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, among other things, statements about: 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, including collaboration revenue, capital requirements and our need for additional financing; the potential benefits of strategic collaboration and licensing agreements and our ability to enter into and maintain strategic arrangements; our construction and operation of independent production facilities for small molecule medicines and large molecule biologics, as well as clinical R&D facilities, 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, 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. We do not assume any obligation to update any forward-looking statements where as a result of new information or otherwise, except as required by law. 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. 26 Table of Contents Non-GAAP Financial Measures We provide certain financial measures that are not defined under accounting principles 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 had another quarter of strong financial results. Supported by our tremendous global growth in revenue, we have now ascended into the top 15 of global oncology innovators based on total oncology sales. We also continue to make significant improvement in our operating leverage as we progress to sustainable profitability. We strengthened our hematology leadership with BRUKINSA, now the BTK inhibitor with the broadest label in the class, as we advance our innovative pipeline of therapies for hematologic malignancies. With TEVIMBRA now approved for use in the U.S. and Europe, we look forward to rapidly advancing our deep pipeline of solid tumor therapies to match our leadership in hematology and continue to solidify our reputation as a global oncology innovator. Key highlights for the first quarter of 2024 are as follows: • Total revenues of $752 million in the first quarter, including product revenue of $747 million, an 82% increase from the prior-year period; • BRUKINSA revenue of $489 million, driven by growth in the U.S. and Europe of 153% and 243%, respectively, from the prior-year period; with recent fifth FDA approval, BRUKINSA now has the broadest label in the BTKi class; • Rapidly advancing late-stage hematology pipeline; sonrotoclax in development both as a monotherapy and in combination with backbone therapy BRUKINSA; pivotal program initiated for BTK CDAC; • Progressing potentially differentiated solid tumor programs with ADC, degrader platforms and targeted therapies in priority cancer types; and • Significantly improved operating leverage and progress on path to sustainable profitability. Recent Developments Recent Business Developments On April 23, 2024, we announced that the European Commission approved tislelizumab as a treatment for non-small cell lung cancer (“NSCLC”) across three indications, including first- and second-line use. On March 14, 2024, we announced that the U.S. Food and Drug Administration (“FDA”) approved TEVIMBRA (tislelizumab-jsgr) as monotherapy for the treatment of adult patients with unresectable or metastatic esophageal squamous cell carcinoma (“ESCC”) after prior systemic chemotherapy that did not include a PD-(L)1 inhibitor. TEVIMBRA will be available in the U.S. in the second half of 2024. On March 13, 2024, together with The Max Foundation and the BeiGene Foundation, we announced that the first doses of BRUKINSA was administered for the treatment of adult patients with chronic lymphocytic leukemia (“CLL”) to patients in Armenia and Nepal, as part of a three-year collaboration to provide access to the medicine in 29 low- and middle-income countries. 27 Table of Contents On March 7, 2024, we announced that the FDA granted accelerated approval to BRUKINSA (zanubrutinib) for the treatment of adult patients with relapsed or refractory (“R/R”) follicular lymphoma (“FL”), in combination with the anti-CD20 monoclonal antibody obinutuzumab, after two or more lines of systemic therapy. The indication was approved under accelerated approval based on response rate and durability of response, marking BRUKINSA’s fifth indication in B-cell malignancies in the U.S. On February 29, 2024, we announced a new matching adjusted indirect comparison of the efficacy of BRUKINSA versus acalabrutinib in R/R CLL based on data from the Phase 3 ALPINE and Phase 3 ASCEND trials. The analysis suggests a progression-free survival and complete response advantage for BRUKINSA versus acalabrutinib, as well as potentially improved overall survival. On February 27, 2024, we announced that the FDA accepted a Biologics License Application (“BLA”) for TEVIMBRA (tislelizumab), in combination with fluoropyrimidine- and platinum-containing chemotherapy, for the treatment of patients with locally advanced unresectable or metastatic gastric or gastroesophageal junction (“G/GEJ”) adenocarcinoma. The FDA’s action date on the BLA is expected in December 2024. 28 Table of Contents Results of Operations The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, Change 2024 2023 $ % (dollars in thousands) Revenues Product revenue, net $ 746,918 $ 410,291 $ 336,627 82.0 % Collaboration revenue 4,734 37,510 (32,776) (87.4) % Total revenues 751,652 447,801 303,851 67.9 % Cost of sales - product 124,935 81,789 43,146 52.8 % Gross profit 626,717 366,012 260,705 71.2 % Operating expenses Research and development 460,638 408,584 52,054 12.7 % Selling, general and administrative 427,427 328,499 98,928 30.1 % Amortization of intangible assets — 187 (187) (100.0) % Total operating expenses 888,065 737,270 150,795 20.5 % Loss from operations (261,348) (371,258) 109,910 (29.6) % Interest income, net 16,160 16,016 144 0.9 % Other income, net 1,762 18,303 (16,541) (90.4) % Loss before income taxes (243,426) (336,939) 93,513 (27.8) % Income tax expense 7,724 11,492 (3,768) (32.8) % Net loss $ (251,150) $ (348,431) $ 97,281 (27.9) % Comparison of the Three Months Ended March 31, 2024 and 2023 Revenue Total revenue increased to $751.7 million for the three months ended March 31, 2024, from $447.8 million for the three months ended March 31, 2023, due to an increase in sales of BRUKINSA, tislelizumab, as well as our in-licensed products from Amgen, partially offset by a decrease in collaboration revenue. Collaboration revenue decreased due to termination of the Novartis collaborations in the prior year. The following table summarizes the components of revenue for the three months ended March 31, 2024 and 2023, respectively: Three Months Ended March 31, Changes 2024 2023 $ % (dollars in thousands) Product revenue $ 746,918 $ 410,291 $ 336,627 82.0 % Collaboration revenue: Research and development service revenue — 6,817 (6,817) (100.0) % Right to access intellectual property revenue — 26,249 (26,249) (100.0) % Other 4,734 4,444 290 6.5 % Total collaboration revenue 4,734 37,510 (32,776) (87.4) % Total Revenue $ 751,652 $ 447,801 $ 303,851 67.9 % 29 Table of Contents Net product revenues consisted of the following: Three Months Ended March 31, Changes 2024 2023 $ % (dollars in thousands) BRUKINSA ® $ 488,515 $ 211,382 $ 277,133 131.1 % Tislelizumab 145,277 114,850 30,427 26.5 % XGEVA ® 43,381 20,197 23,184 114.8 % POBEVCY ® 16,633 14,326 2,307 16.1 % BLINCYTO ® 14,366 10,946 3,420 31.2 % KYPROLIS ® 14,111 4,943 9,168 185.5 % REVLIMID ® 12,233 23,158 (10,925) (47.2) % Other 12,402 10,489 1,913 18.2 % Total product revenue $ 746,918 $ 410,291 $ 336,627 82.0 % Net product revenue increased 82.0% to $746.9 million for the three months ended March 31, 2024, compared to $410.3 million in the prior-year period, primarily due to continued increases in sales of BRUKINSA globally, driven by significant growth in the U.S. and Europe. In addition, product revenues in the first quarter of 2024 were positively impacted by sales of tislelizumab and in-licensed products from Amgen in China. Global sales of BRUKINSA totaled $488.5 million in the first quarter, representing a 131.1% increase compared to the prior-year period; U.S. sales of BRUKINSA totaled $351.5 million in the first quarter, compared to $138.8 million in the prior-year period, representing growth of 153.3%, as BRUKINSA gained share in treatment-naïve (TN) chronic lymphocytic leukemia (CLL), and emerged as the BTKi class leader in new-patient share in relapsed or refractory (R/R) CLL. BRUKINSA sales in Europe totaled $66.8 million in the first quarter, compared to $19.5 million in the prior-year period, representing growth of 242.8%, driven by continued gains in market share and additional reimbursements including France, which implemented reimbursement for BRUKINSA within CLL, Waldenström’s macroglobulinemia (WM) and marginal zone lymphoma for the first time. BRUKINSA sales in China totaled $57.4 million, representing growth of 19.4%. BRUKINSA rest of world sales totaled $12.8 million in the first quarter, representing growth of 153.7% compared to the prior-year period. Sales of tislelizumab in China totaled $145.2 million in the first quarter, compared to $114.9 million in the prior-year period, representing a 26.4% increase. In the first quarter, new patient demand from broader reimbursement and hospital listings continued to drive increased market penetration and market share for tislelizumab. Collaboration revenue totaled $4.7 million for the three months ended March 31, 2024, primarily related to revenue generated under the Novartis broad markets marketing and promotion agreement. Collaboration revenue totaled $37.5 million for the three months ended March 31, 2023, of which $6.8 million was recognized from deferred revenue for R&D services performed during the three months ended March 31, 2023 under both the tislelizumab and ociperlimab collaborations, $26.2 million was recognized from deferred revenue for Novartis’ right to access ociperlimab over the option period and $4.4 million was recognized related to the sale of tislelizumab and ociperlimab 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 $124.9 million for the three months ended March 31, 2024 from $81.8 million for the three months ended March 31, 2023, 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 global product sales increased to $622.0 million for the three months ended March 31, 2024, compared to $328.5 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 83.3% for the three months ended March 31, 2024, from 80.1% in the comparable period of the prior year. The increase is primarily due to proportionally higher sales mix of global BRUKINSA compared to other products in the portfolio. 30 Table of Contents Research and Development Expense Research and development expense increased by $52.1 million, or 12.7%, to $460.6 million for the three months ended March 31, 2024 from $408.6 million for the three months ended March 31, 2023. The following table summarizes external clinical, external non-clinical and internal research and development expense for the three months ended March 31, 2024 and 2023, respectively: Three Months Ended March 31, Changes 2024 2023 $ % (dollars in thousands) External research and development expense: Cost of development programs $ 122,871 $ 128,596 $ (5,725) (4.5) % Upfront license and development milestone fees 35,028 — 35,028 NM Amgen co-development expense 1 13,484 17,817 (4,333) (24.3) % Total external research and development expenses 171,383 146,413 24,970 17.1 % Internal research and development expenses 289,255 262,171 27,084 10.3 % Total research and development expenses $ 460,638 $ 408,584 $ 52,054 12.7 % Adjusted research and development expenses 2 $ 405,440 $ 361,696 $ 43,744 12.1 % 1 Our co-funding obligation for the development of the pipeline assets under the Amgen collaboration for the three months ended March 31, 2024 totaled $26.6 million, of which $13.5 million was recorded as R&D expense. The remaining $13.1 million was recorded as a reduction of 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 in the first quarter was primarily attributable to higher development milestone fees, partially offset by a decrease in Amgen co-development expense and external clinical trial costs as we continue to internalize clinical trials. Internal research and development expense increased $27.1 million, or 10.3%, to $289.3 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. Selling, General and Administrative Expense Three Months Ended March 31, Changes 2024 2023 $ % (dollars in thousands) Selling, general and administrative expenses $ 427,427 $ 328,499 $ 98,928 30.1 % Adjusted selling, general and administrative expenses 1 $ 372,146 $ 283,154 $ 88,992 31.4 % 1. 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. Selling, general and administrative expense increased by $98.9 million, or 30.1%, to $427.4 million for the three months ended March 31, 2024, from $328.5 million for the three months ended March 31, 2023. The increase was primarily attributable to investing in the expansion of our commercial activities to support our product launches, primarily BRUKINSA in the U.S. and Europe to drive continued revenue and margin expansion. Selling, general and administrative expenses as a percentage of product sales were 57.2% in the first quarter of 2024 compared to 80.1% in the prior year period. We expect selling and marketing expenses to increase in 2024 as product sales increase and we expect selling, general and administrative expenses as a percentage of revenue to improve gradually throughout 2024. 31 Table of Contents Interest Income, Net Interest income, net increased by $0.1 million, or 0.9%, to $16.2 million of net interest income for the three months ended March 31, 2024, from $16.0 million of net interest income for three months ended March 31, 2023. The increase in interest income, net, was primarily attributable to increased interest income resulting from higher interest rates on our cash balance and a decrease in interest expense as a result of higher interest capitalized related to Hopewell construction in process. Other Income, Net Other income, net was $1.8 million for the three months ended March 31, 2024, primarily due to the gain recognized on the divestiture of Pi Health, Inc. and government subsidy income in China, slightly offset by foreign exchange losses. For the three months ended March 31, 2023, other income, net was $18.3 million, primarily due to government subsidy income in China. Income Tax Expense Income tax expense was $7.7 million for the three months ended March 31, 2024 as compared to $11.5 million for the three months ended March 31, 2023. We are anticipating a lower annual effective tax rate in 2024 due to the forecasted jurisdictional mix of consolidated pre-tax earnings, which is expected to increase in jurisdictions where we have tax attributes to offset current tax expense. The income tax expense for the three months ended March 31, 2024 and 2023 was primarily attributable to current U.S. tax expense determined after other special tax deductions and research and development tax credits and current China tax expense due to certain non-deductible expenses. 32 Table of Contents Non-GAAP Reconciliation Three Months Ended March 31, 2024 2023 ( in thousands) Reconciliation of GAAP to adjusted cost of sales - products: GAAP cost of sales - products $ 124,935 $ 81,789 Less: Depreciation 2,345 2,180 Less: Amortization of intangibles 1,183 799 Adjusted cost of sales - products $ 121,407 $ 78,810 Reconciliation of GAAP to adjusted research and development: GAAP research and development $ 460,638 $ 408,584 Less: Share-based compensation expenses 38,045 34,028 Less: Depreciation 17,153 12,860 Adjusted research and development $ 405,440 $ 361,696 Reconciliation of GAAP to adjusted selling, general and administrative: GAAP selling, general and administrative $ 427,427 $ 328,499 Less: Share-based compensation expenses 50,669 41,360 Less: Depreciation 4,612 3,985 Adjusted selling, general and administrative $ 372,146 $ 283,154 Reconciliation of GAAP to adjusted operating expenses GAAP operating expenses $ 888,065 $ 737,270 Less: Share-based compensation expenses 88,714 75,388 Less: Depreciation 21,765 16,845 Less: Amortization of intangibles — 187 Adjusted operating expenses $ 777,586 $ 644,850 Reconciliation of GAAP to adjusted loss from operations: GAAP loss from operations $ (261,348) $ (371,258) Plus: Share-based compensation expenses 88,714 75,388 Plus: Depreciation 24,110 19,025 Plus: Amortization of intangibles 1,183 986 Adjusted loss from operations $ (147,341) $ (275,859) Liquidity and Capital Resources The following table represents our cash, short-term investments, and debt balances as of March 31, 2024 and December 31, 2023: As of March 31, December 31, 2024 2023 (dollars in thousands) Cash, cash equivalents and restricted cash $ 2,807,436 $ 3,185,984 Short-term investments $ — $ 2,600 Total debt $ 1,025,992 $ 885,984 33 Table of Contents 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 third quarter of 2023 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 a net loss of $251.2 million and $348.4 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $8.2 billion. 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 March 31, 2024 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 $1.0 billion at March 31, 2024. The majority of those debt obligations, or approximately $827.0 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 March 31, 2024, the Company had cash remaining related to the STAR Offering proceeds of $1.0 billion. The following table provides information regarding our cash flows for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, 2024 2023 (dollars in thousands) Cash, cash equivalents and restricted cash at beginning of period $ 3,185,984 $ 3,875,037 Net cash used in operating activities (308,572) (563,777) Net cash (used in) provided by investing activities (209,831) 241,063 Net cash provided by (used in) financing activities 162,293 (19,868) Net effect of foreign exchange rate changes (22,438) 11,311 Net decrease in cash, cash equivalents, and restricted cash (378,548) (331,271) Cash, cash equivalents and restricted cash at end of period $ 2,807,436 $ 3,543,766 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 $308.6 million of cash in the three months ended March 31, 2024, principally from our net loss of $251.2 million and an increase in our net operating assets and liabilities of $155.4 million, partially offset by non-cash charges of $97.9 million. The increase in net operating assets and liabilities was primarily driven by increased working capital associated with our growth in product sales and compensation-related payments. The non-cash charges were primarily driven by share-based compensation expense, depreciation and amortization expense, offset by amortization of the research and development cost share liability. Operating activities used $563.8 million of cash in the three months ended March 31, 2023, principally from our net loss of $348.4 million and an increase in our net operating assets and liabilities of $294.1 million, partially offset by non-cash charges of $78.7 million. 34 Table of Contents The increase in working capital was driven largely by the seasonality of receivables and compensation-related payments. The non-cash charges were primarily driven by share-based compensation expense, depreciation and amortization expense, offset by amortization of the research and development cost share liability. 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 used $209.8 million of cash in the three months ended March 31, 2024, consisting of capital expenditures of $156.6 million, purchase of IPR&D assets of $31.8 million, purchase of intangible assets of $4.7 million, $19.4 million in purchases of long-term investments and other investing activities, partially offset by sales and maturities of investment securities of $2.7 million. Investing activities provided $241.1 million of cash in the three months ended March 31, 2023, consisting of sales and maturities of investment securities of $377.0 million, partially offset by capital expenditures of $125.6 million, $10.3 million in purchases of long-term investments and other investing activities. 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 $162.3 million of cash in the three months ended March 31, 2024, consisting primarily of $9.1 million of net proceeds from long-term loans, $142.0 million of proceeds from short-term loans and $14.8 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 $3.6 million in repayments of long-term 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 $827.0 million of loans in the next 12 months 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 $19.9 million of cash in the three months ended March 31, 2023, consisting primarily of $1.5 million in repayment of long-term bank loans and $50.0 million in repayment of short-term bank loans, which were partially offset by $31.6 million from the exercise of employee share options and proceeds from the issuance of shares through our employee share purchase plan. Effects of Exchange Rates on Cash We have substantial operations in the PRC, which generate a significant amount of RMB-denominated cash from product sales and require a significant amount of RMB-denominated cash to pay our obligations. We hold a significant amount of RMB-denominated deposits at our China subsidiaries. Since the reporting currency of the Company is the U.S. dollar, periods of volatility in exchange rates may have a significant impact on our consolidated cash balances as they are translated into U.S. dollars. The impact of foreign currency deposits being translated into the U.S. dollar negatively impacted ending cash by $22.4 million in the three months ended March 31, 2024, compared to a positive impact of $11.3 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 U.S. Securities and Exchange Commissions (“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 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. 35 Table of Contents 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 and product sales. Contractual and Other Obligations The following table summarizes our significant contractual obligations as of the payment due date by period as of March 31, 2024: Payments Due by Period Total Short Term Long Term (dollars in thousands) Contractual obligations Operating lease commitments $ 43,314 $ 18,390 $ 24,924 Purchase commitments 93,511 64,474 29,037 Debt obligations 1,025,992 826,965 199,027 Interest on debt 60,456 38,134 22,322 Co-development funding commitment 457,031 120,562 336,469 Funding commitment 8,905 2,213 6,692 Capital commitments 61,577 61,577 — Total $ 1,750,786 $ 1,132,315 $ 618,471 Operating Lease Commitments We lease office facilities in the U.S. and Switzerland, and office and manufacturing facilities in China 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 March 31, 2024, non-cancellable purchase commitments amounted to $93.5 million, of which $35.4 million related to minimum purchase requirements for supply purchased from contract manufacturers and $58.1 million related to binding purchase obligations of inventory from Amgen. We do not have any minimum purchase requirements for inventory from Amgen. Debt Obligations and Interest Total debt obligations coming due in the next twelve months is $827.0 million. Total long-term debt obligations are $199.0 million. See Note 10 in the Notes to the Financial Statements for further detail of our debt obligations. 36 Table of Contents 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 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 debt obligations if an event of default occurs. As of March 31, 2024, we were in compliance with all covenants of our material debt agreements. 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 March 31, 2024, our remaining co-development funding commitment was $457.0 million. Funding Commitment Funding commitment represents our committed capital related to two equity method investments. As of March 31, 2024, our remaining capital commitment was $8.9 million and is expected to be paid from time to time over the investment period. Capital Commitments We had capital commitments amounting to $61.6 million for the acquisition of property, plant and equipment as of March 31, 2024, 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. 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 months ended March 31, 2024, as compared to those described in the section titled “Part I—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, 2023. For new accounting policies adopted during the three months ended March 31, 2024, 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.