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Athenex

atnx · NASDAQ Healthcare
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FY2019 Annual Report · Athenex
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Oral Paclitaxel 

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(cid:20)(cid:3)(cid:95)(cid:3)(cid:51) (cid:68) (cid:74) (cid:72) (cid:3)

(cid:3)
(cid:3)

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Tirbanibulin Ointment 

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(cid:54)(cid:76)(cid:81)(cid:70)(cid:72)(cid:85)(cid:72)(cid:79)(cid:92)(cid:15)(cid:3)(cid:3)

(cid:3)
(cid:45)(cid:82)(cid:75)(cid:81)(cid:86)(cid:82)(cid:81)(cid:3)(cid:60)(cid:17)(cid:49)(cid:17)(cid:3)(cid:47)(cid:68)(cid:88)(cid:3)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)
(cid:3)

(cid:3)

FORWARD-LOOKING STATEMENTS AND CERTAIN FACTORS MAY AFFECT OUR BUSINESS 

Except for historical information, all of the statements, expectations, and assumptions contained in this Annual 
Report constitute forward-looking statements. These statements include descriptions regarding the intent, belief or 
current expectations of Athenex, Inc. (the “Company”), its officers or its management with respect to the 
consolidated results of operations and financial condition of the Company. These statements can be recognized by 
the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “foresee,” 
“guidance,” “intend,” “likely,” “may,” “plan,” “potential,” “predict,” “preliminary,” “probable,” “project,” 
“promising,” “seek,” “should,” “will,” or words of similar expressions. Such forward-looking statements are not 
guarantees of future performance and involve risks and uncertainties. Actual results might differ materially from 
those explicit or implicit in the forward-looking statements. Important factors that could cause actual results to 
differ materially include: the development stage of the Company’s primary clinical candidates and related risks 
involved in drug development, clinical trials, regulation, manufacturing and commercialization; the Company’s 

(cid:22)(cid:3)(cid:95)(cid:3)(cid:51) (cid:68) (cid:74) (cid:72) (cid:3)

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reliance on third parties for success in certain areas of its business; the Company’s history of operating losses and 
need to raise additional capital to continue as a going concern; the Company’s ability to integrate CIDAL’s assets 
into our existing operations; competition; intellectual property risks; risks relating to doing business internationally 
and in China, including the impact of public health epidemics such as the coronavirus; the uncertainty of when, if at 
all, we will be able to resume full API production operations in Chongqing; and the other risk factors set forth from 
time to time in the Company’s public filings with the SEC, copies of which are available for free in the Investor 
Relations section of the Company’s website at https://ir.athenex.com/financial-information/sec-filings or upon 
request from the Company’s Investor Relations Department. All information provided in this Annual Report is as of 
the date hereof and the Company assumes no obligation and do not intend to update these forward-looking 
statements, except as required by law. 

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019
or

(cid:4) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to          

Commission file number 001-38112

ATHENEX, INC. 
(Exact Name of Registrant as Specified in Its Charter) 

Delaware
State or other jurisdiction of
incorporation or organization
1001 Main Street, Suite 600
Buffalo, NY
United States
(Address of principal executive offices)

43-1985966
(I.R.S. Employer
Identification No.)

14203
(Zip Code)

(716) 427-2950
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Common Stock, par value $0.001 per share

Trading Symbol
ATNX

Name of Exchange on Which Registered
The Nasdaq Global Select Market

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:4) No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 

preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No (cid:4)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T 

(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No (cid:4)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth 
company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Non-accelerated filer

(cid:3)

☐

Accelerated filer
Smaller reporting company
Emerging growth company

(cid:4)
(cid:4)
(cid:4)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised 

financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:4) No ☒
The aggregate market value of common equity held by non-affiliates of the registrant calculated based on the closing price of $19.80 of the registrant’s common stock as 

reported on The Nasdaq Global Market on June 30, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $867 million.

As of February 28, 2020, 81,627,093 shares of common stock of the registrant were outstanding.

Portions of the registrant’s definitive proxy statement for its 2020 annual meeting of stockholders currently scheduled to be held June 5, 2020 are incorporated by reference into Part III hereof.

DOCUMENTS INCORPORATED BY REFERENCE

 
 
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

PART II.

Item 5.

Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.

PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.

PART IV.
Item 15.
Item 16.

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity 
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services

Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures

Page

2
2
51
101
101
101
101

102

102
103
105
122
122
136
136
138

139
139
139
139
139
139

140
140
141
147

 
 
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (the “Annual Report”) contains forward-looking statements within the meaning of Section 

21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and section 27A of the Securities Act of 1933, as 
amended (the “Securities Act”) and the Private Securities Litigation Reform Act of 1995. All statements other than statements of 
historical fact are “forward-looking statements” for purposes of this Annual Report. These forward-looking statements may include, 
but are not limited to, statements regarding our future results of operations and financial position, business strategy, market size, 
potential growth opportunities, clinical development activities, the timing and results of clinical trials and potential regulatory 
approval and commercialization of product candidates. In some cases, forward-looking statements may be identified by terminology 
such as “believe,” “may,” “will,” “should,” “predict,” “goal,” “strategy,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” 
“indicate,” “could,” “would,” “project,” “plan,” “expect,” “seek,” “strategy,” “mission” and similar expressions and variations thereof. 
These words are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and 
trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business 
operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and 
assumptions, including those described in the “Risk Factors” section and elsewhere in this Annual Report. Moreover, we operate in a 
very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to 
predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of 
factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of 
these risks, uncertainties and assumptions, actual results could differ materially and adversely from those anticipated or implied in the 
forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations 
reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance 
or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to 
update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results 
or to changes in our expectations, except as required by law.

Unless the context indicates otherwise, as used in this Annual Report, the terms “Athenex,” “the Company,” “we,” “us,” and 

“our” refer to Athenex, Inc., a Delaware corporation, and its subsidiaries taken as a whole, unless otherwise noted.  

1

PART I

Item 1. 

Business. 

Overview 

Athenex, Inc., together with its subsidiaries (“Athenex,” the “Company,” “we,” “us” or “our”), is a global biopharmaceutical 

company dedicated to becoming a leader in the discovery, development and commercialization of next generation drugs for the 
treatment of cancer. Our mission is to improve the lives of cancer patients by creating more effective, safer and tolerable treatments. 
We are organized around three platforms, an Oncology Innovation Platform, a Commercial Platform and a Global Supply Chain 
Platform. Our current clinical pipeline in the Oncology Innovation Platform is derived from four different proprietary technologies: (1) 
Orascovery, based on a P-glycoprotein (“P-gp”) pump inhibitor, (2) Src Kinase inhibition, (3) T-cell Receptor-engineered T-cells 
(“TCR-T”), and (4) arginine deprivation therapy. We have assembled a strong and experienced leadership team and have established 
global operations across the pharmaceutical value chain to execute our goal of becoming a global leader in bringing innovative cancer 
treatments to the market and improving health outcomes.

Significant Developments in the Oncology Innovation Platform

Orascovery Platform 

Our Orascovery technology is based on the novel P-gp pump inhibitor molecule, encequidar, formerly known as HM30181A. 

Oral administration of encequidar in combination with established chemotherapy agents such as paclitaxel, irinotecan, docetaxel, 
topotecan and eribulin has been shown in our clinical studies to date to improve the absorption of these agents by blocking the P-gp 
pump in the intestinal wall. Oral paclitaxel and encequidar, formerly known as Oraxol (“Oral Paclitaxel”) is our lead asset in our 
Orascovery platform. We are also advancing the following clinical candidates for the treatment of solid tumors on this platform: oral 
irinotecan and encequidar, formerly known as Oratecan (“Oral Irinotecan”); oral docetaxel and encequidar, formerly known as 
Oradoxel (“Oral Docetaxel”); oral topotecan and encequidar, formerly known as Oratopo (“Oral Topotecan”); and oral eribulin and 
encequidar, formerly known as Eribulin ORA (“Oral Eribulin”). 

Significant developments in our Orascovery platform in 2019 include the following:

We  announced  topline  results  in  August  2019  for  our  Phase  3  study  of  Oral  Paclitaxel  for  the  treatment  of  metastatic  breast 
cancer and presented further data of the Phase 3 study in an oral presentation at the San Antonio Breast Cancer Symposium (“2019 
SABCS”)  in  December  2019.  Results  demonstrated  that  the  study  met  its  primary  endpoint  showing  statistically  significant 
improvement in overall response rate for Oral Paclitaxel compared to intravenous (“IV”) paclitaxel and neuropathy was less frequent 
with Oral Paclitaxel compared to IV paclitaxel. In addition, ongoing analysis of secondary endpoints of survival showed a strong trend 
favoring Oral Paclitaxel, in particular, Oral Paclitaxel showed a statistically significant improvement in overall survival compared to 
IV  paclitaxel  in  the  prespecified  modified  intention-to-treat  population.  We  intend  to  establish  Oral  Paclitaxel  as  the  treatment  of 
choice for patients receiving chemotherapy for metastatic breast cancer and intend to file a New Drug Application (NDA) with the 
U.S.  Food  and  Drug  Administration  (FDA)  in  2020  to  secure  regulatory  approval  of  Oral  Paclitaxel  for  metastatic  breast  cancer, 
although we can provide no assurance that we will be successful in obtaining the FDA’s approval to commercialize Oral Paclitaxel.

We are also evaluating Oral Paclitaxel in the treatment of angiosarcoma and in combination with other therapies, including anti-
VEGF and anti-PD-1 therapies. In May 2019, we announced early and complete response data from a clinical study of Oral Paclitaxel 
in  cutaneous  angiosarcoma,  and  the  study  is  continuing  to  enroll.  Oral  Paclitaxel  also  received  Orphan  Designations  from  the 
European  Commission  for  the  treatment  of  soft  tissue  sarcoma,  in  October  2019.  We  are  also  studying  Oral  Paclitaxel  with 
ramucirumab in a Phase 1b study in patients with advanced gastric cancer who failed previous chemotherapy. We presented results 
from  the  study  at  the  European  Society  for  Medical  Oncology  (“ESMO”)  Congress  2019  on  the  first  three  patient  cohorts  and  are 
continuing  to  advance  in  the  expansion  phase  of  the  study.  Our  Phase  1/2  study  of  Oral  Paclitaxel  in  combination  with 
pembrolizumab, or Keytruda, in patients with advanced solid malignancies is ongoing. 

In addition to the progress made with respect to our lead product candidate, we continued to advance our other Orascovery 

product candidates in 2019. We presented preliminary results with respect to our Phase 1 study of Oral Irinotecan at the American 
Society of Clinical Oncology annual meeting in May 2019 (“2019 ASCO Annual Meeting”). We are planning Phase 2 studies for both 
Oral Irinotecan and Oral Docetaxel. A Phase 1 study of Oral Eribulin in patients with solid tumors is ongoing. 

Src Kinase Inhibition Platform

Our Src Kinase inhibition platform technology is based on novel small molecule compounds that have multiple mechanisms of 
action, including the inhibition of the activity of Src Kinase and the inhibition of tubulin polymerization, which may limit the growth 
or proliferation of cancerous cells. We believe the combination of these mechanisms of action provides a broader range of anti-cancer 
activity compared to either mechanism of action alone. Our lead product candidate on our Src Kinase inhibition platform is 
tirbanibulin (formerly known as KX2-391 and KX-01) ointment, which we are advancing for the treatment of actinic keratosis (“AK”) 

2

as well as psoriasis and skin cancer. Our other clinical candidates and their indications in this platform include tirbanibulin oral for 
solid and liquid tumors and KX2-361, formerly known as KX-02, for brain cancers, such as glioblastoma multiforme (“GBM”). 

Significant developments in our Src Kinase inhibition platform in 2019 include the following:

We completed two Phase 3 studies for tirbanibulin ointment in the treatment of AK and presented topline results from the two 
Phase 3 studies in a late breaker session at the 2019 annual meeting of the American Academy of Dermatology (“2019 AAD Annual 
Meeting”). The results showed that both studies achieved their primary endpoint with 44% and 54% of patients in studies KX01-AK-
003 and KX01-AK-004, respectively, achieving 100% AK lesion clearance at Day 57 within the face or scalp treatment areas. There 
was a statistically significant greater clearance rate in favor of tirbanibulin ointment 1% versus vehicle in each study and in each of the 
predefined patient subgroups. Safety results showed that tirbanibulin ointment was well tolerated. In October 2019, we announced a 
progress update for tirbanibulin ointment in the treatment of AK from our partner Almirall, S.A. (“Almirall”), with whom we are 
collaborating for the development and commercialization of tirbanibulin in the U.S. and Europe. We also announced the completion of 
pre-NDA consultation with the FDA. 

We submitted an NDA to the FDA for tirbanibulin ointment as a topical treatment for AK. We are seeking approval of 

tirbanibulin ointment pursuant to Section 505(b)(1) of the Federal Food, Drug and Cosmetic Act (“FDCA”). We can provide no 
assurances the FDA will accept the NDA submission for filing, or if accepted, that our NDA will ultimately receive approval.

A study of tirbanibulin ointment 1% in psoriasis once daily for five days in a Phase 1 clinical trial sponsored by our partner, 

PharmaEssentia Corp. (“PharmaEssentia”), is ongoing.

With respect to KX2-361, our other Src Kinase inhibition platform product candidate, we announced in September 2019 that our 

partner, Guangzhou Xiangxue Pharmaceutical Co., Ltd. (“Xiangxue”), initiated a Phase 1 study in China of KX2-361 oral treating 
advanced malignant solid tumors on the strength of encouraging results in preclinical studies. 

Other Platforms

The other technologies in our Oncology Innovation Platform are our TCR-T immunotherapy technology under which we are 
advancing TCR affinity-enhancing specific T-cell (TAEST) therapy with our first drug candidate, TAEST16001, and our arginine 
deprivation therapy technology under which we are advancing PT01, also known as Pegtomarginase. With respect to these 
technologies, we announced several developments in 2019. 

In March 2019, we announced that our partner, Xiangxue Life Sciences Limited (“XLifeSc”), a wholly-owned subsidiary of 
Xiangxue, received notice of allowance from the China National Medical Product Administration (“NMPA”) of its Investigational 
New Drug (“IND”) application to initiate registration related clinical studies in China of TAEST therapy in patients with solid tumors 
that are HLA-A*02:01 positive and NY-ESO-1 positive. The cancer immunotherapy product, named TAEST 16001, is an autologous 
cell-based therapy utilizing the TAEST technology to enhance affinity against the HLA-A*02:01 restricted antigen NY-ESO-1. We 
are currently preparing the US IND for TAEST 16001. 

In June 2019, the FDA allowed our IND application for the clinical investigation of PT01 for the treatment of patients with 

advanced malignancies. The compound targets cancer growth and survival by removing the supply of arginine to cancers that have a 
disrupted urea cycle. Also in June 2019 we presented preclinical study results of PT01 in a poster session at the 2019 ASCO Annual 
Meeting. The biologic agent demonstrated high enzymatic activity, predictable pharmacokinetic-pharmacodynamic profiles, and 
cytotoxicity in vitro. Mouse xenograft models showed good tumor growth inhibition activity at tolerable doses with only transient 
weight loss during therapy. We are currently planning a Phase 1 clinical study for PT01.

Other Business Developments 

Other significant business developments for the Company in 2019 include:

In December 2019, we entered into an exclusive license agreement with Xiangxue (the “2019 Xiangxue License”), 
pursuant to which we granted Xiangxue exclusive rights to develop and commercialize Oral Paclitaxel and Oral 
Irinotecan, tirbanibulin ointment in China, Hong Kong and Macau, for certain indications, including oncological and AK 
indications, as well as other indications that we and Xiangxue mutually agree to pursue under the 2019 Xiangxue License. 
The 2019 Xiangxue License contains an option, exercisable by Xiangxue, for two additional product candidates which 
may be included under the 2019 Xiangxue License. For additional information, please see “Business—License and 
Collaboration Agreements—Xiangxue License Agreements.”

Also in December 2019, we closed a private placement equity offering in which M. Kingdon Offshore Master Fund, LP as 
lead investor together with a number of institutional investors purchased 3,945,750 million shares of common stock at a 
price of $15.30 per share. The aggregate gross proceeds received by us were $60.4 million and net proceeds were 
approximately $59.4 million.

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In September 2019, we announced that we had completed construction of the new active pharmaceutical ingredient 
(“API”) facility in Chongqing, China. The 440,000-square-foot facility is preparing to commence operations in the second 
half of 2020. The construction of the facility is part of our strategy for vertical integration in order to capture value across 
the supply chain. Once operational, the facility is expected to expand our API production capabilities to further support 
our global clinical development needs and ensure the supply of API for commercial launches. The new API facility was 
constructed in accordance with an agreement with Chongqing Maliu Riverside Development & Investment Co., Ltd. 
(“CQ”). For additional information, please see “Business—Strategic Public-Private Partnerships—China Partnership.”

In June 2019, we announced the strategic expansion of our presence in Europe and Latin America to grow our global 
clinical research and development capacity by establishing offices in Manchester to support our ongoing clinical studies in 
the U.K. and to continue expanding our research and development capabilities in the region. We also entered into a 
definitive agreement to acquire certain assets of CIDAL Limited (“CIDAL”). The transactions contemplated by the asset 
purchase agreement closed in October 2019. CIDAL is a contract research organization (CRO) with headquarters in 
Guatemala and operations in various countries in Latin America. CIDAL has provided CRO services and support for our 
Phase 3 study of Oral Paclitaxel for metastatic breast cancer.  

In May 2019, we suspended operations at our existing API plant in Chongqing, based on the concerns raised by the 
Department of Emergency Management of Chongqing (the “DEMC”) related to the location of our plant. As a result of 
suspending these operations, we are currently unable to produce commercial batches of API, which has impacted our 
revenue. We can provide no assurances of when, if at all, commercial production of API will resume at the plant. 
Although we currently are producing API for our ongoing clinical studies, we can make no assurances that such 
production will be able to provide sufficient quantities for all future clinical studies and that alternative suppliers will be 
available if needed to produce API for our clinical trials.

Also in May 2019, we closed a private placement equity offering in which three institutional investors, Perceptive 
Advisors LLC (“Perceptive”), Avoro Capital Advisors (formerly known as venBio Select Advisor) and OrbiMed Partners 
Master Fund Limited and The Biotech Growth Trust PLC (combined known as OrbiMed) purchased 10,000,000 shares of 
common stock at a price of $10.00 per share. The aggregate gross proceeds received by us were $100 million and net 
proceeds were approximately $99.8 million. 

Overview of Our Business Organization Commercial Platform U.S. Sales & Marketing Chicago, IL Global Partnering Chicago, IL Oncology Innovation Platform Research Labs Buffalo, NY Clinical  Development Buffalo, NY Hong Kong, HK Cranford, NJ Chongqing, China Taipei, Taiwan Buffalo, NY Cranford, NJ Chongqing, China Taipei, Taiwan Regulatory Global Supply Chain Platform cGMP High  Potency API  Facilities Chongqing, China Under Development cGMP  Manufacturing Clarence, NY Formulation Labs Buffalo

Mission and Strategy 

We have a comprehensive and experienced leadership team who have come together under one organization to achieve our 

mission of improving the lives of cancer patients by creating more effective, safer and tolerable treatments. We have the goal of 
becoming a global leader in bringing innovative cancer treatments to the market and improving health outcomes. To achieve our goal, 
we have established the following strategic priorities:

Obtain regulatory approval and prepare to commercialize Oral Paclitaxel and tirbanibulin ointment − We intend to file an 

NDA with the FDA in 2020 to secure regulatory approval of Oral Paclitaxel for metastatic breast cancer, and if approved, to establish 
it as the chemotherapy of choice for patients with metastatic breast cancer. If approved by the FDA, we plan to commercialize Oral 
Paclitaxel in the U.S. by leveraging our commercialization capabilities in the U.S., and also plan to evaluate marketing options outside 
of the U.S., including using our internal resources, partnering with others, or out-licensing the product. We submitted an NDA to the 
FDA for tirbanibulin ointment for the treatment of AK and we can provide no assurances the FDA will accept the NDA submission 
for filing, or if accepted, that our NDA will ultimately receive approval. Our strategic partner Almirall will employ its expertise to 
support the development of tirbanibulin ointment, if approved, in Europe and also to commercialize the product in the U.S. and 
European countries, including Russia.

Rapidly and concurrently advance our other clinical programs and product candidates − We intend to pursue the fastest 
feasible pathways to approval of our existing clinical product pipeline. For example, in our Orascovery platform, we plan to continue 
to advance our studies evaluating Oral Paclitaxel in other indications as well as those of our other Orascovery product candidates. In 
addition, we continue to make progress with the development of the clinical program for tirbanibulin. We will also evaluate options to 
enter into partnerships and collaborations where appropriate. 

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Enhance and expand our other new technology platforms −  In 2018, Axis Therapeutics Limited, our majority owned 
subsidiary, commenced the development of TCR-T through an in-license from XLifeSc. We are currently preparing the U.S. IND 
application for TAEST16001. In 2018, we commenced development of arginine deprivation therapy, based on our pegylated 
genetically modified human arginase technology which is in-licensed from Avalon Polytom (HK) Limited (“Polytom”). In June 2019, 
the FDA allowed the IND application for the clinical investigation of PT01 for the treatment of patients with advanced malignancies 
and we are currently planning a Phase 1 clinical study. In addition to our existing portfolio of clinical candidates, our research and 
development teams are evaluating additional applications of our novel technology platforms. For example, our novel Cytochrome 
P450 (“CYP”) and P-gp dual inhibitor technology could expand the breadth of application for our oral enabling platform.

Leverage our global research and development operations to continue development of an oncology-focused product pipeline 

− We have research and development operations in the U.S., U.K., China, Taiwan and Latin America that are focused on advancing 
our existing product pipeline and on developing additional novel clinical drug product candidates in order to replenish our 
development pipeline as other candidates mature. We have developed a core competency in oral absorption technology and apply that 
skill to develop new methods of drug discovery and to identify new pipeline candidates, such as our Oral Eribulin IND program. In 
addition, we may leverage our research and development capabilities to partner with others for the development of new pipeline 
candidates. We believe that we can create substantial long-term value by pursuing a robust, ongoing research and development 
program. 

Continue to build an integrated business model that leverages our proprietary commercial platform, supply chain and cGMP 

manufacturing capabilities − We built our U.S. commercial operation in preparation for future FDA approvals of our proprietary 
product candidates. We believe that our experienced product commercialization team can build an infrastructure that leverages both 
our global facilities and collaborative relationships to achieve global distribution of any products approved by the FDA and regulatory 
authorities in other jurisdictions, as applicable, in a timely and cost-effective manner. Our strategic partner Almirall will employ its 
expertise to support the development in Europe and also to commercialize tirbanibulin in the U.S. and European countries, including 
Russia. In addition, we intend to utilize current Good Manufacturing Practices (“cGMP”) manufacturing facilities from our 
public/private partnerships in both the China and U.S. markets as a mechanism to build-out our supply chain around the world.
Selectively pursue strategic M&A, licensing or partnership opportunities to complement our existing operations −  We 

continue to pursue strategic acquisitions, licensing and partnership opportunities. We will continue to target opportunities that will 
complement our existing portfolio and operations to create value for stockholders and support our business strategy and mission. 

Operating Segments 

We have organized our business model into three platforms: (1) our Oncology Innovation Platform, dedicated to the research 
and development of our proprietary drugs; (2) our Commercial Platform, focused on the sales and marketing of our specialty drugs 
and the market development of our proprietary drugs; and (3) our Global Supply Chain Platform, dedicated to providing a stable and 
efficient supply of APIs for our clinical and commercial efforts. Our global operations across the three segments as of December 31, 
2019 are shown below:

* Includes Guatemala City, Guatemala and Buenos Aires, Argentina

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Our Oncology Innovation Platform 

Within our Oncology Innovation Platform, we have four different technologies: (1) Orascovery, based on a P-glycoprotein (P-
gp) pump inhibitor, (2) Src Kinase inhibition, (3) TCR-T immunotherapy, and (4) arginine deprivation therapy. The following table 
summarizes the clinical development status of our current pipeline of product candidates in our Oncology Innovation Platform as of 
December 31, 2019: 

May 2019  Program Drug Candidate Indication Pre-clinical Phase 1 Phase 2 Phase 3 Orascovery  (P-gp inhibitor [ encequidar ] +  chemoRx agents )  Oral paclitaxel + encequidar Metastatic breast cancer Angiosarcoma Oral paclitaxel + encequidar w/  pembrolizumab Solid tumors Oral paclitaxel + encequidar w/  ramucirumab Gastric cancer Oral irinotecan + encequidar Solid tumors Oral docetaxel + encequidar Solid tumors  Oral topotecan + encequidar Solid tumors Oral  eribulin + encequidar Solid tumors  Dual Inhibition ATNX - 04 (CYP / P - gp) Multiple tumors Src Kinase Inhibition Tirbanibulin ointment Actinic keratosis Psoriasis Skin Cancers Tirbanibulin  oral Liquid tumors Ovarian cancer KX2 - 361 Glioblastoma TCR - T Immunotherapy TAEST16001 Multiple tumors Arginine Deprivation Therapy PT01 ( Pegtomarginase) Multiple tumors

In addition to our existing portfolio of clinical candidates, our research and development teams are evaluating additional 
applications of our novel technology platforms. For example, our novel CYP and P-gp dual inhibitor technology could expand the 
breadth of application for our oral enabling platform.

We collaborate with a number of biotechnology pharmaceutical companies, including Hanmi Pharmaceutical Co., Ltd. 
(“Hanmi”), Eli Lilly and Company (“Lilly”), Almirall, Xiangxue, ZenRx Limited (“ZenRx”) and PharmaEssentia, to support the 
development of our clinical pipeline globally and explore additional indications. For additional information, please see “Business—
License and Collaboration Agreements”.

Our Orascovery Platform

Our Orascovery platform technology is based on the novel oral P-gp pump inhibitor molecule, encequidar. The P-gp pump is a 

plasma membrane efflux protein on the cells which forms a localized drug transport system. In the intestine it limits the oral 
absorption of a large number of drugs, including widely used P-gp substrate cancer chemotherapeutic drugs such as paclitaxel, 
irinotecan, docetaxel and eribulin, thus restricting their current dosing to IV administration. We are developing a series of orally 
administered chemotherapeutic agents using our proprietary P-gp pump inhibitor delivery system. For our lead Orascovery product 
candidate, Oral Paclitaxel, sequential co-administration of encequidar and oral paclitaxel is designed to facilitate oral absorption of 
paclitaxel and achieve therapeutic blood levels. Studies conducted to date have indicated that oral administration of paclitaxel in 
combination with encequidar has lower peak concentrations of paclitaxel in the blood which we believe will result in lower rates of 
peripheral neuropathy. In addition, oral administration eliminates infusion-related reactions related to IV administration of paclitaxel, 
which could improve patient tolerability and allow for longer dosing durations to improve efficacy. The technology is designed to 
enable the oral administration of many cancer agents, which currently are only given by IV due to poor oral absorption. Oral 
administration of certain cytotoxic chemotherapies can potentially overcome several key challenges in IV administration of those 
drugs. In addition to Oral Paclitaxel, we are advancing Oral Irinotecan, Oral Docetaxel, Oral Topotecan and Oral Eribulin as other 
clinical candidates on this platform.

Chemotherapeutic agents such as paclitaxel, irinotecan, docetaxel and eribulin are clinically proven and widely used. However, 
these agents have historically been limited to IV administration, which can result in adverse events which are due, in part, to high peak 
blood concentration levels of the chemotherapeutic drugs. In addition, for some agents, there are infusion-related reactions caused, in 
part, by solubilizing dilution agents used to facilitate IV administration. A cancer patient’s inability to tolerate IV chemotherapies may 

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limit the long-term efficacy of IV anti-cancer therapies. We believe our pipeline products, which leverages our proprietary delivery 
system will expand the use of these chemotherapeutic agents. We believe that our Orascovery platform overcomes the current 
challenges of chemotherapeutic agents by allowing more frequent dosing over longer periods of time, which we believe will lead to 
better tolerability and allow for higher total dosage and longer time exposure to the chemotherapeutic agent. 

We have historically observed that a novel technology applied to a traditional chemotherapy agent may achieve pricing 
premiums if data demonstrates superior efficacy and tolerability as compared to current standards of care. We believe our pipeline 
products will be able to capture a large untapped market and achieve significantly larger market potential than the revenue generated 
by existing formulations, due to (1) increasing adoption of oral therapy due to patient preference, (2) the potential for improved 
response rates through greater exposure (based on our predictive model), (3) the potential for improved tolerability (based on our 
predictive model) and (4) the possibility to expand the market through combination therapies with immuno-oncology therapy and oral 
targeted treatments. 

Encequidar—Our Novel P-gp Pump Inhibitor 

The novel P-gp inhibition molecule, encequidar (formerly known as HM30181A), belongs to a new class of P-gp inhibitor that 
has high potency, specificity and local action at the intestine cells, and forms the cornerstone of our Orascovery platform. Encequidar 
is designed to enable the administration of oral dosing formats of paclitaxel, irinotecan, docetaxel, topotecan and eribulin, each of 
which is currently under clinical development. The feature that distinguishes encequidar from other small molecule P-gp inhibitors is 
that this novel compound is specific to P-gp, does not interfere significantly with the activity of other related transporters and does not 
significantly inhibit cytochrome 3A4, an enzyme that is important in the metabolism of commonly used drugs. Encequidar is 
minimally absorbed following oral administration. This localizes P-gp inhibitory activity in the gastrointestinal tract, limiting the 
potential for interaction at additional systemic sites where P-gp is expressed. Based on the results of our encequidar clinical 
development programs to date, inhibition of gastrointestinal P-gp has been shown to improve the absorption of chemotherapy agents 
to achieve systemic exposure profiles which enhance the efficacy and may reduce toxicity of these established chemotherapeutic 
agents. Based on its pharmacological profile and low systemic absorption, encequidar is not expected to cause drug-to-drug 
interactions other than enhancement of oral absorption of medications which are P-gp substrates. 

Mechanism of Action - P-gp Inhibition 

Encequidar is a P-gp pump inhibitor and an oral absorption enhancer that prevents the P-gp pump-mediated efflux of 

chemotherapy agents back into the gastrointestinal tract. P-gp plays an important physiologic role as a transporter protein at multiple 
barrier sites, including the gastrointestinal tract and the blood brain barrier (“BBB”). The demonstrated role of P-gp in limiting 
intestinal absorption of multiple cancer chemotherapies highlighted the potential utility of a small molecule P-gp inhibitor for enabling 
oral administration of P-gp substrate drugs otherwise restricted to IV dosing. Encequidar was originally identified by Hanmi as a 
highly selective and potent P-gp inhibitor, capable of elevating the oral bioavailability of paclitaxel from less than 5% (in the absence 
of encequidar) to 41% in rats. As shown in the below chart, encequidar is distinct from previously developed small molecule P-gp 
inhibitors because it is designed to not be systemically absorbed in the gastrointestinal tract following oral administration with only 
small amounts detectable in the plasma even after relatively high doses. This unique property makes encequidar a good candidate for 
co-administration with P-gp substrate drugs, such as paclitaxel, which normally exhibit poor oral bioavailability and are therefore 
limited to IV routes of dosing. 

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Preclinical Development

In preclinical studies, encequidar demonstrated poor absorption from the gastrointestinal tract following oral administration in 

rats and dogs. The safety and tolerability of encequidar has been characterized in a panel of safety and toxicology studies. Single dose 
oral toxicology, repeat dose oral toxicology in multiple species for several durations, a standard battery of genotoxicity assays, and a 
full developmental and reproductive toxicity assessment have been performed. 

Multiple preclinical studies have evaluated the in vivo pharmacologic effect of encequidar, generally in the context of a co-
administered P-gp substrate such as paclitaxel. In each case, co-administration of encequidar significantly enhanced systemic exposure 
of the co-administered substrate. In murine models of human cancer, oral co-administration of encequidar with paclitaxel or docetaxel 
conferred anti-tumor activity comparable to the IV dosing route. 

Clinical Development 

In three separate pharmacokinetics (“PK”) studies of encequidar conducted in healthy subjects, a total of 81 individuals received 
single oral doses of encequidar tablets in single doses of up to 900 mg, and 30 individuals were enrolled in multiple dose cohorts with 
treatment groups receiving encequidar tablets ranging from 60 to 360 mg per day for five days. Encequidar was well-tolerated, with 
mostly mild gastrointestinal adverse effects. No serious adverse events (“SAEs”) were reported. At the current clinical dose of 15 mg 
given once daily for up to five days, the Cmax in systemic circulation is low. 

Our Orascovery Product Candidates 

Oral Paclitaxel and Encequidar

Overview 

IV paclitaxel is used widely for the treatment of breast, ovarian and lung cancer. Due to its poor solubility, paclitaxel is usually 

dissolved in ethanol and polyethoxylated castor oil, which is a major cause of IV hypersensitivity reactions. As a result, premedication 
with high dose steroids and antihistamines is required to minimize these adverse reactions. Additional common toxicities associated 
with IV administration of paclitaxel include neuropathy, neutropenia and alopecia. These side effects limit dose intensification and 
often require reduction in dosing. 

As a single agent or in combination, IV paclitaxel is administered at a variety of doses and regimens that are approved for 
therapeutic use for various paclitaxel indications, including 175 and 135 mg/m2 administered as both three and twenty-four hour 
infusions, respectively, once every three weeks. Over the past number of years, there has been great interest in dose dense therapy 
with paclitaxel, switching from the conventional every three-week regimen to administering the drug once weekly. Dose dense 
treatment with paclitaxel has various advantages that can lead to an increase in the overall exposure, as measured by area under the 
concentration-time curve (AUC), over a treatment cycle, while balancing the adverse event profile normally observed, such as 
neutropenia. This concept is consistent with the hypothesis of maintaining sufficient drug concentrations above a threshold target 
value for an extended duration. 

Oral Paclitaxel is our lead drug candidate in our Orascovery Platform and is initially being developed for the treatment of 
patients with metastatic breast cancer. We are preparing for NDA submission in 2020, having conducted a pivotal, randomized Phase 
3 study of Oral Paclitaxel monotherapy versus IV paclitaxel monotherapy which met its primary endpoint of confirmed response rate 
in patients receiving Oral Paclitaxel. We are also evaluating Oral Paclitaxel (1) as a monotherapy treatment for patients with cutaneous 
angiosarcoma, (2) in combination with ramucirumab for patients with advanced gastric cancers, and (3) in combination with 
pembrolizumab for advanced solid malignancies including urothelial, gastric or gastroesophageal or non-small cell lung cancer. We 
are working to develop Oral Paclitaxel for additional indications and are exploring potential combinations with immuno-oncology 
agents.

Overview of Clinical Findings

As of December 31, 2019, five Phase 1, 2 and 3 clinical studies of Oral Paclitaxel have been completed. Oral Paclitaxel (15 mg 

of encequidar plus 205 mg/m2 of oral paclitaxel) administration has shown to result in overall exposure in the blood approximately 
equivalent to that achieved with 80 mg/m2 of IV paclitaxel. We believe oral dosing of paclitaxel can provide a longer drug exposure 
over a target drug concentration than IV paclitaxel, which may translate to better clinical response. We also observed in a Phase 3 
clinical study of 402 metastatic breast cancer patients that Oral Paclitaxel had statistically significantly higher confirmed tumor 
response rate with lower incidence and severity of neuropathy compared to IV paclitaxel. See “—Clinical Development by 
Indication—Metastatic Breast Cancer—Phase 3 Study” for a further discussion of the results of the Phase 3 study. We are continuing 
to collect data on the secondary endpoints of progression free and overall survival. 

We have completed a randomized two-way crossover study comparing the exposure of paclitaxel after administration of IV 
paclitaxel 80 mg/m2 and Oral Paclitaxel 205mg/m2 daily over three consecutive days. Intensive PK sampling was conducted over each 
treatment period. Statistical analysis demonstrated that the exposure to paclitaxel, based on the AUC was similar between the two 
treatments. For Oral Paclitaxel, the AUC was 5033 ng.hr/mL and Cmax was 397 ng/mL. For IV paclitaxel, the AUC was 5595 

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ng.hr/mL with a Cmax of 2732 ng/mL. The geometric ratio and 90% confidence intervals for AUC was 89.5% (83.9-95.5) falling 
within the guidelines for equivalence.  

Clinical Development by Indication

Metastatic Breast Cancer 

Phase 2 Study

We conducted a Phase 2 study of Oral Paclitaxel in patients with metastatic breast cancer who failed previous chemotherapies in 

Taiwan. The study was a multicenter, single-arm, open-label, PK study of Oral Paclitaxel administered orally for 3 consecutive days 
weekly for up to 16 weeks. We presented encouraging data on the efficacy of Oral Paclitaxel in the treatment of metastatic breast 
cancer patients obtained from this Phase 2 study at the 2019 ASCO Annual Meeting. Results from 28 patients were reported and 26 of 
these patients had failed multiple previous chemotherapies.  Study results on tumor response showed that there were 11 (42.3%) 
partial response, 12 (46.2%) stable disease and 3 (11.5%) progressive disease in 26 evaluable patients. Three patients had treatment-
related SAEs (grade ≥3 neutropenia) and all patients recovered completely. PK results showed that the AUC of Oral Paclitaxel at 
week-1 was reproducible at week-4 (3050 to 3594 ng-hr/mL). The results indicated that weekly Oral Paclitaxel can achieve paclitaxel 
exposure similar to that of weekly IV paclitaxel (80mg/m2) reported previously and that Oral Paclitaxel appears effective in the 
treatment of advanced breast cancer patients. 

Phase 3 Study

Our Phase 3 study of Oral Paclitaxel in patients with metastatic breast cancer was a randomized, active-controlled clinical trial 

comparing Oral Paclitaxel monotherapy against IV paclitaxel monotherapy. The trial randomized subjects in a 2:1 ratio to Oral 
Paclitaxel, and was designed to compare the safety and efficacy of Oral Paclitaxel with IV paclitaxel. The primary endpoint was 
overall response rate (“ORR”) (confirmed by scans at two consecutive timepoints) as assessed by RECIST v1.1 criteria, a generally 
accepted method for assessing tumor response. Blinded assessments of tumor response were made by independent radiologists. In 
December 2019, we presented the data from our Phase 3 study of Oral Paclitaxel in patients with metastatic breast cancer at the 2019 
SABCS.

A total of 402 metastatic breast cancer patients were enrolled (Oral Paclitaxel =265 vs. IV paclitaxel=137), which represented 

the intent-to-treat (“ITT”) population. Patient demographics were balanced. The prespecified modified ITT (“mITT”) population 
comprised 360 patients (Oral Paclitaxel =235 vs. IV paclitaxel=125), which includes patients who received at least 7 doses of Oral 
Paclitaxel (the majority of one cycle of treatment) or one dose of IV paclitaxel and excludes patients that did not have tumors that 
could be evaluated by the central radiologist at baseline.  The study was designed with 360 evaluable patients (prespecified mITT 
population) and was statistically powered to detect a difference of 15% in confirmed ORR at p=0.045 with 80% power at the final 
analysis.  

In the final analysis of the primary endpoint of the study, Oral Paclitaxel (205 mg/m2 per day 3 days/week) showed a 

statistically significant improvement in ORR at 40.4% compared to IV paclitaxel (175 mg/m2 once every 3 weeks) at 25.6%, a 
difference of 14.8% (p=0.005) favoring Oral Paclitaxel, based on prespecified mITT analysis. Based on ITT analysis, Oral Paclitaxel 
showed a statistically significant improvement in ORR over IV paclitaxel, with 35.8% ORR, compared to 23.4% for IV paclitaxel, a 
difference of 12.4% (p=0.011).

The study results showed that approximately one-third of confirmed responders who received Oral Paclitaxel experienced a 
confirmed tumor response for more than 200 days. Ongoing analysis as of July 25, 2019 showed the median durations of response 
were 39.0 weeks for the patients who received Oral Paclitaxel, compared to 30.1 weeks for those who received IV paclitaxel. 

Secondary endpoints in the study include progression free survival (“PFS”) and overall survival (“OS”). Ongoing analysis as of 

July 25, 2019 showed a strong trend favoring Oral Paclitaxel. The study results showed a median PFS of 9.3 months for Oral 
Paclitaxel compared to 8.3 months for IV paclitaxel (p=0.077, hazard ratio=0.760) in the prespecified mITT and ITT populations.  
Ongoing analysis as of July 25, 2019 of OS in the prespecified mITT population favored Oral Paclitaxel over IV paclitaxel, by an 
additional 11 months, with a median survival of 27.9 months compared to 16.9 months, respectively (p=0.035, hazard ratio=0.684). In 
the ITT population, the median OS was 27.7 months for the Oral Paclitaxel group compared to 16.9 months for the IV paclitaxel 
group (p=0.114).

In the study, the Oral Paclitaxel group had lower incidence and severity of neuropathy compared to IV paclitaxel: 57% of IV 

paclitaxel patients experienced neuropathy (all grades) versus 17% of Oral Paclitaxel patients, with grade 2 or above neuropathy 
observed in 31.1% of IV paclitaxel patients versus 7.6% of Oral Paclitaxel patients.  Grade 3 neuropathy was observed in 8% of IV 
paclitaxel patients versus 1% of Oral Paclitaxel patients. The results also showed lower incidence of alopecia compared to IV 
paclitaxel, with 28.8% of the Oral Paclitaxel group experiencing alopecia versus 48.2% of the IV paclitaxel group in treatment-
emergent adverse events of interest. For other treatment-emergent adverse events of interest, there was a higher incidence of 
neutropenia with CTCAE grade ≥ 3 (29.9% vs. 28.1%; with Grade 4 14.8% vs 8.9%) and gastro-intestinal side effects, such as 

9

diarrhea with CTCAE grade ≥ 3 (5.3% vs. 1.5%) and vomiting or nausea with CTCAE grade ≥ 3 (6.8% vs. 0.7%), in the Oral 
Paclitaxel group as compared to the IV paclitaxel group.

Based on the Phase 3 study data, we are preparing an NDA submission to the FDA. In the event we receive regulatory approval 
from the FDA, we plan to pursue additional oncology indications where we believe taxanes will remain a foundational treatment and 
to continue exploring combination therapies. 

Angiosarcoma

          We are also developing Oral Paclitaxel for the treatment of angiosarcoma. Angiosarcomas are rare, aggressive and 
heterogeneous tumors accounting for approximately 2% of all soft tissue sarcomas. Only limited treatment options for advanced 
disease exist with poor outcomes and low 5-year survival rates. In April 2018, FDA granted an Orphan Drug Designation for Oral 
Paclitaxel for the treatment of angiosarcoma. In addition, in October 2019, we announced the receipt of Orphan Designations from the 
European Commission for Oral Paclitaxel for the treatment of soft tissue sarcoma. 

           In the angiosarcoma xenograft model in preclinical studies, oral dosing of Oral Paclitaxel resulted in dose-dependent tumor 
growth inhibition and subsequent increased survival. Tumor histology revealed that Oral Paclitaxel greatly reduced the formation of 
cavernous blood-filled neoplastic vessels characteristic of angiosarcoma. 

           We commenced a study of Oral Paclitaxel monotherapy in the treatment of angiosarcoma in December 2018. Preliminary data 
announced in May 2019 showed promising early clinical responses in the first 7 patients who received at least six weeks treatment, the 
timepoint for the first response assessment. All 7 patients showed significant and visible reduction of the cutaneous angiosarcoma 
within one or two weeks of treatment. Three patients had complete responses based on RECIST v1.1 criteria, with two complete 
responses occurring by six weeks of treatment. The study is ongoing. 

Gastric Cancer 

Monotherapy Study

Hanmi conducted a Phase 1/2 gastric cancer study in South Korea. The study was an open-label Phase 2, single-arm clinical trial 

of Oral Paclitaxel for second line treatment of advanced gastric cancer patients. This trial included dosing Oral Paclitaxel at 150 
mg/m2 per day, for two consecutive days per week, for 3 weeks out of a 4-week cycle. A total of forty-six subjects enrolled in this 
study. Oral Paclitaxel was well-tolerated by gastric cancer patients. The results of the Phase 2 portion of this clinical trial showed 
treatment with Oral Paclitaxel resulted in a median overall survival of 10.7 months, which compared favorably to historical data for 
ramucirumab, the only FDA approved drug for second line treatment of gastric cancer, which reported 5.2 months of overall survival 
in a randomized, placebo controlled Phase 3 clinical study. 

Study in Combination with Ramucirumab 

We are conducting an MTD (maximum tolerated dose) study of Oral Paclitaxel in combination with ramucirumab in patients 

with advanced gastric cancer in the U.S. and Asia through a clinical trial collaboration with Lilly. We commenced a study of up to 32 
patients in a dose escalation part of the trial with a dose expansion of Oral Paclitaxel in combination with a fixed dose of ramucirumab 
in July 2017. 

         The objective of our ongoing Phase 1 study is to define the MTD of daily Oral Paclitaxel dosing, starting at 200 mg/m2 for three 
days in a week, in combination with ramucirumab, which will be dosed every other week. In the first part of the study, 17 subjects 
were enrolled at doses ranging from 200-300 mg/m2. Dose limiting toxicities (“DLTs”) included febrile neutropenia, grade 4 
neutropenia and grade 3 gastric hemorrhage. The most frequently reported adverse events were vomiting (70%), neutropenia (59%). 
Decreased appetite (53%), nausea (24%) and mucositis (24%). 

Other Indications

We have an ongoing Phase 1/2 clinical study to assess the safety, tolerability and activity of Oral Paclitaxel in combination with 

an anti-programmed cell death protein 1 (anti-PD1) antibody (pembrolizumab) in patients with advanced solid malignancies. 
Pembrolizumab is a checkpoint inhibitor approved by the FDA. The study is being conducted in patients with urothelial, gastric or 
gastroesophageal or non-small cell lung cancer that have previously failed treatment with a checkpoint inhibitor. Dose escalation of 
paclitaxel administered as a flat dose of 270 mg per day for 3 to 5 days per week for 2 of 3 weeks is ongoing. 

Overview of Safety Observations in Oral Paclitaxel Studies 

Studies to date have indicated that Oral Paclitaxel has a manageable adverse event profile in cancer patients when given without 

premedication for hypersensitivity type reactions, in contrast to the premedication requirement for IV paclitaxel, namely steroids and 
antihistamines. No new toxicity, apart from those typically observed with paclitaxel, was observed. Infusion related reactions, 
including hypersensitivity type reactions, have not been observed in patients administered Oral Paclitaxel. Additionally, severe 

10

toxicities associated with IV administration of paclitaxel, including neuropathy and alopecia, are at a lower incidence and severity for 
Oral Paclitaxel. 

As of December 31, 2019, approximately 13% of patients treated in clinical studies with Oral Paclitaxel experienced SAEs that 
were considered to be related to the study treatment. The most common were neutropenia in approximately 4% of patients and febrile 
neutropenia in approximately 3% of patients; pneumonia in approximately 2% of patients; and sepsis, septic shock, dehydration and 
vomiting in approximately 1% of patients; gastroenteritis, anemia, diarrhea, mucositis, gastrointestinal bleeding and nausea each in 
less than one percent of patients. Serious treatment-related infections other than sepsis, septic shock or pneumonia were reported in 
approximately 1% of patients. Approximately 1% of patients with serious infections had other concurrent treatment-related SAEs.

Oral Irinotecan and Encequidar

Overview

Irinotecan is a potent anticancer drug that is marketed under the trade name Camptosar. Irinotecan is mainly administered to 

patients with metastatic colorectal cancer (mCRC), but also in glioblastoma, lung, ovarian, cervical, upper gastrointestinal cancer and 
pancreatic cancer. The active metabolite of Irinotecan, SN38, is a type 1 DNA topoisomerase inhibitor with potent antitumor activity 
and wide antitumor spectrum. We believe that oral administration of irinotecan will more efficiently generate SN38, resulting in the 
potential for better clinical response with reduced toxicity. Oral Irinotecan is intended for oral administration for the treatment of 
irinotecan-responsive cancers. 

Key Preclinical and Early Clinical Studies 

Hanmi conducted three Oral Irinotecan Phase 1 studies, two as monotherapy, and one in combination with capecitabine, in a 

total of fifty-four Korean patients with advanced solid tumors. The tumor types in these clinical trials were mostly gastric and 
colorectal cancers. MTD for Oral Irinotecan as monotherapy was defined as 100 mg/m2 per 3-week cycle, either given as once daily 
for five consecutive days for one week (20 mg/day), or two weeks (10 mg/day), of a 3-week cycle. Anti-cancer activity was observed 
in these studies. 

Completed Clinical Studies

In a Phase 1 MTD study (HM-OTE-101), Oral Irinotecan was administered to twenty patients with advanced solid tumors on 
Days 1 to 5 during a 21-day cycle. Irinotecan daily doses ranged from 5 to 30 mg/m2, and encequidar doses were 60 mg. MTD was 
identified at 20 mg/m2 per day for five days of a 3-week cycle. Adverse events were typical of events seen with IV irinotecan. 
Common adverse events included nausea (90%), diarrhea (65%), and vomiting (55%). Four subjects had dose-limiting toxicity 
(“DLT”) events (diarrhea, neutropenia, nausea/vomiting and AST elevation). At the MTD, the SN-38 Cmax on Days 1 and 5 were 9 
and 12 ng/mL. Estimated SN-38 cycle exposure (AUC) was 373 ng*hr/mL. In this study Oral Irinotecan monotherapy in patients with 
advanced solid tumors resulted in a disease control rate of 44%. 

In a Phase 1 MTD study (HM-OTE-102), Oral Irinotecan was given once daily for five consecutive days each week for two 

weeks during a 21-day cycle to thirteen patients with advanced solid tumors. Irinotecan doses ranged from 5 to 20 mg/m2. MTD was 
identified at 10 mg/m2 per day. Adverse events were similar to those observed following IV irinotecan and included diarrhea, nausea, 
and anorexia. Five subjects had a DLT in Cycle 1. The disease control rate was 50% or above at each of the dose levels tested.

In a Phase 1 MTD study (HM-OTE-103) Oral Irinotecan in combination with capecitabine. Oral Irinotecan was administered to 
twenty-one patients on Days 1 to 5 during a 21-day cycle. Irinotecan doses ranged from 10 to 20 mg/m2 per day, with encequidar (15 
mg) in combination with capecitabine at 800-1000 mg/m2 for fourteen days. The MTD of Oral Irinotecan, in combination with 
capecitabine at the 1000 mg/m2 dose was identified at 15 mg/m2 per day of Oral Irinotecan. In this study of combination of Oral 
Irinotecan with capecitabine in patients with a variety of solid tumors (mostly GI cancers), 10 out of 18 (56%) patients had either 
stable disease or a partial response. 

Current and Planned Clinical Development 

A Phase 1 MTD study is being conducted and is currently ongoing. This study is to determine the MTD of Oral Irinotecan, 
when given once every three weeks, in subjects with advanced malignancies. We have identified a dosing regimen suitable for Phase 
2, and Phase 2 studies are being planned.

Overview of Safety Observations in Oral Irinotecan Studies 

In our Oral Irinotecan clinical studies to date, the SAEs observed that were deemed to be possibly, likely or definitely related to Oral 
Irinotecan include diarrhea, rash, gastrointestinal hemorrhage, anorexia, vomiting, nausea, enteritis, asthenia, neutropenia, increased 
alanine aminotransferase and increased aspartate aminotransferase. As the clinical development program is still in its early stages, we 
do not yet have meaningful safety, including adverse event, statistics to report.

11

Oral Docetaxel and Encequidar

Overview

Docetaxel is a potent anticancer drug within the class of antimicrotubule agents that is marketed under the trade name Taxotere. 

Docetaxel is mainly administered to patients with breast, lung, prostate, gastric and head and neck cancers. Docetaxel has potent 
activity with a wide antitumor spectrum. As a single-agent therapy, docetaxel is administered by IV infusion over one hour at a dose 
of 60-100 mg/m2 for breast cancer and 75 mg/m2 for non-small cell lung cancer given once every three weeks. Docetaxel is also used 
in combination with doxorubicin and cyclophosphamide (adjuvant treatment of breast cancer), cisplatin (lung), topical fluorouracil 
(head and neck and gastric) and prednisone (prostate). Docetaxel causes dose-limiting toxicities that are more common at higher 
doses. One significant dose-limiting toxicity is fluid retention that we believe is associated (at least in part) with the IV formulation 
that contains polysorbate 80, a nonionic and emulsifier frequently used in food and cosmetics. Hypersensitivity reactions may also be 
attributable to IV administration of polysorbate 80. We believe that Oral Docetaxel will provide therapeutic exposures of the drug and 
result in the potential for better clinical response with reduced toxicity. 

Preclinical Activity and Evaluation 

The potential effectiveness of encequidar to inhibit the P-gp pump’s ability to transport docetaxel out of cells was first observed 

in vitro by an increase in the potency of docetaxel by 1,788-fold in a uterine sarcoma cell line. In rat oral PK studies, the plasma 
concentrations of docetaxel versus time showed a significant increase upon co-administration of encequidar with docetaxel. In this 
experiment, docetaxel was formulated in the currently proposed clinical formulation. Oral Docetaxel was also tested in preclinical 
human prostate cancer murine model and overall, Oral Docetaxel was more active than docetaxel given orally without a P-gp inhibitor 
and was similar to the efficacy of IV docetaxel administration. At a dose of 25 mg/kg docetaxel with encequidar a percent of tumor 
control of 4.8% was achieved which is comparable to the standard 10 mg/kg IV dosing regimen of docetaxel (2.9%). Without P-gp 
pump inhibition by encequidar, oral administration of docetaxel demonstrated less inhibition of tumor growth, with a percent of 
control of 50.5%, consistent with reduced absorption of oral docetaxel when dosed without encequidar. 

Current and Planned Clinical Studies 

A Phase 1 dose escalation U.S. trial for Oral Docetaxel in patients with various solid tumors with a starting dose of 35 mg/m2 

given once every three weeks is ongoing. Another Phase 1 study to identify the absolute bioavailability of Oral Docetaxel in prostate 
cancer patients is ongoing in New Zealand. Based on Phase 1 results so far, we believe that we can achieve similar exposure to IV 
docetaxel with one or two days of dosing every three weeks. Phase 2 studies are being planned. 

In line with our expectations for Oral Paclitaxel, we expect that the overall safety profile of Oral Docetaxel will be similar to 

that of IV docetaxel, with differences related to the route of administration. As with Oral Paclitaxel, premedication has not been 
required and hypersensitivity type reactions have not been observed. No treatment-related SAEs have been reported.

Oral Topotecan and Encequidar 

Topotecan is a potent anticancer drug under the class of camptothecins that is marketed under the trade name Hycamtin. 
Topotecan is mainly administered to patients with lung, ovarian and cervical cancer. Clinical activity has been shown in combination 
with the taxanes, docetaxel and paclitaxel, for the treatment of a variety of tumors, including lung cancer. Topotecan causes dose-
limiting toxicities. These side effects mainly include neutropenia, late onset diarrhea and nausea and vomiting. 

In rat oral PK studies, the plasma concentrations of topotecan versus time demonstrated a significant increase upon co-
administration with encequidar. This effect is evident when topotecan is formulated in saline or the marketed product, Hycamtin. In 
preclinical murine models with human tumor transplants, including ovarian cancer, oral topotecan in combination with encequidar was 
more active than oral topotecan alone following administration at a dose of topotecan 1 mg/kg once daily for five days per week.

A Phase 1 clinical trial in advanced malignancies for Oral Topotecan is ongoing. 

In line with our expectations for Oral Paclitaxel, we expect that the overall safety profile of Oral Topotecan will be similar to 

that of IV topotecan, with differences related to the route of administration. As with Oral Paclitaxel, premedication has not been 
required and hypersensitivity type reactions have not been observed. No treatment-related SAEs have been reported.

Oral Eribulin and Encequidar

Eribulin is an anticancer intravenous drug marketed by Eisai Company under the trade name Halaven. It is used to treat certain 

patients with breast cancer and liposarcoma. Eribulin is a synthetic derivative of the natural product Halichondrin B. The potent 
anticancer effects of this agent come primarily from its unique means of targeting microtubule dynamics, a process critical to cell 
proliferation. 

The nonclinical demonstration of a favorable PK profile, with lowered peak plasma concentration and longer duration of the 

drug within the desired plasma concentration range, suggests the potential for an efficacy and safety profile for Oral Eribulin, similar 
to what we have observed with Oral Paclitaxel and other Orascovery products. In addition, we have developed a novel and efficient 
synthetic route for the synthesis of eribulin API which we believe will support our development of this candidate. In October 2018, the 

12

FDA allowed our IND application for Oral Eribulin. A Phase 1 study commenced in 2019 to assess the safety, MTD, DLT and 
absolute bioavailability of Oral Eribulin (encequidar and oral eribulin) in subjects with solid tumors. As the clinical development 
program is still in its early stages, we do not yet have meaningful safety, including adverse event, statistics to report. 

Our Src Kinase Inhibition Platform

Our Src Kinase inhibition platform technology is based on novel small molecule compounds that have multiple mechanisms of 
action, including the inhibition of the activity of Src Kinase and the inhibition of tubulin polymerization, which may limit the growth 
or proliferation of cancerous cells. We believe the combination of these mechanisms of action provides a broader range of anti-cancer 
activity compared to either mechanism of action alone. Our lead product candidate on our Src Kinase inhibition platform is 
tirbanibulin ointment, which we are advancing for the treatment of AK as well as psoriasis and skin cancer. Our other clinical 
candidates and their indications in this platform include tirbanibulin oral for solid and liquid tumors; and KX2-361 for brain cancers, 
such as GBM. 

Tirbanibulin 

Mechanism of Action 

Tirbanibulin, formerly known as KX2-391 or KX-01, is a novel small molecule that we discovered and developed, which 

demonstrates at least two mechanisms of action (“MOAs”) relevant to the potential control of cancer and hyper-proliferative 
disorders: (1) Src tyrosine kinase inhibition (non-ATP competitive) and (2) tubulin polymerization inhibition. Src Kinase, a tyrosine 
kinase protein involved in regulating cell growth, is strongly implicated in metastasis. Inhibiting Src Kinase may limit the growth or 
proliferation of cancerous cell types. Src plays a role in regulating multiple aspects of tumor development, growth and metastases, and 
its inhibition limits such tumor activity. Interfering with tubulin polymerization activity is a clinically validated mechanism for 
treating cancer. For both targets tirbanibulin binds at a novel binding site. Taken together, these two MOAs may provide for a potent 
means of treating cancer and other hyper-proliferative disorders. 

 Tirbanibulin Ointment for Topical Indications 

Tirbanibulin is a compound developed under our Src Kinase inhibition platform that, as a free base, has advantageous physical 

properties for topical ointment formulations. 

We are evaluating topical tirbanibulin ointment in the clinic for AK in the U.S. The most common cause of AK is exposure to 

ultraviolet radiation from the sun or tanning beds. This exposure can lead to oncogenic changes, such as inactivation of p53, and 
consequential hyper-proliferation of mutated keratinocytes. If left untreated, 10-15% of AKs can progress to skin cancer. tirbanibulin 
inhibits the proliferation of keratinocytes and up-regulates p53 so its utility in clinically treating AK is of interest. We commenced two 
Phase 3 studies of tirbanibulin ointment for the treatment of AK in September 2017, which completed patient enrollment in February 
2018. In July 2018, both Phase 3 studies achieved their primary endpoint of 100% clearance AK lesions at Day 57 within the face or 
scalp treatment areas. 

An additional indication for psoriasis is being evaluated in a Phase 1 clinical trial led by our out-licensing partner 
PharmaEssentia Corp. Since AK can lead to skin cancers, we are now investigating the initiation of a study in that basal cell 
carcinoma. These applications provide additional potential therapeutic utilities for tirbanibulin ointment and could represent 
significant potential market expansions beyond AK. 

Actinic Keratosis

Phase 1 and 2 Studies 

A Phase 1 study of tirbanibulin ointment 1% for treatment of AK was conducted by us in the U.S. In the study, 50% (four of 
eight subjects) had complete response (100% clearance) with tirbanibulin ointment 1% being applied for five consecutive days on a 25 
cm2 area of the forearm. The results indicated very good local and systemic tolerability, with a complete response achieved without 
severe adverse skin reactions in some patients.

We completed a Phase 2a clinical study in the U.S. of tirbanibulin ointment 1% for treatment of AK on the face and scalp. The 
primary objective was to evaluate the complete response rate, which was defined as 100% clearance of such patient’s AK at Day 57 
after treatment. Additionally, we sought to further investigate the findings from the Phase 1 proof of concept study indicating that 
tirbanibulin ointment has a favorable side effect profile. Data from 168 patients in the Phase 2 study shows that the tirbanibulin dosing 
regimen used in this study is well-tolerated, with mostly mild and transient local skin reactions (LSRs). The five-day treatment cohort 
achieved a higher overall 100% clearance of AK lesions at Day 57 (i.e. eight weeks after the initiation of treatment) than the three-day 
treatment cohort (43% vs. 32%). In the five-day treatment cohort, 23 of 44 subjects (52%) with AK on face and thirteen of forty (33%) 
on scalp attained 100% clearance at Day 57. LSRs were mild and mostly erythema, flaking or scaling, crusting and swelling with the 
majority of the LSRs scores of < 2 and resolved rapidly. Only one subject scored 4 in erythema and flaking or scaling, which both 

13

resolved rapidly without concomitant medications. Erosions or ulcers and vesicles or pustules were observed in only 15% and 5% of 
subjects, respectively. No subjects scored ≥ 3 in erosions or ulcers or vesicles or pustules. Treatment related adverse effects were few 
and predominately mild transient application site pruritus, tenderness and pain. There were no treatment related SAEs or 
discontinuations. Plasma levels of tirbanibulin were low to undetectable.

Phase 3 Studies 

We completed two Phase 3 studies of tirbanibulin ointment for treatment of AK on the face and scalp. These two double-
blind, randomized, vehicle-controlled, parallel group, multi-center studies (KX01-AK-003 and KX01-AK-004) were designed to 
support the registration of tirbanibulin ointment as field therapy for AK of the face or scalp.  The studies enrolled a total of 702 
patients across 62 sites in the U.S. Tirbanibulin ointment 1% or vehicle (randomized 1:1) was self-administered to 25 cm2 of the face 
or scalp encompassing 4-8 typical AK lesions, once daily for 5 consecutive days. In July 2018, both Phase 3 studies achieved their 
primary endpoint of 100% clearance of AK lesions at Day 57 within the face or scalp treatment areas, with each study achieving 
statistical significance (p<0.0001). In March 2019, we presented topline results from the two Phase 3 studies of tirbanibulin ointment 
in the treatment of AK in a late breaker session at the 2019 AAD Annual Meeting. Results showed that 44% and 54% of patients in 
studies KX01-AK-003 and KX01-AK-004, respectively, achieved 100% AK lesion clearance at Day 57 (see Table 1). Compliance 
rate in these two studies was greater than 99%. There was a statistically significantly higher 100% clearance rate in favor of the 
tirbanibulin ointment versus the vehicle for each study and in each of the predefined patient subgroups. Safety results showed that 
tirbanibulin ointment was well tolerated. Treatment-related adverse events occurred in 11-20% of patients receiving tirbanibulin 
ointment in the two Phase 3 studies. These events were generally transient mild to moderate application site symptoms, such as 
pruritus or pain. In the KX01-AK-003 study, the most common (occurring in >2% subjects in either group) adverse events in the 
vehicle and tirbanibulin ointment groups up to the Day 57 efficacy and tolerability endpoint were application site pruritus (5% and 7% 
subjects, respectively) and application site pain (3% and 6% subjects, respectively). In the KX01-AK-004 study, the most common 
(occurring in >2% subjects in either group) adverse events in the vehicle and tirbanibulin ointment groups were application site 
pruritus (8% and 11% subjects, respectively) and application site pain (3% and 13% subjects, respectively). There were no SAEs or 
early discontinuations that were considered related to the study drug. Local skin reactions were mostly mild to moderate and transient 
erythema, flaking/scaling and crusting. A 12-month recurrence follow-up period was subsequently completed. Only patients showing 
complete clearance at the primary evaluation endpoint on day 57 were followed quarterly in this period until recurrence was observed 
in the treatment area. Recurrence rates were defined as proportion of patients in whom at least one treated or new AK lesion was 
identified in the treated area throughout one year follow up. The recurrence rates at 12 months were 74% and 72% in the pivotal trials 
KX01-AK-003 and KX01-AK-004, respectively. As of July 22, 2019, there were no SAEs that were considered to be related to the 
study treatment.

Table 1: Study Results of Tirbanibulin Ointment 1% in the Field Treatment of AK, as presented at the 2019 AAD Annual Meeting in 
March 2019

Study

KX01-AK-003

KX01-AK-004

% of Subjects in the Intent-To-Treat Population 

Tirbanibulin

Vehicle

Tirbanibulin

Vehicle

p-value

p-value

(Number of Subjects)

N=175

N=176

N=178

N=173

100% AK Clearance on Day 57

44% (N=77)

5% (N=8)

<0.0001a

54% (N=97)

13% (N=22)

<0.0001a

Face

Scalp

≥75% AK Clearance on Day 57

50%

30%

68%

6%

2%

<0.0001

<0.0001

16%

<0.0001a

61%

41%

76%

14%

11%

20%

<0.0001

0.0003

<0.0001a

Note: 
a = p-value calculated based on Cochran-Mantel-Haenszel (CMH)

We believe that this product, if approved by regulatory authorities, could have a major impact in the medical treatment of AK. 

We submitted an NDA to the FDA for tirbanibulin ointment as a topical treatment for AK. We are seeking approval of tirbanibulin 
ointment pursuant to Section 505(b)(1) of the FDCA. The FDA may not accept the NDA submission for filing, or if accepted, our 
NDA may not receive approval. We cannot accurately predict when or if the NDA will be accepted for filing by the FDA. On March 
2, 2020, our partner Almirall announced that the European Medicines Agency (EMA) accepted the filing of a European marketing 
authorization for tirbanibulin ointment for the treatment of AK.

14

 
Psoriasis

To date, tirbanibulin ointment has shown encouraging preclinical results in treating psoriasis, a chronic autoimmune skin disease 

that speeds up the growth cycle of skin cells. Psoriasis causes localized or generalized patches of red papules and plaques, covered 
with white or silver scales and itching. A Phase 1 clinical trial of tirbanibulin ointment 1% in psoriasis, performed by our partner 
PharmaEssentia, is ongoing.

We licensed the rights to tirbanibulin to PharmaEssentia for psoriasis and non-malignant skin conditions (excluding AK) in 
Mainland China, Taiwan, Hong Kong, Macau, Singapore and Malaysia, as well as the rights for AK in Taiwan. PharmaEssentia is 
sponsoring this Phase I clinical trial in psoriasis. For additional information, please see “Business—License and Collaboration 
Agreements—PharmaEssentia License Agreements.”

Tirbanibulin Oral

We are also developing tirbanibulin in an oral formulation. Tirbanibulin oral has been evaluated in several early dose finding 

studies against both solid and liquid tumors. Initial clinical results indicate activity against both solid and liquid tumors in patients in 
clinical studies. We are planning further probe studies to focus our evaluation in certain of those indications where activity was 
observed. 

A Phase 1 clinical trial in solid tumor patients identified the MTD for continuous twice daily oral dosing at 40 mg/dose, with a 

favorable PK profile, and indications of activity. In this trial, 44 patients were enrolled in nine dose cohorts. The drug was well-
tolerated and the DLTs were mainly elevated levels of AST and ALT, which were readily reversible. Eleven patients had stable 
disease for at least four months, including patients with ovarian, carcinoid, papillary thyroid, prostate, pancreas and head and neck 
cancer. An ovarian cancer patient, who failed 9 prior therapies, had stable disease for 16 months and a tirbanibulin oral induced a large 
decrease in the ovarian cancer CA-125 biomarker, which correlates well with clinical response. 

A subsequent Phase 2a clinical study in men with bone-metastatic castration-resistant prostate cancer using the twice daily 40 
mg/dose was conducted. Thirty-one patients were dosed with tirbanibulin oral at 40 mg/dose twice daily until disease progression or 
unacceptable toxicity. The primary endpoint was 24-week progression-free survival. The designated clinical endpoints were not met 
with tirbanibulin oral at this dose. 

A Phase 1b clinical study in elderly acute myeloid leukemia (AML) patients was conducted using once daily dosing. The doses 

tested were 40, 80, 120, 140 and 160 mg of tirbanibulin. Twenty-four patients were recruited with a median age of 76 years (range 
63 to 86 years). Most had been previously treated for their disease, generally with decitabine or azacitidine. The MTD is estimated to 
be 105 mg of tirbanibulin oral daily. 

We are planning further studies to focus our upcoming evaluation efforts in targeted indications. Hanmi, who we partnered with 

on tirbanibulin oral up until August 2018, completed a Phase 1b clinical trial in South Korea, combining escalating continuous once 
daily doses of tirbanibulin with a standard IV paclitaxel treatment of 80 mg/m2. The study enrolled 23 subjects who received doses of 
tirbanibulin ranging from 20 through 80 mg/day. The five most frequently reported treatment-related adverse events were neutrophil 
count decreased (83%), myalgia (61%), decreased appetite (57%), anemia (53%) and peripheral sensory neuropathy (48%).  Six 
subjects experienced serious adverse events: febrile neutropenia (n=3), and pneumonia, sepsis, fever, and neutrophil count decreased 
(n=1 each).  There were no CR or PR in this heavily treated Phase 1 population, but 12 subjects had a best response of stable disease.  
Dose expansion in part 2 of the study was not conducted.

In our tirbanibulin oral clinical studies to date, the SAEs observed that were deemed to be possibly, likely or definitely related to 

tirbanibulin oral include allergic reaction, bacteremia, rash, syncope, tremor, dermatitis, neutropenic fever, hyponatremia, 
hypersensitivity, failure to thrive, lower extremity edema, mucositis, neutropenia, pancytopenia, thrombocytopenia, seizure and motor 
vehicle accident, embolic stroke, pneumonitis, fever, acute kidney injury, increased bilirubin and albumin levels, decreased blood 
platelet count, abdominal pain, arm pain, pyrexia, rigors, tachypenea, oxygen desaturation, pneumonia, anemia, elevated ALT and 
AST, dehydration and leukopenia. As the clinical development program is still in its early stages, we do not yet have meaningful 
safety, including adverse event, statistics to report.

KX2-361 

KX2-361, formerly known as KX-02, is the second compound we developed using our Src Kinase inhibition platform 
technology. KX2-361 is a closely related structural analog of tirbanibulin and has been observed to have a similar dual MOA of 
inhibition of Src activity and microtubule polymerization. Although KX2-361 is an analog of tirbanibulin, it has significantly different 
physical properties. These properties are designed to allow KX2-361 freely cross the BBB such that the concentration in the brain is 
equal to, or somewhat greater than, that in the plasma. This trait is uncommon for oncology drugs and highlights the potential for KX-
361 as a novel therapy for unmet medical needs such as brain cancers, including GBM and brain metastases. KX2-361’s multiple 
MOAs along with its ability to cross the BBB, make it a novel molecule for the treatment of brain tumors. The FDA has granted 
Orphan Drug Designation to KX2-361 for the treatment of gliomas. 

15

Studies of KX2-361 in preclinical syngeneic mouse GBM models resulted in the complete eradication, without recurrence, of 

the tumors in an average of approximately 30% of treated mice. KX2-361 produced long-term survival mice, as compared to 
temozolomide, which extended survival but did not result in any long-term survivors.

In vitro studies in mice have found that the KX2-361 levels in the mouse brain meet or exceed the levels in the plasma at the 
same time points after oral dosing, indicating that KX2-361 readily crosses the BBB. We believe that this ability to cross the BBB 
provides a rationale for investigating brain cancers and metastases in the brain as potential therapeutic applications, which are 
traditionally considered to be an unmet medical need. 

KX2-361 is currently in the early stages of clinical development. In our KX2-361 clinical studies to date, the SAEs observed 

were thromboembolic events, hyperuricemia and pulmonary embolism. As the clinical development program is still in its early stages, 
we do not yet have meaningful safety, including adverse event, statistics to report.

We out-licensed the development and marketing of KX2-361 in Greater China to our partner, Xiangxue. The NMPA allowed 
the start of a Phase 1 trial of KX2-361 in China, which commenced at the end of 2019 for the treatment of advanced malignant solid 
tumors. The Phase 1 clinical study in China is a single-center, open-label dose escalation trial that will enroll approximately 36-72 
patients with advanced malignant solid tumors who have no standard treatment or standard treatment failed. We anticipate this 
partnered clinical program in China will accelerate the development timeline of this candidate. 

Our Other Technology Platforms

TCR-T Immunotherapy 

TCR-T immunotherapy technology harnesses and enhances the patient’s own immune cells to target and eliminate cancer. It is a 

cell-based therapy that takes advantage of unique attributes of TCR mediated target recognition and provides a potent and selective 
TCR-T directed response against cancer cells. Central to this platform is the ability to first identify endogenous TCRs with specificity 
for a defined tumor antigen and to then enhance the affinity of the TCR to optimize tumor recognition and killing. These high affinity 
TCRs can be incorporated into a patient’s own T cells, converting the cells into a potent anti-cancer therapy. Using this technology, 
we believe the platform has generated engineered T-cells with higher binding affinity, specificity for intended target cells, expression 
level of the TCR and persistence in patients’ circulation during therapy. Preliminary studies have shown positive clinical signals. 

Arginine Deprivation Therapy 

PT01, the arginine deprivation therapy product, is based on our pegylated genetically engineered human arginase. It targets 

cancer growth and survival by interrupting the supply of arginine to cancers with disrupted urea cycles such as melanoma, 
hepatocellular carcinoma and prostate cancer. Our proprietary arginase biologic product is well suited to deplete arginine from the 
tumors, while healthy cells, capable of producing their own arginine, are largely unaffected.

Other Research Programs

Proprietary Dual (CYP/P-gp) Inhibitor

We are developing a proprietary class of “dual” absorption enhancers that are intended to inhibit both the P-gp transporter and 

the CYP enzymes within the gastrointestinal tract. There are many barriers that limit the oral absorption of drugs in humans. The P-gp 
transporter is a major barrier to absorption of active chemotherapy drugs. However, certain other drugs with P-gp liabilities may also 
have liabilities for other barriers such as metabolizing enzymes, such as the cytochrome P450, or CYP, class of enzymes. This 
intestinal CYP mediated metabolism can be a contributing factor in limiting oral absorption of certain drugs. This class of dual 
absorption enhancers has shown potential to significantly improve the oral bioavailability of certain other drugs in laboratory tests and 
may expand the application of our oral absorption platform to drugs where the CYP barrier to oral absorption is also important. These 
dual absorption enhancers may lead to better performing next-generation oral medicines in our pipeline of clinical products. 

The development of these dual absorption enhancers is at the preclinical stage. Proof of concept, providing increased oral 
bioavailability in preclinical species, has been obtained with several absorption enhancers and candidate drugs. Currently additional 
filters such as patentability/freedom to operate, physical-chemical characterization, pre-formulation studies, manufacturing analysis 
and preliminary toxicity testing are being applied to our first group of lead candidates to facilitate election of an IND candidate. 

We have drug discovery, drug formulation, clinical and regulatory development and API/drug product manufacturing facilities 

and capabilities around the world. The U.S. drug discovery, clinical and regulatory development and formulation research facilities are 
largely concentrated in Buffalo, New York and Cranford, New Jersey. The range of capabilities at these facilities includes medicinal 
chemistry, biochemistry, cell biology, formulation, chemical manufacturing and control, quality control, pharmacokinetics/ 

Research and Development 

16

pharmacodynamics (“PK/PD”) and data management, as well as pharmacovigilance, clinical development and regulatory expertise 
functions. Animal efficacy, PK/PD and toxicology studies are carried out at various contract research organizations, or CROs, around 
the world in order to facilitate the drug research and development process. We also have research, clinical development and regulatory 
capabilities in China, the U.K. and Latin America, as well as in Taiwan, where we also have built up data management facility. Our 
research and development center in Hong Kong concentrates on drug formulation development and evaluation. Our global research 
and development capabilities and facilities are well integrated with our research and development center in the U.S. 

To date, we and our partners have conducted, or are conducting, clinical trials across sites in the U.S., South Korea, New 
Zealand, Taiwan, China and various countries in Latin America, including Argentina, Guatemala, Honduras, Chile, Colombia, 
Ecuador, the Dominican Republic and Peru. 

Commercialization

For Oral Paclitaxel, our strategy is to develop and, if we receive approval from the FDA, commercialize Oral Paclitaxel in the 

U.S. by leveraging our Commercial Platform and sales and marketing capabilities established in the U.S. In terms of 
commercialization planning efforts, we are further developing strategies around marketing, market access, sales, medical affairs, and 
policy and patient advocacy. We launched our “Athenex Oncology” brand at the 2019 ASCO Annual Meeting with the goal of raising 
our profile and showcasing the potential of our Orascovery technology and development pipeline.  We continued these initiatives at 
the 2019 SABCS in December 2019, in which our abstract for the Phase 3 study of Oral Paclitaxel was not only accepted for oral 
presentation but also selected for the press program. 

In 2020, provided we have a regulatory path to approval, we plan to focus on: 

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quantitative and qualitative market research, including on health outcomes and qualitative pricing, to understand our 
customers, patients, and the market; 

examining our competitive landscape; 

developing brand strategy;

developing key opinion leader relationships;

attending priority medical conferences to increase awareness of the Company and Oral Paclitaxel;

creating a market access strategy; 

developing and executing a scientific publication plan; 

developing our patient and patient advocacy strategy;

completing account, physician and patient segmentation in order to prioritize and target commercial efforts effectively;

developing our distribution and patient support plans; 

developing our patient adherence to therapy strategy;

completing our organizational design to determine the overall size of our go-to-market commercial team based on our 
market opportunity; 

continuing to hire key commercial and medical affairs leadership roles; 

completing a life cycle plan for Oral Paclitaxel; and

preliminary marketing and launching forecasts.

We also plan to evaluate marketing options outside of the U.S., including using our internal resources, partnering with others, or 

out-licensing the product. 

For tirbanibulin ointment in the treatment of AK, in December 2017, we entered into a license agreement with Almirall, 

pursuant to which we granted to Almirall an exclusive, sublicensable license of certain of our intellectual property for the development 
and commercialization of topical products containing tirbanibulin for the treatment of AK in the U.S. and substantially all European 
countries. We believe this partnership validates the potential of this candidate and that this partnership is an important step in the 
development and commercialization of tirbanibulin. For additional information, please see “Business—License and Collaboration 
Agreements—Almirall License Agreement.” We may also partner with third parties or consider using our internal resources to reach 
other geographic markets.

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Our Commercial Platform 

We believe the value creation potential is higher for biopharmaceutical companies able to commercialize their proprietary 

products as compared to companies who have a partner to commercialize. The infrastructure investment and build-out of a 
commercial team prior to regulatory approval is typically costly and requires years of investment. In 2016, we launched a commercial 
platform in the U.S. to begin building out this infrastructure in advance of our launch of proprietary products. 

Our Commercial Platform includes our Specialty Pharmaceuticals business and our manufacture and marketing of products 
subject to Section 503B of the FDCA. Our Specialty Pharmaceuticals business markets specialty pharmaceuticals, including multi-
source oncology and other pharmaceutical products which are therapeutically related to our proprietary portfolio. Our 503B product 
offerings, which include sterile to sterile products and products from sterilized bulk API, support our offerings in the U.S. oncology 
market.

Using our resources to commercialize products in oncology may create more value for investors than marketing product rights 

pre-commercialization. We believe commercialization risks can be offset by establishing oncology manufacturing operations (API, 
Manufacturing, etc.) and commercial operations (Multi-source Oncology, Pharmacy, Hospitals, etc.). 

Specialty Pharmaceuticals

Our Specialty Pharmaceuticals business develops and sources products through licensing agreements with various partners, 
whom we collectively refer to as our Global Partner network. Our team has unique commercial expertise in multisource oncology and 
injectable products and has developed a number of Global Partners that develop and manufacture multisource products for the U.S. 
market. This Global Partner network supplies the products we market in the Specialty Pharmaceutical business. We primarily market 
the products to the acute hospital and oncology clinics in the U.S. oncology market. As of December 31, 2019, Athenex 
Pharmaceutical Division (“APD”) markets twenty-nine products with fifty-five SKUs. In addition, Athenex Pharma Solutions 
(“APS”) markets five products with thirteen SKUs as of December 31, 2019. 

The U.S. Oncology market is highly complex with gatekeepers, influencers and prescribers influencing sales of oncology 
products. Gatekeepers include hospitals (including pharmacies and therapeutics committees), buying groups, oncology managed care 
organizations, specialty distributors and pharmacists. Influencers in the oncology market include key opinion leader (KOL) 
physicians, regional cancer centers (as defined by the National Cancer Institute) and the U.S. government. Prescribers include 
oncologists and dermatologists. Launching a commercial operation in preparation for a proprietary drug approval is risky, difficult and 
expensive. Any commercial oncology organization must be able to market to these gatekeepers, influencers and prescribers in the 
oncology market at launch. Through our Commercial Platform, which has established a comprehensive sales and marketing 
organization, we are able to target and build relationships with gatekeepers, influencers and prescribers in the U.S. Oncology market, 
enabling us to manage the risks and capture post commercial oncology economics. 

Agreements with key Suppliers and Marketing Partners

Gland Term Sheets

From August 2016 to May 2017, we entered into four binding term sheets with Gland Pharma Ltd (“Gland”) to market twenty-
seven of Gland’s products. Gland has obtained FDA approval for twenty-two of such products and has filed an abbreviated new drug 
application, or ANDA, in the U.S. for the remaining five products. For each of the licensed products, we will pay a license fee to 
Gland. Additionally, during the terms of the term sheets we have a profit-sharing arrangement pursuant to which we will pay to Gland 
between 0% and 60% of the net profits from sales of each of the licensed products, depending on the product. The initial term of each 
of the Gland term sheets is five years from the launch of each product licensed pursuant to the term sheet, subject to automatic renewal 
for additional two-year terms, unless terminated by either party upon provision to the other party at least 90 days’ notice in advance of 
a renewal date. 

Amphastar Agreement 

In February 2017, we entered into a definitive agreement with Amphastar Pharmaceuticals, Inc. (“Amphastar”) to acquire 
fourteen ANDAs and inventory for certain APIs. The agreement requires payments of up to $6.4 million, which has been paid in full 
as of December 31, 2018. In addition to the payments described above, we have agreed to pay Amphastar a royalty fee equal to 2% of 
our net sales relating to the fourteen ANDAs and API inventory transferred to us by Amphastar for a period of ten years from the 
execution of the agreement. We have competed the site transfer for two products, Prochlorperazine and Diltiazem, and are actively 
selling them. 

MAIA Agreement

In December 2018, we entered into a distribution and supply agreement with MAIA Pharmaceuticals (“MAIA”) effective as of 

October 3, 2018 whereby we acquired the exclusive license to a generic version of an approved product, which we began selling in 
January 2019. In connection with the execution of this agreement, we agreed to pay an upfront milestone payment in addition to profit 
sharing of 50% of the net profits from the sales of the licensed product. We also agreed to pay an additional milestone payment to 

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MAIA in the event the FDA approves the ANDA for the licensed product. The initial term of the agreement is for seven years from 
the launch of the product and is subject to an automatic two-year renewal term unless terminated by either party upon at least 180 
days’ notice in advance of the renewal date.

In December 2019, the agreement with MAIA was amended to grant us the license to a branded product which MAIA holds the 
approved NDA. In connection with this amendment, we agreed to an upfront milestone payment and 56% of the net profits from sales 
of the licensed product. Additionally, we agreed to increase MAIA’s share of the net profits to 70% for both products until certain 
financial metrics are achieved and shall revert to the initial rates after those metrics are satisfied.

Customers and Product Distribution

We distribute our products primarily through pharmaceutical wholesalers and, to a lesser extent, specialty distributors that focus 

on particular therapeutic product categories, for use by a wide variety of end-users, including hospitals, integrated delivery networks 
and alternative site facilities. For the year ended December 31, 2019, the products we sold through our three largest wholesalers, 
AmerisourceBergen Corp. (“Amerisource”), Cardinal Health Inc. (“Cardinal Health”) and McKesson Corp. (“McKesson”), accounted 
for approximately 16%, 14% and 15%, respectively, of our total revenue. 

We utilize an outside third-party logistics contractor to distribute our U.S. products. Since the inception of the launch of our 

specialty products, the third-party logistics provider has been handling all aspects of our product logistics efforts and related services 
for us, including warehousing and shipment services, order-to-cash services, contract administration services and chargeback 
processing. Our products are warehoused and distributed through a third-party logistics provider located in Memphis, Tennessee. 
Under our agreement with the third-party logistics provider, we maintain ownership of our finished products until sale to our 
customers. The initial term of the agreement is three years following the initial delivery date and will automatically renew for 
successive 12-month periods, unless either we or the other party give notice of intent to terminate at least 90 days in advance of such 
automatic renewal. We may also have the opportunity to terminate the agreement within 30 days of receiving notice of certain price 
increases by the third-party logistics provider. The agreement also contains customary termination rights for either party, such as in 
the event of a breach of the agreement. 

Global Supply Chain Platform 

We believe it is important to minimize potential disruptions associated with a high potency oncology pharmaceutical supply 

chain. Therefore, we have begun the process of internalizing key components of the supply chain that we believe are integral to 
minimizing these risks and retaining value for stockholders. For example, the World Health Organization (WHO) lists paclitaxel as an 
essential medicine. Paclitaxel is derived from the bark of the Pacific yew tree and harvestable trees for the starting biomass are 
globally limited in supply. While current supply of the starting biomass for paclitaxel may be sufficient to meet global paclitaxel API 
demand, we believe future shortages are possible if we are successful in the commercialization of one of our lead drug candidates, 
Oral Paclitaxel. We believe this increased demand could lead to shortages of paclitaxel API potentially leading to market and supply 
disruptions. 

Our research group evaluated the purity and potency of some of the largest global suppliers of paclitaxel API. In 2015, we 
acquired one of these suppliers, Polymed Therapeutics Inc. (“Polymed”) and Chongqing Taihao Pharmaceutical Co. Ltd., or Taihao. 
Taihao is a cGMP manufacturer of high potency oncology API based in Chongqing, China and Polymed is the U.S. marketing entity 
for Taihao’s API in North America and Europe. Historical production and sales of API by this subsidiary were to third parties. We 
anticipate a greater share of Taihao’s manufacturing capacity will be used for our internal needs in the future, and, therefore, sales to 
third parties may decrease. Historically, Polymed sold certain of these API products internationally to mostly large multi-national 
pharmaceutical companies. However, we have experienced a suspension of commercial operations at our plant in Chongqing, China. 
We suspended production in May 2019 based on concerns raised by the DEMC related to the location of our plant. Although we 
currently are producing API for our ongoing clinical studies, we can make no assurances that such production will be able to provide 
sufficient quantities for all future clinical studies and that alternative suppliers will be available if needed to produce API for our 
clinical trials.

In 2014, we sought to obtain better control over our manufacturing of high potency oncology drugs used in global clinical 

studies, and, in the third quarter of 2014 acquired APS (formely known as QuaDPharma, LLC), one of our suppliers based in 
Clarence, New York. The number of our clinical studies has grown since the close of the acquisition. We are standardizing and 
leveraging the acquired cGMP systems and operating procedures in anticipation of developing multi-cGMP large scale manufacturing 
plants in both the U.S. and China. 

Strategic Public-Private Partnerships

New York State Partnership 

In May 2015, we entered into an agreement with Fort Schuyler Management Corporation (FSMC) a not-for-profit corporation 

affiliated with the State of New York, for a medical technology research, development, innovation and commercialization alliance. 

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Under the agreement, FSMC agreed to pay up to $25.0 million for the construction of our North American headquarters and 
formulation lab and equipment in Buffalo, New York. We moved into the North American Headquarters in October 2015 and are sub-
leasing the space from FSMC for a 10-year term, with an option to extend the term for an additional 10 years. Under the agreement, 
we are obligated to spend $100.0 million in the Buffalo area over the initial 10-year term of the lease and an additional $100.0 million 
during the second 10-year term if we elect to extend the lease. We also committed to hiring 250 permanent employees in the Buffalo 
area within the first 5 years of completion of the project. As of December 31, 2019, we had hired 171 permanent employees in the 
Buffalo area. In the event we are unable to hire enough employees in the Buffalo area or meet our other obligations under this 
agreement, FSMC may terminate the agreement and we may have to renegotiate our lease or relocate our North American 
headquarters.

Under the same May 2015 agreement, FSMC also agreed to fund the costs of construction of a new manufacturing facility in 

Dunkirk, New York that we intend to use for injectable and 503B products and, eventually, our proprietary oncology products for 
commercial production at this facility. Under the current arrangement, we have selected a general contractor for the project, and we 
will oversee the development of the facility. Empire State Development (“ESD”), the parent entity of FSMC, is responsible for the 
costs of construction and all equipment for the facility, up to an aggregate of $200.0 million, plus any additional funds available from 
the previous $25.0 million grant, and FSMC, not us, will own the facility and equipment. We are entitled to lease the facility and all 
equipment at a rate of $1.00 per year for an initial 10-year term and for the same rate if we elect to extend the lease for an additional 
10-year term. We are responsible for all operating costs and expenses for the facility. In exchange, we have committed to spending 
$1.52 billion on operational expenses in our first 10-year term in the facility, and an additional $1.5 billion on operational expenses if 
we elect to extend the lease for a second 10-year term. We also committed to hiring 450 employees at our Dunkirk facility within the 
first 5 years of operations, including hiring at least 300 new employees within 2.5 years of the Dunkirk facility becoming operational. 
In September 2017, we entered into a grant disbursement agreement with ESD, whereby the State of New York will grant up to 
$200.0 million, plus any additional funds available from the previous $25.0 million ESD grant, to us in order to fund the construction 
of the Dunkirk facility. The funds will be deposited in four installments of up to $50.0 million each into an ESD held account. The 
first $50.0 million installment was deposited in the third quarter of 2017 and the remaining $50.0 million installments were made in 
the first, third, and fourth quarter of 2019.  Actual disbursement of such funds occurs as we submit appropriate documentation 
verifying that expenditures on the project have been incurred. In addition, in July 2017, we entered into a 20-year payment in-lieu of 
tax agreement for the construction of the Dunkirk facility with the County of Chautauqua Industrial Development Agency (“CCIDA”), 
under which we anticipate incurring sales tax exemption savings of approximately $9.1 million during the development of the facility 
and property tax savings of approximately $78.0 million over 20 years. 

In November 2017, we entered into a project agreement with the CCIDA which sets forth the obligations of the parties in 
relation to the CCIDA’s grant to us of certain sales and use tax exemptions and real property tax exemptions in consideration for our 
agreement to complete the Dunkirk facility. The project agreement estimates the cost of the Dunkirk project at around $213.0 million, 
which exceeds the $200.0 million grant committed to by the State of New York, and we will be responsible for the difference. We are 
obligated to invest no less than $187.2 million in the facility prior to the completion of the project, which sum includes funds 
committed by the State of New York. The agreement includes commitments to comply with state and local laws in connection with 
the project. 

In December 2017, we entered into an agreement with M+W, U.S., Inc. (now renamed Exyte U.S., Inc.). The agreement, as 
amended to date, provides that M+W will be responsible for the design and construction of the Dunkirk facility at a cost estimated 
between $205.0 million and $213.0 million, of which up to around $208.0 million will be paid by a grant from the State of New York 
(including approximately $8.0 million in additional funds available from the previous $25.0 million ESD grant), with the remaining 
amount being paid by us. Payments under the December 2017 agreement will be made to M+W over time based upon completion of 
certain milestones under the agreement, and ESD must approve any payment from the grant funds. 

Under the same September 2017 agreement with ESD, we must complete the construction of the facility in Dunkirk, New York 

in accordance with the final plans and specifications approved in writing by ESD and must maintain our business operations at the 
facility for a minimum of ten years after its completion. In 2018, we began constructing the facility and began ordering equipment for 
the operation and maintenance of the facility. This manufacturing facility, which was originally planned to be 320,000 square feet, has 
been expanded to approximately 409,000 square feet to meet our needs and within the terms of the September 2017 agreement. The 
September 2017 agreement may be subject to termination if ESD and FSMC perform their obligations under the agreement, and we do 
not attain and or maintain certain levels of employment or spending for specified periods of time. In such event and in accordance 
with the May 2015 agreement, any potential liability of us would be capped at the amount of actual ESD spending on the facility in 
Dunkirk, New York times the percentage of required spending by us which we have not yet incurred. 

China Partnership 

In October 2015, we entered into an agreement with CQ, which is wholly owned by the Finance Bureau of Banan district of 

Chongqing, and is authorized to be responsible for investments, financing, infrastructure construction, operations and management in 
the Chongqing Maliu Riverside Development Zone. Our agreement with CQ provides for the construction of both a formulation plant 
and an API plant in China. After entering into the agreement, and pursuant to its terms, we established a China-based subsidiary that is 

20

responsible for the operations of both facilities in July 2016 and committed to a registration capital requirement of no less than $30.0 
million. CQ is responsible for the construction of both facilities according to the U.S. cGMP standards. The land and buildings will be 
owned by CQ, and we will lease the facilities rent-free, for the first 10-year term, with an option to extend the lease for an additional 
10-year term, during which, if we are profitable, we will pay a monthly rent of 5 Chinese Renminbi (“RMB”) per square meter of 
space occupied. We are responsible for the costs of all equipment and technology for the facilities. The lease term will commence 
upon our acceptance of the building. Within six months of our acceptance of the building, we are required to finish equipment 
installation and testing, and within twelve months, we are required to commence production. We have also committed to achieving 
certain operational, revenue and tax generation milestones within certain time periods once we commence operations. If we are unable 
to achieve these milestones, CQ will have the opportunity to terminate the agreement and dispose of the plants in its discretion.

In September 2019, we announced the completion of the new API facility construction in Chongqing, China. However, as a 

result of the Coronavirus outbreak, we expect to commence operations at the 440,000-square-foot facility in the second half of 2020. 
The construction of the facility is part of our strategy for vertical integration in order to capture value across the supply chain. Once 
operational, the facility is expected to expand our API production capabilities to further support our global clinical development needs 
and ensure the supply of API for commercial launches. 

Our goal is to use our public-private partnerships as a capital efficient method for large scale cGMP manufacturing within our 
supply chain and to facilitate market access in China. We believe those facilities will be adequate and suitable for our operations for 
the foreseeable future. 

To date, we have utilized a combination of acquisitions and public-private partnerships to internalize certain key components of 

our manufacturing and supply chain. We expect to continue to use a combination of collaborations and acquisitions to continue to 
build out elements of our supply chain where needed as a mechanism to minimize execution risk and retain value for our stockholders. 

In May 2019, we suspended operations at our existing API plant in Chongqing, based on the concerns raised by the DEMC 
related to the location of our plant. As a result of the suspension, we are currently unable to produce commercial batches of API, 
which has impacted our revenue. We can provide no assurances of when, if at all, commercial production of API will resume at this 
plant. Although we are still producing API for our ongoing clinical studies, we can make no assurances that such production will be 
able to provide sufficient quantities for all future clinical studies and that alternative suppliers will be available if needed to produce 
API for our clinical trials.

License and Collaboration Agreements 

In-Licenses 

Arginase License Agreement

In June 2018, we entered into a license agreement with Polytom, an entity affiliated with Avalon Global Holdings Limited and a 

related party of the Company, which we refer to as the Arginase License, pursuant to which Polytom granted us an exclusive, 
sublicensable right and license to develop and commercialize products containing pegylated and cobalt-replaced arginase for the 
treatment of cancer in humans, apart from ophthalmic uses and use as eye drops, worldwide. Dr. Johnson Lau, our chief executive 
officer and chairman, and Dr. Manson Fok, one of our directors, collectively have a controlling interest in, and serve on the board of 
directors of, Avalon. 

We made an upfront payment of cash of $3.0 million and common stock of $2.0 million to Polytom upon effectiveness of the 

Arginase License in June 2018. In September 2019, we made a cash payment of $1.0 million to Polytom upon meeting the first 
regulatory milestone under the agreement. We may be required to make additional payments to Polytom worth up to $44.0 million of 
our common stock or of cash upon the occurrence of additional regulatory milestones. Pursuant to the agreement, we have also agreed 
to pay royalties based on certain percentage of net sales of any products utilizing the intellectual property that is the subject of the 
Arginase License. Such royalties will be reduced by 40% when competing generic products have 25% of the market share in the 
applicable country and will be eliminated entirely when competing generic products have 50% of the market share in the applicable 
country.

HepaPOC License and Supply Agreement

In June 2018, we entered into a license and supply agreement with Avalon HepaPOC Limited (“HepaPOC”), an entity affiliated 

with Avalon and a related party of the Company, which we refer to as the HepaPOC License, pursuant to which HepaPOC agreed to 
exclusively sell to us the meter and consumable strips that can be used to detect galactose concentrations in human blood and granted 
us an exclusive, sublicensable right and license to use and commercialize the meter and strips for conduct of liver function tests in 
humans taking our oncology drugs. Dr. Johnson Lau, our chief executive officer and chairman, and Dr. Manson Fok, one of our 
directors, has a controlling interest in, and serve on the board of directors of, Avalon.

We made an upfront payment of cash of $0.5 million to HepaPOC upon effectiveness of the HepaPOC License Agreement, and 

we may be required to make payments to HepaPOC worth up to $4.8 million in our common stock or in cash upon the occurrence of 

21

certain regulatory and sales milestones. Pursuant to the agreement, we have also agreed to pay royalties based on certain percentage of 
aggregate net sales of any products utilizing the intellectual property that is the subject of the HepaPOC License.

The terms of the HepaPOC License shall extend until the date on which the last of the patent rights licensed under the agreement 

expires or is invalidated. Notwithstanding the foregoing, the terms of the HepaPOC license shall automatically be extended for 
consecutive one year periods subject to the same terms and conditions set forth herein (unless agreed otherwise) unless either party 
gives written notice of its intention not to extend the agreement term: (1) at least ninety days prior to the expiration date of the patent 
rights licensed under the agreement or (2) as soon as practically possible in the case of an invalidation claim or (3) at least ninety days 
prior to the then current expiration date of the agreement thereafter. Notwithstanding the foregoing, after the occurrence of (1) or (2) 
above, the terms of the HepaPOC License shall automatically be extended for consecutive one year periods subject to the same terms 
and conditions set forth in the agreement unless either HepaPOC or we give written notice of its intention not to extend the agreement 
terms: (i) at least ninety days prior to the expiration of the patent rights licensed under the agreement or (ii) as soon as practically 
possible in the case of an invalidation claim and (iii) at least ninety days prior to the then current expiration date of the agreement. 
Prior to the expiration of the term of the agreement, both parties may terminate the agreement in whole or in part upon mutual written 
agreement. We may also terminate in whole or in part the agreement in our sole discretion upon not less than six months prior written 
notice of termination at any time. The agreement also contains customary termination rights for either party, such as in the event of a 
breach of the agreement or the initiation of bankruptcy proceedings by the other party.

TCR-T License Agreement

In June 2018, we entered into a Share Subscription Agreement XLifeSc, a wholly-owned subsidiary of Xiangxue to establish, 

operate and manage a limited liability company named Axis Therapeutics Limited (Axis) to offer certain goods and services 
worldwide except in China. Axis is owned 45% by XLifeSc and 55% by us. 

In June 2018, Axis entered into a license agreement with XLifeSc, which we refer to as the TCR-T License, pursuant to which 

XLifeSc granted Axis an exclusive, sublicensable right and license to use XLifeSc’s proprietary TCR-T to develop and commercialize 
therapeutic products for oncology indications worldwide except in China. Axis is responsible for all development, manufacturing and 
commercialization, and the related costs and expenses, of any product candidates resulting from the agreement.

In September 2018, we completed the closing process under the Share Subscription Agreement which included an exchange of a 

45% ownership interest in Axis to XLifeSc for a license of in-process research and development. Upon effectiveness of the TCR-T 
License and satisfaction of certain conditions in the license agreement, Axis made an upfront payment of the Company’s common 
stock of $5.0 million to XLifeSc. In April 2019, Axis made a cash payment of $2.0 million to XLifeSc upon meeting the first 
regulatory milestone under the agreement. Axis may be required to make additional cash payments to XLifeSc worth up to $108.0 
million in aggregate upon the occurrence of certain additional regulatory milestones to be achieved in the U.S., the EU, China and 
Japan. In addition, XLifeSc is required to pay Axis royalty payments based on certain percentage of aggregate net income generated 
by sales of any products using the licensed intellectual property in China.

The term of the TCR-T License will remain in effect until the expiration of the patent rights licensed under the agreement. The 
agreement will terminate automatically if the shareholders agreement between XLifeSc and us is terminated. The TCR-T License also 
contains customary termination rights for either party, such as in the event of a breach of the agreement or the initiation of bankruptcy 
proceedings by the other party. 

Hanmi Licensing Agreements 

In December 2011 and June 2013, we entered into two separate in-licensing agreements with Hanmi pursuant to which Hanmi 
granted us licenses to certain patents and know-how with respect to Hanmi’s Orascovery Program to research, discover and develop 
compounds that enhance or increase the oral absorption of active pharmaceutical ingredients. 

The December 2011 agreement, which we refer to as the 2011 Hanmi Agreement, granted us an exclusive, sublicensable license 

for development and commercialization activities utilizing Hanmi’s patents and know-how related to the Orascovery Program in a 
certain territory including North America, South America, the EU, Australia, New Zealand, Russia, Eastern Europe, Taiwan and Hong 
Kong, and a non-exclusive license to utilize the same intellectual property in manufacturing worldwide for sales inside those 
territories. The June 2013 agreement, which we refer to as the 2013 Hanmi Agreement, granted us an exclusive, sublicensable license 
comparable to the 2011 Hanmi Agreement solely for China. The 2011 Hanmi Agreement was amended in November 2012 to add 
Macau and Singapore to the territory licensed under the agreement; in October 2013 to add Malaysia, Thailand, Vietnam, the 
Philippines and Indonesia; in March 2015 to add India; in March 2017 to add Japan; and again in September 2018 to all territories in 
the world apart from the Republic of Korea. 

Upon effectiveness of the 2011 Hanmi Agreement we made an upfront payment of $0.25 million to Hanmi, and we will pay 

Hanmi tiered royalty payments in the teens based on aggregate net sales of any products using the licensed intellectual property in the 
territory. Such royalties will be reduced if competing generic products gain market share in the applicable country. Depending on 
when we receive regulatory approval of a product using the intellectual property licensed from Hanmi in the U.S. or Europe, we may 
be obligated to pay Hanmi a regulatory bonus of $24.0 million to be paid (1) upon the occurrence of a liquidity event, if the regulatory 

22

approval has already been received, or (2) upon receipt of the regulatory approval, if such approval is received after a liquidity event. 
We were also required to pay Hanmi an exit bonus, in shares of our common stock at a 20% discount to the initial public offering 
price, of $6.25 million upon the completion of our initial public offering in June 2017 based on a nominal value of $5.0 million. In 
connection with the March 2015 amendment to the 2011 Hanmi Agreement, we made an upfront payment of $50,000 to Hanmi. 
Additionally, in connection with the March 2017 amendment to the 2011 Hanmi Agreement, we issued a $7.0 million convertible 
bond to Hanmi in lieu of an upfront payment. Hanmi elected to convert the $7.0 million principal amount of the convertible bond into 
795,455 shares of our common stock, based on the agreed 20% discount to our initial public offering price, in September 2017. In 
connection with the September 2018 amendment to the 2011 Hanmi Agreement, we made an upfront payment of $40,000 to Hanmi.

Upon effectiveness of the 2013 Hanmi Agreement we made an upfront payment of $0.1 million to Hanmi, and we will pay 

Hanmi tiered royalty payments in the teens based on net sales of any products using the licensed intellectual property in China. The 
royalties shall be reduced if competing generic products gain market share in China. We also granted to Hanmi a one-time right of 
first negotiation to purchase all of our rights in Oral Paclitaxel or Oral Irinotecan under the agreement during development and prior 
that, at Hanmi’s discretion, requires us to negotiate in good faith the sale of our rights under such agreement to Hanmi at a purchase 
price determined by an internationally-recognized investment banking firm with an office in Hong Kong at any time prior to the 
earlier of (1) our first commercial sale of products using such technology or (2) receipt by Hanmi of written notice from our company 
of the sublicense of the rights in an applicable product to a third party. 

Under each agreement, we are responsible for all clinical studies and development and commercialization activities, and the 

related expenses, resulting from the agreements. Each of the 2011 Hanmi Agreement and the 2013 Hanmi Agreement expires on the 
earlier of (1) expiration of the last of Hanmi’s patent rights licensed under the agreement or (2) invalidation of Hanmi’s patent rights 
which are the subject of the agreement, provided that the term will automatically be extended for consecutive one year periods unless 
either party gives notice to the other at least 90 days prior to expiration of the patent rights licensed under the agreement or before the 
then-current annual expiration date of the agreement. The patent rights licensed to us under the 2011 and 2013 Hanmi Agreements 
have expiry dates ranging from in 2023 to 2033, unless the terms of such licensed patents are extended in accordance with applicable 
laws and regulations. 

Hanmi may also terminate the 2011 Hanmi Agreement if (1) we fail to file an IND application with the FDA for Oral Paclitaxel 
within six months of the latest of (x) our receipt from Hanmi of all English translations necessary for the filing of an IND application 
with the FDA, (y) the date we and Hanmi agree that all studies necessary for the filing of an IND application with the FDA have been 
completed or (z) the date of the final study report for the last of any additional studies that are necessary for the filing of an IND 
application with the FDA or (2) we fail to commence clinical studies for Oral Paclitaxel within twelve months after the date of 
approval of an IND application by the FDA. 

The 2013 Hanmi Agreement may be terminated by Hanmi if (1) we fail to file an IND application for Oral Paclitaxel with the 
NMPA within six months after the latest of (w) completion of all Chinese translations necessary for the filing of an IND application 
with the NMPA, (x) completion of all manufacturing and toxicology studies necessary for the filing of an IND application with the 
NMPA (y) the date we and Hanmi agree that all studies necessary for the filing of an IND application with the NMPA have been 
completed or (z) the date of the final study report for the last of any additional studies that are necessary for the filing of an IND 
application with the NMPA or (2) we fail to commence clinical studies for Oral Paclitaxel within twelve months after the date of 
approval of an IND application by the NMPA. 

Such clinical development milestones in respect of the termination right in both the 2011 Hanmi Agreement, and the 2013 

Hanmi Agreement may be extended for twelve months if we reasonably request. 

Prior to the expiration of the term of each agreement, we may terminate the agreement in our sole discretion, by providing six 

months’ notice to Hanmi. Subject to certain conditions. The agreements also contain customary termination rights for either party, 
such as in the event of a breach of the agreement or the initiation of bankruptcy proceedings by the other party or by mutual 
agreement. 

Out-Licenses 

ZenRx License Agreement 

In April 2013, we entered into a license agreement with ZenRx, which we refer to as the ZenRx License, pursuant to which we 

granted to ZenRx an exclusive, sublicensable license to use certain of our intellectual property to develop and commercialize Oral 
Irinotecan and Oral Paclitaxel in Australia and New Zealand, and a non-exclusive license to manufacture a certain compound but only 
for use in Oral Irinotecan and Oral Paclitaxel. ZenRx is responsible for all development, manufacturing and commercialization, and 
the related costs and expenses, of any product candidates resulting from the agreement. 

We received a $50,000 payment from ZenRx upon effectiveness of the agreement, and we may be entitled to receive up to an 

aggregate of $1.4 million in additional development, regulatory and sales milestone payments. We will also be eligible to receive 
tiered royalties in the teens on net sales of each product commercialized by ZenRx utilizing the intellectual property that is the subject 
of the ZenRx License. Such royalties will be reduced by 40% when competing generic products have 30% of the market share in the 

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applicable country and will be eliminated entirely when competing generic products have 60% of the market share in the applicable 
country. 

As an incentive to ZenRx to further development and commercialization of Oral Irinotecan and Oral Paclitaxel in the territory, if 

ZenRx obtains certain regulatory approvals in the territory prior to regulatory approval of those products in either the U.S. or South 
Korea, we may be required to make payments to ZenRx, at ZenRx’s option, either up to $0.6 million in cash or $0.35 million in cash 
plus $0.25 million worth of our common stock. 

The term of the ZenRx License expires on the earlier of (1) expiration of the last of our patent rights licensed under the 
agreement or (2) invalidation of our patent rights which are the subject of the agreement, provided that the term will automatically be 
extended for consecutive one year periods unless either party gives notice to the other at least 90 days prior to expiration of the patent 
rights licensed under the agreement or before the then current annual expiration date of the agreement. Prior to the expiration of the 
term of the agreement, ZenRx may terminate the agreement in its sole discretion, by providing three months’ notice to us. Subject to 
certain conditions, we may also terminate the agreement if ZenRx fails to comply with certain development timelines set forth in the 
ZenRx License. The agreement also contains customary termination rights for either party, such as in the event of a breach of the 
agreement or the initiation of bankruptcy proceedings by the other party. 

PharmaEssentia License Agreements 

In December 2011 and December 2013, we entered into two separate out-licensing agreements with PharmaEssentia, pursuant 
to which we granted to PharmaEssentia certain licenses to our intellectual property for use in development and commercialization of 
certain products in specific territories. 

The December 2011 agreement, which we refer to as the 2011 PharmaEssentia Agreement, granted an exclusive, sublicensable 

license to use any pharmaceutical preparation containing tirbanibulin or KX-361 for use in treating psoriasis or other non-malignant 
skin conditions in a territory that includes China, Taiwan, Macau, Hong Kong, Singapore and Malaysia. In December 2016, we agreed 
to amend the 2011 PharmaEssentia Agreement such that the field under the license agreement does not include AK for any country in 
the territory except Taiwan. 

We received a $40,000 payment from PharmaEssentia upon effectiveness of the 2011 PharmaEssentia Agreement, and we may 
be entitled to an aggregate of up to $1.6 million in additional development and regulatory milestone payments, $0.25 million of which 
may be paid in the form of PharmaEssentia stock. PharmaEssentia has discretion to offer to make such payment in the form of its 
stock, and we have discretion as to whether to accept such payment in the form of its stock. We will also be eligible to receive tiered 
royalties ranging from the high single-digits to teens on net sales of each product commercialized by PharmaEssentia utilizing the 
intellectual property that is the subject of the 2011 PharmaEssentia Agreement. Such royalties will be reduced by 40% when 
competing generic products have 30% of the market share in the applicable country and will be eliminated entirely when competing 
generic products have 60% of the market share in the applicable country. 

The December 2013 agreement, which we refer to as the 2013 PharmaEssentia Agreement, granted an exclusive, sublicensable 

license for development and commercialization of Oral Paclitaxel and Oral Irinotecan in Taiwan and Singapore. In December 2016, 
we agreed to amend the 2013 PharmaEssentia Agreement to also include Vietnam in the territories covered by the license, provided 
that, if PharmaEssentia has not completed a submission for regulatory approval in Vietnam by 2021, the rights under the license in 
Vietnam will be returned to us. In November 2018, we agreed to amend the 2013 PharmaEssentia Agreement to also include a license 
for development and commercialization of Oral Docetaxel in Singapore, Taiwan and Vietnam. We received $2.0 million from 
PharmaEssentia upon effectiveness of the amended agreement.

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We received a $50,000 payment from PharmaEssentia upon effectiveness of the 2013 PharmaEssentia Agreement and a $0.5 
million payment upon the initiation of a 505b2 strategy registration study in the first quarter of 2017, and we may be entitled to an 
aggregate of up to $1.5 million in additional development, regulatory and sales milestone payments. We may be obligated to pay 
PharmaEssentia an aggregate of $1.0 million in incentives if PharmaEssentia achieves certain milestones within designated 
timeframes. We will also be eligible to receive tiered royalties in the mid-teens on net sales of each product commercialized by 
PharmaEssentia utilizing the intellectual property that is the subject of the 2013 PharmaEssentia Agreement. Such royalties will be 
reduced by 40% when competing generic products have 30% of the market share in the applicable country and will be eliminated 
entirely when competing generic products have 60% of the market share in the applicable country. Under the November 2018 
amendment to the 2013 PharmaEssentia Agreement, we also received an upfront payment of $2.0 million, and we may be entitled to 
an aggregate of up to $9.1 million in additional development and regulatory milestone payments related to Oral Docetaxel.

Under each agreement, PharmaEssentia is responsible for all clinical studies and development and commercialization activities, 

and the related expenses, resulting from the agreements. Each of the 2011 PharmaEssentia Agreement and the 2013 PharmaEssentia 
Agreement expire on the earlier of (1) expiration of the last of our patent rights licensed under the agreement or (2) invalidation of our 
patent rights which are the subject of the agreement, provided that the term will automatically be extended for consecutive one year 
periods unless either party gives notice to the other at least 90 days prior to expiration of the patent rights licensed under the 
agreement or before the then current annual expiration date of the agreement. 

Prior to the expiration of the term of each agreement, PharmaEssentia may terminate the agreement in its sole discretion, by 

providing six months’ notice to us. Subject to certain conditions, we may also terminate the agreement if PharmaEssentia fails to 
comply with certain development timelines set out in each of the agreements. The agreements also contain customary termination 
rights for either party, such as in the event of a breach of the agreement or the initiation of bankruptcy proceedings by the other party. 

Xiangxue License Agreements

2012 License Agreement

In May 2012, we entered into a license agreement with Xiangxue, which we refer to as the Xiangxue 2012 License, pursuant to 

which we granted to Xiangxue an exclusive, sublicensable license to use certain of our intellectual property to develop and 
commercialize products containing KX-361 in all indications for brain tumors in China, Taiwan, Hong Kong and Singapore.  
Xiangxue is responsible for all development, manufacturing and commercialization, and the related costs and expenses, of any product 
candidates resulting from the agreement. 

We received a $0.75 million payment from Xiangxue upon effectiveness of the Xiangxue 2012 License and in 2013 received a 

further $0.75 million payment upon meeting the first regulatory milestone under the agreement. We may be entitled to receive an 
aggregate of up to $4.5 million in additional development and regulatory milestone payments. We will also be eligible to receive 
royalties in the teens on net sales of each product commercialized by Xiangxue utilizing the intellectual property that is the subject of 
the. Such royalties will be reduced by 40% when competing generic products have 30% of the market share in the applicable country 
and will be eliminated entirely when competing generic products have 60% of the market share in the applicable country. 

The term of the Xiangxue 2012 License expires on the earlier of (1) expiration of the last of our patent rights licensed under the 
agreement or (2) invalidation of our patent rights which are the subject of the agreement, provided that the term will automatically be 
extended for consecutive one year periods unless either party gives notice to the other at least 90 days prior to expiration of the patent 
rights licensed under the agreement or before the then current annual expiration date of the agreement. Prior to the expiration of the 
term of the Xiangxue 2012 License, Xiangxue may terminate the agreement in its sole discretion, by providing six months’ notice to 
us. Subject to certain conditions, we may also terminate the agreement if Xiangxue fails to comply with certain development timelines 
set forth in the Xiangxue 2012 License. The Xiangxue 2012 License also contains customary termination rights for either party, such 
as in the event of a breach of the agreement or the initiation of bankruptcy proceedings by the other party. 

2019 License Agreement

In December 2019, we entered into an exclusive license agreement with Xiangxue, which we refer to as the 2019 Xiangxue 
License, in which we granted Xiangxue exclusive rights to develop and commercialize certain licensed products for China, Hong 
Kong and Macau, including Oral Paclitaxel, Oral Irinotecan, and tirbanibulin ointment for certain indications, including oncological 
and AK indications, as well as other indications that we and Xiangxue mutually agree to pursue under the 2019 Xiangxue License. 
The 2019 Xiangxue License contains an option, exercisable by Xiangxue, to license two additional product candidates on terms and 
conditions to be negotiated separately from the 2019 Xiangxue License. Under the terms and conditions of the 2019 Xiangxue 
License, we and Xiangxue will be jointly responsible for licensed products in the territory covered by the 2019 Xiangxue License in 
their permitted fields of use and Xiangxue will be responsible for the commercialization of the licensed products in the territory in 
their permitted fields of use. Xiangxue has agreed to pay us an initial payment of $30.0 million, subject to the satisfaction of certain 
conditions, including the delivery of required regulatory data, which are expected to occur in the first quarter of 2020. We may be 
eligible to receive future additional payments up to $150.0 million in the event defined regulatory and sales milestones are achieved, a 
payment of $20.0 million in the event of a change of control or assignment of rights involving Xiangxue (as further defined and 

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subject to the conditions set forth in the 2019 License Agreement), and to receive tiered royalties at rates ranging from the low teens to 
low twenties based on annual net sales of the licensed products in the territory covered by the 2019 Xiangxue License and a 
percentage of sublicensing revenue. The 2019 Xiangxue License will continue until Xiangxue has no payment obligations under the 
2019 Xiangxue License, unless terminated earlier in accordance with the terms of the 2019 Xiangxue License. The 2019 Xiangxue 
License may be terminated in its entirety upon the mutual agreement of the parties, by Xiangxue for convenience upon requisite 
notice, or by either party for material breach as set forth in the 2019 Xiangxue License.  The 2019 Xiangxue License also will be 
terminated with respect to any licensed product for Xiangxue’s failure to meet agreed upon regulatory milestones with respect to such 
2019 Licensed Product.

Almirall License Agreement 

In December 2017, we entered into a license agreement with Almirall, which we refer to as Almirall License, pursuant to which 

we granted to Almirall an exclusive, sublicensable license of certain of our intellectual property for the development and 
commercialization of topical products containing tirbanibulin to treat and prevent skin disorders and diseases in humans (including 
AK), or the Field, in the licensed territory, which includes the U.S. and substantially all European countries (including Russia and 
Turkey). We also granted Almirall a right of first negotiation to license from us in the territory covered by the Almirall license any 
compound (other than tirbanibulin) that we may develop in the future with the same mechanism of action as tirbanibulin for topical 
treatment of skin disorders and diseases if we decide to collaborate with a third party regarding that newly developed compound. 
Under the Almirall License, Almirall also grants us an exclusive, sublicensable license to use certain of its intellectual property related 
to the products containing our licensed tirbanibulin for use in the Field in order to commercialize such products outside of the 
Licensed Territory and outside of the Field in the Licensed Territory and to commercialize other products containing tirbanibulin for 
indications outside the Field. If we decide to sublicense that license from Almirall for certain additional products or indications, we 
will negotiate with Almirall to allow them to reasonably participate in the commercial benefit of such sublicense. 

In March 2018, we received an upfront payment of $30.0 million from Almirall under this agreement. In June 2019, we received 
milestone payment of $20.0 million, and we expect to receive other near-term payments of up to $5.0 million. We may also be entitled 
to receive an aggregate of $65.0 million in additional milestone payments, as well as sales milestone payments we estimate will likely 
total $155.0 million. Almirall will reward Athenex with additional sales milestones should the sales exceed the currently projected 
amounts. In addition, we are eligible to receive tiered royalty payments for a certain period starting at 15% based on annual net sales 
of the topical products commercialized by Almirall, utilizing the intellectual property subject to the license agreement, with 
incremental increases in royalty rates commensurate with increased sales. Additionally, under certain circumstances starting after one 
year following regulatory approval of certain licensed products in the U.S., we would have the option to co-promote such licensed 
products under pre-negotiated terms and conditions with Almirall. 

The term of the Almirall License began in February 2018 when antitrust approval was obtained and continues for the entire life 

of the licensed topical products on a country-by-country basis. Prior to the expiration of the term of the Almirall License, Almirall 
may terminate the agreement in its entirety or with regard to a certain territory in its sole discretion by providing six months’ notice to 
us. We may also be required to reimburse Almirall in the event Almirall provides notice that certain clinical endpoints under the 
agreement are not met. In addition, Almirall may terminate the agreement effective immediately if the licensed topical products cannot 
be marketed in the territory due to significant safety concerns, if regulatory approval is finally and irrevocably denied in a territory or 
if an approved product label is less favorable than the product label submitted to the regulatory authorities in a way that would 
materially affect the commercial value of the product. 

The agreement also contains customary termination rights for both parties, such as in the event of a breach of the agreement or if 

the other party defaults in performance of its obligations under the agreement.

In October 2019, we announced a progress update from our partner Almirall on tirbanibulin ointment for the treatment of AK. 

CJ License Agreement

In December 2018, through our subsidiary Taihao Pharmaceutical, we entered into a series of agreements to license certain 
intellectual property to Chongqing Jingdong Junzhuo Pharmaceutical Co., Ltd. (“CJ”) to exclusively develop and commercialize 
tirbanibulin for the treatment of actinic keratosis and oncology indications in humans in mainland China (excluding Hong Kong, 
Macau and Taiwan). Via the series of agreements, CJ obtained the exclusive right to promote, market, sell and commercialize in 
mainland China those topical or oral products that contain our proprietary Src/tubulin inhibitor, tirbanibulin, also known as 
tirbanibulin. We have agreed to manufacture the products and to conduct all clinical trials, and CJ was required to use its reasonable 
best efforts to commercialize the licensed products in mainland China. Under the agreements, CJ has agreed to pay Taihao (1) an 
upfront payment of $14.5 million, (2) certain milestone payments totaling $15.0 million and (3) royalty payments based on the amount 
of sales of the product. These agreements have been terminated by mutual consent of both parties as of March 6, 2019, and we will 
retain the exclusive right to promote, market, sell and commercialize in mainland China those topical or oral products that contain 
tirbanibulin. We are not subject to any termination penalties related to the termination of the license and sublicense agreements.

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Collaboration Agreement 

Eli Lilly and Company Agreement 

In October 2016, we entered into a Clinical Trial Collaboration and Supply Agreement with Lilly, which we refer to as the Lilly 

Agreement, under which we and Lilly will conduct a Phase 1b trial of Oral Paclitaxel in combination with Lilly’s ramucirumab in 
patients with gastric, gastro-esophageal and esophageal cancers. Under the terms of the Lilly Agreement we will act as the sponsor of 
the study and will hold the IND/clinical trial application (“CTA”) relating to the study, while all clinical data generated under the 
study will be jointly owned by us and Lilly. Other than Lilly’s obligation to supply ramucirumab to us, we will be responsible for all 
other costs associated with the conduct of the study. 

The Lilly Agreement will remain in effect until the study contemplated by the agreement has been completed. The agreement 
also contains customary termination rights for either party, such as in the event of a breach of the agreement by the other party, or in 
the event a regulatory authority takes any action against or raises any objection to the study.

Competition 

The biopharmaceutical industry and the oncology subsector are characterized by rapid evolution of technologies, fierce 
competition and strong defense of intellectual property. Any product candidates that we successfully develop and commercialize will 
have to compete with existing therapies and new therapies that may become available in the future. While we believe that our product 
candidates, platforms and scientific expertise in the field of biotechnology and oncology provide us with competitive advantages, a 
wide variety of institutions, including large biopharmaceutical companies, specialty biotechnology companies, academic research 
departments and public and private research institutions, are actively developing potentially competitive products and technologies. 
We face substantial competition from biotechnology and biopharmaceutical companies developing oncology products. These 
competitors generally fall within the following categories: 

Oral administration: Taxol, Abraxane, Cynviloq, Camptosar, Onivyde, Taxotere and Hycamtin; 

Src Kinase inhibitors: Picato and Temodar. 

Many of our competitors, either alone or with strategic partners, have substantially greater financial, technical and human 

resources than we do. Accordingly, our competitors may be more successful than us in obtaining approval for treatments and 
achieving widespread market acceptance, rendering our treatments obsolete or non-competitive. Accelerated merger and acquisition 
activity in the biotechnology and biopharmaceutical industries may result in even more resources being concentrated among a smaller 
number of our competitors. These companies also compete with us in recruiting and retaining qualified scientific and management 
personnel, establishing clinical study sites and patient registration for clinical studies, acquiring technologies complementary to, or 
necessary for, our programs and for sales in the API business. Smaller or early-stage companies may also prove to be significant 
competitors, particularly through collaborative arrangements with large and established companies. Our commercial opportunity could 
be substantially limited in the event that our competitors develop and commercialize products that are more effective, safer, less toxic, 
more convenient or less expensive than our comparable products. In geographies that are critical to our commercial success, 
competitors may also obtain regulatory approvals before us, resulting in our competitors building a strong market position in advance 
of our products’ entry. We believe the factors determining the success of our programs will be the efficacy, safety and convenience of 
our product candidates and our access to supply of API. 

Intellectual Property 

We strive to protect and enhance the proprietary technologies, inventions, products and product candidates, methods of 

manufacture, methods of using our products and product candidates, and improvements thereof that are commercially important to our 
business. We protect our proprietary intellectual property position by, among others, filing patent applications in the U.S. and in 
jurisdictions outside of the U.S. covering our proprietary technologies, inventions, products and product candidates, methods, and 
improvements that are important to the development and implementation of our business. We also rely on trade secrets, know-how, 
continuing innovation, and licensing opportunities to develop, strengthen and maintain our proprietary intellectual property position. 
As of December 31, 2019, we owned more than 150 granted patents and approximately 65 pending patent applications worldwide. In 
addition, we have in-licensed patents and patent applications relating to our Orascovery platform technology from Hanmi. In our 
Orascovery platform, the lead compound is covered as composition-of-matter in granted patents in the U.S. and other territories, such 
as China and Europe. These patents will expire in October 2023 or 2024, excluding any potential patent term adjustments and/or 
patent term extensions that may be available. The lead compounds in our Src Kinase Inhibition platform are covered as composition-
of-matter in granted patents in the US and other territories, including China and Europe. These patents will begin to expire in 
December 2025, excluding any potential patent term adjustments and/or patent term extensions that may be available.  As of 
December 31, 2019, we have in-licensed patents and technologies in relation to our TCR T-cell therapy.  Some of these patents will 
expire in 2034, excluding any potential patent term adjustments and/or patent term extensions that may be available.  We have in-
licensed a patent relating to the site-directed PEGylation of arginases and their use as anti-cancer and anti-viral therapies granted in the 

27

U.S. and other territories, such as China and Europe. This patent will expire in March 2030, excluding any potential patent term 
adjustments and/or patent term extensions that may be available. A PCT application has entered national phases in the U.S. and other 
territories, such as China and Europe covering the compositions and methods for amino acid depletion therapy.

The term of individual patents depends upon the laws of the countries in which they are obtained. In most countries in which we 
file, the patent term is 20 years from the earliest date of filing of a non-provisional patent application. In the U.S., the term of a patent 
may be lengthened by patent term adjustment to compensate the patentee for administrative delays by the United States Patent and 
Trade Office (USPTO) in examining and granting the patent or may be shortened if the patent is terminally disclaimed over an earlier-
filed patent. In addition, a patent term may be extended to restore a portion of the term effectively lost as a result of FDA regulatory 
review. However, the restoration period cannot be longer than five years and cannot extend the remaining term of a patent beyond a 
total of fourteen years from the date of FDA approval, and only one patent applicable to an approved drug may be extended. Similar 
extensions as compensation for regulatory delays are available in Europe and other jurisdictions. We intend to seek patent term 
extensions where these are available. However, there is no guarantee that the applicable authorities, including the FDA in the U.S., 
will agree with our assessment of whether such extensions should be granted, and we cannot predict the length of the extensions even 
if they are granted. The actual protection afforded by a patent varies on a claim-by-claim basis, from country-to-country, and depends 
upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the 
availability of legal remedies in a particular country and the validity and enforceability of the patent. For a granted patent to remain in 
force most countries require the payment of annuities or maintenance fees, either yearly or at certain intervals during the term of a 
patent. If an annuity or maintenance fee is not paid, the patent may lapse irrevocably. 

Granted patents and pending patent applications related to the SRC Kinase Inhibition platform cover such aspects as 
composition-of-matter claims to our lead product candidates and their analogs, claims to pharmaceutical compositions comprising 
such candidates and claims to methods of making and method of treatment using such candidates. Not accounting for any patent term 
adjustment, patent term extension or terminal disclaimer, and, assuming that all annuity and/or maintenance fees are paid, the patents 
and, if granted, patent applications, will expire from 2025 to 2040. 

Government Regulation and Product Approval 

Governmental authorities in the U.S., at the federal, state and local level, and in other countries extensively regulate, among 

other things, the research, development, testing, manufacture, approval, quality control, labeling, packaging, promotion, storage, 
advertising, distribution, post-approval monitoring, marketing and export and import of products such as those we are developing. In 
order to be lawfully marketed in the U.S., our therapeutic drug candidates and compounded products must comply with either Section 
503B (compounding) or Section 505 (new drug approval) of the FDCA as applicable, and they will be subject to similar premarket 
requirements in other countries. The process of obtaining regulatory approvals and ensuring compliance with applicable federal, state, 
local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. 

U.S. Government Regulation 

In the U.S., the FDA regulates drugs under the FDCA and its implementing regulations. Failure to comply with the applicable 

U.S. requirements at any time during the product development or approval process, or after approval, may subject an applicant to 
administrative or judicial sanctions, any of which could have a material adverse effect on us. These sanctions could include: 

refusal to approve pending applications; 

withdrawal of an approval; 

imposition of a clinical hold; 

warning or untitled letters; 

seizures or administrative detention of product; 

total or partial suspension of production or distribution or 

injunctions, fines, restitution, disgorgement, refusal of government contracts, or civil or criminal penalties. 

NDA approval processes 

The process required by the FDA before a therapeutic drug product may be marketed in the U.S. generally involves the 

following: 

completion of extensive nonclinical laboratory tests, animal studies and formulation studies conducted in accordance with 
GLPs and other applicable regulations; 

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submission to the FDA of an IND application, which must be authorized before human clinical trials may begin; 

performance of adequate and well-controlled human clinical trials in accordance with Good Clinical Practices, or GCPs, 
to establish the safety and efficacy of the product candidate for its intended use; 

submission to the FDA of an NDA; 

satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the product 
candidate is produced to assess readiness for commercial manufacturing and conformance to the manufacturing-related 
elements of the application, to conduct a data integrity audit, and to assess compliance with cGMP to assure that the 
facilities, methods and controls are adequate to assure the product candidate’s identity, strength, quality and purity; 

potential FDA audit of the clinical trial sites that generated the data in support of the NDA; and

FDA review and approval of the NDA. 

Once a pharmaceutical candidate is identified for development, it enters the preclinical or nonclinical testing stage. Nonclinical 

tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. Such studies must 
generally be conducted in accordance with the FDA’s GLPs. An IND sponsor must submit the results of the nonclinical tests, together 
with manufacturing information and analytical data, to the FDA as part of the IND application. Some nonclinical testing may continue 
even after the IND application is submitted. In addition to including the results of the nonclinical studies, the IND application will also 
include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and 
the effectiveness criteria to be evaluated if the first phase lends itself to an efficacy determination. The IND application automatically 
becomes effective thirty days after receipt by the FDA, unless the FDA, within the 30-day time period, places the IND on clinical 
hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. A clinical 
hold may occur at any time during the life of an IND and may affect one or more specific studies or all studies conducted under the 
IND application. 

The manufacture of investigational drugs for the conduct of human clinical trials is subject to cGMP requirements. 

Investigational drugs and API imported into the U.S. are also subject to regulation by the FDA relating to their labeling and 
distribution. Further, the export of investigational drug products outside of the U.S. may be subject to regulatory requirements of the 
receiving country as well as U.S. export requirements under the FDCA. 

All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCP 
requirements, which include, among other things, the requirements that all research subjects provide their informed consent in writing 
for their participation in any clinical trial. Investigators must also provide certain information to the clinical trial sponsors to allow the 
sponsors to make certain financial disclosures to the FDA. Clinical trials must be conducted under protocols detailing the objectives of 
the trial, dosing procedures, research subject selection and exclusion criteria and the safety and effectiveness endpoints to be 
evaluated. Each protocol, and any subsequent material amendment to the protocol, must be submitted to the FDA as part of the IND 
application, and progress reports detailing the status of the clinical trials must be submitted to the FDA annually. Sponsors also must 
report to the FDA serious and unexpected adverse reactions in a timely manner. Reporting requirements also apply to, among other 
things, any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or 
investigator’s brochure and any findings from other studies or animal or in vitro testing that suggest a significant risk in humans 
exposed to the product candidate. An institutional review board, or IRB, with jurisdiction at each institution participating in the 
clinical trial must review and approve the protocol before a clinical trial commences at that institution and must also approve the 
information regarding the trial and the consent form that must be provided to each research subject or the subject’s legal 
representative, monitor the study until completed and otherwise comply with IRB regulations. 

Human clinical trials are typically conducted in three sequential phases that may overlap or be combined. 

Phase 1—The product candidate is initially introduced into healthy human subjects and tested for safety, dosage tolerance, 
absorption, metabolism, distribution and elimination. In the case of some therapeutic candidates for severe or life-
threatening diseases, such as cancer, especially when the product candidate may be inherently too toxic to ethically 
administer to healthy volunteers, the initial human testing is often conducted in patients. 

Phase 2—Clinical trials are performed on a limited patient population intended to identify possible adverse effects and 
safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage 
tolerance and optimal dosage. 

Phase 3—Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient 
population at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit 
ratio of the product and provide an adequate basis for product labeling. 

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A pivotal study is a clinical study that adequately meets regulatory agency requirements for the evaluation of a product 
candidate’s efficacy and safety such that it can be used to justify the approval of the product. Generally, pivotal studies are also Phase 
3 studies but may be Phase 2 studies, with the agreement of FDA, if the trial design provides a reliable assessment of clinical benefit, 
particularly in situations where there is an unmet medical need. 

In the case of a 505(b)(2) NDA, which is a marketing application in which the sponsor may rely on investigations that were not 

conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for 
whom the investigations were conducted, some of the above-described studies and nonclinical studies may not be required or may be 
abbreviated. The applicant may rely upon the FDA’s prior findings of safety and efficacy for a previously approved product or on 
published scientific literature in support of its application. Bridging studies, including clinical studies, may be needed, however, to 
demonstrate that it is scientifically appropriate to rely on the findings of the studies that were previously conducted by other sponsors 
to the drug that is the subject of the marketing application. 

In addition, the manufacturer of an investigational drug in a Phase 2 or Phase 3 clinical trial for a serious or life-threatening 

disease is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for 
expanded access to such investigational drug. 

The outcome of human clinical trials are inherently uncertain and Phase 1, Phase 2 and Phase 3 testing may not be successfully 

completed or may not be completed at all. The FDA or the sponsor may suspend a clinical trial at any time for a variety of reasons, 
including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can 
suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s 
requirements or if the product candidate has been associated with unexpected serious harm to patients. 

During the development of a new product candidate, sponsors are given opportunities to meet with the FDA at certain points; 
specifically, prior to the submission of an IND, at the end of Phase 2 and before an NDA application is submitted. Meetings at other 
times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to 
date and for the FDA to provide advice on the next phase of development. Sponsors typically use the meeting at the end of Phase 2 to 
discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 clinical trials that they believe will support the 
approval of the new therapeutic. A sponsor may be able to request a Special Protocol Assessment, or SPA, the purpose of which is to 
reach agreement with the FDA on the Phase 3 clinical trial protocol design and analysis that will form the primary basis of an efficacy 
claim. The agreement will be binding on the FDA and may not be changed by the sponsor or the FDA after the trial begins except with 
the written agreement of the sponsor and the FDA or if the FDA determines that a substantial scientific issue essential to determining 
the safety or efficacy of the product candidate was identified after the testing began. 

Post-approval trials, sometimes referred to as “Phase 4” clinical trials, may be required after initial marketing approval. These 

trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. 

Concurrent with clinical trials, sponsors usually complete additional animal safety studies, develop additional information about 

the chemistry and physical characteristics of the product candidate and finalize a process for manufacturing commercial quantities of 
the product candidate in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing 
quality batches of the product candidate and the manufacturer must develop methods for testing the quality, purity and potency of the 
product candidate. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to 
demonstrate that the product candidate does not undergo unacceptable deterioration over its proposed shelf-life. 

The results of product development, nonclinical studies and clinical trials, along with descriptions of the manufacturing process, 
analytical tests and other control mechanisms, proposed labeling and other relevant information are submitted to the FDA as part of an 
NDA requesting approval to market the product. Under the Prescription Drug User Fee Act, or PDUFA, as amended, each NDA must 
be accompanied by a significant user fee. The FDA adjusts the PDUFA user fees on an annual basis. PDUFA also imposes an annual 
program fee for each prescription drug. Fee waivers or reductions are available in certain circumstances, such as where a waiver is 
necessary to protect the public health, where the fee would present a significant barrier to innovation or where the applicant is a small 
business submitting its first human therapeutic application for review. Product candidates that are designated as orphan drugs are also 
not subject to user fees unless the application contains an indication other than an orphan indication. 

Within sixty days following submission of an NDA, FDA reviews the application to determine if it is substantially complete 
before the agency accepts it for filing. The FDA may refuse to accept any NDA that it deems incomplete or not properly reviewable at 
the time of submission and may request additional information. In this event, the NDA must be resubmitted with the additional 
information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once the submission is 
accepted for filing, the FDA begins an in-depth substantive review of the NDA. The FDA has agreed to certain performance goals in 
the review of NDAs. FDA seeks to review NDAs for standard review products that are not new molecular entities, or NMEs, within 
ten months of the date the NDA is submitted, while FDA seeks to review NDAs for standard review NMEs within ten months of the 
date FDA files the NDA.  FDA seeks to review NDAs for priority review products that are not NMEs within six months of the date 
the NDA is submitted, while FDA seeks to review NDAs for priority review NMEs within six months of the date FDA files the NDA. 
The review process for both standard and priority review may be extended by the FDA for three additional months to consider certain 
late-submitted information, or information intended to clarify information already provided in the submission.

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During the product approval process, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy, or 
REMS, plan is necessary to assure the safe use of the product. If the FDA concludes that a REMS plan is needed, the sponsor of the 
NDA must submit a proposed REMS plan prior to approval. The FDA has authority to require a REMS plan when necessary to ensure 
that the benefits of a drug outweigh the risks. In determining whether a REMS plan is necessary, the FDA must consider the size of 
the population likely to use the drug, the seriousness of the disease or condition to be treated, the expected benefit of the drug, the 
duration of treatment, the seriousness of known or potential adverse events, and whether the drug is a new molecular entity. A REMS 
plan may be required to include various elements, such as a medication guide or patient package insert, a communication plan to 
educate health care providers of the risks, limitations on who may prescribe or dispense the drug or other measures that the FDA 
deems necessary to assure the safe use of the drug. In addition, the REMS plan must include a timetable to assess the strategy at 
eighteen months, three years and seven years after the strategy’s approval. 

The FDA may also require a REMS plan for a drug that is already on the market if it determines, based on new safety 

information, that a REMS plan is necessary to ensure that the product’s benefits outweigh its risks. 

Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve 
the product unless it determines that the manufacturing processes and facilities are compliant with cGMP requirements and adequate 
to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will 
typically inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND trial requirements 
and GCP requirements. To assure cGMP and GCP compliance, an applicant must incur significant expenditure of time, money and 
effort in the areas of training, record keeping, production and quality control. 

Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the NDA does not satisfy 

its regulatory criteria for approval. Data obtained from clinical trials are not always conclusive, and the FDA may interpret data 
differently than the applicant. If the agency decides not to approve the NDA in its then present form, the FDA will issue a complete 
response letter that describes all of the specific deficiencies in the NDA identified by the FDA. The deficiencies identified may be 
minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete 
response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a 
complete response letter is issued, the applicant must either resubmit the NDA, addressing all of the deficiencies identified in the 
letter, withdraw the application, or appeal the decision. 

Even if a product receives regulatory approval, the approval may be significantly limited to specific indications and dosages or 

the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may 
require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions 
and conditions on product distribution, prescribing or dispensing in the form of a risk management plan, or otherwise limit the scope 
of any approval. In addition, the FDA may require post marketing clinical trials, sometimes referred to as “Phase 4” clinical trials, 
designed to further assess a drug’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved 
products that have been commercialized. 

Expedited Review and Approval 

The FDA has various programs, including Fast Track, priority review, accelerated approval and breakthrough therapy 

designation, which are intended to expedite or simplify the process for reviewing therapeutic candidates, or provide for the approval of 
a product candidate on the basis of a surrogate endpoint. Even if a product candidate qualifies for one or more of these programs, the 
FDA may later decide that the product candidate no longer meets the conditions for qualification or that the time period for FDA 
review or approval will be lengthened. Generally, therapeutic candidates that are eligible for these programs are those for serious or 
life-threatening conditions, those with the potential to address unmet medical needs and those that offer meaningful benefits over 
existing treatments. For example, Fast Track is a process designed to facilitate the development and expedite the review of therapeutic 
candidates to treat serious or life-threatening diseases or conditions and fill unmet medical needs. Priority review is designed to give 
therapeutic candidates that offer major advances in treatment or provide a treatment where no adequate therapy exists an initial review 
within six months as compared to a standard review time of ten months. 

Although Fast Track and priority review do not affect the standards for approval, the FDA will attempt to facilitate early and 
frequent meetings with a sponsor of a Fast Track designated product candidate and expedite review of the application for a product 
candidate designated for priority review. Accelerated approval, which is described in Subpart H of 21 CFR Part 314, provides for an 
earlier approval for a new product candidate that is (1) intended to treat a serious or life-threatening disease or condition; (2) generally 
provides a meaningful advantage over available therapies and (3) demonstrates an effect on either a surrogate endpoint that is 
reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or 
mortality, or IMM, and is reasonably likely to predict an effect on IMM or other clinical benefit, taking into account the severity, 
rarity or prevalence of the condition and the availability or lack of alternative treatments. A surrogate endpoint is a laboratory 
measurement or physical sign used as an indirect or substitute measurement representing a clinically meaningful outcome. As a 
condition of approval, the FDA will require that a sponsor of a product candidate receiving accelerated approval perform post-
marketing studies to verify and describe the predicted effect on IMM or other clinical endpoint. The product may be subject to 
accelerated withdrawal procedures under certain circumstances. 

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In addition to the Fast Track, accelerated approval and priority review programs discussed above, a sponsor may seek a 
breakthrough therapy designation. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or 
more other drugs, to treat a serious or life-threatening disease or conditions, and preliminary clinical evidence indicates that the drug 
may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Drugs designated as 
breakthrough therapies are eligible for, among other things, the Fast Track designation, intensive guidance on an efficient drug 
development program and a commitment from FDA to involve senior managers and experienced review staff in a proactive 
collaborative, cross-disciplinary review. 

Abbreviated New Drug Applications for Generic Drugs and 505(b)(2)NDAs

NDA applicants are required to list with the FDA each patent with claims covering the applicant’s product or method of using 

the product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s 
Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the 
Orange Book can, in turn, be cited by potential generic or 505(b)(2) applicants in support of approval of an ANDA, or a 505(b)(2) 
application. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage 
form as the listed drug and has been shown to be bioequivalent to the listed drug. Other than the requirement for bioequivalence 
testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests to prove the safety or 
effectiveness of their drug product. Drugs approved in this way can often be substituted by pharmacists under prescriptions written for 
the original listed drug. A 505(b)(2) NDA is an application that contains full reports of investigations of safety and effectiveness but 
where some of the information required for approval comes from studies not conducted by or for the applicant and for which the 
applicant has not obtained a right of reference. A 505(b)(2) applicant may be able to rely on published literature or on FDA’s previous 
findings of safety and effectiveness for an approved drug. A 505(b)(2) NDA may be submitted for changes to a previously approved 
drug, including, for example, in the dosage form, route of administration, or indication.  

The ANDA or 505(b)(2) applicant is required to make a certification to the FDA concerning any patents listed for the approved 

NDA product in the FDA’s Orange Book. Specifically, the ANDA or 505(b)(2) applicant must certify that: (1) the required patent 
information has not been filed; (2) the listed patent has expired (3) the listed patent has not expired, but will expire on a particular date 
and approval is sought after patent expiration; or (4) the listed patent is invalid or will not be infringed by the new product. The 
ANDA applicant may also elect to submit a section viii statement certifying that its proposed ANDA labeling does not contain (or 
carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the applicant 
does not challenge the listed patents, the ANDA or 505(b)(2) application will not be approved until all the listed patents claiming the 
referenced product have expired. 

A certification that the ANDA or 505(b)(2) product will not infringe the already approved product’s listed patents, or that such 

patents are invalid, is called a Paragraph IV certification. If the ANDA or 505(b)(2) applicant has provided a Paragraph IV 
certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the 
ANDA or 505(b)(2) application has been received by the FDA. The NDA and patent holders may then initiate a patent infringement 
lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within forty-five days of 
the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA or 505(b)(2) application until 
the earlier of thirty months, expiration of the patent, settlement of the lawsuit or a decision in the infringement case that is favorable to 
the ANDA applicant. 

The ANDA or 505(b)(2) application will not be approved until any applicable non-patent exclusivity listed in the Orange Book 

for the referenced product has expired. 

Patent Term Restoration and Marketing Exclusivity 

Depending upon the timing, duration and specifics of FDA approval of the use of our drug candidates, some of our U.S. patents 

may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, 
commonly referred to as the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as 
compensation for patent term lost during product development and the FDA regulatory review process. However, patent term 
restoration cannot extend the remaining term of a patent beyond a total of fourteen years from the product’s approval date. The patent 
term restoration period is generally one-half the time between the effective date of an IND application and the submission date of an 
NDA plus the time between the submission date of an NDA and the approval of that application, except that this review period is 
reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved product is 
eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent. The USPTO, in 
consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, if 
available, we intend to apply for restorations of patent term for some of our currently owned patents beyond their current expiration 
dates, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA; however, 
there can be no assurance that any such extension will be granted to us. 

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Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain applications. The FDCA 
provides a five-year period of non-patent marketing exclusivity within the U.S. to the first applicant to gain approval of an NDA for a 
new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same 
active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA 
may not accept for review an ANDA, or a 505(b)(2) NDA, submitted by another company for another version of such drug where the 
applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be 
submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of 
marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than 
bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the 
application, for example, new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the 
conditions of use associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs 
containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. 
However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical 
studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. Five- and three-year 
exclusivity do not affect the submission of a full 505(b)(1) NDA.

Orphan Drug Designation 

Under the Orphan Drug Act, the FDA may grant Orphan Drug Designation to therapeutic candidates intended to treat a rare 

disease or condition, which is generally a disease or condition that affects either (1) fewer than 200,000 individuals in the U.S., or (2) 
more than 200,000 individuals in the U.S. and for which there is no reasonable expectation that the cost of developing and making 
available in the U.S. a product candidate for this type of disease or condition will be recovered from sales in the U.S. for that product 
candidate. Orphan Drug Designation must be requested before submitting an NDA. We have received Orphan Drug Designation for 
KX-361 and Oral Paclitaxel for the treatment of angiosarcomas. After the FDA grants Orphan Drug Designation, the identity of the 
therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan Drug Designation does not convey any 
advantage in or shorten the duration of the regulatory review and approval process. 

If a product candidate that has Orphan Drug Designation subsequently receives the first FDA approval for the disease for which 

it has such designation, the product candidate is entitled to orphan product exclusivity, which means that the FDA may not approve 
any other applications to market the same drug for the same indication, except under limited circumstances, for seven years. Orphan 
drug exclusivity, however, could also block the approval of one of our therapeutic candidates for seven years if a competitor obtains 
approval of the same drug for the same disease or condition as defined by the FDA or if our product candidate is determined to be 
contained within the competitor’s product candidate for the same indication or disease. Orphan drug exclusivity does not prevent FDA 
from approving the same drug for a different disease or a different drug for the same disease.

Pediatric Exclusivity and Pediatric Use 

Under the Best Pharmaceuticals for Children Act (BPCA), certain therapeutic candidates may obtain an additional six months of 
exclusivity if the sponsor submits information requested in writing by the FDA, referred to as a Written Request, relating to the use of 
the active moiety of the product candidate in children. Although the FDA may issue a Written Request for studies on either approved 
or unapproved indications, it may only do so where it determines that information relating to that use of a product candidate in a 
pediatric population, or part of the pediatric population, may produce health benefits in that population. 

In addition, the Pediatric Research Equity Act, or PREA, requires a sponsor to conduct pediatric studies for most therapeutic 

candidates, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under 
PREA, original NDAs and supplements thereto must contain a pediatric assessment unless the sponsor has received a deferral or 
waiver. The required assessment must assess the safety and effectiveness of the product candidate for the claimed indications in all 
relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product 
candidate is safe and effective. The sponsor or FDA may request a deferral of pediatric studies for some or all of the pediatric 
subpopulations. A deferral may be granted for several reasons, including a finding that the product candidate is ready for approval for 
use in adults before pediatric studies are complete or that additional safety or effectiveness data needs to be collected before the 
pediatric studies begin. The law requires the FDA to send a PREA Non-Compliance letter to sponsors who have failed to submit their 
pediatric assessments required under PREA, have failed to seek or obtain a deferral or deferral extension or have failed to request 
approval for a required pediatric formulation. It further requires the FDA to post the PREA Non-Compliance letter and sponsor’s 
response. 

Post-Approval Requirements 

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained 
or if problems occur after the product candidate reaches the market. Later discovery of previously unknown problems with a product 
candidate may result in restrictions on the product candidate or even complete withdrawal of the product candidate from the market. 
After approval, some types of changes to the approved product candidate, such as adding new indications, manufacturing changes and 
additional labeling claims, are subject to further FDA review and approval. In addition, the FDA may under some circumstances 
require testing and surveillance programs to monitor the effect of approved therapeutic candidates that have been commercialized, and 

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the FDA under some circumstances has the power to prevent or limit further marketing of a product candidate based on the results of 
these post-marketing programs. 

Any therapeutic candidates manufactured or distributed pursuant to FDA approvals for prescription drugs are subject to 

continuing regulation by the FDA, including, among other things: 

reporting and record-keeping requirements; 

reporting of adverse experiences; 

providing the FDA with updated safety and efficacy information; 

product sampling and distribution requirements; 

notifying the FDA and gaining its approval of specified manufacturing or labeling changes and 

complying with FDA promotion and advertising requirements, which include, among other things, standards for direct-to-
consumer advertising, restrictions on promoting products for uses or in patient populations that are not described in or 
consistent with the product’s approved labeling, limitations on industry-sponsored scientific and educational activities and 
requirements for promotional activities involving the internet. 

Therapeutic manufacturers and other entities involved in the manufacture and distribution of approved therapeutic products are 

required to register their establishments with the FDA and obtain licenses in certain states and are subject to periodic unannounced 
inspections by the FDA and some state agencies for compliance with cGMP and other laws. The FDA periodically inspects 
manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural, substantive and record-keeping 
requirements. In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the 
change, may require FDA approval before being implemented. FDA regulations would also require investigation and correction of any 
deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers used. 
Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain 
compliance with cGMP and other aspects of regulatory compliance. 

Disclosure of Clinical Trial Information 

Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial 

information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of 
investigation, study sites and investigators and other aspects of the clinical trial is then made public as part of the registration. 
Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of the results of these trials can be 
delayed under certain limited circumstances for up to two years after the date of completion of the trial. Competitors may use this 
publicly available information to gain knowledge regarding the progress of development programs. The government recently released 
a regulation and policy to expand and enhance the requirements related to registering and reporting the results of which may result in 
greater enforcement of these requirements in the future. 

Regulation of Compounding Pharmacies 

Pharmaceutical drug compounding is a practice in which a licensed pharmacist, a licensed physician, or in the case of an 
outsourcing facility, a person under the direct supervision of a licensed pharmacist, combines, mixes, or alters ingredients of a drug to 
create a medication. We are engaged in the compounding of sterile drugs as an outsourcing facility registered with FDA under FDCA 
Section 503B. Title I of the Drug Quality and Security Act, the Compounding Quality Act, or CQA, allows an entity that compounds 
sterile drugs to register with FDA as an outsourcing facility. Once registered (which includes payment of an annual fee), an 
outsourcing facility must meet certain conditions in order to be exempt from the FDCA’s new drug approval requirements, the 
requirement to label products with adequate directions for use, and certain product tracing and serialization requirements. Under the 
CQA, a drug must be compounded in compliance with FDA’s cGMP regulations by or under the direct supervision of a licensed 
pharmacist in a facility registered pursuant to Section 503B of the FDCA in order to be so exempt. The outsourcing facility must also 
report specific information about the products that it compounds, including a list of all of the products it compounded during the 
previous six months, and information about the compounded products, such as the source of the active ingredients used to compound 
pursuant to Section 503B(b)(2). The source of any bulk substance active ingredient used in compounding must be a Section 510 
registered manufacturer, and the ingredients must include a certificate of analysis. If the outsourcing facility compounds using bulk 
drug substances, the bulk drug substances must either appear on FDA’s “interim” list of bulk substances that may be used in 
compounding under Section 503B, which are bulk drug substances for which FDA has determined there is a clinical need for use in 
compounding.  Drugs may also be compounded if the FDA-approved drug product appears on FDA’s published drug shortage list.  
FDA has not yet finalized its list of bulk drug substances for which there is a clinical need, but FDA has announced an interim policy 
pursuant to which bulk drug substances for which there is sufficient supporting information for FDA to evaluate them may be 
nominated for inclusion on FDA’s “Category 1” list.  Provided certain conditions are met, FDA will exercise enforcement discretion 

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concerning Category 1 substances pending evaluation of the substances for inclusion on FDA’s final list of bulk drug substances for 
which there is a clinical need. 

In addition, an outsourcing facility must meet other conditions described in the CQA, including reporting adverse events 

pursuant to Section 503B(b)(5) of the FDCA, and labeling its compounded products with certain information pursuant to 
Section 503B(a)(10). Outsourcing facilities are prohibited from transferring selling compounded drugs through a wholesale 
distributor, or from compounding drugs that are essentially copies of commercially available, FDA-approved drugs. Outsourcing 
facilities are subject to FDA inspection, and FDA conducts inspections on a risk-based frequency under Section 503B(b)(4). 

Pharmaceutical Coverage, Reimbursement and Pricing 

Significant uncertainty exists as to the coverage and reimbursement status of any products for which we may obtain regulatory 
approval or compound. In the U.S., sales of any products for which we may compound or receive regulatory approval for commercial 
sale will depend in part on the availability of coverage and reimbursement from third-party payors. Third-party payors include 
government authorities such as Medicare, Medicaid, TRICARE and the Veterans Administration, managed care providers, private 
health insurers and other organizations. 

The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate 
agreement with the Secretary of the Department of Health and Human Services as a condition for states to receive federal matching 
funds for the manufacturer’s outpatient drugs furnished to Medicaid patients. Effective in 2010, the Affordable Care Act (“ACA”) 
made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by 
raising the minimum basic Medicaid rebate on most branded prescription drugs from 15.1% of average manufacturer price, or AMP, 
to 23.1% of AMP, and adding a new rebate calculation for “line extensions” (i.e., new formulations, such as extended release 
formulations) of solid oral dosage forms of branded products, as well as potentially impacting their rebate liability by modifying the 
statutory definition of AMP. The ACA also expanded the universe of Medicaid utilization subject to drug rebates by requiring 
pharmaceutical manufacturers to pay rebates on Medicaid managed care utilization as of 2010 and by expanding the population 
potentially eligible for Medicaid drug benefits. Centers for Medicare and Medicaid Services (“CMS”) will expand Medicaid rebate 
liability to the territories of the United States as well, beginning in 2020, if the territories elect to enroll in the Medicaid Drug Rebate 
Program. In addition, the ACA provides for the public availability of retail survey prices and certain weighted average AMPs under 
the Medicaid program. The implementation of this requirement by CMS may also provide for the public availability of pharmacy 
acquisition cost data, which could influence our decisions related to setting product prices and offering related discounts. 

In order for a pharmaceutical product to receive federal reimbursement under the Medicare Part B and Medicaid programs or to 

be sold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the 340B 
drug pricing program. The required 340B discount on a given product is calculated based on the AMP and Medicaid rebate amounts 
reported by the manufacturer. Effective in 2010, the ACA expanded the types of entities eligible to receive discounted 340B pricing; 
although, under the current state of the law, with the exception of children’s hospitals, these newly eligible entities will not be eligible 
to receive discounted 340B pricing on orphan drugs when used for the orphan indication. 

The process for determining whether a payor will provide coverage for a product is typically separate from the process for 
setting the reimbursement rate that the payor will pay for the product. Third-party payors may limit coverage to specific products on 
an approved list or formulary which might not include all of the FDA-approved products for a particular indication. Also, third-party 
payors may refuse to include a particular branded drug on their formularies or otherwise restrict patient access to a branded drug when 
a less costly generic equivalent or other alternative is available. However, under Medicare Part D—Medicare’s outpatient prescription 
drug benefit—there are protections in place to ensure coverage and reimbursement for oncology products and all Part D prescription 
drug plans are required to cover substantially all anti-cancer agents. However, a payor’s decision to provide coverage for a product 
does not imply that an adequate reimbursement rate will be available. Adequate third-party reimbursement may not be available to 
enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. 

Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical 

products and services, in addition to their safety and efficacy. In order to obtain coverage and reimbursement for any product that 
might be approved for sale, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical 
necessity and cost-effectiveness of any products, in addition to the costs required to obtain regulatory approvals. Our drug candidates 
may not be considered medically necessary or cost-effective. If third-party payors do not consider a product to be cost-effective 
compared to other available therapies, they may not cover an approved product as a benefit under their plans or, if they do, the level of 
payment may not be sufficient to allow a company to sell its products at a profit. 

The U.S. government and state legislatures have shown significant interest in implementing cost containment programs to limit 

the growth of government-paid health care costs, including price controls, restrictions on reimbursement and requirements for 
substitution of generic products for branded prescription drugs. Further, the ACA, contains provisions that may reduce the profitability 
of drug products, including, for example, increased rebates for drugs reimbursed by Medicaid programs and the extension of Medicaid 
rebates to Medicaid managed care plans. Several other provisions of the ACA focused on cost containment include: 

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The Patient-Centered Outcomes Research Institute, which was established to identify priorities in, and conduct 
comparative clinical effectiveness research, along with funding for such research. The research conducted by the Patient-
Centered Outcomes Research Institute may affect the market for certain pharmaceutical products. 

The Independent Payment Advisory Board which, since 2014, has had authority to recommend certain changes to the 
Medicare program to reduce expenditures by the program when spending exceeds a certain growth rate and such changes 
could result in reduced payments for prescription drugs. Under certain circumstances, these recommendations will become 
law unless Congress enacts legislation that will achieve the same or greater Medicare cost savings. However, as of late 
2016, the President has yet to nominate anyone to serve on the board. 

The Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to 
lower Medicare and Medicaid spending, potentially including prescription drug spending. Funding has been allocated to 
support the mission of the Center for Medicare and Medicaid Innovation from 2011 to 2019. 

The ACA imposed an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription 
drugs, apportioned among these entities according to their market share in certain government healthcare programs, 
although this fee would not apply to sales of certain products approved exclusively for orphan indications. 

The ACA imposed a requirement on manufacturers of branded drugs to provide a discount, now 70%, off the negotiated 
price of branded drugs dispensed to Medicare Part D patients in the coverage gap (i.e., the “donut hole” or the period of 
consumer payment for prescription medicine costs which lies between the initial coverage limit and the catastrophic—
coverage threshold). 

The adoption of government controls and measures and tightening of restrictive policies in jurisdictions with existing controls 

and measures, could also limit payments for pharmaceuticals. 

The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government 
and third-party payors fail to provide adequate coverage and reimbursement. Coverage policies and third-party reimbursement rates 
may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we 
receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future. 

Generic Drugs 

Given that we manufacture and market generic drug products, our business may be impacted by laws and policies governing the 
coverage, pricing and reimbursement of generic drugs. Generic drugs are the same API as initial innovator medicines and are typically 
more affordable in comparison to the innovator’s products. Sales of generic medicines have benefitted from policies encouraging 
generic substitution and a general increasing acceptance of generic drugs on the part of healthcare insurers, consumers, physicians and 
pharmacists. However, while the U.S. generics market is one of the largest in the world, the recent trend of rising generic drug prices 
has drawn scrutiny from the U.S. government. Specifically, generic drug pricing is the subject of Congressional inquiries and media 
attention, and many generic drug manufacturers are the targets of government investigations. 

In addition, like branded drug manufacturers, generic drug manufacturers are now required to pay an inflation penalty if price 

increases on generic drugs exceed the rate of inflation. 

Also, the ACA revised the methodology for setting Medicaid generic drug reimbursement in order to further limit the 
reimbursement of generic drugs under the Medicaid program. Specifically, the Federal Upper Limit (“FUL”), which establishes the 
government’s maximum payment amount for certain generic drugs, is no less than 175% of the weighted average of the most recently 
reported monthly AMPs for pharmaceutically and therapeutically equivalent multiple source drug products that are available for 
purchase by retail community pharmacies on a nationwide basis. Similarly, reimbursement for generic drugs is also limited in 
Medicare Part B, as the Average Sales Price (the metric upon which reimbursement is based or ASP) for multiple-source drugs 
included within the same multiple-source drug billing and payment code is the volume-weighted average of the various 
manufacturers’ ASPs for those drug products. 

Laboratory Testing Services Coverage and Reimbursement 

Given that we market medical devices in the form of in vitro diagnostic devices, or IVDs, used in the performance of clinical 

laboratory tests, currently limited to drugs of abuse, pregnancy and alcohol testing in the U.S., and cardiac marker and infectious 
disease testing in Asia, our business may be impacted by laws and policies governing the coding, coverage, reimbursement and 
demand for clinical laboratory services. With regard to the clinical laboratory services performed on Medicare beneficiaries, health 
care providers utilizing such tests generally either are paid under prospective payment systems for most tests performed on hospital 
inpatients and outpatients or must bill the Medicare Part B program directly in compliance with applicable coding, coverage and 
reimbursement rules and accept the amount paid by the Medicare contractor under the Medicare Clinical Laboratory Fee Schedule 
(“CLFS”) as payment in full. Currently, Medicare does not require the beneficiary to pay a co-payment for clinical laboratory services 
paid under the CLFS. Pursuant to Section 216 of-the federal Protecting Access to Medicare Act of 2014 (“PAMA”), CMS is 

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modernizing the CLFS by creating a market-based reimbursement system which will require clinical laboratories subject to the law to 
report certain private payor prices and test volumes, and CMS will set new payment rates for CLFS tests based on the weighted 
median of reported prices, effective January 1, 2018. It is unclear how this new law will affect testing services that use our products at 
this time, but, as a general matter, CMS has indicated that prices of many clinical laboratory tests will decrease under PAMA. In 
addition, state Medicaid programs are prohibited from paying more (and in many instances, pay significantly less) than Medicare, and 
payment is subject to state-specific coverage, reimbursement and laboratory law requirements. Certain state Medicaid programs also 
require Medicaid recipients to pay co-payment amounts for clinical laboratory services. Likewise, payment by private payors is 
subject to payor-determined coverage and reimbursement policies that vary considerably and are subject to change without notice. 
Finally, there is increasing legislative attention to opioid abuse in the United States, including passage of the Comprehensive 
Addiction and Recovery Act of 2016 which, among other things, strengthens state prescription drug monitoring programs and expands 
educational efforts for certain populations, which may increase the need for drugs of abuse testing. Changes like these related to 
clinical laboratory services and any other changes related to coverage or reimbursement may impact the demand for and pricing of 
some of our products which could adversely affect our ability to operate our business and our financial results. 

Reimbursement for Compounded Drugs 

Given that we intend to compound and sell compounded products, some of which may include APIs that we manufacture, our 

business may be impacted by the downstream coverage and reimbursement of compounded products. Generally, federal 
reimbursement is available for compounded drugs but is typically dependent upon whether the individual ingredients or bulk drug 
substances that make up the compounded product are FDA-approved. Certain of our API products have not yet received FDA 
approval. 

There is a national payment policy for compounded drugs under Medicare Part B, but the policy is unclear because it does not 
stipulate whether payment is available for ingredients that are bulk drug substances, which are generally not FDA-approved. Under 
Medicare Part B, claims for compounded drugs are typically submitted using a billing code for “not otherwise classified drugs,” and 
CMS contractors who process Part B claims may conduct further reviews of outpatient claims to determine whether the drug billed 
under a nonspecific billing code is a compounded drug and to identify its ingredients in order to make payment decisions. However, 
CMS contractors who process Part B claims do not always collect information on the FDA-approval status of drug ingredients, and, 
therefore, payment may be made for ingredients that are not FDA-approved products. Therefore, there is uncertainty as to whether 
Medicare payments for compounded drugs are consistent with the Medicare Part B policy. 

Under Medicare Part D, federal payments are not available for non-FDA-approved products—including bulk drug substances—

and inactive ingredients used to make a compounded drug. Insurers that offer Medicare Part D benefits and Part D-only sponsors, 
generally, pay pharmacies for each ingredient in the compounded drug that is an FDA-approved product and is otherwise eligible for 
reimbursement under Part D. However, with respect to non-FDA approved bulk drug substances, insurers that offer Medicare Part D 
benefits and Part D-only sponsors may choose to pay for such bulk substances but may not submit these payments as part of the Part D 
transaction data CMS uses to determine federal payments to Part D plans. 

Healthcare Fraud and Abuse Laws and Compliance Requirements 

We are subject to various federal and state laws targeting fraud and abuse in the healthcare industry. These laws may impact, 

among other things, our proposed sales and marketing programs. In addition, we may be subject to patient privacy regulation by both 
the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include: 

the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, 
receiving, offering or paying remuneration (a term interpreted broadly to include anything of value, including, for 
example, gifts, discounts, chargebacks, and credits), directly or indirectly, in cash or in kind, to induce or reward, or in 
return for, either the referral of an individual for, or the purchase, order or recommendation of, an item or service 
reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; 

federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, 
individuals or entities from knowingly presenting, or causing to be presented, claims for payment to Medicare, Medicaid 
or other third-party payors that are false or fraudulent, or making a false statement or record material to payment of a false 
claim or avoiding, decreasing or concealing an obligation to pay money owed to the federal government; 

provisions of the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new 
federal criminal statutes, referred to as the “HIPAA All-Payor Fraud Prohibition,” that prohibit knowingly and willfully 
executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters; 

the federal transparency laws, including the federal Physician Payment Sunshine Act, which was part of the ACA, that 
require manufacturers of certain drugs and biologics to track and report payments and other transfers of value they make 
to U.S. physicians and teaching hospitals as well as physician ownership and investment interests in the manufacturer, and 
that such information is subsequently made publicly available in a searchable format on a CMS website; 

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provisions of HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its 
implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of 
individually identifiable health information and 

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to 
items or services reimbursed by any third-party payor, including commercial insurers, state transparency reporting and 
compliance laws; and state laws governing the privacy and security of health information in certain circumstances, many 
of which differ from each other in significant ways and which may not have the same effect, thus complicating 
compliance efforts. 

The ACA broadened the reach of the fraud and abuse laws by, among other things, amending the intent requirement of the 
federal Anti-Kickback Statute and the applicable criminal healthcare fraud statutes contained within 42 U.S.C. § 1320a-7b. Pursuant 
to the statutory amendment, a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in 
order to have committed a violation. In addition, the ACA provides that the government may assert that a claim including items or 
services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil 
False Claims Act or the civil monetary penalties statute. Many states have adopted laws similar to the federal Anti-Kickback Statute, 
some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and 
Medicaid programs. 

The federal False Claims Act prohibits anyone from, among other things, knowingly presenting, or causing to be presented, for 
payment to federal programs (including Medicare and Medicaid) claims for items or services that are false or fraudulent. Although we 
would not submit claims directly to payors, manufacturers can be held liable under these laws if they are deemed to “cause” the 
submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or 
promoting a product off-label. In addition, our future activities relating to the reporting of wholesaler or estimated retail prices for our 
products, the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state and third-
party reimbursement for our products, and the sale and marketing of our products, are subject to scrutiny under this law. For example, 
pharmaceutical companies have been prosecuted under the federal False Claims Act in connection with their alleged off-label 
promotion of drugs, purportedly concealing price concessions in the pricing information submitted to the government for government 
price reporting purposes, and allegedly providing free product to customers with the expectation that the customers would bill federal 
health care programs for the product. Penalties for a False Claims Act violation include three times the actual damages sustained by 
the government, plus mandatory civil penalties for each separate false claim, the potential for exclusion from participation in federal 
healthcare programs, and, although the federal False Claims Act is a civil statute, conduct that results in a False Claims Act violation 
may also implicate various federal criminal statutes. In addition, private individuals have the ability to bring actions under the federal 
False Claims Act, and certain states have enacted laws modeled after the federal False Claims Act. 

Medical Devices 

Through our subsidiary Polymed, we marketed in vitro diagnostic, or IVD, rapid test kits used in the performance of clinical 
laboratory tests (limited to drugs of abuse and pregnancy testing in the U.S.). We discontinued this line of product sales during the 
beginning of 2019. These IVD test kits are regulated by the FDA as medical devices under the FDCA and related regulations, and are 
subject to premarket notification requirements pursuant to Section 510(k) of the FDCA.  FDA’s medical device regulations address, 
among other topics, the development, design, non-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, 
storage, installation, servicing, recordkeeping, premarket clearance or approval, import, export, adverse event reporting, advertising, 
promotion, marketing and distribution of medical devices, for the purpose of ensuring that medical devices manufactured or 
distributed in the U.S. are safe and effective for their intended uses and otherwise meet the requirements of the FDCA. These 
requirements apply to varying extents, depending on the level of risk posed by a device. Medical devices may also be subject to other 
federal and state authorities in the U.S., as well as comparable authorities in foreign jurisdictions. 

In addition, the Clinical Laboratory Improvement Amendments of 1988, or CLIA, established quality standards for laboratory 
testing to ensure the accuracy, reliability and timeliness of patient test results regardless of where the test was performed. Pursuant to 
CLIA, the FDA categorizes IVDs based on their level of complexity (e.g., knowledge and training necessary to perform the test).  
Waived tests are those that are simple to use and pose little risk of providing incorrect information or causing harm if performed 
incorrectly.  Laboratories that perform only waived tests must obtain a Certificate of Waiver but otherwise are subject to minimal 
requirements under CLIA.  Tests categorized as moderate complexity are more complex than waived tests, and laboratories 
performing them are subject to CLIA requirements for quality control, quality assurance, proficiency testing and limited personnel 
requirements.  Finally, high complex tests are the most difficult to perform or pose the greatest risk if performed incorrectly.  In 
addition to the requirements applicable to moderate complexity tests, laboratories performing high complexity tests are subject to 
additional personnel requirements.   Labs performing tests other than waived tests must obtain either a Certificate of Accreditation or 
Certificate of Compliance. Foreign countries may require similar or more onerous approvals to manufacture or market our products or 
to allow the use of our products in certain settings. Most of our test strips are categorized as CLIA waived, but some of our test strips 
are categorized as moderate in complexity. 

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Risk Classification

Unless an exemption applies, each medical device commercially distributed in the U.S. requires either FDA clearance of a 

510(k) premarket notification submission, granting of a de novo classification request, or approval of a premarket approval 
application, or PMA. The FDCA establishes three classes of devices - Class I (low risk), Class II (moderate risk) or Class III (high 
risk) - depending on the degree of risk associated with each medical device. Class I devices are those for which general controls are 
sufficient to provide reasonable assurance of safety and effectiveness. General controls include establishment registration and product 
listing, complaint handling, reporting of adverse events recordkeeping, and compliance with the applicable portions of the Quality 
System Regulation, or QSR. Class II devices are those for which general controls are insufficient by themselves to provide reasonable 
assurance of the safety and effectiveness of the device and for which special controls can be established to provide such assurance.  
Special controls may include performance standards, post-market surveillance, patient registration, and the development and 
dissemination of guidelines. Class III devices are those for which reasonable assurance of safety and effectiveness cannot be provided 
through the imposition of general and special controls and that are either purported or represented for use in supporting or sustaining 
life or of substantial important in preventing impairment of human health or that present a potential unreasonable risk of illness or 
injury. 

Premarket Authorization Pathways

In addition to general and special controls, medical devices may be subject to the requirement for premarket review and 
authorization by FDA in order to be commercially distributed.  The three premarket authorization pathways for medical devices are 
the 510(k) premarket notification, request for de novo classification, and an application for premarket approval, or PMA.  Most Class I 
devices are exempt from any premarket authorization requirement.  Many Class II devices are subject to 510(k) premarket 
notification.  Our currently marketed products are Class II devices subject to 510(k) clearance.  If no predicate exists, a device is 
automatically designated as Class III.  However, if the device does not pose high risk, a request for de novo classification may be 
submitted. Class III devices require FDA approval of a PMA application.

510(k) Marketing Clearance and De Novo Pathways 

To obtain 510(k) clearance, a premarket notification submission must be submitted to the FDA demonstrating that the proposed 

device is “substantially equivalent” to a predicate device. A predicate device is a legally marketed device that is not subject to 
premarket approval, i.e., a device that was legally marketed prior to May 28, 1976 (pre-amendments device) and for which a PMA is 
not required, a device that has been reclassified from Class III to Class II or I or a device that was found substantially equivalent 
another device cleared through the 510(k) process. Pursuant to FDA’s user fee-based performance goals,  the agency has 90 days to 
review a 510(k) notification submission once it has been accepted, but the review process may take longer if the agency has questions 
or requires additional information, including clinical data, in order to make a determination regarding substantial equivalence. 

If the FDA agrees that the device is substantially equivalent to a predicate device, it will grant 510(k) clearance to market the 
device. If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, the device cannot be 
lawfully marketed. In the absence of a suitable predicate, the device is  automatically designated as Class III. The sponsor may be able 
to seek reclassification through the de novo process.  If a de novo request is granted, the device may be legally marketed and a new 
classification is established. If the device is classified as Class II, the device may serve as a predicate for future 510(k) submissions. If 
the de novo pathway is not available, the sponsor must fulfill more rigorous PMA requirements.

PMA Approval Pathway 

Class III devices require PMA approval before they can be lawfully marketed in the U.S. The PMA process is more demanding 

than the 510(k) process. A PMA must include information from investigations sufficient to show there is a reasonable assurance of 
safety and effectiveness under the labeled conditions of use proposed by the sponsor.  A PMA submission generally includes data 
from preclinical studies and human clinical trials.  The FDA may approve a PMA with post-approval conditions intended to ensure the 
safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution and 
collection of long-term follow-up data from patients in the clinical trial that supported PMA approval or requirements to conduct 
additional clinical trials post-approval. Failure to comply with the conditions of approval can result in material adverse enforcement 
action, including withdrawal of the approval. 

Our products are not currently subject to PMA requirements. However, we may in the future develop devices that will require 
the submission of a PMA, or FDA may find that some of our proposed uses are not substantially equivalent to previously cleared and 
marketed devices, and thus a PMA is required. 

Clinical Trials 

Clinical trials are almost always required to support a PMA and are sometimes required to support a 510(k) submission. All 

clinical investigations of devices to determine safety and effectiveness must be conducted in accordance with the FDA’s 
investigational device exemption, or IDE, regulations, which specify obligations on study sponsors and clinical investigators.  These 
regulations include restrictions on promotion and commercialization of the device, specified labeling, reporting, and monitoring 

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obligations, and compliance with human protection requirements (e.g., IRB approval, informed consent of subjects). If the device 
presents a “significant risk,” to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE 
application to the FDA, which must be approved prior to commencing human clinical trials. A significant risk device is one that 
presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining 
human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human 
health or otherwise presents a potential for serious risk to a subject. An IDE application must be supported by appropriate data, such as 
animal and laboratory test results, showing that it is safe to test the device in humans and that the testing protocol is scientifically 
sound. The IDE will automatically become effective thirty days after receipt by the FDA unless the FDA notifies us that the 
investigation may not begin. If the FDA determines that there are deficiencies or other concerns with an IDE that require a 
modification, the FDA may, depending on whether the issues need to be addressed prior to study enrollment, either disapprove the 
IDE or approve the IDE with conditions. 

During a clinical trial, the sponsor is required to comply with applicable FDA requirements, and the clinical investigators are 

also subject to FDA’s regulations. Both must comply with GCPs, which among other things require that informed consent be obtained 
from each research subject prior to enrollment, that the investigational plan and study protocol be followed, that the disposition of the 
investigational device be controlled and that reporting and recordkeeping requirements are followed. Additionally, after a trial begins, 
the sponsor, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, including a belief that the 
risks to study subjects outweigh the anticipated benefits. Even if a clinical trial is completed, there can be no assurance that the data 
generated during a clinical trial will meet the prespecified safety and effectiveness endpoints or otherwise produce results that will 
lead the FDA to grant marketing clearance or approval. 

Post-Market Regulation 

After a device is cleared or approved for marketing, the manufacturer is subject to numerous post-market requirements. These 

include: 

establishment registration and device listing with the FDA; 

QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, 
control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; 

labeling and promotion requirements, including the requirement that product labeling is truthful and nonmisleading and 
bears adequate directions for use;

procedures for evaluating device modifications and for determining whether they could significantly affect safety or 
effectiveness or would constitute a major change to intended use, in which case additional marketing authorization from 
FDA could be required; 

complaint handling and investigation requirements, including, when necessary, undertaking corrective and preventive 
action to prevent recurrence of an identified issue;

medical device reporting requirements, which require that a manufacturer report to the FDA if a device it markets may 
have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it 
markets would be likely to cause or contribute to a death or serious injury if the malfunction were to recur; 

correction and removal requirements, under which a manufacturer must repair or replace (depending on the 
circumstances) a customer’s device and which may include FDA reporting obligations;  

voluntary recall requirements, if FDA determines that a removal or correction was initiated by the manufacturer to correct 
a violation of the FDCA, which may require additional disclosure and remedial actions to be undertaken.  FDA may also 
request that the manufacturer initiate a recall if a product presents a risk of illness or injury or gross consumer deception 
and agency action is necessary to protect the public health and welfare.  FDA posts information about certain types of 
recalls on a publicly-available database; 

mandatory recall, if FDA determines there is a reasonable probability that a device would cause serious, adverse health 
consequences or death and issues a cease distribution and notification order; and 

post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the 
public health or to provide additional safety and effectiveness data for the device. 

Our manufacturing processes are required to comply with the applicable portions of the QSR, which cover the methods used in, 

and the facilities and controls used for, the design, manufacture, labeling, packaging, installation and servicing of finished devices 
intended for human use. The QSR includes requirements to establish and maintain procedures relating to design controls (including 
design history file), document controls, purchasing controls, production and process controls, labeling and packaging controls, 
corrective and preventive action, quality audits, and records (including device master record, device history record, and complaint 
files). As a manufacturer, we and our third-party manufacturers are subject to periodic scheduled or unscheduled inspections by the 
FDA. Our failure to maintain compliance with the QSR requirements could result in the shut-down of, or restrictions on, our 
manufacturing operations and the recall or seizure of our product. The discovery of previously unknown problems with our product, 
including unanticipated adverse events or adverse events of increasing severity or frequency, whether resulting from the use of the 

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device within the scope of its clearance or off-label by a physician in the practice of medicine, could result in restrictions on the 
device, including the removal of the product from the market or voluntary or mandatory device recalls. 

New Legislation and Regulations 

From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory 
provisions governing the testing, approval, manufacturing, marketing, coverage and reimbursement of products regulated by the FDA 
or other government agencies. In addition to new legislation, FDA and healthcare fraud and abuse and coverage and reimbursement 
regulations and policies are often revised or interpreted by the agency in ways that may significantly affect our business and our 
products. In particular, we expect that the current presidential administration and U.S. Congress will continue to seek to modify, repeal 
or otherwise invalidate all, or certain provisions of, the ACA. Most recently, the Tax Cuts and Jobs Act (the “Tax Reform Act”)  was 
enacted, which, among other things, removes penalties for not complying with the individual mandate to carry health insurance. There 
is still uncertainty with respect to the impact President Trump’s administration and the U.S. Congress may have, if any, and any 
changes will likely take time to unfold. Such reforms could have an adverse effect on anticipated revenues from therapeutic candidates 
that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and 
ability to develop therapeutic candidates. However, we cannot predict the ultimate content, timing or effect of any healthcare reform 
legislation or the impact of potential legislation on us. 

Furthermore, in the U.S., the health care industry is subject to political, economic and regulatory influences. Initiatives to reduce 

the federal budget and debt and to reform health care coverage are increasing cost-containment efforts. We anticipate that federal 
agencies, Congress, state legislatures and the private sector will continue to review and assess alternative health care benefits, controls 
on health care spending, and other fundamental changes to the healthcare delivery system. Any proposed or actual changes could limit 
coverage or the amounts that federal and state governments will pay for health care products and services, which could also result in 
reduced demand for our products or additional pricing pressures and limit or eliminate our spending on development projects and 
affect our ultimate profitability. We are not able to predict whether further legislative changes will be enacted or whether FDA or 
healthcare fraud and abuse or coverage and reimbursement regulations, guidance, policies or interpretations will be changed or what 
the effect of such changes, if any, may be. 

Foreign Corrupt Practices Act 

The Foreign Corrupt Practices Act of 1977 (“FCPA”) prohibits any U.S. individual or business from corruptly offering, paying, 

promising or authorizing the provision of anything of value, directly or indirectly, to any foreign official, foreign political party or 
official thereof, or candidate for foreign political office to obtain or retain business. The FCPA also obligates companies whose 
securities are listed in the U.S. to comply with accounting provisions requiring the issuer to maintain books and records that accurately 
and fairly reflect all transactions of the issuer and its controlled subsidiaries and to devise and maintain an adequate system of internal 
accounting controls. 

Environment 

We are subject to inspections by the FDA for compliance with cGMP and other U.S. regulatory requirements, including U.S. 

federal, state and local regulations regarding environmental protection and hazardous and controlled substance controls, among others. 
Environmental laws and regulations are complex, change frequently and have tended to become more stringent over time. We have 
incurred, and may continue to incur, significant expenditures to ensure that we are in compliance with these laws and regulations. We 
would be subject to significant penalties for failure to comply with these laws and regulations. 

China Government Regulation 

In the People’s Republic of China ( “PRC” or “China”), we operate in an increasingly complex legal and regulatory 

environment. We are subject to a variety of Chinese laws, rules and regulations affecting many aspects of our business. This section 
summarizes the principal Chinese laws, rules and regulations relevant to our business and operations. 

Foreign Investment in Pharmaceutical Industry 

Foreign investment in China was previously subject to the Catalogue for the Guidance of Foreign Investment Industries (2017 

Revision) issued and effective beginning July 28, 2017, and the Special Administrative Measures for the Access of Foreign 
Investment (“Negative List”) issued and effective beginning July 28, 2018, which together comprised the encouraged foreign-invested 
industries catalogue and the special administrative measures for the access of foreign investments to the restricted or the prohibited 
foreign-invested industries. The latter set out restrictions such as percentage of shareholding and qualifications of senior management. 
The Catalogue of Industries in which Foreign Investment is Encouraged (2019 Revision), the 2019 Catalogue, and the Special 
Administrative Measures for the Access of Foreign Investment (Negative List) (2019 Revision), and the 2019 Negative List, which 
were issued on June 30, 2019 and came into effect on July 30, 2019, further reduced restrictions on the foreign investment. 
Manufacturing and producing of new anti-cancer drugs, new cardiovascular medicine and new nervous system drugs falls within the 
field of encouraged catalogue. After the 2019 Catalogue and the 2019 Negative List came into effect, they replaced the Catalogue for 
the Guidance of Foreign Investment Industries (2017 Revision) and the Special Administrative Measures for the Access of Foreign 
Investment (Negative List). 

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General Regulations on China Drug Administration 

The pharmaceuticals industry in China is mainly regulated and administrated by the State Administration for Market Regulation, 

the National Health Commission (NHC) and the Bureau of National Health Care. Pursuant to the Decision of the First Session of the 
Thirteenth National People’s Congress on the State Council Institutional Reform Proposal promulgated by the Chinese National 
Congress on March 17, 2018, (1) the State Administration for Market Regulation was established; and the China Food and Drug 
Administration (CFDA) ceased to exist, while the NMPA was established as a department under the State Administration for Market 
Regulation; (2) the National Health and Family Planning Commission shall cease to exist, while the NHC shall be established as a 
department under the State Council, incorporating duties of supervision and management which had been assigned to relevant 
departments and (3) the Bureau of National Health Care shall be established as a bureau directly subordinate to the State Council.

The NMPA monitors and supervises the administration of pharmaceutical products, as well as medical devices and equipment. 

The NMPA’s primary responsibility includes evaluating, registering and approving new drugs, generic drugs and imported drugs; 
approving and issuing permits for the manufacture, export and import of pharmaceutical products and medical appliances; approving 
the establishment of enterprises for pharmaceutical manufacture and distribution; formulating administrative rules and policies 
concerning the supervision and administration of pharmaceuticals and handling significant accidents involving these products. The 
local provincial drug administrative authorities are responsible for supervision and administration of drugs within their respective 
administrative regions. 

The People’s Republic of China Drug Administration Law promulgated by the Standing Committee of the National People’s 

Congress in 1984 and the Implementing Measures of the Chinese Drug Administration Law promulgated by the Ministry of Health, or 
the MOH, in 1989 set forth the legal framework for the administration of pharmaceutical products, including the research, 
development and manufacturing of drugs. 

The Chinese Drug Administration Law was revised in February 2001, December 2013, April 2015, and again in August 2019. 

The purpose of the revisions was to strengthen the supervision and administration of pharmaceutical products and to ensure the quality 
and safety of those products for human use. The revised Chinese Drug Administration Law applies to entities and individuals engaged 
in the development, production, trade, application, supervision and administration of pharmaceutical products. It regulates and 
prescribes a framework for the administration of pharmaceutical preparations of medical institutions and for the development, 
research, manufacturing, distribution, packaging, pricing and advertisement of pharmaceutical products. Revised Implementing 
Measures of the Chinese Drug Administration Law promulgated by the State Council took effect in September 2002 and was revised 
in February 2016, and again in March 2019, providing detailed implementing regulations for the revised Chinese Drug Administration 
Law. 

The Chinese Drug Administration Law was newly revised on August 26, 2019 and came into effect on December 1, 2019. As 

compared to the old law, the current revised Chinese Drug Administration Law mainly includes the following key highlights:

The supervision and administration of pharmaceutical products will be improved by emphasizing the responsibility of the 
enterprise, strengthening the management of drug production process and clarifying the traceability requirements of drug 
quality and safety;

The responsibility for drug supervision will be clarified, and the supervision measures will be improved;

The punishment of illegal behaviors will be aggravated by increasing the fine limit, strengthening the punishment for the 
relevant personnel of pharmaceutical production enterprises and supplementing the responsibility of the drug marketing 
authorization holder (MAH);

The MAH system will be implemented, which will cause the MAH holder to undertake the responsibility of the safety and 
effectiveness of drugs and to bear legal responsibility during the whole process of development, production, management 
and use of drugs; and

The drug approval system will be reformed, including the abolishment of the separation of GMP and GSP certification. 

Under these regulations, we need to follow related regulations for preclinical research, clinical trials and production of new 

drugs. 

Good Laboratories Practice Certification for Preclinical Research 

To improve the quality of preclinical research, the NMPA promulgated the Administrative Measures for Good Laboratories 

Practice of Preclinical Laboratory in 2003 and began to conduct the certification program of GLP. Under the Certifying Measures for 
Clinical Test Units, or NMPA Circular 44, promulgated in February 2004, the NMPA decides whether an institution is qualified for 
undertaking pharmaceutical preclinical research upon the evaluation of the institution’s organizational administration, its research 
personnel, its equipment and facilities and its operation and management of preclinical pharmaceutical projects. If all requirements are 
met, a GLP Certification will be issued by the NMPA, and the result will be published on the NMPA’s website. According to the 
newly revised Chinese Drug Administration Law, drug clinical trial institutions shall complete filing with NMPA (approval by NMPA 

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is no longer required). Accordingly, NMPA promulgated the Filing Measures for Drug Clinical Trial Institutions on November 29, 
2019, which provides details of the filing procedures and requirements.

Approval for Clinical Trials and Production of New Drugs 

According to the Provisions for Drug Registration promulgated by the NMPA in 2007, the Chinese Drug Administration Law, 

the Provisions on the Administration of Special Examination and Approval of Registration of New Drugs, or the Special Examination 
and Approval Provisions issued by the NMPA in 2009 and the Circular on Information Publish Platform for Pharmaceutical Clinical 
Trials issued by the NMPA in 2013, we must comply with the following procedures and obtain several approvals for clinical trials and 
production of new drugs. 

Clinical Trial Application 

Upon completion of its preclinical research, a research institution must apply for approval of a CTA before conducting clinical 

trials. According to the Decision of the NMPA on Adjusting the Approval Procedures of the Administrative Approval Items for 
Certain Drugs promulgated by the NMPA on March 17, 2017, the decision on the approval of clinical trials of drugs enacted by the 
NMPA can be made by the Center for Drug Evaluation of the NMPA, or the CDE in the name of the NMPA from May 1, 2017. In 
July 2018, the NMPA promulgated the Announcement of the State Drug Administration on Adjusting Evaluation and Approval 
Procedures for Clinical Trials for Drugs, which further adjusted for those who apply for drug clinical trials in China, if an applicant 
does not receive any negative or questioning opinions from the CDE within sixty days after the date of accepting the application and 
the payment of the fee, drug clinical trials may be conducted in accordance with the plan being submitted. 

Four Phases of Clinical Trials 

A clinical development program consists of Phases 1, 2, 3 and 4. Phase 1 refers to the initial clinical pharmacology and safety 
evaluation studies in humans. Phase 2 refers to the preliminary evaluation of a drug candidate’s therapeutic effectiveness and safety 
for particular indication(s) in patients, provides evidence and support for the design of Phase 3 clinical trial and settles the 
administrative dose regimen. Phase 3 refers to clinical trials undertaken to confirm the therapeutic effectiveness of a drug. Phase 3 is 
used to further verify the drug’s therapeutic effectiveness and safety on patients with target indication(s), to evaluate overall benefit-
risk relationships of the drug and ultimately to provide sufficient evidence for the review of drug registration application. Phase 4 
refers to a new drug’s post-marketing study to assess therapeutic effectiveness and adverse reactions when the drug is widely used, to 
evaluate overall benefit-risk relationships of the drug when used among general population or specific groups and to adjust the 
administration dose, etc. 

New Drug Application 

When Phase 1, 2 and 3 of the clinical trials have been completed, the applicant must apply to the NMPA for approval of a new 
drug application. The NMPA then determines whether to approve the application according to the comprehensive evaluation opinion 
provided by the CDE of the NMPA. We must obtain approval of a new drug application before our drugs can be manufactured and 
sold in the Chinese market. 

Good Manufacturing Practice 

All facilities and techniques used in the manufacture of products for clinical use or for sale in China must be operated in 
conformity with cGMP guidelines as established by the NMPA. GMP certification was no longer required from December 2019 and 
regular and random onsite checking and supervision will be implemented by the relevant authority. Failure to comply with applicable 
requirements could result in the termination of manufacturing and significant fines. 

Animal Test Permits 

According to Regulations for the Administration of Affairs Concerning Experimental Animals promulgated by the State Science 

and Technology Commission in November 1988, as revised in January 2011 and July 2013, and Administrative Measures on the 
Certificate for Animal Experimentation promulgated by the State Science and Technology Commission and other regulatory 
authorities in January 2001, performing experimentation on animals requires a Certificate for Use of Laboratory Animals. Applicants 
must satisfy the following conditions: 

Laboratory animals must be qualified and sourced from institutions that have Certificates for Production of Laboratory 
Animals; 

The environment and facilities for the animals’ living and propagating must meet state requirements; 

The animals’ feed and water must meet state requirements; 

The animals’ feeding and experimentation must be conducted by professionals, specialized and skilled workers or other 
trained personnel; 

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The management systems must be effective and efficient and 

The applicable entity must follow other requirements as stipulated by the Chinese laws and regulations. 

We obtained a Certificate for Use of Laboratory Animals in 2012 regarding the scope of rats and mice.

Domestic Category 1 New Drugs Are Eligible for Special Examination and Approval 

According to the Provisions for Drug Registration, drug registration applications are divided into three different types, namely 
Domestic New Drug Application, Domestic Generic Drug Application and Imported Drug Application. Drugs fall into one of three 
categories, namely chemical medicine, biological product or traditional Chinese or natural medicine. The registrations of chemical 
medicines are divided into six categories, among which, a Category 1 drug is a new drug that has never been marketed in any country. 
All of our clinical-stage drug candidates qualify as domestic Category 1 new drugs. 

In March 2016, the NMPA promulgated the Work Plan for Reforming the Chemical Medicines Registration Classification 

System, under which, the registrations of chemical medicines are divided into five categories as follows: 

Category 1: Innovative drugs that are not marketed both domestically and abroad. These drugs contain new compounds with 

clear structures and pharmacological effects, and they have clinical value. 

Category 2: Modified new drugs that are not marketed both domestically and abroad. With known active components, the drug’s 

structure, phase, prescription manufacturing process, administration route and indication are optimized, and it has obvious clinical 
advantage. 

Category 3: The drugs that are imitated by domestic applicants to original drugs that have been marketed abroad but not 

domestically. These kinds of drugs are supposed to have the same quality and effects with original drugs. Original drugs are the 
foremost drugs that are approved to be marketed domestically and /or abroad with complete and full safety and validity data as 
marketing evidence. 

Category 4: The drugs that are imitated by domestic applicants to original drugs that have been marketed domestically. These 

kinds of drugs are supposed to have the same quality and effects with original drugs. 

Category 5: The drugs that have been marketed abroad are applied to be marketed domestically. 

The registration of Category 1 or Category 2 drugs above will be subject to the requirements of Domestic New Drug 
Application under the Provisions for Drug Registration, Domestic Generic Drug Application will be applicable to Category 3 or 
Category 4 drugs registration, and Imported Drug Application will be applicable to Category 5 drugs registration. The applicants 
whose registration applications for chemical medicines have been accepted by the NMPA before the date of promulgation of the Work 
Plan for Reforming the Chemical Medicines Registration Classification System can choose to continue the applications process 
according to the Provisions for Drug Registration or to comply with the new categories under the Work Plan for Reforming the 
Chemical Medicines Registration Classification System 

According to the Special Examination and Approval Provisions, the NMPA conducts special examination and approval for new 

drugs registration application when: 

(1)

(2)

(3)

active ingredients and their preparations extracted from plants, animals and minerals, and newly discovered medical 
materials and their preparations have not been marketed in China; 

the chemical raw material medicines as well as the preparations and biological products thereof have not been approved 
for marketing home and abroad 

the new drugs are for treating AIDS, malignant tumors and rare diseases, etc., and have obvious advantages in clinic 
treatment; or 

(4)

the new drugs are for treating diseases with no effective methods of treatment. 

The Special Examination and Approval Provisions provide that the applicant may file for special examination and approval at 

the stage of Clinical Trial Application if the drug candidate falls within items (1) or (2), and for drug candidates that fall within 
items (3) or (4), the application for special examination and approval must be made when filing for production. 

The registration of Category 1 or Category 2 drugs above will be subject to the requirements of Domestic New Drug 
Application under the Provisions for Drug Registration, Domestic Generic Drug Application will be applicable to Category 3 or 
Category 4 drugs registration and Imported Drug Application will be applicable to Category 5 drugs registration. The applicants 
whose registration applications for chemical medicines have been accepted by the NMPA before the date of promulgation of the 
Reform Plan Regarding the Category of the Registration of Chemical Medicines can choose to continue the applications process 
according to the Provisions for Drug Registration or to comply with the new categories under the Reform Plan Regarding the Category 
of the Registration of Chemical Medicines. 

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We believe that certain of our products fall within items (2) and (3) above. Therefore, we may file an application for special 
examination and approval at the CTA stage, which may enable us to pursue a more expedited path to approval in China and bring 
therapies to patients more quickly. 

The Advantages of Category 1 New Drugs over Category 5 Drugs 

Under the Provisions for Drug Registration and the Work Plan for Reforming the Chemical Medicines Registration 

Classification System, Category 5 drugs are drugs which have already been marketed abroad by multinational companies but are not 
yet approved in China, and Category 5 drug registration will be subject to the requirements of the Imported Drug Application. 
Compared with the application for Category 5 drugs, the application for Category 1 domestic new drugs has a more straight-forward 
registration pathway. According to the Special Examination and Approval Provisions, where a special examination and approval 
treatment is granted, the application for clinical trial and manufacturing will be handled with priority and with enhanced 
communication with the CDE, which will establish a working mechanism for communicating with the applicants. If it becomes 
necessary to revise the clinical trial scheme or make other major alterations during the clinical trial, the applicant may file an 
application for communication. When an application for communication is approved, the CDE will arrange the communication with 
the applicant within one month. 

In comparison, according to the Provisions for Drug Registration, the registration pathway for Category 5 drugs is complicated 
and evolving. Category 5 drug applications may be submitted after a company obtains an NDA approval and receive the CPP granted 
by a major regulatory authority, such as the FDA or the EMA. Multinational companies may need to apply for conducting multi-
regional clinical trials, which means that companies do not have the flexibility to design the clinical trials to fit the Chinese patients 
and standard-of-care. Category 5 drug candidates may not qualify to benefit from fast track review with priority at the CTA stage. 
Moreover, a requirement to further conduct local clinical trials can potentially delay market access by several years from its 
international NDA approval. 

Adjustment on the Administration of Imported Drug Registration 

On October 10, 2017, the NMPA promulgated the Decision on Adjusting Relevant Matters Concerning the Administration of 

Imported Drug Registration, effective as of the date of its promulgation, which stipulates that, among others, (1) simultaneous research 
and application are allowed, meaning that, in the case of a clinical trial concerning a drug subject thereto to be conducted at an 
international multi-center clinical trial (“IMCCT”) in China, Phase 1 clinical trials of the drug are allowed simultaneously, and the 
requirement that the drug subject to the clinical trial need to have been previously registered overseas or to have entered a Phase 2 or 
Phase 3 clinical trial shall not apply, except for preventative biological products; (2) the drug registration procedure is to be optimized, 
meaning that, upon the completion of a clinical trial at an IMCCT in China, an applicant may directly file a drug registration 
application and (3) for a new chemical drug or an innovative therapeutic biological drug for which a clinical trial or market 
registration is made, in each case as an imported drug, the requirement that such drug has received an overseas license issued by the 
country or region where the drug’s overseas pharmaceutical manufacturer is located shall not apply. 

Changes to the Review and Approval Process 

In August 2015, the State Council issued a statement, Opinions on Reforming the Review and Approval Process for 

Pharmaceutical Products and Medical Devices, which contained several potential policy changes that could benefit the pharmaceutical 
industry: 

A plan to accelerate innovative drug approval with a special review and approval process, with a focus on areas of high 
unmet medical needs, including drugs for HIV, cancer, serious infectious diseases, orphan diseases and drugs on national 
priority lists. 

A plan to adopt a policy which would allow companies to act as the marketing authorization holder and to hire contract 
manufacturing organizations to produce drug products. 

A plan to improve the review and approval of clinical trials, and to allow companies to conduct clinical trials at the same 
time as they are in other countries and encourage local clinical trial organizations to participate in international multi-
center clinical trials. 

In November 2015, the NMPA released the Circular Concerning Several Policies on Drug Registration Review and Approval, 

which further clarified the following policies potentially simplifying and accelerating the approval process of clinical trials: 

A one-time umbrella approval procedure allowing approval of all phases of a new drug’s clinical trials at once, rather than 
the current phase-by-phase approval procedure, will be adopted for new drugs’ CTAs. 

A fast track drug registration or clinical trial approval pathway will be available for the following applications: 
(1) registration of innovative new drugs treating HIV, cancer, serious infectious diseases and orphan diseases; 
(2) registration of pediatric drugs; (3) registration of geriatric drugs and drugs treating China-prevalent diseases; 
(4) registration of drugs sponsored by national science and technology grants; (5) registration of innovative drugs using 
advanced technology, using innovative treatment methods, or having distinctive clinical benefits; (6) registration of 
foreign innovative drugs to be manufactured locally in China; (7) concurrent applications for new drug clinical trials 

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which are already approved in the U.S. or EU, or concurrent drug registration applications for drugs which have applied 
for marketing authorization and passed onsite inspections in the U.S. or EU and are manufactured using the same 
production line in China and (8) clinical trial applications for drugs with urgent clinical need and patent expiry within 
three years, and marketing authorization applications for drugs with urgent clinical need and patent expiry within one 
year. 

In March 2016, the NMPA issued the Interim Provisions on the Procedures for Drug Clinical Trial Data Verification that 

provides procedural rules for NMPA’s on-site verification of clinical data before drug approvals. 

Also in February 2016, the NMPA published the Opinions on Implementing a Prioritized Review System to Avoid Drug 

Review Backlogs, which introduces a prioritized review and approval pathway to clinical trial applications and registration 
applications of certain drugs as part of NMPA’s ongoing reform of its current drug review and approval system. 

The NMPA issued the Procedures for Priority Examination and Approval of Medical Devices (Procedures) on October 25, 

2016, which shall come into effect on January 1, 2017. The Procedures, composed of seventeen articles, specify that the priority in 
examination and approval shall be given, in relation to the applications of registering Class-III domestic, or Class-II and Class-III 
imported medical devices, when those applications fall within such categories as diagnosis or treatment of rare disease or malignant 
tumor with significant clinical advantage. According to the Procedures, the medical device technical evaluation center of the NMPA 
will tentatively decide on the applicants applying for their project given priority examination and approval, names of their products 
and the reception numbers and disclose such information on its website for a period of no less than five working days. The Procedures 
provide that for projects given priority in examination and approval, the medical device technical evaluation center shall communicate 
with applicants in an active way, as required by applicable provisions, in the course of evaluating relevant technologies and may 
arrange for special talks when necessary; food and drug administrative departments at provincial levels shall take the review of the 
registered quality management system of medical devices as priority and the NMPA will prioritize their administrative examination 
and approval. 

In December 2017, the NMPA innovations promulgated the Opinions on Encouraging the Prioritized Evaluation and Approval 

for Drug, the NMPA would prioritize the examination and approval on applications of new drugs in particular cases, including (1) 
applications of new drugs with significant clinical value satisfying particular conditions; (2) applications of new drugs with significant 
clinical advantages preventing or treating particular diseases and (3) other particular conditions.

According to the Announcement on Optimizing the Evaluation and Approval of Drug Registration promulgated by the NMPA 

and the NHC in May 2018, the Chinese government seeks to further simplify and accelerated the clinical trial approval process.

Chinese Enterprise Income Tax Law and Its Implementation 

The Chinese Enterprise Income Tax Law (“EIT Law”) and its implementation rules provide that from January 1, 2008, a 
uniform income tax rate of 25% is applied equally to domestic enterprises as well as foreign investment enterprises and permit certain 
High and New Technologies Enterprises (“HNTEs”) to enjoy preferential enterprise income tax rates subject to these HNTEs meeting 
certain qualification criteria. 

The EIT Law and its implementation rules provide that a withholding tax at the rate of 10% is applicable to dividends and other 

distributions payable by a Chinese resident enterprise to investors who are “non-resident enterprises” (that do not have an 
establishment or place of business in China, or that have such establishment or place of business but the relevant dividend or other 
distribution is not effectively connected with the establishment or place of business). However, pursuant to the Arrangement between 
the Mainland and Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal 
Evasion with respect to Taxes on Income effective on December 8, 2006, the withholding tax rate for dividends paid by a Chinese 
resident enterprise is 5% if the Hong Kong enterprise owns at least 25% of the capital of the Chinese enterprise; otherwise, the 
dividend withholding tax rate is 10%. According to the Notice of the Chinese State Administration of Taxation on Issues relating to 
the Administration of the Dividend Provision in Tax Treaties promulgated on February 20, 2009 and effective on the same day, the 
corporate recipient of dividends distributed by Chinese enterprises must satisfy the direct ownership thresholds at all times during the 
twelve consecutive months preceding the receipt of the dividends. The Chinese State Administration of Taxation issued the Notice on 
How to Understand and Identify the Owner of Benefits in the China-HK Tax Agreement on October 27, 2009. Pursuant to these 
regulations and the Administrative Measures for Tax Treaty Treatment for Non-Resident Taxpayers promulgated by the Chinese State 
Administration of Taxation in August 2015, non-resident enterprises are required to file information sheets to the competent tax 
authorities in order to enjoy the favorable treatments under the treaties. However, the relevant tax authorities may check and verify at 
their discretion, and if a company is deemed to be a pass-through entity rather than a qualified owner of benefits, it cannot enjoy the 
favorable tax treatments provided in the tax arrangement. In addition, if transactions or arrangements are deemed by the relevant tax 
authorities to be entered into mainly for the purpose of enjoying favorable tax treatments under the tax arrangement, such favorable 
tax treatments may be subject to adjustment by the relevant tax authorities in the future. 

On July 27, 2011, the Ministry of Finance, the General Administration of Customs, and the State Administration of Taxation 

issued the Notice on the Relevant Tax Policies for the Implementation of the Strategy of Extensive Development of the Western 
Regions, under which from January 1, 2011 to December 31, 2020, a reduced enterprise income tax rate of 15% is applicable to the 
enterprises set up in the western regions as designated by the relevant Chinese regulations with their main business in the encouraged 
industries. The encouraged industries are those listed in the Catalog of Encouraged Industries in the Western Regions as promulgated 

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by NDRC. To qualify for the reduced tax rate, an enterprise must derive 70% or more of its revenue from the business listed in the 
Catalog of Encouraged Industries in the Western Regions. 

Regulations Relating to Business Tax and Value-added Tax 

Pursuant to the Temporary Regulations on Business Tax, which were promulgated by the State Council on December 13, 1993 

and effective on January 1, 1994, as amended on November 10, 2008 and effective January 1, 2009, any entity or individual 
conducting business in a service industry is generally required to pay business tax at the rate of 5% on the revenues generated from 
providing such services. 

In November 2011, the Ministry of Finance and the State Administration of Taxation (“SAT”) promulgated the Pilot Plan for 

Imposition of Value-Added Tax to Replace Business Tax (Pilot Plan). Since January 2012, the SAT has been implementing the Pilot 
Plan, which imposes value-added tax (“VAT”) in lieu of business tax for certain industries in Shanghai. The Pilot Plan was expanded 
to other regions, including Beijing, in September 2012 and was further expanded nationwide beginning August 1, 2013. VAT is 
applicable at a rate of 6% in lieu of business taxes for certain services, and 17% for the sale of goods and provision of tangible 
property lease services. VAT payable on goods sold or taxable services provided by a general VAT taxpayer for a taxable period is the 
net balance of the output VAT for the period after crediting the input VAT for the period. In March 2016, the Ministry of Finance and 
SAT jointly issued the Notice on Adjustment of Transfer Business Tax to Value Added Tax effective from May 2016, according to 
which Chinese tax authorities have started imposing VAT on revenues from various service sectors, including real estate, construction, 
financial services and insurance as well as other lifestyle service sectors, replacing the business tax. 

Regulations Relating to Environmental Protection 

China has adopted extensive environmental laws and regulations with national and local standards for emissions control, 
discharge of waste water and storage and transportation, treatment and disposal of waste materials. At the national level, the relevant 
environmental protection laws and regulations include the Chinese Environmental Protection Law, the Chinese Law on the Prevention 
and Control of Air Pollution, the Chinese Law on the Prevention and Control of Water Pollution, the Chinese Law on the Promotion 
of Clean Production, the Chinese Law on the Prevention and Control of Noise Pollution, the Chinese Law on the Prevention and 
Control of Solid Waste Pollution, the Chinese Recycling Economy Promotion Law, the Chinese Law on Environmental Impact 
Assessment, the Administrative Regulations on the Levy and Use of Discharge Fees and the Measures for the Administration of the 
Charging Rates for Pollutant Discharge Fees. In recent years, the Chinese Government has introduced a series of new policies 
designed to generally promote the protection of the environment. For instance, on November 10, 2016, the General Office of the State 
Council has released the Implementing Plan for the Permit System for Controlling the Discharge of Pollutants (Plan). The Plan 
proposes the need of instituting a system for enterprises and public institutions to control their respective total amount of pollutants 
discharged, which shall be connected with the environmental impact assessment system organically. The Plan also stipulates that it is 
necessary to regulate the orderly issuance of pollutant discharge permits, to make a name list to manage the permission of pollutant 
discharge, to promote the administration of such permission system per industry and to impose severer administration and control over 
enterprises and public institutions located at such places where environment quality fails to reach relevant standards. Furthermore, the 
Plan requires that a national pollutant discharge permit management information platform shall be established by 2017 to strengthen 
the information disclosure and social supervision. 

Regulations Relating to Foreign Exchange and Dividend Distribution 

Foreign Exchange Regulation 

The Foreign Exchange Administration Regulations, most recently amended in August 2008, are the principal regulations 
governing foreign currency exchange in China. Under the Chinese foreign exchange regulations, payments of current account items, 
such as profit distributions and trade and service-related foreign exchange transactions, may be made in foreign currencies without 
prior approval from the State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. In 
contrast, approval from or registration with appropriate government authorities is required when RMB is converted into a foreign 
currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans. 

In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration 

Policies on Foreign Direct Investment, which substantially amends and simplifies the foreign exchange procedure. Pursuant to this 
circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign 
exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds by foreign investors in China, and remittance of 
foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or 
verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not 
previously possible. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange 
Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies 
that the administration by the SAFE or its local branches over direct investment by foreign investors in China will be conducted by 

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way of registration, and banks must process foreign exchange business relating to the direct investment in China based on the 
registration information provided by SAFE and its branches. 

Under the Circular of the SAFE on Further Improving and Adjusting the Policies for Foreign Exchange Administration under 

Capital Accounts promulgated by the SAFE on January 10, 2014 and effective from February 10, 2014, administration over the 
outflow of the profits by domestic institutions has been further simplified. In principle, a bank is no longer required to examine 
transaction documents when handling the outflow of profits of no more than the equivalent of $50,000 by a domestic institution. When 
handling the outflow of profits exceeding the equivalent of $50,000, the bank, in principle, is no longer required to examine the 
financial audit report and capital verification report of the domestic institution, provided that it must examine, according to the 
principle of transaction authenticity, the profit distribution resolution of the board of directors (or the profit distribution resolution of 
the partners) relating to this profit outflow and the original copy of its tax record-filing form. After each profit outflow, the bank must 
affix its seal to and endorsements on the original copy of the relevant tax record-filing form to indicate the actual amount of the profit 
outflow and the date of the outflow. 

On March 30, 2015, SAFE promulgated the Circular on Reforming the Management Approach regarding the Settlement of 
Foreign Exchange Capital of Foreign-invested Enterprises (“SAFE Circular 19”), which became effective on June 1, 2015. According 
to SAFE Circular 19, the foreign exchange capital of foreign-invested enterprises may be settled on a discretionary basis, meaning that 
the foreign exchange capital in the capital account of a foreign-invested enterprise for which the rights and interests of monetary 
contribution has been confirmed by the local foreign exchange bureau (or the book-entry registration of monetary contribution by the 
banks) can be settled at the banks based on the actual operational needs of the foreign-invested enterprise. The proportion of such 
discretionary settlement is temporarily determined as 100%. The RMB converted from the foreign exchange capital will be kept in a 
designated account, and if a foreign-invested enterprise needs to make further payment from such account, it still must provide 
supporting documents and go through the review process with the banks. 

Furthermore, SAFE Circular 19 stipulates that the use of capital by foreign-invested enterprises must adhere to the principles of 

authenticity and self-use within the business scope of enterprises. The capital of a foreign-invested enterprise and capital in RMB 
obtained by the foreign-invested enterprise from foreign exchange settlement must not be used for the following purposes: 

(1)

(2)

(3)

(4)

directly or indirectly used for the payment beyond the business scope of the enterprises or the payment prohibited by 
relevant laws and regulations; 

directly or indirectly used for investment in securities, unless otherwise provided by relevant laws and regulations; 

directly or indirectly used for granting the entrusted loans in RMB, unless permitted by the scope of business, repaying the 
inter-enterprise borrowing (including advances by the third party), or repaying the bank loans in RMB that have been sub-
lent to the third party and/or 

paying the expenses related to the purchase of real estate that is not for self-use, except for the foreign-invested real estate 
enterprises. 

On June 9, 2016, SAFE issued the Notice to Reform and Regulate the Administration Policies of Foreign Exchange Capital 

Settlement to further reform foreign exchange capital settlement nationwide. 

Our Chinese subsidiaries’ distributions to the offshore parent and carrying out cross-border foreign exchange activities shall 

comply with the various SAFE registration requirements described above. 

Share Option Rules 

Under the Administration Measures on Individual Foreign Exchange Control issued by the People’s Bank of China on 

December 25, 2006, all foreign exchange matters involved in employee share ownership plans and share option plans in which 
Chinese citizens participate require approval from SAFE or its authorized branch. In addition, under the Notices on Issues concerning 
the Foreign Exchange Administration for Domestic Individuals Participating in Share Incentive Plans of Overseas Publicly-Listed 
Companies, commonly known as SAFE Circular 7, or Share Option Rules, issued by the SAFE on February 15, 2012, Chinese 
residents who are granted shares or share options by companies listed on overseas stock exchanges under share incentive plans are 
required to (1) register with the SAFE or its local branches; (2) retain a qualified Chinese agent, which may be a Chinese subsidiary of 
the overseas listed company or another qualified institution selected by the Chinese subsidiary, to conduct the SAFE registration and 
other procedures with respect to the share incentive plans on behalf of the participants and (3) retain an overseas institution to handle 
matters in connection with their exercise of share options, purchase and sale of shares or interests and funds transfers. We have made 
and will to continue to make efforts to comply with these requirements since the completion of our initial public offering in June 2017. 

In addition, the State Administration of Taxation has issued certain circulars concerning employee share options or restricted 

shares, including the Circular of the State Administration of Taxation on Issues Concerning Individual Income Tax in Relation to 
Share Options, promulgated in August 2009. Under these circulars, the employees working in China who exercise share options or are 
granted restricted shares will be subject to Chinese individual income tax. The Chinese subsidiaries of such overseas listed companies 
have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold 

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individual income taxes of those employees who exercise their share options. If the employees fail to pay or the Chinese subsidiaries 
fail to withhold their income taxes in accordance with relevant laws and regulations, the Chinese subsidiaries may face fines or 
sanctions imposed by tax authorities or other Chinese government authorities. 

Regulation of Dividend Distribution 

The principal laws, rules and regulations governing dividend distribution by foreign-invested enterprises in China are the 
Company Law of China, as amended, and the Foreign Investment Law, which took effect on January 1, 2020 and replaced the Wholly 
Foreign-owned Enterprise Law, the Cooperative Joint Venture Law, and the Equity Joint Venture Law. Under these laws, rules and 
regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance 
with Chinese accounting standards and regulations. Both Chinese domestic companies and wholly-foreign owned Chinese enterprises 
are required to allocate at least 10% of their respective accumulated after-tax profits each year, if any, to fund certain capital reserve 
funds until the aggregate amount of these reserve funds have reached 50% of the registered capital of the enterprises. A Chinese 
company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior 
fiscal years may be distributed together with distributable profits from the current fiscal year. 

Labor Laws and Social Insurance 

Pursuant to the Chinese Labor Law and the Chinese Labor Contract Law, employers must execute written labor contracts with 
full-time employees. All employers must comply with local minimum wage standards. Violations of the Chinese Labor Contract Law 
and the Chinese Labor Law may result in the imposition of fines and other administrative and criminal liability in the case of serious 
violations. 

In addition, according to the Chinese Social Insurance Law, employers like our Chinese subsidiaries in China must provide 
employees with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, work-related injury 
insurance, and medical insurance and housing funds. 

Rest of the World Regulation 

For other countries outside of the U.S. and China, the requirements governing the conduct of clinical trials, drug licensing, 

pricing and reimbursement vary from country to country. In all cases the clinical trials must be conducted in accordance with GCP 
requirements and the applicable regulatory requirements and the ethical principles having their origin in the Declaration of Helsinki. 

If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, 

suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Employees 

As of December 31, 2019, we had 574 full-time employees and 7 part-time employees. Of these, 236 are engaged in full-time 

research and development and laboratory operations, 191 are engaged in manufacturing activities and 147 are engaged in full-time 
selling, general and administrative functions. As of December 31, 2019, 45% of our personnel were located in the U.S, 48% were 
located in Asia, and 7% were located in Latin America. We have also engaged and may continue to engage independent consultants 
and contractors to assist us with our operations. None of our employees are represented by a labor union or covered by a collective 
bargaining agreement. We have never experienced any employment related work stoppages, and we consider our relations with our 
employees to be good.

49

Financial Information 

We manage our operations and allocate resources in line with our three distinct reportable segments. Financial information 
regarding our operations, assets and liabilities, including our net loss for the years ended December 31, 2019, 2018, and 2017 and our 
total assets as of December 31, 2019 and 2018, is included in our Consolidated Financial Statements in Item 8 of this Annual Report.

Corporate Information 

We were originally formed under the laws of the state of Delaware in November 2003 under the name Kinex Pharmaceuticals, 

LLC. In December 2012, we converted from a limited liability company to a Delaware corporation, Kinex Pharmaceuticals, Inc. In 
August 2015, we amended and restated our certificate of incorporation to change our name to Athenex, Inc. Our principal executive 
offices are located at 1001 Main Street, Suite 600, Buffalo, New York 14203, and our telephone number is (716) 427-2950. Our 
website address is www.athenex.com. Information contained on, or that can be accessed through, our website is not incorporated by 
reference into this Annual Report, and you should not consider information on our website to be part of this Annual Report. 

Available Information

We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and 
other information with the Securities and Exchange Commission (SEC). Our filings with the SEC are available on the SEC’s website 
at www.sec.gov. You may also access our press releases, financial information and reports filed with the SEC (for example, our 
Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to those 
Forms) on our website under the “Investor Relations” tab. Copies of any documents on our website are available without charge, and 
reports filed with or furnished to the SEC will be available as soon as reasonably practicable after such materials are electronically 
filed with or furnished to the SEC.

50

Item 1A.

Risk Factors.

Investing in our common stock involves a high degree of risk. You should consider carefully the following risk factors, as well as 
the other information in this report, including our consolidated financial statements and related notes and “Management’s Discussion 
and Analysis of Financial Condition and Results of Operations”, before deciding whether to invest in our common stock. The 
occurrence of any of the events or developments described below could harm our business, financial condition and results of 
operations and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part 
of your investment. 

Risks Related to Our Financial Position and Need for Additional Capital 

We have incurred net losses every year since our inception and anticipate that we will continue to incur net losses for the 
foreseeable future. 

Investment in pharmaceutical product development is highly speculative because it entails substantial upfront costs and 
expenses and significant risk that a drug candidate will fail to gain regulatory approval or become commercially viable. Since our 
formation, the company has relied on a combination of public and private securities offerings, public-private partnerships, the issuance 
of convertible notes and public grants to fund our operations. We have devoted most of our financial resources to research and 
development, including our non-clinical development activities and clinical trials. We have not generated substantial revenue from 
product sales to date, and we continue to incur significant development and other expenses related to our ongoing operations. As a 
result, we incurred losses in 2019, 2018 and 2017. For the years ended December 31, 2019, 2018 and 2017, we reported net losses of 
$125.5 million, $128.7 million and $131.4 million, respectively, and had an accumulated deficit of $567.5 million as of December 31, 
2019. Substantially all of our operating losses have resulted from costs incurred in connection with our research and development 
programs and from selling, general and administrative expenses associated with our operations. 

We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our 
development of, and seek regulatory approvals for, our drug candidates, and begin to commercialize approved drugs, if any. Typically, 
it takes many years to develop a new drug before it is available for treating patients. We may encounter unforeseen expenses, 
difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses 
will depend, in part, on the rate of future growth of our expenses, our ability to generate revenue and the timing and amount of 
milestones and other required payments to third parties in connection with our potential future arrangements with third parties. If any 
of our drug candidates fail in clinical trials or do not gain regulatory approval, or if approved, fail to achieve market acceptance, we 
may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent 
periods. Our prior losses and expected future losses have had, and will continue to have, an adverse effect on our stockholders’ equity 
and working capital. 

We expect our research and development expenses to continue to be significant in connection with our continued investment in 
our drug candidates and our ongoing and planned clinical trials for our drug candidates. Furthermore, if we obtain regulatory approval 
for our drug candidates, we expect to incur increased selling, general and administrative expenses. In addition, as a public company, 
we incur additional costs associated with operating as a public company. As a result, we expect to continue to incur significant and 
increasing operating losses and negative cash flows from operations for the foreseeable future. These losses have had and will 
continue to have a material adverse effect on our stockholders’ equity, financial position, cash flows and working capital. 

Our ability to continue as a going concern will require us to obtain additional financing to fund our current operations, which may 
be unavailable on acceptable terms, or at all. 

Our recurring losses from operations and our current operating plans raise substantial doubt about our ability to continue as a 
going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our 
consolidated financial statements as of and for the year ended December 31, 2019 with respect to this uncertainty. Our ability to 
continue as a going concern will require us to obtain additional financing to fund our current operating plans. We believe that our 
existing cash and cash equivalents and short-term investments will be sufficient to fund our current operating plans into the first 
quarter of 2021, but will not be sufficient to fund current operating plans through one year after the date that these consolidated 
financial statements are issued. We have based these estimates on assumptions that may prove to be wrong, and we could spend our 
available financial resources much faster than we currently expect and need to raise additional funds sooner than we anticipate. If we 
are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate our research and 
drug development programs or commercialization efforts. 

51

Our financial results are subject to volatility related to our revenue and expenses, and despite beginning to generate revenue from 
product sales, we have not yet been profitable and may never become profitable. 

Our financial results are subject to volatility based on a number of factors, including the timing of milestone licensing fees that 
we receive or are required to pay, the change in product types produced by APD and whether those products are in high demand, our 
ability to predict the products in high demand in the market, competition in the market for generic drugs. Our ability to generate 
revenue and become profitable depends upon our ability to successfully complete the development of, and obtain the necessary 
regulatory approvals for, our proprietary drug candidates, as we currently only have commercialized our API products, including oral 
paclitaxel and oral docetaxel, and specialty products, such as medical testing kits. Our product sales of API totaled $12.7 million, 
$18.0 million and $15.4 million in the years ended December 31, 2019, 2018 and 2017, respectively. Our specialty products launched 
in March 2017 and sales totaled $50.4 million, $30.4 million, and $17.2 million for the years ended December 31, 2019, 2018, and 
2017, respectively. Our product sales of API may be impacted by the current suspension of our operations at our API plant in 
Chongqing, China. We chose to suspend production based on concerns raised by the DEMC related to the location of our plant. The 
voluntary temporary suspension began in May 2019 and we hope to reach a resolution of the suspension with the DEMC. As a result 
of suspending these operations, we are currently unable to produce commercial batches of API, which has impacted our revenue. We 
can provide no assurances of when, if at all, commercial production of API will resume at the plant. Although we currently are 
producing API for our ongoing clinical studies, we can make no assurances that such production will be able to provide sufficient 
quantities for all future clinical studies and that alternative suppliers will be available if needed to produce API for our clinical trials. 
Even if we are able to continue product sales of API, our revenue and gross margins are subject to fluctuation due to changes in 
product mix and the expenses we incur to continue our research and development and commercialization efforts.   

We expect to continue to incur substantial and increasing losses through the projected development and commercialization of 

our drug candidates. None of our proprietary drug candidates have been approved for marketing in the U.S., China or any other 
jurisdiction, and they may never receive such approval. Our ability to achieve revenue and profitability is dependent on our ability to 
complete the development of our proprietary drug candidates, obtain necessary regulatory approvals, and have our proprietary drugs 
manufactured and successfully marketed. 

Even if we receive regulatory approval of our proprietary drug candidates for commercial sale, we do not know when they will 
generate revenue, if at all. Our ability to generate revenue from product sales of our drug candidates depends on a number of factors, 
including our ability to: 

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

complete research regarding, and non-clinical and clinical development of, our proprietary drug candidates; 

formulate appropriate dosing protocols, drug preparations and capsule encapsulation methods; 

obtain regulatory approvals and marketing authorizations for drug candidates for which we complete clinical trials; 

develop a sustainable and scalable manufacturing processes, including establishing and maintaining commercially viable 
supply relationships with third parties and establishing our own manufacturing capabilities and infrastructure; 

compliantly launch and commercialize proprietary drug candidates for which we obtain regulatory approvals and 
marketing authorizations, either directly or with a collaborator or distributor; 

obtain market acceptance of our proprietary drug candidates and their routes of administration as viable treatment options; 

obtain optimal pricing for products in key global markets;

obtain adequate coverage and reimbursement for our proprietary drug candidates from government (including U.S. federal 
healthcare programs) and private payors; 

identify, assess, acquire and/or develop new proprietary drug candidates; 

address any competing technological and market developments; 

negotiate and maintain favorable terms in any collaboration, licensing or other arrangements into which we may enter; 

maintain, protect and expand our portfolio of intellectual property rights, including patents, trade secrets and know-how; 

successfully commercialize our 503B outsourcing facility products and U.S. specialty pharmaceutical products; 

further develop our API business; and 

attract, hire and retain qualified personnel. 

In addition, because of the numerous risks and uncertainties associated with drug development, we are unable to predict the 

timing or amount of increased expenses, or when, or if, we will be able to achieve or maintain profitability. In addition, our expenses 
could increase beyond expectations if we are required by the FDA, NMPA, or regulatory authorities in other jurisdictions to perform 
studies in addition to those that we currently anticipate. Even if our proprietary drug candidates are approved for commercial sale, we 
anticipate incurring significant costs associated with the commercial launch of these drugs. 

52

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our 

operations at planned levels and be forced to reduce our operations. Failure to become and remain profitable may adversely affect the 
market price of our common stock and our ability to raise capital and continue operations. A decline in the value of our company 
could also cause you to lose all or part of your investment. 

We will need to obtain additional financing to fund our operations, and if we are unable to obtain such financing, we may be 
unable to complete the development and commercialization of our drug candidates. 

We have financed our operations with a combination of public and private securities offerings, public-private partnerships, 
issuance of convertible notes and public grants. Our drug candidates will require the completion of regulatory review, significant sales 
and marketing efforts and substantial investment before they can provide us with any product sales revenue. Our operations have 
consumed substantial amounts of cash since inception. The net cash used for our operating activities was $97.5 million, $109.4 million 
and $81.5 million for the years ended December 31, 2019, 2018 and 2017 respectively. We expect to continue to spend substantial 
amounts on advancing the clinical development of our proprietary drug candidates, launching and commercializing any proprietary 
drug candidates for which we receive regulatory approval, including building our own commercial organizations to address certain 
markets.

We will need to obtain additional financing to fund our future operations, including completing the development and 

commercialization of our proprietary drug candidates and to conduct additional clinical trials for the approval of our proprietary drug 
candidates if requested by regulatory bodies and to complete the development of any additional proprietary drug candidates we might 
discover. Moreover, our research and development expenses and other contractual commitments are substantial and are expected to 
increase in the future. In addition, we will require additional financial resources and personnel to begin operations at our public-
private partnership facilities in Chongqing, China and Dunkirk, New York. To the extent the costs of constructing the Dunkirk facility 
exceed approximately $206 million, we will also be responsible for those costs.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-

looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the 
factors discussed elsewhere in this “Risk Factors” section. We have based this estimate on assumptions that may prove to be wrong, 
and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements will depend on 
many factors, including, but not limited to: 

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

the progress, timing, scope and costs of our clinical trials, including the ability to timely enroll patients in our planned and 
potential future clinical trials; 

the outcome, timing and cost of regulatory approvals by the FDA, NMPA and regulatory authorities in jurisdictions where 
we seek such approvals, including the possibility that the FDA, NMPA or regulatory authorities may require that we 
perform more studies than those that we currently expect; 

our ability to secure adequate coverage and reimbursement for our proprietary drug candidates from government 
(including U.S. federal health care programs) and private payors; 

the number and characteristics of drug candidates that we may in-license and develop; 

our ability to successfully and compliantly launch and commercialize our drug candidates; 

the amount of sales and other revenues from drug candidates that we may commercialize, if any, including the selling 
prices for such potential products and the availability of adequate reimbursement by third-party payors; 

the amount of rebates or other price concessions we may owe under U.S. federal health care programs that cover and 
reimburse our proprietary drug candidates; 

the amount and timing of the milestone and royalty payments we receive from our collaborators under our licensing 
arrangements; 

the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; 

selling and marketing costs associated with our potential products, including the cost and timing of expanding our 
marketing and sales capabilities; 

the terms and timing of any potential future collaborations, licensing or other arrangements that we may establish; 

cash requirements of any future acquisitions and/or the development of other drug candidates; 

the costs of operating as a public company; 

the cost and timing of completion of commercial-scale outsourced manufacturing activities; and

the time and cost necessary to respond to technological and market developments. 

53

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Until we can generate a sufficient amount of revenue, we may finance future cash needs through public or private equity 
offerings, debt financings, collaborations and strategic alliances. Additional funds may not be available when we need them on terms 
that are acceptable to us, or at all. General market conditions or the market price of our common stock may not support capital raising 
transactions such as an additional public or private offering of our common stock or other securities. In addition, our ability to raise 
additional capital may be dependent upon our common stock being quoted on The Nasdaq Global Select Market or upon obtaining 
stockholder approval to issue a sufficient number of shares of our common stock. There can be no assurance that we will be able to 
satisfy the criteria for continued listing on The Nasdaq Global Select Market or that we will be able to obtain stockholder approval of 
such stock issuances if it is necessary. If adequate funds are not available to us on acceptable terms, or at all, we may be required to 
delay or reduce the scope of, or eliminate, one or more of our research or development programs or our commercialization efforts. We 
may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need 
for additional capital at that time. In addition, if we raise additional funds through collaborations, strategic alliances or marketing, 
distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue 
streams or drug candidates or to grant licenses on terms that may not be favorable to us. 

We believe that our existing cash and cash equivalents and short-term investments will not be sufficient to enable us to complete 

all necessary development or commercially launch our proprietary drug candidates. If we are unable to raise capital when needed or 
on attractive terms, we will be forced to delay, reduce or eliminate our research and development programs or future 
commercialization efforts. Our inability to obtain additional funding when needed could seriously harm our business. 

We entered into a $50.0 million senior secured loan agreement, which subjects us to significant interest rate and credit risk.

On June 29, 2018, we entered into a 5-year $50.0 million loan agreement with an affiliate of Perceptive, which closed on July 3, 

2018, bearing interest at a floating per annum rate equal to the London Interbank Offering Rate (“LIBOR”) (with a floor of 2%) plus 
9%. Thus, a change in the short-term interest rate environment (especially a material change) could have a material adverse effect on 
our business, financial condition, cash flows and results of operations and could cause the market value of our common shares to 
decline. As of December 31, 2019, we did not have any outstanding interest rate swap contracts.

We may not be able to refinance, extend, or repay our substantial indebtedness owed to our senior secured lender, which would 
have a material adverse effect on our financial condition and ability to continue as a going concern.

We anticipate that we will need to raise a significant amount of debt or equity capital in the future in order to repay our 
outstanding debt obligations owed to our senior secured lender when they mature on July 3, 2023 and fund our operations. We are 
required to make monthly interest-only payments with a bullet payment of the principal amount of $50.0 million at maturity. If we are 
unable to raise sufficient capital to repay these obligations at maturity and we are otherwise unable to extend the maturity dates or 
refinance these obligations, we would be in default. We cannot provide any assurances that we will be able to raise the necessary 
amount of capital to repay these obligations or that we will be able to extend the maturity dates or otherwise refinance these 
obligations. Upon a default on the senior debt, our senior secured lender would have the right to exercise its rights and remedies to 
collect, which would include foreclosing on our assets. Accordingly, a default would have a material adverse effect on our business 
and, if our senior secured lender exercises its rights and remedies, we would likely be forced to seek bankruptcy protection.

Covenants in the agreements governing our existing debt agreement restrict the manner in which we conduct our business.

The senior secured loan agreement contains various covenants that limit, subject to certain exemptions, our ability and/or our 

restricted subsidiaries’ ability to, among other things:

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•

•

Incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons;

make loans, investments, or acquisitions;

engage in any other business other than the business engaged in on the date of the loan agreement;

pay dividends or make distributions on capital stock by any subsidiary;

make any unscheduled payments on our existing debt prior to the stated maturity thereof;

sell assets and capital stock of our subsidiaries;

enter into certain transactions with affiliates; and

sell, transfer, license, lease, or dispose of our or our subsidiaries’ assets.

54

 
 
 
 
 
 
 
 
The senior secured loan agreement requires that we maintain a minimum aggregate balance of $4.0 million in cash free and 
clear of all liens and that we meet certain minimum revenue targets for each quarter during which the loan is outstanding. In addition, 
the loan agreement is secured by substantially all of our assets and is guaranteed by certain of our subsidiaries, including APD, AP, 
and APS. 

The restrictions contained in our senior secured loan agreement governing our debt could adversely affect our ability to:

•

•

•

•

•

•

finance our operations;

make needed capital expenditures;

make strategic acquisitions or investments or enter into alliances;

withstand a future downturn in our business or the economy in general;

engage in business activities, including future opportunities, that may be in our interest; and

plan for or react to market conditions or otherwise execute our business strategies.

A breach of any of these covenants could result in a default under the senior secured loan agreement governing our debt. 
Further, additional indebtedness that we incur in the future may subject us to further covenants. If a default under any such loan 
agreement is not cured or waived, the default could result in the acceleration of debt, which could require us to repay debt prior to the 
date it is otherwise due and that could adversely affect our financial condition. If we default, Perceptive may seek repayment through 
our subsidiary guarantors or by executing on the security interest granted pursuant to the loan agreement.

Our ability to comply with the covenants contained in our senior secured loan agreement may be affected by events beyond our 

control, including prevailing economic, financial, and industry conditions. Even if we are able to comply with all of the applicable 
covenants, the restrictions on our ability to manage our business in our sole discretion could adversely affect our business by, among 
other things, limiting our ability to take advantage of financings, mergers, acquisitions, and other corporate opportunities that we 
believe would be beneficial to us. In addition, our obligations under the loan agreement are secured, on a first-priority basis, and such 
security interests could be enforced in the event of default by the collateral agent for the loan agreement. 

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our 
technologies or drug candidates. 

We may seek additional funding through a combination of equity offerings, debt financings, collaborations and licensing 
arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership 
interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a holder of our 
common stock. The incurrence of additional indebtedness or the issuance of certain equity securities could result in increased fixed 
payment obligations and could also result in certain additional restrictive covenants, such as limitations on our ability to incur 
additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating 
restrictions that could adversely impact our ability to conduct our business. In addition, issuance of additional equity securities, or the 
possibility of such issuance, may cause the market price of our common stock to decline. In the event that we enter into collaborations 
or licensing arrangements in order to raise capital, we may be required to accept unfavorable terms, including relinquishing or 
licensing to a third party on unfavorable terms our rights to technologies or proprietary drug candidates that we otherwise would seek 
to develop or commercialize ourselves or potentially reserve for future potential arrangements when we might be able to achieve more 
favorable terms. 

An impairment of goodwill could have a material adverse effect on our results of operations.

Acquisitions frequently result in the recording of goodwill and other intangible assets. As of December 31, 2019, our existing 

goodwill represented $38.5 million, or 12.4% of our total assets, primarily as a result of our acquisitions of APS, CDE, Polymed 
Taihao and CIDAL. Goodwill is not amortized and is subject to impairment testing at least annually using a fair value based approach. 
The identification and measurement of goodwill impairment involves the estimation of the fair value of our reporting units.  The 
estimates of fair value of reporting units are based on the best information available as of the date of the assessment and incorporate 
management assumptions about expected future cash flows and other valuation techniques. Future cash flows can be affected by 
changes in industry or market conditions, among other factors. The recoverability of goodwill is evaluated at least annually or more 
frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined 
below its carrying value. We cannot accurately predict the amount and timing of any future impairment of assets, and, going forward, 
we may be required to take goodwill or other asset impairment charges relating to certain of our reporting units. Any such charges 
would have an adverse effect on our financial results.

55

 
 
 
 
 
 
Risks Related to Clinical Development of Our Proprietary Drug Candidates 

Our primary clinical candidates are still in the development stage and have not yet received regulatory approval, which may make 
it difficult to evaluate our current business and predict our future performance. 

We are a globally-focused biopharmaceutical company formed in November 2003. Our operations to date have focused on 
organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and conducting 
preclinical studies and clinical trials of our drug candidates. We have not yet successfully completed large-scale, pivotal clinical trials 
for all of our drug candidates, or obtained regulatory approvals for our drug candidates and have not yet established sales and 
marketing activities necessary for successful commercialization. Consequently, any predictions you make about our future success or 
viability may not be accurate. In addition, as a developing business, we may encounter unforeseen expenses, difficulties, 
complications, delays and other known and unknown challenges. 

We are focused on the discovery and development of innovative drugs for the treatment of cancers. The fact that we have not 

yet, among other things, demonstrated our ability to initiate or complete large-scale clinical trials or manufacture drugs at commercial 
scale, particularly in light of the rapidly evolving cancer treatment field, may make it difficult to evaluate our current business and 
predict our future performance. These constraints make any assessment of our future success or viability subject to significant 
uncertainty. We will encounter risks and difficulties frequently experienced by early-stage companies in rapidly evolving fields as we 
seek to transition to a company capable of supporting commercial activities. If we do not address these risks and difficulties 
successfully, our business will suffer. We depend substantially on the success of our proprietary drug candidates, which are in pre-
clinical and clinical development. 

As of December 11, 2019, we had a total of 25 planned, or ongoing clinical trials for our drug candidates. We have completed, 
two Phase 3 clinical trials for tirbanibulin ointment 1% for AK, and one Phase 3 clinical trial for Oral Paclitaxel for the treatment of 
patients with metastatic breast cancer. Our business and the ability to generate revenue related to product sales from our proprietary 
drug candidates will depend on the successful development, regulatory approval and commercialization for the treatment of patients 
with our drug candidates, which are still in development, and other drugs we may develop. Clinical development is a lengthy and 
expensive process with an uncertain outcome. The results of pre-clinical studies and early clinical trials of our drug candidates may 
not be predictive of the results of later-stage clinical trials. In the case of any trials we conduct, results have in the past, and may in the 
future, fail to meet the desired safety and efficacy endpoints, or differ from earlier trials due to the larger number of clinical trial sites 
and additional countries and populations involved in such trials. We have invested a significant portion of our efforts and financial 
resources in the development of our existing drug candidates. The success of our proprietary drug candidates will depend on several 
factors, including: 

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•

•

•

•

•

•

•

successful enrollment in, and completion of, clinical studies; 

receipt of regulatory approvals from the FDA, NMPA and other regulatory authorities for our drug candidates; 

establishing commercial manufacturing capabilities, either by using our own facilities or making arrangements with third-
party manufacturers; 

conducting our clinical trials compliantly and efficiently, and in many cases, relying on third parties to do so or, the 
successful integration of the CRO capabilities of CIDAL into our business;

obtaining, maintaining and protecting our intellectual property rights, including patent, trade secrets, know-how and 
regulatory exclusivity; 

ensuring we do not infringe, misappropriate or otherwise violate the patent, trade secret or other intellectual property 
rights of third parties; 

competition with other drug candidates and drugs, including existing IV chemotherapy treatments, potential oncology 
biologics and other oral dosing technologies developed or being developed by competitors and 

continued acceptable safety profile for our drug candidates following regulatory approval, if and when received. 

If we do not achieve one or more of these requirements in accordance with our business plans or at all, we could experience 

significant delays in our ability to obtain approval for and/or to successfully commercialize our drug candidates, which would 
materially harm our business and we may not be able to generate sufficient revenues and cash flows to continue our operations. 

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at 
any time during the clinical trial process. The results of preclinical studies and early clinical trials of our drug candidates may not be 
predictive of the results of later-stage clinical trials. Drug candidates in later stages of clinical trials may fail to show the desired safety 
and efficacy traits despite having progressed through preclinical studies and initial clinical trials. In some instances, there can be 
significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, 
including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, including 
genetic differences, patient adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial 
participants. In the case of any trials we conduct, results may differ from early trials due to the larger number of patients, clinical trial 

56

 
 
 
 
 
 
 
 
sites and additional countries and populations involved in such trials. A number of companies in the pharmaceutical and 
biotechnology industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, 
notwithstanding promising results in earlier trials. Our future clinical trial results may not be favorable as previous trials with the same 
compound, even with the same indication. 

We may not be successful in our efforts to identify or discover additional drug candidates. Due to our limited resources and access 
to capital, we must and have in the past decided to prioritize development of certain product candidates; these decisions may prove 
to have been wrong and may adversely affect our business. 

To date, we have focused our drug discovery efforts on developing our cancer platform, particularly our Orascovery and Src 

Kinase Inhibition product candidates. If our cancer platform fails to identify potential drug candidates, our business could be 
materially harmed. Additionally, our management, at the direction of our board of directors, has discretion in prioritizing which 
product candidates to develop. 

Research programs to pursue the development of our drug candidates for additional indications and to identify new drug 

candidates and disease targets require substantial technical, financial and human resources whether or not we ultimately are 
successful. Our research programs may initially show promise in identifying potential indications and/or drug candidates, yet fail to 
yield results for clinical development for a number of reasons, including: 

•

•

•

the research methodology used may not be successful in identifying potential indications and/or drug candidates; 

potential drug candidates may, after further study, be shown to lack efficacy, have harmful adverse effects or other 
characteristics that indicate they are unlikely to be effective drugs; or 

it may take greater human and financial resources to identify additional therapeutic opportunities for our drug candidates 
or to develop suitable potential drug candidates through internal research programs than we possess, thereby limiting our 
ability to diversify and expand our drug portfolio. 

Because we have limited financial and managerial resources, we focus on research programs and drug candidates for specific 
indications. As a result, we may forego or delay pursuit of opportunities with other drug candidates or for other indications that later 
prove to have greater commercial potential or a greater likelihood of success. Our resource allocation decisions may cause us to fail to 
capitalize on viable commercial products or profitable market opportunities. 

Accordingly, there can be no assurance that we will be able to identify additional therapeutic opportunities for our drug 

candidates or to develop suitable potential drug candidates through internal research programs, which could materially adversely 
affect our future growth and prospects. We may focus our efforts and resources on potential drug candidates or other potential 
programs that ultimately prove to be unsuccessful. 

If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or 
otherwise adversely affected. 

The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a 

sufficient number of patients who remain in the trial until its conclusion. We and our research partners have from time to time and 
may in the future experience difficulties in patient enrollment in our clinical trials for a variety of reasons, including: 

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the availability of a sizeable population of eligible patients; 

the design of the trial; 

our ability to recruit clinical trial investigators with the appropriate competencies and experience; 

competing clinical trials for similar therapies or other new therapeutics; 

clinicians’ and patients’ perceptions as to the potential advantages and side effects of the drug candidate being studied in 
relation to other available therapies, 

our ability to obtain and maintain patient consents; 

the failure of patients to complete a clinical trial; and 

the availability of approved therapies that are similar in mechanism to our drug candidates. 

In addition, our clinical trials will compete with other clinical trials for drug candidates that are in the same therapeutic areas as 

our drug candidates, and this competition will reduce the number and types of patients available to us because some patients who 
might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Because the 
number of qualified clinical investigators is limited, we have conducted and expect to conduct some of our clinical trials at the same 
clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at 
such clinical trial sites. 

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Even if we are able to enroll a sufficient number of patients in our clinical trials, delays in patient enrollment may result in 
increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and 
adversely affect our ability to advance the development of our drug candidates. 

Some of our drug candidates represent a novel approach to cancer treatment, which could result in delays in clinical development, 
heightened regulatory scrutiny, and delays in our ability to achieve regulatory approval or commercialization, or market 
acceptance by physicians and patients of our drug candidates. 

Some of our drug candidates, particularly those developed through our Orascovery platform, represent a departure from more 
commonly used methods for cancer treatment, and therefore represent a novel approach that carries inherent development risks. For 
instance, our Orascovery platform intends to facilitate the delivery of chemotherapy agents orally, as opposed to IV, while our Src 
Kinase inhibitor candidates operate by a new mechanism of action. To develop our Orascovery platform, we must successfully 
develop oral formulations of the active ingredients and ensure they can be delivered safely and consistently in capsule form. The need 
to further develop or modify in any way the protocols related to our drug candidates to demonstrate safety or efficacy may delay the 
clinical program, regulatory approval or commercialization, if approved. Our Src Kinase inhibitor platform is based on a novel 
molecule with an additional mechanism of action that is not found in other Src Kinase inhibitors. Because of this, unexpected safety 
and tolerability concerns may arise during the development process. 

In addition, potential patients and their doctors may be inclined to use conventional standard-of-care treatments rather than 
enroll patients in any future clinical trial or to use our product candidates commercially once approved. This may have a material 
impact on our ability to generate revenues from our drug candidates. Further, given the novelty of the administration of our drug 
candidates, hospitals and physicians may prefer traditional treatment methods, may be reluctant to adopt the use of our products or 
may require a substantial amount of education and training, any of which could delay or prevent acceptance of our products by 
physicians and patients and materially hinder successful commercialization of our drug candidates. 

Our products and product candidates may cause undesirable, or an increase in the frequency of, side effects that could delay or 
prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences 
following marketing approval, if any. 

Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt 
clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, NMPA or other 
regulatory authorities. Further, if a product candidate receives marketing approval and we or others identify undesirable side effects 
caused by the product after the approval, or if drug abuse is determined to be a significant problem with an approved product, a 
number of potentially significant negative consequences could result, including: 

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regulatory authorities may withdraw or limit their approval of the product; 

regulatory authorities may require the addition of labeling statements, such as a “Black Box warning” or a 
contraindication; 

we may be required to change the way the product is distributed or administered, conduct additional clinical trials or 
change the labeling of the product; 

we may decide to remove the product from the marketplace; 

we could be sued and held liable for injury caused to individuals exposed to or taking the product; and 

our reputation may suffer. 

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate and 

could substantially increase the costs of commercializing an affected product or product candidate and significantly impact our ability 
to successfully commercialize or maintain sales of our product or product candidates and generate revenues. 

If clinical trials of our drug candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA, NMPA or other 
regulatory authorities or do not otherwise produce positive results, we may incur costs or experience delays in completing, or 
ultimately be unable to complete, the development and commercialization of our drug candidates. 

We may experience various unexpected events during, or as a result of, clinical trials that could delay or prevent our ability to 

receive regulatory approval or commercialize our drug candidates, including: 

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regulators, IRBs or ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a 
clinical trial at a prospective trial site; 

clinical trials of our drug candidates may produce negative or inconclusive results, and we may decide, or regulators may 
require us, to conduct additional clinical trials or abandon drug development programs; 

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the number of patients required for clinical trials of our drug candidates may be larger than we anticipate, enrollment may 
be insufficient or slower than we anticipate or patients may drop out at a higher rate than we anticipate; 

our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a 
timely manner, or at all; 

we might have to suspend or terminate clinical trials of our drug candidates for various reasons, including a finding of a 
lack of clinical response or a finding that participants are being exposed to unacceptable health risks; 

regulators, IRBs or ethics committees may require that we or our investigators suspend or terminate clinical research for 
various reasons, including noncompliance with regulatory requirements; 

the cost of clinical trials of our drug candidates may be greater than we anticipate; 

the supply or quality of our drug candidates or other materials necessary to conduct clinical trials of our drug candidates 
may be insufficient or inadequate; and 

our drug candidates may cause adverse events, have undesirable side effects or other unexpected characteristics, causing 
us or our investigators to suspend or terminate the trials. 

If we are required to conduct additional clinical trials or other testing of our drug candidates beyond those that we currently 
contemplate, if we are unable to successfully complete clinical trials of our drug candidates or other testing, if the results of these trials 
or tests are not positive or are only modestly positive or if they raise safety concerns, we may: 

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be delayed in obtaining regulatory approval for our drug candidates; 

not obtain regulatory approval at all; 

obtain approval for indications that are not as broad as intended; 

have the drug removed from the market after obtaining regulatory approval; 

be subject to additional post-marketing testing requirements; 

be subject to restrictions on how the drug is distributed or used; or 

be unable to obtain reimbursement for use of the drug. 

Delays in testing or approvals may result in increases in our drug development costs. We do not know whether any clinical trials 

will begin as planned, will need to be restructured or will be completed on schedule, or at all. 

Significant clinical trial delays also could shorten any periods during which we have the exclusive right to commercialize our 

drug candidates or allow our competitors to bring drugs to market before we do and impair our ability to commercialize our drug 
candidates and may harm our business and results of operations. 

Manufacturing risks, including our inability to manufacture API and clinical products used in the clinical trials of our proprietary 
product candidates could adversely affect our ability to commercialize our product candidates.  

Our business strategy depends on our ability to manufacture API in sufficient quantities and on a timely basis so as to meet our 

needs to manufacture our product candidates for our clinical trials and to meet consumer demand for our future products, while 
adhering to product quality standards, complying with regulatory requirements and managing manufacturing costs. We are subject to 
numerous risks relating to our manufacturing capabilities, including: 

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our inability to manufacture API and clinical products in sufficient quantities to meet the needs of our clinical trials or to 
commercialize our products; 

our inability to manufacture API and clinical products in the event our manufacturing facilities’ operations are suspended 
indefinitely or terminated due to events beyond our control;

our inability to secure product components in a timely manner, in sufficient quantities or on commercially reasonable 
terms; 

our failure to increase production of products to meet demand; 

our inability to modify production lines to enable us to efficiently produce future products or implement changes in 
current products in response to regulatory requirements; 

difficulty identifying and qualifying alternative suppliers for components in a timely manner and 

potential damage to or destruction of our manufacturing equipment or manufacturing facility. 

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In addition, we conduct manufacturing operations at our facility in Chongqing, China to manufacture API and our proprietary 
product candidates. As a result, our business is subject to risks associated with that facility in particular and doing business in China 
generally, including: 

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the possibility of our operations at the Chongqing facility being suspended indefinitely or terminated by an order of the 
local government due to events beyond our control;

the impact of the recent Coronavirus epidemic outbreak on our operations in China;

the possibility that the costs of building and maintaining the Chongqing facility exceed the revenue we are able to 
generate from manufacturing API at the facility;

adverse political and economic conditions, particularly those negatively affecting the trade relationship between the U.S. 
and China; 

trade protection measures, such as tariff increases, and import and export licensing and control requirements; 

potentially negative consequences from changes in tax laws; 

difficulties associated with the Chinese legal system, including increased costs and uncertainties associated with enforcing 
contractual obligations in China; 

potentially lower protection of intellectual property rights; 

unexpected or unfavorable changes in regulatory requirements; 

possible patient or physician preferences for more established pharmaceutical products and medical devices manufactured 
in the U.S.; and 

difficulties in managing foreign relationships and operations generally. 

Operations at our plant in Chongqing, China are currently suspended. We chose to suspend production based on concerns raised 

by the DEMC related to the location of our plant. The voluntary temporary suspension began in May 2019 and we hope to reach a 
resolution of the suspension with the DEMC. Although we currently are producing API for our ongoing clinical studies, we can make 
no assurances that such production will be able to provide sufficient quantities for all future clinical studies and that alternative 
suppliers will be available if needed to produce API for our clinical trials. However, the ongoing Coronavirus epidemic has 
temporarily suspended many business activities in China and may affect our ability to produce API at the Chonqing facility for our 
own clinical studies. In addition, we manufacture API for third parties. If operations at the Chongqing facility remain suspended, we 
may be unable to fulfill our obligations to timely supply these third parties with API, and we may have to expend additional capital to 
manufacture API at our other locations. 

These risks are likely to be exacerbated by our limited experience with our current products and manufacturing processes. If, as 

we expect, our need for API increases, or demand for our products increase, we will have to invest additional resources to purchase 
components, hire and train employees and enhance our manufacturing processes and may have to use alternate suppliers of API to 
meet our needs. If we fail to increase our production capacity efficiently, our sales may not increase in line with our forecasts and our 
operating margins could fluctuate or decline. Any of these factors may affect our ability to manufacture our product and could reduce 
our revenues and profitability.

Risks Related to Obtaining Regulatory Approval for Our Drug Candidates 

The regulatory approval processes of the FDA, NMPA and other regulatory authorities are lengthy, time consuming and 
inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our drug candidates, our business will 
be substantially harmed. 

The time required to obtain approval by the FDA, NMPA and other regulatory authorities in jurisdictions where we seek such 

approval is unpredictable but typically takes many years following the commencement of preclinical studies and clinical trials and 
depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, 
regulations or the type and amount of clinical data necessary to gain approval may change during the course of a drug candidate’s 
clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any drug candidate, and it is 
possible that none of our existing drug candidates or any drug candidates we may discover, in-license or acquire and seek to develop 
in the future will ever obtain regulatory approval. 

Our drug candidates could fail to receive regulatory approval from the FDA, NMPA or another regulatory authority for many 

reasons, including: 

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disagreement with the design or implementation of our clinical trials; 

failure to demonstrate that a drug candidate is safe and effective for its proposed indication; 

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failure of clinical trial results to meet the level of statistical significance required for approval; 

failure to demonstrate that a drug candidate’s clinical and other benefits outweigh its safety risks; 

disagreement with our interpretation of data from preclinical studies or clinical trials; 

the insufficiency of data collected from clinical trials of our drug candidates to support the submission and filing of a new 
drug application, or NDA, or other submission or to obtain regulatory approval; 

the FDA, NMPA or another regulatory authority’s finding of deficiencies related to the product, manufacturing processes 
or facilities of ours or of third-party manufacturers with whom we contract for clinical and commercial supplies; and 

changes in approval policies or regulations that render our preclinical and clinical data insufficient for approval. 

The FDA, NMPA or a regulatory authority in another jurisdiction may require more information, including additional 
preclinical or clinical data, to support approval, which may delay or prevent approval in those territories and our commercialization 
plans, or we may decide to abandon the development program. If we were to obtain approval, regulatory authorities may approve any 
of our drug candidates for fewer or more limited indications than we request, may grant approval contingent on the performance of 
costly post-marketing clinical trials, or may approve a drug candidate with a label that is not desirable for the successful 
commercialization of that drug candidate. In addition, if our drug candidate produces undesirable side effects or safety issues, the FDA 
may require the establishment of REMS, or the NMPA or a regulatory authority may require the establishment of a similar strategy, 
that may, for instance, significantly restrict distribution of our drug candidates and impose burdensome implementation requirements 
on us. Any of the foregoing scenarios could materially harm the commercial prospects of our drug candidates. 

The approval process for pharmaceutical products outside the U.S. varies among countries and may limit our ability to develop, 
manufacture and sell our products internationally. Failure to obtain marketing approval in international jurisdictions would 
prevent our product candidates from being marketed abroad. 

In order to market and sell our products internationally, we must obtain separate marketing approvals and comply with 
numerous and varying regulatory requirements. The approval procedure varies among countries and may involve additional testing. 
We may conduct clinical trials for, and seek regulatory approval to market, our product candidates in countries other than the U.S. and 
China. Depending on the results of clinical trials and the process for obtaining regulatory approvals in other countries, we may decide 
to first seek regulatory approvals of a product candidate in countries other than the U.S., or we may simultaneously seek regulatory 
approvals in the U.S. and other countries. If we seek marketing approval for a product candidate outside the U.S., we will be subject to 
the regulatory requirements of health authorities in each country in which we seek approval. With respect to marketing authorizations 
in China, we will be required to seek regulatory approval from the NMPA. For marketing approval in Europe, we will seek to obtain 
marketing approval from the EMA. The approval procedure varies among regions and countries and may involve additional testing, 
and the time required to obtain approval may differ from that required to obtain FDA approval. 

Obtaining regulatory approvals from health authorities in countries outside the U.S. is likely to subject us to all of the risks 
associated with obtaining FDA approval described above. In addition, marketing approval by the FDA does not ensure approval by the 
health authorities of any other country, and marketing approvals by foreign health authorities do not ensure a similar approval by the 
FDA. 

We are conducting, and may in the future conduct, clinical trials for our product candidates in sites outside the U.S. and the FDA 
may not accept data from trials conducted in such locations. 

We have conducted, and may in the future conduct, certain of our clinical trials outside of the U.S., such as the U.K., China, 
Taiwan and Latin America. Although the FDA may accept data from clinical trials conducted outside the U.S., acceptance of this data 
is subject to certain conditions imposed by the FDA. There can be no assurance the FDA will accept data from any clinical trials we 
conduct outside of the U.S. If the FDA does not accept the data from any of our clinical trials conducted outside the U.S., it would 
likely result in the need for additional clinical trials, which would be costly and time-consuming and could delay or prevent the 
commercialization of any of our product candidates. 

Regulatory approval may be substantially delayed or may not be obtained for one or all of our drug candidates for a variety of 
reasons. 

We may be unable to complete development of our drug candidates on schedule, if at all. The completion of the studies for our 

drug candidates will require funding beyond our current resources. In addition, if regulatory authorities require additional time or 
studies to assess the safety or efficacy of our drug candidates, we may not have or be able to obtain adequate funding to complete the 
necessary steps for approval for any or all of our drug candidates. Preclinical studies and clinical trials required to demonstrate the 
safety and efficacy of our drug candidates are time consuming and expensive and together take several years or more to complete. For 
example, our current lead product candidate, oral paclitaxel and encequidar, which announced topline results from its Phase 3 clinical 

61

 
 
 
 
 
 
trial in the second half of 2019, has been in development since 2011. Delays in clinical trials, regulatory approvals or rejections of 
applications for regulatory approval in the U.S., United Kingdom, Taiwan, New Zealand, China, Latin America, or other jurisdictions 
may result from many factors, including: 

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our inability to obtain sufficient funds required for a clinical trial; 

regulatory requests for additional analyses, reports, data, non-clinical and preclinical studies and clinical trials; 

regulatory questions regarding interpretations of data and results and the emergence of new information regarding our 
drug candidates or other products; 

clinical holds, other regulatory objections to commencing or continuing a clinical trial or the inability to obtain regulatory 
approval to commence a clinical trial in countries that require such approvals; 

failure to reach agreement with the FDA, NMPA or other regulators regarding the scope or design of our clinical trials; 

delay or failure in obtaining authorization to commence a trial or inability to comply with conditions imposed by a 
regulatory authority regarding the scope or design of a clinical trial; 

our inability to enroll and retain a sufficient number of patients who meet the inclusion and exclusion criteria in a clinical 
trial; 

our inability to conduct a clinical trial in accordance with regulatory requirements or our clinical protocols; 

clinical sites and investigators deviating from trial protocol, failing to conduct the trial in accordance with regulatory 
requirements, or dropping out of a trial; 

withdrawal of clinical trial sites from our clinical trials as a result of changing standards of care or the ineligibility of a site 
to participate in our clinical trials; 

inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other 
clinical trial programs, including some that may be for the same indication; 

failure of our third-party clinical trial managers to satisfy their contractual duties or meet expected deadlines; 

delay or failure in adding new clinical trial sites; 

ambiguous or negative interim results, or results that are inconsistent with earlier results; 

unfavorable or inconclusive results of clinical trials and supportive non-clinical studies, including unfavorable results 
regarding safety or effectiveness of drug candidates during clinical trials; 

feedback from the FDA, NMPA, IRB, the Data and Safety Monitoring Board (“DSMB”) or comparable entities, or results 
from earlier stage or concurrent preclinical studies and clinical trials, that might require modification to the protocol; 

unacceptable risk-benefit profile or unforeseen safety issues or adverse side effects; 

decision by the FDA, NMPA, IRB, comparable entities or the Company, or recommendation by a DSMB or comparable 
entity, to suspend or terminate clinical trials at any time for safety issues or for any other reason; 

failure to demonstrate a benefit from using a drug candidate; 

lack of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions; 

our inability to reach agreements on acceptable terms with prospective CROs and trial sites, the terms of which can be 
subject to extensive negotiation and may vary significantly among different CROs and trial sites; 

our inability to obtain approval from IRBs or ethics committees to conduct clinical trials at their respective sites; 

manufacturing issues, including problems with manufacturing or timely obtaining from third parties sufficient quantities 
of a drug candidate for use in a clinical trial; and 

difficulty in maintaining contact with patients during the study or after treatment, resulting in incomplete data. 

Changes in regulatory requirements and guidance may also occur, and we may need to amend clinical trial protocols submitted 

to applicable regulatory authorities to reflect these changes. Amendments may require us to resubmit clinical trial protocols to IRBs or 
ethics committees for re-examination, which may impact the costs, timing or successful completion of a clinical trial. 

According to the Opinions on Implementing Priority Review and Approval to Encourage Drug Innovation, the “Prioritized 

Evaluation and Approval Opinions,” which was promulgated and implemented as of December 21, 2017 by the NMPA, the NMPA 
conducts priority review and approval for the registration applications of Category 1 drugs. On May 17, 2018, the NMPA and NHC 
issued the Announcement on Optimizing the Review and Approval of Drug Registration, which further clarifies that a priority review 
and approval mechanism will be available. The current Chinese Drug Administration Law, which was promulgated on August 26, 

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2019 and came into effect on December 1, 2019, also stipulates that the government encourages research and development of 
innovative drugs for serious diseases such as cancer. The NMPA will allot more resource to accelerate the review and approval 
process for the registration of Category 1 drugs.

The applications for Category 1 drugs are handled with higher priority and enhanced communications with the CDE. Compared 

with Category 5 drugs, Category 1 drugs are qualified to apply for special examination and approval at both the CTA stage and the 
production registration application stage. If the special examination and approval are granted at the CTA stage, such treatment will 
apply to the production registration application stage without further approval. During the CTA stage, reduction or exemption of 
clinical trial may be available if Category 1 drugs are for orphan diseases or other special diseases. The advantages also include, by 
providing priority resources, shortening time limits to review and exam applications of Category 1 drugs’ clinical trials and of 
production registration, and to handle document submission and approval process. We cannot be sure that the NMPA will grant such 
priority treatment to any of our drugs candidates. 

If we experience delays in the completion of, or the termination of, a clinical trial, of any of our drug candidates, the commercial 

prospects of our drug candidates will be harmed, and our ability to generate revenues from the sale of any of those drug candidates 
will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our drug candidate 
development and approval process, and jeopardize our ability to commence product sales and generate revenues. Any of these 
occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead 
to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our 
drug candidates. 

If we experience delays in the completion of, or the termination of, a clinical trial, of any of our drug candidates, the commercial 

prospects of our drug candidates will be harmed, and our ability to generate revenues from the sale of any of those drug candidates 
will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our drug candidate 
development and approval process, and jeopardize our ability to commence product sales and generate revenues. Any of these 
occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead 
to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our 
drug candidates. 

Our drug candidates have caused and may cause undesirable adverse events or have other properties that could delay or prevent 
their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences 
following any regulatory approval. 

Undesirable adverse events related to our drug candidates could cause us or regulatory authorities to interrupt, delay or halt 
clinical trials that would preclude approval of our drug candidates by the FDA, NMPA, or another regulatory authority or, if approved, 
could result in a more restrictive label. Results of our trials could reveal a high and unacceptable severity or prevalence of adverse 
events. In such an event, our trials could be suspended or terminated and the FDA, NMPA or other regulatory authorities could order 
us to cease further development of, or deny approval of, our drug candidates for any or all targeted indications. Drug-related adverse 
events could affect patient recruitment or the ability of enrolled subjects to complete the trial, and could result in potential product 
liability claims. Any of these occurrences may significantly harm our reputation, business, financial condition and prospects. 

In our clinical studies to date, we have observed the following SAEs that were deemed to be possibly, likely or definitely related 

to each of our product candidates: 

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Oral Paclitaxel - severe neutropenia, febrile neutropenia, sepsis, septic shock, altered state of consciousness, hypokalemia 
and cardiac arrest, dehydration, pneumonia, death, nausea, vomiting, diarrhea, fatigue, anorexia, alopecia and acute 
gastroenteritis; 

Oral irinotecan - diarrhea, rash, gastrointestinal hemorrhage, vomiting, nausea, asthenia, neutropenia, anorexia, increased 
alanine aminotransferase, increased aspartate aminotransferase, enteritis, decreased neutrophil count and clostridium 
difficile infection; 

Tirbanibulin oral - allergic reaction, bacteremia, rash, syncope, perivascular dermatitis, neutropenic fever, hyponatremia, 
failure to thrive, hypersensitivity, lower extremity edema, mucositis, neutropenia, pancytopenia, thrombocytopenia, 
seizure and motor vehicle accident, embolic stroke, pneumonitis, fever, acute kidney injury, increased bilirubin and 
albumin levels, decreased blood platelet count, abdominal pain, arm pain, pain at the base of the neck, pyrexia, chills, 
rigors, tachypenea, oxygen desaturation, pneumonia, anemia, elevated ALT and AST, dehydration, leukopenia and 
tremor; and 

•

KX2-361 - pulmonary embolism; thromboembolic event, hyperuricemia and nausea. 

Additionally, if one or more of our drug candidates receives regulatory approval, and we or others later identify undesirable side 

effects caused by such drugs, a number of potentially significant negative consequences could result, including: 

•

we may suspend marketing of the drug; 

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regulatory authorities may withdraw approvals of the drug; 

regulatory authorities may require additional warnings on the label; 

we may be required to develop a REMS for the drug or, if a REMS is already in place, to incorporate additional 
requirements under the REMS, or to develop a similar strategy as required by a regulatory authority; 

we may be required to conduct post-marketing studies; 

we could be sued and held liable for harm caused to subjects or patients; and 

our reputation may suffer. 

Any of these events could prevent us from achieving or maintaining market acceptance of the particular drug candidate, if 

approved, and could significantly harm our business, results of operations and prospects. 

Even if we receive regulatory approval for our drug candidates, we will be subject to ongoing regulatory obligations and continued 
regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with 
regulatory requirements or experience unanticipated problems with our drug candidates. 

If our drug candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, 
packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, 
efficacy and other post-marketing information, including both federal and state requirements in the U.S. and requirements of 
regulatory authorities. 

Manufacturers and manufacturers’ facilities are required to comply with extensive requirements of the FDA, NMPA and 
regulatory authorities, including, in the U.S., ensuring that quality control and manufacturing procedures conform to current cGMP 
regulations. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with 
cGMP and adherence to commitments made in any NDA or other marketing application, and previous responses to inspection 
observations. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of 
regulatory compliance, including manufacturing, production and quality control. 

Any regulatory approvals that we receive for our drug candidates may be subject to limitations on the approved indicated uses 

for which the drug may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing 
testing, including Phase 4 clinical trials and surveillance to monitor the safety and efficacy of the drug candidate. The FDA may also 
require a REMS program as a condition of approval of one or more of our drug candidates, which could entail requirements for long-
term patient follow-up, a medication guide, physician communication plans or additional elements to ensure safe use, such as 
restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA, NMPA or a regulatory 
authority approves our drug candidates, we will have to comply with requirements including, for example, submissions of safety and 
other post-marketing information and reports, registration, and continued compliance with cGMP and GCP for any clinical trials that 
we conduct post-approval. 

The FDA may impose consent decrees or withdraw approval if compliance with regulatory requirements and standards is not 
maintained or if problems occur after the drug reaches the market. Later discovery of previously unknown problems with our drug 
candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing 
processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety 
information; imposition of post-marketing studies or clinical studies to assess new safety risks; or imposition of distribution 
restrictions or other restrictions under a REMS program. Other potential consequences include, among other things: 

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restrictions on the marketing or manufacturing of our drugs, withdrawal of the product from the market, or voluntary or 
mandatory product recalls; 

fines, untitled or warning letters, or holds on clinical trials; 

refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or 
revocation of license approvals; 

product seizure or detention, or refusal to permit the import or export of our drug candidates and 

injunctions or the imposition of civil or criminal penalties. 

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may 
be promoted only for the approved indications and in a manner consistent with the provisions of the approved prescribing information. 
The FDA, NMPA and other regulatory authorities actively enforce the laws and regulations prohibiting the promotion of off-label 
uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. The policies of 
the FDA, NMPA and of other regulatory authorities may change. We cannot predict the likelihood, nature or extent of government 
regulation that may arise from future legislation or administrative action, either in the U.S. or abroad. If we are slow or unable to adapt 
to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory 
compliance, we may lose any regulatory approval that we may have obtained, and we may not achieve or sustain profitability. 

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Risks Related to Commercialization of Our Drug Candidates 

If we are not able to obtain, or experience delays in obtaining, required regulatory approvals, we will not be able to commercialize 
our drug candidates, and our ability to generate revenue will be materially impaired. 

We currently do not have any proprietary drug candidates that have gained regulatory approval for sale in the U.S., China or any 
other country, and we cannot guarantee that we will ever obtain regulatory approval for marketable proprietary drugs. Our business is 
substantially dependent on our ability to complete the development of, obtain regulatory approval for and successfully commercialize 
drug candidates in a timely manner. We cannot commercialize drug candidates without first obtaining regulatory approval to market 
each drug from the FDA, NMPA or regulatory authorities in the relevant jurisdictions. Our proprietary drug candidates are currently 
undergoing various phases of FDA clinical trials. We cannot predict whether these trials and future trials will be successful or whether 
regulators will agree with our conclusions regarding the preclinical studies and clinical trials we have conducted to date. 

Before obtaining regulatory approvals for the commercial sale of any drug candidate for a target indication, we must 

demonstrate in preclinical studies and well-controlled clinical trials, and, with respect to approval in the U.S., to the satisfaction of the 
FDA, that the drug candidate is safe and effective for use for that target indication and that the manufacturing facilities, processes and 
controls are adequate. An NDA must include extensive preclinical and clinical data and supporting information to establish the drug 
candidate’s safety and effectiveness. The NDA must also include significant information regarding the chemistry, manufacturing and 
controls for the drug. Obtaining approval of an NDA is a lengthy, expensive and uncertain process, and approval may not be obtained. 
If we submit an NDA to the FDA, the FDA decides whether to accept or reject the submission for filing. We cannot be certain that any 
submissions will be accepted for filing and review by the FDA. 

Regulatory authorities outside of the U.S., such as the regulatory authorities in emerging markets, also have requirements for 
approval of drugs for commercial sale with which we must comply prior to marketing in those areas. Regulatory requirements can 
vary widely from country to country and could delay or prevent the introduction of our drug candidates. Clinical trials conducted in 
one country may not be accepted by regulatory authorities in other countries and obtaining regulatory approval in one country does not 
mean that regulatory approval will be obtained in any other country. Approval processes vary among countries and can involve 
additional product testing and validation and additional administrative review periods. Seeking non-U.S. regulatory approval could 
require additional non-clinical studies or clinical trials, which could be costly and time-consuming. The non-U.S. regulatory approval 
process may include all of the risks associated with obtaining FDA approval and other risks specific to the relevant jurisdiction. For all 
of these reasons, we may not obtain non-U.S. regulatory approvals on a timely basis, if at all. 

If we are unable to obtain regulatory approval for our drug candidates in one or more jurisdictions, or any approval contains 
significant limitations, our target market will be reduced and our ability to realize the full market potential of our drug candidates will 
be harmed. Furthermore, if we are not able to obtain, or experience delays in obtaining, required regulatory approvals, we will not be 
able to commercialize our drug candidates, and our ability to generate revenue will be materially impaired. 

If our recently submitted NDA for tirbanibulin ointment is not accepted or not approved by the FDA, this would have a material 
adverse effect on our business, financial performance and results of operations. 

We submitted an NDA for tirbanibulin ointment. There is a risk that the FDA will not accept our NDA for filing. In addition, the 

FDA may suggest that we need to conduct additional trials or other testing at significant costs before we can seek regulatory approval 
of tirbanibulin ointment. If we fail to obtain approval or experience delays in obtaining approval, any such decision or delays would 
have a material impact on our ability to generate revenue from the sales of tirbanibulin ointment. Accordingly, an inability to generate 
such revenue would have a material effect on our business, financial performance and results of operations.

Even if any of our drug candidates receives regulatory approval, they may fail to achieve the degree of market acceptance by 
physicians, patients, third-party payors and others in the medical community necessary for commercial success. 

If any of our drug candidates receives regulatory approval, they may nonetheless fail to gain sufficient market acceptance by 

physicians, patients, third-party payors and others in the medical community. For example, current cancer treatments like 
chemotherapy and radiation therapy are well established in the medical community, and doctors may continue to rely on these 
treatments to the exclusion of our drug candidates. In addition, physicians, patients and third-party payors may prefer other novel 
products to ours, and we may experience difficulties gaining acceptance for our orally administered drug candidates. We are also 
subject to regulatory restrictions on how we market our drug candidates. If our drug candidates do not achieve an adequate level of 
acceptance, we may not generate significant product sales revenues, and we may not become profitable. The degree of market 
acceptance of our drug candidates, if approved for commercial sale, will depend on a number of factors, including: 

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the clinical indications for which our drug candidates are approved; 

physicians, hospitals, cancer treatment centers and patients considering our drug candidates as a safe and effective 
treatment; 

the potential and perceived advantages of our drug candidates over alternative treatments; 

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the prevalence and severity of any side effects; 

product labeling or product insert requirements of the FDA, NMPA or other regulatory authorities; 

limitations or warnings contained in the labeling approved by the FDA, NMPA or other regulatory authorities; 

the timing of market introduction of our drug candidates as well as competitive drugs; 

the cost of treatment in relation to alternative treatments; 

the amount of upfront costs or training required for physicians to administer our drug candidates; 

obtaining optimal pricing for products in key global markets;

the availability of adequate coverage, reimbursement and pricing by third-party payors and government authorities 
(including U.S. federal healthcare programs); 

the willingness of patients to pay out-of-pocket in the absence of coverage and reimbursement by third-party payors and 
government authorities; 

relative convenience and ease of administration, including as compared to alternative treatments and competitive 
therapies;

the emergence of new biomarker-driven therapies as alternatives to chemotherapy; and

the effectiveness of our sales and marketing efforts. 

If our drug candidates are approved but fail to achieve market acceptance among physicians, patients, hospitals, cancer 
treatment centers or others in the medical community, we will not be able to generate significant revenue. Even if our drugs achieve 
market acceptance, we may not be able to maintain that market acceptance over time if new products or technologies are introduced 
that are more favorably received than our drugs, are more cost effective or render our drugs obsolete. 

Orphan drugs target rare diseases and must therefore capture significant market share at high per-patient cost to generate 
reasonable returns.

KX2-361 has obtained Orphan Drug Designation from the FDA and Oral Paclitaxel has obtained Orphan Drug Designations 
from both the FDA and EC, respectively. As orphan drug candidates target rare diseases with small patient populations, we believe 
that we would need to capture significant market share to achieve meaningful returns on these product candidates. Further, as is 
typical of drugs for rare conditions, we would need to establish relatively higher prices in order to generate a return on investment and 
achieve meaningful gross margins. There can be no assurance that we will be successful in commercializing our orphan drug product 
candidates, if at all, or that we will be able to generate sufficient revenues from their sales to produce a meaningful return due to the 
limited market size.

Our manufacturing experience is limited and any failure by us to manufacture our products for commercial sale after receiving 
FDA approval would materially impact our revenue and financial condition. 

The manufacture of drugs for commercial sale is subject to regulation by the FDA under cGMP regulations and by other 
regulators under other laws and regulations. We cannot assure you that we will continue to manufacture our products under cGMP 
regulations or other laws and regulations in sufficient quantities for commercial sale, or in a timely or economical manner. 

Our manufacturing facilities require specialized personnel and are expensive to operate and maintain. Any delay in the 

regulatory approval or market launch of product candidates to be manufactured in these facilities will require us to continue to operate 
these expensive facilities and retain specialized personnel, which may increase our expected losses. 

Through our public-private partnerships, additional cGMP manufacturing facilities for our use are currently being built in 

Dunkirk, New York, and the construction of a new API facility was complete in Chongqing, China. Our facility in Dunkirk, New 
York is being built pursuant to an agreement with FSMC. Under the current arrangement, we will select and hire contractors for the 
project and oversee the development of the Dunkirk facility. ESD, the parent entity of FSMC, is responsible for the costs of 
construction and all equipment for the facility, up to an aggregate of around $208 million (including approximately $8 million in 
additional funds available from the previous $25 million ESD grant), and ESD, not us, will own the facility and equipment. We have 
limited experience in overseeing the development of such a facility and we may not be able to complete the development within the 
timeframe expected, within the expected budget, or at all. If development of the Dunkirk facility is delayed or not completed it could 
materially adversely affect our operations and financial results. Our new API facility in Chongqing was constructed in accordance 
with an agreement with CQ. Under the current agreement, CQ is responsible for construction of the facility but we are responsible for 
the costs of all equipment for the facilities. CQ will own the land and buildings, and we will lease the facilities, rent-free, for the first 
10-year term, with an option to extend the lease for an additional 10-year term, during which, if we are profitable, we will pay a 
monthly rent of 5 RMB per square meter of space occupied. We have committed to achieving certain operational, revenue and tax 

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generation milestones within certain time periods once we commence operation. If we are not able to achieve such milestones, CQ 
will have the opportunity to terminate the agreement and dispose of the plants in its discretion.

Additionally, both the Dunkirk and Chongqing facilities will need to be cGMP validated prior to operating. The Chongqing 
facility is expected to commence operations in the second half of 2020. Validation is a lengthy process that must be completed before 
we can manufacture under cGMP requirements. We cannot guarantee that the FDA or foreign regulatory agencies will approve the 
manufacture of any products at these or other facilities, that such facilities will remain in compliance with cGMP regulations, or that 
such facilities will maintain a compliance status acceptable to the FDA or other regulatory agencies. 

The manufacture of pharmaceutical products is a highly complex process in which a variety of difficulties may arise from time 

to time. We may not be able to resolve any such difficulties in a timely fashion, if at all. If anything were to interfere with the 
continuing manufacturing operations in our facilities, it could materially adversely affect our business and financial condition. 

Currently, many of our product candidates are manufactured in small quantities for use in clinical trials. We cannot assure you 

that we will be able to successfully scale up the manufacture of each of our product candidates in a timely or economical manner, or at 
all. If any of these product candidates are approved by the FDA or other drug regulatory authorities for commercial sale, we will need 
to manufacture them in larger quantities. If we are unable to successfully scale up our manufacturing capacity, the regulatory approval 
or commercial launch of such product candidate may be delayed or there may be a shortage in supply of such product candidate. 

If we fail to develop manufacturing capacity and experience, fail to continue to contract for manufacturing on acceptable terms, 

or fail to manufacture our product candidates economically on a commercial scale or in accordance with cGMP regulations, our 
development programs will be materially adversely affected. This may result in delays in receiving FDA or foreign regulatory 
approval for one or more of our product candidates or delays in the commercial production of a product that has already been 
approved. Any such delays could materially adversely affect our business and financial condition. 

The manufacture of API is highly regulated by FDA, NMPA and other regulatory bodies and is subject to current good 
manufacturing practice requirements and to inspection by such regulators, which may result in adverse findings and actions 
against certain API manufacturing facilities. 

API manufacturing facilities are subject to regulation by the applicable regulatory bodies in the place of manufacture as well as 
the regulatory agency in the country to which the product is exported. For instance, FDA’s cGMP regulations apply to these facilities 
and violation of these, or other, regulations may result in adverse action against the facility, including cessation of manufacturing 
activities. Our API manufacturing facilities in Chongqing are also subject to regulation by the NMPA. In addition, the Chongqing 
plant’s commercial operations are currently suspended based on concerns raised by the DEMC related to the location of our plant. If 
the FDA, NMPA, DEMC or other regulators discover a problem at one facility, we may be subject to increased scrutiny and/or 
adverse actions across our operations, including fines or orders to cease manufacturing, which could have a material impact on our 
operations, clinical development, regulatory approval process, business strategy or results of operations. 

We have limited experience in marketing proprietary drug products. If we are unable to establish such marketing and sales 
capabilities or enter into agreements with third parties to market and sell our proprietary drug candidates, we may not be able to 
generate sales revenue from such products. 

We have limited sales, marketing and commercial product experience. We intend to continue to develop our in-house 

commercial organization and sales force for such products, which will require significant capital expenditures, management resources 
and time. We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing 
and sales personnel. 

If we are unable to establish internal sales, marketing and commercial distribution capabilities for our proprietary drug 
candidates, we will need to pursue collaborative arrangements for the sales and marketing of our proprietary drugs. However, there 
can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that they 
will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be 
successful. We may have less control over the marketing and sales efforts of such third parties which may present fraud and abuse and 
other regulatory considerations, and our revenue from product sales may be lower than if we had commercialized our proprietary drug 
candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our 
proprietary drug candidates. 

There can be no assurance that we will be able to develop our in-house sales and commercial distribution capabilities or 

establish or maintain relationships with third-party collaborators to successfully commercialize any proprietary product, and as a 
result, we may not be able to generate sales revenue from such products. 

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We face substantial competition, and our competitors may discover, develop or commercialize competing drugs before or more 
successfully than we do. 

The development and commercialization of new drugs is highly competitive. We face competition with respect to our current 
drug candidates and will face competition with respect to any drug candidates that we may seek to develop or commercialize in the 
future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There 
are a number of large pharmaceutical and biotechnology companies that currently market and sell drugs or are pursuing the 
development of drugs for the treatment of the types of cancer for which we are developing our drug candidates. Some of these 
competitive drugs and therapies are based on scientific approaches that are the same as or similar to our approach, and others are 
based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public 
and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, 
development, manufacturing and commercialization. 

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize drugs that are safer, 
more effective, have fewer or less severe side effects, are more convenient or are less expensive than any drugs that we may develop. 
Our competitors also may obtain approval from the FDA, NMPA or other regulatory authorities for their drugs more rapidly than we 
may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter 
the market and/or slow our regulatory approval. 

Many of the companies against which we are competing or against which we may compete in the future have significantly 

greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, 
obtaining regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the pharmaceutical and 
biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller 
and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with 
large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management 
personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary 
to, or necessary for, our programs. 

Even if we are able to commercialize any drug candidates, the drugs may become subject to unfavorable pricing regulations, third 
party reimbursement practices or healthcare reform initiatives, which could harm our business. 

Successful sales of our drug candidates, if approved, depend on the availability of adequate coverage and reimbursement from 
third-party payors. Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse 
all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, 
such as Medicare and Medicaid in the U.S., and commercial payors are critical to new drug acceptance. 

The regulations that govern regulatory approvals, pricing and reimbursement for new therapeutic products vary widely from 

country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the 
pricing review period begins after marketing or licensing approval is granted. In some non-U.S. markets, prescription pharmaceutical 
pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain 
regulatory approval for a drug in a particular country but be subject to price regulations that delay our commercial launch of the drug 
and negatively impact the revenues we are able to generate from the sale of the drug in that country. For example, according to the 
guidance issued in March 2015 by the central government of China, each province will decide which drugs to include in its provincial 
major illness reimbursement lists and the percentage of reimbursement, based on local funding. Adverse pricing limitations may 
hinder our ability to recover our investment in one or more drug candidates, even if our drug candidates obtain regulatory approval. 
For example, in China, according to a statement, Opinions on reforming the review and approval process for pharmaceutical products 
and medical devices, issued by the State Council in August 2015, the enterprises applying for new drug approval will be required to 
undertake that the selling price of new drug on Chinese mainland market shall not be higher than the comparable market prices of the 
product in its country of origin or Chinese neighboring markets, as applicable. 

Our ability to commercialize any drugs successfully also will depend in part on the extent to which coverage and reimbursement 
for these drugs and related treatments will be available from government health administration authorities, private health insurers and 
other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance 
organizations, decide which medications they will pay for and establish reimbursement levels. Coverage and reimbursement by a 
third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a drug is: 

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a covered benefit under its health plan; 

safe, effective and medically necessary; 

appropriate for the specific patient; 

cost-effective and 

neither experimental nor investigational. 

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We cannot be sure that reimbursement will be available for any drug that we commercialize and, if coverage and reimbursement 
are available, what the level of reimbursement will be. Reimbursement may impact the demand for, or the price of, any drug for which 
we obtain regulatory approval. Obtaining reimbursement for our drugs may be particularly difficult because of the higher prices often 
associated with branded drugs and drugs administered under the supervision of a physician. If reimbursement is not available or is 
available only at limited levels, we may not be able to successfully commercialize any drug candidate that we successfully develop. 

In the U.S., no uniform policy of coverage and reimbursement for drugs exists among third-party payors. As a result, obtaining 
coverage and reimbursement approval of a drug from a government or other third-party payor is a time-consuming and costly process 
that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our drugs on a 
payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a 
given drug, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require 
co-payments that patients find unacceptably high. Additionally, third-party payors may not cover, or provide adequate reimbursement 
for, long-term follow-up evaluations required following the use of our drugs. However, under Medicare Part D—Medicare’s 
outpatient prescription drug benefit—there are protections in place to ensure coverage and reimbursement for oncology products and 
all Part D prescription drug plans are required to cover substantially all anti-cancer agents. 

The State Council required central and provincial authorities across China to promote a medical insurance program for major 

illnesses, which targets covering at least 50% of the medical cost as incurred by treating major illnesses but falls out of the coverage of 
the basic insurance programs. The State Council requires provincial authorities to increase reimbursement rates over the next three 
years. 

We intend to seek approval to market our drug candidates in the U.S., China and other selected jurisdictions. If we obtain 

approval in one or more non-U.S. jurisdictions for our drug candidates, we will be subject to rules and regulations in those 
jurisdictions. In some non-U.S. countries, the pricing of drugs and biologics is subject to governmental control. In these countries, 
pricing negotiations with governmental authorities can take considerable time after obtaining regulatory approval of a drug candidate. 
In addition, market acceptance and sales of our drug candidates will depend significantly on the availability of adequate coverage and 
reimbursement from third-party payors for our drug candidates and may be affected by existing and future health care reform 
measures. 

We intend to test and market our drugs, if approved, in a variety of international markets and we are exploring the licensing of 
commercialization rights or other forms of collaboration worldwide, which exposes us to additional risks of conducting business in 
additional international markets. 

We conduct business operations in regions including the U.S., China, Taiwan, New Zealand and the United Kingdom, and other 

non-U.S. markets, including certain countries in Latin America, are an important component of our growth strategy. If we fail to 
obtain licenses or enter into collaboration arrangements with third parties in these markets, or if these parties are not successful, our 
revenue-generating growth potential will be adversely affected. 

Moreover, international business relationships subject us to additional risks that may materially adversely affect our ability to 

attain or sustain profitable operations, including: 

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initiatives to develop an international sales, marketing and distribution organization may increase our expenses, divert our 
management’s attention from the acquisition or development of drug candidates or cause us to forgo profitable licensing 
opportunities in these geographies; 

efforts to enter into collaboration or licensing arrangements with third parties in connection with our international sales, 
marketing and distribution efforts may increase our expenses or divert our management’s attention from the acquisition or 
development of drug candidates; 

changes in a specific country’s or region’s laws, regulations or political and cultural climate or economic condition; 

differing regulatory requirements for drug approvals and marketing internationally; 

difficulty of effective enforcement of contractual provisions and intellectual property rights in local jurisdictions; 

potentially reduced protection for intellectual property rights; 

potential conflicting third-party patent or other intellectual property rights; 

unexpected changes in tariffs, trade barriers and regulatory requirements, such as Export Administration Regulations 
promulgated by the U.S. Department of Commerce and fines, penalties or suspension or revocation of export privileges; 

economic weakness, including inflation or political instability, particularly in non-U.S. economies and markets; 

compliance with tax, employment, immigration and labor laws for employees traveling abroad; 

the effects of applicable non-U.S. tax structures and potentially adverse tax consequences; 

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currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations 
incidental to doing business in another country; 

workforce uncertainty and labor unrest, particularly in non-U.S. countries where labor unrest is more common than in the 
U.S.; 

the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local 
prices, opts to import goods from a non-U.S. market with low or lower prices rather than buying them locally; 

failure of our employees and contracted third parties to comply with Office of Foreign Asset Control rules and regulations 
and the Foreign Corrupt Practices Act; 

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and 

business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including 
earthquakes, volcanoes, typhoons, floods, hurricanes and fires. 

These and other risks may materially adversely affect our ability to obtain or sustain revenue from international markets. 

The use of legal, regulatory, and legislative strategies by both brand and generic competitors, including but not limited to 
“authorized generics” and regulatory petitions, as well as the potential impact of proposed and newly enacted legislation, may 
increase costs associated with the introduction or marketing of our generic products, could delay or prevent such introduction, and 
could adversely affect our results of operations. 

Our competitors, both branded and generic, often pursue strategies to prevent, delay, or eliminate competition from generic 

alternatives to branded products. These strategies include, but are not limited to: 

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entering into agreements whereby other generic companies will begin to market an authorized generic, a generic 
equivalent of a branded product, at the same time or after generic competition initially enters the market; 

launching a generic version of their own branded product prior to or at the same time or after generic competition initially 
enters the market; 

filing petitions with the FDA or other regulatory bodies seeking to prevent or delay approvals, including timing the filings 
so as to thwart generic competition by causing delays of our product approvals; 

seeking to establish regulatory and legal obstacles that would make it more difficult to demonstrate bioequivalence or to 
meet other requirements for approval, and/or to prevent regulatory agency review of applications, such as through the 
establishment of patent linkage (laws and regulations barring the issuance of regulatory approvals prior to patent 
expiration); 

initiating legislative or other efforts to limit the substitution of generic versions of brand pharmaceuticals; 

filing suits for patent infringement and other claims that may delay or prevent regulatory approval, manufacture, and/or 
scale of generic products; 

introducing “next-generation” products prior to the expiration of market exclusivity for the reference product, which often 
materially reduces the demand for the generic or the reference product for which we seek regulatory approval; 

persuading regulatory bodies to withdraw the approval of brand name drugs for which the patents are about to expire and 
converting the market to another product of the brand company on which longer patent protection exists; 

obtaining extensions of market exclusivity by conducting clinical trials of brand drugs in pediatric populations or by other 
methods; and 

seeking to obtain new patents on particular formulations of drugs or methods of administering drugs for which patent 
protection on the drug itself is about to expire. 

If any other actions by our competitors and other third parties to prevent or delay activities necessary to the approval, 
manufacture, or distribution of our products are successful, our entry into the market and our ability to generate revenues associated 
with new products may be delayed, reduced, or eliminated, which could have a material adverse effect on our business, financial 
condition, results of operations, cash flows and/or share price. 

Our compounded preparations and the pharmacy compounding industry are subject to regulatory and customer scrutiny, which 
may impair our growth and sales. 

Formulations prepared and dispensed by compounding pharmacies may contain ingredients found in FDA-approved drugs. 
Compounded formulations are subject to various statutory and FDA regulatory requirements. Outsourcing facilities are regulated 

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under FDCA Section 503B.  Certain compounding pharmacies and outsourcing facilities have been the subject of negative media 
coverage in recent years; such actions have resulted in increased scrutiny of compounding activities from the FDA and state 
governmental agencies. For example, the FDA has in the past requested that a number of compounding pharmacies and outsourcing 
facilities recall unexpired drug products and cease sterile compounding operations due to lack of assurance of sterility.  Pharmacies 
and outsourcing facilities have also, at the request of FDA, suspended sterile production or voluntarily recalled certain sterile 
compounded products after an FDA inspection of relevant facilities. As a result, some prescribers and hospital/clinic purchasing 
agents may be hesitant to prescribe or procure compounded formulations, and some patients may be hesitant to purchase the same. 

In addition, an outsourcing facility must meet certain conditions under Section 503B of the FDCA in order for its compounded 
products to be exempt from the FDCA’s premarket approval requirements, from the FDCA requirement that products be labeled with 
adequate directions for use, and serialization and product tracing requirements.  For example, the drug must be compounded by or 
under the direct supervision of a licensed pharmacist, in a facility registered with FDA pursuant to Section 503B of the FDCA.  The 
facility must also operate in compliance with FDA’s cGMP regulations.  If our outsourcing facility or any of our compounded 
products are found not to satisfy the criteria of Section 503B, the marketing of our products absent FDA approval and/or adequate 
directions for use on the product labeling could render our products adulterated or misbranded under the FDCA, which could have an 
adverse effect on our business.  Furthermore, if an outsourcing facility compounds drugs using bulk drug substances, such bulk drug 
substances must either appear on a list established by the FDA of bulk drug substances for which there is a clinical need, or must be on 
FDA’s published drug shortage list. 

The source of any bulk substance active ingredient used in compounding must be a Section 510 registered manufacturer, and the 

ingredients must include a certificate of analysis.  If the outsourcing facility compounds using bulk drug substances, the bulk drug 
substances must either appear on FDA’s “interim” list of bulk substances that may be used in compounding under Section 503B a 
“bulks” list established by FDA, which are those bulk drug substances for which FDA has determined there is a clinical need.  Drugs 
may also be compounded if the FDA-approved drug appear on FDA’s published drug shortage list.  Although FDA has not yet 
finalized a list of bulk drug substances for which there is a clinical need, FDA has announced an interim policy pursuant to which bulk 
drug substances for which there is sufficient supporting information for FDA to evaluate them may be nominated for inclusion on 
FDA’s “Category 1” bulks list.  Provided certain conditions are met, FDA will apply its enforcement discretion to Category 1 
substances pending evaluation of the substances for inclusion on FDA’s final list of bulk drug substances for which there is a clinical 
need.

FDA has also finalized guidance on determining whether a product is an “essential copy” of a commercially available 
product.  If our products were ever determined to be an essential copy of a commercially available product, FDA could engage in 
enforcement action. We use bulk drug substances in the preparation of certain of our compounded products. In the event the FDA’s 
evaluation of these bulk drug substances results in a determination not to include such substances on the FDA’s list of bulk drug 
substances for which there is a clinical need, or if FDA were to change its interim policy such that compounding with such bulk drug 
substances could not proceed while the FDA’s evaluation of the substances is pending or until the FDA has issued its final list of bulk 
drug substances for which there is a clinical need, our ability to continue marketing compounded products subject to Section 503B 
would be impaired, and our business could be harmed. 

If a compounded drug formulation provided by our compounding services leads to patient injury or death, or results in a product 
recall, we may be exposed to significant liabilities and reputational harm. 

The production, labeling and packaging of compounded drugs is inherently risky. The success of our compounded formulations 

and pharmacy operations depends to a significant extent upon perceptions of the safety and quality of our products. We could be 
adversely affected if our formulations are subject to negative publicity. We could also be adversely affected if any of our formulations 
or other products, any similar products sold by other companies, or any products sold by other outsourcing facilities, prove to be, or 
are alleged or asserted to be, harmful to patients. There are a number of factors that could result in the injury or death of a patient who 
receives one of our compounded formulations, including quality issues, manufacturing or labeling flaws, improper packaging or 
unanticipated or improper dispensing or uses of the products, any of which could result from human or other error. Any of these 
situations could lead to a recall of, or safety alert relating to, one or more of our products. Similarly, to the extent any of the 
components of approved drug products or other ingredients used by us to produce compounded formulations have quality or other 
problems that adversely affect the finished compounded preparations, our sales could be adversely affected. In addition, in the 
ordinary course of business, we may voluntarily retrieve products from the field in response to a customer complaint. Because of our 
dependence upon medical and patient perceptions, any adverse publicity associated with illness or other adverse effects resulting from 
the use or misuse of our products, any similar products sold by other companies, or related to compounded formulations generally, 
could have a material adverse impact on our business, results of operations and financial condition. 

Risks Related to Our Intellectual Property 

A significant portion of our intellectual property portfolio currently comprises pending patent applications that have not yet been 
issued as granted patents, and if our pending patent applications fail to issue our business will be adversely affected. If we are 

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unable to obtain and maintain patent protection for our technology and drugs, our competitors could develop and commercialize 
technology and drugs similar or identical to ours, and our ability to successfully commercialize our technology and drugs may be 
adversely affected. 

Our success depends in large part on our ability to obtain and maintain patent protection in the U.S., China and other countries 

with respect to our proprietary technology and drug candidates. We have sought to protect our proprietary position by filing patent 
applications in the U.S., China and other countries related to novel technologies and drug candidates that we consider important to our 
business As of December 31, 2019, we owned more than 150 granted patents and approximately 65 pending patent applications 
worldwide. The process of obtaining patent protection is expensive and time-consuming, and we may not be able to file and prosecute 
all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify 
patentable aspects of our research and development output before it is too late to obtain patent protection. There can be no assurance 
that our pending patent applications will result in issued patents. Moreover, even our issued patents do not guarantee us the right to 
practice our technology in relation to the commercialization of our platforms’ product candidates. Third parties may have blocking 
patents that could be used to prevent us from commercializing our patented technologies, platforms and product candidates and 
practicing our proprietary technology. There can also be no assurance that a third party will not challenge the validity of our patents or 
that we will obtain sufficient claim scope in those patents, in view of prior art, to prevent a third party from competing successfully 
with our drug candidates. We may become involved in interference, inter partes review, post grant review, ex parte reexamination, 
derivation, opposition or similar other proceedings challenging our patent rights or the patent rights of others. Such challenges may 
result in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or 
commercializing similar or identical technology and drug candidates, or limit the duration of the patent protection of our technology 
and drug candidates. Given the amount of time required for the development, testing and regulatory review of new drug candidates, 
patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent 
portfolio may not provide us with sufficient rights to exclude others from commercializing drug candidates similar or identical to ours.

The patent position of biotechnology and pharmaceutical companies is highly uncertain, involves complex legal and factual 
questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and 
commercial value of our patent rights are highly uncertain. Changes in patent laws or the interpretation of patent laws in the U.S. and 
other countries may diminish the value of our patents or narrow the scope of our patent protection. Publications of discoveries in 
scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not 
published until eighteen months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make 
the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such 
inventions. 

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We may not be able to protect our intellectual property rights throughout the world. 

The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions, due to 
inconsistent policies regarding the scope of claims allowable in patents. Changes in patent laws and rules, either by legislation, judicial 
decisions, or regulatory interpretation in the U.S. and other countries may diminish our ability to protect our inventions and enforce 
our intellectual property rights, and more generally could affect the value of our intellectual property. 

In addition, the laws of certain non-U.S. countries do not protect intellectual property rights to the same extent as U.S. federal 

and state laws do. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the 
U.S., or from selling or importing drugs made using our inventions in and into the U.S. or non-U.S. jurisdictions. Competitors may use 
our technologies in jurisdictions where we have not obtained patent protection to develop their own drugs and further, may export 
otherwise infringing drugs to non-U.S. jurisdictions where we have patent protection but where enforcement rights are not as strong as 
those in the U.S. These drugs may compete with our drug candidates and our patent or other intellectual property rights may not be 
effective or adequate to prevent them from competing. 

Many companies have encountered significant problems in protecting and defending intellectual property rights in certain 

jurisdictions, including China. The legal systems of some countries do not favor the enforcement of patents, trade secrets and other 
intellectual property, particularly those relating to biopharmaceutical products, which could make it difficult in those jurisdictions for 
us to stop the infringement or misappropriation of our patents or other intellectual property rights, or the marketing of competing 
drugs in violation of our proprietary rights. Proceedings to enforce our patent and other intellectual property rights in non-U.S. 
jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. 

Furthermore, such proceedings could put our patents at risk of being invalidated, held unenforceable, or interpreted narrowly, 

could put our patent applications at risk of not issuing, and could provoke third parties to assert claims of infringement or 
misappropriation against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, 
may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be 
inadequate to obtain a significant commercial advantage from the intellectual property that we develop. 

We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time-consuming and 
unsuccessful and our patent rights relating to our drug candidates could be found invalid or unenforceable if challenged in court 
or before the U.S. Patent and Trademark Office or comparable non-U.S. authority. 

Competitors may infringe our patent rights or misappropriate or otherwise violate our intellectual property rights. To counter 

infringement or unauthorized use, litigation may be necessary to enforce or defend our intellectual property rights, to protect our trade 
secrets or to determine the validity and scope of our own intellectual property rights or the proprietary rights of others. Such litigation 
can be expensive and time-consuming. Our current and potential competitors may have the ability to dedicate substantially greater 
resources to enforce and/or defend their intellectual property rights than we can. Accordingly, despite our efforts, we may not be able 
to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result in substantial costs 
and diversion of management resources, which could harm our business and financial results. In addition, in an infringement 
proceeding, a court may decide that patent or other intellectual property rights owned by us are invalid or unenforceable, or may 
refuse to stop the other party from using the technology at issue on the grounds that our patent or other intellectual property rights do 
not cover the technology in question. An adverse result in any litigation proceeding could put our patent, as well as any patents that 
may issue in the future from our pending patent applications, at risk of being invalidated, held unenforceable or interpreted narrowly. 
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk 
that some of our confidential information could be compromised by disclosure. 

If we initiate legal proceedings against a third party to enforce any patent, or any patents that may issue in the future from our 
patent applications, that relates to one of our drug candidates, the defendant could counterclaim that such patent rights are invalid or 
unenforceable. In patent litigation in the U.S., defendant counterclaims alleging invalidity or unenforceability are commonplace, and 
there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise 
similar claims before administrative bodies in the U.S. or abroad, even outside the context of litigation. Such mechanisms include ex 
parte re-examination, inter partes review, post-grant review, derivation and equivalent proceedings in non-U.S. jurisdictions, such as 
opposition proceedings. Although any party alleging invalidity or unenforceability of our patents has a high burden of proof, 
nonetheless such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover and 
protect our drug candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect 
to the validity of our patents, for example, we cannot be certain that there is no invalidating prior art of which we, our patent counsel, 
and the patent examiner were unaware of during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or 
unenforceability, we would lose at least part, and perhaps all, of the patent protection on certain drug candidates. Such a loss of patent 
protection could have a material adverse impact on our business. 

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We may be subject to claims challenging the inventorship of our patents and ownership of other intellectual property. 

Although we are not currently experiencing any claims challenging the inventorship of our patents or ownership of our 
intellectual property, we may in the future be subject to claims that former employees, collaborators or other third parties have an 
interest in our patents or other intellectual property as inventors or co-inventors. For example, we may have inventorship disputes arise 
from conflicting obligations of consultants or others who are involved in developing our drug candidates. Litigation may be necessary 
to defend against these and other claims challenging inventorship. If we fail in defending any such claims, we may lose rights such as 
exclusive ownership of, or right to use, our patent or other intellectual property rights. Such an outcome could have a material adverse 
effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a 
distraction to management and other employees. 

If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time-consuming and 
could prevent or delay us from developing or commercializing our drug candidates. 

Our commercial success depends in part on our avoiding infringement of the patents and other intellectual property rights of 
third parties. There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and 
pharmaceutical industries, including litigation in the U.S. courts, inter partes review, post grant review, interference and ex 
parte reexamination proceedings before the USPTO or oppositions and other comparable proceedings in non-U.S. jurisdictions. 
Numerous issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are 
developing drug candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk 
increases that our drug candidates or manufacturing processes may give rise to claims of infringement of the patent rights of others. 

Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party 

patents of which we are currently unaware with claims to materials, formulations, methods of manufacture or methods for treatment 
related to the use or manufacture of our drug candidates. Because patent applications can take many years to issue, patent applications 
that are currently pending may later result in issued patents that our drug candidates may infringe. In addition, third parties may obtain 
patents in the future and claim that use of our technologies that are first publicized or commercialized after the filing date of those 
patents infringes upon them. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing 
process of any of our drug candidates, any molecules formed during the manufacturing process or any final product itself, the holders 
of any such patents may be able to prevent us from commercializing such drug candidate unless we obtain a license under the 
applicable patents, or until such patents expire or are finally determined to be held invalid or unenforceable. Similarly, if any third-
party patent is held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of 
use, including combination therapy or patient selection methods, the holders of any such patent may be able to block our ability to 
develop and commercialize the applicable drug candidate unless we obtain a license, limit our uses, or until such patent expires or is 
finally determined to be held invalid or unenforceable. In either case, such a license may not be available on commercially reasonable 
terms or at all. 

Third parties who bring successful claims against us for infringement of their intellectual property rights may obtain injunctive 

or other equitable relief, which could prevent us from developing and commercializing one or more of our drug candidates. Defense of 
these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of 
management and employee resources from our business. In the event of a successful claim of infringement or misappropriation against 
us, we may have to pay substantial damages, including treble damages and attorneys’ fees in the case of willful infringement, obtain 
one or more licenses from third parties, pay royalties or redesign our infringing drug candidates, which may be impossible or require 
substantial time and monetary expenditure and undertaking additional preclinical studies, clinical trials or regulatory review. In the 
event of an adverse result in any such litigation, or even in the absence of litigation, we may need to obtain licenses from third parties 
to advance our research or allow commercialization of our drug candidates. We cannot predict whether any required license would be 
available on commercially reasonable terms, or at all, and we may fail to obtain any of these licenses on commercially reasonable 
terms, if at all. In the event that we are unable to obtain such a license, we would be unable to further develop and commercialize one 
or more of our drug candidates, which could harm our business significantly. We may also elect to enter into license agreements in 
order to settle patent infringement claims or to resolve disputes prior to litigation and any such license agreements may require us to 
pay royalties and other fees that could significantly harm our business. 

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur 
significant expenses, and could distract our technical personnel, management personnel, or both from their normal responsibilities. In 
addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if 
securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the market price of 
our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available 
for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other 
resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such 
litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the 
initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in 
the marketplace. 

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If our products conflict with the intellectual property rights of third parties, we may incur substantial liabilities and we may be 
unable to commercialize products in a profitable manner or at all. 

We seek to launch generic pharmaceutical products either where patent protection or other regulatory exclusivity of equivalent 

branded products has expired, where patents have been declared invalid or where products do not infringe the patents of others. 
However, at times, we may seek approval to market generic products before the expiration of patents relating to the branded versions 
of those products, based upon our belief that such patents are invalid or otherwise unenforceable or would not be infringed by our 
products. Our success depends in part on our ability to operate without infringing the patents and proprietary rights of third parties. 
The manufacture, use and sale of generic versions of products has been subject to substantial litigation in the pharmaceutical industry. 
These lawsuits relate to the validity and infringement of patents or proprietary rights of third parties. If our products were found to be 
infringing the intellectual property rights of a third-party, we could be required to cease selling the infringing products, causing us to 
lose future sales revenue from such products and face substantial liabilities for patent infringement, in the form of payment for the 
innovator’s lost profits or a royalty on our sales of the infringing product. These damages may be significant and could materially 
adversely affect our business. Any litigation, regardless of the merits or eventual outcome, would be costly and time consuming and 
we could incur significant costs and/or a significant reduction in revenue in defending the action and from the resulting delays in 
manufacturing, marketing or selling any of our products subject to such claims. 

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee 
payment, and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or 
eliminated for noncompliance with these requirements. 

The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, 
fee payment and other similar provisions during the patent application process. Periodic maintenance fees on any issued patent are due 
to be paid to the USPTO and other patent agencies in several stages over the lifetime of the patent.  Although an inadvertent lapse can 
in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in 
which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of 
patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment of a patent application or lapse of a 
patent include failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize 
and submit formal documents. In any such event, our competitors might be able to enter the market, which would have a material 
adverse effect on our business. 

The terms of our patents may not be sufficient to effectively protect our drug candidates and business. 

In most countries in which we file patent applications, including the U.S., the term of an issued patent is twenty years from the 
earliest claimed filing date of a non-provisional patent application in the applicable country. With respect to any issued patents in the 
U.S., we may be entitled to obtain a patent term extension or extend the patent expiration date provided we meet the applicable 
requirements for obtaining such patent term extensions. Although such extensions may be available, the life of a patent and the 
protection it affords is by definition limited. Even if patents covering our drug candidates are obtained, we may be open to competition 
from other companies as well as generic medications once the patent life has expired for a drug. If patents are issued on our currently 
pending patent applications, the resulting patents will be expected to expire on dates ranging approximately from 2024 to 2040, 
excluding any potential patent term extension or adjustment. Upon the expiration of our issued patents, we will not be able to assert 
such patent rights against potential competitors and our business and results of operations may be adversely affected. 

In addition, the rights granted under any issued patents may not provide us with protection or competitive advantages against 

competitors with similar technology. Furthermore, our competitors may independently develop similar technologies. For these 
reasons, we may have competition for our technologies, platforms and product candidates. Moreover, because of the extensive time 
required for development, testing and regulatory review of a potential product, it is possible that a related patent may expire before 
any particular product candidate can be commercialized or that such patent will remain in force for only a short period following 
commercialization, thereby reducing any significant advantage of the patent. 

If we do not obtain additional protection under the Hatch-Waxman Amendments and similar legislation in other countries 
extending the terms of our patents, if issued, relating to our drug candidates, our business may be materially harmed. 

Depending upon the timing, duration and specifics of FDA regulatory approval for our drug candidates, one or more of our U.S. 

patents, if issued, may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration 
Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up 
to five years as compensation for patent term lost during drug development and the FDA regulatory review process. Patent term 
extensions, however, cannot extend the remaining term of a patent beyond a total of fourteen years from the date of drug approval by 
the FDA, and only one patent can be extended for a particular drug. 

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The application for patent term extension is subject to approval by the USPTO, in conjunction with the FDA. We may not be 
granted an extension due to, for example, failure to apply within applicable deadlines, failure to apply prior to expiration of relevant 
patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection 
afforded could be less than we request. If we are unable to obtain a patent term extension for a given patent or the term of any such 
extension is less than we request, the period during which we will have the right to exclusively market our drug will be shortened and 
our competitors may obtain earlier approval of competing drugs. As a result, our ability to generate revenues could be materially 
adversely affected. 

Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our drug candidates. 

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly 

patent rights. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity, and 
is therefore costly, time-consuming, and inherently uncertain. In addition, the U.S. has recently enacted and is currently implementing 
wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in 
certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard 
to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents 
once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing 
patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and 
patents that we might obtain in the future. For example, in Assoc. for Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme 
Court held that certain claims to naturally-occurring substances are not patentable. Although we do not believe that our issued patents 
or any patents that may issue from our pending patent applications directed to our drug candidates if issued in their currently pending 
forms, as well as patent rights licensed by us, will be found invalid based on this decision, we cannot predict how future decisions by 
the courts, the U.S. Congress or the USPTO may impact the value of our patent rights. There could be similar changes in the laws of 
foreign jurisdictions that may impact the value of our patent or our other intellectual property rights. 

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. We may 
also be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers. 

In addition to our issued patents and pending patent applications, we rely on trade secrets, including unpatented know-how, 
technology and other proprietary information, to maintain our competitive position and to protect our drug candidates. We seek to 
protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties that have access to 
them, such as our employees, corporate collaborators, outside scientific collaborators, sponsored researchers, contract manufacturers, 
consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our 
employees and consultants. These agreements provide that all confidential information concerning our business or financial affairs 
developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not 
disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions 
conceived by the individual, and which are related to our current or planned business or research and development or made during 
normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property. In many cases 
our confidentiality and other agreements with consultants, outside scientific collaborators, sponsored researchers and other advisors 
require them to assign to us or grant us licenses to inventions they invent as a result of the work or services they render under such 
agreements or grant us an option to negotiate a license to use such inventions. However, any of these parties may breach such 
agreements and disclose our proprietary information, and we may not be able to obtain adequate remedies for such breaches. 
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and 
the outcome is unpredictable. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we 
would have no right to prevent them from using that technology or information to compete with us and our competitive position would 
be harmed. 

Furthermore, many of our employees, including our senior management, were previously employed at other biotechnology or 
pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including each member of 
our senior management, executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous 
employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their 
work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade 
secrets or other proprietary information, of any such employee’s former employer. We are not aware of any threatened or pending 
claims related to these matters or concerning the agreements with our senior management, but litigation may be necessary in the future 
to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable 
intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in 
substantial costs and be a distraction to management. 

In addition, while we typically require our employees, consultants and contractors who may be involved in the development of 

intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an 
agreement with each party who in fact develops intellectual property that we regard as our own, which may result in claims by or 
against us related to the ownership of such intellectual property. If we fail in prosecuting or defending any such claims, in addition to 

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paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending 
against such claims, litigation could result in substantial costs and be a distraction to our management and scientific personnel. 
Further, to the extent that our employees, contractors, consultants, collaborators and advisors use intellectual property owned by others 
in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

We also seek to preserve the integrity and confidentiality of our proprietary technology and processes by maintaining physical 
security of our premises and physical and electronic security of our information technology systems. Although we have confidence in 
the security of our systems, security measures may be breached, and we may not have adequate remedies for any such breach. 

We may not be successful in obtaining or maintaining necessary rights for our development pipeline through acquisitions and in-
licenses. 

Because our programs may involve additional drug candidates that require the use of proprietary rights held by third parties, the 

growth of our business may depend in part on our ability to acquire and maintain licenses or other rights to use these proprietary 
rights. We may be unable to acquire or in-license any compositions, methods of use, or other third-party intellectual property rights 
from third parties that we identify. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a 
number of established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may 
consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and 
greater clinical development and commercialization capabilities. 

In addition, companies that perceive us to be a competitor may be unwilling to assign or license intellectual property rights to 

us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an 
appropriate return on our investment. If we are unable to successfully obtain rights to required third-party intellectual property rights, 
our business, financial condition and prospects for growth could suffer. 

If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or 
otherwise experience disruptions to our business relationships with our licensors, we could be required to pay monetary damages 
or could lose license rights that are important to our business. 

We have entered into license agreements with third parties providing us with rights under various third-party patents and patent 

applications, including the rights to prosecute patent applications and to enforce patents. Certain of these license agreements impose 
and, for a variety of purposes, we may enter into additional licensing and funding arrangements with third parties that also may 
impose diligence, development or commercialization timelines and milestone payment, royalty, insurance and other obligations on us. 
Certain of these license agreements provide us with the exclusive right to practice technologies in major markets including North 
America, South America, the EU, Australia, New Zealand, Eastern Europe, China, Taiwan, Hong Kong, Macau and parts of Southeast 
Asia, although the right to practice the technologies and any inventions arising out of such technologies outside of these territories 
may be reserved to the licensing company. In addition, under certain of our existing licensing agreements, we are obligated to pay 
royalties on net product sales of our drug candidates once commercialized, pay a percentage of sublicensing revenues, make other 
specified payments relating to our drug candidates or pay license maintenance and other fees. We also have diligence and clinical 
development obligations under certain of these agreements that we are required to satisfy. If we fail to comply with our obligations 
under our current or future license agreements, our counterparties may have the right to terminate these agreements, in which event we 
might not be able to develop, manufacture or market any drug or drug candidate that is covered by the licenses or we may face claims 
for monetary damages or other penalties under these agreements. Such an occurrence could diminish the value of these products and 
our company. Termination of the licenses provided in these agreements or reduction or elimination of our rights under these 
agreements may result in our having to negotiate new or reinstated agreements with less favorable terms or cause us to lose our rights 
under these agreements, including our rights to important intellectual property or technology. 

In particular, our ability to stop third parties from making, using, selling, offering to sell or importing any of our patented 
inventions, either directly or indirectly, will depend in part on our success in obtaining, defending, and enforcing patent claims that 
cover our technology, inventions and improvements. With respect to both licensed and company-owned intellectual property, we 
cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent 
applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the 
future will be commercially useful in protecting our platforms and product candidates and the methods used to manufacture those 
platforms and product candidates. Our issued patents and those that may issue in the future may be challenged, invalidated or 
circumvented, which could limit our ability to stop competitors from marketing related platforms or product candidates or limit the 
length of the term of patent protection that we may have for our technologies, platforms and product candidates. 

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If our licensing and sublicensing activities result in non-compliance with our licensing agreements, our business relationships 
with our licensing partners may suffer and we may be required to pay monetary damages or rescind or amend existing agreements 
which are important to our business. 

We have entered into agreements with third parties under which we have granted licenses to use certain of our patents and 
patent applications, including the rights to develop, seek regulatory approval for and sell products using our tirbanibulin ointments and 
KX2-361 products. We have also entered into similar agreements sublicensing the intellectual property for the Orascovery platform, 
which we have licensed from Hanmi. We have granted exclusive patent rights to certain of these partners and have granted them 
certain additional rights with respect to the intellectual property we have licensed to them. From time to time we may engage in other 
licensing transactions in which we acquire licenses to certain intellectual property or sublicense intellectual property rights. If we fail 
to comply with or are found to have violated the terms of any of our licenses, we may be required to rescind or amend our license 
agreements or pay damages to license counterparties or other rightsholders. This may also negatively impact our relationships with our 
licensing and sublicensing partners for our candidate platforms. For further information regarding the terms of our licenses, please see 
“Business—License and Collaboration Agreements”. 

Risks Related to Our Reliance on Third Parties 

We depend on our agreements with Hanmi to provide rights to the intellectual property relating to certain of our lead product 
candidates. Any termination or loss of significant rights under those agreements would adversely affect our development or 
commercialization of our lead product candidates. 

We have licensed the intellectual property rights related to encequidar, an integral part of our current product candidates, from 

Hanmi pursuant to two license agreements. If, for any reason, our license agreements are terminated or we otherwise lose those rights, 
it would adversely affect our business. Our license agreements with Hanmi impose on us obligations relating to exclusivity, territorial 
rights, development, commercialization, funding, payment, diligence, sublicensing, insurance, intellectual property protection and 
other matters. If we breach any material obligations, or use the intellectual property licensed to us in an unauthorized manner, we may 
be required to pay damages to Hanmi, and Hanmi may have the right to terminate our license, which could result in us being unable to 
develop, manufacture and sell our product candidates that incorporate encequidar. 

In addition, under our 2013 license agreement with Hanmi, we have granted Hanmi a one-time right of first negotiation that, at 

Hanmi’s discretion, requires us to negotiate in good faith the sale of our rights in Oral Paclitaxel and Oral Irinotecan under such 
agreement to Hanmi at a purchase price determined by an internationally-recognized investment banking firm with an office in Hong 
Kong at any time prior to the earlier of (1) our first commercial sale of products using such technology or (2) receipt by Hanmi of 
written notice from our company of the sublicense of the rights in an applicable product to a third party. If Hanmi exercises this right 
of first negotiation and we reach an agreement to sell our rights under that licensing agreement, our ability to continue to develop 
certain of our product candidates would be significantly impaired and would adversely affect our business and results of operations. 

Each of our license agreements with Hanmi expires on the earlier of (1) expiration of the last of Hanmi’s patent rights licensed 

under the agreement or (2) invalidation of Hanmi’s patent rights which are the subject of the agreement, provided that the term will 
automatically be extended for consecutive one year periods unless either party gives notice to the other at least ninety days prior to 
expiration of the patent rights licensed under the agreement or before the then current annual expiration date of the agreement. The 
patent rights licensed to us under the agreements with Hanmi have expiry dates ranging from 2023 to 2033, unless the terms of such 
licensed patents are extended in accordance with applicable laws and regulations. Subject to certain conditions, Hanmi may also 
terminate the license agreements if we fail to comply with certain development milestones set out in each of the agreements. The 
agreements also contain customary termination rights for either party, such as in the event of a breach of the agreement or the 
initiation of bankruptcy proceedings by the other party or by mutual agreement. For further information regarding the license terms, 
right of first negotiation and termination provisions of the Hanmi in-license agreements, please see “Business—License and 
Collaboration Agreements—In-Licenses —Hanmi Licensing Agreements.”  

We may rely on third parties to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry 
out their contractual duties, meet expected deadlines, perform satisfactorily or operate in compliance with laws and regulations, we 
may not be able to obtain regulatory approval for or commercialize our drug candidates and our business could be substantially 
harmed. 

We have relied upon and may, in the future, rely upon third-party CROs to monitor and manage data for our ongoing preclinical 

and clinical programs. We rely on these parties for execution of our preclinical studies and clinical trials, and control only certain 
aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the 
applicable protocol, legal, and regulatory requirements and scientific standards, and our reliance on the CROs does not relieve us of 
our regulatory responsibilities. In addition, as a result of our acquisition of CIDAL, our preclinical and clinical programs will largely 
be performed within the Company and we will be responsible for conducting clinical trials and complying with applicable laws and 
regulations.

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We and our CROs are required to comply with GCPs, which are regulations and guidelines enforced by the FDA, NMPA and 
other regulatory authorities for all of our drugs in clinical development. Regulatory authorities enforce these GCPs through periodic 
inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCPs, the 
clinical data generated in our clinical trials may be deemed unreliable and the FDA, NMPA or regulatory authorities may require us to 
perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given 
regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, 
our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations 
may require us to repeat clinical trials, which would delay the regulatory approval process. 

If any of our relationships with these third-party CROs terminate, or we are unable to successfully integrate CIDAL’s business 

into ours, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. In 
addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot 
control whether or not they devote sufficient time and resources to our ongoing clinical, non-clinical and preclinical programs. In the 
event that any of our foreign CROs are impacted by political, social or financial instability, they may be unable to maintain production 
capacity or compliance with regulatory requirements. If CROs do not successfully carry out their contractual duties or obligations or 
meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to 
the failure to adhere to our clinical protocols, regulatory requirements, environmental, health and safety laws and regulations, or for 
other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or 
successfully commercialize our drug candidates. As a result, our results of operations and the commercial prospects for our drug 
candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. 

Our total revenue is highly dependent on a limited number of API customers and pharmaceutical wholesalers, and the loss of, or 
any significant decrease in business from, any one or more of our major API customers or pharmaceutical wholesalers could 
adversely affect our financial condition and results of operations. 

We have derived a significant portion of our revenue from a limited number of customers, as is typical in the pharmaceutical 
industry. During the year ended December 31, 2017, we generated 28% of our total revenue from our two largest API customers, Intas 
Pharmaceuticals and Ebewe Pharmaceuticals, and generated 28% of our total revenue from the three largest wholesalers in the U.S. 
market, Amerisource, Cardinal Health, and McKesson (15%, 7%, and 6%, respectively). During the year ended December 31, 2018, 
we generated 10% of our total revenue from those API customers and generated 30% of our total revenue from the three largest 
wholesalers in the U.S. market, Amerisource, Cardinal Health, and McKesson (12%, 9%, and 9%, respectively). During the year 
ended December 31, 2019, we generated 8% of our total revenue from those API customers and generated 45% of our total revenue 
from the three largest wholesalers in the U.S. market, Amerisource, Cardinal Health, and McKesson (16%, 14%, and 15%, 
respectively).

There are a number of factors that could cause us to lose major API customers. We do not enter into long-term sales contracts 

with customers but sell API to them based on short-term purchase orders. Accordingly, these customers may choose to use other 
suppliers with little or no notice, based upon considerations of price, quality, shipping time, competitive or other reasons. In addition, 
our API customers use the API to manufacture drugs, and they are subject to regulation and oversight by the FDA and other relevant 
regulatory agencies. If for any reason, any such customer violates an FDA regulation that results in their being prohibited from 
manufacturing drugs, they would no longer purchase API from us. Such sanctions or regulatory action against drug manufacturers 
could happen without notice, and our revenue stream could be adversely affected without notice. Because commercial API production 
at our plant in Chongqing, China are currently suspended, we may not be able to manufacture the API our customers require in the 
future. If any of our customers finds its own alternate supplier of API, we may lose our API customers and be unable to generate 
revenue from API sales.

If we are unable to maintain our business relationships with these major API customers and pharmaceutical wholesalers on 
commercially acceptable terms, it could have a material adverse effect on our financial condition and results of operations. Even if we 
are able to maintain our relationships with customers, a change in the mix of products those customers purchase and which we are able 
to produce may affect our gross margin and results of operations.

Additionally, Polymed, our wholly owned subsidiary, prior to the suspension, sold API to third parties for use in those third 

parties’ products, which may be manufactured in cGMP facilities. The decrease in orders by Polymed’s customers has impacted 
Polymed’s revenue and, as a result, our overall financial condition. 

If our Global Supply Chain Platform is insufficient, we may rely on third parties to manufacture at least a portion of our drug 
candidate supplies, and for at least a portion of the manufacturing process of our drug candidates, if approved. Our business could 
be harmed if those third parties fail to provide us with sufficient quantities of product or fail to do so at acceptable quality levels or 
prices. 

We partially rely on outside vendors to manufacture supplies and process our drug candidates. We have not yet begun to 
manufacture or process our drug candidates on a commercial scale and may not be able to do so for any of our drug candidates. 

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We have limited experience in managing the manufacturing process, and our process may be more difficult or expensive than 

the approaches currently in use. 

Although we do intend to further develop our manufacturing facilities, and those leased to us under our public-private 
partnerships, we may also use third parties as part of our manufacturing process. Our reliance on third-party manufacturers may 
expose us to the following risks: 

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•

•

•

•

•

•

•

•

•

we may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is 
limited and the FDA, NMPA or other regulatory authorities must approve any manufacturers. This approval would require 
new testing and cGMP-compliance inspections by FDA, NMPA or other regulatory authorities. In addition, a new 
manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our drugs; 

our manufacturers may have little or no experience with manufacturing our drug candidates and, therefore, may 
experience quality issues or require a significant amount of support from us in order to implement and maintain the 
infrastructure and processes required to manufacture our drug candidates; 

our third-party manufacturers might be unable to timely manufacture our drug or produce the quantity and quality 
required to meet our clinical and commercial needs, if any; 

contract manufacturers may not be able to execute our manufacturing procedures and other logistical support requirements 
appropriately; 

our future contract manufacturers may not perform as agreed, may not devote sufficient resources to our drugs, or may not 
remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, 
store and distribute our drugs; 

we may not own, or may have to share, the intellectual property rights to any improvements made by our third-party 
manufacturers in the manufacturing process for our drugs; 

our third-party manufacturers could breach or terminate their agreement with us; 

raw materials and components used in the manufacturing process, particularly those for which we have no other source or 
supplier, may not be available or may not be suitable or acceptable for use due to material or component defects; 

our contract manufacturers and critical reagent suppliers may be subject to inclement weather, as well as natural or man-
made disasters and 

our contract manufacturers may have unacceptable or inconsistent product quality success rates and yields. 

Each of these risks could delay or prevent the completion of our clinical trials or the approval of any of our drug candidates by 
the FDA, NMPA or other regulatory authorities, result in higher costs or adversely impact commercialization of our drug candidates. 
In addition, we will rely on third parties to perform certain specification tests on our drug candidates prior to delivery to patients. If 
these tests are not conducted appropriately and test data are not reliable, patients could be put at risk of serious harm and the FDA, 
NMPA or other regulatory authorities could place significant restrictions on our company until deficiencies are remedied. 

The manufacture of drug and biological products is complex and requires significant expertise and capital investment, including 

the development of advanced manufacturing techniques and process controls. 

Currently, raw materials used in our manufacturing activities, including the pacific yew used in many of the API products we 

manufacture, are supplied by multiple suppliers. We have agreements for the supply of such raw materials with manufacturers or 
suppliers that we believe have sufficient capacity to meet our demands. In addition, we believe that adequate alternative sources for 
such supplies exist. However, there is a risk that, if supplies are interrupted, it would materially harm our business. 

Manufacturers of drug and biological products often encounter difficulties in production, particularly in scaling up or out, 
validating the production process, and assuring high reliability of the manufacturing process (including the absence of contamination). 
These problems include logistics and shipping, difficulties with production costs and yields, quality control, including stability of the 
product, product testing, operator error, availability of qualified personnel, as well as compliance with strictly enforced federal, state 
and non-U.S. regulations. Furthermore, if contaminants are discovered in our supply of our drug candidates or in the manufacturing 
facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the 
contamination. We cannot assure you that any stability failures or other issues relating to the manufacture of our drug candidates will 
not occur in the future. Additionally, our manufacturers may experience manufacturing difficulties due to resource constraints or as a 
result of labor disputes or unstable political environments. If our manufacturers were to encounter any of these difficulties, or 
otherwise fail to comply with their contractual obligations, our ability to provide our drug candidate to patients in clinical trials would 
be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase 
the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to begin new clinical 
trials at additional expense or terminate clinical trials completely. 

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If third-party manufacturers fail to comply with pharmaceutical manufacturing regulations, our financial results and financial 
condition will be adversely affected. 

Before a third party can begin commercial manufacture of our drug candidates and potential drugs, contract manufacturers are 

subject to regulatory inspections of their manufacturing facilities, processes and quality systems. Due to the complexity of the 
processes used to manufacture drug and biological products and our drug candidates, any potential third-party manufacturer may be 
unable to initially pass federal, state or international regulatory inspections in a cost-effective manner in order for us to obtain 
regulatory approval of our drug candidates. If our contract manufacturers do not pass their inspections by the FDA, NMPA or other 
regulatory authorities, our commercial supply of drug product or substance will be significantly delayed and may result in significant 
additional costs, including the delay or denial of any marketing application for our drug candidates. In addition, drug and biological 
manufacturing facilities are continuously subject to inspection by the FDA, NMPA and other regulatory authorities, before and after 
drug approval, and must comply with cGMPs. Our contract manufacturers may encounter difficulties in achieving quality control and 
quality assurance and may experience shortages in qualified personnel. In addition, contract manufacturers’ failure to achieve and 
maintain high manufacturing standards in accordance with applicable regulatory requirements, or the incidence of manufacturing 
errors, could result in patient injury, product liability claims, product shortages, product recalls or withdrawals, delays or failures in 
product testing or delivery, cost overruns or other problems that could seriously harm our business, reputation or corporate image. If a 
third-party manufacturer with whom we contract is unable to comply with manufacturing regulations, we may also be subject to fines, 
unanticipated compliance expenses, recall or seizure of our drugs, product liability claims, total or partial suspension of production 
and/or enforcement actions, including injunctions and criminal or civil prosecution. These possible sanctions could materially 
adversely affect our financial results and financial condition. 

Furthermore, changes in the manufacturing process or procedure, including a change in the location where the product is 
manufactured or a change of a third-party manufacturer, could require prior review by the FDA, NMPA or other regulatory authorities 
and/or approval of the manufacturing process and procedures in accordance with the FDA or NMPA’s regulations, or comparable 
requirements. This review may be costly and time consuming and could delay or prevent the launch of a product. The new facility will 
also be subject to pre-approval inspection. In addition, we have to demonstrate that the product made at the new facility is equivalent 
to the product made at the former facility by physical and chemical methods, which are costly and time consuming. It is also possible 
that the FDA, NMPA or other regulatory authorities may require clinical testing as a way to prove equivalency, which would result in 
additional costs and delay. 

We have entered into collaborations and may form or seek collaborations or strategic alliances or enter into additional licensing 
arrangements in the future, and we may not realize the benefits of such alliances or licensing arrangements. 

We have partnered with companies such as Hanmi, Almirall, Xiangxue, XLifeSc and Gland and may form or seek strategic 
alliances, create joint ventures or collaborations, or enter into additional licensing arrangements with third parties that we believe will 
complement or augment our development and commercialization efforts with respect to our drug candidates and any future drug 
candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges, increase our near 
and long-term expenditures, issue securities that dilute our existing stockholders, or disrupt our management and business. For 
example, pursuant to our agreement with Almirall, if Almirall does not find our Phase 3 results of tirbanibulin ointments satisfactory, 
it has the right to request repayment of the milestone payment we received in the second quarter of 2019, and our agreement may be 
terminated. If this license agreement is terminated, we will have the right to pursue commercialization of tirbanibulin ointments on our 
own, which would require us to further invest in the product and fund its commercialization, if approved.

In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-
consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative 
arrangements for our drug candidates because they may be deemed to be at too early of a stage of development for collaborative effort 
and third parties may not view our drug candidates as having the requisite potential to demonstrate safety and efficacy. If and when we 
collaborate with a third party for development and commercialization of a drug candidate, we can expect to relinquish some or all of 
the control over the future success of that drug candidate to the third party. 

Further, collaborations involving our drug candidates are subject to numerous risks, which may include the following: 

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collaborators have significant discretion in determining the efforts and resources that they will apply to a collaboration; 

collaborators may not pursue development and commercialization of our drug candidates or may elect not to continue or 
renew development or commercialization programs based on clinical trial results, changes in their strategic focus due to 
the acquisition of competitive drugs, availability of funding or other external factors, such as a business combination that 
diverts resources or creates competing priorities; 

collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial, abandon a drug 
candidate, repeat or conduct new clinical trials or require a new formulation of a drug candidate for clinical testing; 

collaborators could independently develop, or develop with third parties, drugs that compete directly or indirectly with our 
drugs or drug candidates; 

a collaborator with marketing and distribution rights to one or more drugs may not commit sufficient resources to their 
marketing and distribution; 

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•

•

•

•

collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or 
proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our 
intellectual property or proprietary information or expose us to potential liability; 

disputes may arise between us and a collaborator that cause the delay or termination of the research, development or 
commercialization of our drug candidates, or that result in costly litigation or arbitration that diverts management attention 
and resources; 

collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further 
development or commercialization of the applicable drug candidates; and 

collaborators may own or co-own intellectual property covering our drugs that results from our collaborating with them, 
and in such cases, we would not have the exclusive right to commercialize such intellectual property. 

As a result, if we enter into collaboration agreements and strategic partnerships or license our drugs, we may not be able to 
realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company 
culture, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a 
strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. If we are unable to 
reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development 
of a drug candidate, reduce or delay its development program or one or more of our other development programs, delay its potential 
commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or 
commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our 
own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. 
If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and 
commercialization activities, we may not be able to further develop our drug candidates or bring them to market and generate product 
sales revenue, which would harm our business prospects, financial condition and results of operations. 

We have engaged and will continue to rely on a single vendor to manage our order to cash cycle and our distribution activities in 
the U.S., and the loss or disruption of service from this vendor could adversely affect our operations and financial condition. 

Our U.S. customer management, order processing, invoicing, cash application, chargeback and rebate processing and 

distribution and logistics activities are managed by Eversana Life Science Services (“Eversana”), a managed services provider with a 
focus on life sciences companies. If we were to lose the availability of Eversana’s services due to a dispute, termination of or inability 
to renew the contract, or other factors such as fire, natural disaster or other disruption, such loss could have a material adverse effect 
on our operations. Although multiple providers of such services exist, there can be no assurance that we could secure another source to 
handle these transactions on acceptable terms or otherwise to our specifications in the event of a disruption of services at operational 
centers. 

Risks Related to Our Industry, Business and Operation 

We are dependent on our key personnel, and if we are not successful in attracting and retaining qualified personnel, we may not 
be able to successfully implement our business strategy. Additionally, certain members of our leadership may engage in other 
business ventures that may have interests in conflict with ours. 

We are highly dependent on Dr. Lau, our Chief Executive Officer, Dr. Kwan, our Chief Medical Officer and the other principal 

members of our management and scientific teams. We do not maintain “key person” insurance for any of our executives or other 
employees. The loss of the services of any of these persons could impede the achievement of our research, development and 
commercialization objectives. 

To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock 

option grants that vest over time. The value to employees of these equity grants that vest over time may be significantly affected by 
changes in the price of our common stock that are beyond our control and may at any time be insufficient to counteract more lucrative 
offers from other companies. Although we have employment agreements with our key employees, any of our employees could leave 
our employment at any time, with or without notice. 

Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel or consultants will also 

be critical to our success. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in 
formulating our discovery and preclinical development and commercialization strategy. The loss of the services of our executive 
officers or other key employees and consultants could impede the achievement of our research, development and commercialization 
objectives and seriously harm our ability to successfully implement our business strategy. 

Furthermore, replacing executive officers and key employees or consultants may be difficult and may take an extended period of 

time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully 

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develop, gain regulatory approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be 
unable to hire, train, retain or motivate these key personnel or consultants on acceptable terms given the competition among numerous 
pharmaceutical and biotechnology companies for similar personnel. 

We may choose to hire part-time employees or use consultants. As a result, certain of our employees, officers, directors and 

consultants may not devote all of their time to our business, and may from time to time serve as officers, directors and consultants of 
other companies. These other companies may have interests in conflict with ours. For instance, Dr. Johnson Lau, who serves as our 
Chief Executive Officer and Chairman, Dr. Manson Fok, who serves on our board of directors, are also directors of Avalon, a 
stockholder of ours. Dr. Lau also serves as the Chief Executive Officer of Axis, a joint venture that we majority own.

We also face competition for the hiring of scientific and clinical personnel from universities and research institutions. Our 
consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory 
contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality 
personnel, our ability to pursue our growth strategy will be limited. 

We are substantially dependent on our public-private partnerships and if we or our counterparties fail to meet the obligations of 
those agreements and we lose the benefits of those partnerships, it would materially impact our development, operations and 
prospects. 

Our long-term public-private partnerships with governments and government agencies, including in certain emerging markets, 
include agreements to build and/or maintain manufacturing facilities for us. For example, we entered into an agreement with FSMC, 
whereby FSMC agreed to fund the costs of construction of a new manufacturing facility in Dunkirk, New York. FSMC is responsible 
for the costs of construction and of all equipment for the facility, up to an amount not to exceed around $208 million, which includes 
approximately $8 million in additional funds not used under the prior $25 million grant to construct our North American headquarters 
and formulation lab in Buffalo, New York, and shall retain ownership of the Dunkirk facility and the equipment. To the extent the 
costs of constructing the Dunkirk facility exceed approximately $208 million, we will be responsible for those costs. We are entitled to 
lease the facility and all equipment at a rate of $1.00 per year for an initial 10-year term, and for the same rate if we elect to extend the 
lease for an additional 10-year term. We are responsible for all operating costs and expenses for the facility. In exchange, we have 
committed to spending $1.52 billion on operational expenses in the Dunkirk facility in our first 10-year term in the facility, and an 
additional $1.5 billion on operational expenses if we elect to extend the lease for a second 10-year term. We have also committed to 
hiring 450 permanent employees within the first 5 years at the Dunkirk facility. In addition, in July 2017, we entered into a 20-year 
payment in-lieu of tax agreement with the CCIDA for the construction of our Dunkirk facility, valued at approximately $9.1 million. 
We have also entered into similar arrangements with FSMC relating to our headquarters, and CQ relating to a plant in Chongqing, 
China, under which we have committed to achieving certain operating, revenue and tax generation milestones. If we are unable to 
comply with our obligations under these arrangements, including the milestones we have committed to achieve, we may lose access to 
the properties covered by such arrangements which could disrupt our operations and manufacturing activities, cause us to divert 
resources to finding alternative facilities, which would not have any subsidies, and would have a significant impact on our operations 
and financial performance. We may also be subject to lawsuits or claims for damages against us if we are unable to comply with our 
obligations under these arrangements. For example, our potential liability in connection with a failure to comply with the New York 
State partnership agreements could be as high as $225 million, depending on the amount of funding ESD had contributed to the 
Dunkirk project at the time of the claim. 

Furthermore, there is no guarantee that the counterparties to our public-private partnerships will comply with the terms of the 

agreements, including that their ability to fund their capital commitments under the agreements may be subject to their ability to raise 
additional capital and that construction timetables may not be met, nor is there guarantee that the successors to such counterparties 
will continue to comply with terms of the agreements, regardless of existence of such government stipulations as a guideline released 
on November 4, 2016 by the State Council of China, which provides that, among others governments and relevant departments at all 
levels shall strictly keep policy commitments lawfully made to society and administrative counterparties, shall carefully perform all 
the contracts lawfully entered into with investment subjects in activities like attraction of investment and public-private partnership, 
shall not breach contracts with such excuses as government transition and replacement of leaders, and shall bear legal and economic 
liability in event of their infringements and contract breaches. If our public-private partnership counterparties or their successors fail to 
comply with their obligations under these arrangements, our development programs and prospects will be materially adversely 
affected. Public-private partnerships are also subject to risks associated with government and government agency counterparties, 
including risks related to government relations compliance, sovereign immunity, shifts in the political environment, changing 
economic and legal conditions and social dynamics. 

We will need to continue to increase the size and capabilities of our organization, and we may experience difficulties in managing 
our growth. 

As of December 31, 2019, we had 581 employees and consultants and most of our employees are full-time. As our development 

and commercialization plans and strategies develop, and as we continue to operate as a public company, we must add a significant 

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number of additional managerial, operational, sales, marketing, financial and other personnel. Future growth will impose significant 
added responsibilities on members of management, including: 

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identifying, recruiting, integrating, maintaining and motivating additional employees; 

managing our internal development efforts effectively, including the clinical and FDA or other comparable authority 
review process for our drug candidates, while complying with our contractual obligations to contractors and other third 
parties; and 

improving our operational, financial and management controls, reporting systems and procedures. 

Our future financial performance and our ability to commercialize our drug candidates will depend, in part, on our ability to 

effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away 
from day-to-day activities in order to devote a substantial amount of time to managing these growth activities. In addition, we expect 
to incur additional costs in hiring, training and retaining such additional personnel. 

If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and 

contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our drug 
candidates and, accordingly, may not achieve our research, development and commercialization goals. 

If we fail to maintain effective internal control over financial reporting, we may not be able to accurately report our consolidated 
financial results. 

We cannot assure you that there will not be material weaknesses and significant deficiencies that our independent registered 
public accounting firm or we will identify in the future. Under standards established by the Public Company Accounting Oversight 
Board, a deficiency in internal control over financial reporting exists when the design or operation of a control does not allow 
management or personnel, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely 
basis. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is 
a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented 
or detected and corrected on a timely basis. As a public company, we also need to establish and maintain effective disclosure and 
financial controls and make changes in our corporate governance practices including our board and committee practices. If we identify 
such issues or if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected, and we 
may be unable to maintain compliance with applicable listing requirements. 

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud. 

Upon completion of our initial public offering, we became subject to the periodic reporting requirements of the Exchange Act. 

Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we 
file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and 
reported within the time periods specified in the rules and forms of the SEC. 

We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and 

operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent 
limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple 
error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more 
people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, 
misstatements due to error or fraud may occur and not be detected, which would cause us to be unable to produce accurate financial 
statements and may adversely affect our business.

Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other 
improper activities, including noncompliance with regulatory standards and requirements. 

We are exposed to the risk of fraud, misconduct or other illegal activity by our executive officers, employees, independent 

contractors, consultants, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and 
negligent conduct that fails to: comply with the laws of the U.S., including regulations of the FDA and other similar non-U.S. 
regulatory authorities; provide true, complete and accurate information to the FDA and other similar non-U.S. regulatory authorities; 
comply with manufacturing standards we have established; comply with healthcare fraud and abuse and privacy laws in the U.S. and 
similar non-U.S. fraudulent misconduct laws; or report financial information or data accurately or to disclose unauthorized activities to 
us. If we obtain FDA approval of any of our drug candidates and begin commercializing those drugs in the U.S., our potential 
exposure under U.S. laws will increase significantly and our costs associated with compliance with such laws are also likely to 
increase. These laws may impact, among other things, our current activities with principal investigators and research patients, as well 
as proposed and future sales, marketing and education programs. In particular, the promotion, sales and marketing of healthcare items 
and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent 

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fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, 
discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other business 
arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient 
recruitment for clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always 
possible to identify and deter misconduct by employees and other parties, and the precautions we take to detect and prevent this 
activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental 
investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are 
instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant 
impact on our business, including the imposition of significant fines or other sanctions. 

We may have conflicts of interest with our affiliates and related parties, and in the past,  we have engaged in transactions and 
entered into agreements with affiliates that were not negotiated at arms’ length.

We have engaged, and may in the future engage, in transactions with affiliates and other related parties. These transactions may 
not have been, and may not be, on terms as favorable to us as they could have been if obtained from non-affiliated persons. While an 
effort has been made and will continue to be made to obtain services from affiliated persons and other related parties at rates and on 
terms as favorable as would be charged by others, there will always be an inherent conflict of interest between our interests and those 
of our affiliates and related parties. Our affiliates may economically benefit from our arrangements with related parties. If we engage 
in related party transactions on unfavorable terms, our operating results will be negatively impacted.

If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our stockholders, 
cause us to incur debt or assume contingent liabilities, and subject us to other risks. 

We may evaluate various acquisitions and strategic partnerships, including licensing or acquiring complementary products, 

intellectual property rights, technologies or businesses. Any potential acquisition or strategic partnership may entail numerous risks, 
including: 

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increased operating expenses and cash requirements; 

assimilation of operations, intellectual property and products of an acquired company, including difficulties associated 
with integrating new personnel; 

integrating global operations and conducting our business in multiple geographic areas, each with its own legal system 
and regulations;

the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a 
strategic merger or acquisition; 

retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business 
relationships; 

risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their 
existing drugs or drug candidates and regulatory approvals and 

our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in 
undertaking the acquisition or even to offset the associated acquisition and maintenance costs. 

In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time 

expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to 
locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products 
that may be important to the development of our business. 

Our internal computer systems, or those used by our CROs, collaboration partners, third-party service providers or other 
contractors or consultants, may fail or suffer security breaches. 

Despite the implementation of cybersecurity measures, our information technology and Internet based systems, including those 

of our current and future CROs, collaboration partners, third-party service providers and other contractors and consultants, are 
vulnerable to damage, interruption, or failure from computer viruses, unauthorized access, intrusion, and other cybersecurity incidents. 
This could result in the exposure of sensitive data including the loss of trade secrets, intellectual property, personal identifiable or 
sensitive information of employees, customers, partners, clinical trial patients and others, leading to a material disruption of our 
development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials 
could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, 
we partially rely on our third-party research institution collaborators for research and development of our drug candidates and other 
third parties for the manufacture of our drug candidates and to conduct clinical trials, and similar cybersecurity incidents relating to 
their computer systems could also have a material adverse effect on our business. Certain data security breaches must be reported to 
affected individuals and the government, and in some cases to the media, under provisions of HIPAA, other U.S. federal and state law, 
and requirements of non-U.S. jurisdictions, and financial penalties may also apply. To the extent that any disruption or security breach 

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were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary 
information, we could incur liability and the further development and commercialization of our drug candidates could be delayed.  

We are aware of a security breach that occurred in March 2017. That incident occurred when the credentials of an approved 
consultant were compromised, and the consultant’s credentials were used to access the remote desktop server and active directory 
server of our wholly owned subsidiary APS. Upon discovery of the breach, we immediately took steps to void the compromised 
credentials and reset all credentials having access to APS’ systems. These particular APS information systems are independent of ours 
and did not contain any drug candidate, clinical trial or patient-specific data. However, information stored on APS’ systems may have 
been vulnerable during the intrusion. To help mitigate future incidents, we have put in place enhanced security measures required for 
access by consultants. Notwithstanding such measures, we cannot be certain that no future security breaches will occur or that future 
breaches will not result in a material disruption of our development programs and our business operations. 

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses. 

Our operations, and those of our third-party research institution collaborators, CROs, suppliers and other contractors and 
consultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, 
typhoons, fires, extreme weather conditions, medical epidemics, acts of war or terrorism, and other natural or man-made disasters or 
business interruptions, for which we are predominantly self-insured. In addition, we partially rely on our third-party research 
collaborators for conducting research and development of our drug candidates, and they may be affected by government shutdowns or 
withdrawn funding. The occurrence of any of these business disruptions could seriously harm our operations and financial condition 
and increase our costs and expenses. Our ability to obtain clinical supplies of our drug candidates could be disrupted if the operations 
of these suppliers are affected by a man-made or natural disaster or other business interruption. Damage or extended periods of 
interruption to our corporate, development or research facilities due to fire, natural disaster, power loss, communications failure, 
unauthorized entry or other events could cause us to cease or delay development of some or all of our drug candidates. Although we 
maintain property damage and business interruption insurance coverage on these facilities, our insurance might not cover all losses 
under such circumstances and our business may be seriously harmed by such delays and interruption. 

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit 
commercialization of our drug candidates or our 503B products. 

We face an inherent risk of product liability as a result of the clinical testing of our drug candidates and will face an even greater 

risk if we commercialize any of our clinical candidates. For example, we may be sued if our drug candidates that we plan to 
manufacture, or our 503B products that we currently manufacture or plan to manufacture cause or are perceived to cause injury or are 
found to be otherwise unsuitable during clinical testing, as applicable, manufacturing, marketing or sale. Any such product liability 
claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the drug, 
negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot 
successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit 
commercialization of our drug candidates. Even successful defense would require significant financial and management resources. 
Regardless of the merits or eventual outcome, liability claims may result in: 

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decreased demand for our drugs; 

injury to our reputation; 

withdrawal of clinical trial participants and inability to continue clinical trials; 

initiation of investigations by regulators; 

costs to defend the related litigation; 

a diversion of management’s time and our resources; 

substantial monetary awards to trial participants or patients; 

product recalls, withdrawals or labeling, marketing or promotional restrictions; 

loss of revenue; 

exhaustion of any available insurance and our capital resources; 

the inability to commercialize any drug candidate; and 

a decline in the price of our common stock. 

Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability 

claims could prevent or inhibit the commercialization of drugs we develop, alone or with collaborators. Although we currently carry 
clinical trial insurance, which we believe to be adequate for our current operations, the amount of such insurance coverage may not be 

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adequate now, or in the future, and we may be unable to maintain such insurance, or we may not be able to obtain additional or 
replacement insurance at a reasonable cost, if at all. Our insurance policies may also have various exclusions, and we may be subject 
to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a 
settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, 
sufficient capital to pay such amounts. Even if our agreements with any future corporate collaborators entitle us to indemnification 
against losses, such indemnification may not be available or adequate should any claim arise. 

Additionally, we may be sued if the products that we commercialize, market or distribute for our partners cause or are perceived 

to cause injury or are found to be otherwise unsuitable, and may result in: 

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decreased demand for those products; 

damage to our reputation; 

costs incurred related to product recalls; 

limiting our opportunities to enter into future commercial partnership; and 

a decline in the price of our common stock. 

We have limited insurance coverage, and any claims beyond our insurance coverage may result in our incurring substantial costs 
and a diversion of resources. 

We maintain property insurance policies covering physical damage to, or loss of, our buildings and their improvements, 
equipment, office furniture and inventory. We hold employer’s liability insurance generally covering death or work-related injury of 
employees. We hold public liability insurance covering certain incidents involving third parties that occur on or in the premises of the 
company. We hold directors and officers’ liability insurance and business interruption insurance. We do not maintain key-man life 
insurance on any of our senior management or key personnel. Our insurance coverage may be insufficient to cover any claim for 
product liability, damage to our fixed assets or employee injuries. Any liability or damage to, or caused by, our facilities or our 
personnel beyond our insurance coverage may result in our incurring substantial costs and a diversion of resources. 

We may increasingly become a target for public scrutiny, including complaints to regulatory agencies, negative media coverage, 
including social media and malicious reports, all of which could severely damage our reputation and materially and adversely 
affect our business and prospects. 

We focus on the development of drugs used in the treatment of cancers, and such drugs may be the subject of regulatory, 
watchdog and media scrutiny and coverage, which also creates the possibility of heightened attention from the public, the media and 
our participants. In addition, members of our management and board include high-profile public figures who may be the subject of 
media and public scrutiny and attention. From time to time, these objections or allegations, regardless of their veracity, may result in 
public protests or negative publicity, which could result in government inquiry or harm our reputation. Corporate transactions we or 
related parties undertake may also subject us to increased media exposure and public scrutiny. There is no assurance that we would not 
become a target for public scrutiny in the future or such scrutiny and public exposure would not severely damage our reputation as 
well as our business and prospects. 

In addition, our directors and management have been in the past, and may continue to be, subject to scrutiny by the media and 

the public regarding their activities in and outside our company, which may result in unverified, inaccurate or misleading information 
about them being reported by the press. Negative publicity about our directors or management, even if untrue or inaccurate, may harm 
our reputation. 

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited. 

We have incurred net operating losses (”NOLs”) for U.S. federal income tax purposes. Unused NOLs will carry forward to 
offset future taxable income, if any, until such unused NOLs expire (if ever). NOLs generated after December 31, 2017 are not subject 
to expiration, but the yearly utilization of such NOLs is limited to 80 percent of taxable income. Under Section 382 of the Internal 
Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an ownership change (generally defined as a greater than 
50 percentage points change (by value) in the equity ownership of one or more stockholders or groups of stockholders who own at 
least 5% of a corporation’s stock over any three-year period), the corporation’s ability to use its pre-change NOLs and other pre-
change tax attributes to offset its post-change income may be limited. We believe that we have experienced at least one ownership 
change in the past and may experience one in the future, which may affect our ability to utilize our NOLs. As of December 31, 2019, 
we had federal NOLs of approximately $184.8 million that could be limited by our past and any future ownership change, which could 
have an adverse effect on our future results of operations. Similar limitations will apply to our ability to carry forward any unused tax 
credits to offset future taxable income.

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Our business, financial condition and stock price may be adversely affected by volatile global markets and economic conditions. 

Our business and operating results could be affected by global economic conditions. When global economic conditions 
deteriorate or economic uncertainty continues, customers and potential customers may delay or cancellation of plans to purchase our 
products, governments may reduce healthcare expenditures, and other payors may reduce their reimbursement coverage or 
reimbursement rates. This uncertainty contributes to volatile global markets generally and may have a negative impact on the market 
value of our common stock. Our sensitivity to economic cycles and any related fluctuations in the businesses of our customers or 
potential customers could have a material adverse impact on our business and financial results. Although we are uncertain about the 
extent to which global financial market disruptions or a slowdown of the U.S. or Chinese economy would impact our business in the 
long term, there is a risk that our business, results of operations and prospects would be materially and adversely affected by any 
global economic downturn or the slowdown of the U.S. or Chinese economy. 

If our manufacturing facilities are damaged or destroyed or production at such facilities is otherwise interrupted, our business and 
prospects would be negatively affected. 

If our manufacturing facilities or the equipment in them is damaged or destroyed, we may not be able to quickly or 

inexpensively replace our manufacturing capacity or replace it at all. In the event of a temporary or protracted loss of the facilities or 
equipment, we might not be able to transfer manufacturing to a third party. Even if we could transfer manufacturing to a third party, 
the shift would likely be expensive and time-consuming, particularly since the new facility would need to comply with the necessary 
regulatory requirements and we would need FDA, NMPA or and other comparable regulatory agency approval before selling any 
drugs manufactured at that facility. Such an event could delay our clinical trials or reduce our product sales if and when we are able to 
successfully commercialize one or more of our drug candidates. 

Any interruption in manufacturing operations at our manufacturing facilities could result in our inability to satisfy the demands 

of our clinical trials or commercialization. A number of factors could cause interruptions, including: 

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the continued suspension of our commercial production of API at our existing Chongqing facility or the termination of 
operations at the facility by the DEMC;

plant shutdowns as a result of the recent Coronavirus epidemic outbreak;

regulatory holds on operations at the facilities or the loss of permits to operate facilities; 

equipment malfunctions or failures;

malfunctions or compromise by third party actors of our technology systems; 

work stoppages; 

damage to or destruction of either facility due to natural disasters; 

regional power shortages; 

product tampering; or 

terrorist activities. 

Any disruption that impedes our ability to manufacture our drug candidates in a timely manner could materially harm our 

business, financial condition and operating results. 

Specifically, operations at our plant in Chongqing, China are currently suspended based on discussions with the DEMC and 

concerns raised by the DEMC related to the location of our plant. If we are unable to resume operations at that facility and if we are 
unable to find alternate suppliers of our product candidates, specifically tirbanibulin, oral paclitaxel, we may have to delay our 
scheduled development of our product candidates. If we are unable to perform the clinical testing required to obtain regulatory 
approval, we will be unable to commercialize our product candidates.

Currently, we maintain insurance coverage against damage to our property and equipment. However, our insurance coverage 

may not reimburse us, or may not be sufficient to reimburse us, for any expenses or losses we may suffer. We may be unable to meet 
our requirements for our drug candidates if there were a catastrophic event or failure of our manufacturing facilities or processes. 

The recent Coronavirus epidemic outbreak may have a material adverse effect on our business operations, financial condition and 
results of operations. 

Our business is subject to general economic and social conditions in China. At the end of December 2019, public health 

officials from China informed the WHO that an unknown, new virus was causing pneumonia-like illnesses in the city of Wuhan. The 
WHO quickly determined that the virus was a coronavirus and this novel coronavirus was temporarily named 2019-nCoV (the 
“Coronavirus”). The Coronavirus was rapidly spreading through and outside of Wuhan and threatened the majority in China. Cases 

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have also been identified across over 20 other countries and territories and the Coronavirus had killed more than 1,000 people and 
infected over 30,000 people as of early of February 2020. For preventing the spreading of Coronavirus epidemic, the national and 
local authorities in the PRC and its provinces, cities, counties have taken many measures, such as extending the Chinese New Year 
holiday, delaying the resumption of work. Several countries have arranged to evacuate their nationals from Wuhan and introduced 
new restrictions on travel to and from China. The ongoing Coronavirus epidemic has temporarily suspended many business activities 
in China. Given the high uncertainties associated with the Coronavirus epidemic at the moment, it is difficult to predict how long these 
conditions will exist and the extent to which we may be affected. As a result of the Coronavirus outbreak, our 440,000-square-foot 
new API facility in Chongqing is currently expected to commence operations in the second half of 2020. Should the disruption to our 
operations extend beyond a specified period, we may experience further delays in commencing operations at our new API plant, 
which may materially and adversely affect our results of operations and financial condition. 

The Coronavirus outbreak also caused delays in the resumption of local business in the China after the Chinese New Year 
holiday. The Coronavirus epidemic may also further create negative economic impact and increase volatility in the PRC and global 
market, which may materially and adversely affect the operation of our business in China. 

Risks Related to Government Regulation

Recently enacted and future legislation may increase the difficulty and cost for us to obtain regulatory approval of and 
commercialize our drug candidates and affect the prices we may obtain. 

In the U.S., China and certain other jurisdictions, there have been a number of legislative and regulatory changes and proposed 

changes regarding the healthcare system that could prevent or delay regulatory approval of our drug candidates, restrict or regulate 
post-approval activities and affect our ability to profitably sell any drug candidates for which we obtain regulatory approval. 

In the U.S., the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, changed the way 
Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly 
and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition, this 
legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. Cost reduction initiatives 
and other provisions of this legislation could decrease the coverage and price that we receive for any approved products. While the 
MMA only applies to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment 
limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result 
in a similar reduction in payments from private payors. 

The ACA included provisions to broaden access to health insurance, reduce or constrain the growth of healthcare spending, 

enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose 
new taxes and fees on the health industry and impose additional health policy reforms. 

Among the provisions of the ACA of importance to our potential drug candidates are the following: 

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an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and 
biologics; 

an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program; 

expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new 
government investigative powers, and enhanced penalties for noncompliance; 

a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% point-of-sale 
discounts off negotiated prices; 

extension of manufacturers’ Medicaid rebate liability; 

expansion of eligibility criteria for Medicaid programs; 

expansion of the entities eligible for discounts under the Public Health Service Act pharmaceutical pricing program; 

requirements to report payments and other transfers of value made to physicians or teaching hospitals; 

a requirement to annually report drug samples that manufacturers and distributors provide to physicians and 

a Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical 
effectiveness research, along with funding for such research. 

In addition, other legislative changes have been proposed and adopted in the U.S. since the ACA was enacted. These changes 

included aggregate reductions to Medicare payments to providers of 2% per fiscal year, starting in 2013. In January 2013, the 
American Taxpayer Relief Act of 2012 was enacted, which, among other things, reduced Medicare payments to several providers, and 

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increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These 
laws may result in additional reductions in Medicare and other healthcare funding. 

We expect that the ACA, as well as other healthcare reform legislative measures that have been since adopted or may be 
adopted in the future, may result in more rigorous coverage criteria and an additional downward pressure on the price that we receive 
for any approved drug. Any reduction in reimbursement from Medicare or other government programs may result in a similar 
reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may 
prevent us from being able to generate revenue, attain profitability or commercialize our drugs. In particular, we expect that the 
current presidential administration and U.S. Congress will seek to modify, repeal, or otherwise invalidate all, or certain provisions of, 
the ACA. Most recently, the Tax Reform Act was enacted, which, among other things, removes penalties for not complying with the 
individual mandate to carry health insurance. There is still uncertainty with respect to the impact President Trump’s administration 
and the U.S. Congress may have, if any, and any changes will likely take time to unfold. Such reforms could have an adverse effect on 
anticipated revenues from therapeutic candidates that we may successfully develop and for which we may obtain regulatory approval 
and may affect our overall financial condition and ability to develop therapeutic candidates. However, we cannot predict the ultimate 
content, timing or effect of any healthcare reform legislation or the impact of potential legislation on us. 

Other legislative and regulatory proposals have been made to expand post-approval requirements and restrict coverage and 

reimbursement and sales and promotional activities, for pharmaceutical products. We cannot be sure whether additional legislative 
changes will be enacted, or whether agencies such as the FDA or Centers for Medicare and Medicaid Services will issue new 
regulations, guidance or interpretations that may impact our drug candidates. In addition, increased scrutiny by the U.S. Congress of 
the FDA’s approval process may significantly delay or prevent regulatory approval, as well as subject us to more stringent product 
labeling and post-marketing testing and other requirements. 

We are subject, directly or indirectly, to applicable U.S. federal and state anti-kickback, false claims laws, physician payment 
transparency laws, fraud and abuse laws or similar healthcare and privacy and security laws and regulations, which could expose 
us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings. 

Healthcare providers, physicians and others play a primary role in the recommendation and prescription of our products and any 

of our product candidates for which we obtain regulatory approval. Our operations are subject to various federal and state fraud and 
abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act and physician payment 
transparency laws and regulations. These laws may impact, among other things, our proposed sales and marketing programs as well as 
any patient support programs we may consider offering. In addition, we may be subject to patient privacy regulation by both the 
federal government and the states in which we conduct our business. The laws that may affect our ability to operate include: 

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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, 
offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in 
cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or 
recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a 
federal healthcare program, such as the Medicare and Medicaid programs; 

federal civil and criminal false claims laws and civil monetary penalty laws, such as the federal False Claims Act which 
imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for 
knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval from 
Medicare, Medicaid or other third-party payors that are false or fraudulent, including failure to timely return an 
overpayment received from the federal government or making a false statement to avoid, decrease or conceal an 
obligation to pay money to the federal government; 

provisions of HIPAA, which created new federal criminal statutes referred to as the “HIPAA All-Payor Fraud 
Prohibition,” prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare 
benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or 
property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor 
(e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material 
fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, 
items or services relating to healthcare matters; 

provisions of HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 
and their respective implementing regulations, which impose requirements on certain covered healthcare providers, health 
plans, and healthcare clearinghouses as well as their respective business associates that perform services for them that 
involve the use, or disclosure of, individually identifiable health information, relating to the privacy, security and 
transmission of individually identifiable health information without appropriate authorization; 

the federal transparency requirements under the ACA, including the provision commonly referred to as the Physician 
Payments Sunshine Act, which requires manufacturers of drugs, devices, biologics and medical supplies for which 
payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually to the U.S. 

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Department of Health and Human Services information related to all payments or other transfers of value made to 
physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate 
family members unless a specific exclusion applies; and 

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federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that 
potentially harm consumers. 

Additionally, we are subject to state and non-U.S. equivalents of each of the healthcare laws described above, among others, 
some of which may be broader in scope and may apply regardless of the payor. Many U.S. states have adopted laws similar to the 
Federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not 
just governmental payors, including private insurers. In addition, some states have passed laws that require pharmaceutical companies 
to comply with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and/or 
the Pharmaceutical Research and Manufacturers of America’s Code on Interactions with Healthcare Professionals. Several states also 
impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. There are 
ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law 
requirement, we could be subject to penalties. 

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that 

some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform 
legislation has strengthened these laws. For example, the ACA, among other things, amends the intent requirement of the federal Anti-
Kickback and criminal healthcare fraud statutes. As a result of such amendment, a person or entity no longer needs to have actual 
knowledge of these statutes or specific intent to violate them in order to have committed a violation. Moreover, the ACA provides that 
the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute 
constitutes a false or fraudulent claim for purposes of the False Claims Act. 

Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including penalties, fines and/or 
exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting 
with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the U.S. government under the 
Federal False Claims Act as well as under the false claims laws of several states. 

Law enforcement authorities are increasingly focused on enforcing these laws, and it is possible that some of our practices may 

be challenged under these laws. Efforts to ensure that our business arrangements with third parties will comply with applicable 
healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our 
business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or 
other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or 
asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and 
administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and 
other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of 
our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition, the 
approval and commercialization of any of our drug candidates outside the U.S. will also likely subject us to non-U.S. equivalents of 
the healthcare laws mentioned above, among other non-U.S. laws. 

If any of the physicians or other providers or entities with whom we expect to do business is found to be not in compliance with 

applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded 
healthcare programs. 

Lastly, political, economic and regulatory influences are subjecting the health care industry in the U.S. to fundamental change. 

Initiatives to reduce the federal budget and debt and to reform health care coverage are increasing cost-containment efforts. We 
anticipate that federal agencies, Congress, state legislatures, and the private sector will continue to review and assess alternative health 
care benefits, controls on health care spending, and other fundamental changes to the healthcare delivery system. Any proposed or 
actual changes could limit coverage for or the amounts that federal and state governments will pay for health care products and 
services, which could also result in reduced demand for our products or additional pricing pressures, and limit or eliminate our 
spending on development projects and affect our ultimate profitability. 

Our business is subject to applicable laws and regulations relating to sanctions, anti-money laundering and anti-bribery practices, 
the violation of which could adversely affect our operations. 

We must comply with all applicable economic sanctions, anti-money laundering and anti-bribery laws and regulations of the 

U.S. and other foreign jurisdictions where we operate, including China. U.S. laws and regulations applicable to us include the 
economic trade sanctions laws and regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets 
Control, or OFAC, as well as certain laws administered by the U.S. Department of State. Our business is also subject to anti-money 
laundering laws and regulations, including the Proceeds of Crime Act 2002, the Terrorism Act 2000 and the Money Laundering 
Regulations 2007 in the U.K., the Bank Secrecy Act of 1970, the Money Laundering Control Act of 1986 and the USA PATRIOT Act 

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of 2001 in the U.S. and equivalent or similar legislation in the other countries where we do business. In addition, we are subject to the 
FCPA and other anti-bribery laws such as the U.K. Bribery Act 2010 that generally prohibit the corrupt provision of anything of value 
to foreign governments and their officials and political parties for the purpose of influencing official conduct or obtaining or retaining 
an undue business advantage. Applicable anti-bribery laws also may prohibit commercial bribery. 

We have operations, conduct clinical trials, deal with government entities, including hospitals and public health regulators, and 

have contracts in countries known to experience corruption and commercial bribery. Our activities in these countries, particularly 
China and countries in Latin America, create the risk of unauthorized payments or offers of payments by our employees, brokers or 
agents that could be in violation of various laws, including the FCPA, even though these parties are not always subject to our control 
and supervision. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in China, where 
we conduct business. There is no assurance that our existing safeguards and procedures will be completely effective in ensuring 
compliance with such laws, and our employees, brokers or agents may engage in conduct for which we may be held responsible. 
Violations of the FCPA or other anti-bribery laws may result in severe criminal or civil sanctions, and we may be subject to other 
liabilities, which could negatively affect our reputation, business, operating results, and financial condition. 

Regulations administered by OFAC govern transactions with countries and persons subject to U.S. trade sanctions. We are also 
subject to U.S. Government restrictions on transactions with specific entities and individuals, including, without limitation, those set 
forth on the Entity List, the Specially Designated Nationals List, the Denied Persons List, the Unverified List, and the U.S. State 
Department’s lists of debarred parties and sanctioned entities, and we may also be subject to restrictions on transactions with specific 
entities and individuals subject to the sanctions administered by the United Nations Security Council, the EU, Her Majesty’s Treasury, 
or other relevant sanctions authority. These regulations prohibit us from entering into or facilitating unlicensed transactions with, for 
the benefit of, or in some cases involving the property and property interests of such persons, governments, or countries designated by 
the relevant sanctions authority under one or more sanctions regimes. Failure to comply with these sanctions and embargoes may 
result in material fines, sanctions or other penalties being imposed on us or other governmental investigations. In addition, various 
state and municipal governments, universities and other investors maintain prohibitions or restrictions on investments in companies 
that do business involving sanctioned countries or entities. 

International economic and trade sanctions are complex and subject to frequent change, including jurisdictional reach and the 

lists of countries, entities, and individuals subject to the sanctions. Current or future economic and trade sanctions regulations or 
developments might have a negative impact on our business or reputation, and we may incur significant costs related to current, new, 
or changing sanctions programs, as well as investigations, fines, fees or settlements, which may be difficult to predict. In addition, 
companies subject to SEC reporting obligations are required under Section 13 of the Exchange Act to disclose in their periodic reports 
specified dealings or transactions involving Iran or other individuals and entities targeted by certain sanctions promulgated by OFAC 
that the reporting company or any of its affiliates engaged in during the period covered by the relevant periodic report. In some cases, 
Section 13 requires companies to disclose transactions even if they are permissible under U.S. law. The SEC is required to post this 
notice of disclosure pursuant to Section 13 on its website and report to the President and certain congressional committees regarding 
such filings. 

Although we have policies and controls in place that are designed to ensure compliance with these laws and regulations, it is 

possible that an employee or intermediary could fail to comply with applicable laws and regulations. In such event, we could be 
exposed to civil penalties, criminal penalties and other sanctions, including fines or other punitive actions, and the government may 
seek to impose modifications to business practices, including cessation of business activities in sanctioned countries, and 
modifications to compliance programs, which may increase compliance costs. In addition, such violations could damage our business 
and/or our reputation. Such criminal or civil sanctions, penalties, other sanctions, and damage to our business and/or reputation could 
have a material adverse effect on our financial condition and results of operations. 

Any failure to comply with applicable regulations and industry standards or obtain various licenses and permits could harm our 
reputation and our business, results of operations and prospects. 

A number of governmental agencies or industry regulatory bodies in the U.S., and in non-U.S. jurisdictions including China and 

countries in Latin America, impose strict rules, regulations and industry standards governing pharmaceutical and biotechnology 
research and development and manufacturing and marketing activities, which apply to us. Our failure to comply with such regulations 
could result in the termination of ongoing research or manufacturing and marketing, administrative penalties imposed by regulatory 
bodies or the disqualification of data for submission to regulatory authorities. This could harm our reputation, prospects for future 
work and operating results. For example, if we were to treat research animals inhumanely or in violation of international standards set 
out by the Association for Assessment and Accreditation of Laboratory Animal Care, it could revoke any such accreditation and the 
accuracy of our animal research data could be questioned. 

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or 
incur costs that could have a material adverse effect on the success of our business. 

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory 
procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of 
hazardous and flammable materials, including chemicals. Our operations also produce hazardous waste products. We generally 

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contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from 
these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any 
resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal 
fines and penalties. 

Although we maintain workers’ compensation insurance to cover us for costs and expenses, we may incur due to injuries to our 

employees resulting from the use of or exposure to hazardous materials, this insurance may not provide adequate coverage against 
potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in 
connection with our storage, use or disposal of biological or hazardous materials. 

In addition, we may be required to incur substantial costs to comply with current or future environmental, health and safety laws 

and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to 
comply with these laws and regulations also may result in substantial fines, penalties or other sanctions. 

If we face allegations of noncompliance with the law and encounter sanctions, our reputation, revenues and liquidity may suffer, 
and our drugs could be subject to restrictions or withdrawal from the market. 

Any government investigation of alleged violations of law could require us to expend significant time and resources in response 

and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely 
affect our ability to commercialize and generate revenues from our drugs. If regulatory sanctions are applied or if regulatory approval 
is withdrawn, the value of our company and our operating results will be adversely affected. Additionally, if we are unable to generate 
revenues from our product sales, our potential for achieving profitability will be diminished and the capital necessary to fund our 
operations will be increased. 

Risks Related to Our Doing Business in China 

The pharmaceutical industry in China is highly regulated and such regulations are subject to change which may affect approval 
and commercialization of our drugs. 

Certain of our research operations and manufacturing facilities are in China. The pharmaceutical industry in China is subject to 
comprehensive government regulation and supervision, encompassing the approval, registration, manufacturing, packaging, licensing 
and marketing of new drugs. In recent years, the regulatory framework in China regarding the pharmaceutical industry has undergone 
significant changes, and we expect that it will continue to undergo significant changes. Any such changes or amendments may result 
in increased compliance costs on our business or cause delays in or prevent the successful development or commercialization of our 
drug candidates in China and reduce the current benefits we believe are available to us from developing and manufacturing drugs in 
China. Chinese authorities have become increasingly vigilant in enforcing laws in the pharmaceutical industry and any failure by us or 
our partners to maintain compliance with applicable laws and regulations or obtain and maintain required licenses and permits may 
result in the suspension or termination of our business activities in China. We believe our strategy and approach is aligned with the 
Chinese government’s policies, but we cannot ensure that our strategy and approach will continue to be aligned. 

Fluctuations in exchange rates could result in foreign currency exchange losses, which may adversely affect our financial 
condition, results of operations and cash flows. 

We incur portions of our expenses, and may in the future derive revenues, in currencies other than U.S. dollars, in particular, the 

RMB. As a result, we are exposed to foreign currency exchange risk as our results of operations and cash flows are subject to 
fluctuations in foreign currency exchange rates. For example, a portion of our clinical trial activities are conducted outside of the U.S., 
and associated costs may be incurred in the local currency of the country in which the trial is being conducted, which costs could be 
subject to fluctuations in currency exchange rates. We currently do not engage in hedging transactions to protect against uncertainty in 
future exchange rates between particular foreign currencies and the U.S. dollar. A decline in the value of the U.S. dollar against 
currencies in countries in which we conduct clinical trials could have a negative impact on our research and development costs. 

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes 
in political and economic conditions and the foreign exchange policy adopted by China and other non-U.S. governments. Specifically 
in China, on July 21, 2005, the Chinese government changed its policy of pegging the value of the RMB to the U.S. dollar. Following 
the removal of the U.S. dollar peg, the RMB appreciated more than 20% against the U.S. dollar over the following three years. 
Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained 
within a narrow band. Since June 2010, the Chinese government has allowed the RMB to appreciate slowly against the U.S. dollar 
again, and it has appreciated more than 10% since June 2010. In April 2012, the Chinese government announced that it would allow 
more RMB exchange rate fluctuation and in August 2015, China’s central bank executed a 2% devaluation in the RMB. From 
December 31, 2016 to December 31, 2017, the RMB appreciated approximately 6.3% against the U.S. dollar. From December 31, 
2017 to December 31, 2018, the RMB depreciated approximately 5.6% against the U.S. dollar. From December 31, 2018 to December 

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31, 2019, the RMB depreciated approximately 1% against the U.S. dollar. It remains unclear what further fluctuations may occur or 
what impact this will have on the currency and our results of operations. 

It is difficult to predict how market forces or China, U.S. or other government policies may impact the exchange rate between 

the RMB, U.S. dollar and other currencies in the future. There remains significant international pressure on the Chinese government to 
adopt a more flexible currency policy, which could result in greater fluctuation of the RMB against the U.S. dollar. Substantially all of 
our revenues are denominated in U.S. dollars and our costs are denominated in U.S. dollars and RMB, and a large portion of our 
financial assets is denominated in U.S. dollars. Generally, to the extent that we need to convert U.S. dollars into RMB for our 
operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive. 
Conversely, if we decide to convert our RMB into U.S. dollars for other business purposes, appreciation of the U.S. dollar against the 
RMB would have a negative effect on the U.S. dollar amount we would receive. We cannot predict the impact of foreign currency 
fluctuations, and foreign currency fluctuations in the future may adversely affect our financial condition, results of operations and cash 
flows. 

Changes in the political and economic policies of the Chinese government may materially and adversely affect our business, 
financial condition and results of operations and may result in our inability to sustain our growth and expansion strategies. 

A significant portion of our operations are in China. Accordingly, our financial condition and results of operations are affected 

to a large extent by economic, political and legal developments in China. 

The Chinese economy differs from the economies of most developed countries in many respects, including the extent of 
government involvement, level of development, growth rate, and control of foreign exchange and allocation of resources. Although 
the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of 
state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial 
portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a 
significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant 
control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, 
setting monetary policy, regulating financial services and institutions and providing preferential treatment to particular industries or 
companies. 

While the Chinese economy has experienced significant growth in the past three decades, growth has been uneven, both 
geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage 
economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may 
also have a negative effect on us. Our financial condition and results of operation could be materially and adversely affected by 
government control over capital investments or changes in tax regulations that are applicable to us and consequently have a material 
adverse effect on our businesses, financial condition and results of operations. 

Tariffs imposed by the U.S. and those imposed in response by other countries, as well as rapidly changing trade relations, could 
have a material adverse effect on our business and results of operations.

Changes in U.S. and foreign governments’ trade policies have resulted in, and may continue to result in, tariffs on imports into 
and exports from the U.S. Throughout 2018 and 2019, the U.S. imposed tariffs on imports from several countries, including China. In 
response, China has proposed and implemented their own tariffs on certain products, which may impact our supply chain and our costs 
of doing business. If we are impacted by the changing trade relations between the U.S. and China, our business and results of 
operations may be negatively impacted. Continued diminished trade relations between the U.S. and other countries, including potential 
reductions in trade with China and others, as well as the continued escalation of tariffs, could have a material adverse effect on our 
financial performance and results of operations.

There are uncertainties regarding the interpretation and enforcement of laws, rules and regulations in China. 

A portion of our operations are conducted in China through our Chinese subsidiaries, and are governed by Chinese laws, rules 

and regulations. Our Chinese subsidiaries are subject to laws, rules and regulations applicable to foreign investment in China. The 
Chinese legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be 
cited for reference but have limited precedential value. 

In 1979, the Chinese government began to promulgate a comprehensive system of laws, rules and regulations governing 

economic matters in general. The overall effect of legislation over the past few decades has significantly enhanced the protections 
afforded to various forms of foreign investment in China. However, China has not developed a fully integrated legal system, and 
recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in China or may be subject to 
significant degrees of interpretation by Chinese regulatory agencies. In particular, because these laws, rules and regulations are 
relatively new, and because of the limited number of published decisions and the nonbinding nature of such decisions, and because the 
laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them, the interpretation and 
enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. In addition, the 
Chinese legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or 

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at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after 
the occurrence of the violation. 

Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources 

and management attention. Since Chinese administrative and court authorities have significant discretion in interpreting and 
implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court 
proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our 
ability to enforce the contracts we have entered into and could materially and adversely affect our business, financial condition and 
results of operations. 

Substantial uncertainties exist with respect to the enactment, interpretation and implementation of Chinese Foreign Investment 
Law and Negative List and how they may impact the viability of our current corporate governance. 

On March 15, 2019, the National People’s Congress of the PRC promulgated the Foreign Investment Law of the People’s 
Republic of China (the “FIL”) which became effective on January 1, 2020. Simultaneously, the three foreign investment laws (i.e. the 
Wholly Foreign-Owned Enterprise Law, the Sino-Foreign Equity Joint Venture Enterprise Law, and the Sino-Foreign Cooperative 
Joint Venture Enterprise Law) were repealed on January 1, 2020. Pursuant to the FIL, foreign investors shall not invest in any field 
forbidden by the negative list for access of foreign investment. For any field on the negative list, foreign investors shall conform to the 
investment conditions provided in the negative list. Fields not included in the negative list shall be managed under the principle that 
domestic investment and foreign investment shall be treated uniformly. According to the FIL, the organization form and institutional 
framework shall be subject to the provisions of the Company Law of the People's Republic of China, the Partnership Enterprise Law 
of the PRC, and other PRC laws. Foreign invested enterprises, which were established in accordance with the aforesaid three foreign 
investment laws may retain their original organization forms and other aspects for five years after the implementation of the FIL. 
Specific implementation measures shall be formulated by the State Council of the PRC.

In June 2017 the National Development and Reform Commission and the Ministry of Commerce jointly issued Catalogue of 

Industries for Guiding Foreign Investment (2017 Revision), which introduced Special Administrative Measures on Access of Foreign 
Investment (Negative List). Any industry not listed in the catalogue and Negative List is a permitted industry, and is generally open to 
foreign investment unless specifically prohibited or restricted by the Chinese laws and regulations. The Negative List is further 
divided into restricted foreign-invested industries and prohibited foreign-invested industries. The Negative List was further revised in 
2018 and 2019. The most updated Negative List was issued on June 30, 2019 and takes effect on July 30, 2019.

The FIL and Negative List may also materially impact our corporate governance practice and increase our compliance costs. For 

instance, the FIL imposes stringent ad hoc and periodic information reporting requirements on foreign investors and the applicable 
FIEs. Aside from investment implementation report and investment amendment report that are required at each investment and 
alteration of investment specifics, an annual report is mandatory, and large foreign investors meeting certain criteria are required to 
report on a quarterly basis. Any company found to be non-compliant with these information reporting obligations may potentially be 
subject to fines and/or administrative or criminal liabilities, and the persons directly responsible may be subject to criminal liabilities. 

Chinese regulations relating to investments in offshore companies by Chinese residents may subject our future Chinese-resident 
beneficial owners or our Chinese subsidiaries to liability or penalties, limit our ability to inject capital into our Chinese 
subsidiaries or limit our Chinese subsidiaries’ ability to increase their registered capital or distribute profits. 

The SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ 
Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 
2014, which replaced the former circular, commonly known as SAFE Circular 75, promulgated by SAFE on October 21, 2005. 
According to Notice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment, 
the “Circular 13”, which became effective on June 1, 2015, banks shall directly examine and handle foreign exchange registration 
under domestic direct investment and foreign exchange registration under overseas direct investment, and the SAFE and its branch 
offices shall indirectly regulate the foreign exchange registration of direct investment through banks. SAFE Circular 37, Circular 13 
and other SAFE rules require Chinese residents to register with local branches of SAFE or delegated commercial banks in connection 
with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with 
such Chinese residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in 
SAFE Circular 37 as a “special purpose vehicle”. SAFE Circular 37 further requires amendment to the registration in the event of any 
significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by Chinese 
individuals, share transfer or exchange, merger, division or other material events. In the event that a Chinese stockholder holding 
interests in a special purpose vehicle fails to fulfill the required registration, the Chinese subsidiaries of that special purpose vehicle 
may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign 
exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its Chinese 
subsidiary. Moreover, failure to comply with the various registration requirements described above could result in liability under 
Chinese law for evasion of foreign exchange controls. 

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We believe that certain of our stockholders are Chinese residents under SAFE Circular 37. These certain stockholders have 
undertaken to (1) apply to register with local SAFE branch or its delegated commercial bank as soon as possible after exercising their 
options and (2) indemnify and hold harmless us and our subsidiaries against any loss suffered arising from their failure to complete the 
registration. We do not have control over the stockholders and our other beneficial owners and cannot assure you that all of our 
Chinese-resident beneficial owners have complied with, and will in the future comply with, SAFE Circular 37 and subsequent 
implementation rules. The failure of Chinese-resident beneficial owners to register or amend their SAFE registrations in a timely 
manner pursuant to SAFE Circular 37 and subsequent implementation rules, or the failure of future Chinese-resident beneficial owners 
of our company to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may 
subject such beneficial owners or our Chinese subsidiaries to fines and legal sanctions. Furthermore, SAFE Circular 37 is unclear how 
this regulation, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and 
implemented by the relevant Chinese government authorities, and we cannot predict how these regulations will affect our business 
operations or future strategy. Failure to register or comply with relevant requirements may also limit our ability to contribute 
additional capital to our Chinese subsidiaries and limit our Chinese subsidiaries’ ability to distribute dividends to us. These risks could 
in the future have a material adverse effect on our business, financial condition and results of operations. 

Any failure to comply with Chinese regulations regarding the registration requirements for employee share option plans may 
subject the Chinese plan participants or us to fines and other legal or administrative sanctions. 

In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic 

Individuals Participating in Share Incentive Plans of Overseas Publicly Listed Companies, commonly known as SAFE Circular 7, or 
the Share Option Rules, replacing earlier rules promulgated in 2007. Pursuant to these rules, Chinese residents who are granted shares 
or share options by companies listed on overseas stock exchanges under share incentive plans are required to (1) register with the 
SAFE or its local branches; (2) retain a qualified Chinese agent, which may be a Chinese subsidiary of the overseas listed company or 
another qualified institution selected by the Chinese subsidiary, to conduct the SAFE registration and other procedures with respect to 
the share incentive plans on behalf of the participants and (3) retain an overseas institution to handle matters in connection with their 
exercise of share options, purchase and sale of shares or interests and funds transfers. We and our executive officers and other 
employees who are Chinese residents and who have been granted options will be subject to these regulations. Failure to complete the 
SAFE registrations may subject them to fines, and legal sanctions, and may also limit our ability to contribute additional capital into 
our Chinese subsidiary and limit our Chinese subsidiary’s ability to distribute dividends to us. We also face regulatory uncertainties 
that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under Chinese law. 
See “Regulation—Regulations Relating to Foreign Exchange and Dividend Distribution—Share Option Rules.” 

We may be treated as a resident enterprise for Chinese tax purposes under the Chinese Enterprise Income Tax Law, and we may 
therefore be subject to Chinese income tax on our global income. 

Under the Chinese Enterprise Income Tax Law and its implementing rules, both of which came into effect on January 1, 2008, 

as amended on February 24, 2017 and December 29, 2018, enterprises established under the laws of jurisdictions outside of China 
with “de facto management bodies” located in China may be considered Chinese tax resident enterprises for tax purposes and may be 
subject to the Chinese enterprise income tax at the rate of 25% on their global income. “De facto management body” refers to a 
managing body that exercises substantive and overall management and control over the production and business, personnel, 
accounting books and assets of an enterprise. The State Administration of Taxation has issued guidance, known as Circular 82 that 
provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore-
incorporated enterprise is located in China. Although Circular 82 only applies to offshore enterprises controlled by Chinese 
enterprises, not those, such as us, controlled by foreign enterprises or individuals, the determining criteria set forth in Circular 82 may 
reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in 
determining the tax resident status of offshore enterprises, regardless of whether they are controlled by Chinese enterprises. Although 
the reviewing procedure in Circular 82 was simplified on December 29, 2017, pursuant to Decision of the SAT on Issuing the 
Catalogues of Tax Departmental Rules and Tax Regulatory Documents Which Are Invalidated, the “de facto management body” test 
is still valid. Currently, our management is located in the U.S., and we generate a portion of our revenues within China and a portion 
outside China. We believe that neither we nor any of our subsidiaries outside of China is a Chinese resident enterprise for Chinese tax 
purposes. However, the tax resident status of an enterprise is subject to determination by the Chinese tax authorities and uncertainties 
remain with respect to the interpretation of the term “de facto management body”. If we were to be considered a Chinese resident 
enterprise, we would be subject to Chinese enterprise income tax at the rate of 25% on our global income. In such case, our 
profitability and cash flow may be materially reduced as a result of our global income being taxed under the Chinese Enterprise 
Income Tax Law. 

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Dividends payable to our foreign investors and gains on the sale of our common stock by our foreign investors may become subject 
to Chinese tax law. 

Under the Chinese Enterprise Income Tax Law and its implementing rules issued by the State Council, in general, a 10% 

Chinese withholding tax is applicable to dividends payable to investors that are non-resident enterprises that do not have an 
establishment or place of business in China or which have such establishment or place of business but the dividends are not effectively 
connected with such establishment or place of business, to the extent such dividends are derived from sources within China. Similarly, 
any gain realized on the transfer of shares of our common stock by such investors is also subject to Chinese tax at a current rate of 
10%, subject to any reduction or exemption set forth in relevant tax treaties, if such gain is regarded as income derived from sources 
within China. If we are deemed a Chinese resident enterprise, dividends paid on our common stock, and any gain realized from the 
transfer of our common stock, would be treated as income derived from sources within China and would as a result be subject to 
Chinese taxation. Furthermore, if we are deemed a Chinese resident enterprise, dividends payable to individual investors who are non-
Chinese residents and any gain realized on the transfer of common stock by such investors may be subject to Chinese tax at a current 
rate of 20%, subject to any reduction or exemption set forth in applicable tax treaties. It is unclear whether we or any of our 
subsidiaries established outside China are considered a Chinese resident enterprise, holders of our common stock would be able to 
claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. If dividends payable to 
our non-Chinese investors or gains from the transfer of our common stock by such investors are subject to Chinese tax, the value of 
your investment in our common stock may decline significantly. 

We and our stockholders face uncertainties with respect to indirect transfers of equity interests in Chinese resident enterprises by 
their non-Chinese holding companies. 

Pursuant to a notice, or Circular 698, issued by the State Administration of Taxation, where a non-resident enterprise conducts 

an “indirect transfer” by transferring the equity interests of a Chinese resident enterprise indirectly via disposing of the equity interests 
of an overseas holding company, and such overseas holding company is located in a tax jurisdiction that: (1) has an effective tax rate 
less than 12.5% or (2) does not tax foreign income of its residents, the non-resident enterprise, being the transferor, shall report to the 
relevant tax authority of the Chinese resident enterprise such indirect transfer. Using a “substance over form” principle, the Chinese 
tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was 
established for the purpose of reducing, avoiding or deferring Chinese tax. As a result, gains derived from such indirect transfer may 
be subject to Chinese enterprise income tax, currently at a rate of 10%. In 2015, the State Administration of Taxation issued a circular, 
known as Circular 7, which replaced or supplemented certain previous rules under Circular 698. Circular 7 sets out a wider scope of 
indirect transfer of Chinese assets that might be subject to Chinese enterprise income tax, and more detailed guidelines on the 
circumstances when such indirect transfer is considered to lack a bona fide commercial purpose and thus regarded as avoiding Chinese 
tax. The conditional reporting obligation of the non-Chinese investor under Circular 698 is replaced by a voluntary reporting by the 
transferor, the transferee or the underlying Chinese resident enterprise being transferred. Furthermore, if the indirect transfer is subject 
to Chinese enterprise income tax, the transferee has an obligation to withhold tax from the sale proceeds, unless the transferor reports 
the transaction to the Chinese tax authority under Circular 7. Late payment of applicable tax will subject the transferor to default 
interest. Gains derived from the sale of shares by investors through a public stock exchange are not subject to the Chinese enterprise 
income tax pursuant to Circular 7 where such shares were acquired in a transaction through a public stock exchange. Circular 698 was 
abolished by an announcement promulgated by the State Administration of Taxation in October 2017 and effective from December 1, 
2017, or SAT Circular 37, which, among other things, provides specific provisions on matters concerning withholding of income tax 
of non-resident enterprises at the source. 

As newly implemented, there is uncertainty as to the application of Circular 7 and SAT Circular 37, both of which may be 

determined by the tax authorities to be applicable to our offshore restructuring transactions or sale of the shares of our offshore 
subsidiaries where non-resident enterprises, being the transferors, were involved. The Chinese tax authorities may pursue such non-
resident enterprises with respect to a filing regarding the transactions and request our Chinese subsidiaries to assist in the filing. As a 
result, we and our non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed 
under Circular 7, and may be required to expend valuable resources to comply with Circular 7 or to establish that we and our non-
resident enterprises should not be taxed under Circular 7, for our previous and future restructuring or disposal of shares of our offshore 
subsidiaries, which may have a material adverse effect on our financial condition and results of operations. 

Restrictions on currency exchange may limit our ability to utilize our revenue effectively. 

The Chinese government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the 
remittance of currency out of China. A portion of our revenue may in the future be denominated in RMB. Shortages in availability of 
foreign currency may then restrict the ability of our Chinese subsidiaries to remit sufficient foreign currency to our offshore entities 
for our offshore entities to pay dividends or make other payments or otherwise to satisfy our foreign currency denominated 
obligations. The RMB is currently convertible under the “current account,” which includes dividends, trade and service-related foreign 
exchange transactions, but not under the “capital account”, which includes foreign direct investment and loans, including loans we 
may secure from our onshore subsidiaries. Currently, our Chinese subsidiaries, which are wholly foreign owned enterprises, may 

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purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval 
of SAFE by complying with certain procedural requirements. However, the relevant Chinese governmental authorities may limit or 
eliminate our ability to purchase foreign currencies in the future for current account transactions. Since a portion of our future revenue 
may be denominated in RMB, any existing and future restrictions on currency exchange may limit our ability to utilize revenue 
generated in RMB to fund our business activities outside of China or pay dividends in foreign currencies to our stockholders, 
including holders of our common stock. Foreign exchange transactions under the capital account remain subject to limitations and 
require approvals from, or registration with, SAFE and other relevant Chinese governmental authorities. This could affect our ability 
to obtain foreign currency through debt or equity financing for our subsidiaries. 

Recent litigation and negative publicity surrounding China-based companies listed in the U.S. may result in increased regulatory 
scrutiny of us and negatively impact the trading price of our common stock and could have a material adverse effect upon our 
business, including our results of operations, financial condition, cash flows and prospects. 

We believe that litigation and negative publicity surrounding companies with operations in China, including concerning the 
directors and officers of such companies, that are listed in the U.S. have negatively impacted stock prices for such companies. Various 
equity-based research organizations have published reports on China-based companies after examining, among other things, their 
corporate governance practices, related party transactions, sales practices and financial statements that have led to special 
investigations and stock suspensions on national exchanges, including as a result of purported whistle-blowing or leaking by 
employees or former employees. Any similar scrutiny of us, regardless of its lack of merit, could result in a diversion of management 
resources and energy, potential costs to defend ourselves against rumors, decreases and volatility in the trading price of our common 
stock, and increased directors and officers insurance premiums and could have a material adverse effect upon our business, including 
our results of operations, financial condition, cash flows and prospects. 

Risks Related to Our Common Stock 

The trading price of our common stock has been and is likely to continue to be volatile, which could result in substantial losses to 
you. 

The trading price of our common stock has been and is likely to continue to be volatile and could fluctuate widely in response to 

a variety of factors, many of which are beyond our control. In addition, the performance and fluctuation of the market prices of other 
companies with a portion of their business operations located in China that have listed their securities in the U.S. may affect the 
volatility in the price of and trading volumes for our common stock. Some of these companies have experienced significant volatility, 
including significant price declines after their initial public offerings. The trading performances of these companies’ securities at the 
time of or after their offerings may affect the overall investor sentiment towards other companies with significant China operations 
listed in the U.S. and consequently may impact the trading performance of our common stock. 

In addition to market and industry factors, the price and trading volume for our common stock may be highly volatile for 

specific business reasons, including: 

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announcements of regulatory approval or a complete response letter, or specific label indications or patient populations for 
its use, or changes or delays in the regulatory review process; 

announcements of therapeutic innovations or new products by us or our competitors; 

adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and 
marketing activities; 

any adverse changes to our relationship with manufacturers or suppliers; 

the results of our testing and clinical trials; 

the results of our efforts to acquire or license additional drug candidates; 

variations in the level of expenses related to our existing drug candidates or preclinical and clinical development 
programs; 

any intellectual property infringement actions in which we may become involved; 

announcements concerning our competitors or the pharmaceutical industry in general; 

achievement of expected product sales and profitability; 

manufacture, supply or distribution shortages; 

variations in our results of operations; 

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•

•

•

•

•

•

announcements about our earnings that are not in line with analyst expectations, the risk of which is enhanced because it 
is our policy not to give guidance on earnings; 

publication of operating or industry metrics by third parties, including government statistical agencies, that differ from 
expectations of industry or financial analysts; 

changes in financial estimates by securities research analysts; 

announcements made by us or our competitors of new product and service offerings, acquisitions, strategic relationships, 
joint ventures or capital commitments; 

press reports or other negative publicity, whether or not true, about our business; 

additions to or departures of our management; 

fluctuations of exchange rates between the RMB and the U.S. dollar; 

release or expiry of lock-up or other transfer restrictions on our outstanding common stock; 

sales or perceived potential sales of additional common stock; 

sales of our common stock by us, our executive officers and directors or our stockholders in the future; 

general economic and market conditions and overall fluctuations in the U.S. equity markets; 

changes in accounting principles; and 

changes or developments in China or global regulatory environment. 

Any of these factors may result in large and sudden changes in the volume and trading price of our common stock. In the past, 
following periods of volatility in the market price of a company’s securities, stockholders have often instituted securities class action 
litigation against that company. If we were involved in a class action suit, it could divert the attention of management, and, if 
adversely determined, have a material adverse effect on our financial condition and results of operations. 

In addition, the stock market, in general, and small pharmaceutical and biotechnology companies have experienced extreme 
price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. 
Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating 
performance. Further, the current decline in the financial markets and related factors beyond our control may cause our common stock 
price to decline rapidly and unexpectedly. 

We may be subject to securities litigation, which could result in significant legal expenses and settlement or damage awards and 
could divert management attention. 

The price of our common stock may be volatile, and in the past companies that have experienced volatility in the market price of 

their common stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. 
We generally, to the extent permitted by law, indemnify our executive officers. Regardless, securities litigation against us could result 
in substantial costs and divert our management’s attention from other business concerns, which could harm our business. 

Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of our common stock for 
return on your investment, if any. 

We intend to retain most, if not all, of our available funds and earnings to fund the development and growth of our business. In 
addition, our senior secured loan agreement with Perceptive restricts our and our restricted subsidiaries’ ability to pay dividends. As a 
result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our 
common stock as a source for any future dividend income. 

Our board of directors has significant discretion as to whether to distribute dividends. Even if our board of directors decides to 

declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future 
results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our 
subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, 
the return on an investment in our common stock will likely depend entirely upon any future price appreciation of our common stock. 
There is no guarantee that our common stock will appreciate in value or even maintain its current market price. You may not realize a 
return on your investment in our common stock and you may even lose your entire investment in our common stock. 

99

 
 
 
 
 
 
 
 
 
 
 
 
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the 
market price for our common stock and trading volume could decline. 

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish 

about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the 
analysts who covers us downgrades our common stock or publishes inaccurate or unfavorable research about our business, the market 
price for our common stock would likely decline. If one or more of these analysts cease coverage of our company or fail to publish 
reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume 
for our common stock to decline significantly. 

There are limitations on the liability of our directors, and we may have to indemnify our officers and directors in certain instances.

Our certificate of incorporation limits, to the maximum extent permitted under Delaware law, the personal liability of our 
directors for monetary damages for breach of their fiduciary duties as directors. The indemnification provisions may require us, among 
other things, to indemnify such officers and directors against certain liabilities that may arise by reason of their status or service as 
directors or officers (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as 
a result of certain proceedings against them as to which they could be indemnified. Section 145 of the Delaware General Corporation 
Law provides that a corporation may indemnify a director, officer, employee or agent made or threatened to be made a party to an 
action by reason of the fact that he or she was a director, officer, employee or agent of the corporation or was serving at the request of 
the corporation, against expenses actually and reasonably incurred in connection with such action if he or she acted in good faith and 
in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any 
criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. Delaware law does not permit a 
corporation to eliminate a director’s duty of care and the provisions of our certificate of incorporation have no effect on the 
availability of equitable remedies, such as injunction or rescission, for a director’s breach of the duty of care.

We believe that our limitation of officer and director liability assists us to attract and retain qualified employees and directors. 
However, in the event an officer, a director or the board of directors commits an act that may legally be indemnified under Delaware 
law, we will be responsible to pay for such officer(s) or director(s) legal defense and potentially any damages resulting there from. 
Furthermore, the limitation on director liability may reduce the likelihood of derivative litigation against directors and may discourage 
or deter stockholders from instituting litigation against directors for breach of their fiduciary duties, even though such an action, if 
successful, might benefit our stockholders and us. Limitations of director liability may be viewed as limiting the rights of 
stockholders, and the broad scope of the indemnification provisions contained in our certificate of incorporation could result in 
increased expenses.

Our directors, executive officers and principal stockholders have substantial control over us, which could limit your ability to 
influence the outcome of key transactions, including a change of control. 

Our directors, officers and stockholders who own greater than 5% of our outstanding common stock, together with their 
affiliates, beneficially owned, in the aggregate, approximately 25.0% of our outstanding common stock based on the number shares 
outstanding as of December 31, 2019. As a result, these stockholders, if acting together, will be able to influence or control matters 
requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other 
extraordinary transactions. In addition, these stockholders, acting together, would have the ability to control the management and 
affairs of our company. They may also have interests that differ from yours and may vote in a way with which you disagree and which 
may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of 
control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a 
sale of our company and might ultimately affect the market price of our common stock. 

In addition, our directors and officers as a group, beneficially own in the aggregate approximately 10.5% of our outstanding 

common stock based on the number shares outstanding as of December 31, 2019. As such, our directors and executive officers could 
have considerable influence over matters such as approving a potential acquisition of us. Our directors and executive officers’ 
investment in and position in our company could also discourage others from pursuing any potential acquisition of us, which could 
have the effect of depriving the holders of our common stock of the opportunity to sell their shares at a premium over the prevailing 
market price. 

Anti-takeover provisions in our charter documents may discourage our acquisition by a third party, which could limit our 
stockholders’ opportunity to sell their shares at a premium. 

Our amended and restated certificate of incorporation and bylaws include provisions that could limit the ability of others to 
acquire control of our company, modify our structure or cause us to engage in change-of-control transactions. These provisions could 
have the effect of depriving our stockholders of an opportunity to sell their shares at a premium over prevailing market prices by 
discouraging third parties from seeking to obtain control in a tender offer or similar transaction. 

100

We will continue to incur increased costs as a result of operating as a public company, and our management are required to devote 
substantial time to compliance initiatives and corporate governance practices. 

As a public company, we will continue to incur significant legal, accounting and other expenses that we did not incur as a 

private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing 
requirements of the Nasdaq Global Select Market and other applicable securities rules and regulations impose various requirements on 
public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance 
practices including our board and committee practices. Our management and other personnel need to devote a substantial amount of 
time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and 
have made some activities more time-consuming and costly. 

We will continue to evaluate these rules and regulations on an ongoing basis. These rules and regulations are often subject to 
varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over 
time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding 
compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. 

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish a report by our 

management on our internal control over financial reporting. To achieve compliance with Section 404 within the prescribed period, we 
will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and 
challenging. We have limited experience complying with Section 404, and such compliance may require that we incur substantial 
accounting expenses and expend significant management efforts. Our testing may reveal deficiencies in our internal controls over 
financial reporting that are deemed to be material weaknesses. In the event we identify significant deficiencies or material weaknesses 
in our internal controls that we cannot remediate in a timely manner, the market price of our shares could decline if investors and 
others lose confidence in the reliability of our financial statements, we could be subject to investigation by the SEC or other applicable 
regulatory authorities and our business could be harmed. 

Item 1B.

Unresolved Staff Comments.

None.

Item 2.

Properties.

Our corporate headquarters is located in Buffalo, New York, where we occupy approximately 51,000 square feet of the 
Conventus Center for Collaborative Medicine, which includes approximately 16,000 square feet of a formulation testing and 
chemistry lab under a lease that expires in July 2025 and is renewable for an additional 10 years. We also occupy approximately 
15,000 square feet of office space in the Woodfield Preserve Office Center in Schaumberg, Illinois under a lease that expires in March 
2027 which serves as the headquarters for our Commercial Platform. We occupy approximately 1,300 square feet of office space in 
Cranford, New Jersey under a lease that expires in February 2025 that serves as our clinical research headquarters. We also occupy 
approximately 5,500 square feet of office and lab space which represents a portion of the IC Development Centre in Hong Kong under 
a lease that expires in November 2022 that serves as our Hong Kong headquarters and research and development center serving our 
Oncology Innovation Platform. We occupy approximately 6,200 square feet of office space in Taipei, Taiwan under a lease that 
expires in December 2022 which serves for clinical research and clinical data management. In addition, we occupy approximately 
9,900 square feet of office space in multiple locations across Latin America under lease agreements which expire at various dates 
through October 2022, which serve as clinical research facilities.

We occupy space in facilities in Clarence and Amherst, New York and Chongqing, China which provide our manufacturing and 

packaging capabilities for our proprietary and 503B products and our Active Pharmaceutical Ingredient operations. In addition, 
pursuant to an agreement with FSMC, FSMC is funding the costs of constructing a new manufacturing facility in Dunkirk, New York, 
which we will lease. FSMC will retain ownership of the facility and equipment, and we will lease the facility and equipment for $1.00 
per year for an initial 10-year term in exchange for meeting certain spending and employment targets in the Dunkirk area during our 
term in the facility. The manufacturing facility is expected to be 409,000 sq. ft. and is targeted for completion in 2021. See “Business 
— Global Supply Chain Platform—Strategic Public-Private Partnerships—New York State Partnership” for more information.

We believe that these facilities will be sufficient to meet our current needs.

Item 3.

Legal Proceedings.

From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our 

business. Regardless of the outcome, litigation can have an adverse impact on us because of prosecution, defense and settlement costs, 
unfavorable awards, diversion of management resources and other factors.

Item 4.

Mine Safety Disclosures.

Not applicable.

101

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity 
Securities.

Market for our Common Stock

Our common stock has been listed on the Nasdaq Global Select Market under the symbol “ATNX” since June 14, 2017. Prior to 

that date, there was no public trading market for our common stock. 

As of February 14, 2020, there were 115 holders of record of our common stock. The actual number of stockholders is greater 

than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street by brokers 
and other nominees.

Stock Price Performance Graph

The graph below shows a comparison from June 14, 2017, the date on which our common stock first began trading on the 

Nasdaq Global Select Market, of the cumulative total return on an assumed investment of $100.00 in cash in our common stock as 
compared to the same investment in the NASDAQ Composite Index and the NASDAQ Biotechnology Index, all through to 
December 31, 2019. Such returns are based on historical results and are not intended to suggest future performance.

Comparison of Total Return
Among Athenex, Inc., the NASDAQ Composite Index, and the NASDAQ Biotechnology Index

170.00

150.00

130.00

110.00

90.00

6/14/2017

12/31/2017

12/31/2018

12/31/2019

Athenex

Nasdaq Composite

NASDAQ biotechnology index

Cumulative Total Return Comparison

Athenex, Inc.
NASDAQ Composite
NASDAQ Biotechnology Index

June 14,
2017

December 31,
2018

December 31,
2019

  $
  $
  $

100.00    $
100.00    $
100.00    $

115.36    $
107.11    $
98.23    $

138.82 
144.84 
122.20  

This performance graph is not deemed to be “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the 

Exchange Act, or incorporated by reference into any of our filings under the Securities Act or the Exchange Act, except as shall be 
expressly set forth by specific reference to such filing. 

Dividend Policy

We have never declared or paid cash or stock dividends on our common stock. We currently intend to retain all available funds 
and any future earnings for use in the operations of our business and do not anticipate paying any dividends on our common stock in 
the foreseeable future.  Any future determination to declare dividends on common stock will be made at the discretion of our board of 
directors and will depend on our financial condition, operating results, capital requirements, general business conditions, any 
contractual restrictions on dividends, and other factors that our board of directors may deem relevant.

102

 
 
 
 
 
 
 
Item 6.

Selected Financial Data.

The following selected statements of operations and comprehensive loss data and the cash flow data for the years ended 

December 31, 2019, 2018, and 2017 and the balance sheet data as of December 31, 2019 and 2018 are derived from our audited 
consolidated financial statements included elsewhere in this report. You should read this data together with our audited consolidated 
financial statements and related notes appearing elsewhere in this filing and the information under the caption “Management’s 
Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of our 
future results. Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles 
in the United States, or U.S. GAAP. 

2019

Year Ended December 31,
2017
(In thousands, except share and per share data)

2018

2016

2015

Statements of Operations and Comprehensive Loss 
Data:
Revenue:

Product sales, net
License and other revenue

Total revenue

Costs and operating expenses:

Cost of sales
Research and development expenses
Selling, general, and administrative expenses

Total costs and operating expenses
Operating loss
Interest expense (net of interest income)
Loss on derivative liability
Income tax expense (benefit)
Net loss
Less: net loss attributable to non-controlling interests
Net loss attributable to Athenex, Inc.
Net loss per share attributable to Athenex, Inc. common
   stockholders, basic and diluted (1)
Weighted-average shares used in computing net loss per
   share attributable to Athenex, Inc. common 
stockholders,
   basic and diluted (1)
Comprehensive loss

 $

80,535     $
20,694      
101,229      

56,394     $
32,706      
89,100      

36,106     $
1,937      
38,043      

19,394     $
1,157      
20,551      

12,816 
1,128 
13,944 

69,619      
84,393      
66,749      
220,761      
(119,532)    
5,073      
—      
928      
(125,533)    
(1,784)    

25,122      
76,797      
46,112      
148,031      
(109,988)    
5,912      
15,411      
85      
(131,396)    
(226)    
 $ (123,749)   $ (117,440)   $ (131,170)   $

47,005      
119,905      
49,008      
215,918      
(126,818)    
1,793      
—      
100      
(128,711)    
(11,271)    

19,718      
60,624      
25,956      
106,298      
(85,747)    
1,891      
533      
(265)    
(87,906)    
(191)    
(87,715)   $

13,153 
24,463 
27,036 
64,652 
(50,708)
1 
— 
(54)
(50,655)
(55)
(50,600)

 $

(1.67)   $

(1.82)   $

(2.63)   $

(2.19)   $

(1.50)

   74,054,261       64,590,270       49,960,925       40,120,908       33,765,751 
(50,906)
 $ (123,728)   $ (117,950)   $ (130,012)   $

(88,796)   $

(1) See Note 14 to our audited consolidated financial statements appearing elsewhere in this report for a description of the method 

used to calculate basic and diluted net loss per share attributable to Athenex, Inc. common stockholders and pro forma basic and 
diluted net loss per share attributable to Athenex, Inc. common stockholders. 

Selected Balance sheet data:
Cash and cash equivalents
Short-term investments
Goodwill
Working capital(1)
Total assets
Long-term debt
Total liabilities
Non-controlling interests
Total stockholders' equity

2019

2018

December 31,
2017
(In thousands)

2016

2015

  $ 127,674    $
33,139     
38,513     
159,398     
309,932     
53,246     
134,077     
(12,370)    

49,794    $
57,629     
37,495     
119,143     
231,095     
46,764     
102,326     
(10,586)    
  $ 175,855    $ 128,769    $

39,284    $
11,753   
37,795   
38,615   
140,413   
1,981   
49,691   
685   
90,722    $

33,125    $
8,628   
37,552   
23,904   
105,890   
41,807   
71,221   
862   
34,669    $

43,495 
12,271 
37,996 
47,578 
120,431 
3,650 
22,387 
484 
98,044  

(1) Working capital = total current assets - total current liabilities. 

103

 
 
 
 
 
     
     
     
     
 
 
 
 
  
 
      
 
        
        
      
 
 
    
        
        
        
        
 
  
  
    
        
        
        
        
 
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
   
   
   
   
 
 
 
 
   
 
       
       
   
   
   
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
Selected Cash flow data:
Net cash used in operating activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
Net effect of foreign exchange rate changes
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

2019

2018

Year Ended December 31,
2017
(In thousands)

2016

2015

  $

  $

(97,460)   $ (109,387)   $
(48,963)    
169,035     
(175)    
10,510     
39,284     
49,794    $

7,499     
167,452     
389     
77,880     
49,794     
127,674    $

(81,512)   $
(10,018)    
96,896     
793     
6,159     
33,125     
39,284    $

(47,870)   $
2,659     
35,272     
(431)    
(10,370)    
43,495     
33,125    $

(33,756)
(16,909)
76,302 
337 
25,974 
17,521 
43,495  

104

 
 
 
 
 
   
   
   
   
 
 
 
 
   
 
     
 
       
       
     
 
 
   
   
   
   
   
Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion contains management’s discussion and analysis of our financial condition and results of operations 

and should be read together with the historical consolidated financial statements and the notes thereto included in Part II, Item 8 
“Consolidated Financial Statements and Supplementary Data.” This discussion contains forward-looking statements that reflect our 
plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the “Risk 
Factors” section of this Annual Report. Actual results may differ materially from those contained in any forward-looking statements. 
You should carefully read “Special Note Regarding Forward-Looking Statements” and Part I, Item 1A, “Risk Factors.” 

Overview and Recent Developments 

Overview

We are a global biopharmaceutical company dedicated to becoming a leader in the discovery, development and 

commercialization of next generation drugs for the treatment of cancer. Our mission is to improve the lives of cancer patients by 
creating more effective, safer and tolerable treatments. We have assembled a strong and experienced leadership team and have 
established global operations across the pharmaceutical value chain to execute our goal of becoming a global leader in bringing 
innovative cancer treatments to the market and improving health outcomes.

We are organized around three operating segments: (1) our Oncology Innovation Platform, dedicated to the research and 
development of our proprietary drugs; (2) our Commercial Platform, focused on the sales and marketing of our specialty drugs and the 
market development of our proprietary drugs; and (3) our Global Supply Chain Platform, dedicated to providing a stable and efficient 
supply of APIs for our clinical and commercial efforts. Our current clinical pipeline in the Oncology Innovation Platform is derived 
from four different proprietary technologies: (1) Orascovery, based on a P-glycoprotein or P-gp pump, inhibitor, (2) Src Kinase 
inhibition, (3) TCR-T, and (4) arginine deprivation therapy. 

Significant Developments in the Oncology Innovation Platform

Orascovery Platform 

Our Orascovery technology is based on the novel P-gp pump inhibitor molecule, encequidar. Oral administration of encequidar 
in combination with established chemotherapy agents such as paclitaxel, irinotecan, docetaxel, topotecan and eribulin has been shown 
in our clinical studies to date to improve the absorption of these agents by blocking the P-gp pump in the intestinal wall. Oral 
Paclitaxel is our lead asset in our Orascovery platform. We are also advancing the following clinical candidates for the treatment of 
solid tumors on this platform: Oral Irinotecan; Oral Docetaxel; Oral Topotecan; and Oral Eribulin. 

Significant developments in our Orascovery platform in 2019 include the following:

We  announced  topline  results  in  August  2019  for  our  Phase  3  study  of  Oral  Paclitaxel  for  the  treatment  of  metastatic  breast 
cancer and presented further data of the Phase 3 study in an oral presentation 2019 SABCS in December 2019. Results demonstrated 
that  the  study  met  its  primary  endpoint  showing  statistically  significant  improvement  in  overall  response  rate  for  Oral  Paclitaxel 
compared  to  IV  paclitaxel  and  neuropathy  was  less  frequent  with  Oral  Paclitaxel  compared  to  IV  paclitaxel.  In  addition,  ongoing 
analysis  of  secondary  endpoints  of  survival  showed  a  strong  trend  favoring  Oral  Paclitaxel,  in  particular,  Oral  Paclitaxel  showed  a 
statistically  significant  improvement  in  overall  survival  compared  to  IV  paclitaxel  in  the  prespecified  modified  intention-to-treat 
population. We intend to establish Oral Paclitaxel as the treatment of choice for patients receiving chemotherapy for metastatic breast 
cancer and intend to file a NDA with the FDA in 2020 to secure regulatory approval of Oral Paclitaxel for metastatic breast cancer, 
although we can provide no assurance that we will be successful in obtaining the FDA’s approval to commercialize Oral Paclitaxel.

We are also evaluating Oral Paclitaxel in the treatment of angiosarcoma and in combination with other therapies, including anti-
VEGF and anti-PD-1 therapies. In May 2019, we announced early and complete response data from a clinical study of Oral Paclitaxel 
in  cutaneous  angiosarcoma,  and  the  study  is  continuing  to  enroll.  Oral  Paclitaxel  also  received  Orphan  Designations  from  the 
European  Commission  for  the  treatment  of  soft  tissue  sarcoma,  in  October  2019.  We  are  also  studying  Oral  Paclitaxel  with 
ramucirumab in a Phase 1b study in patients with advanced gastric cancer who failed previous chemotherapy. We presented results 
from the study at the ESMO Congress 2019 on the first three patient cohorts and are continuing to advance in the expansion phase of 
the study. Our Phase 1/2 study of Oral Paclitaxel in combination with pembrolizumab, or Keytruda, in patients with advanced solid 
malignancies is ongoing. 

In addition to the progress made with respect to our lead product candidate, we continued to advance our other Orascovery 
product candidates in 2019. We presented preliminary results with respect to our Phase 1 study of Oral Irinotecan at the 2019 ASCO 
Annual Meeting. We are planning Phase 2 studies for both Oral Irinotecan and Oral Docetaxel. A Phase 1 study of Oral Eribulin in 
patients with solid tumors is ongoing. 

105

Src Kinase Inhibition Platform

Our Src Kinase inhibition platform technology is based on novel small molecule compounds that have multiple mechanisms of 
action, including the inhibition of the activity of Src Kinase and the inhibition of tubulin polymerization, which may limit the growth 
or proliferation of cancerous cells. We believe the combination of these mechanisms of action provides a broader range of anti-cancer 
activity compared to either mechanism of action alone. Our lead product candidate on our Src Kinase inhibition platform is 
tirbanibulin ointment, which we are advancing for the treatment of AK as well as psoriasis and skin cancer. Our other clinical 
candidates and their indications in this platform include tirbanibulin oral for solid and liquid tumors and KX2-361 for brain cancers, 
such as GBM. 

Significant developments in our Src Kinase inhibition platform in 2019 include the following:

We completed two Phase 3 studies for tirbanibulin ointment in the treatment of AK and presented topline results from the two 

Phase 3 studies in a late breaker session at the 2019 AAD Annual Meeting. The results showed that both studies achieved their 
primary endpoint with 44% and 54% of patients in studies KX01-AK-003 and KX01-AK-004, respectively, achieving 100% AK 
lesion clearance at Day 57 within the face or scalp treatment areas. There was a statistically significant greater clearance rate in favor 
of tirbanibulin ointment 1% versus vehicle in each study and in each of the pre-defined patient subgroups. Safety results showed that 
tirbanibulin ointment was well tolerated. In October 2019, we announced a progress update for tirbanibulin ointment in the treatment 
of AK from our partner Almirall, with whom we are collaborating for the development and commercialization of tirbanibulin in the 
U.S. and Europe. We also announced the completion of pre-NDA consultation with the FDA. 

We submitted an NDA to the FDA for tirbanibulin ointment as a topical treatment for AK. We are seeking approval of 

tirbanibulin ointment pursuant to Section 505(b)(1) of the FDCA. We can provide no assurances the FDA will accept the NDA 
submission for filing, or if accepted, that our NDA will ultimately receive approval.

A study of tirbanibulin ointment 1% in psoriasis once daily for five days in a Phase 1 clinical trial sponsored by our partner, 

PharmaEssentia, is ongoing.

With respect to KX2-361, our other Src Kinase inhibition platform product candidate, we announced in September 2019 that our 

partner, Xiangxue, initiated a Phase 1 study in China of KX2-361 oral treating advanced malignant solid tumors on the strength of 
encouraging results in preclinical studies. 

Other Platforms

The other technologies in our Oncology Innovation Platform are our TCR-T immunotherapy technology under which we are 

advancing TAEST therapy with our first drug candidate, TAEST16001, and our arginine deprivation therapy technology under which 
we are advancing PT01, also known as Pegtomarginase. With respect to these technologies, we announced several developments in 
2019. 

In March 2019, we announced that our partner, XLifeSc, a wholly-owned subsidiary of Xiangxue, received notice of allowance 
from the NMPA of its IND application to initiate registration related clinical studies in China of TAEST therapy in patients with solid 
tumors that are HLA-A*02:01 positive and NY-ESO-1 positive. The cancer immunotherapy product, named TAEST 16001, is an 
autologous cell-based therapy utilizing the TAEST technology to enhance affinity against the HLA-A*02:01 restricted antigen NY-
ESO-1. We are currently preparing the US IND for TAEST 16001. 

In June 2019, the FDA allowed our IND application for the clinical investigation of PT01 for the treatment of patients with 

advanced malignancies. The compound targets cancer growth and survival by removing the supply of arginine to cancers that have a 
disrupted urea cycle. Also in June 2019 we presented preclinical study results of PT01 in a poster session at the 2019 ASCO Annual 
Meeting. The biologic agent demonstrated high enzymatic activity, predictable pharmacokinetic-pharmacodynamic profiles, and 
cytotoxicity in vitro. Mouse xenograft models showed good tumor growth inhibition activity at tolerable doses with only transient 
weight loss during therapy. We are currently planning a Phase 1 clinical study for PT01.

Other Business Developments 

Other significant business developments for the Company in 2019 include:

In December 2019, we entered into the 2019 Xiangxue License, pursuant to which we granted Xiangxue exclusive rights 
to develop and commercialize Oral Paclitaxel and Oral Irinotecan, tirbanibulin ointment in China, Hong Kong and Macau, 
for certain indications, including oncological and AK indications, as well as other indications that we and Xiangxue 
mutually agree to pursue under the 2019 Xiangxue License. The 2019 Xiangxue License contains an option, exercisable 
by Xiangxue, for two additional product candidates which may be included under the 2019 Xiangxue License. For 
additional information, please see “Business—License and Collaboration Agreements—Xiangxue License Agreements.”

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Also in December 2019, we closed a private placement equity offering in which M. Kingdon Offshore Master Fund, LP as 
lead investor together with a number of institutional investors purchased 3,945,750 million shares of common stock at a 
price of $15.30 per share. The aggregate gross proceeds received by us were $60.4 million and net proceeds were 
approximately $59.4 million.

In September 2019, we announced that we had completed construction of the new API facility in Chongqing, China. The 
440,000-square-foot facility is preparing to commence operations in the second half of 2020. The construction of the 
facility is part of our strategy for vertical integration in order to capture value across the supply chain. Once operational, 
the facility is expected to expand our API production capabilities to further support our global clinical development needs 
and ensure the supply of API for commercial launches. The new API facility was constructed in accordance with an 
agreement with CQ. For additional information, please see “Business—Strategic Public-Private Partnerships—China 
Partnership.”

In June 2019, we announced the strategic expansion of our presence in Europe and Latin America to grow our global 
clinical research and development capacity by establishing offices in Manchester to support our ongoing clinical studies in 
the U.K. and to continue expanding our research and development capabilities in the region. We also entered into a 
definitive agreement to acquire certain assets of CIDAL. The transactions contemplated by the asset purchase agreement 
closed in October 2019. CIDAL is a CRO with headquarters in Guatemala and operations in various countries in Latin 
America. CIDAL has provided CRO services and support for our Phase 3 study of Oral Paclitaxel for metastatic breast 
cancer.  

In May 2019, we suspended operations at our existing API plant in Chongqing, based on the concerns raised by the 
DEMC related to the location of our plant. As a result of suspending these operations, we are currently unable to produce 
commercial batches of API, which has impacted our revenue. We can provide no assurances of when, if at all, commercial 
production of API will resume at the plant. Although we currently are producing API for our ongoing clinical studies, we 
can make no assurances that such production will be able to provide sufficient quantities for all future clinical studies and 
that alternative suppliers will be available if needed to produce API for our clinical trials.

Also in May 2019, we closed a private placement equity offering in which three institutional investors, Perceptive Avoro 
Capital Advisors and OrbiMed purchased 10,000,000 shares of common stock at a price of $10.00 per share. The 
aggregate gross proceeds received by us were $100 million and net proceeds were approximately $99.8 million. 

Overview of Our Business Organization Commercial Platform U.S. Sales & Marketing Chicago, IL Global Partnering Chicago, IL Oncology Innovation Platform Research Labs Buffalo, NY Clinical  Development Buffalo, NY Hong Kong, HK Cranford, NJ Chongqing, China Taipei, Taiwan Buffalo, NY Cranford, NJ Chongqing, China Taipei, Taiwan Regulatory Global Supply Chain Platform cGMP High  Potency API  Facilities Chongqing, China Under Development cGMP  Manufacturing Clarence, NY Formulation Labs Buffalo

Outlook

Looking forward, we have established the following strategic priorities:

We have a comprehensive and experienced leadership team who have come together under one organization to achieve our mission of 
improving the lives of cancer patients by creating more effective, safer and tolerable treatments. We have the goal of becoming a 
global leader in bringing innovative cancer treatments to the market and improving health outcomes. To achieve our goal, we have 
established the following strategic priorities:

Obtain regulatory approval and prepare to commercialize Oral Paclitaxel and tirbanibulin ointment − We intend to file an 
NDA with the FDA in 2020 to secure regulatory approval of Oral Paclitaxel for metastatic breast cancer, and if approved, to establish 
it as the chemotherapy of choice for patients with metastatic breast cancer. If approved by the FDA, we plan to commercialize Oral 
Paclitaxel in the U.S. by leveraging our commercialization capabilities in the U.S., and also plan to evaluate marketing options outside 
of the U.S., including using our internal resources, partnering with others, or out-licensing the product. We submitted an NDA to the 
FDA for tirbanibulin ointment for the treatment of AK and we can provide no assurance the FDA will accept the NDA submission for 
filing, or if accepted, that our NDA will ultimately receive approval. Our strategic partner Almirall will employ its expertise to support 
the development of tirbanibulin ointment in Europe, if approved, and also to commercialize the product in the U.S. and European 
countries, including Russia.

Rapidly and concurrently advance our other clinical programs and product candidates − We intend to pursue the fastest 

feasible pathways to approval of our existing clinical product pipeline. For example, in our Orascovery platform, we plan to continue 
to advance our studies evaluating Oral Paclitaxel in other indications as well as those of our other Orascovery product candidates. In 
addition, we continue to make progress with the development of the clinical program for tirbanibulin. We will also evaluate options to 
enter into partnerships and collaborations where appropriate. 

Enhance and expand our other new technology platforms −  In 2018, Axis, our majority owned subsidiary, commenced the 

development of TCR-T through an in-license from XLifeSc. We are currently preparing the U.S. IND application for TAEST16001. 
In 2018, we commenced development of arginine deprivation therapy, based on our pegylated genetically modified human arginase 
technology which is in-licensed from Polytom. In June 2019, the FDA allowed the IND application for the clinical investigation of 

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PT01 for the treatment of patients with advanced malignancies and we are currently planning a Phase 1 clinical study. In addition to 
our existing portfolio of clinical candidates, our research and development teams are evaluating additional applications of our novel 
technology platforms. For example, our novel CYP and P-gp dual inhibitor technology could expand the breadth of application for our 
oral enabling platform.

Leverage our global research and development operations to continue development of an oncology-focused product 

pipeline − We have research and development operations in the U.S., U.K., China, Taiwan and Latin America that are focused on 
advancing our existing product pipeline and on developing additional novel clinical drug product candidates in order to replenish our 
development pipeline as other candidates mature. We have developed a core competency in oral absorption technology and apply that 
skill to develop new methods of drug discovery and to identify new pipeline candidates, such as our Oral Eribulin IND program. In 
addition, we may leverage our research and development capabilities to partner with others for the development of new pipeline 
candidates. We believe that we can create substantial long-term value by pursuing a robust, ongoing research and development 
program. 

Continue to build an integrated business model that leverages our proprietary commercial platform, supply chain and 

cGMP manufacturing capabilities − We built our U.S. commercial operation in preparation for future FDA approvals of our 
proprietary product candidates. We believe that our experienced product commercialization team can build an infrastructure that 
leverages both our global facilities and collaborative relationships to achieve global distribution of any products approved by the FDA 
and regulatory authorities in other jurisdictions, as applicable, in a timely and cost-effective manner. Our strategic partner Almirall 
will employ its expertise to support the development in Europe and also to commercialize tirbanibulin in the U.S. and European 
countries, including Russia. In addition, we intend to utilize cGMP manufacturing facilities from our public/private partnerships in 
both the China and U.S. markets as a mechanism to build-out our supply chain around the world.

Selectively pursue strategic M&A, licensing or partnership opportunities to complement our existing operations −  We 

continue to pursue acquisitions, licensing and partnership opportunities. We will continue to target opportunities that will complement 
our existing portfolio and operations to create value for stockholders and support our business strategy and mission. 

As we pursue these strategic priorities, we expect to incur significant expenses and increasing operating losses for the 

foreseeable future. We anticipate that our expenses will increase substantially as we seek to:

Continue to advance our lead programs, Orascovery and Src Kinase inhibition technology platforms, through clinical 
development;

Continue to invest in further developing our Commercial Platform ahead of our intended proprietary drug launch;  

Continue our current preclinical and clinical research program and development activities; 

Continue to invest in our manufacturing facilities;  

Advance the preclinical and clinical research program and development activities of our in-licensed technology platforms, 
TCR-T Immunotherapy and Arginine Deprivation Therapy;

Seek to identify additional research programs and product candidates within existing platform technologies;

Attain new drugs and technologies through acquisitions or in-licensing opportunities; 

Hire additional research, development and business personnel; 

Maintain, expand and protect our IP portfolio; and 

Incur additional costs associated with operating as a public company. 

Results of Operations

Except where otherwise noted, the following discussion compares fiscals year 2018 and 2019 results. For a discussion on the 

comparison between fiscal year 2017 and fiscal year 2018 results, see the Management’s Discussion and Analysis of Financial 
Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as 
filed with the SEC and incorporated by reference herein.

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Since inception, we have devoted a substantial amount of our resources to research and development of our lead product 

candidates under our Orascovery, Src Kinase inhibition, TCR-T immunotherapy and arginine deprivation therapy technology 
platforms. We have incurred significant net losses since inception. Our net losses were $125.5 million, $128.7, and $131.4 million for 
the years ended December 31, 2019, 2018, and 2017, respectively. As of December 31, 2019 and 2018, we had an accumulated deficit 
of approximately $567.5 million and $443.7 million, respectively. Our recurring losses from operations and negative cash flows from 
operations have raised substantial doubt regarding our ability to continue as a going concern, and as result, our independent registered 
public accounting firm has noted this in the opinion they issued on our consolidated financial statements for the year ended 
December 31, 2019. 

We have funded our operations to date primarily from the issuance and sale of our common stock through public offerings, 
private placements, and convertible bonds, debt and, to a lesser extent, through revenue generated from our Global Supply Chain 
Platform. Our operating activities used $97.5 million, $109.4 million and $81.5 million of cash during the years ended December 31, 
2019, 2018, and 2017, respectively. As of December 31, 2019, we had cash and cash equivalents of $127.7 million, which included 
$7.8 million funded by New York State for the construction of the Dunkirk facility, and short-term investments of $33.1 million.

Key Components of Results of Operations 

Revenue 

We derive our consolidated revenue primarily from (i) the sales of generic injectable products by our Commercial Platform; (ii) 
the sales of 503B and API products by our Global Supply Chain Platform; (iii) licensing and collaboration projects conducted by our 
Oncology Innovation Platform, which generates revenue in the form of upfront payments, milestone payments and payments received 
for providing research and development services for our collaboration projects and for other third parties; and (iv) grant awards from 
government agencies and universities for our continuing research and development efforts. The following table sets forth the 
components of our consolidated revenue and the amount as a percentage of total revenue for the periods indicated. 

2019

Year ended December 31,
2018

2017

Product sales, net
License and other revenue

(in thousands)    
80,535   
20,694   
101,229     

  $

  $

%
79%
20%

(in thousands)    
56,394   
32,706   
89,100     

    $

    $

%
63%
37%

(in thousands)    
36,106   
1,937   
38,043     

    $

    $

%
95%
5%

We do not anticipate revenue being generated from sales of our product candidates under development in our Oncology 
Innovation Platform until we have obtained regulatory approval. We cannot assure you that we will succeed in achieving regulatory 
approval for our drug candidates as planned, or at all.

Cost of Sales 

Along with sourcing from third party manufacturers, we manufacture our clinical products in our cGMP facility in New York. 
Cost of sales primarily includes the cost of finished products, raw materials, labor costs, manufacturing overhead expenses, reserves 
for expected scrap, as well as transportation costs. Cost of sales also includes depreciation expense for production equipment, changes 
to our excess and obsolete inventory reserves, and certain direct costs such as shipping costs, net of costs charged to customers. 

Research and Development Expenses 

Research and development expenses consist of the costs associated with in-licensing of product candidates, milestone payments, 
conducting preclinical studies and clinical trials, activities related to regulatory filings and other research and development activities.  
The following table sets forth the components of our research and development expenses and the amount as a percentage of total 
research and development expenses for the periods indicated.

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Wages, benefits, and related costs
Clinical trial costs
Preclinical research costs
Drug licensing costs
Other research and development
   costs

Total research and development
   costs

2019

(in thousands)  

  $

19,569   
45,839   
8,418   
8,071   

%
23%
54%
10%
10%

Year Ended December 31,
2018

  (in thousands)  

    $

17,715   
49,572   
3,699   
38,037   

%
15%
41%
3%
32%

2017

(in thousands)  

    $

12,190   
31,070   
3,101   
22,298   

%
16%
40%
4%
29%

2,496   

3%

10,882   

9%

8,138   

11%

  $

84,393     

    $

119,905     

    $

76,797     

Our current research and development activities mainly relate to the clinical development of our Oncology Innovation Platform.

We expense research and development costs as incurred. We record costs for certain development activities, such as clinical 

trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment or clinical site 
activations. We do not allocate employee-related costs, depreciation, rental and other indirect costs to specific research and 
development programs because these costs are deployed across multiple product programs under research and development.

We cannot determine with certainty the duration, costs and timing of the current or future preclinical or clinical studies of our 

drug candidates. The duration, costs, and timing of clinical studies and development of our drug candidates will depend on a variety of 
factors, including:

•

•

•

•

•

The scope, rate of progress, and costs of our ongoing, as well as, any additional clinical studies and other research and 
development activities; 

Future clinical study results; 

Uncertainties in clinical study enrollment rates; 

Significant and changing government regulation; and 

The timing and receipt of any regulatory approvals. 

A change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant 

change in the costs and timing associated with the development of that drug candidate. 

Research and development activities are central to our business model. We expect our research and development expenses to 

continue to increase for the foreseeable future as we continue to support the clinical trials of Oral Paclitaxel, oral irinotecan and 
encequidar, oral docetaxel and encequidar, oral topotecan and encequidar, oral eribulin and encequidar, tirbanibulin ointment, 
tirbanibulin oral and KX2-361, as well as initiate and prepare for additional clinical and preclinical studies, including TCR-T and 
Arginine deprivation program activities. We also expect spending to increase in the research and development for API, 503B and 
specialty products. There are numerous factors associated with the successful commercialization of any of our drug candidates, 
including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time 
based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will likely impact our 
clinical development programs and plans.

Selling, General and Administrative Expenses 

Selling, general and administrative, (“SG&A”), expenses primarily consist of compensation, including salary, employee benefits 

and stock-based compensation expenses for sales and marketing personnel, and for administrative personnel that support our general 
operations such as executive management, legal counsel, financial accounting, information technology, and human resources 
personnel. SG&A expenses also include professional fees for legal, patent, consulting, auditing and tax services, as well as other direct 
and allocated expenses for rent and maintenance of facilities, development of the facility in Dunkirk, NY, insurance and other supplies 
used in the selling, marketing, general and administrative activities. SG&A expenses also include costs associated with our 
commercialization efforts for our proprietary drugs, such as market research, brand strategy and development work on market access, 
scientific publication, product distribution and patient support.

We anticipate that our SG&A expenses will increase in future periods to support increases in our research and development and 

commercialization activities. We expect these increases will likely result in increased headcount, increased share compensation 
charges, expanded infrastructure and increased costs for insurance. We also anticipate increases to legal, compliance, accounting and 
investor and public relations expenses associated with being a public company. 

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Interest Expense and Interest Income

Interest expense consists primarily of interest on our long-term loan and the amortization of our debt discount. Interest income 
consists primarily of interest generated from our cash and short-term investments in U.S. treasury securities, U.S. agency securities, 
high rated commercial papers and corporate bonds 

Loss on Derivative Liability

The loss results from re-measuring to fair value of the embedded derivative of the convertible bonds as of each balance sheet 

date. The related remeasurement adjustments are recognized in the consolidated statements of operations and comprehensive loss. We 
record adjustments to the fair value of the derivative liability until the conversion or repayment of the convertible bonds. The 
derivative liability was no longer outstanding as of December 31, 2018.

Results of Operations 

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

The following table sets forth a summary of our consolidated results of operations for the years ended December 31, 2019 and 

2018, together with the changes in those items in dollars and as a percentage. This information should be read together with our 
consolidated financial statements and related notes included elsewhere in this report. Our operating results in any period are not 
necessarily indicative of the results that may be expected for any future period. 

Year ended December 31,

Revenue

Product sales, net
License and other revenue

Total revenue

Cost of sales
Research and development expenses
Selling, general, and administrative expenses
Interest income
Interest expense
Income tax expense
Net loss
Less: net loss attributable to non-controlling interests
Net loss attributable to Athenex, Inc.

2019

2018
  (in thousands)     (in thousands)     (in thousands)  

Change

  $

  $

80,535    $
20,694     
101,229    $
(69,619)    
(84,393)    
(66,749)    
1,881     
(6,954)    
(928)    
(125,533)    
(1,784)    

56,394    $
32,706     
89,100     
(47,005)    
(119,905)    
(49,008)    
1,788     
(3,581)    
(100)    
(128,711)    
(11,271)    
  $ (123,749)   $ (117,440)   $

24,141   
(12,012)  
12,129     
(22,614)  
35,512   
(17,741)  
93   
(3,373)  
(828)  
3,178     
9,487   
(6,309)      

%

43%  
-37%  

48%  
-30%  
36%  
5%
94%  
NM  

84%  

Revenue 

Product sales for the year ended December 31, 2019 was $80.5 million, an increase of $24.1 million, or 43%, as compared to 

$56.4 million for the year ended December 31, 2018. The increase was due to a $20.0 million increase in specialty product sales from 
growing sales volume of existing products and the launch and sales of new products along with an $11.8 million increase in 503B 
sales mainly attributable to vasopressin sales in the first half of 2019, which we ceased selling in August 2019.  These increases were 
offset by a $5.2 million decrease in sales of API products as the result of the suspension of our API manufacturing facility in 
Chongqing China and a $2.5 million decrease of medical device sales and contract manufacturing revenue.

We recognized $20.0 million and $30.0 million in collaboration and license revenue for the years ended December 31, 2019 and 

2018, respectively, pursuant to the license agreement entered into with Almirall in December 2017 under which Almirall acquired an 
exclusive license to research, develop and commercialize tirbanibulin in the United States, Europe, and Russia. We recognized zero 
and $2.0 million in collaboration and license revenue for the years ended December 31, 2019 and 2018, respectively, pursuant to the 
license agreement we entered into with PharmaEssentia to develop and commercialize oral paclitaxel, oral irinotecan, and oral 
docetaxel in Taiwan, Singapore, and Vietnam.

Cost of Sales 

Cost of sales totaled $69.6 million for the year ended December 31, 2019, an increase of $22.6 million, or 48%, as compared to 

$47.0 million for the year ended December 31, 2018. This was primarily due to an increase in the cost of specialty product sales and 
503B product sales of $21.5 million and $7.0 million, respectively, and was offset by a decrease in cost of API product sales of $5.9 

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million. The increase in cost of sales was in line with the increase in product sales. Changes in availability of products and market 
demand could increase or decrease our revenue and gross profit in the future.

Research and Development Expenses 

Research and development expenses totaled $84.4 million for the year ended December 31, 2019, a decrease of $35.5 million, or 

30%, as compared to $119.9 million for the year ended December 31, 2018. This was primarily due to a decrease in in-licensing fees, 
product development costs, and clinical operations costs and included the following: 

•

•

•

$30.0 million decrease in drug in-licensing fees primarily related to a $29.5 million license fee in 2018 related to the 
license of TCR-T technology in connection with the establishment of Axis;

$8.4 million decrease of product development costs related to the scale up of 503B operations, API research and 
development, and the launch of certain specialty products in 2018; and

$3.7 million decrease of clinical development costs related to encequidar and tirbanibulin ointment due to the winding 
down of the two AK Phase 3 studies.

The decrease in these research and development expenses was offset by an increase of $4.7 million of preclinical development 
costs related to the Arginine Deprivation Therapy and TCR-T Immunotherapy platforms and a $1.9 million increase of research and 
development related compensation expense.

Selling, General and Administrative Expenses 

Selling, general, and administrative expenses totaled $66.7 million for the year ended December 31, 2019, an increase of $17.7 
million, or 36%, as compared to $49.0 million for the year ended December 31, 2018. This was primarily due to an increase of $15.6 
million related to the costs of preparing to commercialize our proprietary drugs, if approved, an increase of $1.3 million of general 
administrative expenses including rent, utilities, insurance, and office expenses, and an increase of $0.9 million of professional fees 
including legal and accounting fees, offset by a decrease of $0.1 million in administrative related compensation expense.

Interest Income and Interest Expense

Interest income consisted of interest earned on our short-term investments and remained relatively consistent from 2018 to 2019. 

Interest expense for the year ended December 31, 2019 totaled $7.0 million, an increase of $3.4 million, or 94%, as compared to $3.6 
million for the year ended December 31, 2018. The interest expense in the current period was incurred from our long-term debt 
entered into with Perceptive during the third quarter of 2018.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

The following table sets forth a summary of our consolidated results of operations for the years ended December 31, 2018 and 

2017, together with the changes in those items in dollars and as a percentage. This information should be read together with our 
consolidated financial statements and related notes included elsewhere in this report. Our operating results in any period are not 
necessarily indicative of the results that may be expected for any future period. 

Year Ended December 31,

2018

2017
  (in thousands)     (in thousands)     (in thousands)    

Change

Revenue

Product sales, net
License and other revenue

Total revenue

Cost of sales
Research and development expenses
Selling, general, and administrative expenses
Interest income
Interest expense
Loss on derivative liability
Income tax expense
Net loss
Less: net loss attributable to non-controlling interests
Net loss attributable to Athenex, Inc.

  $

56,394    $
32,706     
89,100     
(47,005)    
(119,905)    
(49,008)    
1,788     
(3,581)    
—     
(100)    
(128,711)    
(11,271)    

36,106    $
1,937     
38,043     
(25,122)    
(76,797)    
(46,112)    
367     
(6,279)    
(15,411)    
(85)    
(131,396)    
(226)    
  $ (117,440)   $ (131,170)   $

20,288   
30,769   
51,057     
(21,883)  
(43,108)  
(2,896)  
1,421   
2,698   
15,411   
(15)  
2,685     

(11,045)  
13,730     

112

%

56%  
NM  

87%  
56%  
6%

387%  
-43%  
NM  
18%  

NM  

 
 
 
 
 
   
   
 
 
 
   
      
      
      
 
 
   
   
 
 
   
   
   
 
   
   
   
   
   
 
 
   
 
 
Revenue 

Revenue for the year ended December 31, 2018 was $89.1 million, an increase of $51.1 million, or 134%, as compared to $38.0 

million for the year ended December 31, 2017. The increase was primarily attributable to the $30.0 million license fees related to the 
collaboration agreement with Almirall, S.A. and the $2.0 million upfront license fees related to our license agreement with 
PharmaEssentia.  Revenue from product sales also increased due to an increase in specialty product revenue of $13.2 million, an 
increase in 503B revenue of $5.1 million, an increase in API sales of $2.6 million, and an increase in medical device sales of $0.6 
million, offset by a decrease in contract manufacturing revenue and other sales of $1.2 million and a decrease in grant revenue of $0.5 
million. 

Cost of Sales 

Cost of sales totaled $47.0 million for the year ended December 31, 2018, an increase of $21.9 million, or 87%, as compared to 
$25.1 million for the year ended December 31, 2017. The increase in specialty product sales, 503B sales, and API sales increased cost 
of sales by $15.2 million, $3.7 million, and $3.0 million, respectively. Changes in availability of products and market demand could 
increase or decrease our revenue and gross profit in the future. 

Research and Development Expenses 

Research and development expenses totaled $119.9 million for the year ended December 31, 2018, an increase of $43.1 million, 

or 56%, as compared to $76.8 million for the year ended December 31, 2017. This increase was primarily due to the advancement of 
our clinical pipeline and additional drug licensing fees, and included the following: 

•

•

•

•

•

$18.6 million increase of clinical trial costs with the progression of the Phase 3 trials of tirbanibulin ointment and Oral 
Paclitaxel; 

$15.7 million increase in drug licensing fees primarily due to a $29.5 million non-cash license fee related to the purchase 
of T-Cell technology in connection with the establishment of Axis, of which $24.5 million related to the fair value of the 
in-process research and development and $5.0 million related to the Company's common stock issued to XLifeSc. This 
was offset by a decrease in drug licensing fees paid to Hanmi, Gland and Amphastar;

$5.4 million increase of employee salary and benefits, which was primarily attributable to hiring more research and 
development personnel to support our expanding research and clinical activities, including the expansion of our clinical 
research and development team in Taiwan;

$2.8 million increase in general product development of 503B products as they were introduced, and production was 
scaled-up to a commercial level and product development of our proprietary products; and

$0.6 million increase in the cost of preclinical studies as research was performed on an oral formulation of Eribulin.

Selling, General and Administrative Expenses 

Selling, general, and administrative expenses totaled $49.0 million for the year ended December 31, 2018, an increase of $2.9 

million, or 6%, as compared to $46.1 million for the year ended December 31, 2017. December 31, 2017This was primarily due to an 
increase in operating activities and professional fees and included the following: 

•

•

$2.9 million increase in professional fees including legal fees related to the launch of 503B products and consulting fees 
related to the construction of the manufacturing facility in Dunkirk, NY; and 

$2.2 million increase in other office expenses including property and sales taxes, insurance expenses, rent and utilities, 
and others. 

These costs were offset by a decrease in employee compensation of $1.6 million from the stock-based compensation incurred in 

2017 in connection with our IPO and a decrease in marketing costs of $0.6 million.

Liquidity and Capital Resources

Capital Resources 

Since our inception, we have incurred net losses and negative cash flows from our operations. Substantially all of our losses 
have resulted from funding our research and development programs, SG&A costs associated with our operations, and the development 
of our specialty drug operations in our Commercial Platform and 503B operations and the investment we are making in our pre-launch 
activities in anticipation of commercializing our proprietary drugs. We incurred net losses of $125.5 million, $128.7 million and 
$131.4 million for the years ended December 31, 2019, 2018, and 2017, respectively. As of December 31, 2019, we had an 

113

accumulated deficit of $567.5 million. Our operating activities used $97.5 million, $109.4 million and $81.5 million of cash during the 
years ended December 31, 2019, 2018, and 2017, respectively. We intend to continue to advance our various clinical and pre-clinical 
programs which we expect will lead to increased cash outflow of research and development costs and increase our investments in 
commercialization activities for our proprietary drugs. In addition, we can provide no assurance that the funding requirements to 
diversify the product portfolio for specialty drug products in the Commercial Platform and 503B operations will decline in the future. 
Our principal sources of liquidity as of December 31, 2019 were cash and cash equivalents totaling of $127.7 million, which included 
$7.8 million funded by New York State for the construction of the Dunkirk facility, and short-term investments totaling $33.1 million, 
which are generally high-quality investment grade corporate debt securities. 

In June 2017, we sold an aggregate of 6,900,000 shares of common stock at a price of $11.00 per share for cash proceeds of 
$64.2 million in our IPO, net of underwriting discounts and commissions of $6.1 million and offering costs of $5.6 million. In January 
2018, we completed a second public offering of 4,300,000 shares of common stock at a price of $15.25 per share; and in February 
2018, the underwriters exercised their option to purchase an additional 465,000 shares of common stock at the public offering price of 
$15.25 per share. Net proceeds of the 2018 follow-on offering were approximately $68.1 million, after deducting underwriting 
discounts and commissions and offering expenses of approximately $4.6 million.  

In July 2018, we closed a privately placed debt and equity financing deal with Perceptive for gross proceeds of $100.0 million 
and received aggregate net proceeds of $97.1 million, net of fees and offering expenses. We entered into a 5-year senior secured loan 
for $50.0 million of this financing and issued 2,679,528 shares of our common stock at a purchase price of $18.66 per share for the 
remaining $50.0 million. The loan matures on the fifth anniversary from the closing date and bears interest at a floating per annum rate 
equal to LIBOR (with a floor of 2.0%) plus 9.0%. We are required to make monthly interest-only payments with a bullet payment of 
the principal at maturity. The loan agreement contains specified financial maintenance covenants. Provided that, in the event LIBOR 
can no longer be determined, the parties shall mutually establish an alternative rate of interest and until such time that rate is agreed, 
the reference rate for purposes of the loan shall be the Wall Street Journal Prime Rate. In connection with the loan agreement, we 
granted Perceptive a warrant for the purchase of 425,000 shares of common stock at a purchase price of $18.66 per share.

On May 7, 2019, we completed a private placement equity offering of 10 million shares of our common stock. All shares were 

offered by us at a price of $10.00 per share to three institutional investors, namely Perceptive, Avoro Capital Advisors (formerly 
known as venBio Select Advisor), and OrbiMed. The aggregate net proceeds received by us from the offering were $99.9 million, net 
of offering expenses of approximately $0.1 million.

On December 9, 2019, we completed a private placement with a group of institutional investors, led by Kingdon Capital 
Management, LLC, pursuant to which we sold an aggregate of 3,945,750 shares of its common stock at a purchase price of $15.30 per 
share for aggregate net proceeds of $59.4 million, net of offering expenses of approximately $1.0 million.

Based on the current operating plan, we expect that our cash and cash equivalents as of December 31, 2019 will enable us to 

fund our operations into the first quarter of 2021, but will not be sufficient to fund current operating plans through one year after the 
date that these consolidated financial statements are issued. We expect that our expenses will increase as we continue to fund clinical 
and preclinical development of our research programs, pre-launch activities of our proprietary drugs, funding of our Commercial 
Platform and manufacturing facilities, and working capital and other general corporate purposes. We have based our estimates on 
assumptions that might prove to be wrong, and we might use our available capital resources sooner than we currently expect. Because 
of the numerous risks and uncertainties associated with the development and commercialization of our drug candidates, we are unable 
to accurately estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development and 
commercialization of our drug candidates.

Our future capital requirements will depend on many factors, including:

Our ability to generate revenue and profits from our Commercial Platform or otherwise;

The costs, timing and outcome of regulatory reviews and approvals;

Progress of our drug candidates to progress through clinical development successfully;

The initiation, progress, timing, costs and results of nonclinical studies and clinical trials for our other programs and 
potential drug candidates;

The costs of preparing our Commercial Platform for the commercialization of our proprietary drugs; 

The costs of construction and fit-out of planned drug at both Dunkirk and API manufacturing facilities;

The number and characteristics of the drug candidates we pursue;

The costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our IP rights and defending 
IP related claims;

114

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The extent to which we acquire or in-license other products and technologies; and

Our ability to maintain and establish collaboration arrangements on favorable terms, if at all.

We believe that the existing cash and cash equivalents, and short-term investments will not be sufficient to enable us to 

complete all necessary development or commercially launch our proprietary drug candidates. Until such time, if ever, as we can 
generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, 
collaborations, strategic alliances, licensing arrangements, and government grants. To the extent that we raise additional capital 
through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the 
terms of these securities may include liquidation or other preferences that adversely affect rights of holders of common stock. 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 might require the issuance of warrants, which 
could potentially dilute the ownership interest of holders of common stock. If we raise additional funds through collaborations, 
strategic alliances or licensing arrangements with third parties, we might have to relinquish valuable rights to our technologies, future 
revenue streams or research programs or to grant licenses on terms that might not be favorable to us. If we are unable to raise 
additional funds through equity or debt financings when needed, we might be required to delay, limit, reduce, or terminate our product 
development or future commercialization efforts or grant rights to develop and market products or drug candidates that we would 
otherwise prefer to develop and market ourselves.

Cash Flows

The following table provides information regarding our cash flows for the years ended December 31, 2019, 2018, and 2017:

Net cash used in operating activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
Net effect of foreign exchange rate changes
Net increase in cash and cash equivalents

2019

Year ended December 31,
2018
(in thousands)

2017

  $

  $

(97,460)  $
7,499     
167,452     
389     
77,880    $

(109,387)  $
(48,963)   
169,035     
(175)   
10,510    $

(81,512)
(10,018)
96,896 
793 
6,159  

Net Cash Used in Operating Activities 

The use of cash in all periods presented resulted primarily from our net losses adjusted for non-cash charges and changes in 

components of working capital. The primary use of our cash in all periods presented was to fund our research and development, 
regulatory and other clinical trial costs, drug licensing costs, inventory purchases, pre-launch commercialization activities, and other 
expenditures related to sales, marketing and administration. Our prepaid expenses and other current assets, accounts payable and 
accrued expense balances in all periods presented were affected by the timing of vendor invoicing and payments. 

During the year ended December 31, 2019, operating activities used $97.5 million of cash, which resulted principally from our 

net loss of $125.5 million, adjusted for non-cash charges of $15.4 million. Cash provided by our operating assets and liabilities was 
$12.6 million primarily due to increases in accounts payable and accrued expenses. Our net non-cash charges during the year ended 
December 31, 2019 primarily consisted of $3.8 million in depreciation and amortization expense, $9.9 million in stock-based 
compensation expense, and $1.0 million in amortization of debt discount.

During the year ended December 31, 2018, operating activities used $109.4 million of cash, which resulted principally from our 

net loss of $128.7 million, adjusted for non-cash charges of $46.8 million and partially offset by $0.4 million change in deferred 
income taxes. Cash used in our operating assets and liabilities was $27.1 million. Our net non-cash charges during the year ended 
December 31, 2018 primarily consisted of $3.3 million in depreciation and amortization expense, $11.0 million in stock-based 
compensation expense, $0.5 million in amortization of debt discount, and $31.5 million license in fees settled with stock.

During the year ended December 31, 2017, operating activities used $81.5 million of cash, which resulted principally from our 

net loss of $131.4 million, adjusted for non-cash charges of $54.0 million which was partially offset by $0.3 million change in 
deferred income taxes. Cash used in our operating assets and liabilities was $3.8 million. Our net non-cash charges during the year 
ended December 31, 2017 primarily consisted of $3.7 million in depreciation and amortization expense, $14.6 million in stock-based 
compensation expense, $15.4 million in fair value change of derivative liabilities, $3.3 million in amortization of debt discount, $13.3 
million license in fees settled with convertible bond and stock and $2.8 million in interest incurred on converted bonds. 

115

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Net Cash Provided by (Used in) Investing Activities 

In 2019, cash provided by investing activities of $7.5 million was primarily attributable to $24.4 million in sale and maturity of 

short-term investments, net of purchases, and $0.9 million provided by the acquisition of CIDAL, offset by $13.6 million in 
purchasing property and equipment, and $4.2 million in payment for licenses.

In 2018, cash used in investing activities of $49.0 million was primarily attributable to $3.3 million in purchasing property and 

equipment, $45.5 million in net purchasing short-term investments, and $0.1 million in payment for licenses.

In 2017, cash used in investing activities of $10.0 million was primarily attributable to $5.4 million in purchasing property and 

equipment, $3.1 million in net purchasing short-term investments and $1.6 million in payment for licenses.

Net Cash Provided by Financing Activities 

In 2019, cash provided by financing activities was $167.5 million, which primarily consisted of net proceeds of $161.1 million 
from the issuance of our common stock mostly from private placements, net of offering expenses of approximately $1.1 million, and 
$6.5 million from the issuance of debt to fund our new API plant in China, offset by $1.0 repayment of debt and finance lease 
obligations.

In 2018, cash provided by financing activities was $169.0 million, consisting primarily of $123.1 million in proceeds from the 
sales of common stock in our 2018 follow-on offering and private placement of shares to Perceptive, $50.0 million in proceeds from 
the issuance of a senior secured loan with Perceptive, and $4.0 million from the exercise of options to purchase common stock, offset 
by $7.5 million in costs associated with the sale of stock and the issuance of debt and $0.5 million in repayment of capital lease 
obligations and long-term debt.

In 2017, cash provided by financing activities was $96.9 million, consisting primarily of $75.9 million in net proceeds received 
from the sales of common stock, $30.0 million from the issuance of convertible bonds and $2.3 million from the exercise of options to 
purchase common stock, offset by $10.2 million in certain offering costs and $1.2 million in repayment of capital lease obligations 
and long-term debt.

Indebtedness 

We had $63.9 million and $46.8 million of debt as of December 31, 2019 and 2018, respectively. This primarily consisted of 
finance and operating lease obligations, a senior secured loan entered into with Perceptive during 2018, and a credit agreement with 
Chongqing Maliu Riverside Development and Investment Co., LTD.

During the second quarter of 2019, we entered into a credit agreement which amended the existing partnership agreement with 
CQ, for a Renminbi ¥50.0 million (USD $7.2 million at December 31, 2019) line of credit to be used for the construction of the new 
API plant in China. We are required to repay the principal amount with accrued interest within three years after the plant receives 
cGMP certification, with 20% of the total loan with accrued interest is due within the first twelve months following receiving the 
certification, 30% of the total loan with accrued interest due within twenty-four months, and the remaining balance with accrued 
interest due within thirty-six months. Interest accrues at the three-year loan interest rate by the People’s Bank of China for the same 
period on the date of the deposit of the full loan amount. If we fail to obtain the cGMP certification within three years upon the 
completion and acceptance of the plant, we shall return all renovation costs with the accrued interest to CQ, in a single transaction 
within the first ten business days of the next day. If we fail to obtain the cGMP certification within three years of the acceptance of the 
plant, we are required to return all renovation costs with accrued interest to CQ within ten business days. As of December 31, 2019, 
the balance due to CQ was $5.7 million. 

In 2018, we issued a senior secured loan with a principal value of $50.0 million and a maturity date of June 30, 2023 to 

Perceptive. The loan bears interest at a floating per annum rate equal to LIBOR (with a floor of 2.0%) plus 9.0%. Provided that, in the 
event LIBOR can no longer be determined, the parties shall mutually establish an alternative rate of interest and until such time that 
rate is agreed, the reference rate for purposes of the loan shall be the Wall Street Journal Prime Rate. We are required to make monthly 
interest-only payments with a bullet payment of the principal at maturity. The loan agreement contains specified financial maintenance 
covenants, including that we maintain a minimum aggregate balance of $4.0 million in cash free and clear of all liens and that we meet 
certain minimum revenue targets for each quarter during which the loan is outstanding. In addition, the loan agreement is secured by 
substantially all of our assets and is guaranteed by certain of our subsidiaries, including APD, AP, and APS.  

Capital Expenditures 

Our liquidity position and capital requirements are subject to a number of factors. For example, our cash inflow and outflow 

may be impacted by the following: 

•

•

Our ability to generate revenue; and 

Fluctuations in working capital. 

116

Our primary short-term capital needs, which are subject to change, include expenditures related to: 

•

•

•

•

Continuous support of the development and research of our proprietary drug products; 

Build out of our new API plant in China and improvements in our existing manufacturing capacity and efficiency; 

New research and product development efforts; and 

Support of our commercialization efforts related to our current and future products. 

Although we believe the foregoing items reflect our most likely uses of cash in the short term, we cannot predict with certainty 

all of our short-term cash uses or the timing or amounts of cash used. If cash generated from operations is insufficient to satisfy our 
working capital and capital expenditure requirements, we may be required to sell additional equity or debt securities or obtain credit 
financing. This capital may not be available on satisfactory terms, if at all. Furthermore, any additional equity financing may be 
dilutive to our stockholders, and debt financing, if available, may include restrictive covenants. 

In 2015, we entered into two public-private partnerships. New York State is investing in a 409,000 square foot, ISO Class 5 high 

potency oral and sterile injectable pharmaceutical manufacturing facility, which is under construction in Dunkirk, New York. The 
estimated cost of the facility will be approximately $213 million, and we will be able to occupy the space on concessionary terms. In 
Chongqing, China, funded by the Banan District government, a GMP API and a GMP pharmaceutical manufacturing plant is being 
built, which we will occupy on concessionary terms. We plan to utilize these plants to manufacture API and the finished drugs in 
which these API will be used. New York State and the Banan District governments will each fund a majority of the construction costs 
and hold ownership of the manufacturing and office facilities. We are responsible for the costs of all equipment and technology for the 
facilities. In addition, in July 2017 we entered into a 20-year payment in-lieu of tax agreement for the construction of our Dunkirk 
facility with the CCIDA, valued at approximately $9.1 million. In December 2017, we entered into an agreement with M+W U.S., 
Inc., or M+W (now renamed Exyte U.S. Inc.), whereby M+W will be responsible for the design and construction of the Dunkirk 
facility at a cost estimated between $205 million and $213 million, of which up to around $208 million (which includes approximately 
$8 million in additional funds not used under the prior $25 million ESD grant to construct our North American headquarters and 
formulation lab in Buffalo, New York) will be paid by the State of New York, with the remaining amount being paid by us. We are 
also responsible for the cost of furnishing the facility. Payments under the December 2017 agreement will be made to M+W over time 
based upon completion of certain milestones under the agreement, and ESD must approve any payment from the grant funds. 
Construction of the Dunkirk manufacturing facility has begun and is expected to be completed in 2021. Construction of the new API 
manufacturing facility in Chongqing was completed. However, as a result of the Coronavirus outbreak, we expect to commence 
operations in the second half of 2020. 

 Future Capital Requirements 

We believe that our existing cash and cash equivalents and short-term investments, will be sufficient to fund our current 
operating plans into the first quarter of 2021, but will not be sufficient to fund current operating plans through one year after the date 
that these consolidated financial statements are issued. We have based these estimates on assumptions that may prove to be wrong, 
and we could spend our available financial resources much faster than we currently expect and need to raise additional funds sooner 
than we anticipate. To the extent that we raise additional capital through future equity financings, the ownership interest of our 
stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the 
rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could 
contain covenants that would restrict our operations. There can be no assurance that such additional financing, if available, can be 
obtained on terms acceptable to us. If we are unable to obtain such additional financing, we would need to reevaluate our future 
operating plans. 

Inflation 

Inflationary factors, such as increases in our cost of sales and SG&A expenses, may adversely affect our operating results. 

Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high 
rate of inflation in the future may have an adverse effect on our ability to maintain and increase our net income and SG&A expenses 
as a percentage of our revenue if the selling prices of our products do not increase as much or more than these increased costs. 

117

Contractual Obligations 

A summary of our contractual obligations as of December 31, 2019 is as follows: 

Operating leases
Long-term debt
Finance lease obligations
License fees

Less than 1
year

Payments Due by Period

1 to 3 years    

3 to 5 years    

(in thousands)

More than
5 years

Total
Amounts
Committed  

  $

  $

3,229    $
686     
214     
384     
4,513    $

5,466    $
1,719     
235     
—     
7,420    $

4,097    $
54,012     
—     
—     
58,109    $

1,951    $
—     
—     
—     
1,951    $

14,743 
56,417 
449 
384 
71,993  

Our operating and finance leases are principally for facilities and equipment. We currently lease office space in the U.S. and 

foreign countries to support our operations as a global organization. The operating leases in the above table include our several 
locations with the amounts committed by each location: (1) the rental of our global headquarters in the Conventus Center for 
Collaborative Medicine in Buffalo, NY; (2) the rental of our research and development facility in the IC Development Centre in Hong 
Kong; (3) the rental of the Commercial Platform headquarters in Chicago, IL; (4) the rental of our clinical research headquarters in 
Cranford, NJ; (5) the rental of our clinical data management center in Taipei, Taiwan; (6) the rental of our contract research 
organization throughout Latin America; (7) the rental of our Global Supply Chain distribution office in Houston, TX; (8) the rental of 
our Global Supply Chain API manufacturing facility in Chongqing, China; and (9) the rental of other facilities and equipment located 
mainly in Buffalo, NY. These locations represent $7.2 million, $0.6 million, $2.2 million, $0.2 million, $0.8 million, $0.3 million, 
$0.4 million, $0.4 million, and $2.6 million, respectively, of the total amounts committed. In addition to the minimum rental 
commitments on our operating leases we may also be required to pay amounts for taxes, insurance, maintenance and other operating 
expenses.

The long-term debt includes our senior secured loan, the mortgage assumed in connection with the acquisition of CDE, and the 

credit agreement with CQ. The finance lease obligations represent three leases of equipment in our 503B manufacturing facility 
outside of Buffalo, NY. The license fees in the above table represent the amount committed and accrued under in-license agreements 
for specialty drug products by the Commercial platform.

In addition, we have certain obligations under licensing arrangements with third parties contingent upon achieving various 

development, regulatory, and commercial milestones. Pursuant to our license agreement with Polytom, we may be required to make 
payments worth up to $44.0 million of our common stock or cash upon the occurrence of certain regulatory milestones related to a 
pegylated genetically modified human arginase, and make royalty payments representing a percentage of net sales of the licensed 
products. Pursuant to our license agreement with Avalon HepaPOC, we may be required to make payments worth up to $4.8 million 
of our common stock or cash upon the occurrence of certain regulatory and sales milestones related to the meter and strips for conduct 
of liver function tests in humans taking our oncology drugs and make royalty payments representing a percentage of aggregate net 
sales of the licensed product. Pursuant to the license agreement with XLifeSc, our 55% owned joint venture Axis Therapeutics 
Limited, we may be required to make cash payments worth up to $108.0 million upon the occurrence of certain regulatory milestones 
related to XLifeSc’s proprietary TCR-T, and make royalty payments representing a percentage of aggregate net income generated by 
sales of licensed products. Pursuant to our license agreements with Hanmi, we may be required to pay $24.0 million upon regulatory 
approval of a product within the Orasovery platform and make tiered royalty payments based on net sales of any product using the 
licensed intellectual property. These amounts are not included in the table above.

Under our partnerships with New York State and CQ, we are obligated to contribute to the building of manufacturing facilities 
in Dunkirk, NY and Chongqing, China. Pursuant to our arrangement with New York State, we are committed to bear the costs of the 
construction of the facility in Dunkirk, NY in excess of approximately $208.0 million, as described in Capital Expenditures above.  
Further, we are entitled to lease the facility and all equipment at a rate of $1.00 per year for an initial 10-year term and for the same 
rate if we elect to extend the lease for an additional 10-year term. We are responsible for all operating costs and expenses for the 
facility and are committed to spending $1.52 billion on operational expenses in our first 10-year term in the facility, and an additional 
$1.5 billion on operational expenses if we elect to extend the lease for a second 10-year term. Pursuant to our arrangement with CQ, 
the Finance Bureau of Banan District of Chongqing is responsible for investing in the construction of the API and formulation plants 
and completing renovation in accordance with U.S. GMP standards, and we are required to commit capital of no less than $30 million, 
which can be used as working capital in the normal course of the business. As of December 31, 2019, we had contributed a total of 
$9.5 million of capital to our subsidiary. The remaining $20.5 million commitment is not included in the table above. We are allowed 
to lease the facility rent free, for the first 10-year term, with an option to extend the lease for an additional 10-year term, during which, 
if we are profitable, we will pay a monthly rent of 5 RMB per square meter of space occupied, or, we shall have the option to purchase 
the land and building. If we do not purchase the land and building after 20 years at the price described above, we shall have the option 
to lease the land and building with rental fee charged at market price of construction area.  We are responsible for the costs of all 

118

 
 
   
 
 
 
   
   
 
 
 
   
   
   
 
equipment and technology for the facilities. Neither of these facilities in New York State and Chongqing, China were operational as of 
December 31, 2019 and the amounts under these agreements described above are not included in the table above.

Critical Accounting Policies and Significant Judgments and Estimates 

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial 
statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to 
make estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent assets and 
liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the periods. We evaluate our 
estimates and judgments on an ongoing basis, including but not limited to, estimating the useful lives of long-lived assets, assessing 
the impairment of long-lived assets, stock-based compensation expenses, and the realizability of deferred income tax assets. 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. Changes in the accounting estimates are likely to occur from period to 
period. Actual results could be significantly different from these estimates. We believe that the accounting policies discussed below 
are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving 
management’s judgment and estimates. 

Revenue Recognition 

1.

Oncology Innovation Platform

The Company out-licenses certain of its IP to other pharmaceutical companies in specific territories that allow the customer to 
use, develop, commercialize, or otherwise exploit the licensed IP. In accordance with Topic 606, the Company analyzes the contracts 
to identify its performance obligations within the contract. Most of the Company’s out-license arrangements contain multiple 
performance obligations and variable pricing. After the performance obligations are identified, the Company determines the 
transaction price, which generally includes upfront fees, milestone payments related to the achievement of developmental, regulatory, 
or commercial goals, and royalty payments on net sales of licensed products. The Company considers whether the transaction price is 
fixed or variable, and whether such is subject to return. Variable consideration is only included in the transaction price to the extent 
that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty 
associated with the variable consideration is subsequently resolved. If any portion of the transaction price is constrained, it is excluded 
from the transaction price until the constraint no longer exists. The Company then allocates the transaction price to the performance 
obligation to which the consideration is related. Where a portion of the transaction price is received and allocated to continuing 
performance obligations under the terms of the arrangement, it is recorded as deferred revenue and recognized as revenue when (or as) 
the underlying performance obligation is satisfied.

The Company’s contracts may contain one or multiple promises, including the license of IP and development services. The 
licensed IP is capable of being distinct from the other performance obligations identified in the contract and is distinct within the 
context of the contract, as upon transfer of the IP, the customer is able to use and benefit from it, and the customer could obtain the 
development services from other parties. The Company also considers the economic and regulatory characteristics of the licensed IP 
and other promises in the contract to determine if it is a distinct performance obligation. The Company considers if the IP is modified 
or enhanced by other performance obligations through the life of the agreement and whether the customer is contractually or 
practically required to use updated IP. The IP licensed by the Company has been determined to be functional IP.  The IP is not 
modified during the license period and therefore, the Company recognizes revenues from any portion of the transaction price allocated 
to the licensed IP when the license is transferred to the customer and they can benefit from the right to use the IP. The Company 
recognized revenue allocated to the licensed IP performance obligation upon transfer of the license of $0.1 million and $30.0 million 
for the years ended December 31, 2019 and 2018, respectively.

Other performance obligations included in most of the Company’s out-licensing agreements include performing development 
services to reach clinical and regulatory milestone events. The Company satisfies these performance obligations at a point-in-time, 
because the customer does not simultaneously receive and consume the benefits as the development occurs, the development does not 
create or enhance an asset controlled by the customer, and the development does not create an asset with no alternative use. The 
Company considers milestone payments to be variable consideration measured using the most likely amount method, as the 
entitlement to the consideration is contingent on the occurrence or nonoccurrence of future events. The Company allocates each 
variable milestone payment to the associated milestone performance obligation, as the variable payment relates directly to the 
Company’s efforts to satisfy the performance obligation and such allocation depicts the amount of consideration to which the 
Company expects to be entitled for satisfying the corresponding performance obligation. The Company re-evaluates the probability of 
achievement of such performance obligations and any related constraint, and adjusts its estimate of the transaction price as 
appropriate.  To date, no amounts have been constrained in the initial or subsequent assessments of the transaction price.  The 
Company recognized revenue allocated to development performance obligations upon transfer to the customer of $20.0 million and 
$2.0 million for the years ended December 31, 2019 and 2018, respectively.

119

Certain out-license agreements include performance obligations to manufacture and provide drug product in the future for 
commercial sale when the licensed product is approved. For the commercial, sales-based royalties, the consideration is predominantly 
related to the licensed IP and is contingent on the customer’s subsequent sales to another commercial customer. Consequently, the 
sales- or usage-based royalty exception would apply. Revenue will be recognized for the commercial, sales-based milestones as the 
underlying sales occur. 

The Company exercises significant judgment when identifying distinct performance obligations within its out-license 
arrangements, determining the transaction price, which often includes both fixed and variable considerations, and allocating the 
transaction price to the proper performance obligation.  The Company did not use any other significant judgments related to out-
licensing revenue during the years ended December 31, 2019 and 2018.       

2.

Global Supply Chain Platform

The Company’s Global Supply Chain Platform manufactures API for use internally in its research and development activities as 

well as its clinical studies, and for sale to pharmaceutical customers globally. The Company generates additional revenue on this 
platform, by providing small to mid-scale cGMP manufacturing of clinical and commercial products for pharmaceutical and biotech 
companies and selling pharmaceutical products under 503B regulations set forth by the FDA.

Revenue earned by the Global Supply Platform is recognized when the Company has satisfied its performance obligation, which 

is the shipment or the delivery of drug products. The underlying contracts for these sales are generally purchase orders and the 
Company recognizes revenue at a point-in-time. Any remaining performance obligations related to product sales are the result of 
customer deposits and are reflected in the deferred revenue contract liability balance.

3.

Commercial Platform

The Company’s Commercial Platform generates revenue by distributing specialty products through independent pharmaceutical 
wholesalers. The wholesalers then sell to an end-user, normally a hospital, alternative healthcare facility, or an independent pharmacy, 
at a lower price previously established by the end-user and the Company. Upon the sale by the wholesaler to the end-user, the 
wholesaler will chargeback the difference between the original list price and price at which the product was sold to the end-user. The 
Company also offers cash discounts, which approximate 2.3% of the gross sales price, as an incentive for prompt customer payment, 
and, consistent with industry practice, the Company’s return policy permits customers to return products within a window of time 
before and after the expiration of product dating. Further, the Company offers contractual allowances, generally rebates or 
administrative fees, to certain wholesale customers, group purchasing organizations (“GPOs”), and end-user customers, consistent 
with pharmaceutical industry practices. Revenues are recorded net of provisions for variable consideration, including discounts, 
rebates, GPO allowances, price adjustments, returns, chargebacks, promotional programs and other sales allowances. Accruals for 
these provisions are presented in the consolidated financial statements as reductions in determining net sales and as a contra asset in 
accounts receivable, net (if settled via credit) and other current liabilities (if paid in cash) As of December 31, 2019 and 2018, the 
Company’s total provision for chargebacks and other deductions included as a reduction of accounts receivable totaled $14.4 million 
and $13.1 million, respectively. The Company’s total provision for chargebacks and other revenue deductions was $87.2 million, 
$36.5 million, and $10.6 million for the years ended December 31, 2019, 2018, and 2017, respectively. 

The Company exercises significant judgment in its estimates of the variable transaction price at the time of the sale and recognizes 
revenue when the performance obligation is satisfied. Factors that determine the final net transaction price include chargebacks, fees for 
service, cash discounts, rebates, returns, warranties, and other factors. The Company estimates all of these variables based on historical 
data obtained from previous sales finalized with the end-user customer on a product-by-product basis. At the time of sale, revenue is 
recorded net of each of these deductions. Through the normal course of business, the wholesaler will sell the product to the end-user, 
determining the actual chargeback, return products, and take advantage of cash discounts, charge fees for services, and claim warranties 
on products. The final transaction price per product is compared to the initial estimated net sale price and reviewed for accuracy. The final 
prices and other factors are immediately included in the Company’s historical data from which it will estimate the transaction price for 
future sales. The underlying contracts for these sales are generally purchase orders including a single performance obligation, generally 
the shipment or delivery of products and the Company recognizes this revenue at a point-in-time.

Research and Development Expenses 

Research and development expenses represent costs associated with developing our proprietary drug candidates, our 

collaboration agreements for such drugs, and our ongoing clinical studies. 

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 our behalf in the ongoing development of our drug 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 revised or the scope of a contract is revised, we will modify the accruals accordingly on a 
prospective basis and will do so in the period in which the facts that give rise to the revision become reasonably certain. 

120

Off-Balance Sheet Arrangements 

We do not maintain any off-balance sheet partnerships, arrangements, or other relationships with unconsolidated entities or 

others, often referred to as structured finance or special purpose entities, which are established for the purpose of facilitating off-
balance sheet arrangements or other contractually narrow or limited purposes. 

Recent Accounting Pronouncements

In the normal course of business, we evaluate all new accounting pronouncements issued by the FASB, SEC, or other 
authoritative accounting bodies to determine the potential impact they may have on our Consolidated Financial Statements. Refer to 
Note 2 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements contained in Item 8 of this 
report for additional information about these recently issued accounting standards and their potential impact on our financial condition 
or results of operations.

121

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk.

Foreign Currency Exchange Risk 

A significant portion of our business is located outside the United States and, as a result, we generate revenue and incur 
expenses denominated in currencies other that the U.S. dollar, a majority of which is denominated in RMB. In 2019, 2018, and 2017, 
approximately 1%, 2% and 7%, respectively, of our sales, excluding intercompany sales, were denominated in foreign currencies. As a 
result, our revenue can be significantly impacted by fluctuations in foreign currency exchange rates. As of December 31, 2019, we had 
cash and cash equivalents of approximately $7.6 million at our Chinese subsidiaries. We expect that foreign currencies will represent a 
lower percentage of our sales in the future due to the anticipated growth of our U.S. business. Our international selling, marketing, and 
administrative costs related to these sales are largely denominated in the same foreign currencies, which somewhat mitigates our 
foreign currency exchange risk rate exposure. 

Currency Convertibility Risk 

A portion of our revenues and expenses, and a portion of our assets and liabilities are denominated in RMB. On January 1, 1994, 
the Chinese government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People’s Bank 
of China, (“PBOC”). However, the unification of exchange rates does not imply that the RMB may be readily convertible into U.S. 
dollars or other foreign currencies. All foreign exchange transactions continue to take place either through the PBOC or other banks 
authorized to buy and sell foreign currencies at the exchange rates quoted by the PBOC. Approvals of foreign currency payments by 
the PBOC or other institutions require submitting a payment application form together with suppliers’ invoices, shipping documents 
and signed contracts. 

Additionally, the value of the RMB is subject to changes in central government policies and international economic and political 

developments affecting supply and demand in the PRC foreign exchange trading system market. 

Interest Rate Sensitivity 

We had cash and cash equivalents of $127.7 million and short-term investments of $33.1 million as of December 31, 2019, 

which consisted primarily of U.S. government or high-quality investment grade corporate debt securities. Our primary exposure to 
market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. However, because of 
the short-term nature of the instruments in our portfolio, a sudden change in U.S. market interest rates is not expected to have a 
material impact on our consolidated financial condition or results of operations. We do not believe that our cash or cash equivalents 
have significant risk of default or illiquidity.

We have 5-year $50.0 million loan agreement with Perceptive, which closed on July 3, 2018, bearing interest at a floating per 

annum rate equal to 1-Month LIBOR (with a floor of 2%) plus 9%. If 1-Month LIBOR increased by 1%, we would be required to pay 
Perceptive an additional $0.5 million in interest annually. If 1-Month LIBOR decreased by 1%, we would be required to pay 
Perceptive $0.5 million less in interest annually. Thus, a change in the short-term interest rate environment (especially a material 
change) could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause 
the market value of our common shares to decline. In the event LIBOR can no longer be determined, the parties shall mutually 
establish an alternative rate of interest and until such time that rate is agreed, the reference rate for purposes of the loan shall be the 
Wall Street Journal Prime Rate. As of December 31, 2019, we did not have any outstanding interest rate swap contracts.

Credit Risk 

We had cash and cash equivalents of $127.7 million, $49.8 million and $39.3 million and marketable securities of $33.1 million, 

$57.6 million and $11.8 million at December 31, 2019, 2018, and 2017, respectively. Substantially all of our bank deposits are in 
major financial institutions, which we believe are of high credit quality. The primary objectives of our investment activities are to 
preserve principle, provide liquidity and maximize income without significant increasing risk. 

We make periodic assessments of the recoverability of trade and other receivables and amounts due from related parties. Our 
historical experience in collection of receivables falls within the recorded allowances, and we believe that we have made adequate 
provision for uncollectible receivables. 

Item 8.

Financial Statements and Supplementary Data.

122

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 

Athenex, Inc.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity 
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

Page

F-1
F-4
F-5
F-6
F-7
F-8

123

 
  
 
  
  
  
  
  
  
  
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

To the stockholders and the Board of Directors of Athenex, Inc. 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Athenex, Inc. and subsidiaries (the “Company”) as of 

December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and 
cash flows for each of the three years in the period ended December 31, 2019, and the related notes and the consolidated financial 
statement schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial 
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the 
results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with 
accounting principles generally accepted in the United States of America. 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) 
(PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal 
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our 
report dated March 2, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As 

discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and negative cash flows 
from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these 
matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of 
this uncertainty. 

Change in Accounting Principle 

As discussed in Note 2 to the financial statements, effective January 1, 2019, the Company adopted Financial Accounting 

Standards Board Accounting Standards Update No. 2016-02, Leases (Topic 842), as amended, using the modified retrospective 
method. 

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion 

on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are 
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules 
and regulations of the Securities and Exchange Commission and the PCAOB. 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform 
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error 
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether 
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, 
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting 
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial 
statements. We believe that our audits provide a reasonable basis for our opinion. 

Critical Audit Matter

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements 
that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are 
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The 
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are 
not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or 
disclosures to which they relate.

F-1

License Revenue Recognition – Refer to Note 17 (Oncology Innovation Platform) to the financial statements

Critical Audit Matter Description

The Company out-licenses certain of its intellectual property (“IP”) and provides related consulting services to 
pharmaceutical companies in specific territories that allow the customer to use, develop, commercialize, or otherwise exploit the 
licensed IP. In accordance with Accounting Standards Codification Topic 606 (“ASC 606”), the Company determines each of its 
performance obligations under the agreements and allocates the transaction price to those obligations accordingly, including the 
determination as to whether variable consideration within the total transaction price meets the criteria for recognition. The Company’s 
obligations may include delivering the license of IP (if the license is deemed to be distinct), performing continued research and 
development on the licensed IP, manufacturing the licensed product, or maintaining the legal protection for the licensed IP throughout 
the duration of the agreement, among other obligations. Most of the Company’s revenue from its out-licensing is recognized at a 
point-in-time when the performance obligation is satisfied.

We identified license revenue recognition as a critical audit matter because of the judgments necessary for management to: 

identify performance obligations, determine variable consideration, allocate transaction price amongst the identified performance 
obligations, and determine the timing of recognition for such revenue.  Because of the complexity associated with applying the 
recognition criteria of ASC 606, notably related to identification of performance obligations, determination of variable consideration, 
allocation of transaction price, and determination of timing of revenue recognition, this required extensive audit effort and a high 
degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.  

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the recognition of license revenue, included the following, among others: 

(cid:129) We tested the effectiveness of controls over the identification of performance obligations, determination of variable 

consideration, allocation of transaction price, and determination of timing of license revenue recognition. 

(cid:129) We evaluated the Company’s revenue recognition for licenses through the inspection of license agreements and the 

evaluation of management’s revenue recognition analysis corresponding to license agreements    to validate that such 
transactions are being recognized in a manner commensurate with the terms of the established contracts and the relevant 
accounting guidance.  Evaluating the reasonableness of management’s accounting conclusions involved: 

o Evaluating the accuracy and completeness of performance obligations identified by management in license 

agreements.  We analyzed the license agreements to determine if the arrangement terms that may have an impact on 
revenue recognition were identified and properly considered in the evaluation of the accounting for the contract.  We 
also inquired of management and reviewed source documentation to assess whether the performance obligations 
identified by management are complete, and for those performance obligations identified, that they are both capable 
of being distinct and are distinct within the context of the contract.  

o Determining the reasonableness of management’s determination of the amounts of variable consideration included 
within total transaction price. We analyzed the nature of performance obligations and the contingencies related to 
the variable consideration in assessing management’s methods in estimating the amount of variable consideration to 
be included in total transaction price.  

o Testing the estimates by management in allocating total transaction price amongst the performance obligations 

identified in the license agreements. We evaluated the reasonableness of management’s methodology in allocating 
transaction price amongst the performance obligations and recalculated such allocations to determine that such were 
accurate.  

o Assessing the appropriateness of the method of measurement of progress and timing of recognition for amounts in 

license agreements. We tested the appropriateness of management’s recognition method (point-in-time or over-time) 
for performance obligations by evaluating the manner in which the performance obligations are satisfied. 

F-2

Revenue Chargebacks – Refer to Note 17 (Commercial Platform) to the financial statements

Critical Audit Matter Description

The Company has agreements with certain independent pharmaceutical wholesalers. These wholesalers then sell to an end-
user (hospital, alternative healthcare facility, or independent pharmacy). In such case, sales are initially recorded at the price sold to 
the wholesaler. Because these prices will be reduced for the end-user, the Company records a contra asset in accounts receivable and a 
reduction to revenue at the time of the sale, using the difference between the list price and the estimated end-user contract price. Upon 
the sale by the wholesaler to the end-user, the wholesaler will chargeback the difference between the original list price and price at 
which the product was sold to the end-user and such chargeback is offset against the initial estimated contra asset. The provision for 
chargebacks as of December 31, 2019 was $14.4 million, included as a reduction of accounts receivable.

We identified the accrual for chargebacks at the balance sheet date as a critical audit matter because of the judgments 

necessary for management to estimate the accrual based on estimates of wholesaler inventory stocking levels and of differences 
between list price and price at which the product was sold to the end-user. Given the volume of transactions subject to potential 
chargeback at the balance sheet date and the level of uncertainty involved in the estimation of the quantity and mix of products in 
wholesaler inventory, this matter required a high degree of auditor judgment when performing audit procedures and evaluating the 
results of those procedures. 

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to revenue chargebacks included the following, among others: 

(cid:129) We tested the effectiveness of controls over the Company’s chargeback estimation process, which included management’s 
control activities in reviewing the estimated wholesaler stock levels and anticipated chargeback claims outstanding. 
(cid:129) We evaluated the reasonableness of the methodology and assumptions applied by management when developing their 
chargeback estimate. We tested the accuracy and completeness of amounts in the accrual computations, inquired of 
management, and reviewed source documentation – including wholesaler agreements and inventory schedules to assess that 
management’s methodology included relevant data and assumptions to arrive at a reasonable estimation process. 

(cid:129) We evaluated whether the methodology and assumptions have been consistently applied, throughout the estimation process, 

during the course of the year and in a manner consistent with the estimation process in the prior years presented.

We selected a sample of activity of the chargeback accrual at the balance sheet date and performed audit procedures on such 

sample.  Such procedures included: obtaining wholesaler agreements for the samples and recalculating the year-end accrual for the 
selected transactions; verifying quantities-on-hand with wholesalers for the sample transactions; and performing a retrospective review 
of payments received subsequent to the balance sheet date to evaluate reasonableness of the Company’s estimate of the chargebacks 
contra asset at the year-end balance sheet date.

/s/ Deloitte & Touche LLP

Williamsville, New York 
March 2, 2020

We have served as the Company’s auditor since 2015.

F-3

ATHENEX, INC. AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS 
(In thousands, except share and per share data) 

Assets
Current assets:

Cash and cash equivalents
Short-term investments
Accounts receivable, net of chargebacks and other deductions of $14,394
   and $13,101, respectively, and allowance for doubtful accounts
   of $124 and $9, respectively
Inventories
Prepaid expenses and other current assets

Total current assets

Property and equipment, net
Goodwill
Intangible assets, net
Operating lease right-of-use assets, net
Deferred income tax asset
Total assets
Liabilities and stockholders' equity
Current liabilities:

Accounts payable
Accrued expenses
Current portion of operating lease liabilities
Current portion of long-term debt

Total current liabilities

Long-term liabilities:

Long-term operating lease liabilities
Long-term debt and finance lease obligations
Other long-term liabilities

Total liabilities

Commitments and contingencies (Note 19)
Stockholders' equity:
Common stock, par value $0.001 per share, 250,000,000 shares authorized at
   December 31, 2019 and 2018; 83,231,063 and 68,668,986 shares issued at
   December 31, 2019 and 2018, respectively; 81,558,143 and 66,996,066 shares
   outstanding at December 31, 2019 and 2018, respectively

Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Less: treasury stock, at cost; 1,672,920 shares at December 31,
   2019 and 2018
Total Athenex, Inc. stockholders' equity

Non-controlling interests

Total stockholders' equity
Total liabilities and stockholders' equity

December 31,

2019

2018

  $

127,674    $
33,139   

49,794 
57,629 

16,689   
32,630   
20,794   
230,926   
23,153   
38,513   
8,522   
8,818   
—   

  $

309,932    $

  $

  $

23,331    $
44,307   
3,010   
880   
71,528   

7,620   
52,366   
2,563   
134,077   

83   
763,648   
(635)  
(567,465)  

(7,406)  
188,225   
(12,370)  
175,855   
309,932    $

12,951 
28,787 
21,658 
170,819 
11,447 
37,495 
10,848 
— 
486 
231,095 

12,997 
37,718 
— 
961 
51,676 

— 
45,803 
4,847 
102,326 

69 
591,064 
(656)
(443,716)

(7,406)
139,355 
(10,586)
128,769 
231,095  

The accompanying notes are an integral part of these consolidated financial statements. 

F-4

 
 
 
 
 
   
 
 
   
   
   
 
 
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
 
 
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
 
 
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ATHENEX, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS 
(In thousands, except share and per share data) 

Revenue:

Product sales, net
License and other revenue

Total revenue

Costs and operating expenses:

Cost of sales
Research and development expenses
Selling, general, and administrative expenses

Total costs and operating expenses

Operating loss

Interest income
Interest expense
Loss on derivative liability

Loss before income tax expense

Income tax expense
Net loss
Less: net loss attributable to non-controlling interests
Net loss attributable to Athenex, Inc.
Unrealized (loss) gain on investment, net of income taxes
Foreign currency translation adjustment, net of income taxes
Comprehensive loss
Net loss per share attributable to Athenex, Inc. common stockholders,
   basic and diluted (Note 14)
Weighted-average shares used in computing net loss per share attributable
   to Athenex, Inc. common stockholders, basic and diluted (Note 14)

  $

  $

  $

  $

2019

Year Ended December 31,
2018

2017

80,535    $
20,694   
101,229   

69,619   
84,393   
66,749   
220,761   
(119,532)  
(1,881)  
6,954   
—   
(124,605)  
928   
(125,533)  
(1,784)  
(123,749)   $

(97)  
118   

(123,728)   $

56,394    $
32,706   
89,100   

47,005   
119,905   
49,008   
215,918   
(126,818)  
(1,788)  
3,581   
—   
(128,611)  
100   
(128,711)  
(11,271)  
(117,440)   $

15   
(525)  
(117,950)   $

36,106 
1,937 
38,043 

25,122 
76,797 
46,112 
148,031 
(109,988)
(367)
6,279 
15,411 
(131,311)
85 
(131,396)
(226)
(131,170)
(26)
1,184 
(130,012)

(1.67)   $

(1.82)   $

(2.63)

74,054,261   

64,590,270   

49,960,925  

The accompanying notes are an integral part of these consolidated financial statements. 

F-5

 
 
 
 
 
   
   
 
 
   
   
   
   
   
 
 
 
 
 
 
 
 
 
 
   
   
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ATHENEX, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 
(In thousands, except share data) 

  Common Stock
  Shares     Amount   capital
  42,342,706    $

  Additional   
   paid-in   Accumulated   comprehensive    Treasury Stock    stockholders'    controlling   stockholders' 
    Shares    Amount   
(1,304 )   (1,656,920 )  $ (7,406 )  $

    interests    
862    $

   Athenex, Inc.    Non-

(195,106 )  $

237,581   $

33,807    $

equity

equity

deficit

34,669  

Total

loss

42   $

    Accumulated      
other

Total

   6,900,000  
   8,522,728  
400,000  

568,182  
421,982  

738,764  
—  
—  
—  

—  
  59,894,362   

   7,486,261   
—   
—  
240,000  

7    
9    
—    

1    
—    

1    
—    
—    
—    

—    
60    

7    
—    
—    
1    

375,133  
—  

—  
  68,668,986   

—    
—    

—    
69    

Balance at January 1, 2017

Sale of common stock, net of
   costs and discounts of
   $11,706
Conversion of bonds
Stock-based compensation cost
Research and development
   licensing fee satisfied with
   stock
Vesting of restricted stock
Stock options and warrants
   exercised
Repurchase of common stock
Non-controlling interests
Net loss
Other comprehensive income, net
   of tax

Balance at December 31, 2017

Sale of common stock, net of
   costs and discounts of
   $5,518
Issuance of warrant
Stock-based compensation cost
Vesting of restricted stock
Stock options and warrants
   exercised
Research and development
   licensing fee satisfied with
   stock
Net loss
Other comprehensive loss, net of
   tax

Balance at December 31, 2018

Sale of common stock, net of
   costs of $1,103
Equity consideration in
   connection with acquisition
Stock-based compensation cost
Restricted stock expense
Stock options exercised
Net loss
Other comprehensive loss, net of
   tax

Balance at December 31, 2019

  83,231,063    $

64,187    
98,920    
12,431    

6,249    
2,160    

2,277    
—    
—    
—    

—     
—     
—     

—     
—     

—     
—     
—     
(131,170 )   

—     
—     
—     

—     
—     

—     
—     
—     
—     

—     
—     
—     

—     
—     

—     
(16,000 )   
—     
—     

—     
—     
—     

—     
—     

—     
—     
—     
—     

64,194     
98,929     
12,431     

6,250     
2,160     

2,278     
—     
—     
(131,170 )   

—    
423,805    

—     
(326,276 )   

—     
1,158     
(146 )   (1,672,920 )   

—     
(7,406 )   

1,158     
90,037     

—     
—     
—     

—     
—     

—     
—     
49     
(226 )   

—     
685     

—     
—     
—     
—     

—     

64,194  
98,929  
12,431  

6,250  
2,160  

2,278  
—  
49  
(131,396 )

1,158  
90,722  

117,616  
3,140  
10,003  
1,008  

3,956  

117,609    
3,140    
10,003    
1,007    

—     
—     
—     
—     

—     

673,230  

1    

3,955    

—     
—     
—     
—     

—     

—     
—     

—     
—     
—     
—     

—     

—     
—     

—     
—     
—     
—     

—     

—     
—     

117,616     
3,140     
10,003     
1,008     

3,956     

31,545    
—    

—     
(117,440 )   

31,545     
(117,440 )   

—     
(11,271 )   

31,545  
(128,711 )

—    
591,064    

—     
(443,716 )   

(510 )   
—     
(656 )   (1,672,920 )   

—     
(7,406 )   

(510 )   
139,355     

—     
(10,586 )   

(510 )
128,769  

  14,006,575   

14    

159,963    

—     

—   
—  
223,723  
331,779  
—  

—  

—    
—    
—    
—    
—    

748    
8,219    
1,671    
1,983    
—    

—     
—     
—     
—     
(123,749 )   

—    
83   $

—    
763,648   $

—     
(567,465 )  $

—     

—     
—     
—     
—     
—     

—     

—     
—     
—     
—     
—     

—     

—     
—     
—     
—     
—     

159,977     

—     

159,977  

748     
8,219     
1,671     
1,983     
(123,749 )   

—     
—     
—     
—     
(1,784 )   

748  
8,219  
1,671  
1,983  
(125,533 )

21     

—     
(635 )   (1,672,920 )  $ (7,406 )  $

—     

21     
188,225    $

—     
(12,370 )  $

21  
175,855  

The accompanying notes are an integral part of these consolidated financial statements.  

F-6

 
   
  
   
   
 
   
 
      
   
    
 
    
 
 
 
  
 
     
 
 
   
    
 
    
 
   
 
 
 
  
   
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
  
 
  
  
  
  
  
  
  
  
  
  
  
  
 
 
  
 
  
  
  
  
  
  
  
  
  
  
ATHENEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization
Stock-based compensation expense
Loss on derivative liability
Amortization of debt discount
Deferred rent expense
Net loss on disposal of assets and impairment charges
Research and development license fees settled with convertible bond and stock
Interest incurred on converted bonds
Deferred income taxes

Changes in operating assets and liabilities, net of effect of acquisition:

Receivables, net
Prepaid expenses and other assets
Inventories
Accounts payable and accrued expenses

Net cash used in operating activities

Cash flows from investing activities:

Purchase of property and equipment
Receipts of refundable deposit
Payments for licenses
Acquisition activity
Purchases of short-term investments
Sale of short-term investments

Net cash provided by (used in) investing activities

Cash flows from financing activities:
Proceeds from sale of stock
Proceeds from issuance of convertible bonds
Proceeds from issuance of debt
Costs incurred related to the sale of stock
Costs incurred related to the issuance of debt
Proceeds from exercise of stock options
Investment from non-controlling interest
Repayment of finance lease obligations and long-term debt

Net cash provided by financing activities

Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents, end of period

Supplemental cash flow disclosures

Interest paid
Income taxes paid
Non-cash investing and financing activities:
Accrued purchases of property and equipment
Cost of equity raise in accounts payable and accrued expenses
Convertible bond issued in lieu of licensing cash payment
Common stock issued in lieu of licensing cash payment
Common stock issued upon the conversion of bonds and derivative liability
Property and equipment financed under capital and finance leases
Accrued purchases of licenses
Equity consideration in connection with acquisition

2019

Year ended December 31,
2018

2017

  $

(125,533 )

 $

(128,711 )

 $

(131,396 )

3,817 
9,885 
— 
1,026 
— 
232 
— 
— 
486 

(3,738 )
864 
(3,844 )
19,345 
(97,460 )

(13,572 )
—  
(4,175 )
853 
(74,697 )
99,090 
7,499 

161,080 
— 
6,464  
(1,103 )
— 
1,983 
—  
(972 )
167,452 
77,491 
49,794 
389 
127,674 

4,925 
448 

483  
— 
— 
— 
—  
— 
— 
748  

 $

 $
 $

 $
 $
 $
 $
 $
 $
 $
 $

3,269 
11,011  
— 
514  
262  
236 
31,545 
— 
(365 )

(4,483 )
(13,966 )
(12,226 )
3,527 
(109,387 )

(3,321 )
—  
(110 )
— 
(113,259 )
67,727 
(48,963 )

123,134 
— 
50,000  
(5,518 )
(1,993 )
3,956 
— 
(544 )
169,035 
10,685 
39,284 
(175 )
49,794 

2,977 
464 

340 
—  
— 
31,545 
—  
— 
4,175 
— 

 $

 $
 $

 $
 $
 $
 $
 $
 $
 $
 $

3,673 
14,591 
15,411 
3,349 
856 
80 
13,250 
2,759 
(327 )

(5,691 )
(4,537 )
(12,321 )
18,791 
(81,512 )

(5,440 )
110 
(1,550 )
— 
(55,282 )
52,144 
(10,018 )

75,900 
30,000 
— 
(10,168 )
— 
2,278 
49 
(1,163 )
96,896 
5,366 
33,125 
793 
39,284 

109 
244 

156 
188 
7,000 
6,250 
98,929 
688 
— 
—  

  $

  $
  $

  $
  $
  $
  $
  $
  $
  $
 $

The accompanying notes are an integral part of these consolidated financial statements. 

F-7

 
 
 
 
 
   
   
 
 
   
   
   
   
   
 
 
 
  
  
  
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
  
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
  
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
  
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
  
  
  
 
 
  
  
  
  
  
ATHENEX, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

1.

COMPANY AND NATURE OF BUSINESS 

Description of Business 

Athenex, Inc. (the “Company” or “Athenex”), originally under the name Kinex Pharmaceuticals LLC (“Kinex”), formed in 
November 2003, commenced operations on February 5, 2004, and operated as a limited liability company until it was incorporated in 
the State of Delaware under the name Kinex Pharmaceuticals, Inc. on December 31, 2012. The Company changed its name to 
Athenex, Inc. on August 26, 2015. 

Athenex is a global biopharmaceutical company dedicated to the discovery, development and commercialization of novel 

therapies for the treatment of cancer. The Company’s mission is to improve the lives of cancer patients by creating more effective, 
safer and tolerable treatments. The Company’s current clinical pipeline is derived from Orascovery, Src Kinase Inhibition, T-cell 
receptor-engineered T-cells (“TCR-T”), and Arginine Deprivation Therapy technology platforms. The Company has assembled a 
leadership team and has established global operations across the pharmaceutical value chain to execute its mission to become a global 
leader in bringing innovative cancer treatments to the market and improve health outcomes. The Company is primarily engaged in 
conducting research and development activities through corporate collaborators, in-licensing and out-licensing pharmaceutical 
compounds and technology, conducting preclinical and clinical testing, recruiting personnel, identifying and evaluating additional 
drug candidates for potential in-licensing or acquisition, and raising capital to support development and commercialization activities. 
The Company also conducts commercial sales of specialty products through its wholly owned subsidiary, Athenex Pharmaceutical 
Division (“APD”), and 503B products through its wholly owned subsidiary, Athenex Pharma Solutions (“APS”).     

Initial Public Offering 

On June 13, 2017, the Company’s Registration Statement on Form S-1 (File No. 333-217928) relating to the initial public 
offering (“IPO”) of its common stock was declared effective by the Securities and Exchange Commission (“SEC”). Pursuant to such 
Registration Statement, the Company sold an aggregate of 6,900,000 shares of its common stock at a price of $11.00 per share for 
cash proceeds of $64.2 million, net of underwriting discounts and commissions of $6.1 million and offering costs of $5.6 million. 

On June 14, 2017, the day of the IPO, convertible bonds with an aggregate principal value of $68.0 million, and a carrying value 

of $55.8 million, were converted into 7,727,273 shares of common stock. The IPO closed on June 19, 2017. On September 29, 2017, 
the remaining convertible bond with a principal value of $7.0 million was converted into 795,455 shares of common stock, at a 20% 
discount from the IPO price of $11 per share. 

Follow-On Offering

In January 2018, the Company completed an underwritten public offering of 4,300,000 shares of its common stock. The 

Company granted the underwriters a 30-day option to purchase up to an additional 645,000 shares of common stock. In February 
2018, the underwriters partially exercised their option, purchasing an additional 465,000 shares of common stock. All shares were 
offered by the Company at a price of $15.25 per share. The aggregate net proceeds were $68.1 million, net of underwriting discounts 
and commissions and offering expenses of $4.6 million. 

Debt and Equity Offering

On July 3, 2018, the Company closed a privately placed debt and equity financing deal with Perceptive Advisors LLC and its 

affiliates (“Perceptive”) for gross proceeds of $100.0 million and received aggregate net proceeds of $97.1 million, net of fees and 
offering expenses. The Company entered into a 5-year senior secured loan for $50.0 million of this financing and issued 2,679,528 shares 
of its common stock at a purchase price of $18.66 per share for the remaining $50.0 million. The loan matures on the fifth anniversary 
from the closing date and bears interest at a floating per annum rate equal to London Interbank Offering Rates (“LIBOR”) (with a floor of 
2.0%) plus 9.0%. The Company is required to make monthly interest-only payments with a bullet payment of the principal at maturity. 
The loan agreement contains specified financial maintenance covenants. The Company was in compliance with such covenants as of 
December 31, 2019 and 2018. In connection with the loan agreement, the Company granted Perceptive a warrant for the purchase of 
425,000 shares of common stock at a purchase price of $18.66 per share. This was accounted for as a detachable warrant at its fair value 
and is recorded as an increase to additional paid-in-capital on the consolidated statement of stockholders’ equity for the year ended 
December 31, 2018. A corresponding debt discount was recorded as a reduction of the related debt in the consolidated balance sheet as of 
December 31, 2018.

F-8

Private Placements

On May 7, 2019, the Company closed a private placement with Perceptive Life Sciences Master Fund, Ltd., Avoro Capital 
Advisors (formerly known as venBio Select Fund LLC), OrbiMed Partners Master Fund Limited and the Biotech Growth Trust PLC 
(combined known as OrbiMed), (collectively, the “Investors”), pursuant to which the Company sold an aggregate of 10 million shares 
of its common stock to the Investors at a purchase price of $10.00 per share for aggregate net proceeds of $99.9 million, net of 
offering expenses of approximately $0.1 million. These shares were subsequently registered with the Securities and Exchange 
Commission (“SEC”) on July 23, 2019.

On December 9, 2019, the Company closed a private placement with a group of institutional investors, led by Kingdon Capital 
Management, LLC (collectively, the “Institutional Investors”), pursuant to which the Company sold an aggregate of 3,945,750 shares 
of its common stock to the Institutional Investors at a purchase price of $15.30 per share for aggregate net proceeds of $59.4 million, 
net of offering expenses of approximately $1.0 million. These shares were subsequently registered with the SEC on January 28, 2020.

Going Concern 

These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue 

to realize its assets and discharge its liabilities in the normal course of the business. The Company’s recurring losses from operations 
and negative cash flows from operations have raised substantial doubt regarding its ability to continue as a going concern. The 
consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or 
the amounts and classification of liabilities that might result from the outcome of this uncertainty. 

The Company has incurred operating losses and negative cash flows from operations since its inception and, as a result, as of 
December 31, 2019 and 2018 had an accumulated deficit of $567.5 million and $443.7 million, respectively. As of December 31, 2019 
the Company had approximately $160.8 million of cash, cash equivalents, and short-term investments. The Company believes that the 
existing cash, cash equivalents, and short-term investments will be sufficient to fund current operating plans into the first quarter of 
2021, but will not be sufficient to fund current operating plans through one year after the date that these consolidated financial 
statements are issued. The Company has based these estimates on assumptions that may prove to be wrong, and it could spend the 
available financial resources much faster than expected and need to raise additional funds sooner than anticipated. Operations have 
been funded primarily through the sale of common stock and, to a lesser extent, from convertible bond financing and grant funding. 
The Company will require significant additional funds to conduct clinical trials and to fund its commercialization operations. There 
can be no assurance, however, that additional funding will be available on favorable terms, or at all. If adequate funds are not 
available, the Company may be required to delay, modify, or terminate its research and development programs or reduce its planned 
commercialization efforts. The Company believes that it will be able to obtain additional working capital through equity financings or 
other arrangements to fund operations, including additional public offerings; however, there can be no assurance that such additional 
financing, if available, can be obtained on terms acceptable to the Company. If the Company is unable to obtain such additional 
financing, it will need to reevaluate future operating plans. In addition, the Company’s plans to raise additional funds are subject to 
market conditions which are outside of its control, and therefore cannot be deemed to be probable; as such, those plans do not alleviate 
substantial doubt about its ability to continue as a going concern.

The Company has a senior secured loan agreement with Perceptive which contains various covenants. A breach of any of these 

covenants could result in a default. If a default under this loan agreement is not cured or waived, the default could result in the 
acceleration of debt, which could require the Company to repay the debt in full prior to the date it is otherwise due. If the Company 
defaults, the lender may seek repayment through the Company’s subsidiary guarantors or by executing on the security interest granted 
pursuant to the loan agreement.

The Company is subject to a number of risks similar to other biopharmaceutical companies, including, but not limited to, the 

lack of available capital, possible failure of preclinical testing or clinical trials, inability to obtain marketing approval of product 
candidates, competitors developing new technological innovations, unsuccessful commercialization strategy and launch plans for its 
proprietary drug candidates, market acceptance of the Company’s products, and protection of proprietary technology. If the Company 
does not successfully commercialize any of its product candidates, it will be unable to generate sufficient product revenue and might 
not, if ever, achieve profitability and positive cash flow.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

Basis of Presentation and Principles of Consolidation 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally 
accepted in the United States of America (“GAAP”). The accompanying consolidated financial statements reflect the accounts and 
operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest. Intercompany 
transactions and balances have been eliminated. 

F-9

Use of Estimates 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that 

affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the 
consolidated financial statements and the reported amount of revenue and expenses during the reporting period. Such management 
estimates include those relating to assumptions used in clinical research accruals, chargebacks, measurement of acquired assets and 
assumed liabilities in business combinations, allowance for doubtful accounts, inventory reserves, the valuation of the derivative 
liability, income taxes, the estimated useful life and recoverability of long-lived assets, and the valuation of stock-based awards. 
Actual results could differ from those estimates. 

Functional Currency 

Assets and liabilities of subsidiaries that prepare financial statements in currencies other than the U.S. dollar are translated using 

rates of exchange as of the balance sheet date and the statements of operations and comprehensive loss are translated at the average 
rates of exchange for each reporting period. The Company recorded a foreign currency translation loss in accumulated other 
comprehensive loss of $0.1 million for the year ended December 31, 2019, a loss of $0.5 million for the year ended December 31, 
2018 and a gain of $1.2 million for the year ended December 31, 2017. 

Cash, Cash Equivalents, and Marketable Securities 

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to 

be cash equivalents. The Company deposits its cash primarily in checking, money market accounts, as well as certificates of deposit. 
Funds held in foreign accounts that are subject to regulations governing transfers oversees are included within cash and cash 
equivalents. As of December 31, 2019 and 2018, the Company had $7.6 million and $3.2 million, respectively, at its Chinese 
subsidiaries, which were subject to Chinese funds transfer limitations. The Company generally does not enter into investments for 
trading or speculative purposes, rather to preserve its capital for the purpose of funding operations. 

Accounts Receivable, net 

Accounts receivable are recorded at the invoiced amount. On a periodic basis, the Company evaluates its accounts receivable 

and establishes an allowance for doubtful accounts, based upon a history of past write-offs, the age of the receivables, and current 
credit conditions. 

Inventories 

Inventories for clinical trials are stated at the lower of cost and net realizable value, with approximate cost being determined on 

a first-in-first-out basis. Active pharmaceutical ingredient (“API”) inventory is stated at the lower of cost and net realizable value, with 
approximate cost being determined on a weighted average basis. 

The Company provides inventory write-downs based on excess and obsolete inventories determined primarily by future demand 

forecasts. The write-down is measured as the difference between the cost of the inventory and market, based upon assumptions about 
future demand, and is charged to the provision for inventory, which is a component of cost of sales. At the point of the loss 
recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result 
in the restoration or increase in that newly established cost basis. 

Property and Equipment, net 

Property and equipment are recorded at cost or acquisition date fair value in a business acquisition. Depreciation is recorded 

over the estimated useful lives of the related assets using the straight-line method. Leasehold improvements are amortized on a 
straight-line basis over the shorter of the useful life or term of the lease. Upon retirement or disposal, the cost and related accumulated 
depreciation are removed from the consolidated balance sheets and the resulting gain or loss is recorded to general and administrative 
expense in the consolidated statements of operations and comprehensive loss. Routine expenditures for maintenance and repairs are 
expensed as incurred. 

F-10

Estimated useful lives for property and equipment are as follows: 

Property and Equipment
Land
Equipment
Furniture and fixtures
Computer hardware
Leasehold improvements

Construction in process

Estimated Useful Life

Not depreciated
5 - 8 years
5 years
3 years
Lesser of estimated useful
life or remaining lease term
Not depreciated

Leases

On January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update 
(“ASU”) No. 2016-02, Leases (Topic 842) on a modified retrospective basis and did not restate comparative periods as permitted 
under the transition guidance. The Company elected the package of practical expedients as permitted, which carries forward the 
Company’s assessments prior to the date of initial application with respect to lease classifications, initial direct costs as well as 
whether an existing contract contains a lease. The Company recognizes operating leases with terms greater than one year as right-of-
use (“ROU”) assets and lease liabilities on its consolidated balance sheet. The Company’s finance leases are included in property and 
equipment, net and long-term debt and finance lease obligations on the consolidated balance sheet. A majority of the Company’s 
operating leases are for real estate properties used in operations located in the U.S. and Asia. The Company’s finance leases are for 
manufacturing equipment in the U.S. 

The lease liabilities are determined as the present value of future fixed minimum lease payments. In determining the discount 
rate, the Company uses rates implicit in the lease, or if not readily available, the Company uses an estimated incremental borrowing 
rate based on yield trends in the biotechnology and healthcare industry and debt instruments held by the Company with stated interest 
rates. The Company uses the stated rate per lease agreement in determining the finance lease liabilities. The lease term is determined 
at the commencement date and considers whether it is reasonably certain that the Company will exercise renewal options or 
termination options. The lease liabilities and ROU asset are amortized over the term of the lease with operating lease expenses being 
recognized on a straight-line basis over the lease terms.  

The Company elected the practical expedients permitted under Topic 842, which allows it to apply the short-term lease 
measurement and recognition exemption in which ROU assets and lease liabilities are not recognized for short-term leases. See Note 
10— Debt and Lease Obligations. 

Prior period amounts continue to be reported in accordance with our historic accounting under previous lease guidance, ASC 

840, Leases Topic 840 (Topic 840). See “―Recent Accounting Pronouncements” below, for more information about the impact of the 
adoption on Topic 842. 

Fair Value of Financial Instruments 

Financial instruments consist of cash and cash equivalents, short-term investments, marketable securities, an investment, 
accounts receivable, accounts payable, accrued liabilities, contingent consideration, and long-term debt. Cash and cash equivalents, 
short-term investments, accounts receivable, accounts payable and accrued liabilities, contingent consideration, and debt, are stated at 
their carrying value, which approximates fair value due to the short time to the expected receipt or payment date of such amounts. 

Business Acquisitions

The Company accounts for acquired businesses using the acquisition method of accounting, which requires that assets acquired 
and liabilities assumed be recognized at their estimated fair values as of the acquisition date. Identifiable amortizing intangible assets 
are recorded on the consolidated balance sheet at fair value and amortized over their estimated useful lives. Acquisition-related costs 
are expensed as incurred. Any excess of the consideration transferred over the estimated fair values of the net assets acquired is 
recorded as goodwill.

Goodwill 

The Company tests goodwill for impairment annually on October 1st, the Company’s annual goodwill impairment measurement 
date, or more frequently if a triggering event occurs. The Company has three operating segments, each of which represents a separate 
reporting unit: Oncology Innovation Platform, Commercial Platform, and Global Supply Chain Platform. Each of the three reporting 
units has discrete financial information that is reviewed by segment managers. Goodwill is assigned to two reporting units: Oncology 
Innovation Platform and Global Supply Chain Platform. Goodwill impairment exists when the fair value of goodwill is less than its 
carrying value. The Company concluded that there was no impairment of goodwill for the years ended December 31, 2019, 2018, and 
2017. 

F-11

 
 
 
 
 
 
 
Intangible Assets, net 

Intangible assets arising from a business acquisition are recognized at fair value as of the acquisition date. The Company 

amortizes intangible assets using the straight-line method. When the straight-line method of amortization is utilized, the estimated 
useful life of the intangible asset is shortened to assure the recognition of amortization expense corresponds with the expected cash 
flows. Other purchased intangibles, including certain licenses, are capitalized at cost and amortized on a straight-line basis over the 
license life, when a future economic benefit is probable and measurable. If a future economic benefit is not probable or measurable, 
the license costs are expensed as incurred within research and development expenses. 

Impairment of Long-Lived Assets 

The Company reviews the recoverability of its long-lived assets, excluding goodwill, when events or changes in circumstances 
occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the 
ability to recover the carrying value of the assets from the expected future cash flows (undiscounted and without interest expense) of 
the related operations. If these cash flows are less than the carrying value of such assets, an impairment loss for the difference between 
the estimated fair value and carrying value is recorded. Impairment charges of $0.2 million, $0.3 million and $0.1 million were 
recorded for the years ended December 31, 2019, 2018, and 2017 respectively. See Note 5—Goodwill and Intangible Assets, net for 
additional details. 

Treasury Stock 

The Company records treasury stock activities at the cost of the acquired stock. The Company’s accounting policy upon the 

formal retirement of treasury stock is to deduct the par value from common stock and to reflect any excess of cost over par value as a 
reduction to additional paid-in capital (to the extent created by previous issuances of the stock) and then accumulated deficit. 

Revenue Recognition 

Effective January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”), Topic 606, “Revenue from 

Contracts with Customers,” using the modified retrospective transition method. Under this method, the Company was required to 
evaluate the impacts of implementing the standard on existing contracts on the date of the adoption, accounting for those contracts in 
accordance with Topic 606. This standard applies to all contracts with customers, except for contracts that are within the scope of 
other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entity 
recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration 
which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an 
entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identifies the contract(s) with a 
customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction 
price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the entity satisfies a performance 
obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration 
it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined 
to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract to identify the 
performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the 
amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is 
satisfied. For a complete discussion of accounting for product sales, license fees and consulting revenue, and grant revenue, see Note 
17 – Revenue Recognition. The Company did not record an adjustment to revenue upon adoption.

Research and Development Expenses 

Costs for research and development (“R&D”) of products, including payroll, contractor expenses, and supplies, are expensed as 
incurred. Clinical trial and other development costs incurred by third parties are expensed as the contracted work is performed. Where 
contingent milestone payments are due to third parties under research and development arrangements, the obligations are recorded 
when the milestone results are probable of being achieved.

Comprehensive Income (Loss) 

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and 

other events and circumstances from non-owner sources. Changes in unrealized gains and losses on investments and foreign currency 
translation adjustments represent the differences between the Company’s net loss and comprehensive loss. 

F-12

Stock-Based Compensation 

Awards granted to employees 

The Company recognizes stock-based compensation based on the grant date fair value of stock options granted to employees, 

officers, and directors. The Company used the Black-Scholes option pricing model to calculate the grant date fair value of stock 
options. The Black-Scholes option pricing model requires inputs for risk-free interest rate, dividend yield, volatility, fair value of 
common stock, and expected lives of the stock options. The risk-free rate for periods within the expected life of the stock option is 
based on the U.S. Treasury yield curve in effect at the time of the grant. No dividend yield is used, consistent with the Company’s 
history. Expected volatility is based on historical volatilities of the stock prices of peer biopharmaceutical companies. The fair value of 
common stock is based on the quoted market price of the Company’s common stock on grant date. The Company uses the simplified 
method for determining the expected lives of stock options. The Company recognizes compensation expenses based on the grant date 
fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting period. 

Stock grants 

The Company grants common stock to key officers and directors and records the fair value of these grants, based on the fair 

value of the common stock on the grant date, as compensation expense throughout the requisite service period. 

Income Taxes 

The Company uses the asset and liability method of accounting for income taxes. Deferred income tax assets and liabilities are 

recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying 
amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using 
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered 
or settled. Deferred income tax expense or benefit is the result of changes in the deferred income tax assets and liabilities. Valuation 
allowances are established when necessary to reduce deferred income tax assets where, based upon the available evidence, 
management concludes that it is more-likely-than not that the deferred income tax assets will not be realized. In evaluating its ability 
to recover deferred income tax assets, the Company considers all available positive and negative evidence, including its operating 
results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. Because of the uncertainty 
of the realization of the deferred income tax assets, the Company has recorded a valuation allowance against its deferred income tax 
assets. 

Reserves are provided for tax benefits for which realization is uncertain. Such benefits are only recognized when the underlying 

tax position is considered more likely than not to be sustained on examination by a taxing authority, assuming they possess full 
knowledge of the position and facts. Interest and penalties related to uncertain tax positions are recognized in income tax expense 
(benefit); however, the Company currently has no interest or penalties related to income taxes. 

Segment and Geographic Information 

The Company’s chief operating decision-maker, its Chief Executive Officer, reviews its operating results on an aggregate basis 
and at the operating segment level for purposes of allocating resources and evaluating financial performance. The Company has three 
business platforms which are the operating segments: (1) Oncology Innovation Platform, for the discovery and development of cancer 
supportive therapies, (2) Commercial Platform, the manufacturing and selling of commercial pharmaceutical products, and (3) Global 
Supply Chain Platform, the cGMP manufacturing and marketing of API, and clinical products. Each operating segment has a segment 
manager who is held accountable for operations and operating results. Accordingly, the Company operates in three reportable 
segments. 

Concentration of Credit Risk, Other Risks and Uncertainties 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash 
equivalents, and short-term investments. The Company deposits its cash equivalents in interest-bearing money market accounts and 
certificates of deposit and invests in highly liquid U.S. treasury notes, commercial paper, and corporate bonds. The Company deposits 
its cash with multiple financial institutions. Cash balances exceed federally insured limits. The primary focus of the Company’s 
investment strategy is to preserve capital and meet liquidity requirements. The Company’s investment policy addresses the level of 
credit exposure by limiting the concentration in any one corporate issuer and establishing a minimum allowable credit rating. The 
Company also has significant assets and liabilities held in its overseas manufacturing facility, and research and development facility in 
China, and therefore is subject to foreign currency fluctuation and regulatory uncertainties.

F-13

Recently Adopted Accounting Pronouncements 

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which requires lessees to recognize leases on-balance 

sheet and disclose key information about leasing arrangements. The new standard establishes a ROU model that requires a lessee to 
recognize a ROU asset representing the right to use the underlying asset over the lease term and lease liability on the balance sheet for 
all leases with a term longer than 12 months. Lease obligations are to be measured at the present value of lease payments and 
accounted for using the effective interest method. Leases will be classified as finance or operating, with classification affecting the 
pattern and classification of expense recognition in the income statement. For finance leases, the leased asset is depreciated on a 
straight-line basis and recorded separately from the interest expense in the income statement resulting in higher expense in the earlier 
part of the lease term. For operating leases, the depreciation and interest expense components are combined, recognized evenly over 
the term of the lease, and presented as a reduction to operating income. The ASU requires that assets and liabilities be presented or 
disclosed separately and classified appropriately as current and noncurrent. The ASU further requires additional disclosure of certain 
qualitative and quantitative information related to lease agreements. In July 2018, the FASB issued new guidance that provided for a 
new optional transition method that allows entities to initially apply the new leases standard at the adoption date and recognize a 
cumulative-effect adjustment to opening retained earnings. Under this approach, comparative periods are not restated. 

The Company adopted the new lease standard on January 1, 2019 and used the effective date as the date of initial application. 

The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which 
allowed the Company (1) to not reassess whether any expired or existing contracts are or contain leases, (2) to not reassess the lease 
classification for any expired or existing leases, and (3) to not reassess initial direct costs for any existing leases. The Company also 
elected the single component practical expedient, which requires the Company, by class of underlying asset, not to allocate the total 
consideration to the lease and nonlease components based on their relative stand-alone selling prices. This single component practical 
expedient requires the Company to account for the lease component and nonlease component(s) associated with that lease as a single 
component if (i) the timing and pattern of transfer of the lease component and the nonlease component(s) associated with it are the 
same and (ii) the lease component would be classified as an operating lease if it were accounted for separately. In preparation for 
adoption of the standard and to assess the ongoing impact of the standard, the Company implemented internal controls to enable the 
preparation of financial information. The standard had a significant impact on the consolidated balance sheet, with no significant 
impact on its consolidated statement of operations and comprehensive loss. On the adoption date, the Company recognized $9.8 
million of operating lease ROU assets, $11.9 million of operating lease liabilities, and derecognized its existing deferred rent balance 
of $2.1 million.

The new standard provides a number of optional practical expedients in transition. The Company has elected the package of 

practical expedients permitted under the transition guidance within the new standard, which allows the Company (1) to not reassess 
whether any expired or existing contracts are or contain leases, (2) to not reassess the lease classification for any expired or existing 
leases, and (3) to not reassess initial direct costs for any existing leases In preparation for adoption of the standard, the Company has 
implemented internal controls to enable the preparation of financial information. Further, the Company has made an accounting policy 
election to keep leases with an initial term of twelve months or less off the balance sheet. The Company recognizes those lease 
payments in the consolidated statement of operations and comprehensive loss over the lease term. See Note 10— Debt and Lease 
Obligations.   

Recent Accounting Pronouncements Not Yet Adopted 

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments” to improve 
reporting requirements specific to loans, receivables, and other financial instruments. The new standard requires that credit losses on 
financial assets measured at amortized cost be determined using an expected loss model, instead of the current incurred loss model, 
and requires that credit losses related to available-for-sale debt securities be recorded through an allowance for credit losses and 
limited to the amount by which carrying value exceeds fair value. The new standard also requires enhanced disclosure of credit risk 
associated with financial assets. The standard is effective for interim and annual periods beginning after December 15, 2019 with early 
adoption permitted. Based on the composition of the Company’s investment portfolio and other financial assets, current market 
conditions and historical credit loss activity, the adoption of this standard will not have a material impact on the Company’s 
consolidated financial statements.

3.

INVENTORIES 

Inventories consist of the following (in thousands): 

Raw materials and purchased parts
Work in progress
Finished goods

Total inventories

December 31,

2019

2018

  $

  $

4,176   $
1,870    
26,584    
32,630   $

4,092 
3,166 
21,529 
28,787  

F-14

 
 
 
 
 
   
 
   
   
4. 

PROPERTY AND EQUIPMENT, NET 

Property and equipment, net, consists of the following (in thousands): 

Land
Equipment
Furniture and fixtures
Computer hardware
Leasehold improvements
Construction in process

Property and equipment, gross

Less: accumulated depreciation
Property and equipment, net

December 31,

2019

2018

  $

  $

1,117    $
6,724     
578     
3,142     
2,792     
14,758     
29,111     
(5,958)   
23,153    $

1,132 
6,236 
640 
2,118 
1,380 
3,826 
15,332 
(3,885)
11,447  

Depreciation expense amounted to $2.0 million, $1.7 million, and $2.1 million for the years ended December 31, 2019, 2018, 

and 2017, respectively. 

5.

GOODWILL AND INTANGIBLE ASSETS, NET 

Goodwill 

The changes in the carrying amount of goodwill for each reporting unit to which goodwill is assigned for the periods indicated 

are as follows (in thousands): 

Balance as of January 1, 2018
Effect of currency translation adjustment
Balance as of December 31, 2018
Goodwill acquired
Effect of currency translation adjustment
Balance as of December 31, 2019

Global Supply 
Chain

Oncology
Innovation
Platform

  $

  $

26,510    $
(277)    
26,233     
—     
(64)    
26,169    $

11,285    $
(23)    
11,262     
1,018     
64     
12,344    $

Total

37,795 
(300)
37,495 
1,018 
— 
38,513  

Intangible Assets, Net 

The Company’s identifiable intangible assets, net, consist of the following (in thousands): 

Amortizable intangible assets

Licenses
Polymed customer list
Polymed technology
Product rights

Indefinite-lived intangible assets:

CDE in-process research and development (IPR&D)

Effect of currency translation adjustment
Total intangibles, net

December 31, 2019

Cost/Fair
Value

Accumulated
Amortization    

Impairments  

Net

  $

  $

8,935    $
1,593     
3,712     
530     

728     
(424)    
15,074    $

3,561    $
1,164     
1,297     
360     

—     
—     
6,382    $

—    $
—     
—     
170     

—     
—     
170    $

5,374 
429 
2,415 
— 

728 
(424)
8,522  

F-15

 
 
 
 
 
   
 
   
   
   
   
   
   
   
 
 
   
   
 
   
   
   
   
 
 
 
 
 
 
 
 
 
     
       
       
       
 
   
   
   
     
       
       
       
 
   
   
Amortizable intangible assets

Licenses
Polymed customer list
Polymed technology
Product rights

Indefinite-lived intangible assets:

CDE in-process research and development (IPR&D)

Effect of currency translation adjustment
Total intangibles, net

December 31, 2018

Cost/Fair
Value

Accumulated
Amortization    

Impairments  

Net

  $

  $

8,935    $
1,593     
3,712     
530     

1,026     
(390)    
15,406    $

2,060    $
938     
999     
263     

—     
—     
4,260    $

—    $
—     
—     
—     

6,875 
655 
2,713 
267 

298     
—     
298    $

728 
(390)
10,848  

As of December 31, 2019, licenses at cost include an Orascovery license of $0.4 million and licenses purchased from Gland 
Pharma Ltd (“Gland”) of $4.5 million, and a license purchased from MAIA Pharmaceuticals, Inc. (“MAIA”) for $4.0 million. The 
Orascovery license with Hanmi Pharmaceuticals Co. Ltd. (“Hanmi”) was purchased directly from Hanmi and is being amortized on a 
straight-line basis over a period of 12.75 years, the remaining life of the license agreement at the time of purchase. The licenses 
purchased from Gland are being amortized on a straight-line basis over a period of 5 years, the remaining life of the license agreement 
at the time of purchase. The license purchased from MAIA is being amortized over a period of 7 years, the remaining life of the 
license agreement at the time of purchase.     

The remaining intangible assets were acquired in connection with the acquisitions of Athenex Pharma Solutions (“APS” or 
“Athenex Pharma Solutions”) (formerly known as QuaDPharma), Polymed Therapeutics, Inc. (“Polymed”), Comprehensive Drug 
Enterprises (“CDE”). Intangible assets are amortized using the straight-line method over their useful lives. The APS customer list is 
amortized on a straight-line basis over 7 years. The Polymed customer list and technology are amortized on a straight-line basis over 6 
and 12 years, respectively. The CDE in-process research and development (“IPR&D”), will not be amortized until the related projects 
are completed. IPR&D is tested annually for impairment, unless conditions exist causing an earlier impairment test (e.g., abandonment 
of project). During the year ended December 31, 2019, the Company determined that its product rights, initially acquired as IPR&D in 
connection with the acquisition of CDE, was impaired due to a lack of forecasted sales and therefore, the related balance of $0.2 
million was written-off as impaired and is included within research and development expenses in the consolidated statement of 
operations and comprehensive loss for the year ended December 31, 2019. During each of the years ended December 31, 2018 and 
2017, the Company abandoned projects within IPR&D and therefore, the related balances of $0.3 million and $0.1 million, 
respectively, were written-off as impaired and were included within research and development expenses in the consolidated statement 
of operations and comprehensive loss. The weighted-average useful life for all intangible assets was 7.7 years as of December 31, 
2019.

The Company recorded $1.9 million, $1.6 million, and $1.6 million of amortization expense for the years ended December 31, 

2019, 2018, and 2017, respectively. 

The Company expects amortization expense related to its finite-lived intangible assets for the next 5 years and thereafter to be as 

follows as of December 31, 2019 (in thousands): 

Year ending December 31:
2020
2021
2022
2023
2024
Thereafter

Estimated
Amortization
Expense

  $

  $

2,138 
1,782 
1,011 
982 
941 
1,364 
8,218  

F-16

 
 
 
 
 
 
 
 
 
     
       
       
       
 
   
   
   
     
       
       
       
 
   
   
 
 
   
   
   
   
   
 
6.

FAIR VALUE MEASUREMENTS 

Financial instruments consist of cash and cash equivalents, short-term investments, an equity investment, accounts receivable, 

accounts payable, accrued liabilities, and debt. Short-term investments and the equity investment are stated at fair value. Cash and 
cash equivalents, accounts receivable, accounts payable and accrued liabilities, and debt, are stated at their carrying value, which 
approximates fair value due to the short time to the expected receipt or payment date of such amounts.

ASC 820, Fair Value Measurements, establishes a framework for measuring fair value. That framework provides a fair value 

hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to 
unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to 
unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the ASC 820 are described as follows: 

Level 1—Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets 

that the plan has the ability to access. 

Level 2—Inputs to the valuation methodology include: 

•

•

•

•

•

Quoted prices for similar assets or liabilities in active markets; 

Quoted prices for identical or similar assets or liabilities in inactive markets; 

Inputs other than quoted prices that are observable for the asset or liability; 

Inputs that are derived principally from or corroborated by observable market data by correlation or other means; and 

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full 
term of the asset or liability. 

Level 3—Inputs to the valuation methodology are unobservable, supported by little or no market activity, and that are significant 

to the fair value measurement. 

Transfers between levels, if any, are recorded as of the beginning of the reporting period in which the transfer occurs; there were 

no transfers between Levels 1, 2 or 3 of any financial assets or liabilities during the years ended December 31, 2019, 2018, or 2017. 

The following tables represent the fair value hierarchy for those assets and liabilities that the Company measures at fair value on 

a recurring basis (in thousands): 

Fair Value Measurements at December 31, 2019 Using:

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Assets:

Financial assets included within cash and cash equivalents      
  $

Money market funds
Short-term investments - certificates of deposit
Short-term investments - commercial paper

Financial assets included within short-term investments

Short-term investments - certificates of deposit
Short-term investments - commercial paper

Available-for-sale investment

Total assets

  $

5,460    $
15,110     
51,017     

10,054     
22,835     
250     
104,726    $

5,460    $
—     
—     

—     
—     
250     
5,710    $

—    $
15,110     
51,017     

10,054     
22,835     
—     
99,016    $

— 
— 
— 

— 
— 
— 
—  

F-17

 
 
 
 
 
 
 
 
 
 
 
 
   
 
    
 
    
 
    
 
 
       
       
       
 
   
   
     
       
       
       
 
   
   
   
Fair Value Measurements at December 31, 2018 Using:

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Assets:

Financial assets included within cash and cash equivalents      
  $

Money market funds
Short-term investments - commercial paper

Financial assets included within short-term investments

Short-term investments - commercial paper
Short-term investments - corporate notes
Short-term investments - U.S. government bonds

Available-for-sale investment

Total assets

  $

25    $
5,396     

36,544     
16,699     
3,998     
388     
63,050    $

25    $
—     

—    $
5,396     

—     
—     
—     
388     
413    $

36,544     
16,699     
3,998     
—     
62,637    $

— 
— 

— 
— 
— 
— 
—  

The Company classifies its certificates of deposit and money market funds within Level 1 because it uses quoted market prices 

to determine their fair value. The Company classifies its commercial paper, corporate notes, certificates of deposit, and 
U.S. government bonds within Level 2 because it uses quoted prices for similar assets or liabilities in active markets and each has a 
specified term and all level 2 inputs are observable for substantially the full term of each instrument. 

The Company owns 68,000 shares of PharmaEssentia, a company publicly traded on the Taiwan OTC Exchange. As of 

December 31, 2019 and 2018, the Company’s investment in PharmaEssentia is valued at the reported closing price. This investment is 
classified as a level 1 investment and is recorded as an available-for-sale investment within short-term investments on the Company’s 
consolidated balance sheet.  

7.

ACQUISITIONS 

CIDAL

On June 27, 2019, the Company entered into a definitive asset purchase agreement (“the APA”) with CIDAL Limited, a British 
Virgin Islands company limited by shares, and several of its affiliates (“CIDAL”). CIDAL operates as a contract research organization 
with headquarters in Guatemala and operations in various countries in Latin America. Pursuant to the terms of the APA, the Company 
acquired certain assets of CIDAL in exchange issuing milestone payments of an aggregate of 67,796 shares of the Company’s 
common stock upon the achievement of certain developmental and regulatory events through the third quarter of 2021. The 
transactions contemplated by the asset purchase agreement closed on October 31, 2019. The Company believes the acquisition 
strategically strengthens the Company’s clinical research and operations capabilities and further supports its clinical development 
worldwide. The Company accounted for the asset purchase using the acquisition method of accounting and accordingly, the 
identifiable assets acquired and liabilities assumed were recorded based upon management’s estimates of current fair values as of the 
acquisition date. The purchase price reflected contingent equity consideration associated with this transaction. The Company received 
net cash of $0.9 million, acquired property and equipment of less than $0.1 million, assumed liabilities of $1.1 million, and recorded 
goodwill of approximately $1.0 million in the Oncology Innovation Platform, as well as contingent equity consideration associated 
with the transaction of $0.8 million.   

AXIS

On June 29, 2018, the Company entered into a Share Subscription Agreement (“SSA”) for Axis Therapeutics Limited (“Axis”), 

a subsidiary of the Company jointly owned by Athenex and Xiangxue Life Sciences Limited (“XLifeSc”). Under the SSA, Athenex 
contributed $30.0 million cash for a 55% ownership interest in Axis and XLifeSc contributed a license for IPR&D of certain 
immunotherapy technology for a 45% ownership interest in Axis. Also, on June 29, 2018, through a license agreement entered into 
between XLifeSc and Axis, XLifeSc granted Axis an exclusive, sublicensable worldwide (excluding mainland China) right and 
license to use its proprietary TCR-engineered T Cell therapy to develop and commercialize products for oncology indications (“TCR-
T License”). Upon effectiveness of the TCR-T License and satisfaction of certain conditions of the license agreement, the Company 
issued 267,952 shares of its common stock equal to $5.0 million to XLifeSc. On September 14, 2018, Athenex completed the $30.0 
million cash injection to Axis and all the closing conditions under the SSA were fulfilled.

F-18

 
 
 
 
 
 
 
 
 
 
 
 
   
 
    
 
    
 
    
 
 
       
       
       
 
   
     
       
       
       
 
   
   
   
   
The Company has consolidated the financial statements of Axis into its consolidated financial statements as of and for the years 
ended December 31, 2019 and 2018 using the voting interest model. The nonmonetary exchange of 45% of the shares of Axis for the 
IPR&D from XLifeSc has been accounted for as an asset acquisition that does not constitute a business under ASC 805. Therefore, the 
acquisition of IPR&D was expensed as research and development expense at its fair value. The Company determined that the fair 
value of the equity issued to XLifeSc was $24.5 million for the IPR&D, considering the $30.0 million contribution made by the 
Company for its 55% ownership interest and the arms-length nature of the transaction. Accordingly, the Company recorded an 
expense of $24.5 million within research and development expenses on its consolidated statements of operations and comprehensive 
loss for the year ended December 31, 2018.  

On September 27, 2019, the Company executed a sponsorship agreement whereby Athenex will sponsor and conduct all 
Investigation New Drug applications with the U.S. FDA arising from the TCR-T platform. Axis will pay a fee to the Company for 
these services and will reimburse Athenex for all costs incurred in connection with the work performed. For the year ended December 
31, 2019, the Company charged Axis $1.2 million for these expenses. This amount is included within research and development 
expenses. The minority interests’ portion of these expenses is recorded within net loss attributable to non-controlling interests on the 
Company’s consolidated statements of operations and comprehensive loss.

8.

ACCRUED EXPENSES 

Accrued expenses consist of the following (in thousands): 

Accrued wages and benefits
Accrued clinical expenses
Accrued operating expenses
Deferred revenue
Accrued R&D licensing fees
Accrued inventory purchases
Accrued tax withholdings
Accrued selling fees and rebates
Accrued construction costs
Total accrued expenses

December 31,

2019

2018

  $

  $

7,541   $
2,510    
1,885    
218    
384    
7,194    
187    
1,577    
22,811    
44,307   $

5,061 
2,653 
8,128 
190 
4,827 
— 
— 
423 
16,436 
37,718  

The accrued construction costs relate to the building of the manufacturing facility in Dunkirk, NY (Note 12 – Business and 

Economic Collaborative Agreements), and $22.6 million are expected to be funded by New York State, of this amount, $7.8 million 
has been received, and the remaining $14.8 million is recorded within prepaid expenses and other current assets on the Company’s 
consolidated balance sheet as of December 31, 2019.   

9.

INCOME TAXES 

On December 22, 2017, the Tax Cuts and Jobs Act (Tax Reform Act) was signed into law. This legislation significantly changes 

U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a 
repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate 
income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. 

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years 
in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from 
35% to 21% under the Tax Reform Act, the Company revalued its net U.S. deferred income tax liabilities at December 31, 2017. The 
Company has reduced its income tax expense from continuing operations by approximately $34.1 million due to the revaluation of 
U.S. deferred tax liabilities, offset by an increase in the valuation allowance.  The valuation allowance for deferred tax assets increased 
by $32.3 million for the year ended December 31, 2019 and increased by $28.1 million for the year ended December 31, 2018.  The 
change in the valuation allowance was due to an increase of deferred tax assets mainly for additional net operating losses and tax 
credit carryforwards. The Company has provided a full valuation allowance against its deferred tax assets as it has determined that it is 
not more likely than not that recognition of such deferred tax assets will be utilized in the foreseeable future.     

F-19

 
 
 
 
 
   
 
   
   
   
   
   
   
   
   
The Tax Reform Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary 
earnings and profits (“E&P”) through the year ended December 31, 2017. The one-time transition tax is based on the Company’s total 
post-1986 earnings and profits for which it has previously deferred from U.S. income taxes. The Company did not record amounts in 
income tax expense for the transition tax as it has accumulated losses in its foreign subsidiaries, and thus was not subject to the 
transition tax. 

While the Tax Reform Act provides for a territorial tax system, beginning in 2018, it also includes two new U.S. tax base 
erosion provisions - the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) 
provisions.

The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an 
allowable return on the foreign subsidiary’s tangible assets. The Company does not expect that it will be subject to incremental U.S. 
tax on GILTI income beginning in 2018. In the event that the Company is subject to this tax, it has elected to recognize the tax on 
GILTI as a period expense in the period the tax is incurred.

The BEAT provisions in the Tax Reform Act eliminates the deduction of certain base-erosion payments made to related foreign 
corporations and impose a minimum tax if greater than regular tax. The Company does not expect to be impacted by this tax based on 
annual gross receipts threshold for 2018.

On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 118 to address 

the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed 
(including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The 
Company has recognized the tax impacts related to the revaluation of deferred tax assets and liabilities and included these amounts in 
its consolidated financial statements for the year ended December 31, 2018.   

The Company recorded an income tax expense of $0.9 million during the year ended December 31, 2019 and an income tax 

expense of $0.1 million during each of the years ended December 31, 2018 and 2017. The current and prior year income tax expense 
is attributable to foreign withholding taxes. The Company and its other subsidiaries were in a cumulative loss position as of 
December 31, 2019.

The components of loss before income tax expense consist of the following (in thousands): 

Domestic
Foreign

Year Ended December 31,
2018
(95,479)  $
(33,132)   
(128,611)  $

2019
(109,769)  $
(14,836)   
(124,605)  $

2017
(125,770)
(5,541)
(131,311)

  $

  $

The components of the income tax expense consist of the following (in thousands): 

Current:

Federal
State
Foreign

Deferred:

Federal
State
Foreign

Change in valuation allowance

Year Ended December 31,
2018

2017

2019

  $

  $

—    $
23     
419     
442     

—    $
27     
455     
482     

(26,878)   
(2,567)   
(2,411)   
(31,856)   
32,342     
928    $

(26,260)   
(293)   
(1,863)   
(28,416)   
28,034     
100    $

64 
(92)
440 
412 

(3,222)
5,799 
(874)
1,703 
(2,030)
85  

F-20

 
 
 
 
 
   
   
 
   
 
 
 
 
 
 
   
   
 
     
       
       
 
   
   
 
   
     
       
       
 
   
   
   
 
   
   
 
The income tax expense differs from the federal statutory rate due to the following: 

Statutory rate
State taxes, net of federal benefit
Foreign rate differential
Federal income tax rate change
Valuation allowance
Other

Net deferred income tax assets consist of the following (in thousands): 

Intangible assets
Property and equipment
Stock-based compensation
Net operating loss carryforwards
Tax credit carryforwards
Research and development deduction
Reserves and accruals

Gross deferred income tax assets

Less: valuation allowance

Net deferred income tax assets

Intangible assets

Gross deferred income tax liabilities
Net deferred income tax assets

Year Ended December 31,
2018

2017

2019

21.0%    

2.0 
0.1 
— 
(25.9)
2.1 
(0.7)%   

21.0%    

0.2 
(0.3)
— 
(21.6)
0.6 
(0.1)%   

34.0%
(4.3)
(0.6)
(25.9)
1.5 
(4.8)
(0.1)%

December 31,

2019

2018

  $

  $

11,348    $
77     
9,551     
81,630     
9,191     
1,493     
8,377     
121,667     
(120,805)   
862     
(862)   
(862)   
—    $

10,273 
238 
7,508 
60,362 
5,341 
- 
6,141 
89,863 
(88,455)
1,408 
(922)
(922)
486  

As of December 31, 2019, there exists $340.7 million federal net operating losses and $74.2 million of state net operating losses, 
respectively. Of the federal net operating losses, $184.8 million expire beginning in 2027 and $155.9 million have an indefinite life. In 
addition, there exists $28.5 million of foreign net operating losses as of December 31, 2019 which may be carried forward indefinitely. 

The Company considers whether any positions taken on the Company’s income tax returns would be considered uncertain tax 

positions that may require the recognition of a liability. The Company has concluded that there are no material uncertain tax positions 
as of December 31, 2019, 2018, and 2017. The Company recognizes interest and penalties related to unrecognized tax benefits as a 
component of income benefit in the consolidated statement of operations and comprehensive loss. There were no amounts recognized 
for interest and penalties related to unrecognized tax benefits during the years ended December 31, 2019, 2018, and 2017. The income 
tax returns for the taxable years 2013 to 2018 in the U.S., China, and Hong Kong remain open and subject to income tax audits. 

Provision has not been made for U.S. taxes on undistributed earnings of foreign subsidiaries. Those earnings, if any, have been 

and will continue to be indefinitely reinvested. 

Under the provisions of Section 382 of the Internal Revenue Code (“IRC”), net operating loss and credit carryforwards and 
other tax attributes may be subject to limitation if there has been a significant change in ownership of the Company, as defined by the 
IRC. Changes in ownership of our common stock could result in limitations on net operating loss carryforwards. 

F-21

 
 
 
 
 
 
 
 
 
 
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
 
   
 
 
 
 
 
   
 
   
   
   
   
   
   
   
   
   
   
   
10. DEBT AND LEASE OBLIGATIONS 

Debt

The Company’s debt as of December 31, 2019 and 2018, consists of the following (in thousands): 

Current portion of mortgage
Current portion of finance and capital lease obligations
Current portion of operating lease obligations
Long-term portion of finance and capital lease obligations
Long-term portion of operating lease obligations
Chongqing Maliu credit agreement
Senior secured loan, net of debt discount and financing fees
   of $3,592 and $4,619, respectively
Total

  $

December 31,

2019

2018

686   $
194    
3,010    
227    
7,620    
5,731    

779 
182 
— 
422 
— 
— 

46,408    
63,876   $

45,381 
46,764  

  $

The mortgage payments, assumed in connection with the acquisition of CDE, extend through December 31, 2020.        

During 2018, Perceptive issued a senior secured loan to the Company with a principal value of $50.0 million and a maturity date 
of June 30, 2023. The loan bears interest at a floating per annum rate equal to LIBOR (with a floor of 2.0%) plus 9.0%. The Company 
is required to make monthly interest-only payments with a bullet payment of the principal at maturity. Provided that, in the event 
LIBOR can no longer be determined, the parties shall mutually establish an alternative rate of interest and until such time that rate is 
agreed, the reference rate for purposes of the loan shall be the Wall Street Journal Prime Rate.    

During the first quarter of 2019, the Company was issued an unsecured, subordinated bank loan from China Merchants Bank to 
fund operations in China. This loan had a principal value of $0.7 million, a maturity date of December 11, 2019, and bore interest at a 
fixed rate of 5.7% annually. The loan was paid in full as of December 31, 2019.

During the second quarter of 2019, the Company entered into a credit agreement which amended the existing partnership 
agreement with Chongqing Maliu Riverside Development and Investment Co., LTD (“CQ”), for a Renminbi ¥50.0 million (USD $7.2 
million at December 31, 2019) line of credit to be used for the construction of the new active pharmaceutical ingredient (“API”) plant 
in China. The Company is required to repay the principal amount with accrued interest within three years after the plant receives the 
U.S. Current Good Manufacturing Practices (“cGMP”) certification, with 20% of the total loan with accrued interest is due within the 
first twelve months following receiving the certification, 30% of the total loan with accrued interest due within twenty-four months, 
and the remaining balance with accrued interest due within thirty-six months. Interest accrues at the three-year loan interest rate by the 
People’s Bank of China for the same period on the date of the deposit of the full loan amount, which is expected to approximate 
4.75% annually. If the Company fails to obtain the cGMP certification within three years upon the acceptance of the plant, it shall 
return all renovation costs with the accrued interest to CQ in a single transaction within the first ten business days. As of December 
31, 2019, the balance due to CQ was $5.7 million.

Lease Obligations

As described in Note 2- Summary of Significant Accounting Policies, on January 1, 2019, the Company adopted Financial 
Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) on a modified 
retrospective basis and did not restate comparative periods as permitted under the transition guidance.

The Company has operating leases for office and manufacturing facilities in several locations in the U.S., Asia, and Latin 

America, and has three finance leases for manufacturing equipment used in its facilities near Buffalo, NY (See Note 19 – 
Commitments and Contingencies). The components of lease expense are as follows (in thousands):

Operating lease cost
Finance lease cost:

Amortization of assets
Interest on lease liabilities

Total net lease cost

F-22

Year Ended
December 31, 
2019

  $

  $

3,162 

81 
31 
3,274  

 
 
 
 
 
   
 
   
   
   
   
   
   
 
 
 
     
 
   
   
The Company has elected to exclude short-term leases from its operating lease ROU assets and lease liabilities. Lease costs for 
short-term leases were not material to the financial statements for the year ended December 31, 2019. Variable lease costs for the year 
ended December 31, 2019 were not material to the financial statements.

Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount rate):

Finance leases:

Property and equipment, at cost
Accumulated amortization, net
Property and equipment, net

Current obligations of finance leases
Long-term portion of finance leases
Total finance lease obligations

Weighted average remaining lease term (in years):

Operating leases
Finance leases

Weighted average discount rate:

Operating leases
Finance leases

Supplemental cash flow information related to leases is as follows (in thousands):

Cash paid for amount included in the measurements of lease
   liabilities:

Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases

December 31, 
2019

  $

  $

  $

  $

688 
(109)
579 

194 
227 
421 

5.21 
2.11 

12.9%
5.9%

Year Ended 
December 31, 
2019

  $

3,374 
31 
183 

ROU assets recognized in exchange for new operating lease
   obligations

  $

1,305  

Future minimum payments and maturities of leases is as follows (in thousands):

Year ending December 31:
2020
2021
2022
2023
2024
Thereafter

Total lease payments
Less: Imputed interest

Total lease obligations
Less: Current obligations

Long-term lease obligations

  Operating Leases     Finance Leases  
214 
  $
214 
21 
— 
— 
— 
449 
(28)
421 
(194)
227  

3,229    $
2,843     
2,623     
2,096     
2,002     
1,950     
14,743     
(4,113)   
10,630     
(3,010)   
7,620    $

  $

Pursuant to the public-private partnership agreements with the State of New York and CQ, the Company will rent the 

manufacturing facilities from the government with favorable terms. As of December 31, 2019, construction of API plant was 
complete. However, the lease terms had not started, both facilities were not yet operational, and no lease costs occurred in 2019. (See 
Note 12 – Business and Economic Collaborative Agreements and Note 19 – Commitments and Contingencies)

F-23

 
 
 
   
  
   
 
   
  
   
 
   
  
   
  
   
   
 
   
  
   
  
   
   
 
 
 
   
  
   
   
 
   
  
   
   
   
   
   
   
   
   
   
The Company exercises judgment in determining the discount rate used to measure the lease liabilities. When rates are not 
implicit within an operating lease, the Company uses its incremental borrowing rate as its discount rate, which is based on yield trends 
in the biotechnology and healthcare industry and debt instruments held by the Company with stated interest rates. The Company re-
assesses its incremental borrowing rate when new leases arise, or existing leases are modified. 

11. RELATED PARTY TRANSACTIONS 

During the years ended December 31, 2019, 2018, and 2017, the Company entered into transactions with individuals and other 

companies that have financial interests in the Company. Related party transactions included the following: 

a.

b.

c.

d.

e.

f.

In 2015, CDE signed an agreement with Avalon BioMedical (Management) Limited and its subsidiaries (“Avalon”) under 
which Avalon would receive certain administrative services and would occupy space at CDE’s research location. Avalon would 
reimburse CDE for these administrative services as incurred and pay CDE a percentage of the total rent payment based on its 
staff headcount occupying the Hong Kong research and development facility (See Note 19—Commitments and Contingencies). 
Certain members of the Company’s board and management collectively have a controlling interest in Avalon. The Company 
does not hold any interest in Avalon and does not have any obligations to absorb losses or any rights to receive benefits from 
Avalon. As of December 31, 2019 and 2018, Avalon held 786,061 shares of the Company’s common stock, which represented 
approximately 1% of the Company’s total issued shares for both periods. Balances due from Avalon recorded on the 
consolidated balance sheets were not significant. 

In June 2018, the Company entered into two in-licensing agreements with Avalon wherein the Company obtained certain 
intellectual property (“IP”) from Avalon to develop and commercialize the underlying products. Under these agreements the 
Company is required to pay upfront fees, future milestone payments, and sales-based royalties. During the year ended December 
31, 2018, the Company recorded $5.5 million of upfront fees, consisting of $3.5 million in cash and $2.0 million in equity, as 
research and development expense on its 2018 consolidated statement of operations and comprehensive loss.  During the year 
ended December 31, 2018, 107,181 shares of common stock were issued to Avalon at a price of $18.66 per share, the closing 
price of the stock on the date the agreement was executed, in connection with the license agreements. During the year ended 
December 31, 2019, the Company recorded a $1.0 million milestone fee paid to Avalon, as research and development expenses 
on its consolidated statement of operations and comprehensive loss. 

In June 2019, the Company entered into an agreement whereby Avalon will hold a 90% ownership interest and the Company will 
hold a 10% ownership interest of the newly formed entity under the name Nuwagen Limited (“Nuwagen”), incorporated under the 
laws of Hong Kong. Nuwagen is principally engaged in the development and commercialization of herbal medicine products for 
metabolic, endocrine, and other related indications. The Company will contribute nonmonetary assets in exchange for the 10% 
ownership interest. As of December 31, 2019, the transaction has not closed.  

The Company earns licensing revenue from PharmaEssentia, an entity in which the Company has an investment classified as 
available-for-sale (see Note 6 —Fair Value Measurements). Funds paid to or received from PharmaEssentia under the license 
and cost-sharing agreements amounted to $0.4 million paid, $2.3 million received, and $0.5 million received, for each of the 
years ended December 31, 2019, 2018, and 2017, respectively. 

The Company receives certain clinical development services from ZenRx Limited and its subsidiaries (“ZenRx”), a company for 
which one of our executive officers serves on the board of directors. In connection with such services, the Company made 
payments to ZenRx of $2.7 million, $0.3 million, and $0.6 million for the years ended December 31, 2019, 2018, and 2017, 
respectively. In April 2013, the Company entered into a license agreement with ZenRx pursuant to which the Company granted 
an exclusive, sublicensable license to use certain of the Company’s IP to develop and commercialize oral irinotecan and 
encequidar, and oral paclitaxel and encequidar in Australia and New Zealand, and a non-exclusive license to manufacture a 
certain compound, but only for use in oral irinotecan and encequidar and oral paclitaxel and encequidar. ZenRx is responsible 
for all development, manufacturing and commercialization, and the related costs and expenses, of any product candidates 
resulting from the agreement. No revenue was earned from this license agreement in the periods presented in these consolidated 
financial statements. 

The Company received consulting services from RSJ Consulting LLC (“RSJ”), a limited liability company for which one of our 
executive officers serves as the principal. Services incurred from RSJ amounted to $0 for the years ended December 31, 2019 
and 2018, and $0.1 million for the year ended December 31, 2017, respectively.     

During the first quarter of 2017, the Company issued and sold $4.0 million in convertible bonds to two related parties. One of 
the holders of more than 5% of our outstanding common stock as of the IPO date and a director of the Company each purchased 
$2.0 million in convertible bonds. In June 2017, these bonds were converted into 2,727,273 shares of common stock. 

Certain family members of our executive officers perform consulting services to the Company. Such services were not 
significant to the consolidated financial statements. 

F-24

12. BUSINESS AND ECONOMIC COLLABORATIVE AGREEMENTS 

New York State 

On May 1, 2015, the Company executed an agreement for a medical technology research, development, innovation, and 
commercialization alliance with Fort Schuyler Management Corporation (“FSMC”), a not-for-profit corporation existing under the 
laws of the State of New York (the “State”). Under the agreement, FSMC agreed to pay up to $25.0 million for the construction of our 
North American headquarters and formulation lab and equipment in Buffalo, New York. The Company moved into the North 
American Headquarters in October 2015 and is sub-leasing the space from FSMC for a 10-year term, with an option to extend the 
term for an additional 10 years.

The Company, through its partnership with FSMC, Empire State Development (“ESD”), and The State University of New York 

(“SUNY”) Polytechnic, was to complete the construction of an ISO Class 5 high potency oral and sterile injectable pharmaceutical 
manufacturing facility in Dunkirk, New York. This manufacturing facility, which was originally planned to be 320,000 square feet, 
has been expanded to approximately 409,000 square feet to meet the required needs of the Company and within the terms of the 
September 2017 agreement. On September 4, 2017, the Company entered into a Grant Disbursement Agreement whereby the State 
agreed to grant up to approximately $208.0 million, which includes approximately $8.0 million in additional funds available from the 
previous $25.0 million ESD Grant for the Company’s corporate offices, to fund the construction of the new pharmaceutical 
manufacturing facility. If construction costs exceed $208.0 million, the Company is responsible for funding those construction costs. 
The Company is also responsible for the costs of furnishing the facility.  The Company is entitled to lease the facility and all 
equipment purchased with grant funds at a rate of $1.00 per year for an initial 10-year term, and for the same rate if the Company 
elects to extend the lease for an additional 10-year term. In exchange, the Company committed to spending $1.52 billion on 
operational expenses in the facility in its first 10-year term, and an additional $1.50 billion on operational expenses if the Company 
elects to extend the lease for a second 10-year term. The State will hold ownership of the manufacturing and office facilities. 
Construction of these facilities has begun and is expected to be completed in 2021. 

Chongqing Government Department of Economic Development 

In October 2015, the Company completed and executed an agreement with the Banan District in Chongqing, China (“CQ”) to 
construct a cGMP API manufacturing plant of approximately 440,000 square feet and a GMP pharmaceutical manufacturing plant of 
approximately 510,000 square feet on Banan sites identified and selected by the Company’s management. Under the terms of the 
agreement, Banan will provide the funding for the land and construction of the manufacturing plants according to Athenex 
specifications and the Company will equip the plant. This agreement allows the Company to expand its existing high potency 
oncology active pharmaceutical ingredient manufacturing capacity as well as its drug manufacturing capacity in China. The Company 
does not have significant construction period risks and the Banan District will fund the construction costs and hold ownership of the 
facilities. Pursuant to the agreement, the Company is committed to a registration capital requirement of no less than $30.0 million, 
which can be used as working capital in the course of the business. As of December 31, 2019, the Company had contributed a total of 
$9.5 million registration capital to its subsidiary set up under the agreement. The land and buildings will be owned by CQ, and we will 
lease the facilities, rent-free, for the first 10-year term, with an option to extend the lease for an additional 10-year term, during which, 
if we are profitable, we will pay a monthly rent of 5 RMB per square meter of space occupied. In addition, the Company is responsible 
for the costs of all equipment and technology for the facilities.  Construction on the new API plant has been completed. However, as a 
result of delays attributable to the outbreak of Coronavirus, we expect to commence operations at our new API facility in Chongqing 
in the second half of 2020.             

In connection with these arrangements with FSMC and the Banan District we have committed to certain operational milestones. 

If we are unable to comply with such, we may lose access to these properties.

13.  STOCK-BASED COMPENSATION 

Common Stock Option Plans

The Company has four equity compensation plans, adopted in 2017, 2013, 2007 and 2004 (the “Plans”) which, taken together, 
authorize the grant of up to 16,000,000 shares of common stock to employees, directors, and consultants. On May 23, 2019, the board of 
directors approved the amendment and restatement of the 2017 Omnibus Incentive Plan, which increases the number of shares available 
for issuance under the 2017 plan by up to 500,000 shares, subject to the approval of the Company’s stockholders at the Company’s 2020 
annual meeting of stockholders. Additionally, on June 14, 2017, the Company adopted its 2017 Employee Stock Purchase Plan (the 
“ESPP”), which authorizes the issuance of up to 1,000,000 shares of common stock for future issuances to eligible employees.   

F-25

Stock Options

The total fair value of stock options vested and recorded as compensation expense during the year ended December 31, 2019, 

2018, and 2017 was $7.9 million, $9.8 million, and $8.0 million, respectively. As of December 31, 2019, $14.9 million of 
unrecognized cost related to non-vested stock options was expected to be recognized over a weighted-average period of approximately 
1.7 Years. The total intrinsic value of options exercised was approximately $2.7 million and $6.7 million for the years ended 
December 31, 2019 and 2018, respectively.

The following table summarizes the status of the Company’s stock option activity granted under the Plans and 2017 Plans to 
employees, directors, and consultants (in thousands, except stock option amounts and exercise price): Stock options granted have a 
contractual term of 10 years and generally vest over a 2-4 year period. A limited number of stock options vest immediately in certain 
circumstances. The following table summarizes the status of the Company’s stock option activity granted under the Plans and 2017 
Plans to employees, directors, and consultants (in thousands, except stock option amounts): 

Outstanding at December 31, 2018

Granted
Exercised
Forfeited
Expired

Outstanding at December 31, 2019
Vested and exercisable at December 31, 2019

Weighted-
Average
Exercise Price  

Weighted-
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value

8.51     
13.14     
5.86     
13.95     
8.51    
8.88     
7.19     

6.87    $
—       
—       
—       
—    
5.68    $
4.90    $

44,688 

69,785 
67,012  

  Stock Options  
    10,687,650    $
875,000     
(331,779)    
(165,488)    
(148,447)   
    10,916,936    $
    8,292,953    $

The Company determines the fair value of stock option awards on the grant date using the Black-Scholes option pricing model, 

which is impacted by assumptions regarding a number of highly subjective variables. The following table summarizes the weighted-
average assumptions used as inputs to the Black-Scholes option pricing model during the periods indicated: 

Weighted average grant date fair value
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life of options (in years)

  $

Year Ended December 31,
2018

2017

2019

8.06 

  $
—%   
64%   
2.60%   
6.3 

9.80 

  $
—%   
59%   
2.61%   
6.1 

7.01 

—%
66%
1.74%
6.2  

Restricted Stock Awards 

During the year ended December 31, 2019, the Company granted 92,723 restricted stock awards to employees in lieu of a cash 

bonus. Stock-based compensation related to this stock award amounted to $1.1 million for the year ended December 31, 2019.   

The Company granted 131,000 restricted stock awards to employees during the year ended December 31, 2019. Stock-based 

compensation related to the restricted stock awards amounted to $0.6 million for the year ended December 31, 2019. As of December 
31, 2019, $1.5 million of unrecognized cost related to non-vested restricted stock awards were expected to be recognized over a 
weighted-average period of approximately 0.5 years.  

Employee Stock Purchase Plan

The ESPP is available to eligible employees (as defined in the plan document). Under the ESPP, shares of the Company’s 

common stock may be purchased at a discount (15%) of the lesser of the closing price of the Company’s common stock on the first 
trading or the last trading day of the offering period. The current offering period extends from December 1, 2019 to May 31, 2020. 
The Company expects to offer six-month offering periods after the current period. The 2017 Plans reserved 1,000,000 shares of 
common stock for issuance under the ESPP. Stock-based compensation related to the ESPP amounted to $0.3 million for the year 
ended December 31, 2019, $0.2 million for the year ended December 31, 2018, and $0 for all preceding periods. The Company issued 
60,825 and 41,733 shares of common stock to participants during the years ended December 31, 2019 and 2018, respectively. 

F-26

 
 
 
 
 
 
   
 
   
 
   
 
   
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
   
   
   
Stock-Based Compensation Cost

The components of stock-based compensation and the amounts recorded within research and development expenses and selling, 
general, and administrative expenses in the Company’s consolidated statements of operations and comprehensive loss consisted of the 
following for the years ended December 31, 2019, 2018, and 2017 (in thousands): 

Stock options
Restricted stock expense
Stock awarded to directors and officers
Employee stock purchase plan

Total stock-based compensation expense

Cost of sales
Research and development expenses
Selling, general, and administrative expenses
Total stock-based compensation expense

Year Ended December 31,
2018

2017

2019

7,887    $
566     
1,105     
327     
9,885    $
248    $
3,251     
6,386     
9,885    $

9,786    $
1,008     
—     
217     
11,011    $
228    $
2,621     
8,162     
11,011    $

8,031 
2,160 
4,400 
— 
14,591 
137 
2,030 
12,424 
14,591  

  $

  $
  $

  $

14. NET LOSS PER SHARE ATTRIBUTABLE TO ATHENEX, INC. COMMON STOCKHOLDERS 

Basic net loss per share is calculated by dividing net loss attributable to Athenex, Inc. common stockholders by the weighted-

average number of common shares issued, outstanding, and vested during the period. Diluted net loss per share is computed by 
dividing net loss attributable to Athenex, Inc. common stockholders by the weighted-average number of common share and common 
shares equivalents for the period using the treasury-stock method. For the purposes of this calculation, warrants for common stock and 
stock options are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share 
when their effect is dilutive. 

The following weighted average outstanding shares of common stock equivalents were excluded from the calculation of diluted 

net loss per share attributable Athenex, Inc. to common stockholders for the periods presented because including them would have 
been antidilutive: 

Stock options and other common stock equivalents
Unvested restricted common shares
Total potential dilutive common shares

2019

Year Ended December 31,
2018
    10,814,635      10,480,084      9,534,658 
393,408 
    10,860,216      10,593,344      9,928,066  

113,260     

45,581     

2017

15. ACCUMULATED OTHER COMPREHENSIVE LOSS 

The components and changes of accumulated other comprehensive loss, net of related income tax effects, are as follows (in 

thousands): 

Balance as of January 1, 2017

Foreign currency translation adjustment
Unrealized loss on investment
Balance as of December 31, 2017

Foreign currency translation adjustment
Unrealized loss on investment
Balance as of December 31, 2018

Foreign currency translation adjustment
Unrealized gain on investment
Balance as of December 31, 2019

  $

  $

(1,304)
1,184 
(26)
(146)
(525)
15 
(656)
118 
(97)
(635)

F-27

 
 
 
 
 
   
   
 
   
   
   
   
   
 
 
 
 
 
   
   
 
   
   
   
   
   
   
   
   
   
16. BUSINESS SEGMENT, GEOGRAPHIC, AND CONCENTRATION RISK INFORMATION 

The Company has three operating segments, which are organized based mainly on the nature of the business activities 
performed and regulatory environments in which they operate. The Company also considers the types of products from which the 
reportable segments derive their revenue (only applicable to two reportable segments). Each operating segment has a segment 
manager who is held accountable for operations and has discrete financial information that is regularly reviewed by the Company’s 
chief operating decision-maker. Consequently, the Company has concluded each operating segment to be a reportable segment. The 
Company’s operating segments are as follows: 

Oncology Innovation Platform— This operating segment performs research and development on certain of the Company’s 

proprietary drugs, from the preclinical development of its chemical compounds, to the execution and analysis of its several clinical 
trials. It focuses specifically on Orascovery and Src Kinase Inhibition research platforms, and TCR-T Immunotherapy and Arginine 
Deprivation Therapy. This segment operates in the United States, Taiwan, Hong Kong, mainland China, the United Kingdom, and 
Latin America.

Global Supply Chain Platform— This operating segment includes APS and Polymed. APS is a contract manufacturing company 
that provides small to mid-scale cGMP manufacturing of clinical and commercial products for pharmaceutical and biotech companies 
and for use as internal supplies to the clinical studies and commercial development of the Company’s proprietary drugs. APS also 
performs microbiological and analytical testing for raw material and formulated products and has expanded to manufacture and sell 
pharmaceutical products under Section 503B of the Compounding Quality Act within the Federal Food, Drug & Cosmetic Act 
(“FDCA”). Polymed markets and sells API in North America, Europe, and Asia from its locations in Texas and China. Polymed also 
develops new compounds and processing techniques, and recently completed construction of a new API manufacturing facility in 
Chongqing, China (see Note 12—Business and Economic Collaborative Agreements). However, as a result of the Coronavirus 
outbreak, the 440,000-square-foot facility is expected to commence operations in the second half of 2020. The Company has an 
existing API manufacturing facility in Chongqing, China, where operations are currently suspended. 

Commercial Platform— This operating segment includes APD, which focuses on the manufacturing, distribution, and sales of 

specialty pharmaceuticals. This segment provides services and products to external customers based mainly in the United States.

The Company’s Oncology Innovation Platform segment operates and holds long-lived assets located in the United States, 
Taiwan, Hong Kong, mainland China, and the United Kingdom. The Global Supply Chain Platform segment operates and holds long-
lived assets located in the United States and China. The Commercial Platform segment operates and holds long-lived assets located in 
the United States. For geographic segment reporting, product sales have been attributed to countries based on the location of the 
customer. 

Segment information is as follows (in thousands): 

Total revenue:

Oncology Innovation Platform
Global Supply Chain Platform
Commercial Platform

Total revenue for reportable segments
Intersegment revenue
Total consolidated revenue

Year Ended December 31,
2018

2017

2019

  $

  $

20,562    $
33,970     
50,427     
104,959     
(3,730)   
101,229    $

32,776    $
31,274     
30,426     
94,476     
(5,376)   
89,100    $

1,411 
28,427 
17,218 
47,056 
(9,013)
38,043  

Intersegment revenue eliminated in the above table reflects sales from the Global Supply Chain Platform to the Oncology 

Innovation Platform.

Total revenue by product group:

API sales
Medical device sales
Contract manufacturing revenue
Commercial product sales
License fees
Consulting
Grant revenue

Total consolidated revenue

Year Ended December 31,
2018

2017

2019

  $

  $

12,733    $
—     
391     
67,411     
20,100     
396     
198     
101,229    $

17,952    $
2,344     
458     
35,640     
32,000     
387 
319     
89,100    $

15,351 
1,747 
1,360 
17,648 
750 
355 
832 
38,043  

F-28

 
 
 
 
 
   
   
 
   
 
    
 
    
 
 
   
   
   
   
 
 
 
 
 
   
   
 
   
 
    
 
    
 
 
   
   
   
   
   
  
   
Intersegment revenue is recorded by the selling segment when it is realized or realizable and all revenue recognition criteria are 

met. Upon consolidation, all intersegment revenue and related cost of sales are eliminated from the selling segment’s ledger. 

Net loss attributable to Athenex, Inc.:
Oncology Innovation Platform
Global Supply Chain Platform
Commercial Platform

  $

Total consolidated net loss attributable to Athenex, Inc.

  $

Year Ended December 31,
2018

2017

2019

(100,919)  $
(8,575)   
(14,255)   
(123,749)  $

(89,912)  $
(16,858)   
(10,670)   
(117,440)  $

(108,563)
(7,179)
(15,428)
(131,170)

Year Ended December 31,
2018

2017

2019

Total depreciation and amortization
Oncology Innovation Platform
Global Supply Chain Platform
Commercial Platform

Total consolidated depreciation and amortization

  $

  $

762    $
1,489     
1,566     
3,817    $

690    $
1,603     
976     
3,269    $

482 
2,272 
919 
3,673  

Total assets:

Oncology Innovation Platform
Global Supply Chain Platform
Commercial Platform

Total assets

Total revenue

United States
Spain
Austria
India
China
United Kingdom
Taiwan
Other foreign countries
Total consolidated revenue

Total property and equipment, net:

United States
China

Total property and equipment, net

December 31,

2019

2018

  $

  $

194,183   $
63,598    
52,151    
309,932   $

135,878 
58,816 
36,401 
231,095  

Year Ended December 31,
2018

2017

2019

  $

  $

67,794    $
20,000     
4,422     
3,066     
2,105     
1,023     
—     
2,819     
101,229    $

37,904    $
30,000     
9,569     
3,457     
4,416     
—     
—     
3,754     
89,100    $

19,933 
— 
3,962 
8,479 
2,803 
— 
500 
2,366 
38,043  

December 31,

2019

2018

  $

  $

11,486   $
11,667    
23,153   $

6,549 
4,898 
11,447  

F-29

 
 
 
 
 
   
   
 
   
 
    
 
    
 
 
   
   
 
 
 
 
 
   
   
 
   
 
    
 
    
 
 
   
   
 
 
 
 
 
   
 
   
 
    
 
 
   
   
 
 
 
 
 
   
   
 
   
 
    
 
    
 
 
   
   
   
   
   
   
   
 
 
 
 
 
   
 
   
 
    
 
 
   
Customer revenue and accounts receivable concentration amounted to the following for the identified periods:

Percentage of total revenue by customer:

Customer A
Customer B
Customer C
Customer D
Customer E

Percentage of total accounts receivable by customer:

Customer A
Customer B
Customer C
Customer D

Year Ended December 31,
2018

2017

2019

20%   
16%   
15%   
14%   
4%   

34%   
12%   
9%   
9%   
4%   

December 31,

2019

2018

— 
15%
6%
7%
19%

45%   
31%   
10%   
— 

18%
16%
— 
12%

17.

REVENUE RECOGNITION

The Company records revenue in accordance with ASC, Topic 606 “Revenue from Contracts with Customers.” Under Topic 

606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the 
consideration which it expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements 
that the Company determines are within the scope of Topic 606, the entity performs the following five steps: (i) identifies the 
contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) 
allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the entity 
satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will 
collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Below is a description of 
principal activities – separated by reportable segments – from which the Company generates its revenue (See Note 16 – Business 
Segment, Geographic, and Concentration Risk Information). 

1.

 Oncology Innovation Platform

The Company out-licenses certain of its IP to other pharmaceutical companies in specific territories that allow the customer to 
use, develop, commercialize, or otherwise exploit the licensed IP. In accordance with Topic 606, the Company analyzes the contracts 
to identify its performance obligations within the contract. Most of the Company’s out-license arrangements contain multiple 
performance obligations and variable pricing. After the performance obligations are identified, the Company determines the 
transaction price, which generally includes upfront fees, milestone payments related to the achievement of developmental, regulatory, 
or commercial goals, and royalty payments on net sales of licensed products. The Company considers whether the transaction price is 
fixed or variable, and whether such is subject to return. Variable consideration is only included in the transaction price to the extent 
that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty 
associated with the variable consideration is subsequently resolved. If any portion of the transaction price is constrained, it is excluded 
from the transaction price until the constraint no longer exists. The Company then allocates the transaction price to the performance 
obligation to which the consideration is related. Where a portion of the transaction price is received and allocated to continuing 
performance obligations under the terms of the arrangement, it is recorded as deferred revenue and recognized as revenue when (or as) 
the underlying performance obligation is satisfied.

The Company’s contracts may contain one or multiple promises, including the license of IP and development services. The 
licensed IP is capable of being distinct from the other performance obligations identified in the contract and is distinct within the 
context of the contract, as upon transfer of the IP, the customer is able to use and benefit from it, and the customer could obtain the 
development services from other parties. The Company also considers the economic and regulatory characteristics of the licensed IP 
and other promises in the contract to determine if it is a distinct performance obligation. The Company considers if the IP is modified 
or enhanced by other performance obligations through the life of the agreement and whether the customer is contractually or 
practically required to use updated IP. The IP licensed by the Company has been determined to be functional IP.  The IP is not 
modified during the license period and therefore, the Company recognizes revenues from any portion of the transaction price allocated 
to the licensed IP when the license is transferred to the customer and they can benefit from the right to use the IP. The Company 
recognized revenue allocated to the licensed IP performance obligation upon transfer of the license of $0.1 million and $30.0 million 
for the years ended December 31, 2019 and 2018, respectively.

F-30

 
 
 
 
 
 
 
 
 
 
   
  
   
  
   
  
   
   
   
   
   
 
 
 
 
 
 
 
 
   
  
   
  
   
   
   
   
   
Other performance obligations included in most of the Company’s out-licensing agreements include performing development 
services to reach clinical and regulatory milestone events. The Company satisfies these performance obligations at a point-in-time, 
because the customer does not simultaneously receive and consume the benefits as the development occurs, the development does not 
create or enhance an asset controlled by the customer, and the development does not create an asset with no alternative use. The 
Company considers milestone payments to be variable consideration measured using the most likely amount method, as the 
entitlement to the consideration is contingent on the occurrence or nonoccurrence of future events. The Company allocates each 
variable milestone payment to the associated milestone performance obligation, as the variable payment relates directly to the 
Company’s efforts to satisfy the performance obligation and such allocation depicts the amount of consideration to which the 
Company expects to be entitled for satisfying the corresponding performance obligation. The Company re-evaluates the probability of 
achievement of such performance obligations and any related constraint, and adjusts its estimate of the transaction price as 
appropriate.  To date, no amounts have been constrained in the initial or subsequent assessments of the transaction price.  The 
Company recognized revenue allocated to development performance obligations upon transfer to the customer of $20.0 million and 
$2.0 million for the years ended December 31, 2019 and 2018, respectively.

Certain out-license agreements include performance obligations to manufacture and provide drug product in the future for 
commercial sale when the licensed product is approved. For the commercial, sales-based royalties, the consideration is predominantly 
related to the licensed IP and is contingent on the customer’s subsequent sales to another commercial customer. Consequently, the 
sales- or usage-based royalty exception would apply. Revenue will be recognized for the commercial, sales-based milestones as the 
underlying sales occur. 

The Company exercises significant judgment when identifying distinct performance obligations within its out-license 
arrangements, determining the transaction price, which often includes both fixed and variable considerations, and allocating the 
transaction price to the proper performance obligation.  The Company did not use any other significant judgments related to out-
licensing revenue during the years ended December 31, 2019 and 2018.       

2.

Global Supply Chain Platform

The Company’s Global Supply Chain Platform manufactures API for use internally in its research and development activities as 

well as its clinical studies, and for sale to pharmaceutical customers globally. The Company generates additional revenue on this 
platform, by providing small to mid-scale cGMP manufacturing of clinical and commercial products for pharmaceutical and biotech 
companies and selling pharmaceutical products under 503B regulations set forth by the FDA.

Revenue earned by the Global Supply Platform is recognized when the Company has satisfied its performance obligation, which 

is the shipment or the delivery of drug products. The underlying contracts for these sales are generally purchase orders and the 
Company recognizes revenue at a point-in-time. Any remaining performance obligations related to product sales are the result of 
customer deposits and are reflected in the deferred revenue contract liability balance.

3.

Commercial Platform

The Company’s Commercial Platform generates revenue by distributing specialty products through independent pharmaceutical 
wholesalers. The wholesalers then sell to an end-user, normally a hospital, alternative healthcare facility, or an independent pharmacy, 
at a lower price previously established by the end-user and the Company. Upon the sale by the wholesaler to the end-user, the 
wholesaler will chargeback the difference between the original list price and price at which the product was sold to the end-user. The 
Company also offers cash discounts, which approximate 2.3% of the gross sales price, as an incentive for prompt customer payment, 
and, consistent with industry practice, the Company’s return policy permits customers to return products within a window of time 
before and after the expiration of product dating. Further, the Company offers contractual allowances, generally rebates or 
administrative fees, to certain wholesale customers, group purchasing organizations (“GPOs”), and end-user customers, consistent 
with pharmaceutical industry practices. Revenues are recorded net of provisions for variable consideration, including discounts, 
rebates, GPO allowances, price adjustments, returns, chargebacks, promotional programs and other sales allowances. Accruals for 
these provisions are presented in the consolidated financial statements as reductions in determining net sales and as a contra asset in 
accounts receivable, net (if settled via credit) and other current liabilities (if paid in cash). As of December 31, 2019 and 2018, the 
Company’s total provision for chargebacks and other deductions included as a reduction of accounts receivable totaled $14.4 million 
and $13.1 million, respectively. The Company’s total provision for chargebacks and other revenue deductions was $87.2 million, 
$36.5 million, and $10.6 million for the years ended December 31, 2019, 2018, and 2017, respectively. 

F-31

The Company exercises significant judgment in its estimates of the variable transaction price at the time of the sale and recognizes 
revenue when the performance obligation is satisfied. Factors that determine the final net transaction price include chargebacks, fees for 
service, cash discounts, rebates, returns, warranties, and other factors. The Company estimates all of these variables based on historical 
data obtained from previous sales finalized with the end-user customer on a product-by-product basis. At the time of sale, revenue is 
recorded net of each of these deductions. Through the normal course of business, the wholesaler will sell the product to the end-user, 
determining the actual chargeback, return products, and take advantage of cash discounts, charge fees for services, and claim warranties 
on products. The final transaction price per product is compared to the initial estimated net sale price and reviewed for accuracy. The final 
prices and other factors are immediately included in the Company’s historical data from which it will estimate the transaction price for 
future sales. The underlying contracts for these sales are generally purchase orders including a single performance obligation, generally 
the shipment or delivery of products and the Company recognizes this revenue at a point-in-time.

Disaggregation of revenue 

The following represents the Company’s revenue for its reportable segment by country, based on the locations of the customer 

(in thousands).

United States
Spain
Austria
India
China
United Kingdom
Other Foreign Countries

Total Revenue

United States
Spain
Austria
China
India
Other Foreign Countries

Total Revenue

United States
India
Austria
China
Taiwan
Other Foreign Countries

Total Revenue

Oncology
Innovation
Platform

— 

  $

20,000   
—   
—   
562   
—   
—   
20,562    $

For the Year Ended December 31, 2019

Global Supply
Chain Platform    
17,367 

  $

—   
4,422   
3,066   
1,543   
1,023   
2,819   
30,240    $

Commercial
Platform

Consolidated
Total

50,427 

  $

—   
—   
—   
—   
—   
—   
50,427    $

67,794 
20,000 
4,422 
3,066 
2,105 
1,023 
2,819 
101,229  

For the Year Ended December 31, 2018

Oncology
Innovation
Platform

— 

  $

30,000   
—   
2,776   
—   
—   
32,776    $

Global Supply
Chain Platform    
7,478 

  $

—   
9,569   
1,640   
3,457   
3,754   
25,898    $

Commercial
Platform

Consolidated
Total

30,426 

  $

—   
—   
—   
—   
—   
30,426    $

37,904 
30,000 
9,569 
4,416 
3,457 
3,754 
89,100  

Oncology
Innovation
Platform

  $

— 
—   
—   
911   
500   
—   
1,411    $

For the Year Ended December 31, 2017

  $

Global Supply
Chain Platform    
2,715 
8,479   
3,962   
1,892   
—   
2,366   
19,414    $

Commercial
Platform

Consolidated
Total

17,218 

  $

—   
—   
—   
— 
—   
17,218    $

19,933 
8,479 
3,962 
2,803 
500 
2,366 
38,043  

  $

  $

  $

  $

  $

  $

The Company also disaggregates its revenue by product group which can be found in Note 16 – Business Segment, Geographic, 

and Concentration Risk Information.

Contract balances

F-32

 
 
 
 
 
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
The following table provides information about receivables and contract liabilities from contracts with customers. The Company 

has not recorded any contract assets from contracts with customers (in thousands). 

Accounts receivable, gross
Chargebacks and other deductions
Allowance for doubtful accounts

Accounts receivable, net

Deferred revenue

Total contract liabilities

December 31,

2019

2018

  $

  $

  $

31,207    $
(14,394)  
(124)  
16,689    $
218   
218    $

26,061 
(13,101)
(9)
12,951 
190 
190  

The following tables illustrate accounts receivable by reportable segments (in thousands). 

Accounts receivable, gross
Chargebacks and other deductions
Allowance for doubtful accounts

Accounts receivable, net

Accounts receivable, gross
Chargebacks and other deductions
Allowance for doubtful accounts

Accounts receivable, net

December 31, 2019

Oncology
Innovation
Platform

Oncology
Innovation
Platform

  $

  $

  $

  $

Global Supply
Chain Platform    
1,522 

  $

(1)  
(114)  
1,407    $

  $

49 
—   
—   
49    $

Commercial
Platform

Consolidated
Total

  $

29,636 
(14,393)  
(10)  
15,233    $

31,207 
(14,394)
(124)
16,689  

December 31, 2018

Global Supply
Chain Platform    
7,814 

  $

—   
(9)  
7,805    $

  $

— 
—   
—   
—    $

Commercial
Platform

Consolidated
Total

  $

18,247 
(13,101)  
—   
5,146    $

26,061 
(13,101)
(9)
12,951  

As of December 31, 2019, $0.2 million of the deferred revenue balance relates to customer deposits made by customers of the 
Global Supply Chain Platform and is included within accrued expenses on the consolidated balance sheet. Upon delivery of certain 
drug product, the Company will recognize revenue of $0.2 million. Other amounts included within the deferred revenue balance are 
not material to the consolidated financial statements.

As of December 31, 2018, the $0.2 million contract liability related to customer deposits made by customers of the Global 
Supply Chain Platform. The Company satisfied its performance obligations allocated to these contract liabilities during the year ended 
December 31, 2019 

There were no other material changes to contract balances during the year ended December 31, 2019. 

During December 2019, the Company entered into an agreement to out-license three of its proprietary products and to grant an 

option, excercisable by the licensee, to license two additional product canididates on separately negotiated terms, under which the 
Company is entitled to receive an initial payment, regulatory and commercial milestone payments, and sales-based royalty payments. The 
Company determined that the contract included a distinct performance obligation to deliver a license of functional IP with the regulatory 
data necessary for the licensee to benefit from its right to use the IP. The Company is not required to provide any additional goods or 
services under the agreement. The Company determined that the initial payment is fixed consideration and the regulatory and commercial 
milestone payments and sales-based royalty payments are variable consideration; the regulatory milestone payments will be constrained 
until the Company determines that it is probable that the milestones will occur. The licensed IP is considered functional and therefore, the 
Company will recognize revenue at a point-in-time, when such performance obligation is satisfied. Revenue from the regulatory 
milestones will be recognized when the constraint on the related variable consideration is alleviated. As of December 31, 2019, the 
Company had not yet satisfied its performance obligation to deliver the licensed IP with the necessary regulatory data and therefore, no 
revenue was recorded under this contract during 2019. 

F-33

 
 
 
 
 
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
Practical expedients used 

During the adoption of ASC 606, the Company applied the practical expedient in paragraph 606-10-10-4, the Portfolio 

Approach. This allowed the Company to apply the new revenue standard to a portfolio of contracts with similar characteristics 
because it reasonably expected that the effects on the financial statements of applying the guidance to the portfolio would not differ 
materially from applying the guidance to the individual contracts within that portfolio. The Company used this to determine the 
cumulative catch-up required under the modified retrospective transaction method. The Company used the portfolio approach for 
product sales under the Global Supply Chain Platform and product sales under the Commercial Platform. The Company did not use 
this approach for its out-licensing contracts, because each of those contracts have unique economic characteristics. 

The Company applies the optional exemption in paragraph 606-10-50-14 and does not disclose information about remaining 

performance obligations related to the license of IP. This practical expedient is applied because the out-licensing agreements include 
sales-based royalties in exchange for the license of IP accounted for in accordance with Topic 606 and there is significant uncertainty 
surrounding the future variable consideration that could be received.

18.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) 

The following tables present our unaudited quarterly results of operations for each quarter within the two most recent fiscal 
years. This unaudited quarterly information has been prepared on the same basis as our audited consolidated financial statements and, 
in the opinion of management, the statement of operations data includes all adjustments, consisting of normal recurring adjustments, 
necessary for the fair presentation of the results of operations for these periods. The results of operations for any quarter are not 
necessarily indicative of the results of operations for any future periods.

March 31,
2019

Fiscal 2019 Quarter Ended
June 30,
2019

September 30,
2019

(In thousands, except per share data)

December 31,
2019

Statements of Operations Data:
Revenue:

Product sales
License and other revenue
Total revenue

Costs and operating expenses:

Costs of sales
Research and development expenses(2)
Selling, general, and administrative expenses
Total costs and operating expenses

Operating loss
Net loss
Less: net loss attributable to non-controlling interests  
Net loss attributable to Athenex, Inc.
Net loss per share attributable to Athenex, Inc.
   common stockholders, basic and diluted

  $

  $

  $

25,163    $
144   
25,307   

22,033    $
164   
22,197   

19,237    $
127   
19,364   

19,902   
24,475   
15,188   
59,565   
(34,258)  
(36,230)  
(997)  
(35,233)   $

16,942   
18,507   
17,169   
52,618   
(30,421)  
(32,105)  
(74)  
(32,031)   $

17,071   
19,588   
16,283   
52,942   
(33,578)  
(34,787)  
(29)  
(34,758)   $

14,102 
20,259 
34,361 

15,704 
21,823 
18,109 
55,636 
(21,275)
(22,411)
(684)
(21,727)

(0.53)   $

(0.44)   $

(0.45)   $

(0.28)

F-34

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
   
 
 
   
 
 
 
   
   
   
   
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
   
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31,
2018

Fiscal 2018 Quarter Ended
June 30,
2018

September 30,
2018

(In thousands, except per share data)

December 31,
2018

Statements of Operations Data:
Revenue:

Product sales
License and other revenue
Total revenue

Costs and operating expenses:

Costs of sales
Research and development expenses(2)
Selling, general, and administrative expenses
Total costs and operating expenses

Operating loss
Net loss
Less: net loss attributable to non-controlling interests  
Net loss attributable to Athenex, Inc.
Net loss per share attributable to Athenex, Inc.
   common stockholders, basic and diluted

  $

  $

  $

12,605    $
25,231   
37,836   

11,471    $
94   
11,565   

13,309    $
5,119   
18,428   

11,326   
21,303   
13,080   
45,709   
(7,873)  
(7,339)  
(41)  
(7,298)   $

9,443   
26,572   
12,817   
48,832   
(37,267)  
(36,950)  
(91)  
(36,859)   $

11,965   
51,202   
11,493   
74,660   
(56,232)  
(57,260)  
(11,090)  
(46,170)   $

19,009 
2,262 
21,271 

14,271 
20,828 
11,618 
46,717 
(25,446)
(27,162)
(49)
(27,113)

(0.12)   $

(0.58)   $

(0.70)   $

(0.41)

19. COMMITMENTS AND CONTINGENCIES 

Rental and lease commitments 

In August 2015, the Company entered into a lease agreement with FSMC to occupy a portion of the Conventus Center for 
Collaborative Medicine in Buffalo, NY. A deferred rent liability for this agreement of $1.7 million was recorded as of December 31, 
2018. Total rent expense related to this location, recognized on a straight-line basis, was $1.0 million for the each of the years ended 
December 31, 2019, 2018, and 2017.    

In July 2015, CDE entered into an agreement to lease facilities in Hong Kong. Under the rental agreement, CDE will make 
monthly payments of less than $0.1 million for three years beginning on July 1, 2015. Total rent expense related to this location, 
recognized on a straight-line basis, amounted to $0.3 million, $0.4 million, and $0.4 million for the years ended December 31, 2019, 
2018, and 2017, respectively. The agreement expired in November 2019. In November 2019, CDE entered into an agreement to lease 
facilities in Hong Kong through November 2022. Rent expense is recognized on a straight-line basis and was not material to the 
financial statements for the year ended December 31, 2019.   

In October 2016, the Company’s Commercial Platform entered into an agreement to lease office space in Chicago, IL. Under the 

lease agreement, the Company will make monthly payments based on an escalating scale over ten years. Total rent expense related to 
this location, recognized on a straight-line basis, amounted to $0.3 million, $0.3 million, and less than $0.2 million for the years ended 
December 31, 2019, 2018, and 2017, respectively. A deferred rent liability for this agreement of $0.3 million was recorded as of 
December 31, 2018. In lieu of a security deposit, an irrevocable letter of credit was issued to the landlord in the amount of 
$0.3 million.      

The Company leases its manufacturing and office facilities in Chongqing, China, where it produces API and performs research 

and development. Rent expense is recognized on a straight-line basis and amounted to $0.6 million for each of the years ended 
December 31, 2019, 2018, and 2017.   

The Company entered into additional leases for lab space, warehouse facilities, and various equipment in, Houston, TX; 
Cranford, NJ; Taipei, Taiwan; Latin America; and Buffalo, NY, during 2018 and 2019 which expire at various times through 2026. 
Rent expense recognized for these operating leases was not material to the financial statements for the years ended December 31, 
2019, 2018, and 2017.  

F-35

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
   
 
 
   
 
 
 
   
   
   
   
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
   
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Future minimum payments under the non-cancelable operating leases consists of the following as of December 31, 2019 (in 

thousands): 

Year ending December 31:
2020
2021
2022
2023
2024
Thereafter

Minimum
payments

3,229 
2,843 
2,623 
2,096 
2,002 
1,950 
14,743  

  $

  $

Commitments under New York State and Chongqing Partnerships

Under its partnerships with New York State and CQ as described in Note 12 – Business and Economic Collaborative 
Arrangements, the Company is committed to contribute to the building of manufacturing facilities in Dunkirk, NY and Chongqing, 
China. Pursuant to the arrangement with New York State, the Company is committed to bear the costs of the construction of the 
facility in Dunkirk, NY in excess of approximately $208.0 million. The Company is entitled to lease the facility and all equipment at a 
rate of $1.00 per year for an initial 10-year term and for the same rate if elected to extend the lease for an additional 10-year term. The 
Company is responsible for all operating costs and expenses for the facility and is committed to spending $1.52 billion on operational 
expenses in the first 10-year term in the facility, and an additional $1.5 billion on operational expenses if elected to extend the lease 
for a second 10-year term. Pursuant to the arrangement with CQ, the Finance Bureau of Banan District of Chongqing is responsible 
for investing in the construction of the API and formulation plants, and completing renovation in accordance with U.S. GMP 
standards. The Company is able to lease the facility rent free, for the first 10-year term, with an option to extend the lease for an 
additional 10-year term, during which, if the Company is profitable, it will pay a monthly rent of 5 RMB per square meter of space 
occupied or, it will have the option to purchase the land and building. If the Company does not purchase the land and building after 20 
years at the price described above, it will have the option to lease the land and building with rental fee charged at market price of 
construction area. The Company is responsible for the costs of all equipment and technology for the facilities. Neither of these 
facilities in New York State and Chongqing, China were operational as of December 31, 2019 (see Note – 12 Business and Economic 
Collaborative Agreements).

Legal Proceedings 

From time to time, the Company may become subject to other legal proceedings, claims and litigation arising in the ordinary 

course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. 
The Company is not currently a party to any other material legal proceedings, nor is it aware of any pending or threatened litigation 
that, in the Company’s opinion, would have a material adverse effect on the business, operating results, cash flows or financial 
condition should such litigation be resolved unfavorably.

20.

SUBSEQUENT EVENTS

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The spread of this virus has 

caused business disruption beginning in January 2020. The outbreak has temporarily delayed the Company’s planned operations of its 
new API Plant in Chongqing, China and may disrupt the supply of API for the Company’s clinical trials that are currently provided by 
its existing API plant also located in Chongqing, China. While the business disruption is currently expected to be temporary, there is 
uncertainty around the duration of these disruptions or the possibility of other effects on the business. The disruption may have a 
material adverse impact on the Company’s business, financial condition, and results of operations.  

******

F-36

 
 
   
   
   
   
   
 
Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Board Chairman (Principal Executive Officer) and 

our Chief Financial Officer (Principal Financial and Accounting Officer), evaluated the effectiveness of our disclosure controls and 
procedures as of December 31, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) 
under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be 
disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and 
reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without 
limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it 
files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal 
executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management 
recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of 
achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible 
controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2019, our Chief 
Executive Officer and Board Chairman (Principal Executive Officer) and our Chief Financial Officer (Principal Financial and 
Accounting Officer) concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance 
level. 

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by 

Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2019 that have materially 
affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management's Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term 

is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is designed to provide 
reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for 
external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control 
over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods 
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with 
the policies or procedures may deteriorate. 

As of December 31, 2019, management assessed the effectiveness of our internal control over financial reporting based on the 
framework established in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the 
Treadway Commission (COSO) (2013 Framework). Based on this evaluation, management has determined that our internal control 
over financial reporting was effective as of December 31, 2019. On October 31, 2019, we consummated the acquisition of certain 
assets and assumption of certain liabilities related to the contract research organization business of CIDAL, which subsequently 
became Cidal Limited. In reliance on interpretive guidance issued by the SEC staff, management excluded from its assessment of its 
system of internal control over financial reporting the operations associated with Cidal Limited, which constitute less than 1% of net 
assets, 1% of total assets, less than 1% of revenue, and 1% of net loss of the consolidated financial statement amounts as of and for the 
year ended  December 31, 2019.

136

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

To the stockholders and the Board of Directors of Athenex, Inc.  

Opinion on Internal Control over Financial Reporting 

We have audited the internal control over financial reporting of Athenex, Inc. and subsidiaries (the “Company”) as of 

December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of 
Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, 
effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — 
Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) 

(PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, and the related notes and the 
consolidated financial statement schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”) of the 
Company and our report dated March 2, 2020 expressed an unqualified opinion on those financial statements and included 
explanatory paragraphs regarding a going concern uncertainty and the Company’s adoption of a new accounting standard.

As described in Management’s Annual Report on Internal Control Over Financial Reporting, management excluded from its 

assessment the internal control over financial reporting at Cidal Limited, which was acquired on October 31, 2019, and whose 
financial statements constitute less than 1% of net assets, 1% of total assets, less than 1% of revenue, and 1% of net loss of the 
consolidated financial statement amounts as of and for the year ended December 31, 2019. Accordingly, our audit did not include the 
internal control over financial reporting at Cidal Limited.

Basis for Opinion 

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its 
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual 
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control 
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be 
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations 
of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform 

the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material 
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material 
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and 
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable 
basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the 

reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally 
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) 
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the 
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial 
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being 
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance 
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a 
material effect on the financial statements. 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 

projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of 
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 

/s/ Deloitte & Touche LLP 

Williamsville, New York 
March 2, 2020 

137

 
Item 9B.

Other Information.

None. 

138

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

The information required by this Item is incorporated by reference from the sections captioned “Election of Directors,” 
“Executive Officers,” “Corporate Governance Matters,” “Code of Business Conduct and Ethics,” “Delinquent Section 16(a) Reports” 
contained in our proxy statement related to the 2020 Annual Meeting of Stockholders (Proxy Statement) currently scheduled to be 
held on June 5, 2020, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal 
year pursuant to General Instruction G(3) of Form 10-K.

Item 11.

Executive Compensation.

The information required by this Item is incorporated by reference from the information under the sections captioned “Executive 

Compensation,” “Director Compensation” and “Compensation Committee Interlocks and Insider Participation” in the Proxy 
Statement.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item is incorporated by reference from the information under the sections captioned “Executive 

Compensation”, “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” 
contained in the Proxy Statement.

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item is incorporated by reference from the information under the sections captioned “Certain 

Relationships and Related Party Transactions” and “Corporate Governance Matters” in the Proxy Statement. 

Item 14.

Principal Accounting Fees and Services.

The information required by this Item is incorporated by reference from the information under the section captioned “Audit 

Committee Report” in the Proxy Statement.

139

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) The following documents are filed as part of this report.

1. Financial Statements.

The financial statements of the Company and the related report of the Company’s independent registered public accounting firm 

thereon have been filed under Item 8 hereof. 

2. Financial Statement Schedules.

Schedule II—Valuation and Qualifying Accounts 

Activity in the following valuation and qualifying accounts consisted of the following (in thousands): 

Col. A
Description
December 31, 2019
Allowance for doubtful accounts
Allowance for chargebacks and other deductions
Deferred tax asset valuation allowance
December 31, 2018
Allowance for doubtful accounts
Allowance for chargebacks and other deductions
Deferred tax asset valuation allowance
December 31, 2017
Allowance for doubtful accounts
Allowance for chargebacks and other deductions
Deferred tax asset valuation allowance

Col. C - Additions

Col. B
Balance at
Beginning of
Period

Charged to
Costs &
Expenses

Charged to
Other
Accounts -
Describe

Col. D
Deductions -
Describe

Col. E
Balance at
End of
Period

  $
  $
  $

  $
  $
  $

  $
  $
  $

9 
13,101 
88,455 

84 
3,711 
60,379 

155 
— 
62,308 

 $
 $
 $

 $
 $
 $

 $
 $
 $

488  (1)
95,100  (2)
— 

 $
 $
   $

— 
— 
32,350  (3)

   $
(373) (1)
   $ (93,807) (2)

 $

— 

 $
 $

124 
14,394 
   $ 120,805 

28  (1)
36,102  (2)
— 

 $
 $
   $

— 
— 
28,076  (3)

   $
(103) (1)
   $ (26,712) (2)

 $

— 

 $
 $
   $

662  (1)
3,834  (2)
— 

 $
 $
   $

— 
— 
(1,929) (3)

   $
   $
 $

(733) (1)
(123) (2)
— 

 $
 $
   $

9 
13,101 
88,455 

84 
3,711 
60,379  

(1)  Increases in the allowance for doubtful accounts consist of our provision for bad debts, which is included within selling, general, 

and administrative expenses on the consolidated statements of operations and comprehensive loss. Decreases in the allowances 
for doubtful accounts consist of the write-off of specific accounts and the recovery of previously reserved receivables. 

(2)  Increases in the allowance for chargebacks and other deductions consist of our provision for chargebacks, cash discounts, returns, 
fees, and other credits, which are a deduction from product sales on the consolidated statements of operations and comprehensive 
loss. Decreases in the allowances for chargebacks and other deduction consist of the collection of the underlying accounts and 
advances received on chargebacks.

(3)  Increases and decreases in the valuation allowance for deferred income tax assets offset the increases and decreases in our gross 

deferred tax assets, based on the expected realization of those future tax benefits. 

140

 
     
   
     
   
     
 
 
   
 
 
 
 
   
  
  
  
    
  
    
  
    
  
   
  
  
  
    
  
    
  
    
  
   
  
  
  
    
  
    
  
    
  
Item 16. Form 10-K Summary.

None.

(b) Exhibits.  

Exhibit 
Number

    3.1

    3.2

    4.1

    4.2

  10.1+

  10.2+

  10.3+

  10.4+

  10.5+

  10.6+

  10.7^

  10.7.1

  10.7.2

  10.7.3

  10.7.4^

  10.7.5

  10.8^

Incorporated by Reference
(Unless Otherwise Indicated)

Exhibit Title

Form

File

Exhibit

Filing Date

Amended and Restated Certificate of Incorporation of the 
Company, effective as of June 19, 2017.

Amended and Restated Bylaws of the Company, effective as 
of June 19, 2017.

Form 8-K

001-38112

3.1

June 22, 2017

Form 8-K

001-38112

3.2

June 22, 2017

Specimen Common Stock Certificate.

Form S-1

333-217928

Description of Securities

⸺

⸺

Form of Director and Officer Indemnification Agreement.

Form S-1

333-217928

First Amended and Restated 2004 Common Unit Option 
Plan and Form of Unit Option Agreement.

Form S-1

333-217928

4.1

⸺

10.1

10.2

May 12, 2017

Filed herewith

May 12, 2017

May 12, 2017

First Amended and Restated 2007 Common Unit Option 
Plan and Form of Unit Option Agreement.

2013 Common Stock Option Plan and Form of Common 
Stock Option Agreement.

2017 Omnibus Incentive Plan and Form of Stock Option 
Award Agreement.

2017 Employee Stock Purchase Plan.

License Agreement by and between Hanmi Pharmaceutical 
Ltd. and Kinex Pharmaceuticals, LLC, effective as of 
December 16, 2011.

First Amendment to License Agreement by and between 
Kinex Pharmaceuticals, LLC and Hanmi Pharmaceutical 
Co., Ltd., effective as of November 9, 2012.

Second Amendment to License Agreement by and between 
Kinex Pharmaceuticals, LLC and Hanmi Pharmaceutical 
Ltd., effective as of October 21, 2013.

Third Amendment to License Agreement by and between 
Kinex Pharmaceuticals, Inc. and Hanmi Pharmaceutical 
Ltd., effective as of March 3, 2015.

Fourth Amendment to License Agreement by and between 
Athenex, Inc. and Hanmi Pharmaceutical Co., Ltd., effective 
as of March 7, 2017.

Fifth Amendment to License Agreement by and between 
Athenex, Inc. and Hanmi Pharmaceutical Co. Ltd., effective 
as of September 4, 2018.

License Agreement by and among Hanmi Pharmaceutical 
Co., Ltd., Kinex Therapeutics (HK) Limited, and Kinex 
Pharmaceuticals, Inc., effective as of June 28, 2013.

Form S-1

333-217928

10.3

May 12, 2017

Form S-1

333-217928

10.4

May 12, 2017

Form S-1/A 333-217928

10.5

June 2, 2017

Form S-1/A 333-217928

Form S-1

333-217928

10.6

10.7

June 2, 2017

May 12, 2017

Form S-1

333-217928

10.7.1

May 12, 2017

Form S-1

333-217928

10.7.2

May 12, 2017

Form S-1

333-217928

10.7.3

May 12, 2017

Form S-1

333-217928

10.7.4

May 12, 2017

Form 10-K 001-38112

10.45

March 11, 2019

Form S-1

333-217928

10.8

May 12, 2017

141

Exhibit 
Number

  10.9^

  10.9.1

  10.10^

  10.10.1

  10.11^

  10.11.1

  10.11.2^

  10.12^

  10.13^

  10.14^

  10.14.1^

  10.14.2^

  10.14.3^

  10.15^

  10.15.1^

Exhibit Title

Form

File

Exhibit

Filing Date

Incorporated by Reference
(Unless Otherwise Indicated)

License Agreement by and between Kinex Pharmaceuticals, 
LLC and Hanmi Pharmaceutical Ltd., effective as of April 
2011.

Mutual Letter of Termination of the License Agreement by 
and between Kinex Pharmaceuticals, LLC and Hanmi 
Pharmaceutical Ltd., effective as of August 20, 2018.

License Agreement by and between Kinex Pharmaceuticals, 
LLC and PharmaEssentia Corp., effective as of December 8, 
2011.

First Amendment to License Agreement by and between 
Athenex, Inc. and PharmaEssentia Corp., effective as of 
December 23, 2016.

License Agreement by and between Kinex Pharmaceuticals, 
Inc. and PharmaEssentia Corp., effective as of December 
16, 2013.

First Amendment to License Agreement by and between 
Athenex, Inc. and PharmaEssentia Corp., effective as of 
December 23, 2016.

Second Amendment to License Agreement by and between 
Athenex, Inc. and PharmaEssentia Corp., effective as of 
November 27, 2018.

License Agreement by and between Kinex Pharmaceuticals, 
Inc. and ZenRx Limited, effective as of April 25, 2013.

License Agreement by and between Kinex Pharmaceuticals, 
LLC and Guangzhou Xiangxue New Drug Discovery and 
Development Company Limited, effective as of May 6, 
2012.

Binding Term Sheet for License by and between Athenex 
Pharmaceutical Division, LLC and Gland Pharma Limited, 
effective as of August 1, 2016.

Binding Term Sheet for License by and between Athenex 
Pharmaceutical Division, LLC and Gland Pharma Limited, 
effective as of August 26, 2016.

Binding Term Sheet for License by and between Athenex 
Pharmaceutical Division, LLC and Gland Pharma Limited, 
effective as of February 22, 2017.

Binding Term Sheet for License by and between Athenex 
Pharmaceutical Division, LLC and Gland Pharma Limited, 
effective as of May 5, 2017.

Joint Venture Agreement by and between SunGen Pharma 
LLC and Athenex Pharmaceutical Division, effective as of 
September 22, 2016.

Addendum to Joint Venture Agreement by and between 
SunGen Pharma LLC and Athenex Pharmaceutical 
Division, LLC, effective November 29, 2016.

Form S-1

333-217928

10.9

May 12, 2017

Form 10-K 001-38112

10.44

March 11, 2019

Form S-1

333-217928

10.10

May 12, 2017

Form S-1

333-217928

10.10.1

May 12, 2017

Form S-1

333-217928

10.11

May 12, 2017

Form S-1

333-217928

10.11.1

May 12, 2017

Form 10-K 001-38112

10.46

March 11, 2019

Form S-1

333-217928

10.12

May 12, 2017

Form S-1

333-217928

10.13

May 12, 2017

Form S-1

333-217928

10.14

May 12, 2017

Form S-1

333-217928

10.14.1

May 12, 2017

Form S-1

333-217928

10.14.2

May 12, 2017

Form S-1/A 333-217928

10.14.3

June 2, 2017

Form S-1

333-217928

10.15

May 12, 2017

Form S-1

333-217928

10.15.1

May 12, 2017

142

Exhibit 
Number

  10.15.2

  10.16^

  10.17^

  10.18

  10.18.1

  10.18.2

  10.19

  10.20

  10.20.1

  10.21^

  10.22

  10.23+

Exhibit Title

Form

File

Exhibit

Filing Date

Limited Liability Company Agreement of Peterson Athenex 
Pharmaceuticals, LLC, effective as of October 4, 2016. 

Form S-1

333-217928

10.15.2

May 12, 2017

Incorporated by Reference
(Unless Otherwise Indicated)

Service Agreement by and between Dohmen Life Science 
Services, LLC and Athenex Pharmaceutical Division, LLC, 
effective as of August 9, 2016.

Clinical Trial Collaboration and Supply Agreement by and 
among Athenex, Inc., Eli Lilly and Company and ImClone 
LLC, effective as of October 24, 2016.

Agreement for Medical Technology Research, 
Development, Innovation, and Commercialization Alliance 
by and between Fort Schuyler Management Corporation 
and Kinex Pharmaceuticals, Inc., effective as of May 1, 
2015.

First Amendment to Agreement for Medical Technology 
Research, Development, Innovation, and 
Commercialization Alliance by and between Fort Schuyler 
Management Corporation and Kinex Pharmaceuticals, Inc., 
effective as of July 21, 2015.

Second Amendment to Agreement for Medical Technology 
Research, Development, Innovation, and 
Commercialization Alliance by and between Fort Schuyler 
Management Corporation and Athenex, Inc., effective as of 
June 22, 2016.

Sublease Agreement by and between Fort Schuyler 
Management Corporation and Kinex Pharmaceuticals, Inc., 
effective as of July 21, 2015.

Athenex Pharmaceutical Base Project Located in the 
Chongqing Maliu Riverside Development Zone Agreement 
with Chongqing Maliu Riverside Development and 
Investment Co., Ltd., effective as of October 16, 2015 
(English translation of original foreign language agreement).

Supplemental Agreement to Athenex Pharmaceutical Base 
Project Located in the Chongqing Maliu Riverside 
Development Zone Agreement with Chongqing Maliu 
Riverside Development and Investment Co., Ltd., effective 
as of April 1, 2019 (English translation of original foreign 
language agreement).

Binding Term Sheet for License, Supply and Distribution 
Agreement by and among Athenex API Limited, Nang-
Kuang Pharmaceutical Co., LTD and CANDA NK-2, LLC, 
effective as of December 29, 2016.

Asset Purchase Agreement by and between Athenex, Inc. 
and Amphastar Pharmaceuticals, Inc., dated February 1, 
2017.

Amended and Restated Employment Agreement by and 
between Johnson Lau and Kinex Pharmaceuticals, Inc., 
effective as of June 1, 2015.

143

Form S-1

333-217928

10.16

May 12, 2017

Form S-1

333-217928

10.17

May 12, 2017

Form S-1

333-217928

10.18

May 12, 2017

Form S-1

333-217928

10.18.1

May 12, 2017

Form S-1

333-217928

10.18.2

May 12, 2017

Form S-1

333-217928

10.19

May 12, 2017

Form S-1

333-217928

10.20

May 12, 2017

Form 10-Q 001-38112

10.20.1

August 7, 2019

Form S-1

333-217928

10.21

May 12, 2017

Form S-1

333-217928

10.22

May 12, 2017

Form S-1

333-217928

10.23

May 12, 2017

Exhibit 
Number

  10.24+

  10.25+

  10.26+

  10.27+

  10.28

  10.28.1

  10.29^

  10.29.1^

  10.29.2^

  10.29.3

  10.30

  10.30.1

  10.30.2

  10.30.3

  10.31

  10.32

Exhibit Title

Form

File

Exhibit

Filing Date

Incorporated by Reference
(Unless Otherwise Indicated)

Employment Agreement by and between Kinex Polymed 
Hong Kong Ltd. and William Zuo, PhD, effective as of 
June 1, 2015.

Employment Agreement by and between Athenex, Inc. and 
Dr. Rudolf Min-Fun Kwan, effective as of February 21, 
2017.

Employment Agreement by and between Athenex, Inc. and 
Dr. Simon Pedder, effective as of February 20, 2017.

Employment Agreement by and between Athenex, Inc. and 
Jeffrey Yordon, effective as of February 21, 2017.

Grant Disbursement Agreement by and between New York 
State Urban Development Corporation d/b/a Empire State 
Development and Athenex, Inc., dated September 4, 2017.

Amendment to Grant Disbursement Agreement by and 
between the New York State Urban Development 
Corporation d/b/a Empire State Development and Athenex, 
Inc., dated as July 23, 2019.

License and Development Agreement by and between 
Athenex, Inc., Almirall, S.A. and Aqua Pharmaceuticals 
LLC., dated as of December 11, 2017.

First Amendment to License and Development Agreement 
by and between Athenex, Inc., Almirall, S.A., and Aqua 
Pharmaceuticals LLC, dated as of September 26, 2018.

Letter Agreement by and between Athenex, Inc., Almirall, 
S.A. and Aqua Pharmaceuticals LLC, dated as of 
September 26, 2018.

Second Amendment to License and Development 
Agreement by and between Athenex, Inc., Almirall, S.A., 
and Aqua Pharmaceuticals LLC, dated as of June 18, 2019.

Standard Form of Agreement by and between M+W U.S., 
Inc. and Athenex, Inc. on December 29, 2017.

First Amendment to Agreement by and between M+W 
U.S., Inc. and Athenex, Inc., effective as of March 27, 
2018.

Second Amendment to Agreement by and between M+W 
U.S., Inc. and Athenex, Inc., effective as of October 1, 
2018.

Third Amendment to Agreement by and between Exyte 
U.S., Inc. (f/k/a M+W U.S., Inc., effective as of January 23, 
2019.

Share Purchase Agreement dated as of June 29, 2018 by 
and between Athenex, Inc. and Perceptive Life Sciences 
Master Fund, Ltd.

Senior Secured Term Loan Agreement dated as of June 30, 
2018 by and between Athenex, Inc. and Perceptive 
Advisors LLC.

144

Form S-1

333-217928

10.24

May 12, 2017

Form S-1

333-217928

10.25

May 12, 2017

Form S-1

333-217928

10.26

May 12, 2017

Form S-1

333-217928

10.28

May 12, 2017

Form 10-Q 001-38112

10.30 November 9, 2017

Form 10-Q 001-38112

10.29.1

August 7, 2019

Form 8-K

001-38112

10.1 December 15, 2017

Form 10-Q 001-38112

10.3

Form 10-Q 001-38112

10.4

November 14, 
2018

November 14, 
2018

Form 10-Q 001-38112

10.30.2

August 7, 2019

Form 10-K 001-38112

10.32

March 26, 2018

Form 10-Q 001-38112

10.31.1

May 9, 2019

Form 10-Q 001-38112

10.31.2

May 9, 2019

Form 10-Q 001-38112

10.31.3

May 9, 2019

Form 8-K

001-38112

10.1

July 2, 2018

Form 8-K

001-38112

10.2

July 2, 2018

Exhibit 
Number

  10.32.1

  10.32.2

  10.33^

  10.34^

  10.35^

  10.36

  10.37+

  10.38^

  10.39^

  10.40

  10.41

  10.42

Exhibit Title

Form

File

Exhibit

Filing Date

Incorporated by Reference
(Unless Otherwise Indicated)

Amendment No. 1 to Credit Agreement by and between 
Athenex, Inc. and Perceptive Advisors LLC, dated as of 
April 22, 2019.

Amendment No. 2 to Credit Agreement by and between 
Athenex, Inc. and Perceptive Advisors LLC, dated as of 
August 5, 2019.

License Agreement dated as of June 29, 2018 by and 
between Xiangxue Life Sciences Ltd. and Axis 
Therapeutics Limited.

License Agreement dated as of June 29, 2018 by and 
between Athenex Therapeutics Limited and Avalon 
Polytom (HK) Limited Pegtomarginase.

License and Supply Agreement dated as of June 29, 2018 
by and between Athenex Therapeutics Limited and Avalon 
HepaPOC Limited Galactose Meter and Strip.

Registration Rights Agreement dated as of July 3, 2018 by 
and between Athenex, Inc. and Perceptive Life Sciences 
Master Fund Ltd.

Employment Agreement between Athenex, Inc. and 
Randoll Sze dated as of August 20, 2018.

License Agreement dated as of December 30, 2018 by and 
between Athenex, Inc. and Chongqing Taihao 
Pharmaceutical Co. Ltd.

Sublicense Agreement dated as of December 30, 2018 by 
and among Chongqing Taihao Pharmaceutical Co. Ltd., 
Chongqing Jingdong Junzhuo Pharmaceutical Co., Ltd. and 
Athenex, Inc.

Share Purchase Agreement by and among Athenex, Inc., 
Perceptive Life Sciences Master Fund, Ltd., venBio Select 
Fund LLC, OrbiMed Partners Master Fund Limited, and 
The Biotech Growth Trust PLC, dated as of May 3, 2019.

Registration Rights Agreement by and among Athenex, 
Inc., Perceptive Life Sciences Master Fund, Ltd., venBio 
Select Fund LLC, OrbiMed Partners Master Fund Limited, 
and The Biotech Growth Trust PLC, dated as of May 7, 
2019.

Share Purchase Agreement by and among Athenex, Inc., M. 
Kingdon Offshore Master Fund, LP, Schonfeld Strategic 
460 Fund LLC, Point72 Associates, LLC, J. Goldman 
Master Fund, L.P., and Avoro Life Sciences Fund LLC, 
dated as of December 5, 2019.

Form 10-Q 001-38112

10.34.1

August 7, 2019

Form 10-Q 001-38112

10.34.2

August 7, 2019

Form 8-K

001-38112

10.3

July 2, 2018

Form 8-K

001-38112

10.4

July 2, 2018

Form 8-K

001-38112

10.5

July 2, 2018

Form 10-Q 001-38112

10.7

August 14, 2018

Form 8-K

001-38112

10.1

August 20, 2018

Form 8-K

001-38112

10.1

January 3, 2019

Form 8-K

001-38112

10.2

January 3, 2019

Form 8-K

001-38112

10.1

May 6, 2019

Form S-3 

333-232772

4.2

July 23, 2019

Form 8-K

001-38112

10.1

December 5, 2019

  10.43**

License Agreement between the Company and Guangzhou 
Xiangxue Pharmaceutical Co., Ltd., dated December 12, 
2019.

Form 8-K

001-38112

10.1 December 16, 2019

145

Exhibit 
Number

   10.44**

  21.1

  23.1

  24.1

  31.1

  31.2

  32.1

Exhibit Title

Form

File

Exhibit

Filing Date

Incorporated by Reference
(Unless Otherwise Indicated)

Registration Rights Agreement by and among Athenex, 
Inc., M. Kingdon Offshore Master Fund, LP, Schonfeld 
Strategic 460 Fund LLC, Point72 Associates, LLC, J. 
Goldman Master Fund, L.P., and Avoro Life Sciences Fund 
LLC, dated as of December 9, 2019.

Form S-3 

333-236104

4.2

January 28, 2020

Subsidiaries of Athenex, Inc.

Form 10-K 001-38112

21.1

Filed herewith

Consent of Deloitte & Touche LLP, Independent Registered 
Public Accounting Firm.

Power of Attorney (included on signature page hereto).

Certification of the Chief Executive Officer and Board 
Chairman (Principal Executive Officer) pursuant to Section 
302 of the Sarbanes-Oxley Act of 2002.

Certification of the Chief Financial Officer (Principal 
Financial and Accounting Officer) pursuant to Section 302 
of the Sarbanes-Oxley Act of 2002.

Certification of the Chief Executive Officer and Board 
Chairman (Principal Executive Officer) and Chief Financial 
Officer (Principal Financial and Accounting Officer) 
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document.

101.SCHY

XBRL Taxonomy Extension Schema Document.

101.CAL

101.DEF

XBRL Taxonomy Extension Calculation Linkbase 
Document.

XBRL Taxonomy Extension Definition Linkbase 
Document.

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase 
Document.

__

__

__

__

__

__

__

__

__

__

__

__

__

__

__

__

__

__

__

__

__

__

__

__

__

Filed herewith

Filed herewith

Filed herewith

__

Filed herewith

__

__

__

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__

__

__

Filed herewith

Filed herewith

Filed herewith

Filed herewith

Filed herewith

Filed herewith

Filed herewith

+
^

Indicates management contract or compensatory plan.
Confidential treatment has been granted for certain confidential portions of this exhibit pursuant to Rule 406 under the Securities 
Act. In accordance with Rule 406, these confidential portions have been omitted from this exhibit and filed separately with the 
Securities and Exchange Commission.

** The Company has filed a redacted version of the Agreement, omitting the portions of the Agreement (indicated by asterisks) 

which the Company desires to keep confidential.

146

SIGNATURES 

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has 

duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. 

Date: March 2, 2020

ATHENEX, INC.

By: /s/ Johnson Y.N. Lau
Johnson Y.N. Lau
Chief Executive Officer and Board Chairman

POWER OF ATTORNEY

Each person whose individual signature appears below hereby authorizes and appoints Randoll Sze and Teresa Bair, and each of 

them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-
in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and 
in each capacity stated below, and to file any and all amendments to this annual report on Form 10-K and to file the same, with all 
exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said 
attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and 
confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to 
be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the 

following persons on behalf of the Registrant in the capacities and on the dates indicated. 

Chief Executive Officer and Board Chairman (Principal Executive Officer)

March 2, 2020

Title

Date

Signature

/s/ Johnson Y.N. Lau
Johnson Y.N. Lau

/s/ Randoll Sze
Randoll Sze

/s/ Kim Campbell
Kim Campbell

/s/ Manson Fok
Manson Fok

/s/ Jinn Wu
Jinn Wu

/s/ Benson Tsang
Benson Tsang

/s/ John Koh
John Koh

/s/ Stephanie Davis
Stephanie Davis

/s/ Jordan Kanfer
Jordan Kanfer

Chief Financial Officer
(Principal Financial and Accounting Officer)

Director

Director

Director

Director

Director

Director

Director

/s/ John Moore Vierling
John Moore Vierling

Director

147

March 2, 2020

March 2, 2020

March 2, 2020

March 2, 2020

March 2, 2020

March 2, 2020

March 2, 2020

March 2, 2020

March 2, 2020

 
 
CERTIFICATION PURSUANT TO 
SECTION 302 OF 
THE SARBANES-OXLEY ACT OF 2002

Exhibit 31.1

I, Johnson Y.N. Lau, certify that:

1.

2.

3.

4.

I have reviewed this Annual Report on Form 10-K of Athenex, Inc. (the registrant);

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact 
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading 
with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all 
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods 
presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and 
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined 
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under 
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is 
made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be 

designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the 
preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our 
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this 
report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the 
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has 
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; 
and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over 
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons 
performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting 

which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial 
information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the 

registrant’s internal control over financial reporting.

Date: March 2, 2020

/s/ Johnson Y.N. Lau
Name: Johnson Y.N. Lau
Title:  Chief Executive Officer and Board Chairman
(Principal Executive Officer)

 
CERTIFICATION PURSUANT TO 
SECTION 302 OF 
THE SARBANES-OXLEY ACT OF 2002

Exhibit 31.2

I, Randoll Sze, certify that:

1.

2.

3.

4.

I have reviewed this Annual Report on Form 10-K of Athenex, Inc. (the registrant);

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact 
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading 
with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all 
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods 
presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and 
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined 
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under 
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is 
made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be 

designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the 
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our 
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this 
report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the 
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has 
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; 
and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over 
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons 
performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting 

which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial 
information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the 

registrant’s internal control over financial reporting.

Date: March 2, 2020

/s/ Randoll Sze
Name: Randoll Sze
Title:  Chief Financial Officer
(Principal Financial and Accounting Officer)

 
CERTIFICATION PURSUANT TO 
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO 
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32.1

In accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Johnson Y.N. 
Lau, Chief Executive Officer and Board Chairman (Principal Executive Officer) of Athenex, Inc. (the “registrant”), and Randoll Sze, 
Chief Financial Officer of the registrant (Principal Financial and Accounting Officer), each hereby certifies that, to the best of their 
knowledge:

1.

2.

The registrant’s Annual Report on Form 10-K for the period ended December 31, 2019, to which this Certification is attached as 
Exhibit 32.1 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 
1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition of the registrant at the 
end of the period covered by the Report and results of operations of the registrant for the period covered by the Report. 

Date: March 2, 2020

/s/ Johnson Y.N. Lau
Name: Johnson Y.N. Lau
Title:  Chief Executive Officer and Board Chairman
(Principal Executive Officer)

/s/ Randoll Sze
Name: Randoll Sze
Title:  Chief Financial Officer
(Principal Financial and Accounting Officer)

 
 
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