP measures are intended to provide additional information on our operating performance. Adjustments to our GAAP figures exclude, as applicable, non-cash items such as share-based compensation, depreciation and amortization. Certain other special items or substantive events may also be included in the non-GAAP adjustments periodically when their magnitude is significant within the periods incurred. We maintain an established non-GAAP policy that guides the determination of what items may be excluded in non-GAAP financial measures. We believe that these non-GAAP measures, when considered together with the GAAP figures, can enhance an overall understanding of our operating performance. The non-GAAP financial measures are included with the intent of providing investors with a more complete understanding of our historical and expected financial results and trends and to facilitate comparisons between periods and with respect to projected information. In addition, these non-GAAP financial measures are among the indicators BeiGene’s management uses for planning and forecasting purposes and measuring our performance. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, GAAP financial measures. The non-GAAP financial measures used by BeiGene may be calculated differently from, and therefore may not be comparable to, non-GAAP financial measures used by other companies.
Overview
BeiGene made great progress in the fourth quarter and full year of 2023 toward our goal to become an impactful next-generation oncology innovator. We have solidified our leadership in hematology with the continued success of BRUKINSA’s global launch, led by U.S. and Europe. Our cost advantaged research and development and manufacturing have enabled us to build one of the largest and most exciting oncology pipelines in the industry. We look forward to a transformative year for BeiGene as we continue to deliver on operational excellence propelled by outstanding growth in revenue across new and existing geographies.
Key highlights for the full year 2023 are as follows:
• Continued rapid global growth with record total revenues of $634.4 million and $2.5 billion, respectively, in the fourth quarter and full year, an increase of 66.9% and 73.7% from the prior year periods;
• Strengthened leadership in hematology with global BRUKINSA® (zanubrutinib) sales of $413.0 million and $1.3 billion for the fourth quarter and full year 2023, increases of 134.6% and 128.5%;
• Progressed innovative hematology pipeline with initiation of four registrational trials for sonrotoclax, including global Phase 3 study in treatment-naïve CLL, and two global expansion cohorts for BTK CDAC in R/R CLL, R/R MCL; and
• Sustained growth with diverse product and geographic revenue mix and improved operating leverage.
Recent Business Developments
On December 22, 2023, we announced the U.S. Food and Drug Administration (“FDA”) has approved a label update for BRUKINSA to include superior progression-free survival (“PFS”) results from the Phase 3 ALPINE trial comparing BRUKINSA against IMBRUVICA ® (ibrutinib) in previously treated patients with relapsed or refractory (“R/R”) chronic lymphocytic leukemia (“CLL”).
On November 21, 2023, we announced an agreement to acquire an exclusive global license to Ensem Therapeutics, Inc.’s (“Ensem”) Investigational New Drug (“IND”) application-ready oral cyclin-dependent kinase 2 (“CDK2”) inhibitor. Ensem will receive an upfront payment, and will be eligible for additional payments upon the achievement of certain development, regulatory, and commercial milestones, in addition to tiered royalties.
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On November 17, 2023, we announced that the European Commission (“EC”) granted marketing authorization for BRUKINSA in combination with obinutuzumab for the treatment of adult patients with R/R follicular lymphoma (“FL”) who have received at least two prior lines of systemic therapy.
In the first quarter of 2024, we incurred $35.0 million related to milestone payments in connection with business development transactions.
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Results of Operations
Comparison of the Years Ended December 31, 2023 and 2022
The following table summarizes our results of operations for the years ended December 31, 2023 and 2022:
Year Ended December 31, Change
2023 2022 $ %
(dollars in thousands)
Revenues
Product revenue, net $ 2,189,852 $ 1,254,612 $ 935,240 74.5 %
Collaboration revenue 268,927 161,309 107,618 66.7 %
Total revenues 2,458,779 1,415,921 1,042,858 73.7 %
Cost of sales - product 379,920 286,475 93,445 32.6 %
Gross profit 2,078,859 1,129,446 949,413 84.1 %
Operating expenses
Research and development 1,778,594 1,640,508 138,086 8.4 %
Selling, general and administrative 1,504,501 1,277,852 226,649 17.7 %
Amortization of intangible assets 3,500 751 2,749 366.0 %
Total operating expenses 3,286,595 2,919,111 367,484 12.6 %
Loss from operations (1,207,736) (1,789,665) 581,929 (32.5) %
Interest income (expense), net 74,009 52,480 21,529 41.0 %
Other income (expense), net 307,891 (223,852) 531,743 (237.5) %
Loss before income tax expense (825,836) (1,961,037) 1,135,201 (57.9) %
Income tax expense 55,872 42,778 13,094 30.6 %
Net loss $ (881,708) $ (2,003,815) $ 1,122,107 (56.0) %
Revenue
Total revenue increased by $1.0 billion to $2.5 billion for the year ended December 31, 2023, from $1.4 billion for the year ended December 31, 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 and POBEVCY. 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 year ended December 31, 2023 and 2022, respectively:
Year Ended December 31, Changes
2023 2022 $ %
(dollars in thousands)
Product revenue $ 2,189,852 $ 1,254,612 $ 935,240 74.5 %
Collaboration revenue:
Material rights revenue 71,980 — 71,980 NM
Research and development service revenue 79,431 46,822 32,609 69.6 %
Right to access intellectual property revenue 104,477 104,994 (517) (0.5) %
Other 13,039 9,493 3,546 37.4 %
Total collaboration revenue 268,927 161,309 107,618 66.7 %
Total Revenue $ 2,458,779 $ 1,415,921 $ 1,042,858 73.7 %
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Total revenue by geographic area is presented as follows (amounts in thousands of U.S. dollars) 1 :
Three Months Ended December 31, Twelve Months Ended December 31,
2023 % 2022 % 2023 % 2022 %
United States total revenue $ 313,160 49.4 % $ 155,446 40.9 % $ 1,128,219 45.9 % $ 502,626 35.5 %
Product revenue $ 313,160 49.4 % $ 125,337 33.0 % $ 945,551 38.5 % $ 389,710 27.5 %
Collaboration revenue — — % 30,109 7.9 % 182,668 7.4 % 112,916 8.0 %
China total revenue 270,552 42.6 % 203,791 53.6 % 1,101,951 44.8 % 840,032 59.3 %
Product revenue 267,282 42.1 % 203,791 53.6 % 1,093,091 44.5 % 840,032 59.3 %
Collaboration revenue 3,270 0.5 % — — % 8,860 0.3 % — — %
Europe total revenue 45,741 7.2 % 16,623 4.4 % 202,014 8.2 % 63,257 4.5 %
Product revenue 45,741 7.2 % 5,659 1.5 % 122,228 5.0 % 14,864 1.0 %
Collaboration revenue — — % 10,964 2.9 % 79,786 3.2 % 48,393 3.5 %
ROW total revenue 4,956 0.8 % 4,235 1.1 % 26,595 1.1 % 10,006 0.7 %
Product revenue 4,343 0.7 % 4,235 1.1 % 28,982 1.2 % 10,006 0.7 %
Collaboration revenue 613 0.1 % — — % (2,387) (0.1) % — — %
Total Revenue 634,409 100.0 % 380,095 100.0 % 2,458,779 100.0 % 1,415,921 100.0 %
1 Net product revenues by geographic area are based upon the location of the customer, and net collaboration revenue is recorded in the jurisdiction in which the related income is expected to be sourced from.
Net product revenue consisted of the following:
Year Ended December 31, Changes
2023 2022 $ %
(dollars in thousands)
BRUKINSA ®
$ 1,290,396 $ 564,651 $ 725,745 128.5 %
Tislelizumab 536,620 422,885 113,735 26.9 %
REVLIMID ®
76,018 79,049 (3,031) (3.8) %
XGEVA ®
92,828 63,398 29,430 46.4 %
POBEVCY ®
56,547 38,124 18,423 48.3 %
BLINCYTO ®
54,342 36,107 18,235 50.5 %
VIDAZA ®
13,960 15,213 (1,253) (8.2) %
KYPROLIS ®
39,799 13,696 26,103 190.6 %
Pamiparib 6,668 5,460 1,208 22.1 %
Other 22,674 16,029 6,645 41.5 %
Total product revenue $ 2,189,852 $ 1,254,612 $ 935,240 74.5 %
Net product revenue was $2.2 billion for the year ended December 31, 2023, compared to $1.3 billion in the prior year, primarily due to increased sales volume of BRUKINSA in the U.S., Europe and China and increased sales volume of tislelizumab in China slightly offset by lower selling price due to expansion in NRDL listing. In addition, there were increased sales of our Amgen in-licensed products due to a new marketing strategy.
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Global sales of BRUKINSA totaled $1.3 billion for the year ended December 31, 2023, representing a 128.5% increase compared to the prior year and U.S. sales of BRUKINSA totaled $945.6 million for the year ended December 31, 2023 compared to $389.7 million in the prior year, representing growth of 142.6%. 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 $193.8 million for the year ended December 31, 2023, representing growth of 28.9% compared to the prior year, driven by an increase in all approved indications. BRUKINSA sales in the EU and rest of world totaled $122.2 million and $28.8 million, respectively, for the year ended December 31, 2023, representing growth of 722.3% and 194.8%, respectively, compared to the prior-year period, driven by a significant increase in all approved indications, specifically in CLL, SLL and WM.
Sales of tislelizumab in China totaled $536.6 million for the year ended December 31, 2023, representing a 26.9% increase compared to the prior year. During the year ended December 31, 2023, new patient demand on account of broader reimbursement in NRDL listing and further expansion of our salesforce and hospital listings continued to drive increased market penetration and market share for tislelizumab. Full year 2023 sales of tislelizumab included two negative adjustments totaling $13.2 million for distributor channel inventory compensation as a result of inclusion in the March 2023 and January 2024 NRDL lists.
Collaboration revenue totaled $268.9 million for the year ended December 31, 2023, primarily related to the recognition of the remaining deferred revenue associated with the Novartis collaborations upon termination of the agreements during 2023. Collaboration revenue consisted of $79.4 million recognized from deferred revenue for R&D services performed during the year ended December 31, 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 $13.0 million recognized related primarily to revenue generated under the broad markets marketing and promotion agreement. Collaboration revenue totaled $161.3 million for the year ended December 31, 2022, of which $46.8 million was recognized from deferred revenue for R&D services performed during the year ended December 31, 2022 under both the tislelizumab and ociperlimab collaborations, $105.0 million was recognized from deferred revenue for Novartis’ right to access ociperlimab over the option period, and $9.5 million was recognized related to the sale of tislelizumab clinical supply to Novartis (see Note 3 to our consolidated financial statements included in this Annual Report on Form 10-K).We expect collaboration revenue to decrease for the year ended December 31, 2024 due to the recent terminations with Novartis.
Cost of Sales
Cost of sales increased to $379.9 million for the year ended December 31, 2023 from $286.5 million for the year ended December 31, 2022, primarily due to increased sales volume of BRUKINSA and tislelizumab as well as sales of in-licensed products from Amgen in China.
Gross Margin
Gross margin on global product sales increased to $1.8 billion, or 82.7% as a percentage of sales, for the year ended December 31, 2023, compared to $1.0 billion, or 77.2% as a percentage of sales, for the year ended December 31, 2022, primarily due to increased revenue volume, regional price mix in the current year period and slightly lower per unit costs due to higher production volumes.
Research and Development Expense
Research and development expense increased by $138.1 million, or 8.4%, to $1.8 billion for the year ended December 31, 2023, from $1.6 billion for the year ended December 31, 2022. The following table summarizes the external cost of development programs, upfront license fees, and internal research and development expense for the years ended December 31, 2023 and 2022:
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Year Ended December 31, Changes
2023 2022 $ %
(dollars in thousands)
External research and development expense:
Cost of development programs $ 551,417 $ 469,497 $ 81,920 17.4 %
Upfront license fees 46,800 68,665 (21,865) (31.8) %
Amgen co-development expenses 1
53,315 98,955 (45,640) (46.1) %
Total external research and development expenses 651,532 637,117 14,415 2.3 %
Internal research and development expenses 1,127,062 1,003,391 123,671 12.3 %
Total research and development expenses $ 1,778,594 $ 1,640,508 $ 138,086 8.4 %
Adjusted research and development expense 2
$ 1,558,960 $ 1,474,919 $ 84,041 5.7 %
1. Our co-funding obligation for the development of the pipeline assets under the Amgen collaboration for the year ended December 31, 2023 totaled $108.6 million, of which $53.3 million was recorded as R&D expense. The remaining $55.3 million was recorded as a reduction for the R&D cost share liability.
2. Adjusted research and development expense is intended to provide investors and others with information about our performance without the effect of items that, by their nature, tend to obscure core operating results due to potential variability across periods based on the timing, frequency and magnitude of such items. Refer to Non-GAAP Financial Measures and Non-GAAP Reconciliation in this MD&A for more information about, and a detailed reconciliation of, these items.
The increase in external research and development expenses for the year ended December 31, 2023 was primarily attributable to higher external clinical trial costs for BRUKINSA, on account of comparator drug purchases, and due to a ramp up of clinical studies for sonrotoclax (BGB-11417) as well as clinical supply and preclinical trial costs for certain other assets in our portfolio. The increase was partially offset by lower external clinical trial costs for TEVIMBRA (tislelizumab) and ociperlimab due to certain studies winding down, lower upfront license fees under collaboration agreements and a decrease in the expense recognized on co-development fees to Amgen.
Internal research and development expense increased $123.7 million, or 12.3%, to $1.1 billion from $1.0 billion for the year ended December 31, 2022, 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.
Selling, General and Administrative Expense
Year Ended December 31, Changes
2023 2022 $ %
(dollars in thousands)
Selling, general and administrative expense $ 1,504,501 $ 1,277,852 $ 226,649 17.7 %
Adjusted selling, general and administrative expense 1
$ 1,284,689 $ 1,077,977 $ 206,712 19.2 %
1. Adjusted selling, general and administrative expense is intended to provide investors and others with information about our performance without the effect of items that, by their nature, tend to obscure core operating results due to potential variability across periods based on the timing, frequency and magnitude of such items. Refer to Non-GAAP Financial Measures and Non-GAAP Reconciliation in this MD&A for more information about, and a detailed reconciliation of, these items.
Selling, general and administrative expense increased by $226.6 million, or 17.7%, to $1.5 billion for the year ended December 31, 2023, from $1.3 billion for the year ended December 31, 2022. The increase was primarily attributable to the expansion of our commercial organizations primarily in the U.S. and Europe.
Interest Income, Net
Interest income, net increased by $21.5 million, or 41.0%, to $74.0 million for the year ended December 31, 2023, compared to $52.5 million for the year ended December 31, 2022. The increase in interest income, net, 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 the Hopewell construction.
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Other Income (Expense), Net
Other income, net for the year ended December 31, 2023 was $307.9 million, primarily due to the noncash gain of $362.9 million recorded for the receipt of our ordinary shares as consideration for our settlement with BMS 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 year ended December 31, 2022, other expense, net was $223.9 million primarily related to foreign exchange losses resulting from the strengthening of the U.S. dollar and the revaluation impact of foreign currencies held in U.S. functional currency subsidiaries and unrealized losses on our equity investments. These losses were partially offset by increased income from government subsidies.
Income Tax Expense
Income tax expense was $55.9 million for the year ended December 31, 2023 compared with $42.8 million for the year ended December 31, 2022. The income tax expense for the year ended December 31, 2023, was primarily attributable to current China tax expense for certain subsidiaries determined after non-deductible expenses and current U.S. tax expense, as a result of capitalization and amortization of research and development expenditures required pursuant to Internal Revenue Code Section 174. Other current tax expense was primarily attributable to foreign non-creditable withholding taxes.
In December 2021, the Organization for Economic Cooperation and Development (“OECD”) enacted model rules for a new global minimum tax framework (“BEPS Pillar Two”), and various governments around the world have enacted, or are in the process of enacting legislation on this. While we do not anticipate that this will have a material impact on our tax provision or effective tax rate, we will continue to monitor and assess pending legislation and implementation by individual countries and evaluate the potential impact on our business in future periods.
This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
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Non-GAAP Reconciliation
Year Ended December 31,
2023 2022
( in thousands)
Reconciliation of GAAP to adjusted cost of sales - products:
GAAP cost of sales - products $ 379,920 $ 286,475
Less: Depreciation 8,578 —
Less: Amortization of intangibles 3,739 3,225
Adjusted cost of sales - products $ 367,603 $ 283,250
Reconciliation of GAAP to adjusted research and development:
GAAP research and development $ 1,778,594 $ 1,640,508
Less: Share-based compensation expenses 163,550 139,348
Less: Depreciation 56,084 26,241
Adjusted research and development $ 1,558,960 $ 1,474,919
Reconciliation of GAAP to adjusted selling, general and administrative:
GAAP selling, general and administrative $ 1,504,501 $ 1,277,852
Less: Share-based compensation expenses 204,038 163,814
Less: Depreciation 15,774 36,061
Adjusted selling, general and administrative $ 1,284,689 $ 1,077,977
Reconciliation of GAAP to adjusted operating expenses
GAAP operating expenses $ 3,286,595 $ 2,919,111
Less: Share-based compensation expenses 367,588 303,162
Less: Depreciation 71,858 62,302
Less: Amortization of intangibles 3,500 751
Adjusted operating expenses $ 2,843,649 $ 2,552,896
Reconciliation of GAAP to adjusted loss from operations:
GAAP loss from operations $ (1,207,736) $ (1,789,665)
Plus: Share-based compensation expenses 367,588 303,162
Plus: Depreciation 80,436 62,302
Plus: Amortization of intangibles 7,239 3,976
Adjusted loss from operations $ (752,473) $ (1,420,225)
Liquidity and Capital Resources
The following table represents our cash, short-term investments, and debt balances as of December 31, 2023:
Year Ended December 31,
2023 2022
(in thousands)
Cash, cash equivalents and restricted cash $ 3,185,984 $ 3,875,037
Short-term investments $ 2,600 $ 665,251
Total debt $ 885,984 $ 538,117
We have incurred annual net losses and negative cash flows from operations since inception, resulting from the cost of funding our research and development programs and selling, general and administrative expenses associated with our operations, as well as supporting the commercialization of our products globally. We incurred net losses of $0.9 billion and $2.0 billion for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had an accumulated deficit of $8.0 billion.
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To date, we have financed our operations principally through proceeds from public and private offerings of our securities, proceeds from debt, sales of marketable 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 and cash equivalents as of December 31, 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. We have also financed our operations and investments with proceeds from debt incurred primarily from various banks both through our subsidiaries and BeiGene, Ltd. of $886.0 million at December 31, 2023. The majority of those debt obligations, or approximately $547.2 million, owed by BeiGene, Ltd., have due dates within the next 12 months. We believe we will have sufficient cash and cash equivalents and other sources of capital to be able to repay and/or refinance those debt obligations.
On December 15, 2021, we completed our initial public offering on the STAR Market of the Shanghai Stock Exchange (the “STAR Offering”). The shares offered in the STAR Offering were issued to and subscribed for by permitted investors in the People’s Republic of China (“PRC”) in Renminbi (“RMB Shares”). The public offering price of the RMB Shares was RMB192.60 per ordinary share, or $391.68 per ADS. In this offering, we sold 115,055,260 ordinary shares. Net proceeds after deducting underwriting commissions and offering expenses were $3.4 billion (RMB 21.7 billion). As required by the PRC securities laws, the net proceeds from the STAR Offering must be used in compliance with the planned uses as disclosed in the PRC prospectus as well as our proceeds management policy for the STAR Offering approved by our board of directors. As of December 31, 2023, the Company had cash remaining related to the STAR Offering proceeds of $1.2 billion.
The following table provides information regarding our cash flows for the years ended December 31, 2023 and 2022:
Year Ended December 31,
2023 2022
(in thousands)
Cash, cash equivalents and restricted cash at beginning of period $ 3,875,037 $ 4,382,887
Net cash used in operating activities (1,157,453) (1,496,619)
Net cash provided by investing activities 60,004 1,077,123
Net cash provided by (used in) financing activities 416,478 (18,971)
Net effect of foreign exchange rate changes (8,082) (69,383)
Net decrease in cash, cash equivalents and restricted cash (689,053) (507,850)
Cash, cash equivalents and restricted cash at end of period $ 3,185,984 $ 3,875,037
Operating Activities
Cash flows from operating activities is determined indirectly by taking net loss and adjusting for certain non-cash items and changes in assets and liabilities related to operations.
Operating activities used $1.2 billion of cash for the year ended December 31, 2023, which resulted principally from our net loss of $881.7 million, and by an increase in our net operating assets and liabilities of $370.5 million, partially offset by non-cash charges and adjustments of $94.8 million. The non-cash charges and adjustments were primarily driven by share-based compensation expense, charges for acquired in-process research and development costs, and depreciation and amortization expense, offset by two non-cash gains related to the share settlement from the BMS arbitration and amortization of the research and development cost share liability. The increase in working capital was driven largely by increases in accounts receivable and inventory and a decrease in deferred revenue, partially offset by increases in accounts payable and accrued expenses and other current liabilities.
Operating activities used $1.5 billion of cash for the year ended December 31, 2022, which resulted principally from our net loss of $2.0 billion, inclusive of $223.9 million of other losses due primarily to the strengthening of the U.S. dollar and the related revaluation of foreign currencies held by U.S. functional currency subsidiaries, partially offset by non-cash charges and adjustments of $374.8 million, and by a decrease in our net operating assets and liabilities of $132.4 million. The non-cash charges and adjustments were primarily driven by share-based compensation expense, charges for acquired in-process research and development costs, and depreciation and amortization expense, offset by amortization of the research and development cost share liability. The decrease in working capital was driven largely by decreases in accounts receivable and prepaid expenses and an increase in taxes payable, partially offset by a decrease in deferred revenue and an increase in inventories.
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.
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Investing activities provided $60.0 million of cash for the year ended December 31, 2023, consisting of $673.2 million in sales and maturities of investment securities, partially offset by $561.9 million of capital expenditures, $15.0 million upfront collaboration payments, $19.4 million in purchases of intangible assets, $14.9 million in purchases of long-term investments and $2.1 million in purchases of short-term investment securities.
Investing activities provided $1.1 billion of cash for the year ended December 31, 2022, consisting of $1.6 billion in sales and maturities of investment securities, partially offset by $325.4 million of capital expenditures, $143.7 million upfront collaboration payments, $15.9 million in purchases of long-term investments and $1.5 million in purchases of short-term investment securities.
Financing Activities
Cash flows from financing activities consist primarily of issuance and repayment of short-term and long-term debt, and proceeds from the sale of ADSs through employee equity compensation plans.
Financing activities provided $416.5 million of cash for the year ended December 31, 2023, consisting primarily of $661.5 million from proceeds of short-term loans, $55.7 million from the exercise of employee share options and proceeds from the issuance of shares through our employee share purchase plan and $22.5 million from proceeds of long-term bank loans, partially offset by $309.6 million of repayments on short-term loans and $13.7 million of repayments on long-term bank loans. Our borrowing and repayment cycle is dictated by the short-term maturities of our debt and the ability to increase our borrowings is dependent on interest rates, credit spreads, bank lending capacity and other factors. We expect to repay approximately $688.4 million of loans in 2024 and expect to be able to re-finance those on a consistent basis with our historical experience, with the cost of those borrowings depending on prevailing interest rates and credit spreads.
Financing activities used $19.0 million of cash for the year ended December 31, 2022, consisting primarily of $417.1 million of repayment of short-term loans, partially offset by $313.8 million from proceeds of short-term loans, $47.0 million from the exercise of employee share options and proceeds from the issuance of shares through our employee share purchase plan and $37.4 million from proceeds of long-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. 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 denominated in U.S. dollar but do not affect the ability to pay our RMB-denominated liabilities.
Future Liquidity and Material Cash Requirements
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 cash on hand.
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Contractual and Other Obligations
The following table summarizes our significant contractual obligations as of December 31, 2023:
Payments Due by Period
Total Short-term Long-term
(in thousands)
Contractual obligations:
Operating lease commitments $ 49,156 $ 23,499 $ 25,657
Purchase commitments 169,212 140,775 28,437
Debt obligations 885,984 688,366 197,618
Interest on debt 32,101 8,939 23,162
Co-development funding commitment 483,651 137,809 345,842
Funding commitment 8,905 2,213 6,692
Pension plan 14,995 3,577 11,418
Capital commitments 333,498 333,498 —
Total $ 1,977,502 $ 1,338,676 $ 638,826
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 U.S.; and in Basel, Switzerland under non-cancelable operating leases expiring on various dates. Payments under operating leases are expensed on a straight-line basis over the respective lease terms. The aggregate future minimum payments under these non-cancelable operating leases are summarized in the table above.
Purchase Commitments
As of December 31, 2023, purchase commitments amounted to $169.2 million, of which $41.2 million related to minimum purchase requirements for supply purchased from CMOs and $128.0 million related to binding purchase order obligations of inventory from BMS and Amgen. We do not have any minimum purchase requirements for inventory from BMS or Amgen.
Debt Obligations and Interest
Total debt obligations coming due in the next twelve months is $688.4 million. Total long-term debt obligations are $197.6 million. We have numerous financial and non-financial covenants on our debt obligations with various banks and other lenders. Some of these covenants include cross-default provisions that could require acceleration of repayment of our loans in the event of default. However, our debt is primarily short-term in nature. Any acceleration would be a matter of months but may impact our ability to refinance our debt obligations if an event of default occurs. As of December 31, 2023, we are in compliance with all covenants of our material debt agreements. See Note 12 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 Commitments
Under our collaboration with Amgen, we are responsible for co-funding global clinical development costs for the licensed oncology pipeline assets, up to a total cap of $1.25 billion. We are funding our portion of the co-development costs by contributing cash and/or development services. As of December 31, 2023, our remaining co-development funding commitment was $483.7 million.
Funding Commitment
Funding commitment represents our committed capital related to two of our equity method investments in the amount of $15.1 million. As of December 31, 2023, our remaining capital commitment was $8.9 million and is expected to be paid from time to time over the investment period.
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Pension Plan
We maintain a defined benefit pension plan in Switzerland. Funding contributions under the defined benefit pension plan are equivalent to $3.6 million per year based on annual funding contributions in effect as of December 31, 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 $333.5 million for the acquisition of property, plant and equipment as of December 31, 2023, which were mainly for our manufacturing and clinical R&D campus in Hopewell, New Jersey, additional capacity at the Guangzhou and Suzhou manufacturing facilities, and a new building for Beijing Innerway Bio-tech Co., Ltd.
We are making a significant investment in our future manufacturing facility in the U.S., a 42-acre site that is being constructed in Hopewell, New Jersey. We purchased this site for $75.2 million, announced its groundbreaking on April 29, 2022 and have $502.4 million of construction in process related to the project as of December 31, 2023.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses. We evaluate our estimates and judgments on an ongoing basis, and our actual results may differ from these estimates. We base our estimates on historical experience, known trends and events, contractual milestones and other various factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Certain of these estimates are considered critical as they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our consolidated financial statements. Our critical accounting estimates are summarized below. See Note 2 to our consolidated financial statements included in this Annual Report for a description of our significant accounting policies.
Revenue Recognition
We recognize revenue when we transfer control of goods or services to our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for goods and services. We generate revenue from product sales and revenue transactions with our collaboration partners.
Product Revenue
To determine the appropriate transaction price for our product sales at the time we recognize a sale to a direct customer, we estimate any rebates, chargebacks or discounts that ultimately will be due to the direct customer and other customers in the distribution chain under the terms of our contracts. Significant judgments are required in making these estimates. We include variable consideration in the transaction price to the extent it is probable that a significant reversal will not occur and estimate variable consideration from rebates, chargebacks, trade discounts and allowances, sales returns allowances, and other incentives using the expected value method.
Estimates for variable consideration for which reserves are established at the time of sale include government and commercial rebates, provisions for acceptance of NRDL pricing, chargebacks, trade discounts and allowances, sales returns allowances and other incentives that are offered within contracts between the Company and our customers, health care providers and other indirect customers. Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, channel inventory levels, specific known market events and trends, industry data and forecasted customer buying and payment patterns.
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We base our sales returns allowance on estimated distributor inventories, customer demand as reported by third-party sources, and actual returns history, as well as other factors, as appropriate. For newly launched products where actual returns history is not yet available, the sales returns allowance is initially calculated based on benchmarking data from similar products and industry experience. If the historical or benchmarking data we use to calculate these estimates do not properly reflect future returns, then a change in the allowance would be made in the period in which such a determination is made and revenues in that period could be materially affected. Any changes from the historical trend rates are considered in determining the current sales return allowance. To date, sales returns have not been significant.
Actual amounts of consideration ultimately received may differ from our estimates. We will reassess estimates for variable consideration periodically. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.
Collaboration Revenue
Our collaborative arrangements may contain more than one unit of account, or performance obligation, including grants of licenses to intellectual property rights, agreements to provide research and development services and other deliverables. As part of the accounting for these arrangements, we must develop assumptions that require significant judgments to determine the standalone selling price for each performance obligation identified in the contract.
Standalone selling prices for licenses of intellectual property and the right to access and use intellectual property during an option period performance obligations are determined based on the probability-weighted present value of forecasted cash flows associated with the intellectual property. Stand-alone selling prices for research and development services performance obligations are based on the present value of estimated clinical trial costs plus a reasonable margin.
The estimates of standalone selling prices involve management’s key assumptions such as revenue growth rate, estimated clinical trial costs, mark-up rate, probability of technical and regulatory success, and discount rates. These significant assumptions are forward looking and could be affected by future economic, regulatory and market conditions.
At December 31, 2023, our existing deferred revenue balance was less than $1.0 million, and collaboration revenue is not expected to be a significant driver of our financial results until if and when additional agreements are entered into.
Measurement of Research and Development Expenses
Clinical trial costs are a significant component of our research and development expenses. We have a history of contracting with third parties that perform various clinical trial activities on behalf of us in the ongoing development of our product candidates. Expenses related to clinical trials are accrued based on our estimates of the actual services performed by the third parties for the respective period. If the contracted amounts are modified (for instance, as a result of changes in the clinical trial protocol or scope of work to be performed), we will modify the related accruals accordingly on a prospective basis. Revisions in the scope of a contract are charged to expense in the period in which the facts that give rise to the revision become reasonably certain.
The process of estimating our external research and development expenses involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre‑determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting expenses that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of research and development expenses.
Measurement of Deferred Tax Assets
Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as from net operating losses and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates that are based on a number of factors, including historical experience and short-range and long-range business forecasts. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
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Subsequent Measurement of Long-Lived Assets
We test long-lived assets, which include property, plant and equipment and intangible assets with finite useful lives, for impairment at least annually and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others and without limitation: a significant decline in our expected future cash flows; a sustained, significant decline in the trading prices of our ADSs, our ordinary shares, and/or our RMB Shares and market capitalization; a significant adverse change in legal factors or in the business climate of our segment; unanticipated competition; and slower growth rates. For the years ended December 31, 2023, 2022 and 2021, we determined there was no impairment of the value of our long-lived assets.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included in this Annual Report for information regarding recent accounting pronouncements.