24APR201706523729
2016 Annual Report on Form 10-K
24AUG201511042639
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
For the transition period from
to
Commission file number: 001-37686
BEIGENE, LTD.
(Exact Name of Registrant as Specified in its Charter)
Cayman Islands
(State or Other Jurisdiction of
Incorporation or Organization)
c/o Mourant Ozannes Corporate Services (Cayman)
Limited
94 Solaris Avenue, Camana Bay
Grand Cayman
Cayman Islands
(Address of Principal Executive Offices)
98-1209416
(I.R.S. Employer
Identification No.)
KY1-1108
(Zip Code)
+1 (345) 949 4123
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
American Depositary Shares, each representing 13
ordinary shares, par value $0.0001 per share
The NASDAQ Stock Market LLC
Ordinary Shares, par value $0.0001 per share*
The NASDAQ Stock Market LLC
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 (cid:2) No (cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes (cid:3) No (cid:2)
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 (cid:2) No (cid:3)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes (cid:2) No (cid:3)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer (cid:3)
Smaller reporting company (cid:3)
Accelerated filer (cid:3)
Non-accelerated filer (cid:2)
(Do not check if a
smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:3) No(cid:2)
As of June 30, 2016, the last day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of
the ordinary shares, including in the form of American Depositary Shares (‘‘ADSs’’), each representing 13 ordinary shares, held by
non-affiliates of the registrant was approximately $374.1 million, based upon the closing price of the registrant’s ADSs on June 30, 2016.
As of March 17, 2017, 518,602,349 ordinary shares, par value $0.0001 per share, were outstanding, of which 251,251,247 ordinary
shares were held in the form of 19,327,019 ADSs.
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year
ended December 31, 2016. Portions of such definitive proxy statement are incorporated by reference into Part III of this Annual Report
on Form 10-K
DOCUMENTS INCORPORATED BY REFERENCE
*
Not for trading, but only in connection with the registration of the American Depositary Shares.
BeiGene, Ltd.
Annual Report on Form 10-K
TABLE OF CONTENTS
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Item 6.
Item 7.
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements With Accountants on Accounting and Financial
Item 9.
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related
Item 12.
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13.
Item 14.
PART IV
Page
3
78
150
151
151
151
152
158
159
181
183
183
183
184
185
185
185
185
185
Item 15.
Item 16.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
186
186
SIGNATURES
Forward-Looking Statements and Market Data
This Annual Report on Form 10-K, or Annual Report, contains forward-looking statements that
involve substantial risks and uncertainties. All statements other than statements of historical facts
contained in this Annual Report, including statements regarding our strategy, future operations, future
financial position, future revenue, projected costs, prospects, plans, objectives of management and
expected market growth, are forward-looking statements. These statements involve known and unknown
risks, uncertainties and other important factors that may cause our actual results, performance or
achievements to be materially different from any future results, performance or achievements expressed
or implied by the forward-looking statements.
The words ‘‘anticipate,’’ ‘‘believe,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘intend,’’ ‘‘may,’’ ‘‘plan,’’ ‘‘predict,’’
‘‘project,’’ ‘‘target,’’ ‘‘potential,’’ ‘‘will,’’ ‘‘would,’’ ‘‘could,’’ ‘‘should,’’ ‘‘continue,’’ and similar expressions
are intended to identify forward-looking statements, although not all forward-looking statements
contain these identifying words. These forward-looking statements include, among other things,
statements about:
(cid:129) the initiation, timing, progress and results of our preclinical studies and clinical trials and our
research and development programs;
(cid:129) our ability to advance our drug candidates into, and successfully complete, clinical trials;
(cid:129) the ability of our drug candidates to be granted or to maintain Category 1 designation with the
China Food and Drug Administration, or CFDA;
(cid:129) our reliance on the success of our clinical-stage drug candidates BGB-3111, BGB-A317,
BGB-290 and BGB-283 and certain other drug candidates, as monotherapies and in combination
with our wholly-owned drug candidates and third-party agents;
(cid:129) the timing or likelihood of regulatory filings and approvals;
(cid:129) the commercialization of our drug candidates, if approved;
(cid:129) our ability to develop sales and marketing capabilities;
(cid:129) the pricing and reimbursement of our drug candidates, if approved;
(cid:129) the implementation of our business model, strategic plans for our business, drug candidates and
technology;
(cid:129) the scope of protection we are able to establish and maintain for intellectual property rights
covering our drug candidates and technology;
(cid:129) our ability to operate our business without infringing the intellectual property rights and
proprietary technology of third parties;
(cid:129) cost associated with defending against intellectual property infringement, product liability and
other claims;
(cid:129) regulatory developments in the United States, China, the United Kingdom, the European Union
and other jurisdictions;
(cid:129) the accuracy of our estimates regarding expenses, future revenues, capital requirements and our
need for additional financing;
(cid:129) the potential benefits of strategic collaboration agreements and our ability to enter into strategic
arrangements;
(cid:129) our ability to maintain and establish collaborations or obtain additional grant funding;
1
(cid:129) the rate and degree of market acceptance of our drug candidates;
(cid:129) developments relating to our competitors and our industry, including competing therapies;
(cid:129) the size of the potential markets for our drug candidates and our ability to serve those markets;
(cid:129) our ability to effectively manage our anticipated growth;
(cid:129) our ability to attract and retain qualified employees and key personnel;
(cid:129) our expectations regarding the period during which we qualify as an emerging growth company
under the JOBS Act;
(cid:129) statements regarding future revenue, hiring plans, expenses, capital expenditures, capital
requirements and share performance;
(cid:129) the future trading price of the American Depositary Shares, or ADSs, and impact of securities
analysts’ reports on these prices; and
(cid:129) other risks and uncertainties, including those listed under ‘‘Part I—Item 1A—Risk Factors.’’
These forward-looking statements are only predictions and we may not actually achieve the plans,
intentions or expectations disclosed in our forward-looking statements, so you should not place undue
reliance on our forward-looking statements. Actual results or events could differ materially from the
plans, intentions and expectations disclosed in the forward-looking statements we make. 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 business, financial condition and operating results. We
have included important factors in the cautionary statements included in this Annual Report,
particularly in ‘‘Part I—Item 1A—Risk Factors,’’ that could cause actual future results or events to
differ materially from the forward-looking statements that we make. Our forward-looking statements do
not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or
investments we may make.
You should read this Annual Report and the documents that we have filed as exhibits to the
Annual Report with the understanding that our actual future results may be materially different from
what we expect. We do not assume any obligation to update any forward-looking statements whether as
a result of new information, future events or otherwise, except as required by applicable law.
This Annual Report includes statistical and other industry and market data that we obtained from
industry publications and research, surveys and studies conducted by third parties. Industry publications
and third-party research, surveys and studies generally indicate that their information has been obtained
from sources believed to be reliable, although they do not guarantee the accuracy or completeness of
such information. While we believe these industry publications and third party research, surveys and
studies are reliable, you are cautioned not to give undue weight to this information.
Please see the Glossary of Scientific Terms on page 74 for definitions of scientific terms used in
this Annual Report.
2
Unless the context requires otherwise, references in this report to ‘‘BeiGene,’’ the ‘‘Company,’’ ‘‘we,’’
‘‘us,’’ and ‘‘our’’ refer to BeiGene, Ltd. and its subsidiaries, on a consolidated basis.
PART I
Item 1. Business
Overview
We are a globally focused, clinical-stage biopharmaceutical company dedicated to becoming a
leader in the discovery and development of innovative, molecularly targeted and immuno-oncology
drugs for the treatment of cancer. We believe the next generation of cancer treatment will utilize
therapeutics both as monotherapies and in combination to attack multiple underlying mechanisms of
cancer cell growth and survival. We further believe that discovery of next-generation cancer therapies
requires new research tools. To that end, we have developed a proprietary cancer biology platform that
addresses the importance of tumor-immune system interactions and the value of primary biopsies in
developing new models to support our drug discovery effort.
Our strategy is to develop a pipeline of drug candidates with the potential to be best-in-class
monotherapies and also important components of multiple-agent combination regimens. Over the last
six years, using our cancer biology platform, we have developed clinical-stage drug candidates that
inhibit the important oncology targets Bruton’s tyrosine kinase, or BTK, RAF dimer protein complex
and PARP family of proteins, and an immuno-oncology agent that inhibits the immune checkpoint
protein receptor PD-1. For each of our molecularly targeted drug candidates, we have achieved
proof-of-concept by observing objective responses in defined patient populations. Our BTK inhibitor is
currently in pivotal studies in North America, Europe, Australia, New Zealand, and China. Our PD-1,
PARP and RAF dimer inhibitors are currently in the dose-expansion phases of their respective clinical
trials. As of March 20, 2017, trials of our four clinical-stage drug candidates, as monotherapies and in
combination, have enrolled a total of over 980 patients. We have Investigational New Drug, or IND,
Applications in effect for our BTK, PD-1 and PARP inhibitors with the U.S. Food and Drug
Administration, or FDA. All four of our drug candidates are in the clinic in China, including our BTK
drug candidate being in two pivotal studies. We believe that each of our clinical-stage drug candidates
is the first in their respective classes being developed in China under the Category 1.1 domestic
regulatory pathway to enter into human testing and to present clinical data.
Our research operations are in China, which we believe confers several advantages including access
to a deep scientific talent pool and proximity to extensive preclinical study and clinical trial resources
through collaborations with leading cancer hospitals in China. Beyond the substantial market
opportunities we expect to have globally, we believe our location in China provides us the opportunity
to bring best-in-class and/or first-in-class monotherapies and combination therapeutics to our home
market where many global standard-of-care therapies are not currently approved or available. We have
assembled a team of 348 individuals in China, the United States, and Australia with deep scientific
talent and extensive global pharmaceutical experience who are deeply committed to advancing our
mission to become a global leader in next-generation cancer therapies.
We believe that oncology treatment has entered an era of revolutionary change in which cancer
drugs will be used both as monotherapy and in combination to attack multiple underlying mechanisms
of cancer cell growth and survival. Due to breakthroughs in gene sequencing and methods of tumor
characterization, cancer is rapidly being redefined from a paradigm of classification based on tissue of
origin to molecular characteristics. As a result, this ability to better classify cancers has enabled the
development of molecularly targeted drugs that address specific cancer subpopulations and provide high
response rates in tumors with particular mutations. In addition, the development of immuno-oncology
agents such as antibodies targeting the CTLA-4 and PD-1 protein receptors and the PD-L1 protein has
demonstrated the importance of the human immune system in cancer therapy and the potential for
3
more durable responses from agents that activate the immune system to identify and eliminate tumors.
We believe that the future of cancer therapy will involve combinations of molecularly targeted and
immuno-oncology drugs tailored to particular tumor sub-groups and have directed our research efforts
at both types of drugs.
Our belief that this fundamental shift was about to occur in cancer research led us early in our
history to develop a cancer biology platform that addresses the importance of tumor-immune system
interactions and the value of primary tumor biopsies in developing new models. Our proximity to
leading cancer treatment centers in Beijing and our close relationships with clinicians who treat patients
and perform biopsies and surgeries at those centers have allowed us to develop an extensive collection
of in vivo, ex vivo and in vitro cancer models. Given our belief that the human immune system can play
an important role in combating cancer and that future treatments will involve combination therapies,
we have introduced elements of a functional immune system into these models. Our proprietary models
allow our research team to better select targets and to screen and evaluate therapeutic agents that we
believe have significant potential alone or in combination for treating a variety of cancers. Our models
are a key component in the screening cascade we follow in our drug discovery effort and permit us to
evaluate potential drug candidates in conditions that much better approximate a patient’s cancer at the
time of treatment. This is particularly significant when drug discovery requires evaluation not only of
monotherapies but also multiple combinations and regimens targeting specific mutations while
simultaneously immobilizing the defenses cancer cells mount against the human immune system.
Since our inception in 2010, we have raised approximately $170 million in private equity financing
and $10 million in non-convertible debt financings. On February 8, 2016 and November 23, 2016, we
completed our initial and follow-on public offerings, and received net proceeds of $166 million and
$199 million, respectively, after deducting underwriting discounts and offering expenses.
Next Generation of Cancer Treatment
We believe that oncology treatment is rapidly evolving, offering patients the promise of more
frequent and more durable responses that improve survival from months to years while avoiding the
severe toxicities typically associated with chemotherapy. While these outcomes may occasionally be
achieved with monotherapy, we believe that the emergence of resistance is a major problem and that
better outcomes will be achievable by combining multiple drugs as it is done in treating infectious
diseases.
The next generation of cancer therapies will be based, we believe, on advances in four areas:
(cid:129) Reclassification of disease based on underlying molecular defect. Due to breakthroughs in gene
sequencing and methods of tumor characterization, cancer is increasingly being redefined from a
paradigm of tumor classification based on originating tissue type, such as lung, colorectal or
ovarian, to one of characterization based on the genetic aberrations and signature gene
expression patterns, such as in HER2, BRCA, BRAF, ALK and EGFR. As a result, many more
disease subpopulations can be specifically targeted, resulting in more effective treatment than
was possible in the past. Disease classifications are substantially more sophisticated than 10 years
ago, and we believe they will become increasingly so in the future.
(cid:129) Effective molecularly targeted therapy, but often limited durability. The ability to better understand
the mechanisms underlying cancer has allowed the development of effective drugs that target
important molecular drivers and generate high response rates in tumors with these drivers.
Examples of approved drugs include gefitinib and erlotinib for patients with EGFR mutations,
crizotinib and ceritinib for patients with ALK translocations, and vemurafenib and dabrafenib
for patients with BRAF mutations. Unfortunately, in many of these cases, responses have been
relatively short-lived as cancers can develop alternative mechanisms to compensate and
ultimately bypass these drugs’ blockade of molecular signaling. For example, while 52% of
4
previously treated metastatic melanoma patients with BRAF V600E achieved an objective
response once treated with vemurafenib, the median duration of response was only 6.5 months.
(cid:129) Immune checkpoint inhibitors have shown remarkable clinical benefit, demonstrating the power of the
immuno-oncology approach. Improved understanding of cancer immunology has led to the
identification of critical immune checkpoints—i.e., mechanisms by which cancer cells evade the
surveillance of the immune system. Inhibitors of the immune checkpoints CTLA-4 and PD-1
have shown success in the clinic. Two PD-1 monoclonal antibodies, nivolumab and
pembrolizumab, and one PD-L1 monoclonal antibody, atezolizumab, have been approved by the
FDA. To date, the FDA has approved immune checkpoint inhibitors as monotherapy in a
number of cancers, including melanoma, non-small cell lung cancer, or NSCLC, kidney cancer,
Hodgkin’s lymphoma, bladder cancer, and head and neck squamous cell carcinoma, or HNSCC.
Microsatellite instability-high, or MSI-h cancers and Merkel cell carcinoma are also under FDA
review for approval. In addition to these indications, immune checkpoint inhibitors are being
studied as monotherapy in clinical trials in a wide spectrum of cancers. Some of these trials have
advanced to the pivotal stage, such as gastric cancer, glioblastoma, liver cancer, esophageal
cancer, small cell lung cancer, or SCLC, triple negative breast cancer, or TNBC, and cutaneous
squamous cell carcinoma. Among these indications, immune checkpoint inhibitors have
demonstrated superior overall survival in melanoma, NSCLC, kidney cancer, bladder cancer,
HNSCC, and gastric cancer in large randomized controlled clinical trials. Although certain
distinct toxicities associated with PD-1 and PD-L1 antibodies have been observed, these agents
have been generally well-tolerated.
(cid:129) The need for and early promise of combination therapy. While clinical data with molecularly
targeted drugs as monotherapy have been encouraging, achieving a high rate of durable
responses remains difficult in most cancer types. In addition, objective responses to checkpoint
inhibitor monotherapies including PD-1, PD-L1 and CTLA-4 antibodies have been achieved in
still small portions of unselected, solid tumor patients. Although the biological mechanisms
underlying combinations are being explored in the field, recent third-party clinical studies have
demonstrated the potential of combination therapy to achieve high tumor response rates, as are
often seen with targeted therapy, but with greater durability, as is seen with immuno-therapy
agents. The combination of targeted and immuno-therapies may generate durable responses with
much better survival rates.
We believe that the industry-standard for cancer biology models has not evolved along with current
oncology research and drug discovery and thus is an insufficient framework from which to develop the
next generation of oncology drugs we envision. In response, we have built a comprehensive cancer
biology platform specifically to address a new generation of cancer treatments.
Next-Generation Cancer Biology Platform
Fundamental changes in cancer research led us early in our history to develop a cancer biology
platform that incorporates improved models and processes better suited to drug discovery in the new
world of immuno-oncology combinations and addresses the importance of tumor-immune system
interactions and the value of primary biopsies. Conventional models for oncology drug discovery have
used cultured cell lines that are often decades old and have characteristics that are not representative
of the tumors in actual cancer patients. In addition, tumors from these cell lines have been transplanted
in immune-compromised hosts in commonly-used xenograft tumor models. Therefore, animal models
utilizing these cell lines have limited predictive value for new therapies. While animal models derived
from surgical samples, such as patient-derived xenograft models, or PDX models, are an improvement
over the old cell lines, a surgical sample is unlikely to represent the state of the cancer at the time of
intended treatment. Because conventional models, including PDX models, require the use of immune-
deficient animals, they cannot mimic interactions between the tumor and the host immune system.
5
The cancer biology platform we developed enables us to test a large panel of tumor models for
sensitivity to the drug candidates we generated, identify drug-resistance mechanisms in many cancers,
explore combination strategies and regimens, and improve our understanding of the contributions of
tumor micro- and macro-environments in cancer treatments.
Scientific Approach. Our platform brings together the following:
(cid:129) Access to a broad array of primary patient biopsies and tissue samples, enabled by our proximity
to and partnerships with leading China-based oncology centers, allows us to build novel in vivo,
ex vivo and in vitro models that we believe more accurately represent patients’ cancer disease
states at the time of treatment.
(cid:129) Methods for better approximating the interactions between a tumor and a patient’s immune
system, including:
(cid:129) Introduction of elements of the human immune system into our in vivo, ex vivo and in vitro
models;
(cid:129) Creation of a variety of novel assays to investigate the effects of drug combinations and
study their impacts on the human immune system and the tumor microenvironment; and
(cid:129) An effective screening cascade for oncology drug development that incorporates all of these
elements.
Sustainable Leadership Position. We believe that our early recognition of the importance of tumor-
immune system interactions and the value of primary biopsies in developing new models for future
cancer research has allowed us to develop a proprietary cancer biology platform that provides
significant competitive advantages in developing the next generation of cancer therapeutics.
We believe that several of these advantages are sustainable:
(cid:129) Our close relationships with clinicians and our proximity to major oncology centers in China
provide us convenient and difficult-to-replicate access to primary tissue samples that greatly
enhance the effectiveness of our oncology models.
(cid:129) Our time and effort in developing and validating new models and processes, through the
commitment and focus of our large scientific team, has allowed us to advance our capabilities
meaningfully ahead of many current cancer drug development approaches. Over the last six
years, our team of over 80 biologists has been focused on the continued development of our
cancer biology platform.
(cid:129) Our non-hierarchical structure and highly cooperative organizational culture allows us to access
the cross-functional capabilities needed to develop, maintain and continually improve our new
generation cancer biology platform.
Our robust preclinical and clinical pipeline demonstrates our significant commitment and ability to
devote the necessary time, energy and resources required to build, validate and continue to advance
our cancer biology platform. Our platform has enabled us to advance four candidates to the clinic and
to execute our combination strategy. We believe we are one of only two companies today to wholly own
both a clinical-stage BTK inhibitor for cancer treatment and PD-1 inhibitor and one of the few
companies to have discovered, and advanced to the clinical stage, a PARP inhibitor and PD-1 inhibitor
or a BRAF inhibitor and PD-1 inhibitor for use as combination therapies. We believe that our cancer
biology platform is critical to developing rational combinations that enable us to become a leader in
next-generation cancer therapies.
6
Our Clinical-Stage Drug Candidates
We have used our cancer biology platform to develop four clinical-stage drug candidates that we
believe have the potential to be best-in-class or first-in-class. In addition, we believe that each has the
potential to be an important component of a drug combination addressing major unmet medical needs.
Moreover, we believe that compounds in our clinical and preclinical pipeline have the potential to
be first-in-class therapeutics in China, and, as locally developed compounds, to qualify for a separate,
and potentially accelerated, regulatory path.
Over time, we intend to strengthen our position with additional drug combinations utilizing our
own drugs and in some cases third-party drugs to compete globally as first-in-combination and
best-in-combination cancer therapies.
The following table summarizes our clinical pipeline:
(1) Limited collaboration with Merck KGaA, Darmstadt Germany.
19MAR201706394105
7
The following table summarizes the status of our clinical pipeline in China:
The following table summarizes our combination therapy pipeline:
19MAR201706394775
External Combo
Internal Combo
Combination
Mechanism
of Action
Planning for
Combination
Dose
Escalation
Dose
Expansion
Registration
Trials
Differentiation
BGB-3111
BGB-A317
BGB-A317
+
+
+
Gazyva
BTK + CD20
BGB-290
PD-1 + PARP
BGB-3111
PD-1 + BTK
No interference
with CD20
antibody activity
due to BTK
selectivity
Good tolerability
due to PARP
selectivity; internal
combination
Good tolerability
due to BTK
selectivity; internal
combination
20MAR201714210434
BGB-3111, Bruton’s Tyrosine Kinase Inhibitor
BGB-3111 is a potent and highly selective small molecule BTK inhibitor. We are currently
developing BGB-3111 as a monotherapy and in combination with other therapies for the treatment of a
variety of lymphomas. BGB-3111 has demonstrated higher selectivity against BTK than ibrutinib, the
only BTK inhibitor currently approved by the FDA and the European Medicines Agency, or EMA,
based on biochemical assays and higher exposure than ibrutinib based on their respective Phase 1
experience.
8
In addition, we believe BGB-3111 is the only BTK inhibitor that has demonstrated sustained target
inhibition in disease-relevant tissues. Our preclinical data show that target inhibition by ibrutinib at
disease relevant tissues, such as the lymph node, bone marrow, and spleen, in mice and rats was not
sustained over a 24-hour period. Published clinical data on ibrutinib show that ibrutinib’s target
inhibition in the blood is borderline at the approved dose of 420 mg once a day, with BTK occupancy
in a significant portion of patients below 80%.
Target Inhibition by Ibrutinib Is Incomplete
Preclinical models show significant recovery of target occupancy in disease
relevant tissues for ibrutinib
)
%
(
K
T
B
d
e
i
p
u
c
c
o
n
U
140
120
100
80
60
40
20
0
)
%
(
K
T
B
d
e
i
p
u
c
c
o
n
U
120
100
80
60
40
20
0
PBMC
Spleen
100
100
66
27
19
0
1
24
9
2
Vehicle
4 hrs
8 hrs 12 hrs 24 hrs
Vehicle
4 hrs
8 hrs 12 hrs 24 hrs
Bone Marrow
Lymph Node
100
100
68
37
62
9
9
16
0
1
Vehicle
4 hrs
8 hrs 12 hrs 24 hrs
Vehicle
4 hrs
8 hrs 12 hrs 24 hrs
19MAR201706395718
18MAR201711124281
Note: PBMC = Peripheral Blood Mononuclear Cell. Source: BeiGene data on file and Byrd et al,
NEJM, 2013.
As of March 20, 2017, we have enrolled over 340 patients in monotherapy and combination trials
of BGB-3111. In January 2017, we initiated a global, multi-center randomized Phase 3 trial in
Waldenstr¨om’s Macroglobulinemia, or WM that will enroll approximately 170 patients at clinical sites in
North America, Europe, Australia, and New Zealand. Subsequently, in March 2017, we initiated two
single-arm, open-label, multi-center, pivotal studies in China in relapsed or refractory chronic
lymphocytic leukemia, or CLL, or small lymphocytic lymphoma, or SLL, and in relapsed or refractory
mantle cell lymphoma, or MCL, respectively. In addition, we have completed the dose-escalation phase
of our Phase 1 trial in Australia, and we are continuing the dose-expansion phase in patients with select
lymphoid malignancies including CLL, diffuse large B-cell lymphoma, or DLBCL, follicular lymphoma,
or FL, MCL, marginal zone lymphoma, or MZL, WM, hairy cell lymphoma, or HCL. In the completed
dose-escalation phase of our clinical trial, no protocol-defined dose-limiting toxicities were observed.
BGB-3111 achieved several-fold higher exposure levels compared to that seen for the approved doses
of ibrutinib. Proof-of-concept has been established for BGB-3111 with clinical data indicating that
BGB-3111 is a potent BTK inhibitor with anti-tumor activity observed in multiple types of lymphomas
starting at the lowest dose tested, 40 mg once daily, or QD. We have also initiated a combination study
in Australia and the United States with obinutuzumab, an anti-CD20 monoclonal antibody approved for
CLL.
9
Mechanism of Action
BTK is a key component of the B-cell receptor, or BCR, signaling pathway and is an important
regulator of cell proliferation and cell survival in various lymphomas. BTK inhibitors block
BCR-induced BTK activation and its downstream signaling, leading to growth inhibition and cell death
in certain malignant white blood cells called B-cells. BGB-3111 is an orally active inhibitor of BTK that
covalently binds to the cysteine Cys-481 of BTK, resulting in irreversible inactivation of the kinase. It
has also been shown that BTK inhibitors can inhibit solid tumor growth by regulating the tumor
microenvironment in preclinical animal models.
Market Opportunity
Lymphomas are a group of blood-borne cancers involving lymphatic cells of the immune system.
They can be broadly categorized into non-Hodgkin’s lymphomas, chronic B-cell leukemias,
predominantly CLL, and acute B-cell leukemias. Depending on the origin of the cancer cells,
lymphomas are also characterized as B-cell or T-cell lymphomas. B-cell lymphomas make up
approximately 85% of non-Hodgkin’s lymphomas and comprise a variety of specific diseases involving
B-cells at differing stages of maturation or differentiation. Preliminary data from animal models
involving BGB-3111 and third-party BTK inhibitors also suggest potential applications in solid tumors
and inflammatory diseases, which could substantially expand our market opportunity.
Current Therapies and Limitations
Conventional methods of treatment of lymphomas vary according to the specific disease or
histology, but generally include chemotherapy, antibodies directed at CD20, and, less frequently,
radiation. Recently, significant progress has been made in the development of new therapies for
lymphomas, including BCR signaling inhibitors, primarily with the BTK inhibitor ibrutinib and the
PI3K delta inhibitor idelalisib. In addition, there are other inhibitors of BCR signaling pathways in
development, such as PI3K delta/gamma, IRAK4 and SYK.
The BTK inhibitor ibrutinib was first approved by the FDA in 2013 for the treatment of patients
with MCL who have received at least one prior therapy. Since 2013, ibrutinib has received
supplemental FDA approvals for the treatment of patients with CLL, CLL patients with 17p deletion,
patients with WM, and MZL patients who have received at least one prior anti-CD20-based therapy.
Ibrutinib is also approved by the EMA for treatment of patients with MCL, CLL, or WM. Ibrutinib has
subsequently been approved in over 40 countries, but not China. Reported global sales of ibrutinib
were approximately $2 billion in 2016.
Despite the clinical and commercial success of ibrutinib, we believe based on its product profile
that meaningful differentiation is possible in at least the following aspects:
(cid:129) Safety and tolerability. Although ibrutinib has shown a favorable safety profile compared to
traditional chemotherapies, it is associated with adverse reactions that can limit its tolerability as
a chronic treatment and in some cases can be treatment-limiting or life-threatening. These
adverse reactions—including diarrhea, thrombocytopenia, or low blood platelet count, bleeding
and AF—are believed to be due to ibrutinib’s broad inhibition of kinases other than BTK,
including EGFR, JAK3 and TEC.
(cid:129) Sustainable target inhibition in disease originating tissue. Although ibrutinib induced sustained
BTK inhibition when measured in the plasma of patients, our preclinical studies of ibrutinib
show that target inhibition in disease-relevant tissues, such as the lymph node, bone marrow and
spleen, in mice and rats was not sustained over a 24-hour period.
(cid:129) Oral bioavailability. Ibrutinib has shown 7–23% oral bioavailability in preclinical studies, as
evidenced by the daily dose of 420 mg or 560 mg required in the clinic.
10
(cid:129) Combinability with ADCC-dependent antibodies. Anti-CD20 agents, such as rituximab,
obinutuzumab and ofatumumab, are considered effective therapies for lymphomas. Several
preclinical studies have demonstrated that ibrutinib, potentially due to its inhibitory activity
against ITK, interferes with rituximab-medicated ADCC, which is the mechanism by which
rituximab and other anti-CD20 antibodies are believed to exert their immune defense activities.
Therefore, these preclinical data suggest that the activity of rituximab and other
ADCC-dependent antibodies may be reduced when combined with ibrutinib.
Potential Advantages of BGB-3111
We believe, based on our preclinical and clinical data, that BGB-3111 has the potential to be
differentiated from ibrutinib in the following respects:
(cid:129) Better safety and tolerability. Based on our preclinical studies, we believe BGB-3111 is more
selective than ibrutinib in the inhibition of BTK and has less off target inhibition of other
kinases, including EGFR, ITK, JAK3, HER2 and TEC, which we believe are associated with
ibrutinib toxicity. Results from our preclinical biochemical and cellular assays show that
BGB-3111 has similar potency for BTK as compared to ibrutinib while being less active against
other kinase targets than ibrutinib, as reflected by the higher dose required to inhibit half the
enzymatic activity, or IC 50 . Based on the selectivity of BGB-3111 relative to ibrutinib, a 2- to
70-fold higher concentration of BGB-3111 is required to achieve similar levels of inhibition in
these other targets as compared to ibrutinib. Therefore, BGB-3111 has the potential to be
associated with fewer toxicities.
(cid:129) More sustained inhibition in disease originating tissue. In our preclinical studies, BGB-3111 has
demonstrated favorable pharmacokinetic properties. The comparatively high drug level of
BGB-3111 in disease originating tissue as demonstrated in the clinic could potentially translate
into a more complete and sustainable inhibition and a better quality of response than ibrutinib.
Ibrutinib demonstrated a dose-dependent BTK occupancy in PBMCs, during its dose-escalation
study. However, even at 420 mg, its approved dose for CLL, ibrutinib did not achieve complete
or sustained target occupancy in PBMCs in a significant proportion of patients. In addition,
BGB-3111’s favorable safety profile may allow higher drug exposure, which could result in more
sustained target inhibition. Available data from our completed dose-escalation trial suggest that
BGB-3111 achieved several fold higher exposure levels compared to that achieved by the
approved doses of ibrutinib in its Phase 1 study. Paired biopsy data from our Phase 1 study in
Australia indicate that BGB-3111 is able to sustainably inhibit BTK in the lymph node,
especially with 160 mg twice daily, or BID dosing.
(cid:129) Better oral bioavailability. BGB-3111 has shown oral bioavailability of 25–47% in our preclinical
animal studies. Based on human data generated in our dose-escalation trial compared to
reported data for ibrutinib, BGB-3111 has better oral bioavailability than ibrutinib.
Pharmacokinetic data from our clinical studies show a robust and dose-dependent increase in
drug exposure and the drug exposure of BGB-3111 at 80 mg QD was comparable to that
reported for ibrutinib at 560 mg QD. In addition, the free drug concentration of BGB-3111 at
40 mg QD was comparable to that reported for ibrutinib at 560 mg QD. Lastly,
pharmacokinetics data for BGB-3111 suggest that there appears to be far less interpatient
variability in drug exposure as compared to ibrutinib.
(cid:129) Better combinability with ADCC-dependent antibodies. Our preclinical data show that BGB-3111
has less off-target inhibition for ITK than ibrutinib in biochemical and cell models. BGB-3111
displayed a more limited inhibitory effect on rituximab-induced ADCC than ibrutinib in
cell-based studies. In a human MCL xenograft model the addition of rituximab to ibrutinib did
not improve tumor activity as compared to ibrutinib as a monotherapy. However, the
11
combination of rituximab and BGB-3111 demonstrated improved anti-tumor activity as
compared to either as a monotherapy. We believe this may translate into better activity in
patients when BGB-3111 is combined with rituximab or other ADCC-dependent antibody
therapies.
Summary of Clinical Results
As of March 20, 2017, over 340 patients have been enrolled in monotherapy and combination trials
of BGB-3111. Preliminary data from our Phase 1 trial suggest that BGB-3111 is well-tolerated. The
multi-center, open-label Phase 1 trial is being conducted in Australia, New Zealand, the United States
and South Korea to assess the safety, tolerability, pharmacokinetic properties and preliminary activity
of BGB-3111 as a monotherapy in patients with different subtypes of B-cell malignancies, including
CLL, DLBCL, FL, MCL, MZL, WM, and HCL. We have completed the dose-escalation phase, and we
are currently in the dose-expansion phase. The initial results of the dose-escalation phase and
dose-expansion phase of our clinical trial show that, consistent with BGB-3111’s pharmacokinetic
profile, complete and sustained 24-hour BTK occupancy in the blood was observed in all tested
patients, starting at the lowest dose of 40 mg QD. In addition, sustained full BTK occupancy was
observed in the lymph node especially for the 160 mg BID dosing regimen. No protocol-defined
dose-limiting toxicities were observed and only one treatment discontinuations due to drug-related
adverse events, or AES was reported as of October 3, 2016, the most recent data analysis. Based on the
pharmacokinetics, pharmacodynamics, safety and efficacy evaluation of BGB-3111 in the
dose-escalation phase, 160 mg BID has been selected as the Phase 3 dose. Proof-of-concept has been
established for BGB-3111 with clinical data suggesting that BGB-3111 is a potent BTK inhibitor with
objective anti-tumor activity observed in multiple types of lymphomas including CLL, MCL, and WM.
12
The chart below shows the pharmacokinetic profile of BGB-3111 from this Phase 1 trial, in
comparison to historical data with ibrutinib and acalabrutinib.
BGB-3111: Drug Exposure in Humans, Half-life, and In Vitro Potency Comparison to Historical Data
on Ibrutinib and Acalabrutinib^
Note: ^ Cross-trial comparisons; Cmax = maximum plasma concentration; AUC = area under the
concentration-time curve as a standard measurement of drug exposure; Free drug exposure = unbound
AUC as a measurement of unbound drug exposure. Sources1 Tam et al., ASH, 2015;2 Byrd et al.,
NEJM, 2016;3 Lannutti et al., AACR, 2015,4BeiGene data on file.
18MAR201711130380
13
In addition, sustained BTK occupancy was achieved both in the blood, or PBMC, starting at the
lowest dose of 40 mg QD, and in the lymph node, with 160 mg BID, in particular, as shown below.
BGB-3111: Complete and Sustained BTK Inhibition in PBMC and Lymph Node
18MAR201711132119
18MAR201711131698
On December 5, 2016, we presented data from our Phase 1 trial for a total of 33 WM patients at
the 2016 American Society of Hematology Annual Meeting. Forty-five relapsed / refractory or
treatment na¨ıve WM patients were enrolled in the Phase 1 trial as of November 21, 2016, of which
33 patients were evaluable for safety and response at the cutoff date of October 3, 2016. Responses
were determined according to the modified Sixth International Workshop on WM criteria.
In the most recent data analysis, which had a cutoff of October 3, 2016, AEs were generally mild
in severity, self-limited, and usually encountered only in the earlier part of the treatment course. The
most frequent AEs ((cid:2)20%) of any attribution were upper respiratory tract infection (39%), petechiae
(spots that appear on the skin as a result of bleeding) / purpura (subcutaneous bleeding) / contusion
(33%), nausea (24%), diarrhea (24%), and constipation (21%), all grade 1 or 2 in severity except for
one case of diarrhea (3%). Four serious adverse events, or SAEs, were assessed as possibly related to
BGB-3111, including one case each of grade 3 cryptococcal meningitis, grade 3 pneumonia, grade 2
atrial fibrillation, or AF, and grade 2 vomiting. Other grade 3 or greater events considered possibly
related to BGB-3111 included two cases of neutropenia and one case each of diarrhea, hypertension,
increased liver function test, pulmonary hypertension, and vomiting. In total, three cases of AF were
reported (all grade 1 or 2), and two of the three occurred in patients with pre-existing AF. No serious
hemorrhage ((cid:2) grade 3 hemorrhage or central nervous system, or CNS, hemorrhage of any grade) was
reported. The only treatment discontinuation was due to exacerbation of pre-existing bronchiectasis in a
patient who achieved a very good partial response, or VGPR, on BGB-3111, and the subsequent death
of this patient was also the only fatal event in the study and was assessed by the investigator to be
unrelated to study treatment.
14
After a median follow-up of 9.6 months (3.0–24.7 months), 32 of the 33 patients were evaluable for
response as one patient had IgM < 500 mg/dl at baseline. The rate of overall response, defined as
minor response, or MR, or better, was 94%. The major response rate, defined as partial response, or
PR, or better, was 78% (25 out of 32 patients). VGPRs ((cid:2)90% reduction or normalization of IgM and
reduction in lymphadenopathy / splenomegaly) have been observed in 34% (11 out of 32 patients) and
PRs (50–89% reduction in IgM and reduction in lymphadenopathy / splenomegaly) in 44% (14 out of
32 patients) of patients to date. IgM decreased from a median of 32.5g/l at baseline to 4.0g/l, and
hemoglobin increased from a median of 10.3g/dl at baseline to 13.6g/dl. There have been no cases of
disease progression.
BGB-3111 Phase 1 Trial in WM: Efficacy Summary
Median follow-up
(range)
Best Response (n=32)
CR
VGPR
PR
MR
SD
Total (n=32)
9.6 months
(3.0–24.7 months)
0
11 (34%)
14 (44%)
5 (16%)
2 (6%)
78%*
94%**
IgM reduction (median, %)
32.5 g/L to 4.0 g/L (88%)
Hemoglobin Change (median)
10.3 g/dl to 13.6 g/dl
Lymphadenopathy Reduction by CT
(#patients, range)
12/12
(9–100%)
Responses were determined according to the modified Sixth International Workshop on WM criteria
* Major response rate
** Overall response rate
22MAR201714502609
MYD88 and CXCR4 mutational analysis results were available for 23 patients who were evaluable
for response at the data cutoff. Of 18 evaluable patients with the MYD88L265P / CXCR4WT genotype,
eight achieved VGPRs, seven achieved PRs, two achieved MRs, and one had stable disease, or SD.
The two patients with the MYD88L265P / CXCR4WHIM genotype achieved a PR and an MR,
respectively. Responses were also seen in MYD88WT patients, including one PR, one MR, and one SD
among three evaluable patients. Analysis of patient response by genomic characteristics was ongoing.
The depth of response to BGB-3111 in the Phase 1 trial improves with longer treatment. In
32 evaluable patients who had three cycles of BGB-3111 treatments, the VGPR rate was 6%, the PR
rate was 59%, the MR rate was 25%, and the SD rate was 9%. The major response rate was 65%. In
25 evaluable patients who had six cycles of treatments, the VGPR rate improved to 28%, and the
major response rate improved to 84%. In 15 evaluable patients who had 12 cycles of treatments, the
VGPR rate improved to 53%, and the major response rate improved to 93%.
15
BGB-3111 Phase 1 Trial in WM: Depth of Response Improves Over Time on Treatment
100%
6%
e
t
a
R
e
s
n
o
p
s
e
R
80%
60%
40%
20%
0%
59%
25%
9%
28%
56%
8%
8%
Cycle 3 (n=32)
Cycle 6 (n=25)
53%
40%
VGPR
PR
MR
SD
7%
0%
Cycle 12 (n=15)
19MAR201707325255
The table below includes comparison of data of BGB-3111 to ibrutinib data at similar points of
maturity. The major response rate in the BGB-3111 Phase 1 study presented at the International
Workshop on Waldenstr¨om’s Macroglobulinemia-9 conference, or IWWM-9, was 83%, and the
VGPR rate was 33%. The data cutoff date for IWWM-9 was September 9, 2016. At similar early
follow-up time points in two different studies, ibrutinib has a major response rate ranging from 57% to
65% and a VGPR rate of 6%.
16
BGB-3111 Phase 1 Trial in WM: Response Rate and Depth vs. Ibrutinib^
Comparison of Response Rates to Historical Data on Ibrutinib with Comparable Follow-Up Time
Molecule
(Trial)
Trial Size
BGB-3111
(Phase I)
24
Ibrutinib
(Treon)
63
Ibrutinib
(PCYC-1127)
31
Median Follow-Up
8.0 months
6.0 months
7.7 months
Major Response
(VGPR)
83%
(33% VGPR)
57%*
(6% VGPR)
65%#
(VGPR NR)
MR
SD
Median IgM
Reduction
8%
8%
90%
24%
17%
63%
19%
16%
NR
18MAR201719122959
Notes: ^ Cross-trial comparisons. * Long-term follow-up (median treatment duration 19.1 months):
Major RR 73%, VGPR (IgM only) 16%; # Long-term follow-up (median follow-up 17.1 months):
Major RR 71%, VGPR 13% (modified IWWM-6); NR = Not Reported
In addition to data in WM, updated data on BGB-3111 in patients with CLL from the
dose-escalation and dose-expansion phases of the Phase 1 trial were presented on December 5, 2016 at
the 2016 American Society of Hematology Annual Meeting. As of November 21, 2016, 63 patients with
CLL or SLL, were enrolled in the study. The data presented were from a total of 46 CLL or SLL
patients who had at least 12 weeks of follow-up or discontinued treatment prior to week 12, by the data
cutoff of October 3, 2016.
BGB-3111 was well-tolerated. Only one patient had discontinued BGB-3111 treatment for an AE,
a grade 2 pleural effusion. The most frequent AEs ((cid:2) 20%) of any attribution were petechiae /
purpura / contusion (48%), upper respiratory tract infection (33%), fatigue (28%), diarrhea (20%),
cough (20%), and headache (20%), all of which were grade 1 or 2 in severity except for one case of
grade 3 purpura. Three SAEs were assessed as possibly related to BGB-3111, including one case each
of grade 2 cardiac failure, grade 2 pleural effusion, and grade 3 purpura. Other grade 3 or greater
events considered possibly related to treatment included three cases of neutropenia and one case of
AF, which was the only AF case reported. The case of purpura was the only major bleeding event; no
other cases of serious hemorrhage (defined as (cid:2) grade 3 hemorrhage or CNS hemorrhage of any
grade) were reported.
17
The table below summarizes most frequent AEs (>=15%) independent of causality in our
Phase 1 trial in WM and CLL cohorts.
BGB-3111 Phase 1 Safety: AEs Independent of Causality—BGB-3111 is Well-Tolerated in CLL/SLL
and WM
Most Frequent Adverse Events (>−15%) Independent of Causality
CLL (n=46)
WM (n=33)
AE, n (%)
All Grade
Grade 3–4
AE, n (%)
All Grade
Grade 3–4
Upper respiratory tract
infection
13 (39%)
Petechiae/ purpura/ contusion
11 (33%)
Petechiae/ purpura/ contusion
22 (48%)
1 (2%)
Upper respiratory tract
infection
Fatigue
Cough
Diarrhea
Headache
Muscle spasms
Nausea
Arthralgia
Dizziness
Constipation
Neutropenia
Rash
15 (33%)
13 (28%)
9 (20%)
9 (20%)
9 (20%)
8 (17%)
7 (15%)
6 (13%)
5 (11%)
5 (11%)
0
0
0
0
0
0
0
0
0
0
5 (11%)
4 (9%)
5 (11%)
0
Nausea
Diarrhea
Constipation
Headache
Anemia
Rash
Neutropenia
Back pain
Urinary tract infection
0
0
0
8 (24%)
8 (24%)
1 (3%)
7 (21%)
0
6 (18%)
1 (3%)
5 (15%)
4 (12%)
5 (15%)
0
4 (12%)
2 (6%)
4 (12%)
4 (12%)
0
0
22MAR201714425928
After a median follow-up of 8.6 months (2.2–20.9 months), the rate of overall response was
96% (44 out of 46 patients) with PR in 67% (31 out of 46 patients) and PR with lymphocytosis in
28% (13 out of 46 patients) of patients. SD was observed in 2% (1 out of 46 patients) of patients. The
patient who discontinued prior to week 12 due to pleural effusion was not evaluable for response. No
instances of disease progression or Richter’s transformation had occurred.
18
BGB-3111 Phase 1 Trial in CLL
Total (n=46)
8.6 months
(2.2–20.9 months)
96% ORR*
0
31 (67%)
13 (28%)
1 (2%)
1 (2%)
1 (2%)
0 (0%)
0 (0%)
Median follow-up
(range)
Best Response (n=46)
CR
PR
PR-L
SD
D/C prior to assessment
Treatment Discontinuation
Adverse event
Disease progression
Richter’s transformation
* ORR in patients with del17p and/or 11q- (n=17)= 100%
22MAR201714425667
The figure below shows the sum of the product of the diameters, or SPD, measures of the lymph
nodes from baseline. Eight patients had 100% SPD reduction from baseline, or complete resolution of
lymphadenopathy.
BGB-3111 Phase 1 Lymph Node Response
Note: All responses are evaluated per International Workshop on Chronic Lymphocytic Leukemia
criteria; two patients have purely leukemic disease, lymphadenopathy is not evaluable and only absolute
lymphocyte count is evaluable for response, and one patient discontinued from the study prior to the
first assessment. Source: Tam et al. ASH 2016 (abstract 642) presentation based on data cutoff of
October 3, 2016
18MAR201711131557
19
The figure below shows the median change of SPD from baseline over the treatment time. The
tumor shrinkage improves over the time on treatment. Consistent with data we observed in a WM
cohort, the response in CLL, in this case measured by change of SPD, appears to be deeper with
BGB-3111.
BGB-3111 Phase 1: Median Change from Baseline in SPD over Treatment Time—Consistent with WM
Data, Response Also Appears Deeper in CLL^
BGB-3111
Ibrutinib
0%
-20%
-40%
-60%
-80%
)
%
(
D
P
S
n
i
e
n
i
l
e
s
a
B
m
o
r
f
e
g
n
a
h
C
n
a
d
e
M
i
-100%
0
0%
-20%
-40%
-60%
-80%
)
%
(
D
P
S
n
i
e
n
i
l
e
s
a
B
m
o
r
f
e
g
n
a
h
C
n
a
d
e
M
i
-100%
0
Adapted from
Byrd et al., NEJM, 2013
6
3
9
Time on Treatment (Months)
18
15
18MAR201711130942
12
6
3
9
Time on Treatment (Months)
18
15
19MAR201706393560
12
Note: ^ Cross-trial comparisons. Source: Adapted based on data from Tam et al. ASH 2016
(abstract 642) and Byrd et al., NEJM 2013
In January 2017 we initiated a global, multi-center randomized Phase 3 pivotal trial in WM in
which we plan to enroll approximately 170 patients at clinical sites in North America, Europe,
Australia, and New Zealand to determine whether the quality of response with BGB-3111 in WM is
superior to that of ibrutinib. The study will compare BGB-3111 with ibrutinib in relapsed or refractory
WM patients or treatment-na¨ıve WM patients who are inappropriate for chemo-immunotherapy.
Patients will be tested for mutation status of the MYD88 gene and assigned to MYD88 mutation and
wildtype cohorts accordingly. We expect to enroll 150 patients in the MYD88 mutation cohorts, who will
be randomized in a 1:1 ratio to receive either BGB-3111 160 mg orally BID or ibrutinib 420 mg orally
QD until progression. The primary endpoint is combined rate of complete responses, or CRs, and
VGPRs. Secondary endpoints include major response rate, progression-free survival, duration of
response, and symptom resolution. The randomization will be stratified by CXCR4 mutational status
and number of lines of prior therapy. Approximately 20 patients with MYD88 wildtype status will be
enrolled in the second cohort and receive BGB-3111. The patients will be evaluated for the combined
rate of CRs and VGPRs, major response rates, and safety. Below schematic shows the design of the
Phase 3 pivotal trial in WM.
20
BGB-3111 Phase 3 Study Design in WM
MYD88 WT (n~15–20)
BGB-3111 160 mg po BID to
progression
Assess for CR/VGPR,
MRR rates and safety
R/R WM
or
TN WM
inappropriate for
chemo-
immunotherapy
• Age ≥18y
• Indication for treatment
per IWWM
• ECOG 0-2
• No prior BTK inhibitor
MYD88
mutated
N=150
Randomize
1:1
Primary Endpoint
CR/VGPR rate
Secondary Endpoint
MRR (≥PR)
PFS
Duration of
response
Symptom
resolution
BGB-3111
160mg BID to
progression
N=75
Ibrutinib
420mg QD to
progression
N=75
Stratification factors at randomization:
• CXCR4 status (WHIM vs. WT)
• No. of lines of prior therapy
(0 vs. 1–3 vs. >3)
22MAR201714425419
Moreover, we are evaluating BGB-3111 in combination clinical trials. Our preclinical data show
that BGB-3111 has less off-target inhibition for ITK than ibrutinib in biochemical and cell models.
BGB-3111 displayed a more limited inhibitory effect on rituximab-induced ADCC than ibrutinib in
cell-based studies. As shown in the graph below, in a human MCL xenograft model the addition of
rituximab to ibrutinib did not improve tumor activity as compared to ibrutinib as a monotherapy.
However, the combination of rituximab and BGB-3111 demonstrated improved anti-tumor activity as
compared to either as a monotherapy. We believe this may translate into better activity in patients
when BGB-3111 is combined with rituximab or other ADCC-dependent antibody therapies. We
initiated the combination trial with CD20 antibody obinutuzumab in patients with B-cell malignancies
in January 2016, and this trial is currently in its dose-expansion phase.
21
BGB-3111 Combination Potential: Differentiated Activity in Combination with CD20 Antibody Relative
to Ibrutinib*
Waterfall Plot on Day 14
Mean Tumor
Volume
Change
1,271%
193%
150% 443% 193%
24%
)
%
(
e
g
n
a
h
C
e
m
u
o
V
r
o
m
u
T
l
500
400
300
200
100
0
(100)
18MAR201711133014
Vehicle
BGB-3111 (B)
Ibrutinib (l)
Rituximab (R)
B+R
I+R
18MAR201711133276
Note: * All preclinical studies. Source: Kohrt et al, Blood, 2014; BeiGene data on file
We also explored the combination of BGB-3111 and our PD-1 antibody, BGB-A317 in two
DLBCL primary tumor models. In both models, BGB-3111 showed weak monotherapy activity. When
used as a monotherapy BGB-A317 was only active in the PD-L1 positive tumor. However, the
combination of BGB-3111 and BGB-A317 was highly active, better than either monotherapy, and
induced tumor regression in both PD-L1 positive and PD-L1 negative models. A combination clinical
trial of BGB-3111 with BGB-A317 was initiated in June 2016 and is in its dose-escalation phase.
BGB-3111 Combination Potential: Strong Rationale to Combine Our BTK and PD-1 Inhibitors
In Primary DLBCL Tumor Models, the Combination of Our BTK and PD-1 Inhibitors Shows Synergistic Effect
PD-L1+ DLBCL
PD-L1- DLBCL
l
e
m
u
o
V
r
o
m
u
T
n
i
e
g
n
a
h
C
t
s
e
B
t
n
e
c
r
e
P
)
4
2
d
(
e
n
i
l
e
s
a
B
o
t
e
v
l
i
t
a
e
R
700
600
500
400
300
200
100
0
(10)
(20)
(30)
(40)
(50)
(60)
(70)
(80)
700
600
500
400
300
200
100
0
(10)
(20)
(30)
(40)
(50)
(60)
(70)
(80)
IgG
BGB-3111 (50mg/kg d6-20)
BGB-A317 (10mg/kg d6.d13.d20)
BGB-3111 + BGB-A317
19MAR201701241463
In China, we have initiated two pivotal studies for BGB-3111. In March 2017, we initiated
single-arm, open-label, multi-center pivotal clinical trials of BGB-3111 monotherapy in China in
22
patients with relapsed or refractory MCL and in patients relapsed and refractory CLL or SLL,
respectively. The primary endpoint in each of these trials is the objective response rate, and secondary
endpoints include progression free survival, duration of response, time to response, safety, and
tolerability. We believe BGB-3111 is the first BTK inhibitor being developed in China under the
Category 1.1 domestic regulatory pathway to enter into human testing and to present clinical data.
We plan to expand our registration program for BGB-3111. In addition, we plan to present data
from the combination studies of BGB-3111 with obinutuzumab and BGB-3111 with BGB-A317 at
medical conferences in 2017.
BGB-A317, PD-1 Antibody
BGB-A317 is an investigational humanized monoclonal antibody against the immune checkpoint
receptor PD-1. We are developing BGB-A317 as a monotherapy and as a combination agent for
various solid-organ and blood-borne cancers. PD-1 is a cell surface receptor that plays an important
role in down-regulating the immune system by preventing the activation of certain types of white blood
cells called T-cells. PD-1 inhibitors remove the blockade of immune activation by cancer cells. We
believe BGB-A317 may be differentiated from the currently approved PD-1 antibodies with the ability
to bind Fc gamma receptor I specifically engineered out, and we believe this could potentially result in
improved activities. In addition, BGB-A317 has a unique binding signature to PD-1 with high affinity
and superior target specificity.
We are evaluating BGB-A317 in the ongoing dose-escalation phase of our clinical trial in relapsed
or refractory solid tumor patients and combination trials with our PARP inhibitor, BGB-290 and with
our BTK inhibitor, BGB-3111 respectively, in Australia. As of March 20, 2017, we have dosed over 400
patients with BGB-A317 in monotherapy and combination trials. BGB-A317 is the first drug candidate
produced from our immuno-oncology biologic programs, and we believe it could serve as one of the
cornerstones for our immuno-oncology combination platform.
Mechanism of Action
Cells called cytotoxic T-cells provide humans an important self-defense mechanism against cancer,
patrolling the body, recognizing cancer cells due to immunogenic features that differ from normal cells,
and killing cancer cells by injecting poisonous proteins into them. T-cells have various mechanisms built
into them that prevent them from damaging normal cells, among which is a protein called PD-1
receptor, which is expressed on the surface of T-cells. The most important signaling protein that could
engage PD-1 is called PD-L1, which binds the PD-1 receptor and sends an inhibitory signal inside the
T-cell, stopping it from making more poisonous proteins and killing the cells sending the signal via
PD-L1 and other cells nearby. Many types of cancer cells have hijacked the PD-L1 expression system
that normally exists in healthy cells. By expressing PD-L1, cancer cells protect themselves from being
killed by cytotoxic T-cells. BGB-A317 is a monoclonal antibody designed to specifically bind to PD-1,
thereby preventing PD-L1 from engaging PD-1. Therefore, we believe BGB-A317 has the potential to
restore the cytotoxic T-cell’s ability to kill cancer cells.
Market Opportunity
Forecasts of the market for monotherapy PD-1 and PD-L1 antibodies have increased as new
tumor types responding to these antibodies have been identified and data has accumulated regarding
their potential efficacy. It is estimated that these inhibitors will have sales in excess of $36 billion by
2023 across 10 tumors that are the focus of current immune-oncology studies (i.e., melanoma, renal cell
cancer, lung cancer, gastric cancer, bladder cancer, HNSCC, triple-negative breast cancer, Hodgkin’s
lymphoma, Merkel cell carcinoma, and liver cancer).
23
Tumor types that have been shown to be responsive to a PD-1 antibody include those with the
highest annual incidence and mortality rates in China. Specifically, in 2012, 38%, 49%, 45%, and 51%
of the worldwide mortalities from lung, esophageal, gastric, and liver cancers respectively occurred in
China. Collectively, these four tumor types comprised over 1.6 million new cases in 2012 in China
alone, according to the World Health Organization. To our knowledge, BGB-A317 is the first PD-1
antibody developed in China to enter clinical trials and to present clinical data. Due to a distinct
regulatory pathway for drug candidates manufactured in China, we believe that BGB-A317 will become
an important participant in China’s PD-1 antibody and immuno-oncology market.
Potential Advantages of BGB-A317
We believe BGB-A317 may be differentiated from the currently approved PD-1 antibodies.
Specifically, its ability to bind Fc(cid:3)RI has been engineered out, resulting in a cell biology differentiation
compared to the currently approved PD-1 antibodies. Our preclinical data and published literature
findings, Dahan et al., 2015, suggest that engagement of Fc(cid:3)RI may compromise the efficacy of
anti-PD-1 antibodies by attracting immune suppressive cells and depleting the T-cell population
necessary for attacking the tumor cells. With limited to no ability to bind to the receptor, we believe
BGB-A317 could potentially have improved activities. In addition, BGB-A317 has a unique binding
signature to PD-1 with high affinity and superior target specificity. In preclinical studies, BGB-A317
showed better cellular functional activities in blocking PD-1 mediated reverse signal transduction and in
activating human T-cells and primary PBMCs and improved tumor growth inhibition compared to
currently approved PD-1 antibodies.
We believe there could be a large commercial opportunity in China for PD1 antibodies as
currently available clinical data suggest that some of the most prevalent cancers in China such as lung,
gastric, liver and esophageal cancers are responsive to this class of agents. We believe we are well
positioned to take advantage of this opportunity. In addition, the potential to combine BGB-A317 with
our multiple clinical-stage and preclinical drug candidates provides us with additional shots on goal.
Based on our preclinical data, we believe a strong rationale exists for combining BGB-A317 with our
drug candidates BGB-290, BGB-3111, and BGB-283. In addition, we are developing several immuno-
oncology candidates that we intend to combine with BGB-A317.
Summary of Clinical Trials
As of March 20, 2017, we have dosed over 400 patients with BGB-A317 in either monotherapy or
combination trials. In April 2016, we completed the enrollment for the ongoing dose-escalation phase,
and in May 2016, we initiated the dose-expansion phase of our Phase 1 clinical trial in relapsed or
refractory solid tumor patients in Australia, New Zealand, the United States, Korea, and Taiwan.
On November 11, 2016, we presented updated data from the dose escalation phase of our ongoing
Phase 1 trial for a total of 103 patients with advanced solid tumors at the Society for Immunotherapy
of Cancer, or SITC, 31st Annual meeting. The preliminary clinical data showed that BGB-A317 was
well-tolerated with AEs in keeping with the class effect. Among 103 patients evaluable for safety at the
time of the data cutoff for the current safety analysis on August 15, 2016, the most common treatment-
related AEs ((cid:2) 5%) were fatigue (19%), diarrhea (13%), rash (11%), pruritus (11%), nausea (8%),
hypothyroidism (7%), and infusion related reaction (6%). Treatment-related SAEs included four cases
of colitis, two cases of hypotension, and one case each of diarrhea, diabetes mellitus, diabetic
ketoacidosis, dyspnea, hypoxia, infusion-related reaction, and pneumonitis. Among these, grade 3
treatment-related SAEs included the two cases of hypotension and one case each of colitis, diabetes
mellitus, diabetic ketoacidosis, dyspnea, hypoxia, and pneumonitis. Other treatment-related grade 3 AEs
included two cases each of fatigue and hyperglycemia, and one case each of back pain, elevated alanine
aminotransferase and elevated gamma-glutamyl transferase. The table below summarizes the AE
events.
24
BGB-A317 Phase 1 Trial: Most Common Treatment-Related Adverse Events
System Organ Class/Events,
n* (%)
All Grades
(N=103)
Grade ≥3
(N=103)
General disorders and administration site conditions
Fatigue
20 (19.4)
2 (1.9)
Gastrointestinal disorders
Diarrhoea
Nausea
Colitis
13 (12.6)
8 (7.8)
4 (3.9)
Skin and subcutaneous tissue disorders
Pruritus
Rash
Endocrine disorders
11 (10.7)
11 (10.7)
0 (0.0)
0 (0.0)
1 (1.0)
0 (0.0)
0 (0.0)
Hypothyroidism
7 (6.8)
0 (0.0)
Injury, poisoning and procedural complications
Infusion related reaction
6 (5.8)
0 (0.0)
Investigations
ALT increased
GGT increased
Vascular disorders
Hypotension
5 (4.9)
1 (1.0)
1 (1.0)
1 (1.0)
2 (1.9)
2 (1.9)
Metabolism and nutrition disorders
Hyperglycaemia
Diabetes mellitus
Diabetic ketoacidosis
2 (1.9)
2 (1.9)
1 (1.0)
Respiratory, thoracic and mediastinal disorders
Pneumonitis
Dyspnoea
Hypoxia
2 (1.9)
1 (1.0)
1 (1.0)
2 (1.9)
1 (1.0)
1 (1.0)
1 (1.0)
1 (1.0)
1 (1.0)
Musculoskeletal and connective tissue disorders
Back pain
2 (1.9)
1 (1.0)
18MAR201719120687
A mixed patient population of 27 different tumor types was included in this data analyses, in which
patients with melanoma, NSCLC or HNSCC were not enrolled, and patients with renal cell cancer and
urothelial carcinoma together represented close to 15% of the enrolled patients. Among 99 patients
evaluable for efficacy as of September 30, 2016, anti-tumor activities were observed in 15 patients with
a PR and 23 patients with SD. The PRs include three PRs in nine renal cell carcinoma patients; three
in six urothelial cancer patients; two in four gastric cancer patients; two in two Merkel cell carcinoma
patients; one in four nasopharyngeal patients; one in one penis squamous cell carcinoma patient; one in
one duodenal carcinoma patient; two in two MSI-h patients, one with colorectal cancer (among a total
of 13 colorectal cancer patients), and one with pancreatic cancer (among a total of two pancreatic
cancer patients).
25
BGB-A317 Phase 1 Trial: Best Response in Target Lesion in Phase 1 Dose Escalation
BGB-A317 Phase 1 Trial: Change in Target Lesion from Baseline in Phase 1 Dose Escalation
19MAR201706393295
Four patients who discontinued treatment before the first tumor imaging assessment due to
symptomatic deterioration (three cases) or grade 2 infusion reaction (one case) were not evaluable for
efficacy. One of seven patients with mesothelioma discontinued therapy due to treatment-related grade
3 pneumonitis prior to obtaining confirmation of an initial PR. Additionally, two of 23 patients with
ovarian cancer and one of five patients with cervical cancer had significant tumor shrinkage qualifying
for a PR in one imaging assessment but not confirmed in the subsequent assessment due to disease
progression.
18MAR201711123092
26
Additional tumor types enrolled in the study include endometrial, esophageal, gallbladder, breast,
and thyroid cancers, cholangiocarcinoma, sarcoma, glioblastoma, hepatocellular, anal squamous cell,
cutaneous squamous cell, adrenocorticoid, and adenoid cystic carcinomas, adenocarcinoma of mandible,
and undifferentiated adenocarcinoma from teratoma, with one to five patients each.
To date, we have two internal combination clinical trials ongoing. In February 2016, we initiated a
Phase 1 clinical trial of BGB-290 in combination with BGB-A317. The dose escalation portion of the
study is currently enrolling subjects with TNBC, ovarian cancer, fallopian tube cancer, peritoneal
cancer, SCLC, and tumors likely to have DNA damage repair deficiencies susceptible to PARP
inhibition or likely to respond to a PD-1 blockade. In June 2016, we initiated a Phase 1 clinical trial
with BGB-3111 in combination with BGB-A317 for the treatment of various B-cell malignancies.
We have also initiated a Phase 1 open-label, multi-center trial with BGB-A317 in China in
December 2016. The Phase 1 open-label, multi-center study of BGB-A317 is designed to investigate the
safety, tolerability, pharmacokinetics, and preliminary antitumor activity of BGB-A317 in Chinese
patients with advanced solid tumors.
We plan to advance BGB-A317 into late-stage development. In addition, we plan to present the
data from the dose-expansion phase of our clinical trial at a medical conference in 2017. We also plan
to present data from our combination trials in 2017.
BGB-290, PARP Inhibitor
BGB-290 is a molecularly targeted, orally available, potent and highly selective inhibitor of PARP1
and PARP2. We are currently developing BGB-290 as a monotherapy and in combination with other
therapies for the treatment of homologous recombination deficient cancers, which are cancers that
contain abnormalities in their DNA molecule repair mechanisms, making these cancers particularly
sensitive to PARP inhibitors. We believe BGB-290 has the potential to be differentiated from other
PARP inhibitors in terms of brain penetration, selectivity, DNA-trapping activity, and oral
bioavailability.
We have completed the dose-escalation phase of our clinical trial in Australia and are conducting
the dose-expansion phase of our clinical trial. We have dosed over 110 patients with BGB-290 in
monotherapy and combination trials as of March 20, 2017. Initial analysis of data from this trial has
shown BGB-290 to be well-tolerated. Proof-of-concept has also been established, with anti-tumor
activity seen starting at the lowest tested dose and data suggestive of a wide therapeutic window.
Mechanism of Action
PARP family members PARP1 and PARP2 are involved in DNA replication and transcriptional
regulation and play essential roles in cell survival in response to DNA damage. PARP1 and PARP2 are
key base-excision-repair proteins that function as DNA damage sensors by binding rapidly to the site of
damaged DNA and modulating a variety of proteins in DNA repair processes. Inhibition of PARPs
prevents the repair of common single-strand DNA breaks which leads to formation of double-strand
breaks during DNA replication. Double-strand DNA breaks in normal cells are repaired by homologous
recombination, and normal cells are relatively tolerant of PARP inhibition. On the other hand, cancer
cells with mutations in breast cancer susceptibility gene, or BRCA1/2 genes, key players in homologous
recombination, are highly sensitive to PARP inhibition, a phenomenon called ‘‘synthetic lethality’’ that is
the foundation of the therapeutic utility of PARP inhibitors as a monotherapy for BRCA mutant cancers.
In addition to hereditary BRCA1/2 mutations, the synthetic lethal concept has been broadened to include
sporadic tumors that display homologous recombination deficiency, or HRD, a gene expression profile
that resembles that of a BRCA deficient tumor. HRD can stem from somatic mutation of BRCA1/2,
epigenetic silencing of BRCA genes or genetic or epigenetic loss of function of other genes in
homologous recombination DNA damage repair pathways. Recent third-party clinical studies have
published results demonstrating that sensitivity to platinum-based chemotherapies confers sensitivity to
27
PARP inhibitors in ovarian cancers. Thus, this trial finding may provide an additional possibility to
identify and enrich patient populations that could respond to PARP inhibitors.
Another potential therapeutic utility of PARP inhibitors is rational combination therapy. PARP
proteins are key factors in DNA repair pathways, in particular, base-excision-repair, which is critical for
the repair of DNA lesions caused by some chemotherapeutic agents and by radiation. PARP inhibitors
are hypothesized to potentiate cytotoxicity of DNA-alkylating agents such as platinum compounds,
temozolomide and ionizing radiation and may be used in combination with these agents in treating
various cancers. PARP inhibitors are also considered good potential combination partners with
checkpoint inhibitors in part due to increased mutations in tumor as a result of the blockade of DNA
repair by PARP inhibitors.
Market Opportunity
We believe the market opportunity for PARP inhibitors is large and expanding in various tumor
histology, settings and patient segments. Many tumor types have been shown to be responsive to PARP
inhibitors, including ovarian cancer, breast cancer, prostate cancer, SCLC, and gastric cancer. PARP
inhibitors have also been explored in settings beyond late lines with encouraging results, such as
maintenance setting. Clinical trials have also shown that PARP inhibitors are active beyond the initial
population of patients with BRCA mutations. In ovarian cancer and other cancers, there is growing
understanding and increasing clinical data indicating that multiple DNA repair defects or HRD, other
than BRCA mutations could render the tumor cell to be susceptible to PARP inhibition. Collectively,
we believe the addressable patient population for PARP inhibitors is fast expanding.
Potential Advantages of BGB-290
BGB-290 is a highly potent and selective PARP inhibitor with favorable oral bioavailability. We
believe BGB-290 has the potential to be differentiated from other PARP inhibitors, in terms of brain
penetration, selectivity, DNA-trapping activity, and oral bioavailability.
(cid:129) Brain penetration. BGB-290 has shown significant brain penetration in preclinical models. The
brain/plasma ratio in mice after oral dosing of 10 mg/kg BGB-290 was approximately 18%. We
believe the only other PARP inhibitor currently in development that has shown significant brain
penetration is veliparib, which appears to be significantly less potent compared to other PARP
inhibitors and has minimal DNA-trapping activity. BGB-290 has demonstrated strong synergistic
anti-tumor effects with temozolomide in treating intracranially implanted glioblastoma
multiforme, consistent with its ability to cross the blood-brain barrier.
(cid:129) Greater selectivity potentially leading to improved safety and tolerability. BGB-290 is a highly active
and selective PARP1 and PARP2 inhibitor in biochemical and cellular assays. Enhanced
selectivity could potentially translate into a better safety and tolerability profile over existing
PARP inhibitors. We believe a favorable safety and tolerability profile could be particularly
advantageous for the combined use of BGB-290 with immune checkpoint inhibitors or
chemotherapeutic agents.
(cid:129) Strong DNA-trapping activity. PARP inhibitors are reported to trap PARP protein at damaged
DNA sites, creating more cytotoxic DNA lesions. The potency of DNA-trapping for PARP
inhibitors is shown to be better correlated with tumor cell growth-inhibition than inhibition of
PARP enzyme activity. BGB-290 has demonstrated potent activity across multiple assays:
DNA-trapping, enzymatic and cellular inhibition of PARP and tumor cell growth inhibition.
(cid:129) Good oral bioavailability. In preclinical animal models, BGB-290 demonstrated bioavailability of
71–76% in animal studies. In the ongoing dose-escalation phase of our clinical trial, we observed
a linear and dose-dependent pharmacokinetic profile for BGB-290 with approximately two-fold
accumulation at steady state.
28
Summary of Clinical Results
As of March 20, 2017, we have dosed over 110 patients with BGB-290 in either monotherapy or
combination trials. We have completed the dose-escalation phase and are evaluating BGB-290 in the
ongoing dose-expansion phase of our clinical trial in Australia.
At the 2015 AACR-NCI-EORTC International Conference on Molecular Targets and Cancer
Therapeutics, we presented clinical data from our Phase 1 clinical trial. As of June 30, 2015, 29
relapsed or refractory solid tumor patients were enrolled in seven cohorts receiving monotherapy
BGB-290 in doses ranging from 2.5 mg BID to 80 mg BID. Initial analysis of data from this trial
suggests that BGB-290 is well-tolerated. Few AEs of myelosuppression, no liver toxicity signal, and few
drug-related grade 3/4 AEs were observed in the dose-escalation phase. The most common drug-related
AEs were grade 1 and 2 nausea (38%) and fatigue (28%). Drug-related grade 3/4 AEs include one
each (3%) of neutropenia, anemia, hypophosphatemia and hypokalemia, all grade 3. As of January 19,
2016, drug-related SAEs reported by investigators were three cases of grade 3 anemia and one case of
shortness of breath.
BGB-290 Phase 1 Trial: Drug-Related Adverse Events*
All Grade
Grade 3-4
n(pts)
%(N=29)
n(pts)
%(N=29)
Gastrointestinal disorders
nausea
vomiting
diarrhoea
dry mouth
General disorders and administration site
conditions
fatigue
Nervous system disorders
lethargy
dysgeusia
hypoaesthesia
Blood and lymphatic system disorders
anaemia
neutropenia
thrombocytopenia
Metabolism and nutrition disorders
hypophosphataemia
decreased appetite
hypokalaemia
Vascular disorders
hot flush
19
11
4
3
1
8
8
4
2
1
1
4
1
2
1
3
1
1
1
1
1
66%
38%
14%
10%
3%
28%
28%
14%
7%
3%
3%
14%
3%
7%
3%
10%
3%
3%
3%
3%
3%
0
0
0
0
0
0
0
0
1
1
0
1
0
1
0
3%
3%
3%
3%
21MAR201721593312
Note: * Table shows only the data presented at 2015 AACR-NCI-EORTC International Conference
with data cutoff date of June 30, 2015.
Proof-of-concept was established, with significant anti-tumor activity seen in ovarian cancer patients
starting at the lowest tested dose and data suggestive of a wide therapeutic window. Among 14
29
evaluable patients with ovarian cancer as of June 30, 2015, seven had an objective response (six PRs
and one CR). Of the ten ovarian cancer patients with germ-line BRCA mutation, five had an objective
response (four PRs and one CR), and of the three ovarian cancer patients with germ-line BRCA
wild-type, two had an objective response (two PRs). The remaining one patient had unknown BRCA
status and progressive disease, or PD. When assessed by underlying mutations, of six evaluable patients
with the BRAF V600E mutation, there was one CR, one PR and four SDs.
BGB-290 Phase 1 Trial: Best Response in Target Lesion in Ovarian Cancer Patients in Phase 1 Dose
Escalation
BRCA Status
Unknown
Wild-Type
Mutant
)
%
,
D
L
S
(
e
n
i
l
e
s
a
B
m
o
r
f
e
s
n
o
p
s
e
R
t
s
e
B
40%
20%
0%
(20)%
(40)%
(60)%
(80)%
(100)%
43
10mg
58
181
363
77
79
109
71
72
230
60mg
40mg
2.5mg
5mg
10mg
10mg
60mg
20mg
20mg
314
5mg
197
90
224
40mg
60mg
20mg
Days on
Treatment
Dosage
PD
SD
PR
CR
Continued Treatement
19MAR201703541597
30
BGB-290 Phase 1 Trial: Treatment Response and Duration by Dose and by Tumor Types in Phase 1
Dose Escalation
2.5 mg BID
5 mg BID
10 mg BID
20 mg BID
40 mg BID
60 mg BID
80 mg BID
03-001
02-001
03-002
03-003
02-002
01-001
03-004
03-005
01-002
02-003
02-004
01-004
03-006
03-007
01-005
01-006
01-007
03-008
03-010
03-011
02-005
03-013
01-010
01-009
03-014
01-012
01-013
02-006
02-007
PD
PD
NE
PD
PD
SD
SD
SD
SD
SD
SD
NE
SD
SD
PD
SD
PR
SD
NE
NE
NE
NE
NE
PR
CR
PR
PR
PR
PR *
Breast cancer
Gastroesophageal cancer
Glioblastoma multiforme
Leiomyosarcoma
Non small cell lung cancer
Ovarian cancer
Small cell lung cancer
On treatment
First response
Preliminary investigator-reported
data as of June 30th, 2015
* Pt progressed on D420
after the cut-off date
0
50
100
150
200
250
300
350
400
19MAR201716565126
500
450
In February 2016, we initiated a Phase 1 clinical trial of BGB-290 in combination with BGB-A317.
The dose-escalation phase of the trial is currently enrolling subjects with TNBC, ovarian cancer,
fallopian tube cancer, peritoneal cancer, SCLC, and tumors likely to have DNA damage repair
deficiencies susceptible to PARP inhibition or likely to respond to a PD-1 blockade. The
dose-expansion phase will include patients with BRCA 1/2-mutations or HRDs who have TNBC,
metastatic castration-resistant prostate cancer, pancreatic adenocarcinoma, and platinum-sensitive
ovarian, fallopian tube, and primary peritoneal cancers, as well as patients with platinum-sensitive
urothelial bladder cancer, pancreatic adenocarcinoma, SCLC, and gastric or gastroesophageal junction
cancers. Key objectives in the trial include assessing safety and tolerability, maximum tolerated dose,
recommended Phase 2 dose, pharmacokinetics, and preliminary anti-tumor activity of the BGB-A317
and BGB-290 combination.
In December 2016, we also initiated a Phase 1 open-label, multi-center trial with BGB-290 in
China. The Phase 1 study is designed to investigate the safety, pharmacokinetics, and antitumor activity
of BGB-290 in Chinese patients with advanced solid tumors and to determine the recommended
Phase 2 dose in these patients.
We plan to advance BGB-290 into late-stage development. In addition, we plan to present the data
from the monotherapy trial of BGB-290 at a medical conference in 2017. We also plan to present data
from the combination trial in 2017.
We are in limited collaboration with Merck KGaA, Darmstadt Germany as further described in
‘‘—Collaboration with Merck KGaA, Darmstadt Germany.’’
31
BGB-283, RAF Dimer Inhibitor
BGB-283 is a small molecule inhibitor of both the monomer and dimer forms of the RAF kinase.
We are currently developing BGB-283 for the treatment of cancers with aberrations in the mitogen-
activated protein kinase, or MAPK, pathway, including BRAF gene mutations and KRAS/NRAS gene
mutations where first generation BRAF inhibitors are not effective. The MAPK pathway is a chain of
proteins in the cell that communicates a signal from a receptor on the surface of the cell to the DNA
in the nucleus of the cell. This pathway plays an essential role in regulating cell proliferation and
survival. We intend to develop BGB-283 to treat various malignancies, including melanoma, colorectal
cancer, NSCLC, endometrial cancer, ovarian cancer, pancreatic cancer and papillary thyroid carcinoma.
Currently approved first-generation BRAF inhibitors, vemurafenib and dabrafenib, are only active
against the BRAF monomer. BGB-283 inhibits not only the monomer but also the dimer forms of
BRAF. We believe BGB-283 has the potential to be a first-in-class RAF dimer inhibitor globally.
As of March 20, 2017, we have dosed over 170 patients with BGB-283. In June 2015, we
completed the dose-escalation phase of our multi-center, open-label Phase 1 clinical trial in Australia
and New Zealand. We are currently conducting the multi-arm dose-expansion phase of the Phase 1
clinical trial in Australia and New Zealand and in April 2016 completed the enrollment for the
dose-expansion phase of our clinical trial for the treatment of solid tumors with BRAF mutations
and/or aberrations in the MAPK pathway, including melanoma, thyroid cancer, colorectal cancer,
NSCLC and other non-V600E BRAF mutated cancers, and KRAS/NRAS mutated endometrial cancer,
colorectal cancer, NSCLC and other KRAS/NRAS mutated cancers.
Mechanism of Action
The MAPK pathway is a chain of proteins that communicates a signal from a receptor on the
surface of a cell to the DNA in the nucleus of the cell. The pathway includes a small G protein (RAS)
and three protein kinases (RAF, MEK, and ERK). A kinase is an enzyme that catalyzes the transfer of
a phosphate group from a donor molecule to an acceptor. This process often acts as an ‘‘on’’ or ‘‘off’’
switch to regulate cellular signaling. The MAPK pathway plays an essential role in regulating cell
proliferation and survival. Activation of the RAS-RAF-MEK-ERK kinase cascade by external stimuli
transduces signals from the plasma membrane into the cell nucleus to control gene expression and
determine cell fate. Aberrant activation of the MAPK signal transduction pathway is frequently found
in different types of cancers, contributing to increased cell division, suppressed apoptosis, and enhanced
cell motility and invasion. In many cancers, a defect in the MAPK pathway leads to uncontrolled tumor
growth. The two key components of the MAPK pathway, BRAF and RAS, are two of the most
frequently mutated genes in human cancers. BRAF is one of the three kinases that belong to the RAF
kinase family. There are three members: ARAF, BRAF and CRAF. BRAF is the most frequently
mutated oncogene in this kinase superfamily. Mutated BRAF and RAS lead to activation of the MAPK
pathway and promote tumor development and growth. Functions of BRAF in the MAPK pathway are
key to cell proliferation and survival. Mutations that lead to activation of BRAF promote cell
transformation and proliferation and thus positively correlate with tumor development and growth. The
most frequent BRAF mutation, BRAF V600E, causes constitutive activation of the kinase as well as
insensitivity to negative feedback mechanisms. The mutated BRAF signals as a monomer, independent
of upstream growth stimuli. It has been found that RAF kinases can homo- and heterodimerize and
form homodimer or heterodimer of RAF proteins. Dimerization has been reported to be one of the
key mechanisms of resistance to first-generation BRAF inhibitors, such as vemurafenib and dabrafenib.
The three most common molecular mechanisms of acquired resistance of BRAF V600E melanomas to
RAF inhibitors—NRAS mutation, splicing of BRAF V600E that produce a truncated BRAF kinase,
and BRAF V600E overexpression due to gene amplification—all result in dimerization of
BRAF V600E. First-generation BRAF inhibitors only inhibit the BRAF V600E monomer form at
physiologically meaningful concentrations. In contrast, BGB-283 has been shown to inhibit both
BRAF V600E monomer and RAF dimer in BRAF inhibitor sensitive and resistant melanoma cell
32
models, which is involved in signaling downstream from RAS. We believe this feature of BGB-283 may
help to address the drug resistance issues in BRAF mutated tumors and further expand its utility into
RAS mutated patient populations.
Market Opportunity
We believe BGB-283 has applications in both BRAF mutated cancers and RAS, including KRAS
and NRAS, mutated cancers. The oncogenic BRAF V600E mutation was detected in approximately 8%
of all human solid tumors, including approximately 45% of papillary thyroid cancers. Mutations in any
one of the three RAS genes, HRAS, NRAS or KRAS, are among the most common events in human
tumorigenesis. KRAS mutations are detected prominently in colorectal cancer, NSCLC and pancreatic
cancer. Additionally, notable KRAS or NRAS mutation rates have been reported in melanoma, ovarian
cancer, endometrial cancer, bladder cancer, biliary cancer, thyroid cancer, leukemia and multiple
myeloma. The first-generation FDA-approved BRAF inhibitors have limited activity outside of
melanoma, NSCLC and thyroid cancers. In addition, these first-generation BRAF inhibitors do not
exhibit activity against KRAS and NRAS mutations.
Potential Advantages of BGB-283
BGB-283 is a novel inhibitor of RAF, in both monomeric and dimeric forms. BGB-283 has
demonstrated potent and reversible inhibitory activities against RAF family kinases, including wild-type
ARAF, BRAF, CRAF and BRAF V600E, in biochemical assays. In addition, BGB-283 has shown
potent inhibitory activity against EGFR in biochemical assays using EGFR kinases, cancer cell lines,
and xenograft models. In BRAF wild-type cells that harbor the KRAS mutations, treatment with
BGB-283 resulted in much reduced up-regulation of pERK, a phosphorylated form of ERK, compared
with vemurafenib in cancer cell models.
In preclinical testing, BGB-283 also retained inhibitory activity in vemurafenib-resistant BRAF
splicing isoform p61-BRAF V600E. Data generated in preclinical studies using biochemical, cell-based
and animal studies suggest that BGB-283 could offer significant patient benefit in inhibiting tumors
with aberrations in the RAF MAPK/ERK pathway, including BRAF mutations and KRAS/NRAS
mutations as either monotherapy or in combination with other cancer therapies.
We believe BGB-283 has the potential to be differentiated from other drug candidates currently
under development and from approved first-generation BRAF inhibitors due to the following:
(cid:129) Increased inhibitory activity against RAF dimers. BGB-283’s increased inhibitory activity against
RAF dimers may potentially address resistances associated with increased RAF dimer formation
in response to treatment with first-generation BRAF inhibitors. As noted above, most known
molecular mechanisms of resistance to RAF inhibitors induce RAF dimerization. As such,
BGB-283’s ability to inhibit RAF dimers and target disregulated MAPK pathways resistant to
first-generation BRAF inhibitors could result in a clinically significant effect.
(cid:129) Increased activity in KRAS/NRAS mutated cancers. We believe that BGB-283’s RAF dimer activity
could translate into anti-tumor activity in KRAS/NRAS mutated cancers. Anti-tumor activities
were observed in preclinical KRAS/NRAS mutant cancer models in vivo.
(cid:129) Increased inhibitory activity against EGFR. BGB-283 has demonstrated inhibitory activity against
EGFR. The reported response rate of vemurafenib in BRAF V600E colorectal cancer is only
5%. Two independent studies suggested that EGFR feedback activation could be one of the
main mechanisms of the observed resistance to first-generation BRAF inhibitors. BGB-283 has
demonstrated good EGFR inhibitory activity in both in vitro and in vivo preclinical models.
BGB-283’s activity against EGFR may help address the EGFR feedback activation observed in
BRAF V600E colorectal cancer tumors.
33
(cid:129) Differentiated resistance profile. BGB-283 has shown inhibitory activity against RAF dimers. An
increase in RAF dimers has been observed to be a major resistance mechanism to first-
generation BRAF inhibitors. A differentiated resistance profile has been observed in preclinical
models for BGB-283.
Summary of Clinical Results
Initial analysis of data from these trials suggests that BGB-283 is well-tolerated with a favorable
safety profile. We presented initial clinical data from our Phase 1 clinical trial of BGB-283 in patients
with BRAF or KRAS/NRAS-mutated cancers at the 2016 American Association for Cancer Research
annual conference. As of January 31, 2016, the data cutoff date, among 31 advanced solid tumor
patients, the most frequent treatment-related adverse events, or TRAE, were fatigue (52%),
thrombocytopenia (39%), decreased appetite (39%), hand-foot syndrome (35%), dermatitis
acneiform (32%) and hypertension (32%). The most frequent treatment-related grade 3/4 AEs included
thrombocytopenia (13%), fatigue (10%) and liver enzyme elevation (10%).
We have achieved proof-of-concept in a range of cancers including those with KRAS and BRAF
mutations. At the time of the data cutoff, among 29 patients enrolled in the dose-escalation phase of
the trial evaluable for efficacy, one melanoma patient with BRAF V600E mutation had a CR, one
endometrial cancer patient with KRAS mutation and one thyroid cancer patient with BRAF V600E
mutation had a PR, and 15 patients had an SD, including one NSCLC patient with KRAS mutation
with a transient PR or durable SD. As of January 31, 2016, 15 patients had remained on treatment for
over six months, and the patient with CR had ongoing treatment for 342 days, and the two patients
with PR had received treatment for 455 days and 574+ days (ongoing), respectively. When assessed by
underlying mutations, of six evaluable patients with the BRAF V600E mutation, there was one CR, one
PR and four SDs. Of three evaluable patients with BRAF non-V600E mutation, there were two SDs.
Of 20 evaluable patients with KRAS/NRAS mutations, there was one confirmed PR and nine SDs.
We have also initiated a dose-escalation trial in China. The goal of the study is to determine dose,
exposure, safety and tolerability, and efficacy. We observed more frequent grade 3/4 thrombocytopenia
in the China trial (seven out of 24 patients) compared to the Australia and New Zealand trial (eight
out of 105 patients).
We expect to present data from the Phase 1 dose-expansion study of BGB-283 in patients with
BRAF or KRAS/NRAS mutated solid tumors in an oral presentation on April 2 during a Clinical Trials
Plenary Session at the 2017 American Association for Cancer Research Annual Meeting.
In March 2017, we regained the worldwide rights to BGB-283 after Merck KGaA, Darmstadt
Germany informed us that it will not exercise the Continuation Option in its former exclusive license to
commercialize and manufacture BGB-283 outside of China. The agreement with Merck KGaA,
Darmstadt Germany is further detailed in ‘‘—Collaboration with Merck KGaA, Darmstadt Germany.’’
Our Preclinical Programs
Our proprietary cancer biology platform has also allowed us to develop several preclinical-stage
drug candidates in potentially important targeted areas. These currently consist of targeted therapies
and immuno-oncology agents including a PD-L1 monoclonal antibody, an additional RAF dimer
inhibitor, a TIM-3 cell surface protein monoclonal antibody, and a BTK inhibitor for non-oncology
indications. We anticipate advancing one or more of our preclinical assets into the clinic in the next
12 months. We believe we have the opportunity to combine our PD-1 monoclonal antibody with other
clinical-stage and preclinical candidates in our pipeline portfolio to target multiple points in the cancer
immunity cycle. We also seek to develop companion diagnostics that will help identify patients that are
most likely to benefit from the use of our drug candidates.
34
Collaboration with Merck KGaA, Darmstadt Germany
BGB-283
On May 24, 2013, we entered into license agreements with Merck KGaA, Darmstadt Germany,
which we amended and restated on December 10, 2013 and which we refer to respectively as the
Ex-PRC BRAF Agreement and PRC BRAF Agreement. On October 1, 2015 and December 3, 2015,
we further amended the Ex-PRC BRAF Agreement. Pursuant to the Ex-PRC BRAF Agreement and
PRC BRAF Agreement (a) we granted to Merck KGaA, Darmstadt Germany an exclusive license
under certain of our intellectual property rights to develop and manufacture, and, if Merck KGaA,
Darmstadt Germany exercised its Continuation Option (described below), to commercialize and
manufacture our compound BGB-283, and any other compound covered by the same existing patent
rights with primary activity to inhibit wildtype or certain mutant BRAF, or the Licensed BRAF
Inhibitors, in all countries of the world excluding The People’s Republic of China, which we refer to as
the Ex-PRC Territory, and (b) Merck KGaA, Darmstadt Germany granted us an exclusive license under
certain of its intellectual property rights to develop, manufacture and commercialize the Licensed
BRAF Inhibitors in The People’s Republic of China, which we refer to as the PRC Territory, subject to
the non-compete restrictions discussed below.
Under the Ex-PRC BRAF Agreement, Merck KGaA, Darmstadt Germany had the option to
continue such agreement and obtain the exclusive commercialization rights described above in the
Ex-PRC Territory, which we refer to as the Continuation Option, by notifying us of that election within
60 days following its receipt of the final reports for the last of certain pre-specified Phase 1 clinical
trials that we retained the responsibility to perform. In March 2017, Merck KGaA, Darmstadt Germany
informed us that it will not exercise the Continuation Option, and thus the Ex-PRC BRAF Agreement
has terminated in its entirety except for certain provisions that will survive the termination.
Further, pursuant to the PRC BRAF Agreement, Merck KGaA, Darmstadt Germany has an
exclusive right of first negotiation to acquire exclusive commercialization rights under the BGB-283
BRAF program in the PRC Territory on terms to be mutually agreed in the event we seek to license
our intellectual property rights to a third party therein.
Under the Ex-PRC and PRC BRAF Agreements, in December 2013, we received $13 million in
non-refundable payments. As of December 31, 2016, we have received $9 million in milestone
payments. We are eligible to receive additional $14 million in payments upon the successful
achievement of pre-specified clinical milestones in the PRC Territory.
We are required to pay Merck KGaA, Darmstadt Germany a high single-digit royalty on aggregate
net sales of Licensed BRAF Inhibitors in the PRC Territory.
The term of the PRC BRAF Agreement continues unless terminated as permitted by either party.
Under the PRC BRAF Agreement, Merck KGaA has the right to terminate due to our uncured breach
or voluntarily upon prior written notice. We have the right to terminate the PRC BRAF Agreement
due to Merck KGaA’s uncured breach or for any challenge brought against our licensed patent rights.
BGB-290
On October 28, 2013, we entered into license agreements with Merck KGaA, Darmstadt Germany,
which we refer to respectively as the Ex-PRC PARP Agreement and the PRC PARP Agreement,
pursuant to which (a) we granted to Merck KGaA, Darmstadt Germany an exclusive license under
certain of our intellectual property rights to develop and manufacture, and, if Merck KGaA, Darmstadt
Germany exercised a continuation option, to commercialize and manufacture our compound BGB-290
and any other compound covered by the same existing patent rights with primary activity to inhibit
PARP 1, 2 or 3 enzymes, or the Licensed PARP Inhibitors, in the Ex-PRC Territory, and (b) Merck
KGaA, Darmstadt Germany granted us an exclusive license under certain of its intellectual property
rights to develop, manufacture and commercialize the Licensed PARP Inhibitors in the PRC Territory.
35
On October 1, 2015, pursuant to a purchase of rights agreement, we repurchased all of Merck KGaA,
Darmstadt Germany’s rights under the Ex-PRC PARP Agreement, in consideration for, among other
things, a one-time payment of $10 million and reduction of future milestone payments we were eligible
for under the PRC PARP Agreement. In connection with that repurchase, we also agreed to provide
Merck KGaA, Darmstadt Germany with global access to our clinical PARP supplies, including
BGB-290, for its combination trials, during the option period. The Ex-PRC PARP Agreement was
terminated, except for certain provisions therein that are needed to effectuate the continuation of the
PRC PARP Agreement, including those provisions that were required in the event that Merck KGaA,
Darmstadt Germany exercised its PRC Commercialization Option (described below).
Pursuant to the PRC PARP Agreement, if we fail to achieve national priority project status in the
PRC Territory under its 12th or 13th five-year plan with respect to our BGB-290 PARP program in the
PRC Territory by July 28, 2017, Merck KGaA, Darmstadt Germany can exercise its option to acquire
exclusive commercialization rights under the BGB-290 PARP program in the PRC Territory, which we
refer to as the PRC Commercialization Option. If, however, we do achieve national priority by July 28,
2017, Merck KGaA, Darmstadt Germany only has a right of first negotiation to acquire exclusive
commercialization rights under the BGB-290 PARP program in the PRC Territory in the event we seek
to license our intellectual property rights to a third party therein.
Under the Ex-PRC and PRC PARP Agreements, in November 2013 we received $6 million in
non-refundable payments and in 2014 $9 million in milestone payments. We are eligible to receive up
to $7 million and $2.5 million, respectively, in payments upon the successful achievement of
pre-specified clinical and regulatory milestones in the PRC Territory. In addition, if Merck KGaA,
Darmstadt Germany exercises the PRC Commercialization Option, Merck KGaA, Darmstadt Germany
is required to pay us a $50 million non-refundable payment upon such exercise, and we are eligible for
a $12.5 million milestone payment upon the successful achievement of a certain additional regulatory
event in the PRC Territory.
Under the PRC PARP Agreement, in consideration for the licenses granted to us, we are required
to pay Merck KGaA, Darmstadt Germany a high single-digit royalty on aggregate net sales of Licensed
PARP Inhibitors in the PRC Territory.
The PRC PARP Agreement continues unless terminated as permitted by either party. Merck
KGaA, Darmstadt Germany has the right to terminate due to our uncured breach or for convenience
upon prior written notice. We have the right to terminate these agreements due to Merck KGaA,
Darmstadt Germany’s uncured breach or for any challenge brought against our licensed patent rights.
Regulatory Framework and Structural Advantages of Being a China-Based Research and Development
Organization
We believe that basing our research and development effort in China offers important regulatory
advantages that differentiate us from most multinational biopharmaceutical and biotechnology
companies. These advantages include the following:
(cid:129) Potential for more rapid approval in the world’s second largest commercial market, China, due
to a separate regulatory framework for locally developed drug candidates. This pathway to
approval creates the potential for our drug candidates to be first-in-class locally and to obtain
approval in China prior to ex-China developed candidates. By developing our compounds
preclinically and manufacturing them in China, we have the ability to seek product approval
from the CFDA as a domestic Category 1 drug. This domestic Category 1 designation allows us
to use a distinct route for bringing our products to market compared to the Category 5
regulatory process available to multinational companies with drugs approved for marketing by
major foreign drug regulatory authorities, such as the FDA or EMA. We believe the Category 1
regulatory pathway will allow us to provide patients in China more rapid access to safe and
effective cancer therapies.
36
(cid:129) The opportunity to supplement and accelerate global clinical development by accessing the
Category 1 China local regulatory path for locally developed drug candidates to enable more
rapid clinical trial enrollment from a pool of approximately 20—25% of the world’s cancer
patients. The prevalence rates for some cancers, such as lung, gastric, hepatic and esophageal
are higher in China, and for others, such as breast and cervical, are lower.
(cid:129) Currently, many global standard-of-care therapies are not approved or available in China,
resulting in a significant need for innovative therapeutics with strong efficacy and safety profiles.
As a result, we believe there is a higher likelihood that drug candidates that have demonstrated
proof-of-concept in the clinic and become qualified for the Category 1 regulatory pathway will
receive regulatory approval in China.
We believe our strategy and approach is aligned with the Chinese government’s policies, and we
intend to continue to work with local authorities to bring innovative therapeutics to patients in China
as quickly as possible.
In August 2015, the Chinese State Council, issued a statement, Opinions on reforming the review
and approval process for pharmaceutical products and medical devices that contained several potential
policy changes that could benefit the pharmaceutical industry:
(cid:129) 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.
(cid:129) 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.
(cid:129) 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 CFDA released Circular Concerning Several Policies on Drug Registration
Review and Approval, or the No. 230 Circular, which further clarified the following policies potentially
simplifying and accelerating the approval process of clinical trials:
(cid:129) 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’ clinical trial application.
(cid:129) 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 which are already approved in the United States or
European Union or concurrent drug registration applications for drugs which have applied for
marketing authorization and passed onsite inspections in the United States or European Union
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.
37
In February 2016, the CFDA released the Opinions on Priority Review and Approval for Resolving
Drug Registration Applications Backlog, which further clarified the following policies potentially
accelerating the approval process of certain clinical trials or drug registrations which may benefit us:
(cid:129) A fast track drug registration or clinical trial approval pathway will be available for the following
drug registration applications with distinctive clinical benefits: (1) registration of innovative drugs
not sold within or outside China; (2) registration of innovative drug transferred to be
manufactured in China; (3) registration of drugs using advanced technology, using innovative
treatment methods, or having distinctive treatment advantages; (4) clinical trial applications for
drugs with patent expiry within three years, and marketing authorization applications for drugs
with patent expiry within one year; (5) concurrent applications for new drug clinical trials which
are already approved in the United States or European Union, or concurrent drug registration
applications for drugs which have applied for marketing authorization and passed onsite
inspections in the United States or European Union and are manufactured using the same
production line in China; (6) traditional Chinese medicines (including ethnic medicines) with
clear position in prevention and treatment of serious diseases; and (7) registration of new drugs
sponsored by national key technology projects or national key development projects.
(cid:129) A fast track drug registration approval pathway will be available for the following drugs
registration application with distinctive clinical benefits for prevention and treatment of HIV,
phthisis, virus hepatitis, orphan diseases, cancer, children’s diseases, and geriatrics.
In March 2016, the CFDA released a circular, CFDA Announcement on Reforms of Pharmaceutical
Registration Classification, which outlined the re-classifications of drug applications. Under the new
categorization, innovative drugs that have not been approved either in or outside China remain
Category 1, while drugs approved outside China seeking marketing approval in China are now
Category 5.
The CFDA is soliciting public opinions on detailed policies regarding fast track clinical trial
approval and drug registration pathway, and we expect that the CFDA review and approval process will
improve over time.
Regulatory Framework for Novel Drugs in China
The CFDA categorizes domestically-manufactured innovative drug applications as Category 1 and
imported innovative drug applications as Category 3, until a recent CFDA announcement issued on
March 4, 2016 which reclassifies imported drug applications into Category 5.
Most Chinese companies’ applications for innovative drugs are filed in Category 1 if the drug has
not already been approved by the FDA or EMA. Most multinational pharmaceutical companies’ drug
registration applications are filed in Category 5.
Under the current regulations, these two categories have distinct approval pathways as discussed
below.
Domestic Innovative Drug Registration Process
For domestically manufactured innovative drug applications, companies are required to obtain
approval of a Clinical Trial Application before conducting Phase 1 clinical trials in China. The domestic
innovative drug registration pathway has a fast track review and approval mechanism if the drug
candidate is on a national priority list.
Imported Innovative Drug Registration Process
For a drug that has received marketing approval in other countries, but is not yet approved in
China, in order to market an imported drug in China, companies must apply for an Import Drug
38
License, or IDL, after the drug has received marketing approval and a Certificate of Pharmaceutical
Product, or CPP, from a major foreign drug regulatory authority, such as the FDA or EMA. Compared
with the domestic innovative registration process, the imported innovative drug registration process is
more complex.
The first step in the process after receipt of a CPP is to obtain approval of a Clinical Trial
Application to conduct registration studies. A pharmacokinetic study in Chinese subjects is also
required. Once this study is completed, the applicant must submit the clinical data package to the
CFDA along with other required information for the issuance of an IDL. The IDL registration process
together with clinical trials have typically taken more than five years from the receipt of foreign
marketing approval.
Currently, the most common strategy for multinational companies is using multi-regional clinical
trial, or MRCT, data to support IDL approval. Companies can apply to conduct these MRCTs prior to
receiving global regulatory approval, with China as a subset within a broader MRCT. However, these
MRCTs are often not designed in a way that accounts for the unique characteristics of the Chinese
patient population and local standards of care. If the MRCT data does not meet the CFDA’s
registration requirements, the company may be required to conduct additional local clinical trials that
can potentially delay market access in China for imported drugs by an additional three to four years.
The Chinese State Council and the CFDA have recently issued several statements and circulars
aimed at improving and accelerating the new drug approval process in general. These include the
August 2015 statement issued by the Chinese State Council, Opinions on reforming the review and
approval process for pharmaceutical products and medical devices ; the November 2015 CFDA No. 230
Circular, Circular Concerning Several Policies on Drug Registration Review and Approval ; February 2016
CFDA Circular, Opinions on Priority Review and Approval for Resolving Drug Registration Applications
Backlog ; and the March 2016 CFDA No. 51 Circular, Announcement on Reforms of Pharmaceutical
Registration Classification issued by the CFDA on March 4, 2016. In the March 4, 2016 CFDA
announcement, the drugs approved outside China seeking marketing approval in China are now called
Category 5. We believe these new regulatory initiatives will likely accelerate the approval process for
new drugs, including those marketed in other countries but not yet in China. However, how and when
this approval process will be changed is still subject to further policies to be issued by the CFDA and is
currently uncertain.
Commercial Opportunities in China
In addition to the structural and clinical advantages afforded to us by basing our research and
development operations in China, we see an attractive and growing commercial oncology opportunity in
our home market. We continue to retain commercial rights in China for all four of our clinical
programs and all preclinical programs.
39
China’s Pharmaceutical Market
China’s pharmaceutical market has grown robustly and replaced Japan as the second largest
pharmaceutical market in 2013, according to IMS Health. According to the IMS Market Prognosis
published in March 2015, the Chinese pharmaceutical market was $109 billion in 2014, as compared to
a $373 billion U.S. pharmaceutical market in 2014, and is expected to grow at a compound annual
growth rate, or CAGR, of 9.3% over the next five years reaching $171 billion by 2019. The growth of
the Chinese pharmaceutical market is attributable, in particular to:
(cid:129) An aging population, modern diet, lack of exercise and environmental issues that are increasing
the prevalence of chronic diseases.
(cid:129) Increases in disease awareness, diagnostics and treatment rates.
(cid:129) The continuous and rapid increase of personal disposable income and the establishment of basic
national health insurance coverage; making health care accessible to more patients.
China provides an opportunity to access largely untapped clinical trial pools and develop drugs for
a population for whom global standard of care therapies are not available. China has nearly a quarter
of the world’s cancer patient population and one third to half of cancer patients in certain tumor types
are in China, such as lung, gastric, liver and esophageal cancers.
New Incidence by Cancer Types in China & Worldwide (million)
All types
Lung
0.65
Breast
0.19
China
3.07
World*
14.07
1.83
1.67
Colon
0.25
1.36
Gastric
0.41
0.95
Liver
0.40
0.78
Cervix
0.06
0.53
Esophagus
0.22
0.46
China %
of World
22%
36%
11%
19%
43%
51%
12%
49%
19MAR201701241223
Note: * New cancer incidences estimated to increase to 19 and 25 million in 2025 and 2035,
respectively. Source: Data from World Health Organization (2012)
The oncology market in China is estimated to have grown at a CAGR of 24% in the last decade
through 2014. In recent years, sales of targeted therapy drugs in retail channels have increased rapidly.
Although expensive targeted therapy drugs are not included in basic national healthcare insurance and
have historically had very little coverage by provincial insurance plans, the targeted therapy drug
market has continued to grow rapidly despite being an out-of-pocket market. This growth is attributable
to patients’ needs, newly launched drugs and patient’s ability to pay for drugs not covered by insurance.
40
Targeted Oncology Therapies in China: 2015 Revenues ($MM)
USD $MM
MabThera
Herceptin
Glivec
Iressa
Conmana
Avastin
135
Tarceva
97
296
269
207
EGFR Targeted Therapies
188
177
2012–2015
CAGR
15%
18%
33%
22%
43%
19%
14%
0
100
200
300
400
19MAR201703541834
Source: CFDA Southern Medicine Economic Research Institute
Introduction of Reimbursement
The Chinese State Council requires central and provincial authorities across the PRC to promote a
medical insurance program for major illnesses. By the end by 2015, all urban and rural residents
covered by basic medical insurance programs are required to be covered by the insurance program for
major illnesses, according to a Chinese State Council policy issued on July 28, 2015. As a complement
to basic insurance programs, this program is required to cover at least 50% of the medical cost
incurred in connection with treating major illnesses and is supplemental to basic insurance programs.
The Chinese State Council now requires provincial authorities to increase reimbursement rates over the
next three years.
According to the PRC Central Government’s guidance issued in March 2015, each province will
decide which drugs to include in its provincial major illness reimbursement lists and the percentage of
reimbursement, based on local funding. For example, Zhejiang province, located in the Yangtze river
delta area with a population of 55 million, announced its provincial major illness drug reimbursement
list in early 2015. The list includes 31 high-priced drugs, 15 of which are targeted therapy agents for
cancer, including Glivec, Ireesa, Erbitux, Herceptin, and Rituxan. Although it will take three years to
establish comprehensive national coverage, the affordability of the high-priced, novel cancer agents to
Chinese patients could improve significantly.
41
On February 23, 2017, the Ministry of Human Resources and Social Security released the
long-expected new version of the national reimbursement drug list, or NRDL. The NRDL has been
expanded by 16.7%, with covered drugs increased from 2,172 in the 2009 version to 2,535, including
1,297 chemical / biological drugs (51.1% of total, vs. 1,140 in 2009) and 1,238 traditional Chinese
medicines / ethnic drugs (48.9% of total, vs. 1,032 in 2009). Several targeted oncology drugs are on the
list, including icotinib, dasatinib, gefitinib, and imatinib. NRDL inclusion could be a significant
opportunity over the long term an improve the market penetration for the drugs being newly included.
Our Mission and Strategy
Our mission is to become a global leader in the discovery and development of innovative,
molecularly targeted and immuno-oncology drugs for the treatment of cancer. To achieve our mission,
we intend to pursue the following strategies:
(cid:129) Rapidly advance our pipeline programs through global development. In the next 12 months, we
plan to make significant advances within our clinical-stage pipeline. We have initiated global and
China pivotal trials with BGB-3111, and moved our three other clinical-stage drug candidates
into the clinic in China and into the dose-expansion phases of their respective clinical trials in
other parts of the world. We will continue to enroll multiple expansion cohorts and significantly
increase the number of sites globally participating in these trials. We plan to present data from
these trials at medical conferences in 2017. We also have a robust pipeline of preclinical
programs and are planning to advance one or more of these programs into the clinic in the next
12 months.
(cid:129) Pursue global development of combination therapies. We believe our ownership of both
molecularly targeted and immuno-oncology drugs puts us in an advantageous position to develop
potentially best-in-combination or first-in-combination therapies that could produce high rates of
more durable responses in patients. We have four clinical-stage, independently discovered drug
candidates in important and combinable molecularly targeted and immuno-oncology drug classes
including BTK inhibitor, PD-1 inhibitor, PARP inhibitor and RAF dimer inhibitor. We believe
that we are one of only two companies today to wholly own both a clinical-stage BTK inhibitor
for cancer treatment and PD-1 inhibitor and one of the few companies to have discovered, and
advanced to clinical stage, a PARP inhibitor and PD-1 inhibitor or a BRAF inhibitor and PD-1
inhibitor for use as combination therapies. In addition to monotherapy trials, we have initiated
and are planning combination trials using our wholly-owned drug candidates as well as third-
party agents. For BGB-3111, in January 2016 we initiated a combination clinical trial with the
anti-CD20 antibody, obinutuzumab, and the trial is currently in the dose-expansion phase. In
June 2016, we initiated a combination clinical trial with BGB-A317 for the treatment of various
B-cell malignancies. For BGB-290, in February 2016, we initiated a combination clinical trial
with BGB-A317. We plan to present data from these combination trials at medical conferences
in 2017.
(cid:129) Continue to use our cancer biology platform to discover additional candidates with best-in-class
characteristics and potential for use in rational combinations. We plan to use our cancer
biology platform to discover additional drug candidates with the potential to be best-in-class
monotherapies and also important components of multiple-agent combination regimens. In the
last six years, we have been successful in discovering four clinical stage and several promising
preclinical drug candidates. By further investing in and improving our cancer biology platform,
we expect that the platform will continue to help us select relevant drug targets, identify
potential best-in-class drug candidates and develop regimens for rational drug combinations.
(cid:129) Bring transformative oncology therapeutics to our home market in China. We are committed to
addressing the needs of cancer patients in our home market. China is one of the largest and
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fastest growing markets for cancer drugs worldwide, representing approximately 20–25% of the
world’s cancer population and an even greater proportion in lung, liver, and gastric cancers.
Because many global standard-of-care therapies are not currently approved and available in
China, there is a significant unmet need for innovative cancer drugs for patients who are naive
to such treatments. In addition, focusing on cancer types of high prevalence in China will aid
our global development efforts in these indications. We have initiated clinical trials in China for
each of our four clinical-stage drug candidates to develop them through the locally developed,
Category 1 registration pathway. We plan to pursue accelerated development, single-arm
registration studies and brief dose-escalation studies in China. We also strive to have our drug
candidates selected and listed as national priorities. The ability to launch our cancer drugs in our
home market, which has a large patient population, will help us establish broad safety and
efficacy profiles for each drug, enabling us to build a full portfolio for future drug combinations.
(cid:129) Maintain our culture as we grow our business globally. We believe our science-driven,
cooperative and non-hierarchical culture is a key strength of our organization and will continue
to be instrumental to our success. As an innovative biotechnology company with research
facilities in China, we have been able to attract an internationally trained research team. Many
members of our team moved back to China from other countries to join us because they share
our goals of advancing the discovery and development of drugs in China and of working with
Chinese clinicians to treat their patients with innovative and effective drugs not currently
available to them. We intend to maintain our patient-focused and research-driven culture as we
discover and develop new drugs for China and the rest of the world.
(cid:129) Retain the value of our pipeline in our core focus area of oncology. We currently retain all
worldwide development and commercial rights for our BTK, PD-1 and preclinical therapeutics.
In addition, we have limited collaborations with Merck KGaA, Darmstadt Germany on our
BGB-290 and BGB-283 programs. We intend to protect our ability to direct global preclinical
studies and clinical trials for our drug candidates as monotherapies and combination therapies
and to maintain exclusive rights in our home market. However, we may opportunistically
evaluate additional collaboration opportunities that could increase the value of our programs by
accessing the expertise or infrastructure of strategic collaborators or by developing drug
candidates with potential applications outside of our strategic focus on cancer.
Intellectual Property
The proprietary nature of, and protection for, our drug candidates and their methods of use are an
important part of our strategy to develop and commercialize novel medicines, as described in more
detail below. We have obtained a U.S. patent and filed patent applications in the United States and
other countries relating to certain of our drug candidates, and are pursuing additional patent protection
for them and for other of our drug candidates and technologies. We also rely on trade secrets to
protect aspects of our business that are not amenable to, or that we do not consider appropriate for,
patent protection including our manufacturing processes.
Our success will depend significantly on our ability to obtain and maintain patent and other
proprietary protection for our product candidates and other commercially important products,
technologies, inventions and know-how, as well as on our ability to defend and enforce our patents
including any patent that we have or may issue from our patent applications, preserve the
confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and
proprietary rights of other parties. We also rely on know-how, continuing technological innovation and
in-licensing opportunities to develop, strengthen and support our development programs.
As of March 21, 2017, we own eight issued U.S. patents and eight pending U.S. patent applications
as well as corresponding patents and patent applications internationally. In addition, we own 13
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pending international patent applications under the Patent Cooperation Treaty, or PCT, which we plan
to file nationally in the United States and other jurisdictions. With respect to any issued patents in the
United States and Europe, we may be entitled to obtain a patent term extension to extend the patent
expiration date provided we meet the applicable requirements for obtaining such patent term
extensions. For example, in the United States, we can apply for a patent term extension of up to five
years for one of the patents covering a product once the product is approved by the FDA. The exact
duration of the extension depends on the time we spend in clinical studies as well as getting a new
drug application, or NDA, approval from the FDA. The patent portfolios for our four leading product
candidates as of March 21, 2017 are summarized below:
(cid:129) BGB-3111. We own one issued U.S. patent, one pending U.S. patent application, two PCT,
applications, and corresponding patent applications in other jurisdictions directed to BGB-3111,
a small molecule BTK inhibitor, and its use for the treatment of hematological malignancies.
The expected expiration for the issued U.S. patent is 2034, excluding any additional term for
patent term extensions. Any patents that may issue from the currently pending U.S. patent
applications would be expected to expire in 2034, not including any patent term adjustments. If a
U.S. application is filed based on the pending PCT applications, a patent issuing from these
applications, if any, would be expected to expire in 2037. We intend to pursue marketing
exclusivity periods that are available under regulatory provisions in certain countries
(cid:129) BGB-A317. We are the owner of one issued U.S. patent, one pending U.S. application, one
pending PCT application, and corresponding pending patent applications in other jurisdictions
directed to BGB-A317, a humanized monoclonal antibody against PD-1, and its use for the
treatment of cancer. The expected expiration for the issued U.S. patent is 2033, excluding any
additional term for patent term extensions. Any patent that may issue from the currently
pending U.S. patent application would be expected to expire in 2033, not including any patent
term adjustments. If a U.S. application is filed based on the pending PCT application, a patent
issuing from the application, if any, would be expected to expire in 2037. We intend to pursue
marketing exclusivity periods that are available under regulatory provisions in certain countries.
(cid:129) BGB-290. We own one issued U.S. patent, one pending U.S. patent application, and two
pending PCT applications directed to BGB-290, a small molecule PARP1/2 inhibitor, and its use
for the treatment of cancer, including glioblastomas and breast cancer. We also own the
corresponding pending patent applications in other jurisdictions. The expected expiration for the
issued U.S. patent is 2031, excluding any additional term for patent term extensions. Any patent
that may issue from the currently pending U.S. patent application would be expected to expire in
2031, not including any patent term adjustments. If a U.S. application is filed based on the
pending PCT applications, a patent issuing from these applications, if any, would be expected to
expire in 2036 and 2037. We intend to pursue marketing exclusivity periods that are available
under regulatory provisions in certain countries.
(cid:129) BGB-283. We own one issued U.S. patent, one pending U.S. patent application, and two
pending PCT applications directed to BGB-283, a small molecule BRAF inhibitor, and its use
for the treatment of cancer, including BRAF mutated cancers. We also own pending patent
applications in other jurisdictions corresponding to the U.S. patent application. In addition, we
plan to file nationally in the U.S. and other jurisdictions based on the pending PCT application.
The expected expiration for the issued U.S. patent is 2031, excluding any additional term for
patent term extensions. Any patent that may issue from the currently pending U.S. patent
application would be expected to expire in 2031, not including any patent term adjustments. If a
U.S. application is filed based on the pending PCT applications, a patent issuing from these
applications, if any, would be expected to expire in 2036 and 2037. We intend to pursue
marketing exclusivity periods that are available under regulatory provisions in certain countries.
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The term of individual patents may vary based on the countries in which they are obtained. In
most countries in which we file including the United States, the term of an issued patent is generally
20 years from the earliest claimed filing date of a non-provisional patent application in the applicable
country. In the United States, a patent’s term may be lengthened in some cases by a patent term
adjustment, which extends the term of a patent to account for administrative delays by the U.S. Patent
and Trademark Office, or USPTO, in excess of a patent applicant’s own delays during the prosecution
process, or may be shortened if a patent is terminally disclaimed over a commonly owned patent having
an earlier expiration date. In addition, in certain instances, a patent term can be extended to recapture
a portion of the term effectively lost as a result of the FDA regulatory review period. However, the
restoration period cannot be longer than five years and the total patent term including the restoration
period must not exceed 14 years following FDA approval.
In certain foreign jurisdictions similar extensions as compensation for regulatory delays are also
available. The actual protection afforded by a patent varies on a claim by claim and country by country
basis and depends upon many factors, including the type of patent, the scope of its coverage, the
availability of any patent term extensions or adjustments, the availability of legal remedies in a
particular country and the validity and enforceability of the patent.
Furthermore, the patent positions of biotechnology and pharmaceutical products and processes like
those we intend to develop and commercialize are generally uncertain and involve complex legal and
factual questions. No consistent policy regarding the breadth of claims allowed in such patents has
emerged to date in the United States. The scope of patent protection outside the United States is even
more uncertain. Changes in the patent laws or in interpretations of patent laws in the United States
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 intellectual property.
Additionally, we cannot predict the breadth of claims that may be allowed or enforced in our
patents or in patents owned by others. Substantial scientific and commercial research has been
conducted for many years in the areas in which we have focused our development efforts, which has
resulted in other parties having a number of issued patents and pending patent applications relating to
such areas. Patent applications in the United States and elsewhere are generally published only after
18 months from the priority date, and the publication of discoveries in the scientific or patent literature
frequently occurs substantially later than the date on which the underlying discoveries were made.
Therefore, patents and patent applications relating to drugs similar to our current drug candidates and
any future drugs, discoveries or technologies we might develop may have already issued or been filed,
which could prohibit us from commercializing our product candidates. Specifically, we are aware of
certain U.S. patents owned by Ono Pharmaceutical Co. and licensed to Bristol-Myers Squibb Co. that
are relevant to our BGB-A317 drug candidate. We are also aware of a U.S. patent owned by
Pharmacyclics, Inc., which was acquired by AbbVie Inc., that is relevant to our BGB-3111 drug
candidate, and certain U.S. patents owned or licensed by KuDOS Pharmaceuticals, Ltd., which was
acquired by AstraZeneca PLC, that are relevant to our BGB-290 drug candidate. For more
information, see ‘‘Item 1A—Risk Factors—Risks Related to Our Intellectual Property.’’
The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding
patents and other intellectual property rights. Our ability to maintain and solidify our proprietary
position for our drug candidates and technology will depend on our success in obtaining effective
claims and enforcing those claims once granted. We do not know whether any of the patent
applications that we may file or license from others will result in the issuance of any patents. The
issued patents that we own or may receive in the future, may be challenged, invalidated or
circumvented, and the rights granted under any issued patents may not provide us with proprietary
protection or competitive advantages against competitors with similar technology. Furthermore, our
competitors may be able to independently develop and commercialize similar drugs or duplicate our
technology, business model or strategy without infringing our patents. Because of the extensive time
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required for clinical development and regulatory review of a drug we may develop, it is possible that,
before any of our drug candidates can be commercialized, any related patent may expire or remain in
force for only a short period following commercialization, thereby reducing any advantage of any such
patent.
We may rely, in some circumstances, on trade secrets and unpatented know-how to protect aspects
of our technology. However, trade secrets can be difficult to protect. We seek to protect our
proprietary technology and processes, in part, by entering into confidentiality agreements with
consultants, scientific advisors and contractors and invention assignment agreements with our
employees. We also seek to preserve the integrity and confidentiality of our data and trade secrets by
maintaining physical security of our premises and physical and electronic security of our information
technology systems. While we have confidence in these individuals, organizations and systems,
agreements or security measures may be breached and we may not have adequate remedies for any
breach. In addition, our trade secrets may otherwise become known or be independently discovered by
competitors. To the extent that our consultants, contractors or collaborators 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.
Our commercial success will also depend in part on not infringing the proprietary rights of other
parties. The issuance of any patent by others with claims covering or related to aspects of our product
candidates would require us to alter our development or commercial strategies, redesign our drug
candidates or processes, obtain licenses or cease certain activities. Such licenses may not be available
on reasonable commercial terms or at all, which could require us to cease development or
commercialization of our product candidates. In addition, our breach of any license agreements or
failure to obtain a license to proprietary rights that we may require to develop or commercialize our
drug candidates would have a material adverse impact on us. If others have prepared and filed patent
applications in the United States that also claim technology to which we have filed patent applications,
we may have to participate in interference, derivation or other proceedings in the USPTO to determine
issues such as priority of claimed invention or validity of such patent applications as well as our own
patent applications and issued patent.
For more information on these and other risks related to intellectual property, see ‘‘Item 1A—Risk
Factors—Risks Related to Our Intellectual Property.’’
Additionally, we currently use a number of unregistered trademarks and are seeking trademark
protection in jurisdictions where available and appropriate. We currently have applications pending in
China for BeiGene, and our corporate logo.
Competition
Our industry is highly competitive and subject to rapid and significant change. While we believe
that our development and commercialization experience, scientific knowledge and industry relationships
provide us with competitive advantages, we face competition from pharmaceutical, medical device and
biotechnology companies, including specialty pharmaceutical companies, and generic drug companies,
academic institutions, government agencies and research institutions.
BGB-3111 Competition
We are developing BGB-3111, a highly selective small molecule covalent BTK inhibitor, for a
variety of B-cell malignancies, either as a monotherapy or in combination with other therapies.
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Janssen/AbbVie’s ibrutinib (IMBRUVICA) is one of the currently approved drugs used for the
treatment of B-cell malignancies, including patients with MCL who have received at least one prior
therapy, patients with CLL, CLL patients with 17p deletion, and WM. It has also recently been
approved by the FDA for the treatment of patients with relapsed/refractory MZL who require systemic
therapy and have received at least one prior anti-CD20-based therapy.
Multiple ongoing Phase 3 trials are currently being conducted for ibrutinib as a monotherapy or in
combination with chemotherapeutics or target therapeutics in various B-cell malignancies, including
CLL, MCL, WM, FL, DLBCL and MZL. In addition, we are aware of other BTK inhibitors in clinical
development for oncology indications, including AstraZeneca’s acalabrutinib (ACP-196) currently in
Phase 3, Ono/Gilead’s tirabrutinib in Phase 2, Sunesis’ SNS-062 in Phase 1b/2, Merck KGaA,
Darmstadt Germany’s M7583 in Phase 1, and Zhejiang Daoming BioPharma’s DTRMWXHS-12 in
Phase 1.
BGB-A317 Competition
Three anti-PD-1 or PDL1 monoclonal antibody drugs, Merck’s pembrolizumab (Keytruda), Bristol-
Myers Squibb’s nivolumab (Opdivo), and Roche’s atezolizumab (Tecentriq) have been approved by the
FDA.
A number of companies are currently conducting ongoing clinical trials involving an anti-PD-1 or
anti-PD-L1. Three anti-PD-L1 antibody drugs, AstraZeneca/Celgene’s durvalumab and Pfizer/Merck
KGaA, Darmstadt Germany’s avelumab, together with anti-PD-1 antibodies, Merck’s pembrolizumab,
Bristol-Myers Squibb’s nivolumab and Regeneron’s REGN2810, are currently engaged in a number of
Phase 2/3 trials, for treatment of multiple cancers, such as NSCLC, HNSCC, bladder cancer, triple-
negative breast cancer, non-Hodgkin’s lymphoma and melanoma, advanced cutaneous squamous cell
carcinoma. Several new anti-PD-1 antibodies have started Phase 1/2 trials, including AstraZeneca’s
MEDI0680, and Novartis’ PDR001, Tesaro’s TSR042 and Incyte / Hengrui’s SHR-1210. In China,
anti-PD-1 antibody SHR-1210 from Jiangsu Hengrui is in Phase 2/3 monotherapy trial in hepatocellular
carcinoma and several Phase 1/2 studies in solid tumors such as melanoma as well as ongoing Phase 1/2
combination trial with apatinib for hepatocellular carcinoma and gastric cancer. Other anti-PD-1
antibodies in clinical development by a domestic company include Junshi’s JS001 and Innovent Bio’s
IBI308 and are undergoing multiple Phase 1 studies in solid tumors in China.
Many of our competitors have significantly greater financial, technical and human resources than
we have. Mergers and acquisitions in the pharmaceutical, medical device and biotechnology industries
may result in even more resources being concentrated among a smaller number of our competitors.
Our commercial opportunity could be reduced or eliminated if our competitors develop or market
products or other novel therapies that are more effective, safer or less costly than our current or future
drug candidates, or obtain regulatory approval for their products more rapidly than we may obtain
approval for our drug candidates. Our success will be based in part on our ability to identify, develop
and manage a portfolio of drug candidates that are safer and more effective than competing products.
BGB-290 Competition
AstraZeneca’s olaparib (LYNPARZA) is approved by the FDA for treating patients with
deleterious or suspected deleterious germline BRCA mutated, or gBRCAm advanced ovarian cancer
who have been treated with three or more prior lines of chemotherapy or a combination of
chemotherapies. It is approved by the EMA as a maintenance treatment for patients with platinum-
sensitive relapsed BRCA-mutated, germline and/or somatic, high grade serous epithelial ovarian,
fallopian tube, or primary peritoneal cancer who are in CR or PR to platinum-based chemotherapy. In
addition, the FDA recently approved Clovis’ rucaparib (RUBRACA) for treatment of patients with
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deleterious BRCA mutation, germline and/or somatic, associated advanced ovarian cancer who have
been treated with two or more chemotherapies.
There are a number of companies with ongoing clinical trials, including AstraZeneca, Abbott,
Tesaro and Pfizer. AstraZeneca’s olaparib has been approved in gBRCAm ovarian cancer and is
currently in Phase 3 trials for treatment of gBRCAm breast cancer, gastric cancer, gBRCAm pancreatic
cancer and other cancers with sBRCAm or homologous recombinant repair associated genetic
mutations. Clovis Oncology’s rucaparib is currently in Phase 3 trials as a maintenance treatment in
patients with platinum-sensitive, high-grade serous or endometrioid epithelial ovarian, primary
peritoneal or fallopian tube cancer and as a second line treatment in patients with metastatic
castration-resistant prostate cancer and homologous recombination gene deficiency. In November 2016,
Tesaro submitted a NDA to the FDA for niraparib as a second-line maintenance therapy in patients
with ovarian cancer. Niraparib also is currently in Phase 3 trials as a first-line maintenance treatment in
patients with ovarian cancer with homologous recombination gene deficiency following response on
front-line platinum-based chemotherapy and gBRCAm breast cancer. Pfizer’s talazoparib is currently in
Phase 3 trials for BRCAm breast cancer. Abbott’s veliparib, in combination with other compound(s), is
currently in Phase 3 trials for treatment of non-small-cell lung cancer, breast, ovarian cancers and
glioblastoma multiforme. In China, PARP inhibitors in Phase 1 trials by domestic companies include
Jiangsu Hansoh’s fluzoparib and Jiangxi Qingfeng’s SC10914.
BGB-283 Competition
We are developing BGB-283 as either a monotherapy or in combination with other cancer
therapies for the treatment of cancers with aberrations in the MAPK pathway including BRAF
mutations and KRAS/NRAS mutations.
Roche’s vemurafenib (Zelboraf) and Novartis’ dabrafenib (Tafinlar) are two of the currently
approved BRAF inhibitors for treating late-stage BRAF V600E/K mutant melanoma. In addition, the
combination of dabrafenib and GSK’s trametinib (Mekinist), an MEK inhibitor, is approved in patients
with BRAF V600E/K mutation-positive metastatic melanoma. We are aware of several other BRAF
inhibitors in clinical development targeting BRAF V600E/K mutated cancers including melanoma,
NSCLC, HCL and thyroid cancer. These BRAF inhibitors include Array Biopharma’s encorafenib
(LGX818), currently in Phase 3 trials, and Takeda’s MLN-2480 (BIIB-024), Daiichi Sankyo’s PLX-8394,
and Roche’s RG-6185, all in Phase 1 trials.
Government Regulation
Government authorities in the United States at the federal, state and local level and in other
countries extensively regulate, among other things, the research and clinical development, testing,
manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion,
advertising, distribution, post-approval monitoring and reporting, marketing, pricing and export and
import of drug products, such as those we are developing. Generally, before a new drug can be
marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized
into a format specific to each regulatory authority, submitted for review and approved by the regulatory
authority.
Drugs are also subject to other federal, state and local statutes and regulations. The process of
obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and
foreign statutes and regulations require the expenditure of substantial time and financial resources.
Failure to comply with the applicable regulatory requirements at any time during the product
development process, approval process or after approval, may subject an applicant to administrative or
judicial sanctions. These sanctions could include, among other actions, the regulatory authority’s refusal
to approve pending applications, withdrawal of an approval, clinical holds, untitled or warning letters,
48
voluntary product recalls or withdrawals from the market, product seizures, total or partial suspension
of production or distribution injunctions, debarment, fines, refusals of government contracts, restitution,
disgorgement, or civil or criminal penalties. Any agency or judicial enforcement action could have a
material adverse effect on us.
U.S. Regulation
U.S. Government Regulation and Product Approval
Government authorities in the United States at the federal, state and local level extensively
regulate, among other things, the research, development, testing, manufacture, quality control, approval,
labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing, export and
import of drug and biological products such as those we are developing. In the United States, the FDA
regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing
regulations, and biologics under the FDCA, its implementing regulations, and the Public Health Service
Act, or PHSA, and its implementing regulations.
U.S. Drug Development Process
The process of obtaining regulatory approvals and compliance with appropriate federal, state, local
and foreign statutes and regulations require the expenditure of substantial time and financial resources.
Failure to comply with the applicable U.S. requirements at any time during the product development
process, approval process, or after approval, may subject an applicant to administrative or judicial
sanctions. These sanctions could include the FDA’s refusal to approve pending applications, withdrawal
of an approval, a clinical hold, untitled or warning letters, product recalls, product seizures, total or
partial suspension of production or distribution, injunctions, fines, refusals of government contracts,
restitution, disgorgement or civil or criminal penalties. The process required by the FDA before a drug
or biologic may be marketed in the United States generally involves the following:
(cid:129) completion of preclinical laboratory tests, animal studies and formulation studies according to
Good Laboratory Practices, or GLP, and current Good Manufacture Practice , or GMP,
regulations;
(cid:129) submission to the FDA of an IND application, which must become effective before human
clinical trials may begin;
(cid:129) performance of adequate and well-controlled human clinical trials according to Good Clinical
Practice, or GCP, to establish the safety and efficacy of the proposed product for its intended
use;
(cid:129) preparation and submission to the FDA of a NDA for a drug, or a Biologics License
Application, or BLA, for a biologic;
(cid:129) a determination by the FDA within 60 days of its receipt of a NDA or BLA to file the
application for review;
(cid:129) satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which
the product, or components thereof, are produced to assess compliance with current Good
Manufacturing Practices, or cGMP;
(cid:129) FDA audits of some clinical trial sites to ensure compliance with GCPs; and
(cid:129) FDA review and approval of the NDA or licensing of the BLA.
The testing and approval process requires substantial time, effort and financial resources and we
cannot be certain that any approvals for our drug candidates will be granted on a timely basis, if at all.
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Once a pharmaceutical product drug is identified for development, it enters the preclinical testing
stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity, formulation and
stability, as well as animal studies. An IND sponsor must submit the results of the preclinical tests,
together with manufacturing information, analytical data and any available clinical data or literature, to
the FDA as part of the IND. The sponsor must also include a protocol detailing, among other things,
the objectives of the initial clinical trial, the parameters to be used in monitoring safety and the
effectiveness criteria to be evaluated if the initial clinical trial lends itself to an efficacy evaluation.
Some preclinical testing may continue even after the IND is submitted. The IND automatically
becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions
related to a proposed clinical trial and places the trial on a clinical hold within that 30-day time period.
In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the
clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during
clinical trials due to safety concerns or noncompliance, and may be imposed on all products within a
certain class of products. The FDA also can impose partial clinical holds, for example, prohibiting the
initiation of clinical trials of a certain duration or for a certain dose.
All clinical trials must be conducted under the supervision of one or more qualified investigators in
accordance with GCP regulations. These regulations include the requirement that all research subjects
provide informed consent in writing before their participation in any clinical trial. Further, an
Institutional Review Board, or IRB, must review and approve the plan for any clinical trial before it
commences at any institution, and the IRB must conduct continuing review and reapprove the study at
least annually. An IRB considers, among other things, whether the risks to individuals participating in
the clinical trial are minimized and are reasonable in relation to anticipated benefits. The IRB also
approves the information regarding the clinical trial and the consent form that must be provided to
each clinical trial subject or his or her legal representative and must monitor the clinical trial until
completed.
Each new clinical protocol and any amendments to the protocol must be filed with the FDA as an
IND amendment, and to the IRBs for approval. Protocols detail, among other things, the objectives of
the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be
used to monitor subject safety.
Human clinical trials are typically conducted in three sequential phases that may overlap or be
combined:
(cid:129) Phase 1. The product is initially introduced into a small number of healthy human subjects or
patients and tested for safety, dosage tolerance, absorption, metabolism, distribution and
excretion and, if possible, to gain early evidence on effectiveness. In the case of some products
for severe or life-threatening diseases, especially when the product is suspected or known to be
unavoidably toxic, the initial human testing may be conducted in patients.
(cid:129) Phase 2. Involves clinical trials in a limited patient population 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 and schedule.
(cid:129) Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in
an expanded patient population at geographically dispersed clinical trial sites. These clinical
trials are intended to establish the overall risk/benefit relationship of the product and provide an
adequate basis for product labelling.
We refer to our Phase 1 program as dose-escalation and dose-expansion trials.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the
FDA and safety reports must be submitted to the FDA and the investigators for serious and
unexpected suspected AEs, any clinically important increase in the rate of a serious suspected adverse
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reaction over that listed in the protocol or investigator’s brochure, or any findings from other studies or
animal or in vitro testing that suggest a significant risk in humans exposed to the product drug. Phase 1,
Phase 2 and Phase 3 studies may not be completed successfully within any specified period, if at all.
The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds,
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 has
been associated with unexpected serious harm to subjects.
Concurrent with clinical trials, companies usually complete additional animal studies and must also
develop additional information about the chemistry and physical characteristics of the product and
finalize a process for manufacturing the product in commercial quantities in accordance with cGMP
requirements. The manufacturing process must be capable of consistently producing quality batches of
the product drug and, among other things, the manufacturer must develop methods for testing the
identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be
selected and tested and stability studies must be conducted to demonstrate that the product drug does
not undergo unacceptable deterioration over its shelf life.
U.S. Review and Approval Processes
The results of product development, preclinical studies and clinical trials, along with descriptions of
the manufacturing process, analytical tests conducted on the product, proposed labeling and other
relevant information, are submitted to the FDA as part of an NDA for a new drug or a BLA for a
biologic, requesting approval to market the product. The submission of an NDA or BLA is subject to
the payment of a substantial user fee; although a waiver of such fee may be obtained under certain
limited circumstances. For example, the agency will waive the application fee for the first human drug
application that a small business or its affiliate submits for review. The sponsor of an approved NDA or
BLA is also subject to annual product and establishment user fees.
The FDA reviews all NDAs and BLAs submitted to ensure that they are sufficiently complete for
substantive review before it accepts them for filing. The FDA may request additional information
rather than accept an NDA or BLA for filing. In this event, the NDA or BLA must be re-submitted
with the additional information. The re-submitted 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. The FDA reviews an NDA to determine, among other things, whether a product is safe and
effective for its intended use, and a BLA to determine whether the biologic is safe, pure, and potent
for its intended use. The FDA also evaluates whether the product’s manufacturing is cGMP-compliant
to assure the product’s identity, strength, quality and purity. Before approving an NDA or BLA, the
FDA typically will inspect the facility or facilities where the product is or will be manufactured. The
FDA will not approve an application unless it determines that the manufacturing processes and
facilities are in compliance with cGMP requirements and adequate to assure consistent production of
the product within required specifications. The FDA may refer the NDA or BLA to an advisory
committee for review, evaluation and recommendation as to whether the application should be
approved and under what conditions. An advisory committee is a panel of experts, including clinicians
and other scientific experts, who provide advice and recommendations when requested by the FDA.
The FDA is not bound by the recommendation of an advisory committee, but it considers such
recommendations when making decisions.
The approval process is lengthy and difficult and the FDA may refuse to approve an NDA or BLA
if the applicable regulatory criteria are not satisfied or may require additional clinical data or other
data and information. Even if such data and information are submitted, the FDA may ultimately decide
that the NDA or BLA does not satisfy the criteria for approval. Data obtained from clinical trials are
not always conclusive, and the FDA may interpret data differently than we interpret the same data. The
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FDA will issue a complete response letter if the agency decides not to approve the NDA or BLA in its
present form. The complete response letter usually describes all of the specific deficiencies that the
FDA identified in the NDA or BLA that must be satisfactorily addressed before it can be approved.
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 may either resubmit the NDA or BLA, addressing
all of the deficiencies identified in the letter, or withdraw the application or request an opportunity for
a hearing.
If a product receives regulatory approval, the approval may be significantly limited to specific
diseases 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. In addition, the FDA may require
post-approval studies, including Phase 4 clinical trials, to further assess a product’s safety and
effectiveness after NDA or BLA approval and may require testing and surveillance programs to
monitor the safety of approved products that have been commercialized. The FDA could also approve
the NDA or BLA with a Risk Evaluation and Mitigation Strategy plan to mitigate risks, which could
include medication guides, physician communication plans, or elements to assure safe use, such as
restricted distribution methods, patient registries and other risk minimization tools.
Regulation of Combination Products in the United States
Certain products may be comprised of components that would normally be regulated under
different types of regulatory authorities, and frequently by different centers at the FDA. These products
are known as combination products. Specifically, under regulations issued by the FDA, a combination
product may be:
(cid:129) a product comprised of two or more regulated components that are physically, chemically, or
otherwise combined or mixed and produced as a single entity;
(cid:129) two or more separate products packaged together in a single package or as a unit and comprised
of drug and device products, device and biological products, or biological and drug products;
(cid:129) a drug, device, or biological product packaged separately that according to its investigational
plan or proposed labeling is intended for use only with an approved individually specified drug,
device, or biological product where both are required to achieve the intended use, indication, or
effect and where upon approval of the proposed product the labeling of the approved product
would need to be changed, e.g., to reflect a change in intended use, dosage form, strength, route
of administration, or significant change in dose; or
(cid:129) any investigational drug, device, or biological product packaged separately that according to its
proposed labeling is for use only with another individually specified investigational drug, device,
or biological product where both are required to achieve the intended use, indication, or effect.
Under the FDCA, the FDA is charged with assigning a center with primary jurisdiction, or a lead
center, for review of a combination product. That determination is based on the ‘‘primary mode of
action’’ of the combination product. Thus, if the primary mode of action of a device-drug combination
product is attributable to the drug product, the FDA center responsible for premarket review of the
drug product would have primary jurisdiction for the combination product. The FDA has also
established an Office of Combination Products to address issues surrounding combination products and
provide more certainty to the regulatory review process. That office serves as a focal point for
combination product issues for agency reviewers and industry. It is also responsible for developing
guidance and regulations to clarify the regulation of combination products, and for assignment of the
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FDA center that has primary jurisdiction for review of combination products where the jurisdiction is
unclear or in dispute.
Expedited Programs
Fast Track Designation
The FDA has a Fast Track program that is intended to expedite or facilitate the process for
reviewing new drugs, including biologics that meet certain criteria. Specifically, new drugs are eligible
for Fast Track designation if they are intended to treat a serious or life-threatening disease or condition
for which there is no effective treatment and demonstrate the potential to address unmet medical
needs for the condition. Fast Track designation applies to the combination of the product and the
specific indication for which it is being studied. The sponsor of a new drug may request the FDA to
designate the drug as a Fast Track product concurrently with, or at any time after, submission of an
IND, and the FDA must determine if the drug candidate qualifies for fast track designation within
60 days of receipt of the sponsor’s request.
In addition to other benefits, such as the ability to engage in more frequent interactions with the
FDA, the FDA may initiate review of sections of a Fast Track drug’s NDA or BLA before the
application is complete. This rolling review is available if the applicant provides, and the FDA
approves, a schedule for the submission of each portion of the NDA or BLA and the applicant pays
applicable user fees. However, the FDA’s time period goal for reviewing an application does not begin
until the last section of the NDA or BLA is submitted. Additionally, the Fast Track designation may be
withdrawn by the FDA if the FDA believes that the designation is no longer supported by data
emerging in the clinical trial process.
Accelerated Approval
Under FDA’s accelerated approval regulations, the FDA may approve a drug, including a biologic,
for a serious or life-threatening illness that provides meaningful therapeutic benefit to patients over
existing treatments based upon 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, that is
reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit,
taking into account the severity, rarity, or prevalence of the condition and the availability or lack of
alternative treatments. In clinical trials, a surrogate endpoint is a marker, such as a measurement of
laboratory or clinical signs of a disease or condition that is thought to predict clinical benefit, but is not
itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more
rapidly than clinical endpoints. A drug candidate approved on this basis is subject to rigorous
post-marketing compliance requirements, including the completion of post-approval clinical trials
sometimes referred to as Phase 4 trials to confirm the effect on the clinical endpoint. Failure to
conduct required post-approval studies, or to confirm a clinical benefit during post-marketing studies,
will allow the FDA to withdraw the drug from the market on an expedited basis. All promotional
materials for drug candidates approved under accelerated regulations are subject to prior review by the
FDA.
Breakthrough Designation
The Food and Drug Administration Safety and Innovation Act, or FDASIA, amended the FDCA
to require the FDA to expedite the development and review of a breakthrough therapy. A drug or
biologic product can be designated as a breakthrough therapy if it is intended to treat a serious or
life-threatening disease or condition and preliminary clinical evidence indicates that it may demonstrate
substantial improvement over existing therapies on one or more clinically significant endpoints. A
sponsor may request that a product be designated as a breakthrough therapy concurrently with, or at
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any time after, the submission of an IND, and the FDA must determine if the candidate qualifies for
breakthrough therapy designation within 60 days of receipt of the sponsor’s request. If so designated,
the FDA shall act to expedite the development and review of the product’s marketing application,
including by meeting with the sponsor throughout the product’s development, providing timely advice
to the sponsor to ensure that the development program to gather preclinical and clinical data is as
efficient as practicable, involving senior managers and experienced review staff in a cross-disciplinary
review, assigning a cross-disciplinary project lead for the FDA review team to facilitate an efficient
review of the development program and to serve as a scientific liaison between the review team and the
sponsor, and taking steps to ensure that the design of the clinical trials is as efficient as practicable.
Priority Review
Based on results of the Phase 3 clinical trial(s) submitted in an NDA or BLA, upon the request of
an applicant, the FDA may grant the NDA for a new molecular entity or BLA a priority review
designation, which sets the target date for FDA action on the application at six months after the FDA
accepts the application for filing. Priority review is granted where there is evidence that the proposed
product would be a significant improvement in the safety or effectiveness of the treatment, diagnosis,
or prevention of a serious condition. If criteria are not met for priority review, the application is subject
to the standard FDA review period of ten months after FDA accepts the application for filing. Priority
review designation does not change the scientific/medical standard for approval or the quality of
evidence necessary to support approval.
Post-Approval Requirements
Any products for which we receive FDA approval are subject to continuing regulation by the FDA,
including, among other things, record-keeping requirements, reporting of adverse experiences with the
product, providing the FDA with updated safety and efficacy information, product sampling and
distribution requirements, complying with certain electronic records and signature requirements and
complying with FDA promotion and advertising requirements. Moreover, each component of a
combination product retains their regulatory status (as a drug or biologic, for example) and is subject
to the requirements established by the FDA for that type of component. The FDA strictly regulates
labeling, advertising, promotion and other types of information on products that are placed on the
market. Products may be promoted only for the approved indications and in accordance with the
provisions of the approved label. Further, manufacturers must continue to comply with cGMP
requirements, which are extensive and require considerable time, resources and ongoing investment to
ensure compliance. In addition, changes to the manufacturing process generally require prior FDA
approval before being implemented and other types of changes to the approved product, such as adding
new indications and additional labeling claims, are also subject to further FDA review and approval.
Manufacturers and other entities involved in the manufacturing and distribution of approved
products are required to register their establishments with the FDA and certain state agencies, and are
subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with
cGMP and other laws. The cGMP requirements apply to all stages of the manufacturing process,
including the production, processing, sterilization, packaging, labeling, storage and shipment of the
product. Manufacturers must establish validated systems to ensure that products meet specifications
and regulatory requirements, and test each product batch or lot prior to its release. We rely, and expect
to continue to rely, on third parties for the production of clinical quantities of our drug candidates.
Future FDA and state inspections may identify compliance issues at the facilities of our contract
manufacturers that may disrupt production or distribution or may require substantial resources to
correct.
The FDA may withdraw a product approval or revoke a biologics license if compliance with
regulatory requirements is not maintained or if problems occur after the product reaches the market.
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Later discovery of previously unknown problems with a product may result in restrictions on the
product or even complete withdrawal of the product from the market. Further, the failure to maintain
compliance with regulatory requirements may result in administrative or judicial actions, such as fines,
untitled or warning letters, holds on clinical trials, product recalls or seizures, product detention or
refusal to permit the import or export of products, refusal to approve pending applications or
supplements, restrictions on marketing or manufacturing, injunctions or civil or criminal penalties.
From time to time, legislation is drafted, introduced and passed in Congress that could significantly
change the statutory provisions governing the approval, manufacturing and marketing of products
regulated by the FDA. In addition to new legislation, FDA regulations and policies are often revised or
reinterpreted by the agency in ways that may significantly affect our business and our drug candidates.
It is impossible to predict whether further legislative or FDA regulation or policy changes will be
enacted or implemented and what the impact of such changes, if any, may be.
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 Amendments. The Hatch-Waxman Amendments permit 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 14 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 and the submission date of an NDA or BLA plus the
time between the submission date of an NDA or BLA 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 or BLA; however, there can be no
assurance that any such extension will be granted to us.
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 United States 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 abbreviated new drug application,
or 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
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of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to
demonstrate safety and effectiveness.
Pediatric exclusivity is another type of exclusivity in the United States. Pediatric exclusivity, if
granted, provides an additional six months of exclusivity, which runs from the end of other exclusivity
or patent period. Pediatric exclusivity may be granted based on the voluntary completion of a pediatric
clinical trial in accordance with an FDA-issued ‘‘Written Request’’ for such a clinical trial.
Biosimilars and Exclusivity
The Patient Protection and Affordable Care Act, or ACA signed into law on March 23, 2010,
includes a subtitle called the Biologics Price Competition and Innovation Act of 2009 which created an
abbreviated approval pathway for biological products shown to be similar to, or interchangeable with,
an FDA-licensed reference biological product. This amendment to the PHSA attempts to minimize
duplicative testing. Biosimilarity, which requires that there be no clinically meaningful differences
between the biological product and the reference product in terms of safety, purity, and potency, can
be shown through analytical studies, animal studies, and a clinical trial or trials. Interchangeability
requires that a product is biosimilar to the reference product and the product must demonstrate that it
can be expected to produce the same clinical results as the reference product and, for products
administered multiple times, the biologic and the reference biologic may be switched after one has
been previously administered without increasing safety risks or risks of diminished efficacy relative to
exclusive use of the reference biologic.
A reference biologic is granted twelve years of exclusivity from the time of first licensure of the
reference product. The first biologic product submitted under the abbreviated approval pathway that is
determined to be interchangeable with the reference product has exclusivity against other biologics
submitting under the abbreviated approval pathway for the lesser of (i) one year after the first
commercial marketing, (ii) 18 months after approval if there is no legal challenge, (iii) 18 months after
the resolution in the applicant’s favor of a lawsuit challenging the biologic’s patents if an application
has been submitted, or (iv) 42 months after the application has been approved if a lawsuit is ongoing
within the 42-month period.
Orphan Drugs
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs, including
biologics, intended to treat a rare disease or condition—generally a disease or condition that affects
fewer than 200,000 individuals in the United States or that affects more than 200,000 individuals in the
United States and for which there is no reasonable expectation that costs of research and development
of the product for the indication can be recovered by sales of the product in the United States. Orphan
drug designation must be requested before submitting an NDA or BLA.
After the FDA grants orphan drug designation, the generic identity of the drug or biologic 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. The first NDA or
BLA applicant to receive FDA approval for a particular active ingredient to treat a particular disease
or condition with FDA orphan drug designation is entitled to a seven-year exclusive marketing period
in the United States for that product, for that indication. Among the other benefits of orphan drug
designation are tax credits for certain research and a waiver of the NDA or BLA application user fee.
During the exclusivity period, the FDA may not approve any other applications to market the
same drug for the same disease or condition, except in limited circumstances, such as if the second
applicant demonstrates the clinical superiority of its product to the product with orphan drug exclusivity
through a demonstration of superior safety, superior efficacy, or a major contribution to patient care.
‘‘Same drug’’ means a drug that contains the same active moiety if it is a drug composed of small
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molecules, or the same principal molecular structural features if it is composed of macromolecules and
is intended for the same use as a previously approved drug, except that if the subsequent drug can be
shown to be clinically superior to the first drug, it will not be considered to be the same drug. Orphan
drug exclusivity does not prevent the FDA from approving a different drug for the same disease or
condition, or the same drug for a different disease or condition.
Pediatric Information
Under the Pediatric Research Equity Act of 2003, as amended, NDAs, BLAs or supplements must
contain data adequate to assess the safety and effectiveness of the product for the claimed indications
in all relevant pediatric subpopulations and to support dosing and administration for each pediatric
subpopulation for which the product is safe and effective. The FDASIA amended the FDCA to require
that a sponsor who is planning to submit a marketing application for a product that includes a new
active ingredient, new indication, new dosage form, new dosing regimen or new route of administration
submit an initial Pediatric Study Plan, or PSP, within 60 days of an end-of-Phase 2 meeting or as may
be agreed between the sponsor and the FDA. The initial PSP must include an outline of the pediatric
study or studies that the sponsor plans to conduct, including study objectives and design, age groups,
relevant endpoints and statistical approach, or a justification for not including such detailed
information, and any request for a deferral of pediatric assessments or a full or partial waiver of the
requirement to provide data from pediatric studies along with supporting information. The FDA may,
on its own initiative or at the request of the applicant, grant deferrals for submission of data or full or
partial waivers. The FDA and the sponsor must reach agreement on the PSP. A sponsor can submit
amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be
considered based on data collected from preclinical studies, early phase clinical trials, and/or other
clinical development programs.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA-regulated products, including drugs and biologics, 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 until the new product or new indication being
studied has been approved. Competitors may use this publicly available information to gain knowledge
regarding the progress of development programs.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any products for
which we may obtain regulatory approval. In the United States, sales of any products for which we may
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, managed
care providers, private health insurers and other organizations. The process for determining whether a
payor will provide coverage for a product may be 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 which might not include all of the FDA-approved products for a
particular indication. Moreover, a payor’s decision to provide coverage for a product does not imply
that an adequate reimbursement rate will be approved. 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.
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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
the product after approval 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. For example, the ACA, as amended by the Health Care and Education
Reconciliation Act of 2010, collectively, the ACA, contains provisions that may reduce the profitability
of drug products, including, for example, increased rebates for drugs reimbursed by Medicaid programs,
extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain
Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to
federal health care programs. Adoption of government controls and measures, and tightening of
restrictive policies in jurisdictions with existing controls and measures, could 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. In addition, an increasing emphasis on cost containment measures in the United States
has increased and we expect will continue to increase the pressure on pharmaceutical pricing. 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.
Other Healthcare Laws and Compliance Requirements
If we obtain regulatory approval of our products, we may be 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, marketing and education 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:
(cid:129) the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly
and willfully soliciting, receiving, offering or paying remuneration, 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;
(cid:129) 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 from 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 to the federal government;
(cid:129) the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which
created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare
benefit program and making false statements relating to healthcare matters;
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(cid:129) the federal transparency laws, including the federal Physician Payment Sunshine Act, which is
part of the ACA, that requires applicable manufacturers of covered drugs and biologics to
disclose payments and other transfers of value provided to physicians and teaching hospitals and
physician ownership and investment interests;
(cid:129) 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
(cid:129) 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, 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 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 off-label promotion of drugs. Penalties for a False Claims Act
violation include three times the actual damages sustained by the government, plus mandatory civil
penalties of between $10,781 and $21,563 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.
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Patient Protection and Affordable Care Act
In March 2010, the ACA was enacted, which includes measures that have or will significantly
change the way health care is financed by both governmental and private insurers. Among the
provisions of the ACA of greatest importance to the pharmaceutical industry are the following:
(cid:129) 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. The 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 and by expanding the
population potentially eligible for Medicaid drug benefits. 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 Centers for Medicare & Medicaid Services,
or CMS, may also provide for the public availability of pharmacy acquisition of cost data, which
could negatively impact our sales.
(cid:129) 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. 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. In
addition, as 340B drug pricing is determined based on AMP and Medicaid rebate data, the
revisions to the Medicaid rebate formula and AMP definition described above could cause the
required 340B discount to increase.
(cid:129) The ACA imposed a requirement on manufacturers of branded drugs to provide a 50% discount
off the negotiated price of branded drugs dispensed to Medicare Part D patients in the coverage
gap (i.e., the ‘‘donut hole’’).
(cid:129) 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.
(cid:129) The ACA required pharmaceutical and biologics manufacturers to track certain financial
arrangements with physicians and teaching hospitals, including any ‘‘transfer of value’’ made or
distributed to such entities, as well as any investment interests held by physicians and their
immediate family members. Manufacturers report this information to CMS annually. The
reported information is publicly available in a searchable format on a CMS website.
(cid:129) A new Patient-Centered Outcomes Research Institute was established pursuant to the ACA to
oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with
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funding for such research. The research conducted by the Patient-Centered Outcomes Research
Institute may affect the market for certain pharmaceutical products.
(cid:129) The ACA created the Independent Payment Advisory Board which, if impaneled, has authority
to recommend certain changes to the Medicare program to reduce expenditures by the program
that 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.
(cid:129) The ACA established the Center for Medicare and Medicaid Innovation within Center for
Madicare and Medicaid Services, or 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.
Since its enactment, there have been judicial and Congressional challenges to numerous aspects of
the ACA. In January, Congress voted to adopt a budget resolution for fiscal year 2017 that, while not a
law, is widely viewed as the first step toward the passage of legislation to repeal the ACA. Further, on
January 20, 2017, President Trump signed an Executive Order directing federal agencies with
authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the
implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states,
individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical
devices. Congress also could consider subsequent legislation to replace elements of the ACA that are
repealed. We cannot predict how the ACA, its possible repeal, any legislation that may be proposed to
replace the ACA, or the political uncertainty surrounding any repeal or replacement legislation will
affect our business.
PRC Regulation
In the PRC, we operate in an increasingly complex legal and regulatory environment. We are
subject to a variety of PRC laws, rules and regulations affecting many aspects of our business. This
section summarizes the principal PRC laws, rules and regulations relevant to our business and
operations.
General Regulations on China Food and Drug Administration
In the PRC, the CFDA monitors and supervises the administration of pharmaceutical products, as
well as medical devices and equipment. The CFDA’s primary responsibility includes evaluating,
registering and approving new drugs, generic drugs, imported drugs and traditional Chinese medicines;
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 food, cosmetics and 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 PRC Drug Administration Law promulgated by the Standing Committee of the National
People’s Congress in 1984 and the Implementing Measures of the PRC 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 PRC Drug Administration Law was revised in December 2001, April 2015, and most recently
in January 2017. The purpose of the revisions in 2015 was to strengthen the supervision and
administration of pharmaceutical products and to ensure the quality and safety of those products for
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human use. The revised PRC 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 advertising of pharmaceutical products. The amendment of PRC Drug Administration Law
in January 2017 removed the preview procedure at the provincial level for qualification approval of
drug clinical trial institutions. Revised Implementing Measures of the PRC Drug Administration Law
promulgated by the State Council took effect in September 2002 and was most recently amended in
February 2016, providing detailed implementing regulations for the revised PRC Drug Administration
Law. The Revised Implementing Measures removed the obtainment of Drug Manufacturing License or
a Drug Distribution License as a precondition for incorporation of a drug manufacturer or a drug
distributor, in order to simplify the business administration process for drug companies.
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 CFDA promulgated the Administrative
Measures for Good Laboratories Practice of Preclinical Laboratory in 2003 and began to conduct the
certification program of GLP. In April 2007, the CFDA issued the Circular on Measures for
Certification of Good Laboratory Practice, or CFDA Circular 214, providing that the CFDA is
responsible for certification of preclinical research institutions. Under CFDA Circular 214, the CFDA
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 CFDA and the result will be published on the
CFDA’s website.
Currently for all our ongoing projects, we cooperated with CFDA certified GLP laboratories
operated by Wuxi AppTec (Suzhou) Co., Ltd. and JOINN Laboratories (Beijing) to conduct the studies
following GLP based on CFDA requirements.
Approval for Clinical Trials and Production of New Drugs
According to the Provisions for Drug Registration promulgated by the CFDA in 2007, Drug
Administration Law promulgated and amended by the Standing Committee of the National People’s
Congress in 2015, Circular on Regulations for Special Approval on New Drug Registration issued by
the CFDA in 2009, and Circular on Information Publish Platform for Pharmaceutical Clinical Trials
issued by the CFDA 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 sponsor must apply for approval of a Clinical Trial
Application before conducting clinical trials.
Special Examination and Approval for Domestic Category 1 Pharmaceutical Products
Domestic Category 1 New Drugs Are Eligible for Special Examination and Approval
According to Provisions for Drug Registration promulgated by the CFDA in 2007, drug registration
applications are divided into three different types, namely Domestic NDA, 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. A Category 1 drug is a new
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drug that has never been marketed in any country. All of our clinical-stage drug candidates qualify as
domestic Category 1 new drugs.
According to Provisions on the Administration of Special Examination and Approval of
Registration of New Drugs, or the Special Examination and Approval Provisions promulgated by the
CFDA in January 2009, the CFDA conducts special examination and approval for new drugs
registration application when:
(1) the chemical raw material medicines as well as the preparations and biological products
thereof haven’t been approved for marketing home and abroad;
(2) the new drugs are for treating AIDS, malignant tumors and rare diseases, etc., and have
obvious advantages in clinic treatment; or
(3) 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
item (1). The provisions provide that for drug candidates that fall within items (2) or (3), the
application for special examination and approval must be made when filing for production.
We believe that BGB-3111, BGB-A317, BGB 290 and BGB-283 fall within items (1) and
(2) above. Therefore, we may file an application for special examination and approval at the Clinical
Trial Application 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 Imported Drugs
Imported drugs are drugs manufactured outside China. Drugs which have already been marketed
abroad by multinational companies, but are not yet approved in China are required to follow the
process applicable to imported drugs in registration. Compared with the application for imported drugs,
the application for Category 1 domestic new drugs has a more straight-forward registration pathway.
According to Provisions for Drug Registration, 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 Center for Drug Evaluation of the CFDA, or 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. According to the Administrative Measures on Communications for
Drug Development and Technical Evaluation issued by CFDA in June 2016, when an application for
communication is approved, the CDE will arrange the communication with the applicant within 30 to
60 days, depending on the subject matter of such communication.
In comparison, according to Provisions for Drug Registration, the registration pathway for
imported drugs is complicated and evolving. Imported drug applications may only 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 MRCTs, which
means that companies do not have the flexibility to design the clinical trials to fit the Chinese patients
and standard-of-care. Imported drug candidates under Category 5 cannot qualify for the national
priority list to benefit from fast track reviews. Moreover, a requirement to further conduct local clinical
trials can potentially delay market access by several years from its international NDA approval.
Our drug candidates are all new therapeutic agents and the registration applications for all four of
them are filed under Category 1. The CFDA has approved our Clinical Trial Applications for all four
of our drug candidates, i.e. BGB-3111, BGB-A317, BGB-283, and BGB-290, including all phases of
their clinical trials.
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Changes to the Review and Approval Process
In August 2015, the Chinese State Council issued a statement, Opinions on reforming the review and
approval process for pharmaceutical products and medical devices, that contained several potential policy
changes that could benefit the pharmaceutical industry:
(cid:129) 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.
(cid:129) 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.
(cid:129) 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 CFDA 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:
(cid:129) 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’ clinical trial applications.
(cid:129) 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 which are already approved in the United States or
European Union, or concurrent drug registration applications for drugs which have applied for
marketing authorization and passed onsite inspections in the United States or European Union
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 February 2016, the CFDA released the Opinions on Priority Review and Approval for Resolving
Drug Registration Applications Backlog, which further clarified the following policies potentially
accelerating the approval process of certain clinical trials or drug registrations which may benefit us:
(cid:129) A fast track drug registration or clinical trial approval pathway will be available for the following
drug registration applications with distinctive clinical benefits: (1) registration of innovative drugs
not sold within or outside China; (2) registration of innovative drug transferred to be
manufactured in China; (3) registration of drugs using advanced technology, using innovative
treatment methods, or having distinctive treatment advantages; (4) clinical trial applications for
drugs patent expiry within three years, and marketing authorization applications for drugs with
patent expiry within one year; (5) concurrent applications for new drug clinical trials which are
already approved in the United States or European Union, or concurrent drug registration
applications for drugs which have applied for marketing authorization and passed onsite
inspections in the United States or European Union and are manufactured using the same
production line in China; (6) traditional Chinese medicines (including ethnic medicines) with
clear position in prevention and treatment of serious diseases; and (7) registration of new drugs
sponsored by national key technology projects or national key development projects.
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(cid:129) A fast track drug registration approval pathway will be available for the following drugs
registration application with distinctive clinical benefits for prevention and treatment of HIV,
phthisis, virus hepatitis, orphan diseases, cancer, children’s diseases, and geriatrics.
In March 2016, the CFDA released a circular, CFDA Announcement on Reforms of Pharmaceutical
Registration Classification, which outlined the re-classifications of drug applications. Under the new
categorization, innovative drugs that have not been approved either in or outside China remain
Category 1, while drugs approved outside China seeking marketing approval in China are now
Category 5.
The CFDA may release detailed policies regarding such abovementioned fast track clinical trial
approval and drug registration pathway, and we expect that the CFDA review and approval process will
improve over time. However, how and when this approval process will be changed is still subject to
further policies to be issued by the CFDA and is currently uncertain.
Subsidies and Preferential Tax Treatment for ‘‘12-5 Major New Drugs Development Projects’’
In 2012, the Chinese State Council adopted a ‘‘12-5 Major New Drugs Development Projects,’’
according to which a special fund was established by the government to encourage the development of
new drugs. Our BGB-283 drug candidate and another BRAF preclinical research project have been
recognized as ‘‘12-5 Major New Drugs Development Projects’’ and received government subsidies of
RMB 6,554,600 during the period from January 1, 2013 to December 31, 2015.
PRC Enterprise Income Tax Law and Its Implementation
The PRC Enterprise Income Tax Law, or EIT Law, and its implementation rules permit certain
High and New Technologies Enterprises, or HNTEs, to enjoy preferential enterprise income tax rates
subject to these HNTEs meeting certain qualification criteria. In April 2008, the State Administration
of Taxation, or SAT, the Ministry of Science and Technology, or MOST and the Ministry of Finance, or
MOF jointly issued the Administrative Rules for the Certification of High and New Technology Enterprises
specifying the criteria and procedures for the certification of HNTEs. In January 2016, revised version
of the Administrative Rules for the Certification of High and New Technology Enterprises has been issued
by the SAT, the MOST and the MOF, and replaced the 2008 version, while the material criteria of
HNTEs remains unchanged.
Pursuant to the Temporary Regulations on Business Tax, which were promulgated by the Chinese
State Council on December 13, 1993 and effective as of January 1, 1994, as amended on November 10,
2008 and effective as of 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. However, if the services provided are related to technological development and
transfer, such business tax may be exempted subject to approval by the relevant tax authorities.
In November 2011, the MOF and the SAT promulgated the Pilot Plan for Imposition of Value-
Added Tax, or VAT, to Replace Business Tax, or the Pilot Plan. Since January 2012, the SAT has been
implementing the Pilot Plan, which imposes 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.
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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, provide evidence and support for the design of Phase 3 clinical trial, and settle 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 Phases 1, 2 and 3 of the clinical trials have been completed, the applicant must apply to the
CFDA for approval of a NDA. The CFDA then determines whether to approve the application
according to the comprehensive evaluation opinion provided by the CDE of the CFDA. We have
obtained approval of our Clinical Trial Applications for BGB-283, BGB-3111, BGB-290 and BGB-A317
in the PRC, and clinical trials have been initiated. We must obtain approval of a NDA before our drugs
can be manufactured and sold in the PRC market.
Good Manufacturing Practice
All facilities and techniques used in the manufacture of products for clinical use or for sale in the
PRC must be operated in conformity with cGMP guidelines as established by the CFDA. 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 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:
(cid:129) Laboratory animals must be qualified and sourced from institutions that have Certificates for
Production of Laboratory Animals;
(cid:129) The environment and facilities for the animals’ living and propagating must meet state
requirements;
(cid:129) The animals’ feed and water must meet state requirements;
(cid:129) The animals’ feeding and experimentation must be conducted by professionals, specialized and
skilled workers, or other trained personnel;
(cid:129) The management systems must be effective and efficient; and
(cid:129) The applicable entity must follow other requirements as stipulated by the PRC laws and
regulations.
We obtained a Certificate for Use of Laboratory Animals in 2012 regarding the scope of rats and
mice.
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Regulations Relating to Intellectual Property Rights
Patent
General
Pursuant to the Patent Law of the PRC and its implementation rules, patents in the PRC fall into
three categories, namely invention patent, utility model and design patent. Invention patent refers to a
new technical solution proposed in respect of a product, method or its improvement; utility model
refers to a new technical solution that is practicable for application and proposed in respect of the
shape, structure or a combination of both of a product; and design patent refers to the new design of a
certain product in shape, pattern or a combination of both and in color, shape and pattern
combinations aesthetically suitable for industrial application. Under the Patent Law of the PRC, the
term of patent protection starts from the date the patent was filed. Patents relating to utility-models
and designs are effective for ten years from the initial date the patent application was filed. The Patent
Law of the PRC adopts the principle of ‘‘first to file,’’ which means where more than one person files a
patent application for the same invention, a patent will be granted to the person who first filed the
application.
Existing patents can become invalid or unenforceable due to a number of factors, including known
or unknown prior art, deficiencies in patent application and lack of novelty in technology. In the PRC,
a patent must have novelty, innovation and practical application. Under the Patent Law of PRC,
novelty means that before a patent application is filed, no identical invention or utility model has been
publicly disclosed in any publication in the PRC or abroad or has been publicly used or made known to
the public by any other means, whether in or outside of China, nor has any other person filed with the
patent authority an application that describes an identical invention or utility model and is published
after the filing date. Patents in the PRC are filed with the State Intellectual Property Office, or SIPO.
Normally, the SIPO publishes an application for a pharmaceutical invention 18 months after the
application is filed, which may be shortened upon request by the applicant. The applicant must apply to
the SIPO for a substantive examination within three years from the date the application is filed.
Article 20 of the Patent Law of the PRC provides that, for an invention or utility model completed
in China, any applicant, not just Chinese companies and individuals, before filing a patent application
outside of China, must first submit it to the SIPO for a confidential examination. Failure to comply
with this requirement will result in the denial of any Chinese patent for the subject invention. This
added requirement of confidential examination by the SIPO has raised concerns by foreign companies
who conduct research and development activities in the PRC or outsource research and development
activities to service providers in the PRC. Currently we have three invention patents published by SIPO
and one invention patent under the application process.
Patent Enforcement
Unauthorized use of patents without consent from owners of patents, forgery of the patents
belonging to other persons, or engagement in other infringement acts against patent rights, will subject
the infringers to tortious liabilities. Serious offences may be subject to criminal penalties.
When a dispute arises as a result of infringement of the patent owner’s patent right, PRC law
requires that the parties first attempt to settle the dispute through consultation between them.
However, if the dispute cannot be settled through consultation, the patent owner, or an interested party
who believes the patent is being infringed, may either file a civil legal suit or file an administrative
complaint with the relevant patent administration authority under the SIPO. A PRC court may issue a
preliminary injunction upon the patent owner’s or an interested party’s request before instituting any
legal proceedings or during the proceedings. Damages for infringement are calculated as either the loss
suffered by the patent holder arising from the infringement or the benefit gained by the infringer from
the infringement. If it is difficult to ascertain damages in this manner, damages may be determined by
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using a reasonable multiple of the license fee under a contractual license. As in other jurisdictions, with
one notable exception, the patent owner in the PRC has the burden of proving that the patent is being
infringed. However, if the owner of a manufacturing process patent alleges infringement of its patent,
the alleged infringer has the burden of proving that it has not infringed. To our knowledge, there are
no disputes as to our infringement of any third party’s patent.
Medical Patent Compulsory License
According to the Patent Law of the PRC, the SIPO may grant a compulsory license for
manufacturing patented drugs and exporting them to countries or regions covered under relevant
international treaties to which the People’s Republic of China has acceded.
Exemptions for Unlicensed Manufacture, Use and Import of Patented Drugs
According to the Patent Law of the PRC, any person may manufacture, use or import patented
drugs for the purpose of providing information required for administrative examination and approval
without authorization granted by the patent owner.
Trade Secrets
According to the Anti-Unfair Competition Law of the PRC, the term ‘‘trade secrets’’ refers to
technical information and business information that is unknown to the public, that has utility and may
create business interest or profit for its legal owners or holders, and that is maintained as a secret by
its legal owners or holders.
Under this law, business persons are prohibited from employing the following methods to infringe
trade secrets: (1) obtaining the trade secrets from the legal owners or holders by any unfair methods
such as stealing, solicitation or coercion; (2) disclosing, using or permitting others to use the trade
secrets obtained illegally under item (1) above; or (3) disclosing, using or permitting others to use the
trade secrets, in violation of any contractual agreements or any requirements of the legal owners or
holders to keep such trade secrets in confidence. If a third party knows or should have known of the
above-mentioned illegal conduct but nevertheless obtains, uses or discloses trade secrets of others, the
third party may be deemed to have committed a misappropriation of the others’ trade secrets. The
parties whose trade secrets are being misappropriated may petition for administrative corrections, and
regulatory authorities may stop any illegal activities and fine infringing parties in the amount of
RMB 10,000—200,000. Alternatively, persons whose trade secrets are being misappropriated may file
lawsuits in a PRC court for loss and damages caused by the misappropriation.
The measures to protect trade secrets include oral or written agreements or other reasonable
measures to require the employees of, or persons in business contact with, legal owners or holders to
keep trade secrets confidential. Once the legal owners or holders have asked others to keep trade
secrets confidential and have adopted reasonable protection measures, the requested persons bear the
responsibility for keeping the trade secrets confidential.
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 PRC 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, or SAFE, by complying with certain procedural
requirements. In contrast, approval from or registration with appropriate government authorities is
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required when RMB is to be converted into a foreign currency and remitted out of China to pay
capital expenses such as the repayment of foreign currency-denominated loans.
In August 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the
Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of
Foreign-Invested Enterprises, or SAFE Circular 142, regulating the conversion by a foreign-invested
enterprise of foreign currency-registered capital into RMB by restricting how the converted RMB may
be used. In addition, SAFE promulgated Notice on Issues concerning Further Clarifying and Regulating
the Foreign Exchange Administration under Some Capital Accounts, or Circular 45, on November 9,
2011 to clarify the application of SAFE Circular 142. Under SAFE Circular 142 and Circular 45, RMB
capital converted from foreign currency registered capital of a foreign-invested enterprise may only be
used for purposes within the business scope approved by the applicable government authority and may
not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the
flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested
enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such
RMB capital may not, in any case, be used to repay RMB loans whose proceeds were not used.
Furthermore, SAFE promulgated Notice on Issues Concerning Strengthening Administration of Foreign
Exchange Services in November 2010, which tightens the regulation over settlement of net proceeds
from overseas offerings, such as our initial public offering, and requires, among other things, the
authenticity of settlement of net proceeds from offshore offerings to be closely examined and the net
proceeds to be settled in the manner described in our prospectus or otherwise approved by our board
of directors. Violations of these SAFE regulations may result in severe monetary or other penalties,
including confiscation of earnings derived from such violation activities, a fine of up to 30% of the
RMB funds converted from the foreign invested funds or in the case of a severe violation, a fine
ranging from 30% to 100% of the RMB funds converted from the foreign-invested funds.
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 current 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 the PRC, 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 the PRC will be conducted by way of
registration, and banks must process foreign exchange business relating to the direct investment in the
PRC 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
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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, or 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) directly or indirectly used for the payment beyond the business scope of the enterprises or the
payment prohibited by relevant laws and regulations;
(2) directly or indirectly used for investment in securities, unless otherwise provided by relevant
laws and regulations;
(3) 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
(4) 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 19, 2016, SAFE promulgated the Circular on Reforming and Regulating Policies on the
Control over Foreign Exchange Settlement of Capital Accounts, or Circular 16, which took effect on
the same day. Compared to Circular 19, Circular 16 provides that discretionary foreign exchange
settlement applies to foreign exchange capital, foreign debt offering proceeds and remitted foreign
listing proceeds, and the corresponding Renminbi obtained from foreign exchange settlement are not
restricted to extending loans to related parties or repaying the inter-company loans, including advances
by third parties. However, since Circular 16 came into effect recently, there are substantial uncertainties
with respect to its interpretation and implementation in practice.
On January 26, 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign
Exchange Administration and Optimizing Genuineness and Compliance Verification, or Circular 3,
which took effect on the same day. Circular 3 sets out various measures with the following key
contents:
(1) relaxing the policy restriction on foreign exchange inflow to further enhance trade and
investment facilitation, including (a) expanding the scope of foreign exchange settlement for
domestic foreign exchange loans, (b) allowing the capital repatriation for offshore financing
against domestic guarantee, (c) facilitating the centralized management of foreign exchange
funds of multinational companies, and (d) allowing the offshore institutions within pilot free
trade zones to settle foreign exchange in domestic foreign exchange accounts; and
(2) tightening genuineness and compliance verification of cross-border transactions and cross-
border capital flow, including (a) improving the statistics of current account foreign currency
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earnings deposited offshore, (b) requiring banks to verify board resolutions, tax filing forms,
and audited financial statements before wiring foreign invested enterprises’ foreign exchange
distribution above $50,000, (c) strengthening genuineness and compliance verification of
foreign direct investments and (d) implementing full scale management of offshore loans in
Renminbi and foreign currencies by requiring the total amount of offshore loans be no higher
than 30% of the onshore lender’s equity shown on its audited financial statements of the last
year.
Our PRC subsidiaries’ distributions to the offshore parent and their carrying out cross-border
foreign exchange activities are subject to 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 PRC 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, or Share Option Rules, issued by the SAFE on February 15, 2012, PRC
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 PRC agent, which may be a PRC subsidiary of the overseas listed company or another
qualified institution selected by the PRC 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.
Regulation of Dividend Distribution
The principal laws, rules and regulations governing dividend distribution by foreign-invested
enterprises in the PRC are the Company Law of the PRC, as amended, the Wholly Foreign-owned
Enterprise Law and its implementation regulations, and the Equity Joint Venture Law and its
implementation regulations. 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 PRC
accounting standards and regulations. Both PRC domestic companies and wholly-foreign owned PRC
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 PRC 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 PRC Labor Law and the PRC 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 PRC Labor Contract Law and the PRC 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 PRC Social Insurance Law, employers like our PRC subsidiaries in
China must provide employees with welfare schemes covering pension insurance, unemployment
insurance, maternity insurance, work-related injury insurance, medical insurance, and housing funds.
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Rest of the World Regulation
For other countries besides the United States and the PRC, 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.
Manufacturing and Supply
We lease an approximately 140 square meter manufacturing facility in Beijing, China, which
produces and supplies preclinical and clinical trial materials for some of our small molecule drug
candidates. In addition, we lease an approximately 11,000 square meter space and are building a
manufacturing facility in Suzhou, China, where we intend to produce drug candidates for clinical or, in
the future, commercial use. This facility consists of one oral-solid-dosage production line for small
molecule drug products and one pilot plant for monoclonal antibody drug substances. We also
outsource to a limited number of external service providers the production of some drug substances
and drug products, and we expect to continue to do so to meet the preclinical and clinical requirements
of our drug candidates. We have framework agreements with most of our external service providers,
under which they generally provide services to us on a short-term and project-by-project basis.
On March 7, 2017, BeiGene (Hong Kong) Co., Limited, our wholly owned subsidiary, entered into
a definitive agreement with Guangzhou Development District and its affiliate Guangzhou GET
Technology Development Co., Ltd to establish a commercial-scale biologics manufacturing facility in
Guangzhou, Guangdong Province, China. We expect to acquire at least 100,000 square meters of land
for the manufacturing facility for biologics production. The joint venture will also provide funding for
research and development of biologic drug candidates in China. See ‘‘Part IV—Item 15—Exhibits,
Financial Statement Schedules—Note 22. Subsequent Events’’ for additional information.
Currently, we obtain raw materials for our manufacturing activities from multiple suppliers who we
believe have sufficient capacity to meet our demands. In addition, we believe that adequate alternative
sources for such supplies exist. However, a risk exists that an interruption supplies would materially
harm our business. We typically order raw materials and services on a purchase order basis and do not
enter into long-term dedicated capacity or minimum supply arrangements.
Manufacturing is subject to extensive regulations that impose various procedural and
documentation requirements governing record keeping, manufacturing processes and controls,
personnel, quality control and quality assurance, among others. Our manufacturing facilities and the
contract manufacturing organizations we use to manufacture our drug candidates operate under cGMP
conditions. cGMP are regulatory requirements for the production of pharmaceuticals that will be used
in humans. For most of our manufacturing processes a back-up cGMP manufacturer is in place or can
easily be identified.
Employees
As of December 31, 2016, we had 321 full-time employees and one part-time employee. Of these,
267 were engaged in research and development and laboratory operations and 55 were engaged in
full-time general and administrative functions. As of December 31, 2016, 268 of our employees were
located in the PRC, 49 were located in the United States and five were located in Australia. We have
also engaged and may continue to engage independent contractors to assist us with our operations.
None of our employees are represented by a labor union or covered by a collective bargaining
72
agreement. We have never experienced any employment-related work stoppages, and we consider our
relations with our employees to be good.
Financial Information and Segments
The financial information required under this Item 1 is incorporated herein by reference to the
section of this Annual Report titled ‘‘Part II—Item 8—Financial Statements and Supplementary Data.’’
We operate in one business segment. See Note 2 to our consolidated audited financial statements
included in this Annual Report. For financial information regarding our business, see ‘‘Part II—
Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ of
this Annual Report and our consolidated audited financial statements and related notes included
elsewhere in this Annual Report.
Corporate Information
We are an exempted company incorporated in the Cayman Islands with limited liability on
October 28, 2010. Any company that is registered in the Cayman Islands but conducts business mainly
outside of the Cayman Islands may apply to be registered as an exempted company. The principal
executive office of our research and development operations is located at No. 30 Science Park Road,
Zhong-Guan-Cun Life Science Park, Changping District, Beijing 102206, People’s Republic of China.
Our telephone number at this address is +86 10 58958000. Our current registered office in the Cayman
Islands is located at the offices of Mourant Ozannes Corporate Services (Cayman) Limited, 94 Solaris
Avenue, Camana Bay, Grand Cayman KY1-1108, Cayman Islands. Our website address is
www.beigene.com . We do not incorporate the information on or accessible through our website into this
Annual Report, and you should not consider any information on, or that can be accessed through, our
website as part of this Annual Report.
18MAR201711120828
We own various applications and unregistered trademarks and servicemarks, including BeiGene,
and our corporate logo. All other trade names, trademarks and service marks of other
companies appearing in this Annual Report are the property of their respective holders. Solely for
convenience, the trademarks and trade names in this prospectus are referred to without the (cid:4) and (cid:5)
symbols, but such references should not be construed as any indicator that their respective owners will
not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or
display of other companies’ trademarks and trade names to imply a relationship with, or endorsement
or sponsorship of us by, any other companies.
Available Information
We make available on or through our website certain reports and amendments to those reports
that we file with or furnish to the U.S. Securities and Exchange Commission, or SEC, in accordance
with the Securities Exchange Act of 1934, as amended, or the Exchange Act. These include our annual
reports on Form 10-K, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act. We also make available, free of charge on our website, the reports filed with the SEC by our
executive officers, directors and 10% shareholders pursuant to Section 16 under the Exchange Act. We
make this information available on or through our website free of charge as soon as reasonably
practicable after we electronically file the information with, or furnish it to, the SEC. We use our
website as a means of disclosing material non-public information and for complying with our disclosure
obligations under Regulation FD.
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Glossary of Scientific Terms
As used in this Annual Report, the scientific terms set forth below shall have the following
meanings:
ADCC . . . . . . . . . . . . . . . Means antibody-dependent cellular cytotoxicity, a mechanism of
cell-mediated immune defense.
ALK . . . . . . . . . . . . . . . . Means anaplastic lymphoma kinase, an enzyme encoded in humans by
the ALK gene. ALK mutations are associated with certain lung cancers.
ATM . . . . . . . . . . . . . . . . Means ataxia telangiectasia mutated, a serine/threonine protein kinase
that plays a critical role in response to DNA damage.
BRAF . . . . . . . . . . . . . . . Means a human gene that makes the B-raf protein involved in sending
internal cell signals that direct cell growth. In cells expressing mutant
BRAF V600E and in conditions of low RAS-GTP, all RAF isoforms exist
predominantly as monomers. However, unlike wild-type RAFs,
monomeric BRAF V600E is hyperactive. Under conditions where RAS is
activated or other BRAF induced resistance, RAF isoforms form dimers
(two copies of RAF proteins bind together).
B-cell . . . . . . . . . . . . . . . . Means a type of white blood cell that differs from other lymphocytes like
T-cells by the presence of the BCR on the B-cell’s outer surface.
BCR . . . . . . . . . . . . . . . . Means B-cell receptor, a specialized receptor protein that allows a B-cell
to bind to specific antigens.
BID . . . . . . . . . . . . . . . . . Means bis in die or ‘‘twice daily,’’ the frequency that a medical
prescription or drug is taken by a patient.
BRCA . . . . . . . . . . . . . . . Means breast cancer susceptibility gene, of which there are two (BRCA1
and BRCA2). BRCA proteins are key components of homologous
recombination DNA repair pathway. BRCA deleterious mutations are
associated with breast and ovarian cancers.
BTK . . . . . . . . . . . . . . . . Means Bruton’s tyrosine kinase. BTK is a key component of the BCR
signaling pathway and is an important regulator of cell proliferation and
cell survival in various lymphomas.
CD20 . . . . . . . . . . . . . . . . Means B-lymphocyte antigen CD20, a B-cell specific cell-surface
molecule that is encoded by the MS4A1 gene.
CTLA-4 . . . . . . . . . . . . . . Means cytotoxic T-lymphocyte-associated protein 4, a protein receptor
that functions as an immune checkpoint and downregulates the immune
system. CTLA-4 is found on the surface of T-cells.
DNA . . . . . . . . . . . . . . . . Means deoxyribonucleic acid, a self-replicating molecule that carries
genetic information and is present in almost all living organisms.
EGFR . . . . . . . . . . . . . . . Means epidermal growth factor receptor. EGFR is a cell surface protein
that binds to epidermal growth factor, and mutations in this gene are
associated with lung cancer.
ERK . . . . . . . . . . . . . . . . Means extracellular signal-regulated kinase, which is a downstream
signaling molecule of the MAPK pathway.
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Fc(cid:3)RI . . . . . . . . . . . . . . . Means Fc gamma receptor I, a receptor that binds the most common
class of antibody, Immunoglobulin G, or IgG, including IgG1, IgG3 and
IgG4. Fc(cid:3)RI is expressed in certain human immune cells including
monocytes, macrophages and dendritic cells and may function to activate
these immune cells. Fc(cid:3)RI has the highest affinity to IgGs among the
members of the Fc gamma receptor family.
GTPase . . . . . . . . . . . . . . Means a large family of hydrolase enzymes that can bind and hydrolyze
guanosine triphosphate.
Hemoglobin . . . . . . . . . . . Means the protein molecule in red blood cells that carries oxygen from
the lungs to the body’s tissues and returns carbon dioxide from the
tissues back to the lungs.
HER2 . . . . . . . . . . . . . . . Means human epidermal growth factor receptor 2, also known as
receptor tyrosine-protein kinase erbB-2. HER2 is a member of the
human epidermal growth factor receptor (HER/EGFR/ERBB) family.
Amplification or overexpression of this oncogene is associated with
certain aggressive types of breast cancer.
HRAS . . . . . . . . . . . . . . . Means GTPase Hras, also known as transforming protein p21, an enzyme
that is encoded in humans by the HRAS gene.
Immunoglobulin . . . . . . . . Means glycoprotein molecules produced by plasma cells (white blood
cells), which are also known as antibodies. They act as a critical part of
the immune response by specifically recognizing and binding to particular
antigens, such as bacteria or viruses, and aiding in their destruction.
IgM . . . . . . . . . . . . . . . . . Means Immunoglobulin M, a basic antibody that is produced by B-cells
found mainly in the blood and lymph fluid.
ITK . . . . . . . . . . . . . . . . . Means interleukin-2-inducible T-cell kinase, a tyrosine-protein kinase that
is encoded in humans by the ITK gene and is highly expressed in T-cells.
JAK3 . . . . . . . . . . . . . . . . Means tyrosine-protein Janus kinase 3, a non-receptor tyrosine kinase
involved in various processes including cell growth, development, or
differentiation.
Kinase . . . . . . . . . . . . . . . Means a type of enzyme that catalyzes the transfer of phosphate groups
from high-energy, phosphate-donating molecules to specific substrates.
The protein kinases make up the majority of all kinases. Protein kinases
act on proteins, phosphorylating them on their serine, threonine, tyrosine,
or histidine residues. These kinases play a major role in protein and
enzyme regulation as well as signaling in the cell.
KRAS . . . . . . . . . . . . . . . KRAS is known as V-Ki-ras2 Kirsten rat sarcoma viral oncogene
homolog. It is an oncogene that is often mutated in a number of cancers.
The protein product of the normal KRAS gene performs an essential
function in normal tissue signaling, and the mutation of a KRAS gene is
an essential step in the development of many cancers.
Lesion . . . . . . . . . . . . . . . Means almost any abnormal change involving any biological structure,
tissue or organ due to disease or injury, similar in meaning to the word
‘‘damage.’’
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MAPK . . . . . . . . . . . . . . . Means mitogen-activated protein kinase. The MAPK pathway is a chain
of proteins in the cell that communicates a signal from a receptor on the
cell surface to the DNA in the nucleus of the cell. This pathway includes
a small G protein (RAS) and three protein kinases (RAF, MEK, and
ERK) and plays an essential role in regulating cell proliferation and
survival.
MEK . . . . . . . . . . . . . . . . Means mitogen/extracellular signal-regulated kinase, a member of the
MAPK signaling cascade that is activated in melanoma.
NRAS . . . . . . . . . . . . . . . Means neuroblastoma RAS viral (V-Ras) oncogene homolog. It is also a
member of RAS gene family. Similar to KRAS, it plays a role in many
cancers and the mutation of an NRAS gene involves in the formation
and growth of many cancers.
PAR . . . . . . . . . . . . . . . . Means poly ADP ribose. PAR chains are synthesized by
Poly(ADP-ribose) polymerases on various nuclear protein acceptors
usually involved in DNA replication, transcription and repair pathways.
PARP . . . . . . . . . . . . . . . Means poly ADP ribose polymerase, a family of proteins involved in
numerous cellular processes, mostly involving DNA replication and
transcriptional regulation, which plays an essential role in cell survival in
response to DNA damage.
PBMC . . . . . . . . . . . . . . . Means a peripheral blood mononuclear cell, any blood cell that has a
round, as opposed to a lobed, nucleus (e.g., a lymphocyte, monocyte, or
macrophage, all types of white blood cells).
PD-1 . . . . . . . . . . . . . . . . Means programmed cell death protein 1, an immune checkpoint receptor
expressed on T-cells and pro-B-cells that binds two ligands, PD-L1 and
PD-L2. PD-1 is a cell
surface receptor that plays an important role in down-regulating the
immune system by preventing the activation of T-cells.
PD-L1 . . . . . . . . . . . . . . . Means programmed death-ligand 1, a protein in humans encoded by the
CD274 gene. PD-L1 binds the PD-1 receptor and sends an inhibitory
signal inside the T-cell, stopping it from making more poisonous proteins
and killing the cells that send the signal via PD-L1 and in the
neighborhood.
PDX . . . . . . . . . . . . . . . . Means patient-derived xenograft, created when the cancerous tissue from
a human patient’s primary tumor is implanted directly into an
immunodeficient mouse.
pERK . . . . . . . . . . . . . . . Means phosphorylated extracellular signal-regulated kinase, which is a
modified form of the ERK protein (a downstream signaling molecule of
the MAPK pathway).
QD . . . . . . . . . . . . . . . . . Means quaque die or ‘‘every day,’’ the frequency that a medical
prescription or drug is taken by a patient.
RAF . . . . . . . . . . . . . . . . Means Rapidly Accelerated Fibrosarcoma. RAF kinases are a family of
three serine/threonine-specific protein kinases that are related to
retroviral oncogenes. RAF kinases participate in the
RAS-RAF-MEK-ERK MAPK pathway.
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RAF dimer . . . . . . . . . . . Means a protein complex formed by two copies of RAF proteins. This
could be a BRAF-BRAF complex, a BRAF-CRAF complex, or a
CRAF-CRAF complex.
Signaling cascade . . . . . . . Means a signal transduction pathway between cells where each signal
transduction occurs with a primary extracellular messenger that binds to a
receptor and initiates intracellular signals (i.e. molecule A activates
several molecule Bs, which then in turn activate several molecule Cs).
T-cell . . . . . . . . . . . . . . . . Means a type of white blood cell that play a large role in immune
response and that differs from other white blood cells like B-cells by the
presence of the T-cell receptor on the T-cell’s outer surface, which is
responsible for recognizing antigens bound to major histocompatibility
complex molecules.
TEC . . . . . . . . . . . . . . . . Means tyrosine-protein kinase Tec, an enzyme in humans encoded by the
TEC gene. The Tec kinase is an integral component of T-cell signaling
and has a distinct role in T-cell activation.
TIM-3 . . . . . . . . . . . . . . . Means T-cell immunoglobulin and mucin-domain containing-3, a
Th1-specific cell surface protein that functions as an immune checkpoint,
regulating macrophage activation and enhancing the severity of
experimental autoimmune encephalomyelitis in mice.
Xenograft . . . . . . . . . . . . . Means the cells, tissues or organs of one species transplanted into
another species.
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Item 1A. Risk Factors
The following section includes the most significant factors that may adversely affect our business and
operations. You should carefully consider the risks and uncertainties described below and all information
contained in this Annual Report, including our financial statements and the related notes and ‘‘Part II—
Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ before
deciding to invest in the ADSs. The occurrence of any of the events or developments described below could
harm our business, financial condition, results of operations and growth prospects. In such an event, the
market price of the ADSs could decline and you may lose all or part of your investment. Additional risks
and uncertainties not presently known to us or that we currently deem immaterial also may impair our
business operations
Risks Related to Our Financial Position and Need for Additional Capital
We are a globally focused biopharmaceutical company and have a limited operating history, which may make
it difficult to evaluate our current business and predict our future performance.
We are a globally focused biopharmaceutical company formed in October 2010. 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 current drug candidates, such as BGB-3111, BGB-A317, BGB-290 and BGB-283. We have not yet
demonstrated an ability to initiate or successfully complete large-scale, pivotal clinical trials, obtain
regulatory approvals, manufacture a commercial scale drug, or arrange for a third party to do so on our
behalf, or conduct sales and marketing activities necessary for successful commercialization. We have
not yet obtained regulatory approval for, or demonstrated an ability to commercialize, any of our drug
candidates. We have no products approved for commercial sale and have not generated any revenue
from product sales. Consequently, any predictions you make about our future success or viability may
not be as accurate as they could be if we had a longer operating history. In addition, as a new business,
we may encounter unforeseen expenses, difficulties, complications, delays and other known and
unknown factors.
We are focused on the discovery and development of innovative, molecularly targeted and
immuno-oncology drugs for the treatment of cancers. Our limited operating history, particularly in light
of the rapidly evolving cancer treatment field, may make it difficult to evaluate our current business
and predict our future performance. Our short history makes 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 have incurred net losses in each period 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 capital expenditures and significant risk that a drug candidate will fail to gain
regulatory approval or become commercially viable. We have devoted most of our financial resources to
research and development, including our nonclinical development activities and clinical trials. We have
not generated any 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 are not profitable
and have incurred losses in each period since our inception in 2010. We reported a net loss of
$119.2 million, $57.1 million and $18.5 million, respectively, for the years ended December 31, 2016,
2015 and 2014. As of December 31, 2016, we had a deficit accumulated of $237.4 million. Substantially
78
all of our operating losses have resulted from costs incurred in connection with our research and
development programs and from general and administrative costs 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 one new
drug from the time it is discovered to when 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 revenues 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
shareholders’ equity and working capital.
We expect our research and development expenses to continue to be significant in connection with
our continued investment in our cancer biology platform and our ongoing and planned clinical trials for
our drug candidates, such as BGB-3111, BGB-A317, BGB-290 and BGB-283. Furthermore, if we
obtain regulatory approval for our drug candidates, we expect to incur increased sales and marketing
expenses. In addition, we will 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 for the foreseeable future. These losses have had and will continue to have a material adverse
effect on our shareholders’ deficit, financial position, cash flows and working capital.
We currently do not generate revenue from product sales and may never become profitable.
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 drug candidates,
such as BGB-3111, BGB-A317, BGB-290 and BGB-283, as we do not currently have any drugs that are
available for commercial sale. We expect to continue to incur substantial and increasing losses through
the projected commercialization of our drug candidates. None of our drug candidates have been
approved for marketing in the United States, the European Union, the People’s Republic of China, or
PRC, or any other jurisdiction and may never receive such approval. Our ability to achieve revenue and
profitability is dependent on our ability to complete the development of our drug candidates, obtain
necessary regulatory approvals, and have our drugs manufactured and successfully marketed.
Even if we receive regulatory approval of our drug candidates for commercial sale, we do not
know when they will generate revenue, if at all. Our ability to generate product sales revenue depends
on a number of factors, including our ability to continue:
(cid:129) completing research regarding, and nonclinical and clinical development of, our drug candidates;
(cid:129) obtaining regulatory approvals and marketing authorizations for drug candidates for which we
complete clinical trials;
(cid:129) obtaining adequate reimbursement from third-party payors, including government payors;
(cid:129) developing a sustainable and scalable manufacturing process for our drug candidates, including
establishing and maintaining commercially viable supply relationships with third parties and
establishing our own manufacturing capabilities and infrastructure;
(cid:129) launching and commercializing drug candidates for which we obtain regulatory approvals and
marketing authorizations, either directly or with a collaborator or distributor;
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(cid:129) obtaining market acceptance of our drug candidates as viable treatment options;
(cid:129) identifying, assessing, acquiring and/or developing new drug candidates;
(cid:129) addressing any competing technological and market developments;
(cid:129) negotiating and maintaining favorable terms in any collaboration, licensing or other
arrangements into which we may enter, such as our collaboration arrangements with Merck
KGaA, Darmstadt Germany;
(cid:129) maintaining, protecting and expanding our portfolio of intellectual property rights, including
patents, trade secrets and know-how; and
(cid:129) attracting, hiring and retaining 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; the CFDA; the EMA; or other comparable regulatory authorities to perform
studies in addition to those that we currently anticipate. Even if our drug candidates are approved for
commercial sale, we anticipate incurring significant costs associated with the commercial launch of
these drugs.
Our ability to become and remain profitable depends on our ability to generate revenue. Even if
we are able to generate revenues from the sale of our potential drugs, we may not become profitable
and may need to obtain additional funding to continue operations. If we fail to become profitable or
are unable to sustain profitability on a continuing basis, then we may be unable to continue our
operations at planned levels and be forced to reduce our operations. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our
failure to become and remain profitable would decrease the value of our company and could impair
our ability to raise capital, expand our business or continue our operations. Failure to become and
remain profitable may adversely affect the market price of the ADSs and our ability to raise capital and
continue operations.
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 primary drug
candidates.
We have financed our operations with a combination of equity and debt offerings, contracts, and
private and public grants. Through December 31, 2016, we raised approximately $170 million in private
equity financing and $10 million in non-convertible debt financings. To date, we have received a total of
$37 million in upfront payments and milestone payments through our collaboration arrangements with
Merck KGaA, Darmstadt Germany for BGB-283 and BGB-290. On February 8, 2016 and
November 23, 2016, we completed our initial public offering and follow-on public offering of the ADSs
and received net proceeds of $166.2 million and $198.6 million, respectively, after deducting
underwriting discount and offering expenses. Our drug candidates will require the completion of
regulatory review, significant 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. Our operating
activities used $89.5 million, $39.8 million and $8.7 million of net cash during the years ended
December 31, 2016, 2015 and 2014, respectively. We expect to continue to spend substantial amounts
on drug discovery advancing the clinical development of our drug candidates, and launching and
commercializing any drug candidates for which we receive regulatory approval, including building our
own commercial organizations to address certain markets.
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We will need to obtain additional financing to fund our future operations, including completing the
development and commercialization of our primary drug candidates: BGB-3111, BGB-A317, BGB-290
and BGB-283. We will need to obtain additional financing to conduct additional clinical trials for the
approval of our drug candidates if requested by regulatory bodies, and completing the development of
any additional drug candidates we might discover. Moreover, our fixed expenses such as rent, interest
expense and other contractual commitments are substantial and are expected to increase in the future.
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:
(cid:129) 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;
(cid:129) the outcome, timing and cost of regulatory approvals by the FDA, CFDA, EMA and comparable
regulatory authorities, including the potential that the FDA, CFDA, EMA or comparable
regulatory authorities may require that we perform more studies than those that we currently
expect;
(cid:129) the number and characteristics of drug candidates that we may in-license and develop;
(cid:129) our ability to successfully commercialize our drug candidates;
(cid:129) 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 third-
party reimbursement;
(cid:129) the amount and timing of the milestone and royalty payments we receive from our collaborators
under our licensing arrangements, such as our collaboration with Merck KGaA, Darmstadt
Germany;
(cid:129) the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual
property rights;
(cid:129) selling and marketing costs associated with our potential products, including the cost and timing
of expanding our marketing and sales capabilities;
(cid:129) the terms and timing of any potential future collaborations, licensing or other arrangements that
we may establish;
(cid:129) cash requirements of any future acquisitions and/or the development of other drug candidates;
(cid:129) the costs of operating as a public company;
(cid:129) the cost and timing of completion of commercial-scale outsourced manufacturing activities;
(cid:129) the time and cost necessary to respond to technological and market developments; and
(cid:129) the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual
property rights.
Until we can generate a sufficient amount of revenue, we may finance future cash needs through
public or private equity offerings, license agreements, debt financings, collaborations, strategic alliances
and marketing or distribution arrangements. 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 the
ADSs may not support capital raising transactions such as an additional public or private offering of
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the ADSs or other securities. In addition, our ability to raise additional capital may be dependent upon
the ADSs being quoted on the NASDAQ or upon obtaining shareholder approval. There can be no
assurance that we will be able to satisfy the criteria for continued listing on the NASDAQ or that we
will be able to obtain shareholder approval if it is necessary. If adequate funds are not available, 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, will not be sufficient to enable us to
complete all necessary global development or commercially launch our current drug candidates.
Accordingly, we will require further funding through other public or private offerings, debt financing,
collaboration and licensing arrangements or other sources. Adequate additional funding may not be
available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on
attractive terms, we would be forced to delay, reduce or eliminate our research and development
programs or future commercialization efforts. Our inability to obtain additional funding when we need
it could seriously harm our business.
Raising additional capital may cause dilution to our shareholders, 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 the ADSs or
our ordinary shares. 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 the ADSs
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 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.
Fluctuations in exchange rates could result in foreign currency exchange losses and could materially reduce
the value of your investment.
We incur portions of our expenses, and may in the future derive revenues, in currencies other than
the U.S. dollar, in particular, the RMB and Australian dollars. 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 significant portion of our clinical trial activities are conducted
outside of the United States, 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
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impact on our research and development costs. 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.
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 the PRC, Australia and other non-U.S. governments. Specifically in the PRC, on July 21,
2005, the PRC 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 PRC 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 PRC government announced
that it would allow more RMB exchange rate fluctuation. On August 11, 2015, China’s central bank
executed a 2% devaluation in the RMB. Over the following two days, Chinese currency fell 3.5%
against the dollar. However, it remains unclear what further fluctuations may occur or what impact this
will have on the currency.
It is difficult to predict how market forces or PRC, Australian, U.S. or other government policies
may impact the exchange rate between the Australian dollar, RMB, U.S. dollar and other currencies in
the future. There remains significant international pressure on the PRC 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, Australian dollars and RMB, and a large portion of our financial assets and a significant
portion of our debt is denominated in U.S. dollars. Any significant revaluation of the RMB may
materially reduce any dividends payable on the ADSs in U.S. dollars. To the extent that we need to
convert U.S. dollars we received from our initial public offering and follow-on public offering 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 the purpose of making payments for dividends on our ordinary shares or ADSs or 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.
Our investments are subject to risks that could result in losses.
We had cash and cash equivalents of $87.5 million, $17.9 million and $13.9 million and short-term
investments of $280.7 million, $82.6 million and $30.5 million at December 31, 2016, 2015 and 2014,
respectively. At December 31, 2016, our short-term investments mainly consisted of U.S. Treasury
securities. On February 8, 2016 and November 23, 2016, we completed our initial public offering and
follow-on public offering of the ADSs and received net proceeds of $166.2 million and $198.6 million,
respectively, after deducting underwriting discount and offering expenses. We may invest our cash in a
variety of financial instruments, principally securities issued by the U.S. government and its agencies,
investment grade corporate bonds, including commercial paper and money market instruments, which
may not yield a favorable return to our shareholders. All of these investments are subject to credit,
liquidity, market and interest rate risk. Such risks, including the failure or severe financial distress of
the financial institutions that hold our cash, cash equivalents and investments, may result in a loss of
liquidity, impairment to our investments, realization of substantial future losses, or a complete loss of
the investments in the long-term, which may have a material adverse effect on our business, results of
operations, liquidity and financial condition. Our primary exposure to market risk relates to fluctuations
in the interest rates of the PRC and the United States. In order to manage the risk to our investments,
we maintain an investment policy that, among other things, limits the amount that we may invest in any
one issue or any single issuer and requires us to only invest in high credit quality securities. While we
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believe our cash and cash equivalents do not contain excessive risk, we cannot provide absolute
assurance that in the future investments will not be subject to adverse changes in market value.
Risks Related to Clinical Development of Our Drug Candidates
We depend substantially on the success of our drug candidates, particularly BGB-3111, BGB-A317, BGB-290
and BGB-283, which are in clinical development. Clinical trials of our drug candidates may not be successful.
If we are unable to commercialize our drug candidates, or experience significant delays in doing so, our
business will be materially harmed.
Our business and the ability to generate revenue related to product sales, if ever, will depend on
the successful development, regulatory approval and commercialization of our drug candidates for the
treatment of patients with cancer, particularly BGB-3111, BGB-A317, BGB-290 and BGB-283, which
are still in development, and other drugs we may develop. We have invested a significant portion of our
efforts and financial resources in the development of our existing drug candidates. The success of our
drug candidates, including BGB-3111, BGB-A317, BGB-290 and BGB-283, will depend on several
factors, including:
(cid:129) successful enrollment in, and completion of, preclinical studies and clinical trials;
(cid:129) receipt of regulatory approvals from the FDA, CFDA, EMA and other comparable regulatory
authorities for our drug candidates, including our companion diagnostics;
(cid:129) establishing commercial manufacturing capabilities, either by building facilities ourselves or
making arrangements with third-party manufacturers;
(cid:129) relying on third parties to conduct our clinical trials safely and efficiently;
(cid:129) obtaining and maintaining patent, trade secret and other intellectual property protection and
regulatory exclusivity;
(cid:129) protecting our rights in our intellectual property;
(cid:129) ensuring we do not infringe, misappropriate or otherwise violate the patent, trade secret or other
intellectual property rights of third parties;
(cid:129) launching commercial sales of our drug candidates, if and when approved;
(cid:129) obtaining reimbursement from third-party payors for drug candidates, if and when approved;
(cid:129) competition with other drug candidates and drugs;
(cid:129) continued acceptable safety profile for our drug candidates following regulatory approval, if and
when received; and
(cid:129) obtaining sufficient supplies of any competitor drug products that may be necessary for use in
clinical trials for evaluation of our drug candidates.
If we do not achieve one or more of these factors in a timely manner 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.
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 drug
candidates; these decisions may prove to have been wrong and may adversely affect our business.
Although we intend to explore other therapeutic opportunities with our cancer biology platform in
addition to the drug candidates that we are currently developing, we may fail to identify other drug
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candidates for clinical development for a number of reasons. For example, our research methodology
may be unsuccessful in identifying potential drug candidates or those we identify may be shown to have
harmful side effects or other characteristics that make them unmarketable or unlikely to receive
regulatory approval. Specifically, we have focused on developing our cancer biology platform, which
enables us to test a large panel of tumor models for sensitivity to the drug candidates we generated,
identify targets to pursue, identify drug-resistance mechanisms, explore combination strategies and
regimens, and improve our understanding of the contributions of tumor micro, or macro-environment
in cancer treatments. If our cancer biology platform fails to identify potential drug candidates, our
business could be materially harmed.
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:
(cid:129) the research methodology used may not be successful in identifying potential indications and/or
drug candidates;
(cid:129) potential drug candidates may, after further study, be shown to have harmful adverse effects or
other characteristics that indicate they are unlikely to be effective drugs; or
(cid:129) 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 will 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 ever 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 may experience difficulties in patient enrollment in our clinical trials for a variety of
reasons, including:
(cid:129) the size and nature of the patient population;
(cid:129) the patient eligibility criteria defined in the protocol;
(cid:129) the size of the study population required for analysis of the trial’s primary endpoints;
(cid:129) the proximity of patients to trial sites;
(cid:129) the design of the trial;
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(cid:129) our ability to recruit clinical trial investigators with the appropriate competencies and
experience;
(cid:129) competing clinical trials for similar therapies or other new therapeutics;
(cid:129) clinicians’ and patients’ perceptions as to the potential advantages and side effects of the drug
candidate being studied in relation to other available therapies, including any new drugs or
treatments that may be approved for the indications we are investigating;
(cid:129) our ability to obtain and maintain patient consents;
(cid:129) the risk that patients enrolled in clinical trials will not complete a clinical trial; and
(cid:129) 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, such as BGB-3111, BGB-A317, BGB-290 and
BGB-283, 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 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.
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 that could result in delays in
clinical development, heightened regulatory scrutiny, or delays in our ability to achieve regulatory approval or
commercialization of our drug candidates.
Some of our drug candidates represent a departure from more commonly used methods for cancer
treatment, and therefore represent a novel approach that carries inherent development risks. 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.
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. This may have a material impact on
our ability to generate revenues from our drug candidates. Further, given the novelty of our drug
candidates, the end users and medical personnel may require a substantial amount of education and
training.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of
earlier studies and trials may not be predictive of future trial results.
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 drug 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
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clinical trial participants. In the case of any trials we conduct, results may differ from earlier trials due
to the larger number of clinical trial sites and additional countries and languages 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.
If clinical trials of our drug candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA,
CFDA, EMA or other comparable regulatory authorities or do not otherwise produce positive results, we may
incur additional costs or experience delays in completing, or ultimately be unable to complete, the development
and commercialization of our drug candidates.
Before obtaining regulatory approval for the sale of our drug candidates, such as BGB-3111,
BGB-A317, BGB-290 and BGB-283, we must conduct extensive clinical trials to demonstrate the safety
and efficacy of our drug candidates in humans. Clinical testing is expensive, difficult to design and
implement, can take many years to complete and is uncertain as to outcome. A failure of one or more
of our clinical trials can occur at any stage of testing. The outcome of preclinical testing and early
clinical trials may not be predictive of the success of later clinical trials, and successful interim results
of a clinical trial do not necessarily predict successful final results.
We may experience numerous 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:
(cid:129) 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;
(cid:129) 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;
(cid:129) 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;
(cid:129) 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;
(cid:129) 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;
(cid:129) 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;
(cid:129) the cost of clinical trials of our drug candidates may be greater than we anticipate;
(cid:129) the supply or quality of our drug candidates, companion diagnostics or other materials necessary
to conduct clinical trials of our drug candidates may be insufficient or inadequate; and
(cid:129) our drug candidates may cause AEs, have undesirable side effects or other unexpected
characteristics, causing us or our investigators to suspend or terminate the trials.
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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:
(cid:129) be delayed in obtaining regulatory approval for our drug candidates;
(cid:129) not obtain regulatory approval at all;
(cid:129) obtain approval for indications that are not as broad as intended;
(cid:129) have the drug removed from the market after obtaining regulatory approval;
(cid:129) be subject to additional post-marketing testing requirements;
(cid:129) be subject to restrictions on how the drug is distributed or used; or
(cid:129) 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.
Risks Related to Obtaining Regulatory Approval for Our Drug Candidates
The regulatory approval processes of the FDA, CFDA, EMA and other comparable 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, CFDA, EMA and other comparable regulatory
authorities 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, CFDA, EMA or a
comparable regulatory authority for many reasons, including:
(cid:129) disagreement with the design or implementation of our clinical trials;
(cid:129) failure to demonstrate that a drug candidate is safe and effective or that a biologic drug
candidate is safe, pure, and potent for its proposed indication;
(cid:129) failure of clinical trial results to meet the level of statistical significance required for approval;
(cid:129) failure to demonstrate that a drug candidate’s clinical and other benefits outweigh its safety
risks;
(cid:129) disagreement with our interpretation of data from preclinical studies or clinical trials;
(cid:129) the insufficiency of data collected from clinical trials of our drug candidates to support the
submission and filing of a NDA; or BLA; or other submission or to obtain regulatory approval;
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(cid:129) the FDA, CFDA, EMA or comparable regulatory authority’s finding of deficiencies related to
the manufacturing processes or facilities of third-party manufacturers with whom we contract for
clinical and commercial supplies; and
(cid:129) changes in approval policies or regulations that render our preclinical and clinical data
insufficient for approval.
The FDA, CFDA, EMA or a comparable regulatory authority may require more information,
including additional preclinical or clinical data, to support approval, which may delay or prevent
approval 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 a Risk Evaluation
Mitigation Strategy, or REMS, or the CFDA, EMA or a comparable regulatory authority may require
the establishment of a similar strategy, that may, for instance, restrict distribution of our drugs and
impose burdensome implementation requirements on us. Any of the foregoing scenarios could
materially harm the commercial prospects of our drug candidates.
Regulatory approval may be substantially delayed or may not be obtained for one or all of our drug
candidates if regulatory authorities require additional time or studies to assess the safety and efficacy of our
drug candidates.
We may be unable to initiate or complete development of our drug candidates, such as BGB-3111,
BGB-A317, BGB-290 and BGB-283, on schedule, if at all. The timing for the completion of the studies
for our drug candidates will require funding beyond the proceeds of our initial public offering and
follow-on public offering. 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. Delays in clinical
trials, regulatory approvals or rejections of applications for regulatory approval in the United States,
Australia, New Zealand, the PRC, Europe or other markets may result from many factors, including:
(cid:129) our inability to obtain sufficient funds required for a clinical trial;
(cid:129) regulatory requests for additional analyses, reports, data, nonclinical and preclinical studies and
clinical trials;
(cid:129) regulatory questions regarding interpretations of data and results and the emergence of new
information regarding our drug candidates or other products;
(cid:129) 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;
(cid:129) failure to reach agreement with the FDA, CFDA, EMA or other regulators regarding the scope
or design of our clinical trials;
(cid:129) 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;
(cid:129) our inability to enroll a sufficient number of patients who meet the inclusion and exclusion
criteria in a clinical trial;
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(cid:129) our inability to conduct a clinical trial in accordance with regulatory requirements or our clinical
trial protocols;
(cid:129) clinical sites and investigators deviating from a trial protocol, failing to conduct the trial in
accordance with regulatory requirements, or dropping out of a trial;
(cid:129) 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;
(cid:129) 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;
(cid:129) failure of our third-party clinical research organizations to satisfy their contractual duties or
meet expected deadlines;
(cid:129) delay or failure in adding new clinical trial sites;
(cid:129) ambiguous or negative interim results, or results that are inconsistent with earlier results;
(cid:129) unfavorable or inconclusive results of clinical trials and supportive nonclinical studies, including
unfavorable results regarding effectiveness of drug candidates during clinical trials;
(cid:129) feedback from the FDA, CFDA, EMA, an IRB, data safety monitoring boards, or comparable
entities, or results from earlier stage or concurrent preclinical studies and clinical trials, that
might require modification to the protocol;
(cid:129) unacceptable risk-benefit profile or unforeseen safety issues or adverse side effects;
(cid:129) decision by the FDA, CFDA, EMA, an IRB, comparable entities, or us, or recommendation by a
data safety monitoring board or comparable regulatory entity, to suspend or terminate clinical
trials at any time for safety issues or for any other reason;
(cid:129) failure to demonstrate a benefit from using a drug or biologic;
(cid:129) lack of adequate funding to continue the clinical trial due to unforeseen costs or other business
decisions;
(cid:129) our inability to reach agreements on acceptable terms with prospective contract research
organizations, or CROs, and trial sites, the terms of which can be subject to extensive
negotiation and may vary significantly among different CROs and trial sites;
(cid:129) our inability to obtain approval from IRBs or ethics committees to conduct clinical trials at their
respective sites;
(cid:129) 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
(cid:129) difficulty in maintaining contact with patients 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.
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 product sales revenues from 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
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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 are required to conduct additional clinical trials or other studies with respect to any of our
drug candidates beyond those that we initially contemplated, if we are unable to successfully complete
our clinical trials or other studies or if the results of these studies are not positive or are only modestly
positive, we may be delayed in obtaining regulatory approval for that drug candidate, we may not be
able to obtain regulatory approval at all or we may obtain approval for indications that are not as
broad as intended. Our drug development costs will also increase if we experience delays in testing or
approvals, and we may not have sufficient funding to complete the testing and approval process.
Significant clinical trial delays could allow our competitors to bring drugs to market before we do and
impair our ability to commercialize our drugs, if and when approved. If any of this occurs, our business
will be materially harmed.
Failure to successfully validate, develop and obtain regulatory approval for companion diagnostics could harm
our drug development strategy.
As one of the key elements of our clinical development strategy, we seek to identify patient subsets
within a disease category who may derive selective and meaningful benefit from the drug candidates we
are developing. In collaboration with partners, we plan to develop companion diagnostics to help us to
more accurately identify patients within a particular subset, both during our clinical trials and in
connection with the commercialization of our drug candidates. Companion diagnostics are subject to
regulation by the FDA, CFDA, EMA and other comparable regulatory authorities and require separate
regulatory approval or clearance prior to commercialization. We do not develop companion diagnostics
internally, and thus we are dependent on the sustained cooperation and effort of our third-party
collaborators in developing and obtaining approval or clearance for these companion diagnostics. We
and our collaborators may encounter difficulties in developing and obtaining approval or clearance of
the companion diagnostics, including issues relating to selectivity/specificity, analytical validation,
reproducibility or clinical validation. Any delay or failure by our collaborators to develop or obtain
regulatory approval or clearance of the companion diagnostics could delay or prevent approval of our
drug candidates. In addition, our collaborators may encounter production difficulties that could
constrain the supply of the companion diagnostics, and both they and we may have difficulties gaining
acceptance of the use of the companion diagnostics in the clinical community. A failure of such
companion diagnostics to gain market acceptance would have an adverse effect on our ability to derive
revenues from sales of our drugs. In addition, the diagnostic company with whom we contract may
decide to discontinue selling or manufacturing the diagnostic we anticipate using in connection with
development and commercialization of our drug candidates or our relationship with such diagnostic
company may otherwise terminate. We may not be able to enter into arrangements with another
diagnostic company to obtain supplies of an alternative diagnostic test for use in connection with the
development and commercialization of our drug candidates or do so on commercially reasonable terms,
which could adversely affect and/or delay the development or commercialization of our drug
candidates.
Our drug candidates 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 AEs caused by our drug 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, CFDA, EMA or other comparable regulatory authority. Results of
our trials could reveal a high and unacceptable severity or prevalence of AEs. In such an event, our
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trials could be suspended or terminated and the FDA, CFDA, EMA or other comparable regulatory
authorities could order us to cease further development of, or deny approval of, our drug candidates
for any or all targeted indications. Undesirable AEs caused by BGB-3111 may include, but are not
limited to, neutropenia, petechiae (spots that appear on the skin as a result of bleeding), purpura
(subcutaneous bleeding), bruising, rash, peripheral neuropathy, and fatigue. Undesirable AEs caused by
BGB-290 may include, but are not limited to, nausea, vomiting, diarrhea, lethargy, neutropenia,
anemia, thrombocytopena, hypophosphataemia, and hot flush. Undesirable AEs caused by BGB-283
may include, but are not limited to, thrombocytopenia, fatigue, rash, hand-foot syndrome, hypertension,
and anorexia. Drug-related AEs 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
harm our reputation, business, financial condition and prospects significantly.
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:
(cid:129) we may suspend marketing of the drug;
(cid:129) regulatory authorities may withdraw approvals or revoke licenses of the drug;
(cid:129) regulatory authorities may require additional warnings on the label;
(cid:129) 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 comparable regulatory authority;
(cid:129) we may be required to conduct post-market studies;
(cid:129) we could be sued and held liable for harm caused to subjects or patients; and
(cid:129) 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.
Further, combination therapy, such as using our wholly-owned drug candidates as well as third-
party agents, involves unique AEs that could be exacerbated compared to AEs from monotherapies.
These types of AEs could be caused by our drug candidates and could also 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, CFDA, EMA or other comparable regulatory
authority. Results of our trials could reveal a high and unacceptable severity or prevalence of AEs.
A Fast Track Designation by the FDA, even if granted for any of our drug candidates, may not lead to a
faster development or regulatory review or approval process, and does not increase the likelihood that our drug
candidates will receive regulatory approval.
We do not currently have Fast Track Designation for any of our drug candidates but may seek such
designation in the future. If a drug is intended for the treatment of a serious or life-threatening
condition and the drug demonstrates the potential to address unmet medical needs for that condition,
the drug sponsor may apply for FDA Fast Track Designation. The FDA has broad discretion whether
or not to grant this designation. Even if we believe a particular drug candidate is eligible for this
designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive Fast
Track Designation, we may not experience a faster development process, review or approval compared
to conventional FDA procedures. The FDA may withdraw a Fast Track Designation if it believes that
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the designation is no longer supported by data from our clinical development program. Many drugs
that have received Fast Track Designation have failed to obtain approval from the FDA.
A Breakthrough Therapy Designation by the FDA, even if granted for any of our drug candidates, may not
lead to a faster development or regulatory review or approval process, and does not increase the likelihood that
our drug candidates will receive regulatory approval.
We do not currently have Breakthrough Therapy Designation for any of our drug candidates but
may seek it in the future. 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 condition,
and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over
existing therapies on one or more clinically significant endpoints, such as substantial treatment effects
observed early in clinical development. For drugs that have been designated as Breakthrough
Therapies, interaction and communication between the FDA and the sponsor can help to identify the
most efficient path for development.
Designation as a Breakthrough Therapy is within the discretion of the FDA. Accordingly, even if
we believe, after completing early clinical trials, that one of our drug candidates meets the criteria for
designation as a Breakthrough Therapy, the FDA may disagree and instead decide not to grant that
designation. In any event, the receipt of a Breakthrough Therapy designation for a drug candidate may
not result in a faster development process, review or approval compared to drugs considered for
approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In
addition, even if one or more of our drug candidates qualify as Breakthrough Therapies, the FDA may
later decide that such drug candidates no longer meet the conditions for qualification.
We may seek orphan drug exclusivity for some of our drug candidates, and we may be unsuccessful.
Regulatory authorities in some jurisdictions, including the United States and Europe, may
designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act,
the FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or
condition, which is generally defined as a disease with a patient population of fewer than 200,000
individuals in the United States, or that affects more than 200,000 individuals in the United States and
for which there is no reasonable expectation that costs of research and development of the product for
the indication can be recovered by sales of the product in the United States. BGB-3111 received
orphan drug designation from the FDA for CLL, MCL and WM in 2016.
Generally, if a drug with an orphan drug designation subsequently receives the first regulatory
approval for the indication for which it has such designation, the drug is entitled to a period of
marketing exclusivity, which precludes the FDA or EMA, from approving another marketing
application for the same drug for the same indication during the period of exclusivity. The applicable
period is seven years in the United States and 10 years in Europe. The European exclusivity period can
be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug
is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be
lost if the FDA or the EMA determines that the request for designation was materially defective or if
the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with
the rare disease or condition.
Even if we obtain orphan drug exclusivity for a drug candidate, that exclusivity may not effectively
protect the drug candidate from competition because different drugs can be approved for the same
condition and the same drugs can be approved for a different condition but used off-label for any
orphan indication we may obtain. Even after an orphan drug is approved, the FDA can subsequently
approve a drug that is otherwise the same drug for the same condition if the FDA concludes that the
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later drug is clinically superior in that it is shown to be safer, more effective or makes a major
contribution to patient care.
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-market information,
including both federal and state requirements in the United States and requirements of comparable
regulatory authorities.
Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, CFDA,
EMA and comparable regulatory authority, requirements, including, in the United States, ensuring that
quality control and manufacturing procedures conform to 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 BLA, 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 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, CFDA, EMA or a comparable 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, as well as
continued compliance with cGMP and GCP, for any clinical trials that we conduct post-approval.
The FDA may seek to impose a consent decree or withdraw marketing 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 AEs
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-market 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:
(cid:129) restrictions on the marketing or manufacturing of our drugs, withdrawal of the product from the
market, or voluntary or mandatory product recalls;
(cid:129) fines, untitled or warning letters, or holds on clinical trials;
(cid:129) refusal by the FDA to approve pending applications or supplements to approved applications
filed by us or suspension or revocation of license approvals;
(cid:129) product seizure or detention, or refusal to permit the import or export of our drug candidates;
and
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(cid:129) 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 their approved indications and for use in
accordance with the provisions of the approved label. The FDA, CFDA, EMA 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, CFDA, EMA and of other regulatory authorities may change and additional
government regulations may be enacted that could prevent, limit or delay regulatory approval of our
drug candidates. We cannot predict the likelihood, nature or extent of government regulation that may
arise from future legislation or administrative action, either in the United States 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.
In addition, if we were able to obtain accelerated approval of any of our drug candidates, the FDA
would require us to conduct a confirmatory study to verify the predicted clinical benefit and additional
safety studies. Other comparable regulatory authorities outside the United States, such as the CFDA or
EMA, may have similar requirements. The results from the confirmatory study may not support the
clinical benefit, which would result in the approval being withdrawn. While operating under accelerated
approval, we will be subject to certain restrictions that we would not be subject to upon receiving
regular approval.
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 drug candidates that have gained regulatory approval for sale in the
United States, European Union, China or any other country, and we cannot guarantee that we will ever
have marketable 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, CFDA, EMA and comparable regulatory authorities. BGB-3111,
BGB-A317, BGB-290 and BGB-283 are each currently undergoing 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 United States, 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. In the United States, we have not submitted an NDA or BLA for any of our
drug candidates. An NDA or BLA must include extensive preclinical and clinical data and supporting
information to establish, in the case of an NDA, the drug candidate’s safety and effectiveness or, in the
case of a BLA, safety, purity and potency for each desired indication. The NDA or BLA must also
include significant information regarding the chemistry, manufacturing and controls for the drug.
Obtaining approval of an NDA or BLA is a lengthy, expensive and uncertain process, and approval
may not be obtained. If we submit an NDA or BLA 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 United States, such as the EMA or regulatory authorities in
Australia and New Zealand and in emerging markets, such as in the PRC, also have requirements for
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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 nonclinical 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. For all of these reasons, we may not
obtain non-U.S. regulatory approvals on a timely basis, if at all.
Specifically, in China, the CFDA categorizes domestically-manufactured innovative drug
applications as Category 1 and imported innovative drug applications as Category 5. To date, most of
local companies’ domestically-manufactured drug applications are filed in Category 1 if the drug has
not already been approved by the FDA or EMA. Most multinational pharmaceutical companies’ drug
registration applications are filed in Category 5 applicable to imported drugs, formerly known as
Category 3 prior to the reclassification implemented by the CFDA in 2016. These two categories have
distinct approval pathways, as described in ‘‘Item 1—Business—Regulatory Framework and Structural
Advantages of Being a China-Based Research and Development Organization.’’ We believe the local
drug registration pathway, Category 1, is a faster and more efficient path to approval in the Chinese
market than Category 5. Companies are required to obtain Clinical Trial Application approval before
conducting clinical trials in China. This registration pathway has a fast track review and approval
mechanism if the drug candidate is on a national priority list. The imported drug registration pathway,
Category 5, is more complex and is evolving. China Category 5 registration applications may only be
submitted after a drug has obtained an NDA approval and received the CPP granted by a major drug
regulatory authority, such as the FDA or EMA.
Further, in August 2015, the Chinese State Council issued a statement, Opinions on reforming the
review and approval process for pharmaceutical products and medical devices that contained several
potential policy changes that could benefit the pharmaceutical industry:
(cid:129) 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 and orphan diseases, drugs on national priority lists.
(cid:129) 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.
(cid:129) 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 being conducted in other countries and encourage
local clinical trial organizations to participate in international multi-center clinical trials.
In November 2015, the CFDA 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:
(cid:129) 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’ clinical trial applications.
(cid:129) 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 in elders; (4) registration of drugs sponsored
by national science and technology grants; (5) registration of innovative drugs using advanced
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technology, using innovative treatment methods, or having distinctive clinical benefits;
(6) registration of foreign innovative drugs to be manufactured locally in China; and
(7) concurrent applications for new drug clinical trials which are already approved in the United
States or European Union or concurrent drug registration applications for drugs which have
applied for marketing authorization and passed onsite inspections in the United States or
European Union 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 February 2016, the CFDA released the Opinions on Priority Review and Approval for Resolving
Drug Registration Applications Backlog, which further clarified the following policies potentially
accelerating the approval process of certain clinical trials or drug registrations:
(cid:129) A fast track drug registration or clinical trial approval pathway will be available for the following
drug registration applications with distinctive clinical benefits: (1) registration application of
innovative drugs not sold within or outside China; (2) registration application of innovative drugs
transferred to be manufactured in China; (3) registration application of drugs using advanced
technology, using innovative treatment methods, or having distinctive treatment advantages;
(4) clinical trial applications for drugs with patent expiry within three years, and marketing
authorization applications for drugs with patent expiry within one year; (5) concurrent
applications for new drug clinical trials which are already approved in the United States or
European Union, or concurrent drug registration applications for drugs which have applied for
marketing authorization and passed onsite inspections in the United States or European Union
and are manufactured using the same production line in China; (6) traditional Chinese
medicines (including ethnic medicines) with clear clinical position in prevention and treatment of
serious diseases; and (7) registration application of new drugs sponsored by national key
technology projects or national key development projects.
(cid:129) A fast track drug registration approval pathway will be available for drug registration
applications with distinctive clinical benefits for prevention and treatment of HIV, phthisis, viral
hepatitis, orphan diseases, cancer, malignant neoplasms, children’s diseases, and geriatrics.
(cid:129) In March 2016, the CFDA released a circular, CFDA Announcement on Reforms of
Pharmaceutical Registration Classification, which outlined the re-classifications of drug
applications. Under the new categorization, innovative drugs that have not been marketed either
within or outside China remain Category 1, while drugs marketed outside China seeking
marketing approval in China are now Category 5.
(cid:129) However, because these laws and regulations in relation to such above-mentioned fast track
clinical trial approval and drug registration pathway were newly issued, uncertainty remains with
respect to their implementation. We expect that the CFDA review and approval process will
improve over time. However, how and when this approval process will be changed is still subject
to further policies to be issued by the CFDA and is currently uncertain.
(cid:129) The process to develop, obtain regulatory approval for and commercialize drug candidates is
long, complex and costly both inside and outside the United States and China, and approval is
never guaranteed. Even if our drug candidates were to successfully obtain approval from the
regulatory authorities, any approval might significantly limit the approved indications for use, or
require that precautions, contraindications or warnings be included on the product labeling, or
require expensive and time-consuming post-approval clinical studies or surveillance as conditions
of approval. Following any approval for commercial sale of our drug candidates, certain changes
to the drug, such as changes in manufacturing processes and additional labeling claims, may be
subject to additional review and approval by the FDA, CFDA and EMA and comparable
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regulatory authorities. Also, regulatory approval for any of our drug candidates may be
withdrawn. 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, we may not be able to obtain sufficient funding or generate sufficient
revenue and cash flows to continue the development of any other drug candidate in the future.
A Category 1 designation by the CFDA may be revoked or may not be granted for any of our drug candidates
or may not lead to faster development or regulatory review or approval process and does not increase the
likelihood that our drug candidates will receive regulatory approval.
We believe the local drug registration pathway, Category 1, is a faster and more efficient path to
approval in the Chinese market than the drug registration pathway for imported drugs under
Category 5. Companies are required to obtain Clinical Trial Application approval before conducting
clinical trials in China. This registration pathway has a fast track review and approval mechanism if the
drug candidate is on a national priority list. Imported drug candidates under Category 5 cannot qualify
for the national priority list to benefit from fast track reviews. Our drug candidates are all new
therapeutic agents and we have built both research and development, clinical trial capacities, and
commercial manufacturing facilities in China. As a result, we expect all of our current drug candidates
to fall within the Category 1 application process, but cannot be sure we will be granted or be able to
maintain Category 1 designation.
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, it 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, such as BGB-A317, BGB-3111, BGB-290 and BGB-283. In addition, physicians, patients
and third-party payors may prefer other novel products to ours. 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:
(cid:129) the clinical indications for which our drug candidates are approved;
(cid:129) physicians, hospitals, cancer treatment centers and patients considering our drug candidates as a
safe and effective treatment;
(cid:129) the potential and perceived advantages of our drug candidates over alternative treatments;
(cid:129) the prevalence and severity of any side effects;
(cid:129) product labeling or product insert requirements of the FDA, CFDA, EMA or other comparable
regulatory authorities;
(cid:129) limitations or warnings contained in the labeling approved by the FDA, CFDA, EMA or other
comparable regulatory authorities;
(cid:129) the timing of market introduction of our drug candidates as well as competitive drugs;
(cid:129) the cost of treatment in relation to alternative treatments;
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(cid:129) the amount of upfront costs or training required for physicians to administer our drug
candidates;
(cid:129) the availability of adequate coverage, reimbursement and pricing by third-party payors and
government authorities;
(cid:129) the willingness of patients to pay out-of-pocket in the absence of coverage and reimbursement
by third-party payors and government authorities;
(cid:129) relative convenience and ease of administration, including as compared to alternative treatments
and competitive therapies; and
(cid:129) 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.
We currently have no marketing and sales organization and have no experience in marketing drugs. If we are
unable to establish marketing and sales capabilities or enter into agreements with third parties to market and
sell our drug candidates, we may not be able to generate product sales revenue.
We currently have no sales, marketing or commercial product distribution capabilities and have no
experience in marketing drugs. We intend to develop an in-house marketing organization and sales
force, 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 or decide not to establish internal sales, marketing and commercial distribution
capabilities for any or all drugs we develop, we will likely pursue collaborative arrangements regarding
the sales and marketing of our 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 little or no control over the marketing and sales efforts of such
third parties, and our revenue from product sales may be lower than if we had commercialized our
drug candidates ourselves. We also face competition in our search for third parties to assist us with the
sales and marketing efforts of our drug candidates.
There can be no assurance that we will be able to develop in-house sales and commercial
distribution capabilities or establish or maintain relationships with third-party collaborators to
successfully commercialize any product, and as a result, we may not be able to generate product sales
revenue.
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We face substantial competition, which may result in others discovering, developing or commercializing
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 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.
Specifically, there are a large number of companies developing or marketing treatments for cancer,
including many major pharmaceutical and biotechnology companies. See ‘‘Item 1—Business—
Competition.’’
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, CFDA, EMA or other comparable 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.
Furthermore, the regulatory framework in China regarding imported drugs may undergo changes that
could erode our competitive advantage with respect to the Chinese domestic regulatory pathway. For
example, on March 17, 2017, the CFDA published a draft Decision on Regulation Adjustment on
Imported Drugs Registration that if adopted would potentially accelerate the regulatory approval
process for imported drugs.
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.
Our drug candidates for which we intend to seek approval as biological or drug products may face
competition sooner than expected.
With the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, as
part of the ACA, as amended by the Health Care and Education Reconciliation Act of 2010, or,
collectively the ACA, an abbreviated pathway for the approval of biosimilar and interchangeable
biological products was created in the United States. The abbreviated regulatory pathway establishes
legal authority for the FDA to review and approve biosimilars, including the possible designation of a
biosimilar as ‘‘interchangeable,’’ based on their similarity to existing reference product. Under the
BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the
reference product was approved under a BLA. The BPCIA is complex and is only beginning to be
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interpreted and implemented by the FDA. As a result, its ultimate impact, implementation and
meaning are subject to uncertainty, and it could have a material adverse effect on the future
commercial prospects for our biological products, including BGB-A317, if approved.
We believe that any of our drugs approved as a biological product under a BLA should qualify for
the 12-year period of exclusivity. However:
(cid:129) a potential competitor could seek and obtain approval of its own BLA during our exclusivity
period instead of seeking approval of a biosimilar version; and
(cid:129) the FDA could consider a combination therapy which contains both drug and biological product
components, to be a drug subject to review pursuant to an NDA, and therefore eligible for a
significantly shorter marketing exclusivity period as provided under the Drug Price Competition
and Patent Term Restoration Act of 1984.
Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our
reference products in a way that is similar to traditional generic substitution for non-biological products
is not yet clear and will depend on a number of marketplace and regulatory factors that are still
developing.
In addition, a drug product approved under an NDA, such as BGB-3111, BGB-290 or BGB-283, if
they were to be approved, could face generic competition earlier than expected. The enactment of the
Generic Drug User Fee Amendments of 2012 as part of the Food and Drug Administration Safety and
Innovation Act of 2012 established a user fee program that will generate hundreds of millions of dollars
in funding for the FDA’s generic drug review program. Funding from the user fee program, along with
performance goals that the FDA negotiated with the generic drug industry, could significantly decrease
the timeframe for FDA review and approval of generic drug applications.
The market opportunities for our drug candidates may be limited to those patients who are ineligible for or
have failed prior treatments and may be small.
Cancer therapies are sometimes characterized as first line, second line or third line, and the FDA
often approves new therapies initially only for third line use. When cancer is detected early enough,
first line therapy is sometimes adequate to cure the cancer or prolong life without a cure. Whenever
first line therapy, usually chemotherapy, hormone therapy, surgery or a combination of these, proves
unsuccessful, second line therapy may be administered. Second line therapies often consist of more
chemotherapy, radiation, antibody drugs, tumor targeted small molecules or a combination of these.
Third line therapies can include bone marrow transplantation, antibody and small molecule targeted
therapies, more invasive forms of surgery and new technologies. In markets with approved therapies,
we expect to initially seek approval of our drug candidates as a later stage therapy for patients who
have failed other approved treatments. Subsequently, for those drugs that prove to be sufficiently
beneficial, if any, we would expect to seek approval as a second line therapy and potentially as a first
line therapy, but there is no guarantee that our drug candidates, even if approved, would be approved
for second line or first line therapy. In addition, we may have to conduct additional clinical trials prior
to gaining approval for second line or first line therapy.
Our projections of both the number of people who have the cancers we are targeting, as well as
the subset of people with these cancers in a position to receive later stage therapy and who have the
potential to benefit from treatment with our drug candidates, are based on our beliefs and estimates.
These estimates have been derived from a variety of sources, including scientific literature, surveys of
clinics, patient foundations or market research and may prove to be incorrect. Further, new studies may
change the estimated incidence or prevalence of these cancers. The number of patients may turn out to
be lower than expected. Additionally, the potentially addressable patient population for our drug
candidates may be limited or may not be amenable to treatment with our drug candidates. Even if we
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obtain significant market share for our drug candidates, because the potential target populations are
small, we may never achieve profitability without obtaining regulatory approval for additional
indications, including use as a first or second line therapy.
Our market opportunities may also be limited by competitor treatments that may enter the market.
See ‘‘—We face substantial competition, which may result in others discovering, developing or
commercializing competing drugs before or more successfully than we do.’’
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.
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 then 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. Adverse pricing limitations may hinder our ability to
recoup our investment in one or more drug candidates, even if our drug candidates obtain regulatory
approval. For example, according to a statement, Opinions on reforming the review and approval process
for pharmaceutical products and medical devices, issued by the Chinese 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 PRC mainland market shall not be higher than the comparable market prices of the
product in its country of origin or PRC’s neighboring markets, as applicable.
Our ability to commercialize any drugs successfully also will depend in part on the extent to which
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. A primary trend in the global
healthcare industry is cost containment. Government authorities and these third-party payors have
attempted to control costs by limiting coverage and the amount of reimbursement for particular
medications. Increasingly, third-party payors are requiring that companies provide them with
predetermined discounts from list prices and are challenging the prices charged for medical products.
We cannot be sure that reimbursement will be available for any drug that we commercialize and, if
reimbursement is 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 drugs administered under the supervision of a physician. If reimbursement is not available or is
available only to limited levels, we may not be able to successfully commercialize any drug candidate
that we successfully develop.
There may be significant delays in obtaining reimbursement for approved product drugs, and
coverage may be more limited than the purposes for which the drug is approved by the FDA or other
comparable regulatory authorities outside the United States. Moreover, eligibility for reimbursement
does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including
research, development, manufacture, sale and distribution. Interim payments for new drugs, if
applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment
rates may vary according to the use of the drug and the clinical setting in which it is used, may be
based on payments allowed for lower cost drugs that are already reimbursed, and may be incorporated
into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts
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or rebates required by government healthcare programs or private payors and by any future weakening
of laws that presently restrict imports of drugs from countries where they may be sold at lower prices
than in the United States. Third-party payors often rely upon Medicare coverage policy and payment
limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and
profitable payment rates from both government-funded and private payors for new drugs that we
develop could have a material adverse effect on our operating results, our ability to raise capital
needed to commercialize drugs and our overall financial condition.
Coverage and reimbursement may be limited or unavailable in certain market segments for our drug
candidates, which could make it difficult for us to sell our drug candidates profitably.
Successful sales of our drug candidates, if approved, depend on the availability of adequate
coverage and reimbursement from third-party payors. In addition, because our drug candidates
represent new approaches to the treatment of cancer, we cannot accurately estimate the potential
revenue from our drug candidates.
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 United
States, and commercial payors are critical to new drug acceptance.
Government authorities and third-party payors, such as private health insurers and health
maintenance organizations, decide which drugs and treatments they will cover and the amount of
reimbursement. 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:
(cid:129) a covered benefit under its health plan;
(cid:129) safe, effective and medically necessary;
(cid:129) appropriate for the specific patient;
(cid:129) cost-effective; and
(cid:129) neither experimental nor investigational.
In the United States, 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 genetically
modified drugs. Patients are unlikely to use our drug candidates unless coverage is provided and
reimbursement is adequate to cover a significant portion of the cost of our drug candidates. Because
our drug candidates have a higher cost of goods than conventional therapies, and may require
long-term follow up evaluations, the risk that coverage and reimbursement rates may be inadequate for
us to achieve profitability may be greater.
The Chinese State Council asked central and provincial authorities across the PRC to promote a
medical insurance program for major illnesses. By the end of 2015, all urban and rural residents
covered by basic medical insurance programs should be covered by the insurance program for major
illnesses, according to Chinese State Council policy number 2015-57, issued on July 28, 2015. As a
complement to basic insurance programs, this program is required to cover at least 50% of the medical
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cost as incurred by treating major illnesses, but falls out of the coverage of the basic insurance
programs. The Chinese State Council requires provincial authorities to increase reimbursement rates
over the next three years.
According to the PRC Central Government’s guidance issued in March 2015, each province will
decide which drugs to include in its provincial major illness reimbursement lists and the percentage of
reimbursement, based on local funding. For example, Zhejiang province, located in the Yangtze river
delta area with a population of 55 million, announced its provincial major illness drug reimbursement
list in early 2015. The list includes 31 expensive drugs, among which 15 are targeted therapy agents for
cancer, including Glivec, Ireesa, Erbitux, Herceptin, and Rituxan. Although it will take three years to
establish a comprehensive national coverage, the affordability of the expensive, novel cancer agents to
Chinese patients will improve significantly and the targeted therapy market is expected to enter a fast
growing period.
We intend to seek approval to market our drug candidates in the United States, China, Europe
and in 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, particularly those in the European Union, 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.
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 United States, PRC, European Union and some 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 United States, 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.
More recently, in March 2010, then President Obama signed into law the ACA, a sweeping law
intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending,
enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and
health insurance industries, impose new taxes and fees on the health industry and impose additional
health policy reforms.
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Among the provisions of the ACA of importance to our potential drug candidates are the
following:
(cid:129) an annual, nondeductible fee on any entity that manufactures or imports specified branded
prescription drugs and biologics;
(cid:129) an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid
Drug Rebate Program;
(cid:129) 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;
(cid:129) a new Medicare Part D coverage gap discount program, in which manufacturers must agree to
offer 50% point-of-sale discounts off negotiated prices;
(cid:129) extension of manufacturers’ Medicaid rebate liability;
(cid:129) expansion of eligibility criteria for Medicaid programs;
(cid:129) expansion of the entities eligible for discounts under the Public Health Service Act
pharmaceutical pricing program;
(cid:129) new requirements to report financial arrangements with physicians and teaching hospitals;
(cid:129) a new requirement to annually report drug samples that manufacturers and distributors provide
to physicians; and
(cid:129) a new 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 United States since
the ACA was enacted. These changes included aggregate reductions to Medicare payments to providers
of up to 2% per fiscal year, starting in 2013. In January 2013, then President Obama signed into law
the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to
several providers, and 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 measures that may be adopted in the
future, may result in more rigorous coverage criteria and in 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.
Legislative and regulatory proposals have been made to expand post-approval requirements and
restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether
additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations
will be changed, or what the impact of such changes on the regulatory approvals of our drug
candidates, if any, may be. 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.
As a result of the 2016 election in the United States, the fate of the ACA and other healthcare
laws is uncertain. The United States House of Representatives is considering approval of legislation to
repeal parts of the ACA, but it is uncertain whether Congress will replace the law and what any
replacement law would provide.
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We may be 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 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 any products for which we obtain regulatory approval. If we obtain FDA approval for
any of our drug candidates and begin commercializing those drugs in the United States, our operations
may be 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 sunshine laws and
regulations. These laws may impact, among other things, our proposed sales, marketing and education
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:
(cid:129) 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;
(cid:129) federal civil and criminal false claims laws and civil monetary penalty laws, such as the federal
False Claims Act, which impose 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 or making a false statement to avoid, decrease or
conceal an obligation to pay money to the federal government;
(cid:129) the federal HIPAA, which created new federal criminal statutes that 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;
(cid:129) 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;
(cid:129) the federal false statements statute prohibits knowingly and willfully falsifying, concealing or
covering up a material fact or making any materially false statement in connection with the
delivery of or payment for healthcare benefits, items or services;
(cid:129) 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. Department of
Health and Human Services information related to payments or other transfers of value made to
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physicians and teaching hospitals, as well as ownership and investment interests held by
physicians and their immediate family members; and
(cid:129) 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.
Neither the U.S. government nor the U.S. courts have provided definitive guidance on the
application of fraud and abuse laws to our business. 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 United States
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 with are
found to be not in compliance with applicable laws, they may be subject to criminal, civil or
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administrative sanctions, including exclusions from government funded healthcare programs, which may
also adversely affect our business.
We may explore the licensing of commercialization rights or other forms of collaboration worldwide, which will
expose us to additional risks of conducting business in additional international markets.
Non-U.S. markets 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:
(cid:129) 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;
(cid:129) changes in a specific country’s or region’s political and cultural climate or economic condition;
(cid:129) differing regulatory requirements for drug approvals and marketing internationally;
(cid:129) difficulty of effective enforcement of contractual provisions in local jurisdictions;
(cid:129) potentially reduced protection for intellectual property rights;
(cid:129) potential third-party patent rights;
(cid:129) unexpected changes in tariffs, trade barriers and regulatory requirements;
(cid:129) economic weakness, including inflation or political instability, particularly in non-U.S. economies
and markets;
(cid:129) compliance with tax, employment, immigration and labor laws for employees traveling abroad;
(cid:129) the effects of applicable non-U.S. tax structures and potentially adverse tax consequences;
(cid:129) currency fluctuations, which could result in increased operating expenses and reduced revenue,
and other obligations incidental to doing business in another country;
(cid:129) workforce uncertainty and labor unrest, particularly in non-U.S. countries where labor unrest is
more common than in the United States;
(cid:129) 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;
(cid:129) 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;
(cid:129) production shortages resulting from any events affecting raw material supply or manufacturing
capabilities abroad; and
(cid:129) 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 attain or sustain revenue from
international markets.
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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 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
United States, the PRC and other countries with respect to our proprietary technology and drug
candidates. As of March 21, 2017, we own eight issued U.S. patents and eight pending U.S. patent
applications as well as corresponding patents and patent applications internationally. In addition, we
own 13 pending international patent applications under the PCT, which we plan to file nationally in the
United States and other jurisdictions. With respect to any issued patents in the United States and
Europe, we may be entitled to obtain a patent term extension to extend the patent expiration date
provided we meet the applicable requirements for obtaining such patent term extensions. We have
sought to protect our proprietary position by filing patent applications in the United States, the PRC
and other countries related to novel technologies and drug candidates that we consider are important
to our business. This process 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.
The patent position of biotechnology and pharmaceutical companies generally 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. Our pending and future patent applications may not result in patents being issued
which protect our technology or drug candidates or which effectively prevent others from
commercializing competitive technologies and drug candidates. Changes in either the patent laws or
interpretation of the patent laws in the United States and other countries may diminish the value of
our patents or narrow the scope of our patent protection. Publications of discoveries in the scientific
literature often lag behind the actual discoveries, and patent applications in the United States and
other jurisdictions are typically not published until 18 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.
Assuming the other requirements for patentability are met, the first to file a patent application is
entitled to the patent. Under the Leahy-Smith America Invents Act enacted in 2011, the United States
moved to this first-to-file system in early 2013 from the previous system under which the first to make
the claimed invention was entitled to the patent. 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. An adverse determination in any such
proceeding could reduce the scope of, or invalidate, our patent rights, allow third parties to
commercialize our technology or drug candidates and compete directly with us, or result in our inability
to manufacture or commercialize drug candidates without infringing third-party patent rights.
There can be no assurance that our pending patent applications will result in issued patents in the
United States or non-U.S. jurisdictions in which such applications are pending. Even if patents do issue
on any of these applications, there can be no assurance that a third party will not challenge their
validity or that we will obtain sufficient claim scope in those patents to prevent a third party from
competing successfully with our drug candidates. Even if our patent applications issue as patents, they
may not issue in a form that will provide us with any meaningful protection, prevent competitors from
competing with us or otherwise provide us with any competitive advantage. Our competitors may be
able to circumvent our patents by developing similar or alternative technologies or drug candidates in a
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non-infringing manner. The issuance of a patent is not conclusive as to its scope, validity or
enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in
the United States and abroad. Such challenges may result in patent claims being narrowed, invalidated
or held unenforceable, which could limit our ability to stop or prevent us from stopping 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.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting, maintaining and defending patents on drug candidates in all countries
throughout the world could be prohibitively expensive for us, and our intellectual property rights in
some non-U.S. countries can have a different scope and strength than do those in the United States. 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 United States, or from selling or importing
drugs made using our inventions in and into the United States 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 United States.
These drugs may compete with our drug candidates and our patent rights or other intellectual property
rights may not be effective or adequate to prevent them from competing.
We currently hold issued trademark registrations and have trademark applications pending, any of
which may be the subject of a governmental or third-party objection, which could prevent the
maintenance or issuance of the same. If we are unsuccessful in obtaining trademark protection for our
primary brands, we may be required to change our brand name, which could materially adversely affect
our business. Moreover, as our products mature, our reliance on our trademarks to differentiate us
from our competitors will increase, and as a result, if we are unable to prevent third parties from
adopting, registering or using trademarks and trade dress that infringe, dilute or otherwise violate our
trademark rights, our business could be materially adversely affected.
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.
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We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive,
time consuming and unsuccessful. 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 in the future
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. This can
be expensive and time consuming. Any claims that we assert against perceived infringers could also
provoke these parties to assert counterclaims against us alleging that we infringe their intellectual
property rights. Many of our current and potential competitors 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 rights 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 rights 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 during this type of litigation.
If we initiate legal proceedings against a third party to enforce our 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 United States, 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 United States 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. 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 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 our drug candidates. Such a loss of patent protection could have a material
adverse impact on our business.
We may not be able to prevent misappropriation of our trade secrets or confidential information,
particularly in countries where the laws may not protect those rights as fully as in the United States.
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 during this type of litigation.
We may be subject to claims challenging the inventorship of our patents and 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
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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, in addition to paying monetary damages, we may lose rights such as
exclusive ownership of, or right to use, our patent rights or other intellectual property. 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 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 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, there may be currently
pending patent applications which 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 infringes upon these patents. 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 they are finally determined to be held invalid or
unenforceable. Similarly, if any third-party patent were 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 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. 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 at all or whether it
would be available on commercially reasonable terms, and we may fail to obtain any of these licenses
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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.
Specifically, we are aware of three U.S. patents owned by Ono Pharmaceutical Co., or Ono, and
licensed to Bristol-Myers Squibb Co., or BMS, that are relevant to our BGB-A317 drug candidate.
These patents are expected to expire in 2023, 2023 and 2024, respectively. In patent infringement
actions filed in Delaware Federal District court, BMS and Ono alleged that Merck & Co.’s
KEYTRUDA product, a humanized anti-PD-1 antibody is infringing these U.S. patents. Although
Merck challenged the validity of these patents, Merck recently settled this litigation with BMS and Ono
resulting in Merck taking a license from BMS and Ono. All these three patents remain presumed valid
and enforceable. Merck also filed an opposition proceeding challenging a corresponding European
patent at the European Patent Office, or EPO. The EPO’s Opposition Division disagreed with Merck’s
arguments and maintained the European patent in the form in which it was granted. Merck appealed
the decision, but recently withdrew its appeal. If the validity of the relevant claims in these U.S. patents
is upheld and our BGB-A317 drug candidate is approved for sale in the United States before the
expiration of these patents, then we will need a license from BMS in order to commercialize our
BGB-A317 drug candidate in the United States prior to their expiration. In addition, depending upon
circumstances, we may need a license for jurisdictions outside the United States where we wish to
commercialize BGB-A317 before the expiration of a corresponding patent covering BGB-A317. There
can be no assurance that we will be able to obtain such a license, which could materially and adversely
affect our business.
In addition, we are aware of a U.S. patent owned by Pharmacyclics, Inc., which was acquired by
AbbVie, Inc., with certain claims directed to a complex of an irreversible BTK inhibitor having a
covalent bond to a cysteine residue of a BTK. This patent is expected to expire in 2027. Although we
believe that the claims of the patent relevant to our BGB-3111 drug candidate would likely be held
invalid, we cannot provide any assurances that a court or an administrative agency would agree with
our assessment. If the validity of the relevant claims in question is upheld upon a validity challenge,
and BGB-3111 is approved for sale in the United States before the expiration of the U.S. patent, then
we would need a license in order to commercialize BGB-3111 in the United States. In addition,
depending upon circumstances, we may need a license for jurisdictions outside the United States where
we wish to commercialize BGB-3111 before the expiration of a corresponding patent covering
BGB-3111. However such a license may not be available on commercially reasonable terms or at all,
which could materially and adversely affect our business.
We are also aware of three U.S. patents, owned or licensed by KuDOS Pharmaceuticals, Ltd.,
which was acquired by AstraZeneca PLC, with claims directed to using PARP inhibitors to treat
cancers with certain defects in homologous recombination including, in some cases, a BRCA1 or
BRCA2 mutation. These patents are expected to expire between 2027 and 2031 in the United States.
Although we believe that the claims of these patents relevant to our BGB-290 drug candidate would
likely be held invalid, we cannot provide any assurances that a court or an administrative agency would
agree with our assessment. While we are currently conducting and plan to conduct studies that include
cancer patients with a BRCA1 or BRCA2 mutation, we are uncertain whether BGB-290 as
commercialized will be used to treat cancer patients limited to having BRCA1 or BRCA2 mutation
either in a monotherapy or a combination therapy. If BGB-290 is approved for sale in the United
States for patients whose cancers have a BRCA1 or BRCA2 mutation, and if the validity of the
relevant claims of these U.S. patents is upheld upon a validity challenge, then we would need a license
in order to commercialize BGB-290 prior to expiration of these U.S. patents. In addition, we are also
aware of corresponding issued patents in Europe and China. Depending upon circumstances, we may
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need a license for jurisdictions outside the United States where we wish to commercialize BGB-290
before the expiration of a corresponding patent covering BGB-290. However, such a license may not be
available on commercially reasonable terms or at all, which could materially and adversely affect 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 the ADSs. 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.
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.
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. 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. 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 or lapse of a patent or patent
application 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, including the United States, the term of an issued patent is
generally 20 years from the earliest claimed filing date of a non-provisional patent application in the
applicable country. Although various extensions may be available, the life of a patent and the
protection it affords, is 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 from 2031 to 2035, excluding any potential patent
term extension or adjustment. Upon the expiration of our issued patent or patents that may issue from
our pending patent applications, we will not be able to assert such patent rights against potential
competitors and our business and results of operations may be adversely affected.
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
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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 14 years from the date of drug approval by the FDA, and only one patent can be extended
for a particular drug.
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 because of, for example, failing to apply within
applicable deadlines, failing 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, and 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 United States 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, if any. 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 a recent case, 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 currently-issued patent and 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 rights 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 be subject to claims that our employees have wrongfully used or disclosed alleged trade
secrets of their former employers.
In addition to our issued patent 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. However, any of
these parties may breach such agreements and disclose our proprietary information, and we may not be
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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 in the future litigation
may be necessary 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 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.
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 may 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 more 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
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.
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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. 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 provided for under these agreements 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 for under 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.
Risks Related to Our Reliance on Third Parties
We rely on third parties to conduct our preclinical studies and clinical trials. If these third parties do not
successfully carry out their contractual duties or meet expected deadlines, 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 plan to continue to 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. We and our CROs and our clinical investigators
are required to comply with GCPs, which are regulations and guidelines enforced by the FDA, CFDA,
EMA and other comparable 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 or clinical investigators fail to comply with
applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the
FDA, CFDA, EMA or comparable 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.
Our CROs have the right to terminate their agreements with us in the event of an uncured
material breach. In addition, some of our CROs have an ability to terminate their respective
agreements with us if it can be reasonably demonstrated that the safety of the subjects participating in
our clinical trials warrants such termination, if we make a general assignment for the benefit of our
creditors or if we are liquidated.
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If any of our relationships with these third-party CROs terminate, 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, nonclinical and preclinical programs. 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 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.
Switching or adding additional CROs involves additional cost and requires management time and
focus. In addition, there is a natural transition period when a new CRO commences work. As a result,
delays occur, which can materially influence our ability to meet our desired clinical development
timelines. Though we carefully manage our relationships with our CROs, there can be no assurance
that we will not encounter similar challenges or delays in the future or that these delays or challenges
will not have a material adverse effect on our business, financial condition and prospects.
We expect to rely on third parties to manufacture at least a portion of our drug candidate supplies, and we
intend to rely on third parties 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.
Although we currently have a facility that may be used as our clinical-scale manufacturing and
processing facility, we intend to at least partially rely on outside vendors to manufacture supplies and
process our drug candidates. We have not yet caused our drug candidates to be manufactured or
processed on a commercial scale and may not be able to do so for any of our drug candidates. 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 intend to further develop our own manufacturing facilities, we also intend to use
third parties as part of our manufacturing process. Our anticipated reliance on a limited number of
third-party manufacturers exposes us to the following risks:
(cid:129) we may be unable to identify manufacturers on acceptable terms or at all because the number of
potential manufacturers is limited and the FDA, CFDA, EMA or other comparable regulatory
authorities must approve any manufacturers as part of their regulatory oversight of our drug
candidates. This approval would require new testing and cGMP-compliance inspections by FDA,
CFDA, EMA or other comparable regulatory authorities. In addition, a new manufacturer would
have to be educated in, or develop substantially equivalent processes for, production of our
drugs;
(cid:129) our manufacturers may have little or no experience with manufacturing our drug candidates, and
therefore may require a significant amount of support from us in order to implement and
maintain the infrastructure and processes required to manufacture our drug candidates;
(cid:129) our third-party manufacturers might be unable to timely manufacture our drug candidates or
produce the quantity and quality required to meet our clinical and commercial needs, if any;
(cid:129) contract manufacturers may not be able to execute our manufacturing procedures and other
logistical support requirements appropriately;
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(cid:129) 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;
(cid:129) manufacturers are subject to ongoing periodic unannounced inspection by the FDA and
corresponding state agencies in the United States to ensure strict compliance with cGMPs and
other government regulations and by other comparable regulatory authorities for corresponding
non-U.S. requirements. We do not have control over third-party manufacturers’ compliance with
these regulations and requirements;
(cid:129) 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;
(cid:129) our third-party manufacturers could breach or terminate their agreement with us;
(cid:129) 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;
(cid:129) our contract manufacturers and critical reagent suppliers may be subject to inclement weather,
as well as natural or man-made disasters; and
(cid:129) 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, CFDA, EMA or other comparable 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 appropriately done and test data are not reliable, patients could be put
at risk of serious harm and the FDA, CFDA, EMA or other comparable 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, our drug raw materials for our manufacturing activities are supplied by multiple source
suppliers. We have agreements for the supply of drug 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
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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.
If third-party manufacturers fail to comply with 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, CFDA, EMA or other comparable 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, CFDA,
EMA and other comparable 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. 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, CFDA, EMA or other comparable regulatory authorities and/or approval of
the manufacturing process and procedures in accordance with the FDA, CFDA or EMA’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, CFDA, EMA or other comparable 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 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
shareholders, or disrupt our management and business. For example, in 2013, we entered into
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collaboration agreements with Merck KGaA, Darmstadt Germany pursuant to which we have agreed to
license the ex-China rights of BGB-283 to Merck KGaA, Darmstadt Germany as discussed further in
the section titled ‘‘Item 1—Business—Collaboration with Merck KGaA, Darmstadt Germany’’ in this
Annual Report. 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:
(cid:129) collaborators have significant discretion in determining the efforts and resources that they will
apply to a collaboration;
(cid:129) 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;
(cid:129) 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;
(cid:129) collaborators could independently develop, or develop with third parties, drugs that compete
directly or indirectly with our drugs or drug candidates;
(cid:129) a collaborator with marketing and distribution rights to one or more drugs may not commit
sufficient resources to their marketing and distribution;
(cid:129) 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;
(cid:129) 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;
(cid:129) 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
(cid:129) 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,
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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.
Risks Related to Our Industry, Business and Operations
Our future success depends on our ability to retain the Chairman of our scientific advisory board and our
Chief Executive Officer and other key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on Xiaodong Wang, Ph.D., our Founder, Chairman of our scientific
advisory board and director; John V. Oyler, our Founder, Chief Executive Officer and Chairman of the
board; and the other principal members of our management and scientific teams and scientific advisory
board. Although we have formal employment agreements with each of our executive officers except for
our Chief Executive Officer, these agreements do not prevent our executives from terminating their
employment with us at any time. 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 share option grants that vest over time. The value to employees of these equity
grants that vest over time may be significantly affected by movements in the ADS price 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 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 also experience 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.
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We will need to increase the size and capabilities of our organization, and we may experience difficulties in
managing our growth.
As of December 31, 2016, we had 348 employees and consultants and most of our employees are
full-time. As our development and commercialization plans and strategies develop, and as we transition
into operating as a public company, we must add a significant number of additional managerial,
operational, sales, marketing, financial and other personnel. Future growth will impose significant
added responsibilities on members of management, including:
(cid:129) identifying, recruiting, integrating, maintaining, and motivating additional employees;
(cid:129) managing our internal development efforts effectively, including the clinical and FDA or other
comparable regulatory authority review process for our drug candidates, while complying with
our contractual obligations to contractors and other third parties; and
(cid:129) 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.
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain
independent organizations, advisors and consultants to provide certain services. There can be no
assurance that the services of these independent organizations, advisors and consultants will continue to
be available to us on a timely basis when needed, or that we can find qualified replacements. In
addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of
the services provided by consultants is compromised for any reason, our clinical trials may be extended,
delayed or terminated, and we may not be able to obtain regulatory approval of our drug candidates or
otherwise advance our business. There can be no assurance that we will be able to manage our existing
consultants or find other competent outside contractors and consultants on economically reasonable
terms, if at all.
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.
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 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 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 laws in the United States 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 United States, 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 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
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healthcare industry, are subject to extensive laws designed to prevent 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.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
As a public company, we are 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.
In order to satisfy our obligations as a public company, we will need to hire additional qualified accounting
and financial personnel with appropriate public company experience.
As a newly public company, we need to establish and maintain effective disclosure and financial
controls and make changes in our corporate governance practices. We need to hire additional
accounting and financial personnel with appropriate public company experience and technical
accounting knowledge, and it may be difficult to recruit and maintain such personnel. Even if we are
able to hire appropriate personnel, our existing operating expenses and operations will be impacted by
the direct costs of their employment and the indirect consequences related to the diversion of
management resources from product development efforts.
If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute
our shareholders, 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:
(cid:129) increased operating expenses and cash requirements;
(cid:129) the assumption of additional indebtedness or contingent liabilities;
(cid:129) the issuance of our equity securities;
(cid:129) assimilation of operations, intellectual property and products of an acquired company, including
difficulties associated with integrating new personnel;
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(cid:129) the diversion of our management’s attention from our existing product programs and initiatives
in pursuing such a strategic merger or acquisition;
(cid:129) retention of key employees, the loss of key personnel, and uncertainties in our ability to
maintain key business relationships;
(cid:129) 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
(cid:129) 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.
If we fail to comply with the U.S. Foreign Corrupt Practices Act or other anti-bribery laws, our reputation
may be harmed and we could be subject to penalties and significant expenses that have a material adverse
effect on our business, financial condition and results of operations.
Although currently our primary operating business is in China, we are subject to the Foreign
Corrupt Practices Act, or FCPA. The FCPA generally prohibits us from making improper payments to
non-U.S. officials for the purpose of obtaining or retaining business. We are also subject to the
anti-bribery laws of other jurisdictions, particularly China. As our business has expanded, the
applicability of the FCPA and other anti-bribery laws to our operations has increased. Our procedures
and controls to monitor anti-bribery compliance may fail to protect us from reckless or criminal acts
committed by our employees or agents. If we, due to either our own deliberate or inadvertent acts or
those of others, fail to comply with applicable anti-bribery laws, our reputation could be harmed and
we could incur criminal or civil penalties, other sanctions and/or significant expenses, which could have
a material adverse effect on our business, including our financial condition, results of operations, cash
flows and prospects.
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 United States, and in
non-U.S. jurisdictions including the PRC and European Union, impose strict rules, regulations and
industry standards governing pharmaceutical and biotechnology research and development activities,
which apply to us. Our failure to comply with such regulations could result in the termination of
ongoing research, 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.
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If we or our CROs 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 and third parties, such as our CRO, 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 and radioactive and biological materials. Our operations
also produce hazardous waste products. We generally contract with third parties for the disposal of
these materials and wastes. We also store certain low level radioactive waste at our facilities until the
materials can be properly disposed of. 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, hazardous or radioactive 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.
Our internal computer systems, or those used by our CROs or other contractors or consultants, may fail or
suffer security breaches.
Despite the implementation of security measures, our internal computer systems and those of our
future CROs and other contractors and consultants are vulnerable to damage from computer viruses
and unauthorized access. Although to our knowledge we have not experienced any such material system
failure or security breach to date, if such an event were to occur and cause interruptions in our
operations, it could result in 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 events relating to their computer systems
could also have a material adverse effect on our business. To the extent that any disruption or security
breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of
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confidential or proprietary information, we could incur liability and the further development and
commercialization of our drug candidates could be delayed.
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 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
institution 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. We partially rely on third-party manufacturers to produce and process our drug candidates.
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. A large
portion of our operations is located in a single facility in Changping, Beijing, PRC. 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.
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 drugs. For example, we may be
sued if our drug candidates cause or are perceived to cause injury or are found to be otherwise
unsuitable during clinical testing, 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:
(cid:129) decreased demand for our drugs;
(cid:129) injury to our reputation;
(cid:129) withdrawal of clinical trial participants and inability to continue clinical trials;
(cid:129) initiation of investigations by regulators;
(cid:129) costs to defend the related litigation;
(cid:129) a diversion of management’s time and our resources;
(cid:129) substantial monetary awards to trial participants or patients;
(cid:129) product recalls, withdrawals or labeling, marketing or promotional restrictions;
(cid:129) loss of revenue;
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(cid:129) exhaustion of any available insurance and our capital resources;
(cid:129) the inability to commercialize any drug candidate; and
(cid:129) a decline in the ADS price.
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 hold $10 million in product liability coverage in the
aggregate, the amount of such insurance coverage may not be adequate, we may be unable to maintain
such insurance at a reasonable cost or in an amount adequate to satisfy any liability that may arise, or
we may not be able to obtain additional or replacement insurance at a reasonable cost, if at all. We
intend to expand our insurance coverage for products to include the sale of commercial products if we
obtain marketing approval for our product candidates in development, but we may be unable to obtain
commercially reasonable product liability insurance for any products approved for marketing. 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.
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. We do not maintain key-man life insurance on any of our
senior management or key personnel, or business interruption insurance. 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 market our drugs, if approved, globally, and we will be subject to the risks of doing business outside
of the United States.
Because we intend to market drugs, if approved, globally, our business is subject to risks associated
with doing business globally. Accordingly, our business and financial results in the future could be
adversely affected due to a variety of factors, including:
(cid:129) efforts 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;
(cid:129) changes in a specific country’s or region’s political and cultural climate or economic condition;
(cid:129) unexpected changes in laws and regulatory requirements in local jurisdictions;
(cid:129) difficulty of effective enforcement of contractual provisions in local jurisdictions;
(cid:129) inadequate intellectual property protection in certain countries;
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(cid:129) trade-protection measures, import or export licensing requirements such as Export
Administration Regulations promulgated by the United States Department of Commerce and
fines, penalties or suspension or revocation of export privileges;
(cid:129) the effects of applicable local tax regimes and potentially adverse tax consequences; and
(cid:129) significant adverse changes in local currency exchange rates.
Our business, financial condition and results of operations may be adversely affected by the downturn in the
global economy.
The global financial markets experienced significant disruptions in 2008 and the United States,
Europe and other economies went into recession. The recovery from the lows of 2008 and 2009 was
uneven and it is facing new challenges, including the escalation of the European sovereign debt crisis
since 2011 and the United Kingdom’s decision to withdraw from the European Union. It is unclear
whether the European sovereign debt crisis will be contained and what effects it and the United
Kingdom’s decision to withdraw from the European Union may have. There is considerable uncertainty
over the long-term effects of the expansionary monetary and fiscal policies that have been adopted by
the central banks and financial authorities of some of the world’s leading economies, including China’s.
Economic conditions in United States and China are sensitive to global economic conditions. Although
we are uncertain about the extent to which the global financial market disruption and slowdown of the
U.S. or Chinese economy may 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 the global economic
downturn and the slowdown of the U.S. or Chinese economy.
Recent developments relating to the United Kingdom’s referendum vote in favor of withdrawal from the
European Union could adversely affect us.
The United Kingdom held a referendum on June 23, 2016 in which a majority voted for the
United Kingdom’s withdrawal from the European Union (referred to as ‘‘Brexit’’). As a result of this
vote, negotiations are expected to commence to determine the terms of the United Kingdom’s
withdrawal from the European Union as well as its relationship with the European Union going
forward, including the terms of trade between the United Kingdom and the European Union. The
effects of Brexit have been and are expected to continue to be far-reaching. Brexit and the perceptions
as to its impact may adversely affect business activity and economic conditions in Europe and globally
and could continue to contribute to instability in global financial and foreign exchange markets. Brexit
could also have the effect of disrupting the free movement of goods, services and people between the
United Kingdom and the European Union; however, the full effects of Brexit are uncertain and will
depend on any agreements the United Kingdom may make to retain access to European Union
markets.
In addition, we expect that Brexit could lead to legal uncertainty and potentially divergent national
laws and regulations as the United Kingdom determines which European Union laws to replicate or
replace. If the United Kingdom were to significantly alter its regulations affecting the pharmaceutical
industry, we could face significant new costs. It may also be time-consuming and expensive for us to
alter our internal operations in order to comply with new regulations. Altered regulations could also
add time and expense to the process by which our product candidates receive regulatory approval in
the United Kingdom and European Union. Similarly, it is unclear at this time what Brexit’s impact will
have on our intellectual property rights and the process for obtaining, maintaining and defending such
rights. It is possible that certain intellectual property rights, such as trademarks, granted by the
European Union will cease being enforceable in the United Kingdom absent special arrangements to
the contrary, and we are required to refile our trademarks and other intellectual property applications
domestically in the United Kingdom. With regard to existing patent rights, the effect of Brexit should
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be minimal considering enforceable patent rights are specific to the United Kingdom, whether arising
out of the European Patent Office or directly through the United Kingdom patent office.
Lastly, as a result of Brexit, other European countries may seek to conduct referenda with respect
to their continuing membership in the European Union. Given these possibilities and others we may
not anticipate, as well as the lack of comparable precedent, the full extent to which our business,
results of operations and financial condition could be adversely affected by Brexit is uncertain.
We manufacture and intend to continue to manufacture at least a portion of our drug candidates ourselves.
Delays in completing and receiving regulatory approvals for our manufacturing facility could delay our
development plans and thereby limit our revenues and growth.
We currently lease an approximately 140 square meter manufacturing facility in Beijing, PRC,
which produces and supplies preclinical and clinical trial materials for some of our small molecule drug
candidates. In addition, to increase our manufacturing capabilities, we lease an approximately 11,000
square meter space and are building a manufacturing facility in Suzhou, China, where we intend to
produce drug candidates for clinical or, in the future, commercial use. This facility consists of one
oral-solid-dosage production line for small molecule drug products and one pilot plant for monoclonal
antibody drug substances. This new manufacturing facility is expected to be completed in 2017. This
project may encounter unanticipated delays and cost more than expected due to a number of factors,
including regulatory requirements. If construction or regulatory approval of our new facility is delayed,
we may not be able to manufacture sufficient quantities of our drug candidates, which would limit our
development activities and our opportunities for growth. Suzhou Industrial Park Biotech
Development Co., Ltd. and China Construction Bank have agreed to lend us RMB 120 million for the
construction of the Suzhou manufacturing facility and the procurement of equipment. Cost overruns
associated with constructing our Suzhou facility could require us to raise additional funds from other
sources.
In addition to the similar manufacturing risks described in ‘‘—Risks Related to Our Reliance on
Third Parties,’’ our manufacturing facilities will be subject to ongoing, periodic inspection by the FDA,
CFDA, EMA or other comparable regulatory agencies to ensure compliance with cGMP. Our failure to
follow and document our adherence to such cGMP regulations or other regulatory requirements may
lead to significant delays in the availability of products for clinical or, in the future, commercial use,
may result in the termination of or a hold on a clinical trial, or may delay or prevent filing or approval
of marketing applications for our drugs. We also may encounter problems with the following:
(cid:129) achieving adequate or clinical-grade materials that meet FDA, CFDA, EMA or other
comparable regulatory agency standards or specifications with consistent and acceptable
production yield and costs;
(cid:129) shortages of qualified personnel, raw materials or key contractors; and
(cid:129) ongoing compliance with cGMP regulations and other requirements of the FDA, CFDA, EMA
or other comparable regulatory agencies.
Failure to comply with applicable regulations could also result in sanctions being imposed on us,
including fines, injunctions, civil penalties, a requirement to suspend or put on hold one or more of our
clinical trials, failure of regulatory authorities to grant marketing approval of our drug candidates,
delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of drug candidates,
operating restrictions and criminal prosecutions, any of which could harm our business.
Developing advanced manufacturing techniques and process controls is required to fully utilize our
facilities. Advances in manufacturing techniques may render our facilities and equipment inadequate or
obsolete.
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To produce our drugs in the quantities that we believe will be required to meet anticipated market
demand of any of our drug candidates if approved, we will need to increase, or ‘‘scale up,’’ the
production process by a significant factor over the initial level of production. If we are unable to do so,
are delayed, or if the cost of this scale up is not economically feasible for us or we cannot find a third-
party supplier, we may not be able to produce our drugs in a sufficient quantity to meet future
demand.
If our manufacturing facilities, including our Suzhou manufacturing facility once completed, are damaged or
destroyed or production at such facilities is otherwise interrupted, our business and prospects would be
negatively affected.
In addition to the similar manufacturing risks described in ‘‘—Risks Related to Our Reliance on
Third Parties,’’ 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, CFDA, EMA 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:
(cid:129) equipment malfunctions or failures;
(cid:129) technology malfunctions;
(cid:129) work stoppages;
(cid:129) damage to or destruction of either facility due to natural disasters;
(cid:129) regional power shortages;
(cid:129) product tampering; or
(cid:129) 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.
Currently, we maintain insurance coverage against damage to our property and equipment in the
amount of up to RMB 100 million. 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.
Risks Related to Our Doing Business in the PRC
The pharmaceutical industry in China is highly regulated and such regulations are subject to change which
may affect approval and commercialization of our drugs.
Our research operations and manufacturing facilities are in China, which we believe confers
clinical, commercial and regulatory advantages. The pharmaceutical industry in China is subject to
comprehensive government regulation and supervision, encompassing the approval, registration,
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manufacturing, packaging, licensing and marketing of new drugs. See ‘‘Item 1—Business—Regulatory
Framework and Structural Advantages of Being a China-Based Research and Development
Organization’’ for a discussion of regulatory requirements that are applicable to our current and
planned business activities in China. 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.
Changes in the political and economic policies of the PRC 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 the PRC. Accordingly, our financial condition and
results of operations are affected to a large extent by economic, political and legal developments in the
PRC.
The PRC economy differs from the economies of most developed countries in many respects,
including the extent of government involvement, level of development, growth rate, control of foreign
exchange and allocation of resources. Although the PRC 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 PRC
government continues to play a significant role in regulating industry development by imposing
industrial policies. The PRC 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 PRC economy has experienced significant growth in the past three decades, growth has
been uneven, both geographically and among various sectors of the economy. The PRC government has
implemented various measures to encourage economic growth and guide the allocation of resources.
Some of these measures may benefit the overall PRC 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.
There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.
A large portion of our operations are conducted in the PRC through our PRC subsidiaries, and
are governed by PRC laws, rules and regulations. Our PRC subsidiaries are subject to laws, rules and
regulations applicable to foreign investment in China. The PRC 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.
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In 1979, the PRC 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 three
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 PRC 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 PRC legal system is based in part on government policies and internal rules, some of
which are not published on a timely basis or 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 PRC 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 timetable, the final version, interpretation and
implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current
corporate governance.
The Ministry of Commerce published a discussion draft of the proposed Foreign Investment Law
in January 2015 aiming to, upon its enactment, replace the trio of existing laws regulating foreign
investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign
Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together
with their implementation rules and ancillary regulations. The draft Foreign Investment Law embodies
an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with
prevailing international practice and the legislative efforts to unify the corporate legal requirements for
both foreign and domestic investments. The Ministry of Commerce has solicited comments on this draft
and substantial uncertainties exist with respect to its enactment timetable, the final version,
interpretation and implementation. The draft Foreign Investment Law, if enacted as proposed, may
materially impact the viability of our current corporate governance if we, in the future, have PRC
shareholders.
Among other things, the draft Foreign Investment Law expands the definition of foreign
investment and introduces the principle of ‘‘actual control’’ in determining whether a company is
considered a foreign-invested enterprise, or an FIE. The draft Foreign Investment Law specifically
provides that entities established in China but ‘‘controlled’’ by foreign investors will be treated as FIEs,
whereas an entity set up in a foreign jurisdiction would nonetheless be, upon market entry clearance by
the Ministry of Commerce or its local counterparts, treated as a PRC domestic investor provided that
the entity is ‘‘controlled’’ by PRC entities and/or citizens. In this connection, ‘‘control’’ is broadly
defined in the draft law to cover the following summarized categories: (1) holding 50% of more of the
shares, equity or voting rights of the subject entity; (2) holding less than 50% of the voting rights of the
subject entity but having the power to secure at least 50% of the seats on the board or other equivalent
decision making bodies, or having the voting power to exert material influence on the board, the
shareholders’ meeting or other equivalent decision making bodies; or (3) having the power to exert
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decisive influence, via contractual or trust arrangements, over the subject entity’s operations, financial
matters or other key aspects of business operations. Once an entity is determined to be an FIE, it will
be subject to the foreign investment restrictions or prohibitions, if the FIE is engaged in the industry
listed in the ‘‘negative list’’ which will be separately issued by the Chinese State Council later. Unless
the underlying business of the FIE falls within the negative list, which calls for market entry clearance
by the Ministry of Commerce or its local counterparts, prior approval from the government authorities
as mandated by the existing foreign investment legal regime would no longer be required for
establishment of the FIE.
The draft Foreign Investment Law, if enacted as proposed, may also materially impact our
corporate governance practice and increase our compliance costs. For instance, the draft Foreign
Investment Law 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.
PRC regulations relating to investments in offshore companies by PRC residents may subject our future
PRC-resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject
capital into our PRC subsidiaries or limit our PRC subsidiaries’ ability to increase their registered capital or
distribute profits.
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. SAFE Circular 37 requires
PRC residents to register with local branches of SAFE in connection with their direct establishment or
indirect control of an offshore entity, for the purpose of overseas investment and financing, with such
PRC 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 PRC individuals, share
transfer or exchange, merger, division or other material event. In the event that a PRC shareholder
holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC
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 PRC
subsidiary. Moreover, failure to comply with the various SAFE registration requirements described
above could result in liability under PRC law for evasion of foreign exchange controls.
We believe that four of our shareholders, each of whom owns our ordinary shares as a result of
exercising share options, are PRC residents under SAFE Circular 37. These four shareholders have
undertaken to (i) apply to register with local SAFE branch or its delegated commercial bank as soon as
possible after exercising their options, and (ii) 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 four shareholders and our other beneficial owners and cannot assure you that all of our
PRC-resident beneficial owners have complied with, and will in the future comply with, SAFE
Circular 37 and subsequent implementation rules. The failure of PRC-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 PRC-resident beneficial owners of our
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company to comply with the registration procedures set forth in SAFE Circular 37 and subsequent
implementation rules, may subject such beneficial owners or our PRC 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 PRC 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 PRC subsidiaries and limit our PRC
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 PRC regulations regarding our employee equity incentive plans may subject the
PRC plan participants or us to fines and other legal or administrative sanctions.
We and our directors, executive officers and other employees who are PRC residents have
participated in our employee equity incentive plans. Upon completion of our initial public offering, we
became an overseas listed company. Pursuant to SAFE Circular 37, PRC residents who participate in
share incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or its
local branches for the foreign exchange registration with respect to offshore special purpose companies.
Our directors, executive officers and other employees who are PRC citizens or who have resided in the
PRC for a continuous period of not less than one year and who have been granted restricted shares or
options may follow SAFE Circular 37 to apply for the foreign exchange registration before our
company became an overseas listed company. However, in practice, different local SAFE branches may
have different views and procedures on the application and implementation of SAFE regulations, and
there remains uncertainty with respect to its implementation. If we or our directors, executive officers
or other employees who are PRC citizens or who have resided in the PRC for a continuous period of
not less than one year and who have been granted restricted shares or options, including but not
limited to the four shareholders referred to above, fail to register the employee equity incentive plans
or their exercise of options, we and such employees may be subject to (i) legal or administrative
sanctions imposed by the SAFE or other PRC authorities, including fines; (ii) to restrictions on our
cross-border investment activities; (iii) to limits on the ability of our wholly owned subsidiaries in China
to distribute dividends or the proceeds from any reduction in capital, share transfer or liquidation to
us; and (iv) to prohibitions on our ability to inject additional capital into these subsidiaries. Moreover,
failure to comply with the various foreign exchange registration requirements described above could
result in liability under PRC law for circumventing applicable foreign exchange restrictions. As a result,
our business operations and our ability to distribute profits to you could be materially and adversely
affected. Upon completion of our initial public offering, we became an overseas listed company, and
therefore, we and our directors, executive officers and other employees who are PRC citizens or who
have resided in the PRC for a continuous period of not less than one year and who have been granted
restricted shares or options are subject to the Notice on Issues Concerning the Foreign Exchange
Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly
Listed Company, issued by SAFE in February 2012, according to which, employees, directors,
supervisors and other management members participating in any share incentive plan of an overseas
publicly listed company who are PRC citizens or who are non-PRC citizens residing in China for a
continuous period of not less than one year, subject to limited exceptions, are required to register with
SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed
company, and complete certain other procedures. Failure to complete the SAFE registrations may
subject them to fines and legal sanctions and may also limit our ability to make payments under our
equity incentive plans or receive dividends or sales proceeds related thereto, or our ability to contribute
additional capital into our wholly-foreign owned enterprises in China and limit our wholly-foreign
owned enterprises’ ability to distribute dividends to us. We also face regulatory uncertainties that could
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restrict our ability to adopt additional equity incentive plans for our directors and employees under
PRC law.
In addition, the SAT has issued circulars concerning employee share options or restricted shares.
Under these circulars, employees working in the PRC who exercise share options, or whose restricted
shares vest, will be subject to PRC individual income tax. The PRC subsidiaries of an overseas listed
company have obligations to file documents related to employee share options or restricted shares with
relevant tax authorities and to withhold individual income taxes of those employees related to their
share options or restricted shares. If the employees fail to pay, or the PRC subsidiaries fail to withhold
applicable income taxes, the PRC subsidiaries may face sanctions imposed by the tax authorities or
other PRC government authorities.
In the future, we may rely to some extent on dividends and other distributions on equity from our principal
operating subsidiaries to fund offshore cash and financing requirements.
We are a holding company, incorporated in the Cayman Islands, and may in the future rely to
some extent on dividends and other distributions on equity from our principal operating subsidiaries for
our offshore cash and financing requirements, including the funds necessary to pay dividends and other
cash distributions to our shareholders, fund inter-company loans, service any debt we may incur outside
China and pay our expenses. The laws, rules and regulations applicable to our PRC subsidiaries and
certain other subsidiaries permit payments of dividends only out of their retained earnings, if any,
determined in accordance with applicable accounting standards and regulations.
Under PRC laws, rules and regulations, each of our subsidiaries incorporated in China is required
to set aside a portion of its net income each year to fund certain statutory reserves. These reserves,
together with the registered equity, are not distributable as cash dividends. As a result of these laws,
rules and regulations, our subsidiaries incorporated in China are restricted in their ability to transfer a
portion of their respective net assets to their shareholders as dividends. In addition, registered share
capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount
of net assets held in each operating subsidiary. As of December 31, 2016, these restricted assets totaled
RMB69.1 million ($10.0 million).
The Enterprise Income Tax Law, or the EIT Law and its implementation rules, both of which
became effective on January 1, 2008, provide that China-sourced income of foreign enterprises, such as
dividends paid by a PRC subsidiary to its equity holders that are non-PRC resident enterprises, will
normally be subject to PRC withholding tax at a rate of 10%, unless any such foreign investor’s
jurisdiction of incorporation has a tax treaty with China that provides for a different withholding
arrangement. As a result, dividends paid to us by our PRC subsidiaries are expected to be subject to
PRC withholding tax at a rate of 10%.
Pursuant to the Arrangement between Mainland China and Hong Kong Special Administrative
Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes
on Income, or the ‘‘Hong Kong Tax Treaty,’’ BeiGene (Hong Kong) Co., Limited, the shareholder of
our PRC subsidiaries, may be subject to a withholding tax at a rate of 5% on dividends received from
our PRC operating subsidiaries as a Hong Kong tax resident. Pursuant to the Hong Kong Tax Treaty,
subject to certain conditions, this reduced withholding tax rate will be available for dividends from PRC
entities provided that the recipient can demonstrate it is a Hong Kong tax resident and it is the
beneficial owner of the dividends. BeiGene (Hong Kong) Co., Limited currently does not hold a Hong
Kong tax resident certificate from the Inland Revenue Department of Hong Kong and there is no
assurance that the reduced withholding tax rate will be available.
Furthermore, if our subsidiaries in China incur debt on their own behalf in the future, the
instruments governing the debt may restrict their ability to pay dividends or make other payments to
us. Any limitation on the ability of our subsidiaries to distribute dividends or other payments to us in
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the future could materially and adversely limit our ability to make investments or acquisitions that
could be beneficial to our businesses, pay dividends, or otherwise fund and conduct our business.
We may be treated as a resident enterprise for PRC tax purposes under the EIT Law and be subject to PRC
tax on our worldwide taxable income at a rate of 25%.
Under the EIT Law an enterprise established outside China with ‘‘de facto management bodies’’
within China is considered a ‘‘resident enterprise,’’ meaning that it is treated in a manner similar to a
Chinese enterprise for PRC enterprise income tax, or EIT, purposes. The implementing rules of the
EIT Law define ‘‘de facto management bodies’’ as ‘‘management bodies that exercise substantial and
overall management and control over the production and operations, personnel, accounting, and
properties’’ of the enterprise. In addition, the Notice Regarding the Determination of Chinese-
Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De
Facto Management Bodies, or Circular 82, specifies that certain Chinese-controlled offshore
incorporated enterprises, defined as enterprises incorporated under the laws of foreign countries or
territories and that have PRC enterprises or enterprise groups as their primary controlling shareholders,
will be classified as resident enterprises if all of the following are located or resident in
China: (i) senior management personnel and departments that are responsible for daily production,
operation and management; (ii) financial and personnel decision-making bodies; (iii) key properties,
accounting books, company seal, and minutes of board meetings and shareholders’ meetings; and
(iv) half or more of senior management or directors having voting rights. On July 27, 2011, the SAT
issued Administrative Measures of Enterprise Income Tax of Chinese-Controlled Offshore Incorporated
Resident Enterprises (Trial), or Bulletin 45, which became effective on September 1, 2011 and was most
recently amended on October 1, 2016, to provide further guidance on the implementation of
Circular 82. Bulletin 45 clarifies certain issues related to determining PRC resident enterprise status,
including which competent tax authorities are responsible for determining offshore incorporated PRC
resident enterprise status, as well as post-determination administration. In 2014, the SAT, released the
Announcement of the SAT on Issues Concerning the Recognition of Chinese-Controlled Enterprises
Incorporated Overseas as Resident Enterprises on the Basis of Their Actual Management Bodies and
supplemented some provisions on the administrative procedures for the recognition of resident
enterprise, while the standards used to classify resident enterprises in Circular 82 remain unchanged.
Although BeiGene, Ltd. does not have a PRC enterprise or enterprise group as our primary
controlling shareholder and is therefore not a Chinese-controlled offshore incorporated enterprise
within the meaning of Circular 82, in the absence of guidance specifically applicable to us, we have
applied the guidance set forth in Circular 82 to evaluate the tax residence status of BeiGene, Ltd. and
its subsidiaries organized outside the PRC.
We are not aware of any offshore holding company with a corporate structure similar to ours that
has been deemed a PRC ‘‘resident enterprise’’ by the PRC tax authorities. Accordingly, we do not
believe our company or any of our overseas subsidiaries should be treated as a PRC resident
enterprise.
If the PRC tax authorities determine that our Cayman Islands holding company is a resident
enterprise for PRC EIT purposes, a number of unfavorable PRC tax consequences could follow and we
may be subject to EIT at a rate of 25% on our worldwide taxable income, as well as to PRC EIT
reporting obligations. In that case, it is possible that dividends paid to us by our PRC subsidiaries will
not be subject to PRC withholding tax.
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Dividends payable to our foreign investors may be subject to PRC withholding tax and gains on the sale of the
ADSs or ordinary shares by our foreign investors may be subject to PRC tax.
If we are deemed a PRC resident enterprise as described under ‘‘—We may be treated as a
resident enterprise for PRC tax purposes under the EIT Law and be subject to PRC tax on our
worldwide taxable income at a rate of 25%,’’ dividends paid on our ordinary shares or ADSs, and any
gain realized from the transfer of our ordinary shares or ADSs, may be treated as income derived from
sources within the PRC. As a result, dividends paid to non-PRC resident enterprise ADS holders or
shareholders may be subject to PRC withholding tax at a rate of 10% (or 20% in the case of non-PRC
individual ADS holders or shareholders) and gains realized by non-PRC resident enterprises ADS
holders or shareholders from the transfer of our ordinary shares or ADSs may be subject to PRC tax at
a rate of 10% (or 20% in the case of non-PRC individual ADS holders or shareholders). It is unclear
whether if we or any of our subsidiaries established outside China are considered a PRC resident
enterprise, holders of the ADSs or ordinary shares 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-PRC investors, or gains from the transfer of the ADSs or ordinary shares by such investors are
subject to PRC tax, the value of your investment in the ADSs or ordinary shares may decline
significantly.
We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC
resident enterprises or other assets attributed to a PRC establishment of a non-PRC company, or other assets
attributable to a PRC establishment of a non-PRC company.
On February 3, 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax and Indirect
Transfers of Assets by Non-PRC Resident Enterprises, or Bulletin 7, which replaced or supplemented
certain previous rules under the Notice on Strengthening Administration of Enterprise Income Tax for
Share Transfers by Non-PRC Resident Enterprises, or Circular 698, issued by the SAT, on
December 10, 2009. Pursuant to this Bulletin, an ‘‘indirect transfer’’ of ‘‘PRC taxable assets,’’ including
equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be recharacterized
and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable
commercial purpose and was established for the purpose of avoiding payment of PRC enterprise
income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise
income tax. When determining whether there is a ‘‘reasonable commercial purpose’’ of the transaction
arrangement, factors to be taken into consideration include: whether the main value of the equity
interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets of the
relevant offshore enterprise mainly consists of direct or indirect investment in China or if its income
mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly
holding PRC taxable assets have real commercial nature which is evidenced by their actual function and
risk exposure; the duration of existence of the business model and organizational structure; the
replicability of the transaction by direct transfer of PRC taxable assets; and the tax situation of such
indirect transfer and applicable tax treaties or similar arrangements. In respect of an indirect offshore
transfer of assets of a PRC establishment, the resulting gain is to be reported on with the enterprise
income tax filing of the PRC establishment or place of business being transferred, and would
consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer
relates to equity investments in a PRC resident enterprise, which is not related to a PRC establishment
or place of business of a non-resident enterprise, a PRC enterprise income tax at the rate of 10%
would apply, subject to available preferential tax treatment under applicable tax treaties or similar
arrangements. 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 PRC
enterprise income tax pursuant to Bulletin 7 where such shares were acquired in a transaction through
a public stock exchange. As such, the sale of the ADSs or ordinary shares on a public stock exchange
will not be subject to PRC enterprise income tax pursuant to Bulletin 7. However, the sale of our
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ordinary shares or ADSs by a non-PRC resident enterprise outside a public stock exchange may be
subject to PRC enterprise income tax under Bulletin 7.
There are uncertainties as to the application of Bulletin 7. Bulletin 7 may be determined by the tax
authorities to be applicable to sale of the shares of our offshore subsidiaries or investments where PRC
taxable assets are involved. The transferors and transferees may be subject to the tax filing and
withholding or tax payment obligation, while our PRC subsidiaries may be requested to assist in the
filing. Furthermore, we, our non-resident enterprises and PRC subsidiaries may be required to spend
valuable resources to comply with Bulletin 7 or to establish that we and our non-resident enterprises
should not be taxed under Bulletin 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.
The PRC tax authorities have the discretion under Bulletin 7 to make adjustments to the taxable
capital gains based on the difference between the fair value of the taxable assets transferred and the
cost of investment. If the PRC tax authorities make adjustments to the taxable income of the
transactions under Circular 698/Bulletin 7, our income tax costs associated with such potential
acquisitions or disposals will increase, which may have an adverse effect on our financial condition and
results of operations.
Restrictions on currency exchange may limit our ability to utilize our revenue effectively.
The PRC 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 PRC 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 PRC subsidiaries, which are wholly-foreign owned enterprises, may
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 PRC 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 the PRC or pay
dividends in foreign currencies to our shareholders, including holders of the ADSs. Foreign exchange
transactions under the capital account remain subject to limitations and require approvals from, or
registration with, SAFE and other relevant PRC 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 United States may
result in increased regulatory scrutiny of us and negatively impact the trading price of the ADSs and could
have a material adverse effect upon our business, including its results of operations, financial condition, cash
flows and prospects.
We believe that litigation and negative publicity surrounding companies with operations in China
that are listed in the United States 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.
Any similar scrutiny of us, regardless of its lack of merit, could result in a diversion of management
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resources and energy, potential costs to defend ourselves against rumors, decreases and volatility in the
ADS trading price, and increased directors and officers insurance premiums and could have a material
adverse effect upon our business, including its results of operations, financial condition, cash flows and
prospects.
The audit report included in this Annual Report is prepared by auditors who are not inspected fully by the
Public Company Accounting Oversight Board, or the PCAOB, and, as such, our shareholders are deprived of
the benefits of such inspection.
As an auditor of companies that are publicly traded in the United States and a firm registered with
the PCAOB, Ernst & Young Hua Ming LLP is required under the laws of the United States to
undergo regular inspections by the PCAOB. However, because we have substantial operations within
the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the
approval of the Chinese government authorities, our auditor and its audit work is not currently
inspected fully by the PCAOB.
Inspections of other auditors conducted by the PCAOB outside China have at times identified
deficiencies in those auditors’ audit procedures and quality control procedures, which may be addressed
as part of the inspection process to improve future audit quality. The lack of PCAOB inspections of
audit work undertaken in China prevents the PCAOB from regularly evaluating our auditor’s audits
and its quality control procedures. As a result, shareholders may be deprived of the benefits of PCAOB
inspections, and may lose confidence in our reported financial information and procedures and the
quality of our financial statements.
Proceedings instituted by the SEC against five PRC-based accounting firms, including our independent
registered public accounting firm, could result in our financial statements being determined to not be in
compliance with the requirements of the Exchange Act.
In December 2012, the SEC brought administrative proceedings against five accounting firms in
China, including our independent registered public accounting firm, alleging that they had refused to
produce audit work papers and other documents related to certain other PRC-based companies under
investigation by the SEC. On January 22, 2014, an initial administrative law decision was issued,
censuring these accounting firms and suspending four of these firms from practicing before the SEC for
a period of six months. The decision is neither final nor legally effective unless and until reviewed and
approved by the SEC. On February 12, 2014, four of these PRC-based accounting firms appealed to the
SEC against this decision. In February 2015, each of the four PRC-based accounting firms agreed to a
censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to
practice before the SEC. These firms’ ability to continue to serve all their respective clients is not
affected by the settlement. The settlement requires these firms to follow detailed procedures to seek to
provide the SEC with access to Chinese firms’ audit documents via the China Securities Regulatory
Commission. If these firms do not follow these procedures, the SEC could impose penalties such as
suspensions, or it could restart the administrative proceedings. The settlement did not require these
firms to admit to any violation of law and preserves these firms’ legal defenses in the event the
administrative proceeding is restarted. In the event that the SEC restarts the administrative
proceedings, depending upon the final outcome, listed companies in the United States with major PRC
operations may find it difficult or impossible to retain auditors in respect of their operations in the
PRC, which could result in financial statements being determined to not be in compliance with the
requirements of the Exchange Act, including possible delisting. Moreover, any negative news about the
proceedings against these audit firms may cause investor uncertainty regarding PRC-based, United
States-listed companies and the market price of the ADSs may be adversely affected.
If our independent registered public accounting firm was denied, even temporarily, the ability to
practice before the SEC and we were unable to timely find another registered public accounting firm to
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audit and issue an opinion on our financial statements, our financial statements could be determined
not to be in compliance with the requirements of the Exchange Act. Such a determination could
ultimately lead to deregistration from the SEC, which would substantially reduce or effectively
terminate the trading of the ADSs in the United States. Moreover, any negative news about the
proceedings against these audit firms may adversely affect investor confidence in companies with
substantial mainland China-based operations listed in the United States. All these would materially and
adversely affect the market price of the ADSs and substantially reduce or effectively terminate the
trading of the ADSs in the United States.
Risks Related to the American Depositary Shares
The trading prices of the ADSs are likely to be volatile, which could result in substantial losses to you.
We completed our initial public offering on February 8, 2016, and there has been a public market
for the ADSs for only a short period of time. The trading price of the ADSs is likely 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 business
operations located mainly in China that have listed their securities in the United States may affect the
volatility in the price of and trading volumes for the ADSs. Some of these companies have experienced
significant volatility, including significant price declines after their initial public offerings. The trading
performances of these PRC companies’ securities at the time of or after their offerings may affect the
overall investor sentiment towards other PRC companies listed in the United States and consequently
may impact the trading performance of the ADSs.
In addition to market and industry factors, the price and trading volume for the ADSs may be
highly volatile for specific business reasons, including:
(cid:129) 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;
(cid:129) announcements of therapeutic innovations or new products by us or our competitors;
(cid:129) adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing
supply chain or sales and marketing activities;
(cid:129) any adverse changes to our relationship with manufacturers or suppliers;
(cid:129) the results of our testing and clinical trials;
(cid:129) the results of our efforts to acquire or license additional drug candidates;
(cid:129) variations in the level of expenses related to our existing drug candidates or preclinical and
clinical development programs;
(cid:129) any intellectual property infringement actions in which we may become involved;
(cid:129) announcements concerning our competitors or the pharmaceutical industry in general;
(cid:129) achievement of expected product sales and profitability;
(cid:129) manufacture, supply or distribution shortages;
(cid:129) variations in our results of operations;
(cid:129) 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;
(cid:129) publication of operating or industry metrics by third parties, including government statistical
agencies, that differ from expectations of industry or financial analysts;
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(cid:129) changes in financial estimates by securities research analysts;
(cid:129) announcements made by us or our competitors of new product and service offerings,
acquisitions, strategic relationships, joint ventures or capital commitments;
(cid:129) press reports, whether or not true, about our business;
(cid:129) additions to or departures of our management;
(cid:129) fluctuations of exchange rates between the RMB and the U.S. dollar;
(cid:129) release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or
ADSs;
(cid:129) sales or perceived potential sales of additional ordinary shares or ADSs;
(cid:129) sales of the ADSs by us, our executive officers and directors or our shareholders in the future;
(cid:129) general economic and market conditions and overall fluctuations in the U.S. equity markets;
(cid:129) changes in accounting principles;
(cid:129) changes or developments in the PRC or global regulatory environment; and
(cid:129) the outcome of proceedings recently instituted by the SEC against five PRC-based accounting
firms, including the affiliate of our independent registered public accounting firm.
Any of these factors may result in large and sudden changes in the volume and trading price of the
ADSs. In the past, following periods of volatility in the market price of a company’s securities,
shareholders 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 the ADSs, regardless of our actual operating performance.
Further, the current decline in the financial markets and related factors beyond our control may cause
the ADSs price to decline rapidly and unexpectedly.
We may be subject to securities litigation, which is expensive and could divert management attention.
The ADS price may be volatile, and in the past companies that have experienced volatility in the
market price of their ADSs have been subject to an increased incidence of securities class action
litigation. We may be the target of this type of litigation in the future. Securities litigation against us
could result in substantial costs and divert our management’s attention from other business concerns,
which could seriously harm our business.
Future sales of the ADSs in the public market could cause the ADS price to fall.
The ADS price could decline as a result of sales of a large number of the ADSs or the perception
that these sales could occur. These sales, or the possibility that these sales may occur, also might make
it more difficult for us to sell equity securities in the future at a time and at a price that we deem
appropriate.
As of March 17, 2017, we had 518,602,349 ordinary shares outstanding, of which 251,251,247
ordinary shares were held in the form of 19,327,019 American Depositary Shares.
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We have or will register the offer and sale of all ordinary shares that we may issue under our
equity compensation plans, including upon the exercise of share options. These ordinary shares can be
freely sold in the public market upon issuance.
As of March 17, 2017, the holders of approximately 300,990,453 ordinary shares, or 58%, of our
outstanding ordinary shares, will have rights, subject to some conditions, to require us to file
registration statements covering the sale of their ordinary shares or to include their ordinary shares in
registration statements that we may file for ourselves or other shareholders. Once we register the offer
and sale of ordinary shares for the holders of registration rights, they can be freely sold in the public
market.
In addition, in the future, we may issue additional ordinary shares or other equity or debt
securities convertible into ordinary shares in connection with a financing, acquisition, litigation
settlement, employee arrangements or otherwise. Any such issuance could result in substantial dilution
to our existing shareholders and could cause the ADS price to decline.
We are currently an ‘‘emerging growth company.’’ As a result of the reduced disclosure requirements
applicable to emerging growth companies, the ADSs may be less attractive to investors.
We are currently an ‘‘emerging growth company,’’ as defined in the JOBS Act. For so long as we
remain an emerging growth company, we are permitted and intend to rely on some of the exemptions
from certain reporting requirements that are applicable to other public companies that are not
emerging growth companies. These exemptions include but are not limited to not being required to
comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, not
being required to comply with any requirement that may be adopted by the Public Company
Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s
report providing additional information about the audit and the financial statements, reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy statements, and
exemptions from the requirements of holding a non-binding advisory vote on executive compensation
and shareholder approval of any golden parachute payments not previously approved.
We cannot predict whether investors will find the ADSs less attractive because we will rely on
these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active
trading market for the ADSs and the ADS price may be more volatile.
Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of the
ADSs for return on your investment.
We intend to retain most, if not all, of our available funds and earnings to fund the development
and growth of our business. 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 the ADSs 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 your investment in the ADSs will likely depend entirely
upon any future price appreciation of the ADSs. There is no guarantee that the ADSs will appreciate
in value or even maintain the price at which you purchased the ADSs. You may not realize a return on
your investment in the ADSs and you may even lose your entire investment in the ADSs.
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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about
our business, the market price for the ADSs and trading volume could decline.
The trading market for the ADSs relies in part on the research and reports that equity research
analysts publish about us or our business. We do not control these analysts. If research analysts do not
establish and maintain adequate research coverage or if one or more of the analysts who covers us
downgrades the ADSs or publishes inaccurate or unfavorable research about our business, the market
price for the ADSs 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 the ADSs to decline significantly.
We are a Cayman Islands company. Because judicial precedent regarding the rights of shareholders is more
limited under Cayman Islands law than under U.S. law, shareholders may have fewer shareholder rights than
they would have under U.S. law.
Our corporate affairs are governed by our amended and restated memorandum and articles of
association (as may be amended from time to time), the Companies Law (as amended) of the Cayman
Islands and the common law of the Cayman Islands. The rights of shareholders to take action against
the directors, actions by minority shareholders and the fiduciary responsibilities of our directors are to
a large extent governed by the common law of the Cayman Islands. This common law is derived in part
from comparatively limited judicial precedent in the Cayman Islands as well as from English common
law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of
our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as
clearly established as they would be under statutes or judicial precedent in some jurisdictions in the
United States. In particular, the Cayman Islands has a less developed body of securities law than the
United States. In addition, some states in the United States, such as Delaware, have more fully
developed and judicially interpreted bodies of corporate law than the Cayman Islands.
In addition, as a Cayman Islands exempted company, our shareholders have no general rights
under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of
shareholders of these companies with the exception that the shareholders may request a copy of the
current amended and restated memorandum and articles of association. Our directors have discretion
under our amended and restated articles of association to determine whether or not, and under what
conditions, our corporate records may be inspected by our shareholders, but are not obliged to make
them available to our shareholders. This may make it more difficult for you to obtain the information
needed to establish any facts necessary for a shareholder motion or to solicit proxies from other
shareholders in connection with a proxy contest. As a Cayman Islands company, we may not have
standing to initiate a derivative action in a federal court of the United States. As a result, you may be
limited in your ability to protect your interests if you are harmed in a manner that would otherwise
enable you to sue in a United States federal court. In addition, shareholders of Cayman Islands
companies may not have standing to initiate a shareholder derivative action in U.S. federal courts.
As a result of all of the above, public shareholders may have more difficulty in protecting their
interests in the face of actions taken by management, members of the board of directors or controlling
shareholders than they would as public shareholders of a U.S. company.
You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S.
federal courts may be limited because we are incorporated under Cayman Islands law, we currently conduct
substantially all of our operations outside the United States and some of our directors and executive officers
reside outside the United States.
We are incorporated in the Cayman Islands and currently conduct substantially all of our
operations outside the United States through our subsidiaries. Some of our directors and executive
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officers reside outside the United States and a substantial portion of their assets are located outside of
the United States. As a result, it may be difficult or impossible for you to bring an action against us or
against these individuals in the Cayman Islands or in China in the event that you believe that your
rights have been infringed under the securities laws of the United States or otherwise. Even if you are
successful in bringing an action of this kind, the laws of the Cayman Islands and China may render you
unable to enforce a judgment against our assets or the assets of our directors and officers. There is no
statutory recognition in the Cayman Islands of judgments obtained in the United States or China,
although the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment
of a foreign court of competent jurisdiction without retrial on the merits.
Your voting rights as a holder of the ADSs are limited by the terms of the deposit agreement, as amended.
You may exercise your voting rights with respect to the ordinary shares underlying your ADSs only
in accordance with the provisions of the deposit agreement, as amended. Upon receipt of voting
instructions from you in the manner set forth in the deposit agreement, the depositary for the ADSs
will endeavor to vote your underlying ordinary shares in accordance with these instructions. Under our
articles of association, the minimum notice period required for convening a general meeting is seven
calendar days. When a general meeting is convened, you may not receive sufficient notice of a
shareholders’ meeting to permit you to withdraw your ordinary shares to allow you to cast your vote
with respect to any specific matter at the meeting. In addition, the depositary and its agents may not be
able to send voting instructions to you or carry out your voting instructions in a timely manner. We will
make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner,
but you may not receive the voting materials in time to ensure that you can instruct the depositary to
vote your shares. Furthermore, the depositary and its agents will not be responsible for any failure to
carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such
vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your
ordinary shares are not voted as you requested.
Anti-takeover provisions in our charter documents may discourage our acquisition by a third party, which
could limit our shareholders’ opportunity to sell their shares, including ordinary shares represented by the
ADSs, at a premium.
Our amended and restated memorandum and articles of association include provisions that could
limit the ability of others to acquire control of our company, could modify our structure or could cause
us to engage in change-of-control transactions. These provisions could have the effect of depriving our
shareholders of an opportunity to sell their shares, including ordinary shares represented by ADSs, at a
premium over prevailing market prices by discouraging third parties from seeking to obtain control in a
tender offer or similar transaction.
For example, our board of directors has the authority, without further action by our shareholders,
to issue preferred shares in one or more series and to fix the powers and rights of these shares,
including dividend rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights associated with our ordinary shares.
preferred shares could thus be issued quickly with terms calculated to delay or prevent a change in
control or make removal of management more difficult. In addition, if our board of directors
authorizes the issuance of preferred shares, the market price of the ADSs may fall and the voting and
other rights of the holders of our ordinary shares may be materially and adversely affected.
Furthermore, the amended and restated articles of association permit the directors to vary all or
any of the rights attaching to any shares in issue without the consent of the shareholder but only if
such variation is considered by the directors not to have a material adverse effect upon such holder.
The directors cannot vary the rights of shares if such variation would have a material adverse effect of
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the holder. The amended and restated articles of association provide that the holders must consent to
any such material adverse changes in the manner set out therein.
Because our directors are divided into three classes with staggered terms of three years each,
shareholders can only elect or remove a limited number of our directors in any given year. The length
of these terms could present an obstacle to certain actions, such as a merger or other change of
control, which could be in the interest of our shareholders.
Our amended and restated memorandum and articles of association provide that any shareholder bringing an
unsuccessful action against us may be obligated to reimburse us for any costs we have incurred in connection
with such unsuccessful action.
Our amended and restated memorandum and articles of association provide that under certain
circumstances the fees, costs, and expenses that we incur in connection with actions or proceedings
brought by any person or entity, which we refer to as claiming parties, may be shifted to such person or
entity. If a claiming party asserts any claim; initiates any proceeding; or joins, offers substantial
assistance to, or has a direct financial interest in any claim or proceeding against us (including any
proceeding purportedly filed on behalf of us or any shareholder), and such claiming party (or the third
party that received substantial assistance from a claiming party or in whose claim or proceeding such
claiming party has a direct financial interest) is unsuccessful in obtaining a judgment on the merits in
which the claiming party prevails, then such claiming party may, to the fullest extent permissible by law,
be obligated jointly and severally to reimburse us for all fees, costs, and expenses, including but not
limited to all reasonable attorneys’ fees and other litigation expenses, that we may incur in connection
with such claim, suit, action, or proceeding.
Fee-shifting articles are relatively new and untested in both the Cayman Islands and the United
States. The case law and potential legislative action on fee-shifting articles are evolving and there exists
considerable uncertainty regarding the validity of, and potential judicial and legislative responses to,
such articles. For example, it is unclear whether our ability to invoke our fee-shifting article in
connection with claims under the federal securities laws, including claims related to any of our public
offerings, would be preempted by federal law. Similarly, it is unclear how courts might apply the
standard that a claiming party must obtain a judgment that substantially achieves, in substance and
amount, the full remedy sought. The application of our fee-shifting article in connection with such
claims, if any, will depend in part on future developments of the law. We cannot assure you that we
will or will not invoke our fee-shifting article in any particular dispute, including any claims related to
our public offerings. Consistent with our directors’ fiduciary duties to act in the best interests of the
company, the directors may in their sole discretion from time to time decide whether or not to enforce
this article. In addition, given the unsettled state of the law related to fee-shifting articles, such as ours,
we may incur significant additional costs associated with resolving disputes with respect to such articles,
which could adversely affect our business and financial condition.
If a shareholder that brings any such claim, suit, action or proceeding is unable to obtain the
judgment sought, the attorneys’ fees and other litigation expenses that might be shifted to a claiming
party are potentially significant. This fee-shifting article, therefore, may dissuade or discourage current
or former shareholders (and their attorneys) from initiating lawsuits or claims against us. In addition, it
may impact the fees, contingency or otherwise, required by potential plaintiffs’ attorneys to represent
our shareholders or otherwise discourage plaintiffs’ attorneys from representing our shareholders at all.
As a result, this article may limit the ability of shareholders to affect the management and direction of
our company, particularly through litigation or the threat of litigation.
146
The depositary for the ADSs will give us a discretionary proxy to vote our ordinary shares underlying your
ADSs if you do not vote at shareholders’ meetings, except in limited circumstances, which could adversely
affect your interests.
Under the deposit agreement, as amended, for the ADSs, the depositary will give us a
discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings if you
do not give voting instructions to the depositary, unless:
(cid:129) we have failed to timely provide the depositary with our notice of meeting and related voting
materials;
(cid:129) we have instructed the depositary that we do not wish a discretionary proxy to be given;
(cid:129) we have informed the depositary that there is substantial opposition as to a matter to be voted
on at the meeting; or
(cid:129) a matter to be voted on at the meeting would have a material adverse impact on shareholders.
The effect of this discretionary proxy is that, if you fail to give voting instructions to the depositary,
you cannot prevent our ordinary shares underlying your ADSs from being voted, absent the situations
described above, and it may make it more difficult for shareholders to influence our management.
Holders of our ordinary shares are not subject to this discretionary proxy.
Holders of the ADSs may be subject to limitations on transfer of their ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its
books at any time or from time to time when it deems expedient in connection with the performance of
its duties. The depositary may refuse to deliver, transfer or register transfers of your ADSs generally
when our books or the books of the depositary are closed, or at any time if we or the depositary think
it is advisable to do so because of any requirement of law, government or governmental body, or under
any provision of the deposit agreement, as amended, or for any other reason, subject to your right to
cancel your ADSs and withdraw the underlying ordinary shares. Temporary delays in the cancellation of
your ADSs and withdrawal of the underlying common shares may arise because the depositary has
closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is
blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our ordinary
shares.
In addition, you may not be able to cancel your ADSs and withdraw the underlying ordinary shares
when you owe money for fees, taxes and similar charges and when it is necessary to prohibit
withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the
withdrawal of ordinary shares or other deposited securities.
The depositary for the ADSs is entitled to charge holders fees for various services, including annual service
fees.
The depositary for the ADSs is entitled to charge holders fees for various services including for the
issuance of ADSs upon deposit of ordinary shares, cancellation of ADSs, distributions of cash dividends
or other cash distributions, distributions of ADSs pursuant to share dividends or other free share
distributions, distributions of securities other than ADSs and annual service fees. In the case of ADSs
issued by the depositary into The Depository Trust Company, or DTC, the fees will be charged by the
DTC participant to the account of the applicable beneficial owner in accordance with the procedures
and practices of the DTC participant as in effect at the time.
147
You may not receive distributions on our ordinary shares or any value for them if it is illegal or impractical
to make them available to you.
The depositary of the ADSs has agreed to pay you the cash dividends or other distributions it or
the custodian for the ADSs receives on our ordinary shares or other deposited securities after
deducting its fees and expenses. You will receive these distributions in proportion to the number of our
ordinary shares that your ADSs represent. However, the depositary is not responsible for making such
payments or distributions if it is unlawful or impractical to make a distribution available to any holders
of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of
securities that require registration under the Securities Act but that are not properly registered or
distributed pursuant to an applicable exemption from registration. The depositary is not responsible for
making a distribution available to any holders of ADSs if any government approval or registration
required for such distribution cannot be obtained after reasonable efforts made by the depositary. We
have no obligation to take any other action to permit the distribution of the ADSs, ordinary shares,
rights or anything else to holders of the ADSs. This means that you may not receive the distributions
we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them
available to you. These restrictions may materially reduce the value of your ADSs.
Holders of the ADSs may not be able to participate in rights offerings and may experience dilution of their
holdings.
From time to time, we may distribute rights to our shareholders, including rights to acquire
securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs
unless the distribution and sale of rights and the securities to which these rights relate are either
exempt from registration under the Securities Act with respect to all holders of ADSs or are registered
under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell
these undistributed rights to third parties and may allow the rights to lapse. We may be unable to
establish an exemption from registration under the Securities Act, and we are under no obligation to
file a registration statement with respect to these rights or underlying securities or to try to have a
registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in
our rights offerings and may experience dilution of their holdings as a result.
Our corporate actions are substantially controlled by our directors, executive officers and other principal
shareholders, who can exert significant influence over important corporate matters, which may reduce the
price of the ADSs and deprive you of an opportunity to receive a premium for your ADSs.
Our directors, executive officers and principal shareholders beneficially owned approximately
69.8% of our outstanding ordinary shares as of March 17, 2017. These shareholders, if acting together,
could exert substantial influence over matters such as electing directors and approving material
mergers, acquisitions or other business combination transactions. This concentration of ownership may
also discourage, delay or prevent a change in control of our company, which could have the dual effect
of depriving our shareholders of an opportunity to receive a premium for their shares as part of a sale
of our company and reducing the price of the ADSs. These actions may be taken even if they are
opposed by our other shareholders, including the holders of the ADSs. In addition, these persons could
divert business opportunities away from us to themselves or others.
We have incurred increased costs as a result of operating as a public company, and our management will be
required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company, we have incurred and will continue to incur significant legal, accounting and
other expenses that we did not incur as a private company. For example, as a public company, we are
now subject to the reporting requirements of the Exchange Act, which requires, among other things,
that we file with the SEC annual, quarterly and current reports with respect to our business and
148
financial condition. We have incurred and will continue to incur costs associated with the preparation
and filing of these reports. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and
Consumer Protection Act, the listing requirements of the NASDAQ Stock 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. Our management and other personnel will need to devote a substantial amount of time to
these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial
compliance costs and will make some activities more time-consuming and costly. For example, we
expect that these rules and regulations may make it more difficult and more expensive for us to obtain
director and officer liability insurance, which in turn could make it more difficult for us to attract and
retain qualified members of our board of directors.
We continue to evaluate these rules and regulations, and cannot predict or estimate the amount of
additional costs we may incur or the timing of such costs. 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 will first be
required to furnish a report by our management on our internal control over financial reporting for the
year ending December 31, 2016. However, while we remain an emerging growth company, we will not
be required to include an attestation report on internal control over financial reporting issued by our
independent registered public accounting firm. To achieve compliance with Section 404 within the
prescribed period, we will continue to be engaged in a process to document and evaluate our internal
control over financial reporting, which is both costly and challenging. In this regard, we will need to
continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed
work plan to assess and document the adequacy of internal control over financial reporting, continue
steps to improve control processes as appropriate, validate through testing that controls are functioning
as documented and implement a continuous reporting and improvement process for internal control
over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within
the prescribed timeframe or at all, that our internal control over financial reporting is effective as
required by Section 404. If we identify one or more material weaknesses, it could result in an adverse
reaction in the financial markets due to a loss of confidence in the reliability of our financial
statements.
We may be a ‘‘passive foreign investment company,’’ which may have adverse U.S. federal income tax
consequences for U.S. shareholders.
U.S. investors should be aware that, based on current business plans and financial expectations
(including that a substantial percentage of our assets are held in cash and cash equivalents), we expect
that we may be a passive foreign investment company within the meaning of Section 1297 of the
Internal Revenue Code of 1986, as amended, or PFIC, for the current taxable year and in future
taxable years. If we are a PFIC for any taxable year during a U.S. shareholder’s holding period of the
ADSs or ordinary shares, then such U.S. shareholder generally will be required to treat any gain
realized upon a disposition of the ADSs or ordinary shares, or any ‘‘excess distribution’’ received on the
ADSs or ordinary shares, as ordinary income earned over the U.S. shareholder’s holding period for the
ADSs or ordinary shares, and to pay the applicable taxes on such ordinary income along with an
interest charge at the rate applicable to underpayments of tax on a portion of the resulting tax liability,
unless the shareholder makes a timely and effective ‘‘qualified electing fund’’ election, or QEF election,
or ‘‘mark-to-market’’ election with respect to the ADSs or ordinary shares. A U.S. shareholder who
makes an effective QEF election generally must report on a current basis its share of our net capital
149
gain and ordinary earnings for any taxable year in which we are a PFIC, whether or not we distribute
any amounts to our shareholders. If a QEF election is not in effect for the first taxable year in your
holding period in which we are a PFIC, a QEF election can only be made if you elect to recognize gain
as if you had sold the ADSs or ordinary shares for their fair market value on the first day of your
taxable year in which the PFIC becomes a QEF pursuant to the QEF election. The gain recognized on
this deemed sale would be subject to the general tax treatment of PFICs discussed above. We intend to
determine our PFIC status at the end of each taxable year and to satisfy any applicable record keeping
and reporting requirements that apply to a QEF, and will endeavor to provide to you, for each taxable
year that we determine we are or may be a PFIC, the information that is necessary for you to make a
QEF election with respect to us (and any of our subsidiaries which are lower-tier PFICs). We may elect
to provide such information on our website. However, there can be no assurances that we will make
the necessary information available to you. You are urged to consult your own tax advisors regarding
the availability of, and procedure for making, a QEF election. A U.S. shareholder who makes an
effective mark-to-market election generally must include as ordinary income any gain recognized in a
year that we are a PFIC in an amount equal to the excess of the fair market value of the ADSs over
the shareholder’s adjusted tax basis therein. Each U.S. shareholder should consult its own tax advisors
regarding the PFIC rules and the U.S. federal income tax consequences of the acquisition, ownership
and disposition of the ADSs or ordinary shares.
If you are a ‘‘Ten Percent Shareholder,’’ you may be subject to adverse U.S. federal income tax consequences if
we are classified as a Controlled Foreign Corporation.
Each ‘‘Ten Percent Shareholder’’ (as defined below) in a non-U.S. corporation that is classified as
a ‘‘controlled foreign corporation,’’ or a CFC, for U.S. federal income tax purposes generally is
required to include in income for U.S. federal tax purposes such Ten Percent Shareholder’s pro rata
share of the ‘‘CFC’s’’ ‘‘Subpart F income’’ and investment of earnings in U.S. property, even if the
CFC has made no distributions to its shareholders. A non-U.S. corporation generally will be classified
as a CFC for U.S federal income tax purposes if Ten Percent Shareholders own in the aggregate,
directly or indirectly, more than 50% of either the total combined voting power of all classes of stock
of such corporation entitled to vote or of the total value of the stock of such corporation. A ‘‘Ten
Percent Shareholder’’ is a U.S. person (as defined by the Internal Revenue Code of 1986, as amended),
who owns or is considered to own 10% or more of the total combined voting power of all classes of
stock entitled to vote of such corporation. The determination of CFC status is complex and includes
attribution rules, the application of which is not entirely certain. We may currently be a CFC and/or we
may become one in the future. Holders are urged to consult their own tax advisors with respect to our
potential CFC status and the consequences thereof.
We may be subject to adverse legislative or regulatory tax changes that could negatively affect our financial
condition.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by
persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes
to tax laws (which changes may have retroactive application) could adversely affect our stockholders or
us. In recent years, many changes have been made and changes are likely to continue to be made in
the future. We cannot predict whether, when, in what form, or with what effective dates, tax laws,
regulations and rulings may be enacted, promulgated or decided that could result in an increase in our,
or our stockholders’, tax liability or require changes in the manner in which we operate in order to
minimize increases in our tax liability.
Item 1B. Unresolved Staff Comments
Not applicable.
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Item 2. Properties
Our research and development center is located in Changping, Beijing, China, where we lease
approximately 6,900 square meters of office, laboratory and manufacturing space. The lease for this
facility expires in 2021. In addition, we lease an approximately 11,000 square meter space and are
building a manufacturing facility in Suzhou, China. Our clinical development office is located in
downtown Beijing, China. We also have offices in the United States in the greater Boston area,
California and New Jersey. We lease all of our facilities and believe our current facilities are sufficient
to meet our needs.
On March 7, 2017, we entered into an agreement with Guangzhou GET Technology
Development Co., Ltd. pursuant to which we expect to establish a biologics manufacturing facility to
research, develop and produce biologics products in China. Through a subsidiary of a joint venture
company formed in connection with this agreement, we expect to acquire at least 100,000 square
meters of land for the facility in the Sino-Singapore Guangzhou Knowledge City. See ‘‘Part IV—
Item 15—Exhibits, Financial Statement Schedules—Note 22. Subsequent Events’’ for additional
information.
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. We are not presently a party to any legal proceedings that, if
determined adversely to us, would individually or taken together have a material adverse effect on our
business, results of operations, financial condition or cash flows. Regardless of the outcome, litigation
can have an adverse impact on us because of defense and settlement costs, diversion of management
resources and other factors.
Item 4. Mine Safety Disclosures
Not applicable.
151
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
PART II
of Equity Securities
Market Information
The ADSs have been publicly traded on the NASDAQ under the symbol ‘‘BGNE’’ since our initial
public offering on February 3, 2016, which was completed at a price to the public of $24.00 per ADS.
The following table sets forth the high and low closing sale prices per share for the ADSs on the
NASDAQ for the periods indicated:
Period
High
Low
Annual:
2016 (beginning February 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 (through March 17, 2017) . . . . . . . . . . . . . . . . . . . . . . . . . . .
$36.90
$41.89
$23.98
$29.58
Quarterly:
First quarter 2016 (beginning February 3) . . . . . . . . . . . . . . . . . . .
Second quarter 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First quarter 2017 (through March 17, 2017) . . . . . . . . . . . . . . . . .
Month Ended:
September 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 2017 (through March 17, 2017) . . . . . . . . . . . . . . . . . . . . .
$33.91
$33.11
$33.58
$36.90
$41.89
$33.58
$33.47
$36.90
$30.86
$36.35
$41.00
$41.89
$23.98
$26.24
$25.72
$26.95
$29.58
$29.21
$30.71
$30.88
$26.95
$30.81
$34.29
$38.26
Shareholders
As of March 17, 2017, we had approximately 101 holders of record of our ordinary shares and one
holder of record of the ADSs. This number does not include beneficial owners whose ADSs are held
by nominees in street name. Because many ordinary shares held in the form of ADSs are held by
broker nominees, we are unable to estimate the total number of holders represented by these record
holders.
Dividend Policy
We have never declared or paid any dividends on our ordinary shares or any other securities. We
currently intend to retain all available funds and any future earnings, if any, to fund the development
and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable
future. Investors should not purchase the ADSs with the expectation of receiving cash dividends.
Any future determination to pay dividends will be made at the discretion of our board of directors
and may be based on a number of factors, including our future operations and earnings, capital
requirements and surplus, general financial condition, contractual restrictions and other factors that our
board of directors may deem relevant. If we pay any dividends, we will pay the ADS holders to the
same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, as
amended, including the fees and expenses payable thereunder. Cash dividends on our ordinary shares,
if any, will be paid in U.S. dollar.
152
If we pay dividends in the future, in order for us to distribute dividends to our shareholders and
ADS holders, we will rely to some extent on any dividends distributed by our PRC subsidiaries. Any
dividend distributions from our PRC subsidiaries to us will be subject to PRC withholding tax. In
addition, regulations in the PRC currently permit payment of dividends of a PRC company only out of
accumulated distributable after-tax profits as determined in accordance with its articles of association
and the accounting standards and regulations in China. See the section of this Annual Report titled
‘‘Part I—Item 1A—Risk Factors—Risks Related to Our Doing Business in the PRC—In the future, we
may rely to some extent on dividends and other distributions on equity from our principal operating
subsidiaries to fund offshore cash and financing requirements.’’
Performance Comparison Graph
This graph is not ‘‘soliciting material,’’ is not deemed ‘‘filed’’ with the SEC and is not to be
incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective
of any general incorporation language in any such filing.
The following graph shows the total stockholder return of an investment of $100 in cash at market
close on February 3, 2016 (the first day of trading of our ADSs) through December 31, 2016 for
(1) our ADSs, (2) the NASDAQ Composite Index (U.S.) and (3) the NASDAQ Biotechnology Index.
Pursuant to applicable SEC rules, all values assume reinvestment of the full amount of all dividends.
No dividends, however, have been declared on our ordinary shares or ADSs to date. The stockholder
return shown on the graph below is not necessarily indicative of future performance, and we do not
make or endorse any predictions as to future stockholder returns.
COMPARISON OF 11 MONTH CUMULATIVE TOTAL RETURN*
Among BeiGene, Ltd., the NASDAQ Composite index
and the NASDAQ Biotechnology Index
$120
$115
$110
$105
$100
$95
$90
$85
2/3/16
12/31/16
BeiGene, Ltd.
NASDAQ Composite
NASDAQ Biotechnology
19MAR201701242548
*
$100 invested on 2/3/16 in stock or 1/31/16 in index, including reinvestment of dividends Fiscal year
ending December 31.
BeiGene, Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ Composite . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.00
100.00
100.00
107.20
117.14
98.63
2/3/16
12/31/16
153
Recent Sales of Unregistered Securities
We did not sell any of our ordinary shares or ADSs, or grant any share options or restricted share
awards, during the year ended December 31, 2016 that were not registered under the Securities Act of
1933, as amended, or the Securities Act, and that have not otherwise been described in a Quarterly
Report on Form 10-Q.
Issuer Purchases of Equity Securities
During the quarter ended December 31, 2016, there were no purchases made by us, on our behalf,
or by any ‘‘affiliated purchasers’’ of shares of our equity securities.
Use of Proceeds from Registered Securities
On February 8, 2016, we closed the sale of 7,590,000 ADSs to the public at an initial public
offering price of $24.00 per ADS, including the exercise in full by the underwriters of their option to
purchase additional ADSs. The ordinary shares in the form of ADSs in our initial public offering were
registered under the Securities Act pursuant to a registration statements on Form S-1 (File
No. 333-207459), which was filed with the SEC on October 16, 2015 and amended subsequently and
declared effective on February 2, 2016. Following the sale of the ADSs in connection with the closing
of our initial public offering, the offering terminated. The offering did not terminate before all the
securities registered in the registration statements were sold. The underwriters of the offering were
Goldman, Sachs & Co., Morgan Stanley, and Cowen and Company acting as joint book-running
managers for the offering and as representatives of the underwriters. Baird acted as co-manager for the
offering.
We raised $166.2 million in net proceeds after deducting underwriting discounts and commissions
and other offering expenses of approximately $16.0 million. No offering expenses were paid directly or
indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more
of any class of our equity securities or to any other affiliates.
On November 23, 2016, we closed the sale of 6,631,250 ADSs to the public at a public offering
price of $32.00 per ADS, including the exercise in full by the underwriters of their option to purchase
additional ADSs. In this offering, the selling shareholders sold 468,750 ADSs representing 6,093,750
ordinary shares. The ordinary shares in the form of ADSs in this follow-on public offering were
registered under the Securities Act pursuant to a registration statements on Form S-1 (File
No.333-214540), which was filed with the SEC on November 10, 2016 and amended subsequently and
declared effective on November 17, 2016. Following the sale of the ADSs in connection with the
closing of our follow-on public offering, the offering terminated. The offering did not terminate before
all the securities registered in the registration statements were sold. The underwriters of the offering
were Morgan Stanley; Goldman, Sachs & Co.; and Cowen and Company acting as joint book-running
managers for the offering and as representatives of the underwriters. Baird and William Blair acted as
co-managers for the offering.
We raised $198.6 million in net proceeds after deducting underwriting discounts and commissions
and other offering expenses of approximately $13.6 million. We did not receive any proceeds from the
sale of the shares by the selling stockholder. No offering expenses were paid directly or indirectly to
any of our directors or officers (or their associates) or persons owning ten percent or more of any class
of our equity securities or to any other affiliates.
To date, we have not yet used all of the net proceeds from our initial public offering and follow-on
public offering. We invested the funds received in short-term, interest-bearing investment-grade
securities and government securities in accordance with our investment policy. As described in our final
prospectuses filed with the SEC on February 3, 2016 and November 18, 2016, pursuant to Rule 424(b)
154
under the Securities Act, we expect to use the net proceeds from our initial public offering and
follow-on public offerings to fund the costs of ongoing clinical development for our clinical drug
candidates, BGB-3111, BGB-A317, BGB-290 and BGB-283, and preclinical drug candidates, as well as
for working capital, capital expenditures and general corporate purposes.
Taxation
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits,
income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty or
withholding tax applicable to us or to any holder of the ADSs and ordinary shares. There are no other
taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp
duties which may be applicable on instruments executed in, or after execution brought within, the
jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on the issue of
shares by, or any transfers of shares of, Cayman Islands companies (except those which hold interests
in land in the Cayman Islands). The Cayman Islands is not party to any double tax treaties that are
applicable to any payments made to or by our company. There are no exchange control regulations or
currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of the ADSs and ordinary shares will not be subject
to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or
capital to any holder of the ADSs or ordinary shares, as the case may be, nor will gains derived from
the disposal of the ADSs or ordinary shares be subject to Cayman Islands income or corporation tax.
People’s Republic of China Taxation
Under the EIT Law, an enterprise established outside of China with a ‘‘de facto management
body’’ within China is considered a ‘‘resident enterprise,’’ which means that it is treated in a manner
similar to a Chinese enterprise for enterprise income tax purposes. Although the implementation rules
of the EIT Law define ‘‘de facto management body’’ as 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 only official guidance for this definition currently available is set forth in the
Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprise as PRC
Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, issued by the
State Administration of Taxation, which provides guidance on the determination of the tax residence
status of a Chinese-controlled offshore incorporated enterprise, defined as an enterprise that is
incorporated under the laws of a foreign country or territory and that has a PRC enterprise or
enterprise group as its primary controlling shareholder. Although BeiGene, Ltd. does not have a PRC
enterprise or enterprise group as our primary controlling shareholder and is therefore not a Chinese-
controlled offshore incorporated enterprise within the meaning of Circular 82, in the absence of
guidance specifically applicable to us, we have applied the guidance set forth in Circular 82 to evaluate
the tax residence status of BeiGene, Ltd. and its subsidiaries organized outside the PRC.
According to Circular 82, a Chinese-controlled offshore incorporated enterprise will be regarded as
a PRC tax resident by virtue of having a ‘‘de facto management body’’ in China and will be subject to
PRC enterprise income tax on its worldwide income only if all of the following criteria are met:
(cid:129) the primary location of the enterprise’s senior executives of the day-to-day operational
management and senior management departments performing their duties is in the PRC;
(cid:129) decisions relating to the enterprise’s financial and human resource matters are made or are
subject to approval by organizations or personnel in the PRC;
155
(cid:129) the enterprise’s primary assets, accounting books and records, company seals, and board and
shareholder meeting minutes are located or maintained in the PRC; and
(cid:129) 50% or more of voting board members or senior executives habitually reside in the PRC.
Currently, some of the members of our management team are located in China. However, we do
not believe that we meet all of the conditions outlined in the immediately preceding paragraph.
BeiGene, Ltd. and its offshore subsidiaries are incorporated outside the PRC. As a holding company,
our key assets and records, including the resolutions and meeting minutes of our board of directors and
the resolutions and meeting minutes of our shareholders, are located and maintained outside the PRC.
However, we are not aware of any offshore holding companies with a corporate structure similar to
ours that has been deemed a PRC ‘‘resident enterprise’’ by the PRC tax authorities. Accordingly, we
believe that BeiGene, Ltd. and its offshore subsidiaries should not be treated as a ‘‘resident enterprise’’
for PRC tax purposes if the criteria for ‘‘de facto management body’’ as set forth in Circular 82 were
deemed applicable to us. However, as the tax residency status of an enterprise is subject to
determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of
the term ‘‘de facto management body’’ as applicable to our offshore entities, we will continue to
monitor our tax status.
The implementation rules of the EIT Law provide that, (1) if the enterprise that distributes
dividends is domiciled in the PRC or (2) if gains are realized from transferring equity interests of
enterprises domiciled in the PRC, then such dividends or capital gains are treated as China-sourced
income. It is not clear how ‘‘domicile’’ may be interpreted under the EIT Law, and it may be
interpreted as the jurisdiction where the enterprise is a tax resident. Therefore, if we are considered as
a PRC tax resident enterprise for PRC tax purposes, any dividends we pay to our overseas shareholders
or ADS holders as well as gains realized by such shareholders or ADS holders from the transfer of our
shares or ADSs may be regarded as China-sourced income. As a result dividends paid to non-PRC
resident enterprise ADS holders or shareholders may be subject to PRC withholding tax at a rate of up
to 10% (or 20% in the case of non-PRC individual ADS holders or shareholders) and gains realized by
non-PRC resident enterprise ADS holders or shareholders from the transfer of our ordinary shares or
ADSs may be subject to PRC tax at a rate of 10% (or 20% in the case of non-PRC individual ADS
holders or shareholders). It is also unclear whether, if we are considered a PRC resident enterprise,
holders of our shares or ADSs would be able to claim the benefit of income tax treaties or agreements
entered into between China and other countries or areas.
156
Equity Compensation Plan Information
The following table contains information about our equity compensation plans as of December 31,
2016.
Number of Securities to
Be Issued Upon Exercise
of Outstanding Options,Warrants
and Rights
Weighted-average Exercise
Price of Outstanding
Option, Warrants and Rights
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column(a))
35,440,793(1)
$2.34
34,712,601(2)
Plan Category
Equity compensation plans
approved by security
holders . . . . . . . . . . . . .
Equity compensation plans
not approved by security
holders . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . .
77,079,743
41,638,950(3)
0.42
—
—(4)
34,712,601
(1) Includes 35,440,793 ordinary shares to be issued pursuant to outstanding awards under our 2016
Share Option and Incentive Plan, or the 2016 Plan.
(2) As of December 31, 2016, there were 34,712,601 shares available for grant under our 2016 Plan.
(3) Includes 26,438,283 ordinary shares to be issued pursuant to outstanding awards under our 2011
Option Plan, or the 2011 Plan, and 15,200,667 ordinary shares to be issued pursuant to outstanding
awards granted outside of our equity incentive plans.
(4) As of December 31, 2016, there were no shares available for grant under our 2011 Plan.
157
Item 6. Selected Consolidated Financial Data
The selected financial data set forth below is derived from our audited consolidated financial
statements and may not be indicative of future operating results. The following selected consolidated
financial data should be read in conjunction with ‘‘Item 7—Management’s Discussion and Analysis of
Financial Condition and Results of Operations’’ and the consolidated financial statements and the
notes thereto included elsewhere in this Annual Report. The selected financial data in this section are
not intended to replace our consolidated financial statements and the related notes. Our historical
results are not necessarily indicative of our future results.
Statements of Operations:
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating expenses:
Research and development . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . .
Interest income (expense), net . . . . . . . . . . . . . .
Changes in fair value of financial instruments . . .
Loss on sale of available-for-sale securities . . . . .
Gain on debt extinguishment
. . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . .
Loss before income tax expense . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: net loss attributable to non-controlling
Year Ended December 31,
2016
2015
2014
2013
(in thousands, except share and per share data)
1,070 $
8,816 $
13,035 $
11,148
(98,033)
(20,097)
(118,130)
(117,060)
383
(1,514)
(1,415)
—
443
(119,163)
(54)
(119,217)
(58,250)
(7,311)
(65,561)
(56,745)
559
(1,826)
(314)
—
1,224
(57,102)
—
(57,102)
(21,862)
(6,930)
(28,792)
(15,757)
(3,512)
(2,760)
—
2,883
600
(18,546)
—
(18,546)
(13,463)
(3,143)
(16,606)
(5,458)
(3,153)
133
—
—
584
(7,894)
—
(7,894)
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to ordinary shareholders . . . $
—
(119,217) $
—
(57,102) $
(268)
(18,278) $
(400)
(7,494)
Loss per ordinary share attributable to ordinary
shareholders, basic and diluted(1) . . . . . . . . . . $
(0.30) $
(0.52) $
(0.18) $
(0.08)
Weighted-average ordinary shares outstanding,
basic and diluted . . . . . . . . . . . . . . . . . . . . . .
403,619,446
110,597,263
99,857,623
91,484,521
(1) See Note 14 to our audited consolidated financial statements appearing elsewhere in this Annual
Report for a description of the method used to calculate basic and diluted net loss per share of
ordinary shares.
As of December 31,
2016
2015
2014
2013
(in thousands)
Balance Sheet Data:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity (deficit) . . . . . . . . . . . . . . . . . .
$ 87,514
280,660
339,341
405,813
52,906
—
—
352,907
$ 17,869
82,617
71,097
116,764
42,445
176,084
—
(101,765)
$ 13,898
30,497
33,817
53,621
27,853
78,809
—
(53,041)
$ 3,926
—
(27,300)
11,798
48,757
—
1,767
(38,726)
158
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of
operations together with ‘‘Item 6—Selected Consolidated Financial Data’’ and our consolidated financial
statements and related notes appearing elsewhere in this Annual Report. In addition to historical
information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties
and assumptions. Our actual results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these
differences below and elsewhere in this report, including those set forth under ‘‘Part I—Item 1A—Risk
Factors’’ and under ‘‘Forward-Looking Statements and Market Data’’ in this Annual Report.
Overview
We are a globally focused, clinical-stage biopharmaceutical company dedicated to becoming a
leader in the discovery and development of innovative, molecularly targeted and immuno-oncology
drugs for the treatment of cancer. We believe the next generation of cancer treatment will utilize
therapeutics both as monotherapies and in combination to attack multiple underlying mechanisms of
cancer cell growth and survival. We further believe that discovery of next generation cancer therapies
requires new research tools. To that end, we have developed a proprietary cancer biology platform that
addresses the importance of tumor-immune system interactions and the value of primary biopsies in
developing new models to support our drug discovery effort. Our strategy is to develop a pipeline of
drug candidates with the potential to be best-in-class monotherapies and also important components of
multiple-agent combination regimens.
We have used our cancer biology platform to develop four clinical-stage drug candidates that we
believe have the potential to be best-in-class or first-in-class. In addition, we believe that each has the
potential to be an important component of a drug combination addressing major unmet medical needs.
Our clinical-stage drug candidates include three molecularly targeted agents, BGB-3111, BGB-290 and
BGB-283 and one immuno-oncology agent, BGB-A317. BGB-3111 is a potent and highly selective
small molecule inhibitor of BTK. BGB-290 is a molecularly targeted, orally available, potent and highly
selective inhibitor of PARP1 and PARP2. BGB-283 is a small molecule inhibitor of both the monomer
and dimer forms of the RAF kinase. For each of our molecularly targeted drug candidates, we have
achieved proof-of-concept by demonstrating objective responses in the defined patient populations.
BGB-3111 received orphan drug designation from the FDA, for CLL, MCL and WM. Our clinical-
stage immuno-oncology agent, BGB-A317, is an investigational humanized monoclonal antibody against
the immune checkpoint receptor, PD-1. We have IND Applications in effect for our BTK, PD-1 and
PARP inhibitors with the FDA. We have also received approval of our Clinical Trial Applications for
each of our four clinical-stage drug candidates from the CFDA. In addition to our clinical-stage drug
candidates, we have a robust pipeline of preclinical programs and are planning to advance one or more
of these programs into the clinic in the next 12 months. We retain full global rights for all of our
clinical and preclinical drug candidates and programs.
Since our inception on October 28, 2010, our operations have focused on organizing and staffing
our company, business planning, raising capital, establishing our intellectual property portfolio and
conducting preclinical studies and clinical trials. We do not have any drug candidates approved for sale
and have not generated any revenue from product sales. We have financed operations through a
combination of public and private equity and debt financings and public and private grants and
contracts, including the net proceeds from our initial public offering and follow-on public offering, the
net proceeds from the issuance of a senior note and convertible promissory note to Merck Sharp &
Dohme Research GmbH, or MSD, an affiliate of Merck Sharp & Dohme Corp., the private placements
of our Series A preferred shares and Series A-2 preferred shares, and our collaboration with
Merck KGaA, Darmstadt Germany, or Merck KGaA, Darmstadt Germany Collaboration. On
February 8, 2016 and November 23, 2016, we completed our initial public offering and follow-on public
159
offering, and received net proceeds of $166.2 million and $198.6 million, respectively, after deducting
underwriting discounts and offering expenses. Although it is difficult to predict our liquidity
requirements, based upon our current operating plan and the successful completion of our initial public
offering and follow-on public offerings, we believe we have sufficient cash to meet our projected
operating requirements for at least the next 12 months. See ‘‘—Liquidity and Capital Resources.’’
Since inception we have incurred significant operating losses. Our net losses were $119.2 million,
$57.1 million and $18.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. As
of December 31, 2016, we had an accumulated deficit of $237.4 million. In the future, we may generate
revenue from product sales, collaboration agreements, strategic alliances and licensing arrangements, or
a combination of these. Substantially all of our losses have resulted from funding our research and
development programs and general and administrative costs associated with our operations. We expect
to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate
that our expenses will increase significantly in connection with our ongoing activities, as we:
(cid:129) continue investment in our cancer biology platform;
(cid:129) continue preclinical and clinical development of our programs;
(cid:129) continue investment in our manufacturing facilities;
(cid:129) hire additional research, development and business personnel;
(cid:129) maintain, expand and protect our intellectual property portfolio; and
(cid:129) incur additional costs associated with operating as a public company.
We expect that any revenue we generate will fluctuate from quarter to quarter and year to year as
a result of the timing and amount of license fees, milestones, reimbursement of costs incurred and
other payments and product sales, to the extent any are successfully commercialized. If we fail to
complete the development of our drug candidates in a timely manner or obtain regulatory approval of
them, our ability to generate future revenue, and our results of operations and financial position, would
be materially adversely affected.
Cash used in operations were $89.5 million, $39.8 million and $8.7 million, respectively, for years
ended December 31, 2016, 2015 and 2014. As of December 31, 2016, we had cash, cash equivalents and
short-term investments of $368.2 million, compared with $100.5 million as of December 31, 2015.
Financial Operations Overview
Revenue
To date, our revenue has consisted of upfront license fees, reimbursed research and development
expenses and milestone payments from our collaboration agreements with Merck KGaA, Darmstadt
Germany on BGB-283 and BGB-290. We have not generated any revenue from product sales and do
not expect to generate any revenue from product sales for the foreseeable future.
On May 24, 2013, we entered into license agreements with Merck KGaA, Darmstadt Germany on
BGB-283, which we amended and restated on December 10, 2013, and further amended on October 1,
2015 and December 3, 2015. In the latest amendment, Merck KGaA, Darmstadt Germany granted us
an exclusive license under certain of its intellectual property rights to develop, manufacture and
commercialize the RAF dimer inhibitor in The People’s Republic of China, which we refer to as the
PRC Territory, subject to certain non-compete restrictions. In March 2017, Merck KGaA, Darmstadt
Germany informed us that it will not exercise the Continuation Option in the ex-PRC Territory, and
thus, the ex-PRC BRAF Agreement has terminated in its entirety, except for certain provisions that will
survive the termination. Under these agreements, we received $13 million in non-refundable payments
in 2013 following their execution, $5 million in milestone payments in 2014 and $4 million in milestone
160
payments in 2015. We are eligible to receive $14 million in payments upon the successful achievement
of pre-specified clinical milestones in the PRC Territory. In consideration for the licenses Merck KGaA,
Darmstadt Germany grants to us, we were required to pay Merck KGaA, Darmstadt Germany a high
single-digit royalty on aggregate net sales of licensed BRAF inhibitors in the PRC Territory.
On October 28, 2013, we entered into license agreements with Merck KGaA, Darmstadt Germany
on BGB-290, pursuant to which (1) we granted to Merck KGaA, Darmstadt Germany an exclusive
license under certain of our intellectual property rights to develop and manufacture, and, if Merck
KGaA, Darmstadt Germany exercises a certain continuation option, to commercialize and manufacture
our compound BGB-290 and any other compound covered by the same existing patent rights with
primary activity to inhibit PARP 1, 2 or 3 enzymes in the Ex-PRC Territory, and (2) Merck KGaA,
Darmstadt Germany granted us an exclusive license under certain of its intellectual property rights to
develop, manufacture and commercialize the licensed PARP inhibitors in the PRC Territory. Under
these license agreements, we received $6 million in non-refundable payments in November 2013
following their execution and $9 million in milestone payments in 2014. We are eligible to receive up to
$7 million and $2.5 million, in payments upon the successful achievement of pre-specified clinical and
regulatory milestones in the PRC Territory respectively. On October 1, 2015, pursuant to a purchase of
rights agreement, we repurchased all of Merck KGaA, Darmstadt Germany’s worldwide rights under
the ex-PRC license agreement, in consideration for, among other things, a one-time payment of
$10 million and reduction of future milestone payments that we are eligible to receive under the PRC
license agreement. In connection with such repurchase, the ex-PRC license agreement terminated
except for certain provisions therein. The remaining $3 million of deferred revenue related to PARP as
of October 1, 2015 was netted against the $10 million repurchase consideration. In addition, if Merck
KGaA, Darmstadt Germany exercises its PRC commercialization option, Merck KGaA, Darmstadt
Germany is required to pay us a $50 million non-refundable payment upon such exercise, and we are
eligible for a $12.5 million milestone payment upon the successful achievement of a certain additional
regulatory event in the PRC Territory. In consideration for the licenses granted to us, we are required
to pay Merck KGaA, Darmstadt Germany a high single-digit royalty on aggregate net sales of licensed
products in the PRC Territory.
For more information on our collaborations with Merck KGaA, Darmstadt Germany, see ‘‘Part I—
Item 1—Business—Collaboration with Merck KGaA, Darmstadt Germany.’’
We recognized $1.1 million, $8.8 million and $13.0 million of collaboration revenue from the
Merck KGaA, Darmstadt Germany Collaboration for the years ended December 31, 2016, 2015 and
2014, respectively. The following table summarizes the revenue recognition schedule of an aggregate of
$34.0 million in revenue from our collaboration agreements with Merck KGaA, Darmstadt Germany,
comprised of an aggregate of $22.0 million related to BGB-283 and $12.0 million related to BGB-290.
The revenue consists of an upfront non-refundable license fee, Phase 1 research and development fees,
and a development based target payment related to the collaborative arrangements for BRAF,
excluding the $3 million in deferred revenue that was netted against the $10 million repurchase
consideration relating to the PARP inhibitors under the ex-PRC license agreement. In accordance with
our revenue recognition policy, we have recognized these amounts as shown in the table below:
BGB-283
BGB-290
Total
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,317
5,906
6,707
1,070
(in thousands)
$ 2,823
7,048
2,109
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,000
$11,980
$11,140
12,954
8,816
1,070
$33,980
161
For the years ended December 31, 2016, 2015 and 2014, substantially all of our revenue were
generated solely from Merck KGaA, Darmstadt Germany. For the foreseeable future, we expect
substantially all of our revenue will be generated from the Merck KGaA, Darmstadt Germany
Collaboration, and any other strategic relationships we may enter into. If our development efforts are
successful, we may also generate revenue from product sales.
Operating Expenses
Research and Development Expenses
Research and development expenses consist of the costs associated with our research and
development activities, conducting preclinical studies and clinical trials and activities related to
regulatory filings. Our research and development expenses consist of:
(cid:129) employee-related expenses, including salaries, benefits, travel and share-based compensation
expense for research and development personnel;
(cid:129) expenses incurred under agreements with contract research organizations, or CROs, contract
manufacturing organizations, and consultants that conduct and support clinical trials and
preclinical studies;
(cid:129) costs associated with preclinical activities and development activities;
(cid:129) costs associated with regulatory operations; and
(cid:129) other expenses, which include direct and allocated expenses for rent and maintenance of
facilities, insurance and other supplies used in research and development activities.
Our current research and development activities mainly relate to the clinical development of the
following programs:
(cid:129) BGB-3111, a potent and highly selective small molecule inhibitor of BTK;
(cid:129) BGB-A317, an investigational humanized monoclonal antibody against PD-1;
(cid:129) BGB-290, a molecularly targeted, orally available, potent and highly selective inhibitor of PARP1
and PARP2; and
(cid:129) BGB-283, a small molecule inhibitor of both the monomer and dimer forms of BRAF.
We expense research and development costs when we incur them. We record costs for some
development activities, such as clinical trials, based on an evaluation of the progress to completion of
specific tasks using data such as subject enrollment, clinical site activations or information our vendors
provide to us. We do not allocate employee-related costs, depreciation, rental and other indirect costs
to specific research and development programs because these costs are deployed across multiple
product programs under research and development and, as such, are separately classified as unallocated
research and development expenses.
At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the
efforts that will be necessary to complete the development of our drug candidates. We are also unable
to predict when, if ever, material net cash inflows will commence from sales of our drug candidates.
This is due to the numerous risks and uncertainties associated with developing such drug candidates,
including the uncertainty of:
(cid:129) successful enrollment in and completion of clinical trials;
(cid:129) establishing an appropriate safety profile;
162
(cid:129) establishing commercial manufacturing capabilities or making arrangements with third-party
manufacturers;
(cid:129) receipt of marketing approvals from applicable regulatory authorities;
(cid:129) commercializing our drug candidates, if and when approved, whether as monotherapies or in
combination with our internally discovered drug candidates or third-party agents;
(cid:129) obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our
drug candidates;
(cid:129) continued acceptable safety profiles of the products following approval; and
(cid:129) retention of key research and development personnel.
A change in the outcome of any of these variables with respect to the development of any of our
drug candidates would significantly change the costs, timing and viability associated with the
development of that drug candidate.
Research and development activities are central to our business model. We expect research and
development costs to increase significantly for the foreseeable future as our development programs
progress, including as we continue to support the clinical trials of BGB-3111, BGB-A317, BGB-290 and
BGB-283 as a treatment for various cancers and move these drug candidates into additional clinical
trials. 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 impact our clinical development programs
and plans.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related benefit costs,
including share-based compensation for general and administrative personnel. Other general and
administrative expenses include professional fees for legal, consulting, auditing and tax services as well
as other direct and allocated expenses for rent and maintenance of facilities, insurance and other
supplies used in general and administrative activities. We anticipate that our general and administrative
expenses will increase in future periods to support increases in our research and development activities,
including the continuation of the clinical trials of BGB-3111, BGB-A317, BGB-290 and BGB-283 as a
treatment for various cancers and the initiation of our clinical trials for our other drug candidates.
These cost increases will likely be due to increased headcount, increased share-based compensation
charges, expanded infrastructure and increased costs for insurance. We also anticipate increased legal,
compliance, accounting and investor and public relations expenses associated with being a public
company.
Interest Income (Expense), Net
Interest Income
Interest income consists primarily of interest generated from our short-term investments in
treasury securities, municipal bonds and corporate fixed income bonds.
Interest Expense
Interest expense consists primarily of interest on our senior promissory note, convertible
promissory note and long-term bank loan.
163
In 2011, we issued a $10 million, 8% senior promissory note and a $10 million 8% subordinated
convertible promissory note, compounded annually, each to MSD. We also issued an aggregate
principal amount of $3.1 million convertible promissory notes to several other investors in 2012 and
2014, all bearing interest of 8% per annum for the first three years and 15% per annum for the
remaining term. In October 2014, we completed a Series A preferred share financing, as a result of
which, the $10 million MSD subordinated convertible promissory note was automatically converted into
18,518,519 Series A preferred shares, and the other $3.1 million principal amount of convertible
promissory notes, along with accrued interest was automatically converted into 5,470,705 Series A
preferred shares. We recognized a gain on debt extinguishment of $2.9 million due to the forfeiture of
interest upon the conversion, as only the principal amount of the Merck subordinated convertible
promissory note was eligible for conversion. In February 2016, in connection with the closing of our
initial public offering, the outstanding unpaid principal and interest of the MSD Senior Promissory
Note was automatically exchanged into 7,942,314 of our ordinary shares.
On September 2, 2015, BeiGene (Suzhou) Co., Limited, or BeiGene Suzhou, entered into a loan
agreement with Suzhou Industrial Park Biotech Development Co., Ltd. and China Construction Bank,
to borrow $17.3 million at a 7% fixed annual interest rate. As of December 31, 2016, we have drawn
down $17.3 million, which is secured by BeiGene Suzhou’s equipment with a carrying amount of
$22.3 million and our rights to a PRC patent on a drug candidate. The loan amounts of $8.7 million
and $8.6 million are repayable on September 30, 2018 and 2019, respectively.
Other Income, Net
Other income consists primarily of government grants received that involve no conditions or
continuing performance obligations by us. Other expense consists primarily of loss from property and
equipment disposals and donations made to sponsor certain events.
Results of Operations
Comparison of the Years Ended December 31, 2016 and 2015
The following table summarizes the results of our operations for the years ended December 31,
2016 and 2015, respectively, together with the changes from year-to-year:
Collaboration revenue . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Year Ended December 31,
2016
2015
Change
$
1,070
(in thousands)
$ 8,816
$ (7,746)
Research and development . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . .
(98,033)
(20,097)
(58,250)
(7,311)
(39,783)
(12,786)
Total operating expenses . . . . . . . . . . . . . . . . . . . .
(118,130)
(65,561)
(52,569)
Loss from operations . . . . . . . . . . . . . . . . . . . . . .
Interest income (expense), net . . . . . . . . . . . . . .
Changes in fair value of financial instruments . . .
Loss on sale of available-for-sale securities . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Other income, net
Loss before income tax expense . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . .
(117,060)
383
(1,514)
(1,415)
443
(119,163)
(54)
(56,745)
559
(1,826)
(314)
1,224
(57,102)
—
(60,315)
(176)
312
(1,101)
(781)
(62,061)
(54)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(119,217) $(57,102) $(62,115)
164
Revenue
Revenue from the Merck KGaA, Darmstadt Germany Collaboration decreased by $7.7 million to
$1.1 million for the year ended December 31, 2016 from $8.8 million for the year ended December 31,
2015. The decrease was primarily attributable to decrease of revenue recognized for BGB-283 and
revenue that was no longer being recognized for BGB-290 in 2016 after we repurchased the ex-PRC
right from Merck KGaA, Darmstadt Germany in October 2015.
Research and Development Expense
Research and development expense increased by $39.7 million to $98.0 million for the year ended
December 31, 2016 from $58.3 million for the year ended December 31, 2015. The following table
summarizes our external clinical, external preclinical and internal research and development expense
for the year ended December 31, 2016 and 2015, respectively:
Year Ended
December 31,
2016
2015
(in thousands)
External cost of clinical-stage programs . . . . . . . . . . . . . . . . . . .
External cost of preclinical-stage programs . . . . . . . . . . . . . . . . .
Internal research and development expenses . . . . . . . . . . . . . . .
$54,373
6,068
37,592
$30,806
3,514
23,930
Total research and development expenses . . . . . . . . . . . . . . . . .
$98,033
$58,250
The increase in external research and development expense was primarily attributable to the
advancement of our clinical and preclinical pipeline, and included the following:
Increases of approximately $16.3 million, $10.5 million, $1.2 million, respectively, for BGB-3111,
BGB-A317 and BGB-283, offset by decrease of approximately $4.4 million for BGB-290.
The increase in internal research and development expense was primarily attributable to the
expansion of our development organization and our pipeline, and included the following:
(cid:129) $8.9 million increase of employee salary and benefits, which was primarily attributable to hiring
of more development personnel during the years ended December 31, 2016;
(cid:129) $3.3 million increase of materials and reagent expenses, mainly in connection with the in-house
manufacture of drug candidates used for clinical purposes, that were previously outsourced and
recorded as external cost;
(cid:129) $1.2 million increase of consulting fees, which was mainly attributable to increased scientific,
regulatory and development consulting activities, in connection with the advancement of our
pipeline;
(cid:129) $1.8 million increase of facilities, office expense, rental fee and other expenses; and
(cid:129) offset by a $1.5 million decrease of stock-based compensation expense ($8.1 million in 2016
compared to $9.6 million in 2015).
General and Administrative Expense
General and administrative expense increased by $12.8 million to $20.1 million for the year ended
December 31, 2016 from $7.3 million for the year ended December 31, 2015. The increase was
primarily attributable to the following:
(cid:129) $4.4 million increase of employee salary and benefits, which was primarily attributable to hiring
of more personnel during the year ended December 31, 2016;
165
(cid:129) $4.8 million increase of professional fees for audit, consulting, recruiting and legal services,
mainly in connection with the preparation of our periodic reports, consulting activities, recruiting
services and patent prosecution activities;
(cid:129) $1.9 million increase of stock-based compensation expense ($2.5 million in 2016 compared to
$0.6 million in 2015); and
(cid:129) $1.7 million increase of travel, office, leasing and other administrative expenses, mainly in
connection with the global expansion of our company.
Interest Income (Expense), Net
Interest income (net) decreased by $0.2 million to $0.4 million for the year ended December 31,
2016 from $0.6 million for the year ended December 31, 2015. The decrease in interest income (net)
was primarily attributable to decrease of interest income, mainly generated from short-term investments
in treasury securities, municipal bonds and fixed income bonds.
Changes in Fair Value of Financial Instruments
Loss from changes in fair value of financial instruments decreased by $0.3 million to $1.5 million
for the year ended December 31, 2016 from $1.8 million for the year ended December 31, 2015. The
decrease in loss from changes in fair value of financial instruments was primarily attributable to change
in the fair value of warrants and option liabilities, both of which were exercised in January 2016 and
February 2016.
Loss on Sale of Available-for-sale Securities
The $1.4 million loss on sale of available-for-sale securities was recorded for the year ended
December 31, 2016 following the sale of certain available-for-sale securities.
Other Income, Net
Other income (net) decreased by $0.8 million to $0.4 million for the year ended December 31,
2016 from $1.2 million for the year ended December 31, 2015. Other income (net) primarily consisted
of government grants received and foreign exchange gains/losses recognized.
Income Tax Expense
Income tax expense was $0.1 million for the year ended December 31, 2016 compared with nil for
the year ended December 31, 2015. Current-year income tax expense was attributable to BeiGene
USA, Inc., a wholly owned subsidiary, which was established in July 2015 and provided general
management services and strategic advisory services to BeiGene, Ltd. BeiGene, Ltd. and its other
subsidiaries were in a cumulative loss position for the year ended December 31, 2016 and 2015.
166
Comparison of the Years Ended December 31, 2015 and 2014
The following table summarizes the results of our operations for the years ended December 31,
2015 and 2014, respectively, together with the changes from year-to-year:
Collaboration revenue . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Interest income (expense), net
Changes in fair value of financial instruments . . .
Loss on sale of available-for-sale securities . . . . . .
Gain on Debt Extinguishment . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Other income, net
Year Ended December 31,
2015
2014
Change
$ 8,816
(in thousands)
$ 13,035
$ (4,219)
(58,250)
(7,311)
(56,745)
559
(1,826)
(314)
—
1,224
(21,862)
(6,930)
(15,757)
(3,512)
(2,760)
—
2,883
600
(36,388)
(381)
(40,988)
4,071
934
(314)
(2,883)
624
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(57,102) $(18,546) $(38,556)
Revenue
Revenue from the Merck KGaA, Darmstadt Germany Collaboration decreased by $4.2 million to
$8.8 million for the year ended December 31, 2015 from $13.0 million for the year ended
December 31, 2014. The decrease was mainly attributable to the difference between revenues
recognized in 2014 for payments received for dosing of 5th patient of BGB-283 and BGB-290 in
ex-PRC trials and a payment received in 2015 for dosing of the 5th patient of BGB-283 in PRC trials.
Research and Development Expense
Research and development expense increased by $36.4 million to $58.3 million for the year ended
December 31, 2015 from $21.9 million for the year ended December 31, 2014. The following table
summarizes our research and development expense by program and stage of development for the year
ended December 31, 2015 and 2014, respectively:
Year Ended
December 31,
2015
2014
(in thousands)
External cost of clinical-stage programs . . . . . . . . . . . . . . . . . . .
External cost of preclinical-stage programs . . . . . . . . . . . . . . . . .
Internal research and development expenses . . . . . . . . . . . . . . .
$30,806
3,514
23,930
$10,107
296
11,459
Total research and development expenses . . . . . . . . . . . . . . . . .
$58,250
$21,862
The increase in external research and development expense was primarily attributable to the
advancement of our clinical and preclinical pipeline, and included the following:
(cid:129) Increases of approximately $7.8 million, $5.8 million, $6.4 million, and $0.7 million respectively
for BGB-290, BGB-A317, BGB-3111, and BGB-283, including the recognized expenses
associated with the repurchase of ex-PRC rights to BGB-290.
167
The increase in internal research and development expense was primarily attributable to the
expansion of our development organization and our pipeline, and included the following:
(cid:129) $7.7 million for increased compensation expenses, which was primarily attributable to the hiring
of more development personnel during the year ended December 31, 2015 and increased share
option expense ($9.6 million in 2015 increased from $4.0 million in 2014); and
(cid:129) $4.7 million for increased facilities, reagents, consulting fee and other expenses.
General and Administrative Expense
General and administrative expense increased by $0.4 million to $7.3 million for the year ended
December 31, 2015 from $6.9 million for the year ended December 31, 2014. The increase was
primarily attributable to the following:
(cid:129) $0.7 million increase of professional fees, in connection with the Series A-2 preferred share
financing and initial public offering;
(cid:129) $0.9 million increase of employee salary and benefits, which was primarily attributable to hiring
of more personnel during the year ended December 31, 2015;
(cid:129) $2.0 million decrease in stock option expense ($0.6 million in 2015 compared to $2.6 million in
2014) primarily attributable to the contractual discount in the exchange price of a loan advanced
by a senior executive to the company into Series A preferred shares which was treated as a
compensation expense in 2014; and
(cid:129) $0.8 million increase of travel, office, leasing and other administrative expenses, mainly in
connection with the global expansion of the company.
Interest Income (Expense), Net
Interest expense (net) decreased by $4.1 million from $3.5 million for the year ended
December 31, 2014, resulting in net interest income of $0.6 million for the year ended December 31,
2015. The decrease in interest expense was primarily attributable to the decrease in interest expenses
following conversion of the subordinated convertible promissory note and convertible promissory notes
in the Series A preferred share financing, offset by the interest income attributable to short-term
investments municipal bonds and corporate fixed income bonds.
Changes in Fair Value of Financial Instruments
Loss from changes in fair value of financial instruments decreased by $1.0 million to $1.8 million
for the year ended December 31, 2015 from $2.8 million for the year ended December 31, 2014. The
decrease in loss from change in fair value of financial instruments was primarily attributable to changes
in fair value of the redemption feature bifurcated from the MSD subordinated convertible promissory
note of $2.5 million recorded in the year ended December 31, 2014 before conversion to Series A
preferred shares in October 2014, offset by the fair value increase of our ordinary shares underlying the
warrants and option we issued.
Loss on Sale of Available-for-Sale Securities
The $0.3 million loss on sale of available-for-sale securities was recorded for the year ended
December 31, 2015 following the sale of certain available-for-sale securities.
168
Gain on Debt Extinguishment
The $2.9 million gain on debt extinguishment recorded for the year ended December 31, 2014
resulted from forfeiture of interest of the MSD subordinated convertible promissory note upon
automatic conversion of the note in October 2014.
Other Income, Net
Other income increased by $0.6 million to $1.2 million for the year ended December 31, 2015 from
$0.6 million for the year ended December 31, 2014. Other income primarily consisted of government
grants received and foreign exchange gains recognized.
Liquidity and Capital Resources
Since 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 and
general and administrative costs associated with our operations. We incurred net losses of
$119.2 million, $57.1 million and $18.5 million for the years ended December 31, 2016, 2015 and 2014,
respectively. As of December 31, 2016, we had an accumulated deficit of $237.4 million. Our primary
use of cash is to fund research and development costs. Our operating activities used $89.5 million,
$39.8 million and $8.7 million of cash flows during the years ended December 31, 2016, 2015 and 2014,
respectively. Historically, we financed our operations principally through proceeds from private
placements of preferred shares, promissory notes and convertible notes of $184.4 million and proceeds
from the Merck KGaA, Darmstadt Germany Collaboration of $37.0 million. On February 8, 2016 and
November 23, 2016, we completed our initial public offering and follow-on public offering as follows:
On February 8, 2016, we completed our initial public offering, or IPO, on the NASDAQ Global
Select Market. 6,600,000 ADSs representing 85,800,000 ordinary shares were sold at $24.00 per ADS,
or $1.85 per share. Additionally, the underwriters exercised their options to purchase an additional
990,000 ADSs representing 12,870,000 ordinary shares. Net proceeds from the IPO including
underwriter options after deducting underwriting discount and offering expenses were $166.2 million.
The deferred IPO costs of $16.0 million were recorded as a reduction of the proceeds received from
the IPO in the shareholders’ equity.
On November 23, 2016, we completed a follow-on public offering at a price of $32.00 per ADSs,
or $2.46 per share. In this offering, we sold 5,781,250 ADSs representing 75,156,250 ordinary shares.
Additionally, the underwriters exercised their options to purchase an additional 850,000 ADSs
representing 11,050,000 ordinary shares from us. The selling shareholders sold 468,750 ADSs
representing 6,093,750 ordinary shares. Net proceeds from this offering including underwriter options
after deducting the underwriting discount and offering expenses were $198.6 million. We did not
receive any proceeds from the sale of the shares by the selling shareholders. The deferred follow-on
public offering costs of $13.6 million were recorded as a reduction of the proceeds received from the
offering in shareholders’ equity.
169
The following table provides information regarding our cash flows for the years ended
December 31, 2016, 2015 and 2014:
Net cash used in operating activities . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . .
. . . . .
Net effect of foreign exchange rate changes
Year Ended December 31,
2016
2015
2014
(in thousands)
$ (89,513) $ (39,843) $ (8,694)
(33,641)
(221,848)
52,165
380,902
142
104
(58,906)
103,205
(485)
Net increase in cash and cash equivalents . . . . . . .
$ 69,645
$
3,971
$ 9,972
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 the development of our research and development, regulatory and other
clinical trial costs, and related supporting 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, 2016, operating activities used $89.5 million of cash, which
resulted principally from our net loss of $119.2 million, adjusting for non-cash charges of $15.5 million
and interest expense of $0.1 million, and by cash provided in our operating assets and liabilities of
$14.1 million. Our net non-cash charges during the year ended December 31, 2016 primarily consisted
of $1.9 million of depreciation expense, $10.6 million of share-based compensation expense, a
$1.4 million loss on sale of available-for-sale securities and a $1.5 million loss from changes in the fair
value of financial instruments related to the valuation changes of warrants and option liabilities that
were exercised in the year.
During the year ended December 31, 2015, operating activities used $39.8 million of cash, which
resulted principally from our net loss of $57.1 million, adjusting for non-cash charges of $13.9 million
and interest expense of $1.1 million, and by cash provided in our operating assets and liabilities of
$2.3 million. Our net non-cash charges during the year ended December 31, 2015 primarily consisted of
$1.5 million of depreciation expense, $10.2 million of share-based compensation expense and a
$1.8 million loss from changes in the fair value of financial instruments.
During the year ended December 31, 2014, our operating activities used $8.7 million of cash, which
resulted principally from our net loss of $18.5 million, adjusted for non-cash charges of $11.0 million
and interest expense of $3.3 million, gain on debt extinguishment of $2.9 million, and by cash used in
our operating assets and liabilities of $1.6 million. Our net non-cash charges during the year ended
December 31, 2014 primarily consisted of $1.6 million of depreciation expense, $6.6 million of share-
based compensation expense, a $2.8 million loss from changes in fair value of financial instruments.
Net Cash Used in Investing Activities
Net cash used in investing activities was $221.8 million for the year ended December 31, 2016
compared to $58.9 million for the year ended December 31, 2015. The increase in cash used in
investing activities was primarily due to $198.4 million net purchase of available-for-sale securities and
$23.5 million paid to purchase property and equipment.
Net cash used in investing activities was $58.9 million for the year ended December 31, 2015
compared to $33.6 million for the year ended December 31, 2014. The increase in cash used in
170
investing activities was primarily due to a net purchase of $53.6 million worth of short-term investments
and $5.3 million paid to purchase property and equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $380.9 million for the year ended December 31, 2016
compared to $103.2 million for the year ended December 31, 2015.The increase was primarily due to
proceeds of $366.7 million from our initial and follow-on public offerings, net of offering costs,
long-term loan proceeds of $12.0 million from Suzhou Industrial Park Biotech Development Co., Ltd.
and China Construction Bank and proceeds of $2.2 million from the exercise of warrants and options.
Net cash provided by financing activities was $103.2 million for the year ended December 31, 2015
compared to $52.2 million for the year ended December 31, 2014. The increase was primarily due to
the issuance of $97.4 million Series A-2 preferred shares to certain investors and long-term loan
proceeds of $6.2 million from Suzhou Industrial Park Biotech Development Co., Ltd. and China
Construction Bank.
Operating Capital Requirements
We do not expect to generate significant revenue from product sales unless and until we obtain
regulatory approval of and commercialize one of our current or future drug candidates. We anticipate
that we will continue to generate losses for the foreseeable future, and we expect the losses to increase
as we continue the development of, and seek regulatory approvals for, our drug candidates and begin
to commercialize any approved products. As a newly public company, we will incur additional costs
associated with operating as a public company. In addition, subject to obtaining regulatory approval of
any of our drug candidates, we expect to incur significant commercialization expenses for product sales,
marketing and manufacturing. Accordingly, we anticipate that we will need substantial additional
funding in connection with our continuing operations.
Based on our current operating plan, we expect that our existing cash, cash equivalents and
short-term investments as of December 31, 2016, will enable us to fund our operating expenses and
capital expenditures requirements for at least the next 15 months. We expect that our expenses will
continue to increase substantially as we fund clinical development of BGB-3111, BGB-A317, BGB-290
and BGB-283, fund new and ongoing research and development activities and working capital and
other general corporate purposes. We have based our estimates on assumptions that may prove to be
wrong, and we may 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 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:
(cid:129) the costs, timing and outcome of regulatory reviews and approvals;
(cid:129) the ability of our drug candidates to progress through clinical development successfully;
(cid:129) the initiation, progress, timings, costs and results of nonclinical studies and clinical trials for our
other programs and potential drug candidates;
(cid:129) the number and characteristics of the drug candidate we pursue;
(cid:129) the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our
intellectual property rights and defending intellectual property-related claims;
(cid:129) the extent to which we acquire or in-license other products and technologies; and
(cid:129) our ability to maintain and establish collaboration arrangements on favorable terms, if at all.
171
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 shareholders will be
diluted, and the terms of these securities may include liquidation or other preferences that adversely
affect your rights as an ADS holder. Debt financing, if available, may involve agreements that include
covenants limiting or restricting our ability to take specific actions, such as incurring additional debt,
making capital expenditures or declaring dividends and may require the issuance of warrants, which
could potentially dilute your ownership interest. If we raise additional funds through collaborations,
strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable
rights to our technologies, future revenue streams or research programs or to grant licenses on terms
that may not be favorable to us. If we are unable to raise additional funds through equity or debt
financings when needed, we may 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.
Contractual Obligations and Commitments
The following table summarizes our significant contractual obligations as of payment due date by
period at December 31, 2016:
Payments Due by Period
Total
Less Than
1 Year
1–3 Years
3–5 Years
(in thousands)
More Than
5 Years
Contractual obligations
Operating lease commitments . . . . . . . . . . .
Long-term debt obligation . . . . . . . . . . . . . .
Capital commitments . . . . . . . . . . . . . . . . .
$ 9,515
17,284
4,527
$2,931
—
4,527
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31,326
$7,458
$ 4,527
17,284
—
$21,811
$2,057
—
—
$2,057
—
—
—
—
Operating Lease Commitments
We lease office and manufacturing facilities in Beijing and Suzhou, PRC under non-cancelable
operating leases expiring on different dates. Payments under operating leases are expensed on a
straight-line basis over the periods of the respective leases, and the terms of the leases do not contain
rent escalation, contingent rent, renewal or purchase options. The future minimum payments under
these non-cancelable operating leases are summarized in the table above. In addition, we lease office
facilities in the Greater Boston area, California and New Jersey, United States.
On April 10, 2016, we entered into a Lease Agreement with Suzhou Industrial Park Biotech
Development Co., Ltd. for an approximately 11,000 square meter facility for research and
manufacturing use in Suzhou, China. The lease commenced on April 18, 2016 and will expire on
July 17, 2021. The initial rent, the payment of which commenced on July 18, 2016, is RMB 280,650 per
month, plus service charges of RMB 65,485 per month and other fees for use of the premises, including
water costs and electricity. The service charges will remain unchanged for the first three years and the
increasing range thereafter will not exceed 5% of the previous yearly service charges. Suzhou Industrial
Park Administrative Committee will pay our full monthly rent for the first three years and 50% of the
monthly rent for the following two years. The lease contains customary covenants, insurance and
indemnification obligations, and termination provisions.
172
Long-term Debt Obligation
On September 2, 2015, BeiGene Suzhou entered into a loan agreement with Suzhou Industrial
Park Biotech Development Co., Ltd. and China Construction Bank, to borrow $17.3 million at a 7%
fixed annual interest rate. As of December 31, 2016, we have drawn down $17.3 million, which is
secured by BeiGene Suzhou’s equipment with a carrying amount of $22.3 million and our rights to a
PRC patent on a drug candidate. The loan amounts of $8.7 million and $8.6 million are repayable on
September 30, 2018 and 2019, respectively.
Capital Commitments
We had capital commitments amounting to $4.5 million for the acquisition of property, plant and
equipment as of December 31, 2016, which was primarily for building BeiGene Suzhou’s manufacturing
facility in Suzhou, China.
Other Business Agreements
We enter into agreements in the normal course of business with CROs and institutions to license
intellectual property. We have not included these future payments in the table of contractual
obligations above since the contracts are cancelable at any time by us with prior written notice.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet
arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or
financial partnerships, which are often referred to as structured finance or special purpose entities,
established for the purpose of facilitating financing transactions that are not required to be reflected on
our balance sheets.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations is based on our
financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States of America, or 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 revenues 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, identifying separate accounting units and estimating the best estimate selling price of each
deliverable in our revenue arrangements, assessing the impairment of long-lived assets, share-based
compensation expenses, realizability of deferred tax assets and the fair value of warrant and option
liabilities. We base our estimates on historical experience, known trends and events, contractual
milestones and other various factors that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Our actual results may differ from these estimates
under different assumptions or conditions.
We believe the following critical accounting policies reflect our more significant estimates and
assumptions used in the preparation of our financial statements.
Revenue Recognition
We recognize revenues from research and development collaborative arrangements when
persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the
173
fee is fixed or determinable, and there is reasonable assurance that the related amounts are collectible
in accordance with ASC 605, Revenue Recognition, or ASC 605. Our collaborative arrangements may
contain multiple elements, including grants of licenses to intellectual property rights, agreement to
provide research and development services and other deliverables. The deliverables under such
arrangements are evaluated under ASC 605-25, Multiple-Element Arrangements. Pursuant to
ASC 605-25, each required deliverable is evaluated to determine whether it qualifies as a separate unit
of accounting based on whether the deliverable has ‘‘stand-alone value’’ to the customer. The
collaborative arrangements do not include a right of return for any deliverable. The arrangement’s
consideration that is fixed or determinable, excluding contingent payments, is then allocated to each
separate unit of accounting based on the relative selling price of each deliverable. The relative selling
price for each deliverable is determined using vendor specific objective evidence, or VSOE, of selling
price or third-party evidence, or TPE, of selling price if VSOE does not exist. If neither VSOE nor
TPE exists, we use the best estimate of the selling price, or BESP, for the deliverable. In general, the
consideration allocated to each unit of accounting is recognized as the related goods or services are
delivered, limited to the consideration that is not contingent upon future deliverables. Non-refundable
payments received before all of the relevant criteria for revenue recognition are satisfied are recorded
as advances from customers.
Upfront non-refundable payments for licensing our intellectual property are evaluated to
determine if the licensee can obtain stand-alone value from the license separate from the value of the
research and development services and other deliverables in the arrangement to be provided by us. We
act as the principal under our arrangements and licensing intellectual property is part of our ongoing
major or central operations. The license right is not contingent upon the delivery of additional items or
meeting other specified performance conditions. Therefore, when stand-alone value of the license is
determinable, the allocated consideration is recognized as collaboration revenue upon delivery of the
license rights.
As we act as the principal under our arrangements, and research and development services are
also part of our ongoing major or central operations, we recognize the allocated consideration related
to reimbursements of research and development costs as collaboration revenue when delivery or
performance of such services occurs.
Product development, royalties and commercial event payments, collectively referred to as target
payments, under collaborative arrangements are triggered either by the results of our research and
development efforts, achievement of regulatory goals or by specified sales results by a third-party
collaborator. Under ASC 605-28, Milestone Method of Revenue Recognition, an accounting policy
election can be made to recognize a payment that is contingent upon the achievement of a substantive
milestone in its entirety in the period in which the milestone is achieved. We elected not to adopt the
milestone method of revenue recognition under ASC 605-28.
Targets related to our development-based activities may include initiation of various phases of
clinical trials and applications and acceptance for product approvals by regulatory agencies. Due to the
uncertainty involved in meeting these development-based targets, we would account for development-
based targets as collaboration revenue upon achievement of the respective development target.
Royalties based on reported sales of licensed products will be recognized as collaboration revenue
based on contract terms when reported sales are reliably measurable and collectability is reasonably
assured. Targets related to commercial activities may be triggered upon events such as first commercial
sale of a product or when sales first achieve a defined level. Since these targets would be achieved after
the completion of our development activities, we would account for the commercial event targets in the
same manner as royalties, with collaboration revenue recognized upon achievement of the target. To
date, none of the products have been approved. Hence, no revenue has been recognized related to
royalties or commercial event based targets in any of the periods presented.
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Any subsequent payments to be made to the collaborator such as profit sharing payments based on
net sales that are not related to research and development services would be recorded as expenses from
the collaborative arrangement. To date, no payments have been made to the collaborator.
Research and Development Expenses
Research and development expenses represent costs associated with the collaborative
arrangements, which primarily include (1) payroll and related costs (including share-based
compensation) associated with research and development personnel; (2) costs related to clinical trials
and preclinical testing of our technologies under development; (3) costs to develop the product
candidates, including raw materials and supplies, product testing, depreciation, and facility related
expenses; (4) expenses for research services provided by universities and contract laboratories, including
sponsored research funding; and (5) other research and development expenses. Research and
development expenses are charged to expense as incurred when these expenditures relate to our
research and development services and have no alternative future uses.
Clinical trial costs are a significant component of our research and development expenses. We have
a history of contracting with third parties that perform various clinical trial activities on behalf of us in
the ongoing development of our product candidates. Expenses related to clinical trials are accrued
based on our estimates of the actual services performed by the third parties for the respective period. If
the contracted amounts are modified (for instance, as a result of changes in the clinical trial protocol
or scope of work to be performed), we will modify the related accruals accordingly on a prospective
basis. Revisions in the scope of a contract are charged to expense in the period in which the facts that
give rise to the revision become reasonably certain.
The process of estimating our research and development expenses involves reviewing open
contracts and purchase orders, communicating with our personnel to identify services that have been
performed on our behalf and estimating the level of service performed and the associated costs
incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs.
The majority of our service providers invoice us in arrears for services performed, on a pre-determined
schedule or when contractual milestones are met; however, some require advanced payments. We make
estimates of our expenses as of each balance sheet date in our financial statements based on facts and
circumstances known to us at that time. Although we do not expect our estimates to be materially
different from amounts actually incurred, our understanding of the status and timing of services
performed relative to the actual status and timing of services performed may vary and may result in us
reporting expenses that are too high or too low in any particular period. To date, we have not made
any material adjustments to our prior estimates of research and development expenses.
Share-Based Compensation
Awards Granted to Employees
We apply ASC 718, Compensation—Stock Compensation, or ASC 718, to account for our employee
share-based payments. In accordance with ASC 718, we determine whether an award should be
classified and accounted for as a liability award or equity award. All our grants of share-based awards
to employees were classified as equity awards and are recognized in the financial statements based on
their grant date fair values. We have elected to recognize compensation expense using the straight-line
method for all employee equity awards granted with graded vesting based on service conditions
provided that the amount of compensation cost recognized at any date is at least equal to the portion
of the grant-date value of the options that are vested at that date. We use the accelerated method for
all awards granted with graded vesting based on performance conditions. To the extent the required
vesting conditions are not met resulting in the forfeiture of the share-based awards, previously
recognized compensation expense relating to those awards are reversed. ASC 718 requires forfeitures to
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be estimated at the time of grant and revised, if necessary, in the subsequent period if actual forfeitures
differ from initial estimates.
Forfeiture rates are estimated based on historical and future expectations of employee turnover
rates and are adjusted to reflect future changes in circumstances and facts, if any. Share-based
compensation expense is recorded net of estimated forfeitures such that expense is recorded only for
those share-based awards that are expected to vest. To the extent we revise these estimates in the
future, the share-based payments could be materially impacted in the period of revision, as well as in
following periods. We, with the assistance of an independent third-party valuation firm, determined the
fair value of the share options granted to employees. The binomial option pricing model was applied in
determining the estimated fair value of the options granted to employees.
Awards Granted to Non-employees
We have accounted for equity instruments issued to non-employees in accordance with the
provisions of ASC 718 and ASC 505, Equity. All transactions in which goods or services are received in
exchange for equity instruments are accounted for based on the fair value of the consideration received
or the fair value of the equity instrument issued, whichever is more reliably measurable. The
measurement date of the fair value of the equity instrument issued is the date on which the
counterparty’s performance is completed as there is no associated performance commitment. The
expense is recognized in the same manner as if we had paid cash for the services provided by the
non-employees in accordance with ASC 505-50, Equity-based payments to non-employees.
Modification of Awards
A change in any of the terms or conditions of the awards is accounted for as a modification of the
award. Incremental compensation cost is measured as the excess, if any, of the fair value of the
modified award over the fair value of the original award immediately before its terms are modified,
measured based on the fair value of the awards and other pertinent factors at the modification date.
For vested awards, we recognize incremental compensation cost in the period the modification occurs.
For unvested awards, we recognize over the remaining requisite service period, the sum of the
incremental compensation cost and the remaining unrecognized compensation cost for the original
award on the modification date. If the fair value of the modified award is lower than the fair value of
the original award immediately before modification, the minimum compensation cost we recognize is
the cost of the original award.
Significant Factors, Assumptions and Methodologies Used in Determining Fair Value
The fair value of each share option grant is estimated using the binomial option-pricing model.
The model requires the input of highly subjective assumptions including the estimated expected share
price volatility and, the share price upon which (i.e. the exercise multiple) the employees are likely to
exercise share options. The trading history and observation period of our own share price movement
has not been long enough to match the life of the share option. Therefore, we estimate our expected
share price volatility based on the historical volatility of a group of similar companies, which are
publicly-traded. When selecting these public companies on which we have based our expected share
price volatility, we selected companies with characteristics similar to us, including the invested capital’s
value, business model, development stage, risk profiles, position within the industry, and with historical
share price information sufficient to meet the contractual life of our share-based awards. We will
continue to apply this process until a sufficient amount of historical information regarding the volatility
of our own share price becomes available. For the exercise multiple, we were not able to develop an
exercise pattern as reference, thus the exercise multiple is based on management’s estimation, which we
believe is representative of the future exercise pattern of the options. The risk-free interest rates for
the periods within the contractual life of the option are based on the U.S. Treasury yield curve in effect
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during the period the options were granted. Expected dividend yield is based on the fact that we have
never paid, and do not expect to pay cash dividends in the foreseeable future.
The assumptions adopted to estimate the fair value of share options using the binomial option
pricing model were as follows:
Year Ended December 31,
2016
2015
2014
Risk-free interest rate . . . . . . . . . . . . .
Expected exercise multiple . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . .
Contractual life . . . . . . . . . . . . . . . . . .
2.2–2.8
1.8%–2.6% 1.5%–2.4% 1.9%–2.6%
2.2–2.8
98%–100% 94%–106% 99%–104%
0%
10 years
0%
10 years
0%
10 years
2.2–2.8
We are also required to estimate forfeitures at the time of grant, and revise those estimates in
subsequent periods if actual forfeitures differ from our estimates. We use historical data to estimate
pre-vesting option forfeitures and record share-based compensation expense only for those awards that
are expected to vest. To the extent that actual forfeitures differ from our estimates, the difference is
recorded as a cumulative adjustment in the period the estimates were revised.
These assumptions represented our best estimates, but the estimates involve inherent uncertainties
and the application of our judgment. As a result, if factors change and we use significantly different
assumptions or estimates when valuing our share options, our share-based compensation expense could
be materially different.
The following table summarizes total compensation cost recognized for the years ended
December 31, 2016, 2015 and 2014:
Research and development . . . . . . . . . . . . . . . . . .
General and administration . . . . . . . . . . . . . . . . . .
$ 8,076
2,549
(in thousands)
$ 9,593
618
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,625
$10,211
$4,030
2,607
$6,637
Year Ended December 31,
2016
2015
2014
As of December 31, 2016, there was $63.2 million of total unrecognized share-based compensation
expenses, net of estimated forfeitures, related to unvested share-based awards which are expected to be
recognized over a weighted-average period of 3.43 years. As of December 31, 2015, there was
$15.63 million of total unrecognized share-based compensation expenses, net of estimated forfeitures,
related to unvested share-based awards which are expected to be recognized over a weighted-average
period of 2.32 years. In future periods, our share-based compensation expense is expected to increase
as a result of recognizing our existing unrecognized share-based compensation for awards that will vest
and as we issue additional share-based awards to attract and retain our employees.
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Fair Value Estimate
Fair value of ordinary shares
With the completion of our initial public offering in February 2016, a public trading market for the
ADSs has been established, and it is no longer necessary for our board of directors to estimate the fair
value of our ordinary shares in connection with our accounting for granted share options and restricted
shares.
Prior to our initial public offering, we were required to estimate the fair value of the ordinary
shares underlying our share-based awards when performing the fair value calculations with the binomial
option model. Therefore, our board of directors estimated the fair value of our ordinary shares at
various dates, with input from management, considering the third-party valuations of ordinary shares at
each grant date. The valuations of our ordinary shares were performed using methodologies,
approaches and assumptions consistent with the American Institute of Certified Public Accountants
Audit and Accounting Practice Aid Series: Valuation of Privately-Held-Company Equity Securities Issued
as Compensation, or the AICPA Practice Guide. In addition, our board of directors considered various
objective and subjective factors, along with input from management and the independent third-party
valuation firm, to determine the fair value of our ordinary shares, including: external market conditions
affecting the biopharmaceutical industry, trends within the biopharmaceutical industry, the prices at
which we sold preferred shares, the superior rights and preference of the preferred shares or other
senior securities relative to our ordinary shares at the time of each grant, the results of operations,
financials position, status of our research and development efforts, our stage of development and
business strategy, and the lack of an active public market for our ordinary shares, and the likelihood of
achieving a liquidity event such as an initial public offering. The option-pricing method was used to
allocate the invested capital’s enterprise value to preferred shares or other senior securities and
ordinary shares, taking into account the guidance prescribed by the AICPA Practice Guide. This
method treats ordinary shares and preferred shares or other senior securities as call options on the
invested capital’s value, with exercise prices based on their respective payoffs upon a liquidity event.
In determining the invested capital’s value, we applied the discounted cash flow analysis based on
our projected cash flow using our best estimate as of the valuation date. The determination of our
invested capital’s value requires complex and subjective judgments to be made regarding our projected
financial and operating results, our unique business risks, and our operating history and prospects at
the time of valuation.
Fair value of options and restricted shares
Our board of directors determined the fair value of our share options and the restricted shares as
of the date of grant, taking into consideration the various objective and subjective factors described
above, including the conclusion of valuation of our ordinary shares as of dates close to the grant dates
of our share options and the restricted shares discussed below. We computed the per share weighted-
average estimated fair value for share option grants based on the binomial option pricing model and
the per share weighted-average estimated fair value for restricted shares based on per share estimated
fair value of ordinary shares as of the date of grant.
Derivative Instruments
ASC 815, Derivatives and Hedging, requires all contracts which meet the definition of a derivative
to be recognized in the consolidated financial statements as either assets or liabilities and recorded at
fair value. Changes in the fair value of derivative financial instruments are either recognized
periodically in income/loss or in shareholders’ deficit as a component of other comprehensive income
depending on the use of the derivative and whether it qualifies for hedge accounting. Changes in fair
values of derivatives not qualified as hedges are reported in the consolidated statements of operations.
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The estimated fair values of derivative instruments are determined at discrete points in time based on
the relevant market information. We calculated these estimates with reference to the market rates using
industry standard valuation techniques with the assistance of an independent third-party valuation firm.
Fair value estimation on the exercise dates
The warrants in connection with the convertible promissory notes and the option to purchase
shares by rental deferral were exercised in January and February 2016. The fair values of the warrants
and option liabilities were determined using significant other observable inputs (Level 2), estimated
using the intrinsic value, which equals to the difference between the share price at the IPO closing date
and the exercise price, as the exercise dates were immediately prior to or very close to the IPO closing
date.
Fair value estimation prior to the exercise dates
As presented in the prior subsection, ‘‘Fair Value Estimate,’’ we applied the discounted cash flow
analysis to estimate the invested capital’s value as of various valuation dates and the option-pricing
method was used to allocate the invested capital’s value to preferred shares or other senior securities
and ordinary shares. The derived fair value of ordinary share and preferred shares was then further
used as inputs to the Black-Scholes option pricing model to estimate the fair value of the derivative
instruments. The Black-Scholes option pricing model requires the input of highly subjective
assumptions, including the risk-free interest rate, the expected volatility of the underlying stock and the
expected life of the derivative instruments. These estimates involve inherent risk and uncertainties and
the application of management’s judgment. To determine the expected life of the derivative
instruments, we have considered factors including the timing of expected various liquidity events and
their respective probabilities as well as the contractual life of the derivative instruments. The risk-free
interest rates for the periods within the expected life of the option are based on the U.S. Treasury yield
curve. We historically have been a private company and lack company-specific historical and implied
volatility information. Therefore, we estimate our expected volatility based on the historical volatility of
a group of similar companies, which are publicly-traded.
We have measured the warrants and option liabilities at fair values on a recurring basis using
significant unobservable inputs (Level 3) as of December 31, 2015. The significant unobservable inputs
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used in the fair value measurement and the corresponding impacts to the fair values are presented
below:
Financial Instrument
Valuation Techniques
Unobservable Inputs
Estimation
2015
Option to purchase shares
by rental deferral . . . . . .
Invested capital value
allocation by Black-Scholes
option pricing model
Invested capital value
$665,213
Volatility for invested
capital value allocation
83%
Volatility for Black-Scholes
option pricing model
69%–83%
Discount for lack of
marketability (DLOM)
11%
Warrants in connection
with the Convertible
Promissory Notes . . . . . .
Invested capital value
allocation by Black-Scholes
option pricing model
Invested capital value
$665,213
Volatility for invested
capital value allocation
Volatility for Black-Scholes
option pricing model
DLOM
83%
69%–83%
11%
Income Taxes
We use the liability method of accounting for income taxes. Under this method, deferred tax assets
and liabilities are determined based on the differences between the financial reporting and the tax
bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect
when the differences are expected to reverse. A valuation allowance is provided when it is more likely
than not that some portion or all of a deferred tax asset will not be realized.
In November 2015, the FASB issued Accounting Standards Update 2015-17, Balance Sheet
Classification of Deferred Taxes, which requires deferred income tax assets and liabilities to be
classified as non-current in a classified balance sheet, and eliminates the prior guidance, which required
an entity to separate deferred tax assets and liabilities into a current amount and a non-current amount
in a classified balance sheet. We changed the manner in which we classify deferred tax assets and
liabilities retrospectively from the fourth quarter of 2016 due to the early adoption of Accounting
Standards Update 2015-17. The adoption of this guidance has no impact on prior year balances as
current deferred tax assets and liabilities are both nil as of December 31, 2015.
We evaluate our uncertain tax positions using the provisions of ASC 740, Income Taxes, which
requires that realization of an uncertain income tax position be recognized in the financial statements.
The benefit to be recorded in the financial statements is the amount most likely to be realized
assuming a review by tax authorities having all relevant information and applying current conventions.
It is our policy to recognize interest and penalties related to unrecognized tax benefits, if any, as a
component of income tax expense.
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Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K
for information regarding recent accounting pronouncements.
JOBS Act
Under Section 107(b) of the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, an
‘‘emerging growth company’’ can delay the adoption of new or revised accounting standards until such
time as those standards would apply to private companies. We have irrevocably elected not to avail
ourselves of this exemption and, as a result, we will adopt new or revised accounting standards at the
same time as other public companies that are not emerging growth companies. There are other
exemptions and reduced reporting requirements provided by the JOBS Act that we are currently
evaluating. For example, as an emerging growth company, we are exempt from Sections 14A(a) and
(b) of the Exchange Act which would otherwise require us to (1) submit certain executive compensation
matters to shareholder advisory votes, such as ‘‘say-on-pay,’’ ‘‘say-on-frequency’’ and ‘‘golden
parachutes;’’ and (2) disclose certain executive compensation related items such as the correlation
between executive compensation and performance and comparisons of our chief executive officer’s
compensation to our median employee compensation. We also rely on an exemption from the rule
requiring us to provide an auditor’s attestation report on our internal controls over financial reporting
pursuant to Section 404(b) of the Sarbanes-Oxley Act and the rule requiring us to comply with any
requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a
supplement to the auditor’s report providing additional information about the audit and the financial
statements, known as the auditor discussion and analysis. We will continue to remain an ‘‘emerging
growth company’’ until the earliest of the following: (1) the last day of the fiscal year following the fifth
anniversary of the date of the completion of our initial public offering, (2) the last day of the fiscal year
in which our total annual gross revenue is equal to or more than $1 billion, (3) the date on which we
have issued more than $1 billion in nonconvertible debt during the previous three years, or (4) the date
on which we are deemed to be a large accelerated filer under the rules of the SEC.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest and Credit Risk
Financial instruments that are potentially subject to credit risk consist of cash and cash equivalents
and short-term investments. The carrying amounts of cash and cash equivalents and short-term
investments represent the maximum amount of loss due to credit risk. We had cash and cash
equivalents of $87.5 million, $17.9 million and $13.9 million and short term investments of
$280.7 million, $82.6 million and $30.5 million at December 31, 2016, 2015 and 2014, respectively. At
December 31, 2016, our cash and cash equivalents were deposited with various major reputable
financial institutions located in the PRC and international financial institutions outside of the PRC. The
deposits placed with these financial institutions are not protected by statutory or commercial insurance.
In the event of bankruptcy of one of these financial institutions, we may be unlikely to claim our
deposits back in full. We believe that these financial institutions are of high credit quality, and we
continually monitor the credit worthiness of these financial institutions. At December 31, 2016 our
short-term investments consisted primarily of U.S. Treasury securities. We believe that the U.S.
Treasury securities are of high credit quality and continually monitor the credit worthiness of these
institutions.
The primary objectives of our investment activities are to preserve principle, provide liquidity and
maximize income without significant increasing risk. Our primary exposure to market risk relates to
fluctuations in the interest rates which are affected by changes in the general level of PRC and U.S.
interest rates. Given the short-term nature of our cash equivalents, we believe that a sudden change in
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market interest rates would not be expected to have a material impact on our financial condition
and/or results of operation. We estimate that a hypothetical 100-basis point change in market interest
rates would impact the fair value of our investment portfolio as of December 31, 2016 by $1.6 million.
We do not believe that our cash, cash equivalents and short-term investments have significant risk
of default or illiquidity. While we believe our cash and cash equivalents do not contain excessive risk,
we cannot provide absolute assurance that in the future investments will not be subject to adverse
changes in market value.
Foreign Currency Exchange Rate Risk
We are exposed to foreign exchange risk arising from various currency exposures. Our functional
currency is the U.S. dollar, but a portion of our operating transactions and assets and liabilities are in
other currencies, such as RMB, Australian dollar and Euro. We do not believe that we currently have
any significant direct foreign exchange risk and have not used any derivative financial instruments to
hedge exposure to such risk.
RMB is not freely convertible into foreign currencies for capital account transactions. The value of
RMB against the U.S. dollar and other currencies is affected by, among other things, changes in
China’s political and economic conditions and China’s foreign exchange prices. From July 21, 2005, the
RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign
currencies. For the RMB against U.S. dollars, there was depreciation of approximately 6.3%, 4.4% and
2.4% in the year ended December 31, 2016, 2015 and 2014. It is difficult to predict how market forces
or PRC or U.S. government policy may impact the exchange rate between the RMB and the
U.S. dollar in the future.
To the extent that we need to convert U.S. dollars into RMB for capital expenditures and working
capital and other business purpose, appreciation of RMB against the U.S. dollar would have an adverse
effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert
RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares,
strategic acquisitions or investments or other business purposes, appreciation of the U.S. dollar against
RMB would have a negative effect on the U.S. dollar amount available to us.
In addition, a significant depreciation of the RMB against the U.S. dollar may significantly reduce
the U.S. dollar equivalent of our earnings or losses.
Currency Convertibility Risk
A majority of our expenses and a significant portion of our assets and liabilities are denominated
in RMB. On January 1, 1994, the PRC government abolished the dual rate system and introduced a
single rate of exchange as quoted daily by the People’s Bank of China, or 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.
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Effects of Inflation
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not
believe that inflation has had a material effect on our results of operations during the year ended
December 31, 2016.
Item 8. Financial Statements and Supplementary Data
The financial statements required to be filed pursuant to this item are appended to this Annual
Report. An index of those financial statements is in ‘‘Part IV—Item 15—Exhibits, Financial Statement
Schedules.’’
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 our Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2016.
The term ‘‘disclosure controls and procedures,’’ as defined in Rule 13a-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, 2016, our management, including our Chief Executive Officer and Chief Financial
Officer concluded that, as of such date, our disclosure controls and procedures were effective at the
reasonable assurance level.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our
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 accounting principles generally accepted in the United States of America. Because of
its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions and that the degree
of compliance with policies or procedures may deteriorate. Management assessed the effectiveness of
our internal control over financial reporting as of December 31, 2016. In making this assessment,
management used the criteria set forth in the Internal Control—Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
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Based on its assessment of internal control over financial reporting, our management, including
our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2016,
our internal control over financial reporting was effective. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only assurance at a reasonable level with respect to the financial
statement preparation and presentation.
Changes in Internal Control over Financial Reporting
In connection with the audit of our consolidated financial statements for the years ended
December 31, 2013, 2014 and 2015, we identified a material weakness in our internal control over
financial reporting that related to having an insufficient number of financial reporting personnel with
an appropriate level of knowledge, experience and training in application of GAAP and SEC rules and
regulations commensurate with our reporting requirements.
In 2016, we implemented measures designed to improve our internal control over financial
reporting to remediate this material weakness, including the following:
(cid:129) hiring additional financial professionals with appropriate accounting and SEC reporting
experience;
(cid:129) increasing the number of qualified financial reporting personnel;
(cid:129) improving the capabilities of existing financial reporting personnel through training and
education in the accounting and reporting requirements under GAAP and SEC rules and
regulations;
(cid:129) developing, communicating and implementing an accounting policy manual for our financial
reporting personnel for recurring transactions and period-end closing processes; and
(cid:129) establishing effective monitoring and oversight controls for non-recurring and complex
transactions to ensure the accuracy and completeness of our condensed consolidated financial
statements and related disclosures.
We believe that the measures taken above enhanced our internal control over financial reporting
and were sufficient to remediate the material weakness identified. Our independent registered public
accounting firm will first be required to attest to the effectiveness of our internal control over financial
reporting for our Annual Report on Form 10-K for the first year we are no longer an EGC under the
JOBS Act. There is no guarantee that our remediation efforts will result in the attestation from our
independent registered public accounting firm, if required, that our internal control over financial
reporting is effective as of December 31, 2017.
Except as described above, there were no other 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 three months ended December 31, 2016 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our registered public accounting firm
due to an exemption established by the JOBS Act for ‘‘emerging growth companies.’’
Item 9B. Other Information
Not applicable.
184
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required under this item is incorporated herein by reference to the Company’s
definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal
year ended December 31, 2016.
Item 11. Executive Compensation
The information required under this item is incorporated herein by reference to the Company’s
definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal
year ended December 31, 2016.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required under this item is incorporated herein by reference to the Company’s
definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal
year ended December 31, 2016.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required under this item is incorporated herein by reference to the Company’s
definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal
year ended December 31, 2016.
Item 14. Principal Accounting Fees and Services
The information required under this item is incorporated herein by reference to the Company’s
definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal
year ended December 31, 2016.
185
Item 15. Exhibits, Financial Statement Schedules
PART IV
The financial statements listed in the Index to Consolidated Financial Statements beginning on
page F-1 are filed as part of this Annual Report on Form 10-K.
No financial statement schedules have been filed as part of this Annual Report because they are
not applicable, not required or the information required is shown in the financial statements or the
notes thereto.
The exhibits filed as part of this Annual Report on Form 10-K are set forth on the Exhibit Index
immediately following our consolidated financial statements. The Exhibit Index is incorporated herein
by reference.
Item 16. Form 10-K Summary
Not applicable.
186
BEIGENE, LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated balance sheets as of December 31, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated statements of operations for the years ended December 31, 2016, 2015 and 2014 . .
Consolidated statements of comprehensive loss for the years ended December 31, 2016, 2015 and
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated statements of cash flows for the years ended December 31, 2016, 2015 and 2014 . . .
Consolidated statements of shareholders’ equity (deficit) for the years ended December 31, 2016,
2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of BeiGene, Ltd.
We have audited the accompanying consolidated balance sheets of BeiGene, Ltd. (the ‘‘Company’’)
as of December 31, 2016 and 2015, and the related consolidated statements of operations,
comprehensive loss, cash flows, and shareholders’ equity (deficit) for each of the three years in the
period ended December 31, 2016. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. We
were not engaged to perform an audit of the Company’s internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of BeiGene, Ltd. at December 31, 2016 and 2015,
and the consolidated results of its operations and its cash flows for each of the three years in the
period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young Hua Ming LLP
Beijing, People’s Republic of China
March 22, 2017
F-2
BEIGENE, LTD.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of U.S. Dollar (‘‘$’’), except for number of shares and per share data)
Note
As of December 31,
2016
$
2015
$
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets
Total current assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
4
5
87,514
280,660
6,225
374,399
25,977
768
4,669
17,869
82,617
5,783
106,269
6,612
—
3,883
Total non-current assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,414
10,495
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
405,813
116,764
Liabilities and shareholders’ deficit
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Promissory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants and option liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities:
Long-term bank loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rental
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
10
8
9
11,957
—
22,297
—
—
804
35,058
17,284
—
564
17,848
52,906
8,980
1,070
8,351
14,598
2,173
—
35,172
6,188
980
105
7,273
42,445
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
11
— 176,084
Series A (par value US$0.0001 per share; 120,000,000 shares authorized;
116,785,517 shares issued and outstanding as of December 31, 2015 and
Series A-2 (par value US$0.0001 per share; 100,000,000 shares authorized;
83,205,124 shares issued and outstanding as of December 31, 2015)
Total mezzanine equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— 176,084
Shareholders’ equity (deficit):
Ordinary shares (par value of US$0.0001 per share; 9,500,000,000 shares
authorized; 515,833,609 shares issued and outstanding as of December 31, 2016
(December 31, 2015: 116,174,094 shares)) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit
52
591,213
(946)
(237,412)
12
18,227
(1,809)
(118,195)
16
Total shareholders’ equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
352,907
(101,765)
Total liabilities, mezzanine equity and shareholders’ equity (deficit) . . . . . . . . . . . . .
405,813
116,764
The accompanying notes are an integral part of these consolidated financial statements.
F-3
BEIGENE, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands of U.S. Dollar (‘‘$’’), except for number of shares and per share data)
Year Ended December 31,
Note
2016
$
2015
$
2014
$
Revenue
Collaboration revenue . . . . . . . . . . . . . . . . . . . . . . .
13
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income (expense), net (including interest
expense incurred due to a related party amounting
to nil, nil and $831 for the years ended
December 31, 2016, 2015 and 2014, respectively) . .
Changes in fair value of financial instruments
Loss on sale of available-for-sale securities . . . . . . . .
Gain on debt extinguishment . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income tax expense . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
2
5
1,070
1,070
(98,033)
(20,097)
(118,130)
(117,060)
383
(1,514)
(1,415)
—
443
(119,163)
(54)
(119,217)
8,816
8,816
(58,250)
(7,311)
(65,561)
(56,745)
559
(1,826)
(314)
—
1,224
(57,102)
—
(57,102)
13,035
13,035
(21,862)
(6,930)
(28,792)
(15,757)
(3,512)
(2,760)
—
2,883
600
(18,546)
—
(18,546)
Less: net loss attributable to non-controlling interests . .
—
—
(268)
Net loss attributable to ordinary shareholders . . . . . . . .
(119,217)
(57,102)
(18,278)
Loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average number of ordinary shares used in
net loss per share calculation . . . . . . . . . . . . . . . . . .
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
14
(0.30)
(0.52)
(0.18)
403,619,446
110,597,263
99,857,623
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands of U.S. Dollar (‘‘$’’), except for number of shares and per share data)
BEIGENE, LTD.
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax of nil:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2016
2015
2014
$
(119,217)
$
(57,102)
$
(18,546)
(245)
1,108
(749)
(1,160)
(168)
(47)
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(118,354)
(59,011)
(18,761)
Less: comprehensive loss attributable to non-controlling interests . . . . . .
—
—
(274)
Comprehensive loss attributable to ordinary shareholders . . . . . . . . . . . .
(118,354)
(59,011)
(18,487)
The accompanying notes are an integral part of these consolidated financial statements.
F-5
BEIGENE, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of U.S. Dollar (‘‘$’’), except for number of shares and per share data)
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Operating activities
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Net loss .
Adjustments to reconcile net loss to net cash from operating activities:
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Depreciation expenses
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Share-based compensation expenses
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Changes in fair value of financial instruments .
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Gain on debt extinguishment
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Loss on disposal of property and equipment .
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Loss on sale of available-for-sale securities .
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Accounts payable .
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Advances from customers
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Accrued expenses and other payables .
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Tax payable .
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Deferred tax assets
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Deferred rental
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Other long-term liabilities
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Net cash used in operating activities .
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Investing activities
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Purchases of property and equipment .
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Purchase of available-for-sale securities .
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Proceeds from sale or maturity of available-for-sale securities .
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Proceeds from disposal of property and equipment
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Net cash used in investing activities .
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Financing activities
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Proceeds from issuance of ordinary shares, net of underwriter discount .
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Payment of public offering cost
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Net cash provided by financing activities
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Effect of foreign exchange rate changes, net
Net increase in cash and cash equivalents .
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Cash and cash equivalents at beginning of period .
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Supplemental cash flow disclosures:
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Income taxes paid .
Interest expense paid .
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Non-cash activities:
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Conversion of Senior Promissory Note .
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Conversion of deferred rental
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Conversion of convertible preferred shares .
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Exercise of warrants and option .
Follow-on offering costs accrued in accounts payable .
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Repayment of subordinated convertible promissory note, convertible promissory notes and secured
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Repayment of due to related parties .
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Acquisitions of equipment included in accounts payable .
guaranteed convertible promissory note .
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.
Year Ended December 31,
Note
2016
$
2015
$
2014
$
(119,217)
(57,102)
(18,546)
4
15
11
9
7
12
11
7
12
1,909
10,625
1,514
—
—
1,415
121
(2,070)
112
2,707
(1,070)
13,946
804
(768)
—
459
1,545
10,211
1,826
—
5
314
1,095
(2,990)
(565)
6,186
(7,836)
7,350
—
—
182
(64)
1,557
6,637
2,760
(2,883)
53
—
3,265
(2,285)
(190)
731
1,046
(761)
—
—
(20)
(58)
(89,513)
(39,843)
(8,694)
(23,502)
(382,093)
183,743
4
—
(5,314)
(119,291)
65,698
1
—
(654)
(30,646)
102
—
(2,443)
(221,848)
(58,906)
(33,641)
368,877
(2,218)
—
—
—
12,048
—
2,195
—
—
—
—
—
—
97,350
—
—
6,175
—
77
—
(75)
(322)
—
—
—
35,500
25
17,500
—
322
80
103
(80)
—
(1,285)
380,902
103,205
52,165
104
69,645
17,869
87,514
25
826
14,693
980
176,084
3,687
269
—
—
2,153
(485)
3,971
13,898
142
9,972
3,926
17,869
13,898
—
134
—
—
—
—
—
—
—
23
—
30
—
—
—
—
—
33,730
8,204
7
.
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The accompanying notes are an integral part of these consolidated financial statements.
F-6
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(Amounts in thousands of U.S. Dollar (‘‘$’’), except for number of shares and per share data)
BEIGENE, LTD.
Attributable to BeiGene, Ltd.
Ordinary Shares
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive Accumulated
Income/(Loss)
Deficit
Total
Non-
Controlling
Interests
Balance at December 31, 2013 . .
Issuance of ordinary shares . . .
Repurchase of forfeited
unvested ordinary shares
(note 16)
. . . . . . . . . . . .
Share-based compensation . . .
Issuance of warrants in
connection with the
secured guaranteed
convertible promissory
note (note 11) . . . . . . . .
Repurchase of
non-controlling interest
. .
Net loss . . . . . . . . . . . . . . .
Other comprehensive income .
94,516,667
14,097,432
9
2
(116,671) —
— —
— —
— —
— —
— —
Balance at December 31, 2014 . . 108,497,428
7,676,666
Issuance of ordinary shares . . .
Share-based compensation . . .
Net loss . . . . . . . . . . . . . . .
. . .
Other comprehensive loss
11
1
— —
— —
— —
Balance at December 31, 2015 . . 116,174,094
12
3,771
139
—
4,797
184
(950)
—
—
7,941
75
10,211
—
—
18,227
98,670,000
10
166,127
Promissory Note (note 17) . .
7,942,314
86,206,250
9
1
198,617
14,692
Issuance of ordinary shares in
connection with initial public
offering (note 1) . . . . . . . .
Issuance of ordinary shares in
connection with follow-on
public offering (note 1)
. . .
Conversion of Senior
Exercise of warrants in
connection with convertible
promissory note (note 17) . .
Exercise of option to purchase
shares by rental deferred
(note 17)
. . . . . . . . . . . .
Exercise of warrants by Baker
Bros. (note 17) . . . . . . . . .
Issuance of shares reserved for
share options exercise . . . .
Conversion of preferred shares
Share-based compensation . . .
Net loss . . . . . . . . . . . . . . .
. . .
Other comprehensive loss
to ordinary shares (note 17) . 199,990,641
621,637 —
1,513
1,451,586 —
2,592,593 —
271,284 —
20
1,913,210 —
— —
— —
3,519
1,750
—
176,064
10,704
—
—
591,213
309
—
—
—
—
—
—
(209)
100
—
—
—
(1,909)
(1,809)
—
—
—
—
—
—
—
—
—
—
863
(42,815)
—
(38,726)
141
1,767
—
Total
(36,959)
141
—
—
—
4,797
—
—
—
4,797
—
184
—
184
—
(18,278)
—
(61,093)
—
—
(57,102)
—
(950)
(18,278)
(209)
(53,041)
76
10,211
(57,102)
(1,909)
(1,493)
(268)
(6)
—
—
—
—
—
(2,443)
(18,546)
(215)
(53,041)
76
10,211
(57,102)
(1,909)
(118,195)
(101,765)
— (101,765)
—
166,137
—
166,137
—
—
—
—
—
—
198,626
14,693
1,513
3,519
1,750
—
—
—
—
—
—
—
198,626
14,693
1,513
3,519
1,750
—
—
—
(119,217)
—
176,084
10,704
(119,217)
863
176,084
—
—
10,704
— (119,217)
863
—
Balance at December 31, 2016 . . 515,833,609
52
(946)
(237,412)
352,907
—
352,907
The accompanying notes are an integral part of these consolidated financial statements.
F-7
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
1. Organization
BeiGene, Ltd. (the ‘‘Company’’) is a globally focused, clinical-stage biopharmaceutical company
with the goal of becoming a leader in the discovery and development of innovative, molecularly
targeted and immuno-oncology drugs for the treatment of cancer. The Company’s development strategy
is based on a novel translational platform that combines its unique access to internal patient-derived
biopsies with strong oncology biology. The Company was incorporated under the laws of the Cayman
Islands as an exempted company with limited liability on October 28, 2010.
Initial public offering
On February 8, 2016, the Company completed its initial public offering (‘‘IPO’’) on the NASDAQ
Global Select Market. 6,600,000 ADSs representing 85,800,000 ordinary shares were sold at $24.00 per
ADS, or $1.85 per share (the ‘‘IPO Price’’). Additionally, the underwriters exercised their options to
purchase an additional 990,000 ADSs representing 12,870,000 ordinary shares from the Company. Net
proceeds from the IPO including underwriter options after deducting underwriting discount and
offering expenses were $166,197. The deferred IPO costs of $15,963 were recorded as a reduction of
the proceeds received from the IPO in shareholders’ equity.
Follow-on public offering
On November 23, 2016, the Company completed a follow-on public offering at a price of $32.00
per ADS, or $2.46 per share. In this offering, the Company sold 5,781,250 ADSs representing
75,156,250 ordinary shares. Additionally, the underwriters exercised their options to purchase an
additional 850,000 ADSs representing 11,050,000 ordinary shares from the Company. The selling
shareholders sold 468,750 ADSs representing 6,093,750 ordinary shares. Net proceeds from this offering
including underwriter options after deducting the underwriting discount and offering expenses were
$198,625. The Company did not receive any proceeds from the sale of the shares by the selling
shareholders. The deferred follow-on public offering costs of $13,575 were recorded as a reduction of
the proceeds received from the offering in shareholders’ equity.
F-8
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
1. Organization (Continued)
As at December 31, 2016, the Company’s subsidiaries are as follows:
Name of Company
Place of
Incorporation
Date of
Incorporation
Percentage of
Ownership
by the
Company
Principal
Activities
BeiGene (Hong Kong) Co.,
Limited.
. . . . . . . . . . . . . Hong Kong
November 22,
2010
100%
Investment holding
BeiGene (Beijing) Co., Ltd.
(‘‘BeiGene Beijing’’) . . . . . The People’s Republic of
China (‘‘PRC’’ or ‘‘China’’)
January 24,
2011
100%
Medical and pharmaceutical
research
BeiGene AUS Pty Ltd.
. . . . . Australia
July 15, 2013
100%
Clinical trial activities
BeiGene 101 Ltd.
. . . . . . . . Cayman Islands
August 30,
2012
100%
Medical and pharmaceutical
research
BeiGene (Suzhou) Co., Ltd.
(‘‘BeiGene (Suzhou)’’) . . . . PRC
BeiGene USA, Inc. (‘‘BeiGene
April 9, 2015
100%
Medical and pharmaceutical
research
(USA)’’) . . . . . . . . . . . . . United States
July 8, 2015
100%
Clinical trial activities
BeiGene (Shanghai) Co., Ltd.
(‘‘BeiGene (Shanghai)’’) . . . PRC
September 11,
2015
100%
Medical and pharmaceutical
research
2. Summary of significant accounting policies
Basis of presentation and principles of consolidation
The consolidated financial statements of the Company have been prepared in accordance with U.S.
generally accepted accounting principles (‘‘GAAP’’). The consolidated financial statements include the
financial statements of the Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances between the Company and its wholly-owned subsidiaries are eliminated upon
consolidation.
Use of estimates
The preparation of the consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Areas where management uses
subjective judgment include, but are not limited to, estimating the useful lives of long-lived assets,
identifying separate accounting units and estimating the best estimate of selling price of each
deliverable in the Company’s revenue arrangements, assessing the impairment of long-lived assets,
F-9
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
2. Summary of significant accounting policies (Continued)
share-based compensation expenses, realizability of deferred tax assets and the fair value of financial
instruments. Management bases the estimates on historical experience and various other assumptions
that are believed to be reasonable, the results of which form the basis for making judgments about the
carrying values of assets and liabilities. Actual results could differ from these estimates.
Functional Currency and Foreign Currency Translation
Functional Currency
The determination of the respective functional currency is based on the criteria of Accounting
Standard Codification (‘‘ASC’’) 830, Foreign Currency Matters. The functional currency of the Company,
BeiGene AUS Pty Ltd., BeiGene (Hong Kong) Co., Limited, BeiGene 101 Ltd and BeiGene (USA) is
the United States dollar (‘‘$’’ or ‘‘U.S. dollar’’). The Company’s PRC subsidiaries determined their
functional currencies to be RMB. The Company uses the U.S. dollar as its reporting currency.
Foreign Currency Translation
For subsidiaries whose functional currencies are not the U.S. dollar, the Company uses the average
exchange rate for the year and the exchange rate at the balance sheet date, to translate the operating
results and financial position to U.S. dollar, the reporting currency, respectively. Translation differences
are recorded in accumulated other comprehensive income/(loss), a component of shareholders’ equity/
deficit. Transactions denominated in currencies other than the functional currency are translated into
the functional currency at the exchange rates prevailing on the transaction dates. Foreign currency
denominated financial assets and liabilities are remeasured at the exchange rates prevailing at the
balance sheet date. Exchange gains and losses are included in the consolidated statements of
comprehensive loss.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and bank deposits, which are unrestricted as to
withdrawal and use. The Company considers all highly liquid investments with an original maturity date
of three months or less at the date of purchase to be cash equivalents. Cash equivalents which consist
primarily of money market funds are stated at fair value.
Short-term investments
Short-term debt investments held to maturity are carried at amortized cost when the Company has
the ability and positive intent to hold these securities until maturity. When the Company does not have
the ability or positive intent to hold short-term debt investments until maturity, these securities are
classified as available-for-sale. None of the Company’s fixed maturity securities met the criteria for
held-to-maturity classification at December 31, 2016 and 2015.
Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of tax,
reported in other comprehensive income/loss. The net carrying value of debt securities classified as
F-10
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
2. Summary of significant accounting policies (Continued)
available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such
amortization is computed using the effective interest method and included in interest income. Interest
and dividends are included in interest income.
When the fair value of a debt security classified as available-for-sale is less than its amortized cost,
the Company assesses whether or not: (i) it has the intent to sell the security or (ii) it is more likely
than not that the Company will be required to sell the security before its anticipated recovery. If either
of these conditions is met, the Company must recognize an other-than-temporary impairment through
earnings for the difference between the debt security’s amortized cost basis and its fair value. No
impairment losses were recorded for any periods presented.
The cost of securities sold is based on the specific identification method.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation is computed using the straight-line method over the estimated useful lives of the
respective assets as follows:
Office Equipment . . . . . . . . . . . . . . . . . . . . . . .
Electronic Equipment . . . . . . . . . . . . . . . . . . . .
Laboratory Equipment . . . . . . . . . . . . . . . . . . .
Computer Software . . . . . . . . . . . . . . . . . . . . . .
Leasehold Improvements
5 years
3 years
3 to 5 years
3 to 5 years
. . . . . . . . . . . . . . . . . Lesser of useful life or lease term
Useful Life
Impairment of long-lived assets
Long-lived assets are reviewed for impairment in accordance with authoritative guidance for
impairment or disposal of long-lived assets. Long-lived assets are reviewed for events or changes in
circumstances, which indicate that their carrying value may not be recoverable. Long-lived assets are
reported at the lower of carrying amount or fair value less cost to sell. For the years ended
December 31, 2016, 2015 and 2014, there was no impairment of the value of the Company’s long-lived
assets.
Fair value measurements
Fair value of financial instruments
Financial instruments of the Company primarily include cash and cash equivalents, short-term
investments, long-term bank loan, accounts payable, senior promissory note, convertible preferred
shares, and warrants and option liabilities. As of December 31, 2016 and 2015, the carrying values of
cash and cash equivalents and accounts payable approximated their fair values due to the short-term
maturity of these instruments. The short-term investments represented the available-for-sale debt
F-11
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
2. Summary of significant accounting policies (Continued)
securities which are recorded at fair value based on quoted prices in active markets with unrealized
gain or loss recorded in other comprehensive income or loss. The long-term bank loan approximates its
fair value due to the fact that the related interest rate approximates the rate currently offered by
financial institutions for similar debt instrument of comparable maturities. The warrants and option
liabilities were recorded at fair value as determined on the respective issuance dates and subsequently
adjusted to the fair value at each reporting date. The senior promissory note and convertible preferred
shares were initially recorded at issue price net of issuance costs. Prior to the exercise dates, the
Company determined the fair values of the warrants and option liabilities with the assistance of an
independent third party valuation firm. On the exercise dates, the Company determined the fair values
of the warrants and option liabilities using the intrinsic value, which equals to the difference between
the share price at the IPO closing date and the exercise price, as the exercise dates were immediately
prior to or very close to the IPO closing date.
The Company applies ASC topic 820 (‘‘ASC 820’’), Fair Value Measurements and Disclosures, in
measuring fair value. ASC 820 defines fair value, establishes a framework for measuring fair value and
requires disclosures to be provided on fair value measurement. ASC 820 establishes a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities
in active markets.
Level 2—Include other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs which are supported by little or no market activity.
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities:
(1) market approach; (2) income approach and (3) cost approach. The market approach uses prices
and other relevant information generated from market transactions involving identical or comparable
assets or liabilities. The income approach uses valuation techniques to convert future amounts to a
single present value amount. The measurement is based on the value indicated by current market
expectations about those future amounts. The cost approach is based on the amount that would
currently be required to replace an asset.
F-12
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
2. Summary of significant accounting policies (Continued)
Financial instruments measured at fair value on a recurring basis
The following tables set forth assets and liabilities measured at fair value on a recurring basis as of
December 31, 2016 and 2015:
As of December 31, 2016
Quoted Price
in Active
Market for
Identical
Assets
(Level 1)
$
Available-for-sale securities (note 3):
U.S. Treasury securities . . . . . . . . . . . . . . . .
280,660
Cash equivalents
Money market funds . . . . . . . . . . . . . . . . . .
44,052
As of December 31, 2015
Available-for-sale securities (note 3):
Corporate fixed income bonds . . . . . . . . . . .
U.S. treasury securities . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . .
Option to purchase shares by rental deferral
(note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants in connection with the convertible
promissory notes (note 8) . . . . . . . . . . . . . .
Quoted Price
in Active
Market for
Identical
Assets
(Level 1)
$
69,255
8,000
5,362
—
—
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
—
—
$
—
—
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
—
—
—
—
—
$
—
—
—
1,388
785
Warrants and option fair value estimation on the exercise dates
The warrants in connection with the convertible promissory notes and the option to purchase
shares by rental deferral were exercised in January and February 2016. The Company determined the
exercise date fair value of the warrants and option using significant other observable inputs (Level 2).
The fair values of the warrants and option liabilities were estimated using the intrinsic value, which
equals to the difference between the share price at the IPO closing date and the exercise price, as the
exercise dates were immediately prior to or very close to the IPO closing date.
Warrants and option fair value estimation prior to the exercise dates
Prior to the exercise dates, the Company measured the warrants in connection with the convertible
promissory notes and the option to purchase shares by rental deferral at fair value on a recurring basis
using significant unobservable inputs (Level 3). As of December 31, 2015, the significant unobservable
F-13
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
2. Summary of significant accounting policies (Continued)
inputs used in the fair value measurement and the corresponding impacts to the fair values are
presented below:
Financial Instrument
Valuation Techniques
Unobservable Inputs
Estimation
2015
Option to purchase shares
by rental deferral . . . . . .
Invested capital value
allocation by Black-Scholes
option pricing model
Invested capital value
$665,213
Warrants in connection with
the convertible
promissory notes . . . . . .
Volatility for invested
capital value allocation
Volatility for Black-Scholes
option pricing model
Discount for lack of
marketability (‘‘DLOM’’)
83%
69% - 83%
11%
Invested capital value
allocation by Black-Scholes
option pricing model
Invested capital value
$665,213
Volatility for invested
capital value allocation
Volatility for Black-Scholes
option pricing model
DLOM
83%
69% - 83%
11%
The following tables present a reconciliation of the warrants and option liabilities for the years
ended December 31, 2016.
Balance as of December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognized during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrant and
Option Liabilities
$
2,173
—
1,514
(3,687)
—
The amount of total unrealized loss for the year ended
December 31, 2016 included in losses . . . . . . . . . . . . . . . . . . . . .
(1,514)
F-14
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
2. Summary of significant accounting policies (Continued)
Realized and unrealized gain or loss for the years ended December 31, 2016, 2015 and 2014 was
recorded as ‘‘Changes in fair value of financial instruments’’ in the consolidated statements of
operations.
Revenue recognition
The Company recognizes revenues from research and development collaborative arrangements
when persuasive evidence of an arrangement exists, delivery has occurred or services have been
rendered, the fee is fixed or determinable, and there is reasonable assurance that the related amounts
are collectible in accordance with ASC 605, Revenue Recognition (‘‘ASC 605’’). The Company’s
collaborative arrangements may contain multiple elements, including grants of licenses to intellectual
property rights, agreement to provide research and development services and other deliverables. The
deliverables under such arrangements are evaluated under ASC 605-25, Multiple-Element Arrangements.
Pursuant to ASC 605-25, each required deliverable is evaluated to determine whether it qualifies as a
separate unit of accounting based on whether the deliverable has ‘‘stand-alone value’’ to the customer.
The collaborative arrangements do not include a right of return for any deliverable. The arrangement’s
consideration that is fixed or determinable, excluding contingent payments, is then allocated to each
separate unit of accounting based on the relative selling price of each deliverable. The relative selling
price for each deliverable is determined using vendor specific objective evidence (‘‘VSOE’’) of selling
price or third party evidence (‘‘TPE’’) of selling price if VSOE does not exist. If neither VSOE nor
TPE exists, the Company uses the best estimate of the selling price (‘‘BESP’’) for the deliverable. In
general, the consideration allocated to each unit of accounting is recognized as the related goods or
services are delivered, limited to the consideration that is not contingent upon future deliverables.
Non-refundable payments received before all of the relevant criteria for revenue recognition are
satisfied are recorded as advances from customers.
Upfront non-refundable payments for licensing the Company’s intellectual property are evaluated
to determine if the licensee can obtain stand-alone value from the license separate from the value of
the research and development services and other deliverables in the arrangement to be provided by the
Company. The Company acts as the principal under its arrangements and licensing intellectual property
is part of its ongoing major or central operations. The license right is not contingent upon the delivery
of additional items or meeting other specified performance conditions. Therefore, when stand-alone
value of the license is determinable, the allocated consideration is recognized as collaboration revenue
upon delivery of the license rights.
As the Company acts as the principal under its arrangements, and research and development
services are also part of its ongoing major or central operations, it recognizes the allocated
consideration related to reimbursements of research and development costs as collaboration revenue
when delivery or performance of such services occurs.
Product development, royalties and commercial event payments (collectively, ‘‘target payments’’)
under collaborative arrangements are triggered either by the results of the Company’s research and
development efforts, achievement of regulatory goals or by specified sales results by a third party
F-15
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
2. Summary of significant accounting policies (Continued)
collaborator. Under ASC 605-28, Milestone Method of Revenue Recognition, an accounting policy
election can be made to recognize a payment that is contingent upon the achievement of a substantive
milestone in its entirety in the period in which the milestone is achieved. The Company elected not to
adopt the milestone method of revenue recognition under ASC 605-28.
Targets related to the Company’s development-based activities may include initiation of various
phases of clinical trials and applications and acceptance for product approvals by regulatory agencies.
Due to the uncertainty involved in meeting these development-based targets, the Company would
account for development-based targets as collaboration revenue upon achievement of the respective
development target. Royalties based on reported sales of licensed products will be recognized as
collaboration revenue based on contract terms when reported sales are reliably measurable and
collectability is reasonably assured. Targets related to commercial activities may be triggered upon
events such as first commercial sale of a product or when sales first achieve a defined level. Since these
targets would be achieved after the completion of the Company’s development activities, the Company
would account for the commercial event targets in the same manner as royalties, with collaboration
revenue recognized upon achievement of the target. To date, none of the products have been approved.
Hence, no revenue has been recognized related to royalties or commercial event based targets in any of
the periods presented. Any subsequent payments to be made to the collaborator such as profit sharing
payments based on net sales that are not related to research and development services would be
recorded as expenses from the collaborative arrangement. To date, no payments have been made to the
collaborator.
Research and development expenses
Research and development expenses represent costs associated with the collaborative
arrangements, which primarily include (i) payroll and related costs (including share-based
compensation) associated with research and development personnel, (ii) costs related to clinical trials
and preclinical testing of the Company’s technologies under development, (iii) costs to develop the
product candidates, including raw materials and supplies, product testing, depreciation, and facility
related expenses, (iv) expenses for research services provided by universities and contract laboratories,
including sponsored research funding, and (v) other research and development expenses. Research and
development expenses are charged to expense as incurred when these expenditures relate to the
Company’s research and development services and have no alternative future uses.
Clinical trial costs are a significant component of the Company’s research and development
expenses. The Company has a history of contracting with third parties that perform various clinical trial
activities on behalf of the Company in the ongoing development of the Company’s product candidates.
Expenses related to clinical trials are accrued based on the Company’s estimates of the actual services
performed by the third parties for the respective period. If the contracted amounts are modified (for
instance, as a result of changes in the clinical trial protocol or scope of work to be performed), the
Company will modify the related accruals accordingly on a prospective basis. Revisions in the scope of
a contract are charged to expense in the period in which the facts that give rise to the revision become
reasonably certain. There were no material adjustments for a change in estimate to research and
development expenses in the accompanying consolidated financial statements for the years ended
December 31, 2016, 2015 and 2014.
F-16
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
2. Summary of significant accounting policies (Continued)
Government grants
Government financial incentives that involve no conditions or continuing performance obligations
of the Company are recognized as other non-operating income upon receipt.
Leases
Leases are classified at the inception date as either a capital lease or an operating lease. The
Company assesses a lease to be a capital lease if any of the following conditions exist: a) ownership is
transferred to the lessee by the end of the lease term, b) there is a bargain purchase option, c) the
lease term is at least 75% of the property’s estimated remaining economic life or d) the present value
of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of
the leased property to the lessor at the inception date. A capital lease is accounted for as if there was
an acquisition of an asset and an incurrence of an obligation at the inception of the lease. The
Company has no capital leases for the years presented.
All other leases are accounted for as operating leases wherein rental payments are expensed on a
straight-line basis over the periods of their respective lease terms. The Company leases office space,
employee accommodation and manufactory space under operating lease agreements. Certain of the
lease agreements contain rent holidays. Rent holidays are considered in determining the straight-line
rent expense to be recorded over the lease term. The lease term begins on the date of initial possession
of the lease property for purposes of recognizing lease expense on straight-line basis over the term of
the lease.
Comprehensive loss
Comprehensive loss is defined as the changes in equity of the Company during a period from
transactions and other events and circumstances excluding transactions resulting from investments by
owners and distributions to owners. Among other disclosures, ASC 220, Comprehensive Income,
requires that all items that are required to be recognized under current accounting standards as
components of comprehensive loss be reported in a financial statement that is displayed with the same
prominence as other financial statements. For each of the periods presented, the Company’s
comprehensive loss includes net loss, foreign currency translation adjustments and unrealized holding
losses associated with the available-for-sale securities, and is presented in the consolidated statements
of comprehensive loss.
Stock-based compensation
Awards granted to employees
The Company applies ASC 718, Compensation—Stock Compensation (‘‘ASC 718’’), to account for
its employee share-based payments. In accordance with ASC 718, the Company determines whether an
award should be classified and accounted for as a liability award or equity award. All the Company’s
grants of share-based awards to employees were classified as equity awards and are recognized in the
F-17
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
2. Summary of significant accounting policies (Continued)
financial statements based on their grant date fair values. Specifically, the grant date fair value of share
options are calculated using an option pricing model. The Company has elected to recognize
compensation expense using the straight-line method for all employee equity awards granted with
graded vesting based on service conditions provided that the amount of compensation cost recognized
at any date is at least equal to the portion of the grant-date value of the options that are vested at that
date. The Company uses the accelerated method for all awards granted with graded vesting based on
performance conditions. To the extent the required vesting conditions are not met resulting in the
forfeiture of the share-based awards, previously recognized compensation expense relating to those
awards are reversed. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if
necessary, in the subsequent period if actual forfeitures differ from initial estimates.
Forfeiture rates are estimated based on historical and future expectations of employee turnover
rates and are adjusted to reflect future changes in circumstances and facts, if any. Share-based
compensation expense is recorded net of estimated forfeitures such that expense is recorded only for
those share-based awards that are expected to vest. To the extent the Company revises these estimates
in the future, the share-based payments could be materially impacted in the period of revision, as well
as in following periods. The Company, with the assistance of an independent third party valuation firm,
determined the fair value of the stock options granted to employees. The binomial option pricing
model was applied in determining the estimated fair value of the options granted to employees.
Awards granted to non-employees
The Company has accounted for equity instruments issued to non-employees in accordance with
the provisions of ASC 718 and ASC 505, Equity. All transactions in which goods or services are
received in exchange for equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued, whichever is more reliably
measurable. The measurement date of the fair value of the equity instrument issued is the date on
which the counterparty’s performance is completed as there is no associated performance commitment.
The expense is recognized in the same manner as if the Company had paid cash for the services
provided by the non-employees in accordance with ASC 505-50, Equity-based payments to
non-employees.
Modification of awards
A change in any of the terms or conditions of the awards is accounted for as a modification of the
award. Incremental compensation cost is measured as the excess, if any, of the fair value of the
modified award over the fair value of the original award immediately before its terms are modified,
measured based on the fair value of the awards and other pertinent factors at the modification date.
For vested awards, the Company recognizes incremental compensation cost in the period the
modification occurs. For unvested awards, the Company recognizes over the remaining requisite service
period, the sum of the incremental compensation cost and the remaining unrecognized compensation
cost for the original award on the modification date. If the fair value of the modified award is lower
F-18
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
2. Summary of significant accounting policies (Continued)
than the fair value of the original award immediately before modification, the minimum compensation
cost the Company recognizes is the cost of the original award.
Derivative instruments
ASC 815, Derivatives and Hedging, requires all contracts which meet the definition of a derivative
to be recognized in the consolidated financial statements as either assets or liabilities and recorded at
fair value. Changes in the fair value of derivative financial instruments are either recognized
periodically in income/loss or in shareholders’ deficit as a component of other comprehensive income
depending on the use of the derivative and whether it qualifies for hedge accounting. Changes in fair
values of derivatives not qualified as hedges are reported in the consolidated statements of operations.
The estimated fair values of derivative instruments are determined at discrete points in time based on
the relevant market information. These estimates are calculated with reference to the market rates
using industry standard valuation techniques with the assistance of an independent third party valuation
firm.
Income taxes
The Company uses the liability method of accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on the differences between the financial
reporting and the tax bases of assets and liabilities and are measured using enacted tax rates and laws
that will be in effect when the differences are expected to reverse. A valuation allowance is provided
when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
In November 2015, the FASB issued Accounting Standards Update 2015-17, Balance Sheet
Classification of Deferred Taxes, which requires deferred income tax assets and liabilities to be classified
as non-current in a classified balance sheet, and eliminates the prior guidance, which required an entity
to separate deferred tax assets and liabilities into a current amount and a non-current amount in a
classified balance sheet. The Company changed the manner in which it classifies deferred tax assets and
liabilities retrospectively from the fourth quarter of 2016 due to the early adoption of Accounting
Standards Update 2015-17. The adoption of this guidance has no impact on prior year balances as
current deferred tax assets and liabilities are both nil as of December 31, 2015.
The Company evaluates its uncertain tax positions using the provisions of ASC 740, Income Taxes,
which requires that realization of an uncertain income tax position be recognized in the financial
statements. The benefit to be recorded in the financial statements is the amount most likely to be
realized assuming a review by tax authorities having all relevant information and applying current
conventions. It is the Company’s policy to recognize interest and penalties related to unrecognized tax
benefits, if any, as a component of income tax expense.
Loss per share
Loss per share is calculated in accordance with ASC 260, Earnings per Share. Basic loss per
ordinary share is computed by dividing net loss attributable to ordinary shareholders by the weighted
F-19
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
2. Summary of significant accounting policies (Continued)
average number of ordinary shares outstanding during the period using the two-class method. Under
the two-class method, net income is allocated between ordinary shares and participating securities
based on dividends declared (or accumulated) and participating rights in undistributed earnings as if all
the earnings for the reporting period had been distributed. The Company’s convertible preferred shares
and restricted stock are participating securities because they have contractual rights to share in the
profits of the Company.
However, both the convertible preferred shares and restricted stock do not have contractual rights
and obligations to share in the losses of the Company. For the periods presented herein, the
computation of basic loss per share using the two-class method is not applicable as the Company is in a
net loss position.
Diluted loss per share is calculated by dividing net loss attributable to ordinary shareholders as
adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of
ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent
shares consist of the ordinary shares issuable upon the conversion of the Company’s convertible
preferred shares using the if-converted method, and ordinary shares issuable upon the conversion of
the share options and unvested restricted stock, using the treasury stock method. Ordinary share
equivalents are excluded from the computation of diluted loss per share if their effects would be
anti-dilutive. Basic and diluted loss per ordinary share is presented in the Company’s consolidated
statements of operations.
Segment information
In accordance with ASC 280, Segment Reporting, the Company’s chief operating decision maker,
the Chief Executive Officer, reviews the consolidated results when making decisions about allocating
resources and assessing performance of the Company as a whole and hence, the Company has only one
reportable segment. The Company does not distinguish between markets or segments for the purpose
of internal reporting. As the Company’s long-lived assets and revenue are substantially located in and
derived from the PRC, no geographical segments are presented.
Concentration of risks
Concentration of credit risk
Financial instruments that are potentially subject to credit risk consist of cash and cash equivalents
and short-term investments. The carrying amounts of cash and cash equivalents and short-term
investments represent the maximum amount of loss due to credit risk. As of December 31, 2016 and
2015, $87,514 and $17,869 were deposited with various major reputable financial institutions located in
the PRC and international financial institutions outside of the PRC. The deposits placed with financial
institutions are not protected by statutory or commercial insurance. In the event of bankruptcy of one
of these financial institutions, the Company may be unlikely to claim its deposits back in full.
Management believes that these financial institutions are of high credit quality and continually monitors
F-20
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
2. Summary of significant accounting policies (Continued)
the credit worthiness of these financial institutions. As of December 31, 2016 and 2015, the Company
had debt security investments amounting to $280,660 and $82,617, respectively.
At December 31, 2016, the Company’s debt security investments comprised primarily of U.S.
treasury securities. The Company believes that U.S. treasury securities are of high credit quality and
continually monitors the credit worthiness of these institutions.
Customer concentration risk
For the years ended December 31, 2016, 2015 and 2014, substantially all of the Company’s revenue
has been generated solely from one customer, Merck KGaA, Darmstadt Germany.
Business, customer, political, social and economic risks
The Company participates in a dynamic high technology industry and believes that changes in any
of the following areas could have a material adverse effect on the Company’s future financial position,
results of operations or cash flows: changes in the overall demand for services and products;
competitive pressures due to new entrants; advances and new trends in new technologies and industry
standards; changes in clinical research organizations; changes in certain strategic relationships or
customer relationships; regulatory considerations; copyright regulations; and risks associated with the
Company’s ability to attract and retain employees necessary to support its growth. The Company’s
operations could be also adversely affected by significant political, economic and social uncertainties in
the PRC.
Currency convertibility risk
A majority of the Company’s expenses and a significant portion of the Company’s assets and
liabilities are denominated in RMB. On January 1, 1994, the PRC government abolished the dual rate
system and introduced a single rate of exchange as quoted daily by the People’s Bank of China (the
‘‘PBOC’’). However, the unification of the exchange rates does not imply that the RMB may be readily
convertible into U.S. dollar 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.
Foreign currency exchange rate risk
From July 21, 2005, the RMB is permitted to fluctuate within a narrow and managed band against
a basket of certain foreign currencies. For RMB against U.S. dollar, there was depreciation of
F-21
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
2. Summary of significant accounting policies (Continued)
approximately 6.3%, 4.4% and 2.4% in the year ended December 31, 2016, 2015 and 2014. It is difficult
to predict how market forces or PRC or U.S. government policy may impact the exchange rate between
the RMB and the U.S. dollar in the future.
To the extent that the Company needs to convert U.S. dollar into RMB for capital expenditures
and working capital and other business purposes, appreciation of RMB against U.S. dollar would have
an adverse effect on the RMB amount the Company would receive from the conversion. Conversely, if
the Company decides to convert RMB into U.S. dollar for the purpose of making payments for
dividends on ordinary shares, strategic acquisitions or investments or other business purposes,
appreciation of U.S. dollar against RMB would have a negative effect on the U.S. dollar amount
available to the Company. In addition, a significant depreciation of the RMB against the U.S. dollar
may significantly reduce the U.S. dollar equivalent of the Company’s earnings or losses.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Recent accounting pronouncements
In August 2015, the FASB issued Accounting Standards Update (‘‘ASU’’) No. 2015-14, Revenue
from Contracts with Customers-Deferral of the effective date (‘‘ASU 2015-14’’). The amendments in ASU
2015-14 defer the effective date of ASU No. 2014-09, Revenue from Contracts with Customers, (‘‘ASU
2014-09’’), issued in May 2014. According to the amendments in ASU 2015-14, the new revenue
guidance ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017,
including interim reporting periods within that reporting period. Earlier application is permitted only as
of annual reporting periods beginning after December 15, 2016, including interim reporting periods
within that reporting period. In March 2016, the FASB issued ASU No. 2016-08, Revenue from
Contracts with Customers—Principal versus Agent Considerations (‘‘ASU 2016-08’’), which clarifies the
implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU
No. 2016-10, Revenue from Contracts with Customers—Identifying Performance Obligations and Licensing
(‘‘ASU 2016-10’’), which clarify guidance related to identifying performance obligations and licensing
implementation guidance contained in ASU No. 2014-09. In May 2016, the FASB issued ASU
No. 2016-12, Revenue from Contracts with Customers—Narrow-Scope Improvements and Practical
Expedients (‘‘ASU 2016-12’’), which addresses narrow-scope improvements to the guidance on
collectability, non-cash consideration, and completed contracts at transition and provides practical
expedients for contract modifications at transition and an accounting policy election related to the
presentation of sales taxes and other similar taxes collected from customers. The effective date for the
amendment in ASU 2016-08, ASU 2016-10 and ASU 2016-12 are the same as the effective date of
ASU No. 2014-09. The Company will adopt the new standard under the modified retrospective
approach, effective January 1, 2018, and is in the process of evaluating its collaboration agreements
with Merck KGaA, Darmstadt Germany to determine the impact the adoption of these ASUs has on
its consolidated financial statements, if any.
F-22
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
2. Summary of significant accounting policies (Continued)
In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize
assets and liabilities related to lease arrangements longer than 12 months on the balance sheet. This
standard also requires additional disclosures by lessees and contains targeted changes to accounting by
lessors. The updated guidance is effective for interim and annual periods beginning after December 15,
2018, and early adoption is permitted. The recognition, measurement, and presentation of expenses and
cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. The
Company is currently evaluating the impact on its financial statements of adopting this guidance.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based
Payment Accounting (‘‘ASU 2016-09’’). The amendments in ASU 2016-09 simplify several aspects of the
accounting for employee share-based payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities, and classification on the statement of cash flows.
For public business entities, ASU 2016-09 is effective for annual periods beginning after December 15,
2016 and interim periods within those annual periods. The Company does not expect the
implementation of this standard to materially impact its future stock-based compensation expense.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (‘‘ASU
2016-13’’). The amendments in ASU 2016-13 update guidance on reporting credit losses for assets held
at amortized cost basis and available-for-sale debt securities. These amendments affect loans, debt
securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance
receivables, and any other financial assets not excluded from the scope that have the contractual right
to receive cash. For public business entities that are U.S. SEC filers, ASU 2016-13 is effective for fiscal
years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is
currently evaluating the method of adoption to be utilized and it cannot currently estimate the financial
statement impact of adoption.
In August 2016, the FASB issued ASU No. 2016-15, Statement of cash flows—Classification of
Certain Cash Receipts (‘‘ASU 2016-15’’). The amendments in ASU 2016-15 addresses eight specific cash
flow issues, including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt
instruments or other debt instruments with coupon interest rates that are insignificant in relation to the
effective interest rate of the borrowing, contingent consideration payments made after a business
combination, proceeds from the settlement of insurance claims; proceeds from the settlement of
corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies
(BOLIs)), distributions received from equity method investees, beneficial interests in securitization
transactions and separately identifiable cash flows and application of the predominance principle. For
public business entities that are U.S. SEC filers, ASU 2016-15 is effective for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal years. The Company is currently
evaluating the method of adoption to be utilized and it cannot currently estimate the financial
statement impact of adoption.
In October 2016, the FASB issued ASU No. 2016-16, Income taxes—Intra-entity transfers of assets
other than inventory (‘‘ASU 2016-16’’). The amendments in ASU 2016-16 require that entities recognize
the income tax consequences of an intra-entity transfer of an asset other than inventory when the
F-23
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
2. Summary of significant accounting policies (Continued)
transfer occurs. The amendments in ASU 2016-16 do not change GAAP for the pre-tax effects of an
intra-entity asset transfer under Topic 810, Consolidation, or for an intra-entity transfer of inventory.
For public business entities that are U.S. SEC filers, ASU 2016-16 is effective for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal years. The Company is currently
evaluating the method of adoption to be utilized and it cannot currently estimate the financial
statement impact of adoption.
3. Short-term investments
Short-term investments as of December 31, 2016 consist of the following available-for-sale
exchange-traded debt securities:
U.S. Treasury securities . . . . . . . . . . .
Amortized
Cost
$
280,757
Total
. . . . . . . . . . . . . . . . . . . . . . . .
280,757
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(Net Carrying
Amount)
$
—
—
$
97
97
$
280,660
280,660
Short-term investments as of December 31, 2015 consist of the following available-for-sale
exchange-traded debt securities:
Corporate fixed income bonds . . . . . .
U.S. Treasury securities . . . . . . . . . . .
Municipal Bonds . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . .
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(Net Carrying
Amount)
$
70,383
7,999
5,441
83,823
$
—
1
—
1
$
1,128
—
79
1,207
$
69,255
8,000
5,362
82,617
Contractual maturities of all debt securities as of December 31, 2016 were within one year. The
Company does not intend to sell its investments in U.S. Treasury securities and it is not more likely
than not that the Company will be required to sell the investment before recovery of its amortized cost
basis, which may be maturity. Therefore, the Company does not consider the investment in U.S.
Treasury securities to be other-than-temporarily impaired at December 31, 2016.
F-24
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
4. Property and equipment
Property and equipment consist of the following:
Office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronic equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Laboratory equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of
December 31,
2016
$
449
647
7,536
317
9,446
2015
$
213
424
5,919
186
5,954
Property and equipment, at cost . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,395
(7,473)
15,055
12,696
(6,084)
—
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,977
6,612
Construction in progress as of December 31, 2016 of $15,055 relates to the Suzhou’s
manufacturing facility and laboratory that are still under construction. Depreciation expenses for the
years ended December 31, 2016, 2015 and 2014 were $1,909, $1,545 and $1,557, respectively.
5. Income taxes
Cayman Islands
The Company is incorporated in the Cayman Islands. Under the current laws of the Cayman
Islands, the Company is not subject to income tax.
Australia
BeiGene AUS Pty Ltd., incorporated in Australia is subject to corporate income tax at a rate of
30%. BeiGene AUS Pty Ltd. has no taxable income for all periods presented and therefore, no
provision for income taxes is required.
Hong Kong
BeiGene (Hong Kong) Co., Limited is incorporated in Hong Kong. Companies registered in Hong
Kong are subject to Hong Kong Profits Tax on the taxable income as reported in their respective
statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable
tax rate is 16.5% in Hong Kong. The Company did not make any provisions for Hong Kong profit tax
as there were no assessable profits derived from or earned in Hong Kong for any of the periods
presented. Under the Hong Kong tax law, BeiGene (Hong Kong) Co., Limited is exempted from
income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on
remittance of dividends.
F-25
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
5. Income taxes (Continued)
United States
BeiGene (USA) incorporated in United States on July 8, 2015, is subject to statutory U.S. Federal
corporate income tax at a rate of 34% for the years ended December 31, 2016 and 2015. BeiGene
(USA) is also subject to the state income tax for New Jersey, California and Massachusetts, at a rate of
9%, 8.84% and 8%, respectively, for the year ended December 31, 2016.
PRC
BeiGene Beijing, BeiGene Suzhou and BeiGene Shanghai are subject to the statutory tax rate of
25% in accordance with the Enterprise Income Tax law (the ‘‘EIT Law’’), which was effective since
January 1, 2008. Under the EIT Law, all enterprises are subject to the 25% enterprise income tax rate,
except for certain entities that enjoyed the tax holidays or preferential tax treatments. Under the EIT
Law and its relevant regulations, dividends paid by PRC enterprises out of profits earned post-2007 to
non-PRC tax resident investors are subject to PRC withholding tax of 10%. A lower withholding tax
rate may be applied based on applicable tax treaty with certain jurisdictions.
Loss before income taxes consists of:
Cayman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2016
2015
2014
$
(81,867)
(7,352)
(30,158)
214
$
(29,918)
(5,253)
(21,906)
(25)
$
(5,487)
(5,808)
(7,684)
433
(119,163)
(57,102)
(18,546)
Income tax expenses were $54, nil and nil, respectively, for the years ended December 31, 2016,
2015 and 2014. Current year income tax expense was attributable to BeiGene (USA), a wholly owned
subsidiary, which was established in July 2015 and provided general management services and strategic
advisory services to the Company. The Company and its other subsidiaries were in cumulative loss
positions for all periods presented.
F-26
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
5. Income taxes (Continued)
The current and deferred components of the income tax expense for the year ended December 31,
2016, 2015 and 2014 are summarized as follows:
Current tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31,
2016
2015
2014
$
$
822 — —
(768) — —
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54 — —
The reconciliation of the actual income taxes to the amount of tax computed by applying the PRC
statutory income tax rate to pre-tax income is as follows:
Loss before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRC statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . .
Expected taxation at PRC statutory tax rate . . . . . . . .
Foreign tax rate differential . . . . . . . . . . . . . . . . . . . .
Non-taxable income . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . .
Additional taxable income . . . . . . . . . . . . . . . . . . . . .
Addition to valuation allowance . . . . . . . . . . . . . . . . .
R&D tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxation for the year . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2016
2015
2014
$
(119,163)
$
(57,102)
$
(18,546)
25%
25%
25%
(29,791)
19,159
—
593
8,671
1,627
(205)
(14,275)
6,399
(8)
584
6,287
1,013
—
(4,636)
1,082
(191)
185
2,232
1,328
—
54
(cid:6)0.1%
—
0%
—
0%
F-27
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
5. Income taxes (Continued)
Significant components of deferred tax assets are as follows:
As of
December 31,
2016
$
2015
$
Deferred tax assets, non-current portion:
Net operating losses carry forward . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,987
(14)
1,102
7,146
—
—
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,075
(7,307)
7,146
(7,146)
Total deferred tax assets, net of valuation allowance . . . . . . . . . . . .
768
—
During 2016, there is an increase in the valuation allowance by $1,627 which included the effect of
expired net operating losses of $1,466. Valuation allowances have been provided on deferred tax assets
where, based on all available evidence, it was considered more likely than not that some portion or all
of the recorded deferred tax assets will not be realized in future periods. The Company recorded a full
valuation allowance against deferred tax assets related to net operating losses, and recorded a valuation
allowance against the portion of the deferred tax assets related to deductible temporary differences.
As of December 31, 2016, the Company had net operating losses of approximately $27,948 derived
from entities in the PRC, which can be carried forward to offset future net profit for income tax
purposes. The net operating loss in PRC entities will expire, if unused, beginning January 1, 2018
through 2022.
No unrecognized tax benefits and related interest and penalties were recorded in any of the
periods presented. The Company’s management does not expect the amount of unrecognized tax
benefits would increase significantly in the next 12 months. In general, the PRC tax authorities have up
to five years to conduct examinations of the Company’s tax filings. Accordingly, the PRC subsidiaries’
tax years 2012 through 2016 remain open to examination by the respective taxing authorities.
F-28
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
6. Accrued expenses and other payables
Accrued expenses and other payables consisted of the following:
Compensation related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
External research and development activities related . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of
December 31,
2016
$
3,980
14,198
4,119
2015
$
1,607
4,118
2,626
Total accrued expenses and other payables . . . . . . . . . . . . . . . . . . .
22,297
8,351
7. Short-term bank loan
On April 8, 2014, the Company obtained a RMB denominated loan with a principal amount of
$322 from China Merchants Bank at an annual interest rate of 7.8% based on a 30% premium of the
market rate published by the PBOC. The short-term bank loan matured in one year and was fully
repaid on April 3, 2015. Interest expense of $7 and $18, and guarantee fee of nil and $7, was
recognized for the years ended December 31, 2015 and 2014, respectively.
8. Warrants and option liabilities
As of
December 31,
2016
2015
$
$
Option to purchase shares by rental deferral . . . . . . . . . . . . . . . . . . . . — 1,388
785
Warrants in connection with the convertible promissory notes . . . . . . . —
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,173
Option to purchase shares by rental deferral
On September 1, 2012, in conjunction with a lease agreement of one of its premises, the Company
granted the landlord an option to purchase the Company’s ordinary shares (the ‘‘Option’’) in exchange
for the deferral of the payment of one year’s rental expense. The Option was a freestanding instrument
and was recorded as a liability in accordance with ASC480, Distinguishing Liabilities from Equity. The
Option was initially recognized at fair value with subsequent changes in fair value recorded in losses.
Prior to the Company’s IPO, the Company determined the fair value of the Option with the assistance
of an independent third party valuation firm. On February 8, 2016, immediately prior to the Company’s
IPO, the landlord exercised the Option to purchase 1,451,586 ordinary shares of the Company. As the
exercise date was the IPO closing date, the exercise date fair value of the Option of $2,540 was
determined based on its intrinsic value, which equaled the difference between the share price at the
IPO closing date and the exercise price of such purchased ordinary shares. During the years ended
F-29
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
8. Warrants and option liabilities (Continued)
December 31, 2016, 2015 and 2014, the Company recognized a loss from the increase in fair value of
the Option of $1,151, $1,263 and $99, respectively.
Warrants in connection with the convertible promissory notes
During the years ended December 31, 2012 to 2014, the Company entered into agreements with
several investors to issue convertible promissory notes, and related warrants to purchase the Company’s
preference shares up to 10% of the convertible promissory notes’ principal amount concurrently for an
aggregate principal amount of $2,410. The warrants were freestanding instruments and were recorded
as liabilities in accordance with ASC480. The warrants were initially recognized at fair value with
subsequent changes in fair value recorded in losses. In January 2016 and February 2016, the warrants
issued in connection with the promissory notes were exercised for 621,637 Preferred Shares, which were
then converted into 621,637 ordinary shares. As the exercise dates were very close to the IPO closing
date, the respective exercise date fair value of the warrants of $1,148 was determined based on the
intrinsic value, which equaled the difference between the share price at the IPO closing date and the
exercise price of the issued warrants. For the years ended December 31, 2016, 2015 and 2014, the
Company recognized a loss from the increase in fair value of $363, $563 and $127, respectively.
9. Long-term bank loan
On September 2, 2015, BeiGene Suzhou entered into a loan agreement with Suzhou Industrial
Park Biotech Development Co., Ltd. and China Construction Bank, to borrow $17,284 at a 7% fixed
annual interest rate. As of December 31, 2016, the Company has drawn down $17,284, which is secured
by BeiGene Suzhou’s equipment with a carrying amount of $22,292 and the Company’s rights to a PRC
patent on a drug candidate. The loan principal amounts of $8,642 and $8,642 are repayable on
September 30, 2018 and 2019, respectively. Interest expense recognized for the years ended
December 31, 2016 and 2015 amounted to $851 and $140, respectively.
10. Senior promissory note
On February 2, 2011, the Company issued a senior promissory note to Merck Sharp & Dohme
Research GmbH (‘‘Merck Sharp’’), an entity that is unaffiliated with Merck KGaA, Darmstadt
Germany, with a principal amount of $10,000 (the ‘‘Senior Promissory Note’’). The Senior Promissory
Note bore interest of 8% compounding per annum and had a term of five years. The Company had the
option to elect to repay in whole or in part the outstanding principal and accrued interest any time
prior to the maturity of the Senior Promissory Note.
The Senior Promissory Note was initially recorded as a long-term liability carried at its amortized
cost of $10,000 and subsequently accreted to the amount payable upon maturity using the effective
interest method. Interest accrued as of December 31, 2016 and 2015 amounted to nil and $4,598,
respectively.
On January 26, 2016, the Company entered into a note amendment and exchange agreement with
Merck Sharp, pursuant to which, the maturity date of the Senior Promissory Note was extended to
F-30
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
10. Senior promissory note (Continued)
May 2, 2016 from February 2, 2016. In addition, if the IPO occurred on or prior to May 2, 2016,
subject to certain limitations, the outstanding unpaid principal and interest of the Senior Promissory
Note as of the effectiveness date of the Company’s IPO (the ‘‘Exchanged Balance’’) would be
automatically exchanged, effective immediately prior to the closing of the IPO, into up to a number of
the Company’s ordinary shares equal to the quotient of (1) the Exchanged Balance divided by (2) the
per ordinary share public offering price in the IPO. The amendments and subsequent extinguishment of
the Senior Promissory Note did not result in any gain or loss since the conversion rate was set at the
IPO Price.
On February 8, 2016, the outstanding unpaid principal and interest of the Senior Promissory Note
of carrying value of $14,693 were exchanged into 7,942,314 ordinary shares, computed at the IPO Price
of $1.85 per ordinary share.
11. Convertible preferred shares
In October 2014, the Company issued 52,592,590 Series A convertible preferred shares (the
‘‘Series A Preferred Shares’’) with a par value of $0.0001 per share for cash consideration of $35,500 or
$0.68 per share. At the same time, the previously issued subordinated convertible promissory note,
convertible promissory notes, secured guaranteed convertible promissory notes, advances and
convertible promissory notes due to the related party were automatically converted into 64,192,927
Series A Preferred Shares in aggregate.
On April 21, 2015, the Company issued 83,205,124 Series A-2 convertible preferred shares (the
‘‘Series A-2 Preferred Shares’’) with a par value of $0.0001 per share for cash consideration of $97,350
or $1.17 per share.
The Series A Preferred Shares and the Series A-2 Preferred Shares are collectively referred to as
the ‘‘Preferred Shares.’’
The significant terms of the Preferred Shares are summarized below.
Dividends
The holders of the Preferred Shares shall be entitled to receive dividends accruing at the rate of
8% per annum. In addition, holders of the Preferred Shares shall also be entitled to dividends on the
Company’s ordinary shares on an as if converted basis.
Voting rights
Each holder of Preferred Shares shall have the right to vote the number of votes per ordinary
share into which their Preferred Shares could be converted, and shall vote along with the ordinary
shares, on all matters in respect to which the holders of ordinary shares are entitled to vote.
F-31
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
11. Convertible preferred shares (Continued)
Liquidation preference
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company
or any deemed liquidation event as defined in the Preferred Shares agreements (‘‘Liquidation
Transaction’’), the holders of Preferred Shares then outstanding are entitled to be paid out of the assets
of the Company available for distribution to its members before any payment shall be made to the
holders of any other class of shares by reason of their ownership thereof, an amount per share equal to
the greater of (i) the original issue price, plus accrued but unpaid dividends; or (ii) such amount per
share as would have been payable had all Preferred Shares been converted into ordinary shares
immediately prior to such liquidation, dissolution, winding up or deemed liquidation event.
Conversion rights
(i) Optional conversion: Each Preferred Share shall be convertible into the Company’s ordinary
shares at the option of the holder at any time after the issuance date by dividing the original
issue price by the conversion price, which is initially equal to the original issue price. All
unpaid, cumulative dividends on the Preferred Shares shall no longer be payable.
(ii) Automatic conversion: All outstanding Preferred Shares shall automatically be converted into
ordinary shares at the then effective Preferred Shares conversion price upon (i) the closing of
a Qualified IPO; or (ii) the date and time, or the occurrence of an event, specified by vote or
written consent of the holders of at least 80.63% of the then outstanding Preferred Shares.
Upon conversion of the Preferred Shares, all unpaid, cumulative dividends on the Preferred
Shares shall no longer be payable.
Drag-along right
In the event that each of (i) (A) Baker Brothers or (B) Hillhouse BGN Holdings Limited
(‘‘Hillhouse’’) and CB Biotech Investment Limited (‘‘CITIC PE’’) jointly; (ii) a majority of the Board of
Directors; and (iii) the holders of more than 66.66% of the then-outstanding ordinary shares (other
than those issued or issuable upon conversion of the Preferred Shares and any other derivative
securities) approve a sale of the Company in writing, then each preferred shareholder agrees to certain
joint actions to be taken to ensure such sale of the Company could be completed.
Accounting for Preferred Shares
The Preferred Shares were classified as mezzanine equity as these convertible preferred shares
were redeemable upon the occurrence of a conditional event (i.e. a Liquidation Transaction). The
holders of the Preferred Shares had a liquidation preference and would not receive the same form of
consideration upon the occurrence of the conditional event as the holders of the ordinary shares would.
The initial carrying amount of the Series A Preferred Shares of $78,809 was the issue price at the date
of issuance of $78,889, net of issuance costs of $80. The initial carrying amount of the Series A-2
Preferred Shares of $97,275 was the issue price at the date of issuance of $97,350, net of issuance costs
of $75.The holders of the Preferred Shares have the ability to convert the instrument into the
F-32
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
11. Convertible preferred shares (Continued)
Company’s ordinary shares. The conversion option of the convertible preferred shares did not qualify
for bifurcation accounting because the conversion option is clearly and closely related to the host
instrument and the underlying ordinary shares were not publicly traded nor readily convertible into
cash. The contingent redemption options of the convertible preferred shares did not qualify for
bifurcation accounting because the underlying ordinary shares were neither publicly traded nor readily
convertible into cash. There were no other embedded derivatives that are required to be bifurcated.
Beneficial conversion features exist when the conversion price of the convertible preferred shares is
lower than the fair value of the ordinary shares at the commitment date, which is the issuance date in
the Company’s case. When a beneficial conversion feature exists as of the commitment date, its
intrinsic value is bifurcated from the carrying value of the convertible preferred shares as a contribution
to additional paid-in capital. On the commitment date of Series A Preferred Shares and Series A-2
Preferred Shares, the most favorable conversion price used to measure the beneficial conversion feature
were $0.68 and $1.17, respectively. No beneficial conversion feature was recognized for the Series A
Preferred Shares and Series A-2 Preferred Shares as the fair value per ordinary share at the
commitment date were $0.28 and $0.47, respectively, which was less than the most favorable conversion
price. The Company determined the fair value of ordinary shares with the assistance of an independent
third party valuation firm.
The Company concluded that the Preferred Shares were not redeemable, and it was not probable
that the Preferred Shares would become redeemable because the likelihood of a Liquidation
Transaction was remote. Therefore, no adjustment was made to the initial carrying amount of the
Preferred Shares.
On February 8, 2016, in connection with the completion of the IPO, all of the outstanding
Preferred Shares were converted into 199,990,641 ordinary shares.
F-33
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
12. Related party balances and transactions
The Company had the following related party transactions for the periods presented:
Year Ended
December 31,
2016
2015
2014
$
$
100
Consulting service fee paid to shareholder(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
100
103
Advances due to senior executives(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
Repayment of advances by cash(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (1,285)
(61)
Repayment of advances by issuance of ordinary shares(2) . . . . . . . . . . . . . . . . . . — —
775
Interest accrued on advances due to senior executives(2) . . . . . . . . . . . . . . . . . . . — —
Interest on Convertible Promissory Note(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —
56
Repayment of indebtedness due to senior executives by issuance of preferred
$
100
shares(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (8,143)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100
100
(8,455)
(1) During the years ended December 31, 2015 and 2014, a shareholder provided consulting services
to the Company at a fee of $100, and $100, respectively. During the year ended December 31,
2016, the shareholder, who became a director, provided consulting services to the Company at a
fee of $100.
(2) During the years ended December 31, 2016, 2015 and 2014, senior executives advanced nil, nil and
$103, respectively, to the Company. The advances bore interest at a rate comparable to the interest
rate borne by the Company on its outstanding third party debt. On September 15, 2014, the
Company entered into a supplemental agreement with the senior executives to clarify its original
intention that the indebtedness and accrued interest could be converted into convertible preferred
shares based on the same conversion terms in the subordinated convertible promissory note
agreement the Company entered into with Merck Sharp. For the period from January 1, 2014
through October 7, 2014, the Company repaid advances amounting to $1,285 and $61 in cash and
by the issuance of 6,069,000 ordinary shares with fair value of $61, respectively.
(3) During the year ended December 31, 2012, the Company issued convertible promissory notes and
related warrants to senior executives for an aggregate principal amount of $650. The warrants were
initially recognized at fair value of $25, with subsequent changes in fair value recorded in losses.
For the years ended December 31, 2016, 2015 and 2014, the Company recognized a loss from the
increase in fair value of $51, $80 and $34, respectively. In January and February 2016, the warrants
issued in connection with the promissory notes were exercised for 82,241 Preferred Shares, which
were converted into 82,241 ordinary shares. The terms and conditions underlying the convertible
promissory notes and related warrants were the same as the convertible promissory notes, and
warrants issued to all the other holders.
(4) On October 7, 2014, all outstanding indebtedness due to senior executives was settled by the
issuance of the Company’s Series A Preferred Shares with fair value of $9,983. The advances
F-34
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
12. Related party balances and transactions (Continued)
outstanding (including interest expense), and the convertible promissory notes (including interest
expense) were converted into 13,629,629 and 1,160,426 of the Company’s Series A Preferred
Shares, respectively. The difference of $1,840 was recognized in losses as a result of the settlement
of indebtedness. Upon completion of the Company’s IPO, the outstanding Series A Preferred
Shares were converted into 14,790,055 ordinary shares. The warrants originally issued to the senior
executives in connection with the convertible promissory notes were exercised in January and
February 2016.
13. Research and development collaborative arrangements
The Company has developed and controls certain technology and proprietary materials related to
its proprietary BRAF inhibitor (‘‘BRAF’’ or ‘‘BGB-283’’) and poly (ADP-ribose) polymerase inhibitor
(‘‘PARP’’ or ‘‘BGB-290’’). Upon execution of the Collaborative Arrangements, the Company granted to
Merck KGaA, Darmstadt Germany the exclusive right to develop and commercialize the BRAF and
PARP inhibitors worldwide except the PRC (‘‘Ex-PRC’’). The Company has since retained the exclusive
right to develop and commercialize the BRAF and PARP inhibitors in the PRC, as further described
below.
In 2013, the Company entered into a license agreement with Merck KGaA, Darmstadt Germany
on the BRAF inhibitor, which was amended and restated in 2013 and 2015, in which it granted to
Merck KGaA, Darmstadt Germany an exclusive license to development and manufacture the BRAF
inhibitor in the ex-PRC Territory, and Merck KGaA Darmstadt Germany granted the Company an
exclusive license to develop, manufacture and commercialize the BRAF inhibitor in the PRC Territory.
Under the terms of the BRAF Collaborative Arrangements, the Company received an upfront
non-refundable payment and upfront Phase 1 research and development fees in 2013. Upon the dosing
of the 5th patient in 2014, the Company received an additional Phase 1 research and development fee.
Subsequent to the completion of the Phase 1 research and development phase, the Company was
eligible to receive product development payments based on the successful achievement of development
and regulatory goals, commercial event payments based on the successful achievement of
commercialization goals, and royalty payments based on a predetermined percentage of Merck KGaA,
Darmstadt Germany’s aggregate annual net sales of all products in the Ex-PRC territories for a period
not to exceed ten years from the date of the first commercial sale. In March 2017, the Company
regained the worldwide rights to the BRAF inhibitor after Merck KGaA, Darmstadt Germany informed
the Company that it will not exercise the Continuation Option, and thus, the ex-PRC BRAF
Agreement has terminated in its entirety, except for certain provisions that will survive the termination.
In addition, the Company is eligible for $14,000 of additional payments upon the successful
achievement of pre-specified milestones in the PRC territory. In consideration for the licenses Merck
KGaA, Darmstadt Germany grants to the Company, it will pay Merck KGaA, Darmstadt Germany a
high single-digit royalty on aggregate annual net sales of BGB-283 products in PRC for a period not to
exceed ten years from the date of the first commercial sale.
In 2013, the Company entered into a license agreement with Merck KGaA, Darmstadt Germany
on the PARP inhibitor, in which it granted to Merck KGaA, Darmstadt Germany an exclusive license
F-35
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
13. Research and development collaborative arrangements (Continued)
to development and manufacture the PARP inhibitor in the ex-PRC Territory, and Merck KGaA
Darmstadt Germany granted the Company an exclusive license to develop, manufacture and
commercialize the PARP inhibitor in the PRC Territory. Under the terms of the PARP Collaborative
Arrangements, the Company has received an upfront non-refundable payment and upfront Phase 1
research and development fees in 2013. Upon the dosing of the 5th patient in 2014, the Company
received an additional Phase 1 research and development fee. On October 1, 2015, the Company
entered into a purchase of rights agreement with Merck KGaA, Darmstadt Germany, pursuant to
which the Company purchased from Merck KGaA, Darmstadt Germany all its exclusive rights to
develop and commercialize the PARP inhibitors in the Ex-PRC territories for a consideration of
$10,000, and reduced the future milestone payments the Company is eligible to receive under the PRC
license agreement. Upon the execution of the purchase of rights agreement, Merck KGaA, Darmstadt
Germany has no further rights and obligations in the Ex-PRC territories under the PARP Collaborative
Agreements. In connection with such purchase of rights, the Company also provided Merck KGaA,
Darmstadt Germany with global access to the Company’s PARP supplies for Merck KGaA, Darmstadt
Germany’s combination clinical trials at any time during the period from October 1, 2015 until the first
regulatory approval received for the commercialization of the Company’s PARP inhibitor in certain
major countries.
The Company determined that the deliverables related to the collaboration with Merck KGaA,
Darmstadt Germany, including the licenses of exclusive rights granted to Merck KGaA, Darmstadt
Germany, as well as the Company’s performance obligations to provide Phase 1 research and
development services, would be accounted for as separate units of accounting. This determination was
made because each deliverable has stand-alone value to Merck KGaA, Darmstadt Germany and the
arrangement does not include a right of return for any deliverable. The Company recognized the
upfront non-refundable license fee upon the delivery of the license right and the reimbursement of the
Phase 1 research and development services on a straight-line basis over the performance period ranging
from one to three years from the execution date of the respective collaboration arrangements. The
Company has made an allocation of revenue recognized as collaboration revenue between the license
and the services. This allocation was based upon the relative selling price determined using the BESP
of each deliverable. Management utilized a discounted cash-flow model and considered a variety of
factors in determining the best estimate of selling price of each deliverable, including, but not limited
to: the rights that Merck KGaA, Darmstadt Germany was granted under the license, the early stage of
the product candidates, the relative risks of successful development of the product candidates, the size
of the potential market for the product candidates, competing products and the life-cycle of the
product candidates. There have been no significant changes in either the selling price or the method or
assumptions used to determine the selling price for a specific unit of accounting during any of the
periods presented.
The Company did not elect the milestone method of revenue recognition under ASC 605-28.
Therefore, the additional Phase 1 research and development fees related to the 5th patient dosing were
combined with the other consideration received in the arrangement, being the license and Phase 1
research and development reimbursements. Based on the above, the additional fee related to the
F-36
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
13. Research and development collaborative arrangements (Continued)
5th patient dosing was allocated based on the relative selling price percentages determined for the
separate units of account at the inception of the Collaborative Arrangements. Upon completion of the
5th patient dosing, the fee allocated to the license was recognized immediately and the fee allocated to
research and development reimbursements was recognized on a straight-line basis over the performance
period under the cumulative catch-up approach. The 5th patient dosing was completed, and the
Company received $5,000 for BRAF and $9,000 for PARP on May 14, 2014 and September 17, 2014,
respectively.
The repurchase consideration of $10,000 associated with the reacquisition of the rights to the
PARP inhibitor was charged to research and development expenses as incurred because the rights have
no alternative future use. As Merck KGaA, Darmstadt Germany has no further rights in the Ex-PRC
territories under the PARP Collaborative Agreements, the advances previously received from Merck
KGaA, Darmstadt Germany amounting to $3,018 were offset against the aforementioned repurchase
consideration.
Upon achievement of a 5th patient dosing development based target in the PRC territory under
the BRAF Collaborative Arrangements on November 12, 2015, the Company recognized $4,000 of
research and development revenue. No other development based targets have been achieved and none
of the products have been approved. Hence, no revenue has been recognized related to royalties or
commercial event based targets in any of the periods presented. In addition, no payments have been
made to the collaborator for any of the periods presented.
In addition to the collaboration with Merck KGaA, Darmstadt Germany, the Company also
provided research and development services to other customers in the PRC amounting to nil, nil and
$81, respectively, for the years ended December 31, 2016, 2015 and 2014.
The following table summarizes total collaboration revenue recognized for the years ended
December 31, 2016, 2015 and 2014:
Year Ended December 31,
License revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development revenue . . . . . . . . . . . . . . . . . .
2016
$
—
1,070
2015
2014
$
$
— 6,679
6,356
8,816
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,070
8,816
13,035
The Company recorded advances from customers related to the research and development
collaboration arrangement with Merck KGaA, Darmstadt Germany of approximately nil and $1,070 at
December 31, 2016 and 2015, respectively.
F-37
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
14. Loss per share
Loss per share was calculated as follows:
Year Ended December 31
2016
$
2015
$
2014
$
Numerator:
Net loss attributable to ordinary shareholders for computing
basic and diluted loss per ordinary share . . . . . . . . . . . . . .
(119,217)
(57,102)
(18,278)
Denominator:
Weighted average number of ordinary shares outstanding for
computing basic and diluted loss per ordinary share . . . . . .
403,619,446
110,597,263
99,857,623
Basic and diluted loss per share . . . . . . . . . . . . . . . . . . . . . .
(0.30)
(0.52)
(0.18)
For the years ended December 31, 2016, 2015 and 2014, the computation of basic loss per share
using the two-class method was not applicable as the Company was in a net loss position.
The effects of all convertible preferred shares, share options, restricted shares, warrants and option
to purchase ordinary or preferred shares were excluded from the calculation of diluted earnings per
share as their effect would have been anti-dilutive during the years ended December 31, 2016 and 2015.
The effects of all convertible preferred shares, share options, restricted shares, subordinated
convertible promissory note, convertible promissory notes, the secured guaranteed convertible
promissory notes, warrants and option to purchase ordinary or preferred shares were excluded from the
calculation of diluted earnings per share as their effect would have been anti-dilutive during the years
ended December 31, 2014.
15. Share-based compensation
Share options
2011 Share incentive plan
On April 15, 2011, the Board of Directors approved the 2011 Share Incentive Plan (the ‘‘2011
Plan’’), which is administered by the Board of Directors or any of its committees such as the Option
Committee. Under the Plan, the Board of Directors may grant options to its employees, directors and
consultants to purchase an aggregate of no more than 17,000,000 ordinary shares of the Company (the
‘‘Option Pool’’). On June 29, 2012, March 28, 2013, August 10, 2014, October 6, 2014 and April 17,
2015, the Board of Directors approved the increase in the Option Pool to 19,000,000 ordinary shares,
24,600,000 ordinary shares, 27,100,000 ordinary shares, 30,560,432 ordinary shares and 43,560,432
ordinary shares, respectively.
F-38
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
15. Share-based compensation (Continued)
2016 Share option and incentive plan
On January 14, 2016, in connection with the IPO, the board of directors and shareholders of the
Company approved the 2016 Share Option and Incentive Plan (the ‘‘2016 Plan’’), which became
effective on February 2, 2016. The Company initially reserved 65,029,595 ordinary shares for the
issuance of awards under the 2016 Plan plus any shares available under the 2011 Plan and not subject
to any outstanding options as of the effective date of the 2016 Plan. The 2016 Plan provides for an
annual increase in the shares available for issuance thereunder, to be added on the first day of each
fiscal year, beginning with the year ending December 31, 2017 and continuing until the expiration of
the 2016 Plan, equal to the lesser of (i) five percent (5%) of the outstanding shares of the Company’s
common stock on the last day of the immediately preceding fiscal year or (ii) such number of shares
determined by the board of director or the compensation committee. This number is subject to
adjustment in the event of a share split, share dividend or other change in the Company’s
capitalization. In addition, options cancelled or forfeited under the 2011 Plan will also be available for
issuance under the 2016 Plan.
During the years ended December 31, 2015 and 2014, the Company granted 15,663,600 and
3,766,000 options to employees, as well as 1,950,000 and 125,000 options to non-employees under the
2011 Plan, respectively.
In January 2016, the Company granted 1,685,152 options to employees and 732,000 options to
consultants, with an exercise price of $1.85 per ordinary share under the 2011 Plan.
On February 8, 2016, the Company granted 460,626 options with an exercise price of $2.43 per
ordinary share under the 2016 Plan.
On May 3, 2016, the Company granted 2,376,000 options with an exercise price of $2.05 per
ordinary share and 475,000 restricted ordinary shares under the 2016 Plan.
On October 12, 2016, the Company granted 20,000 and 10,400 options to employees under the
2016 Plan, with exercise price of $0.5 per share and $1.85 per share, respectively.
For the period from July 1, 2016 through December 31, 2016, except for the 30,400 options
granted on October 12, 2016 (mentioned above), the Company granted an aggregate of 30,764,961
options to employees, 2,872,080 options to consultants, and 600,000 restricted ordinary shares to
employees, under the 2016 Plan, with an exercise price per ordinary share equal to 1⁄13 of the closing
price of the Company’s ADS quoted on the NASDAQ Stock Exchange on the respective grant date.
During the years ended December 31, 2016, 2015 and 2014, the Company granted nil, 11,400,500
and nil options to employees and nil, 3,800,167 and nil options to non-employees outside of the
Company’s 2011 Plan and 2016 Plan.
Generally, options have a contractual term of 10 years and vest over a three- to five-year period,
with the first tranche vesting one calendar year after the grant date or the service relationship start
date and the remainder of the awards vesting on a monthly basis thereafter. Restricted shares vest over
F-39
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
15. Share-based compensation (Continued)
a four year period, with the first tranche vesting one calendar year after the grant date or the service
relationship start date and the remainder of the awards vesting on a yearly basis thereafter.
As of December 31, 2016, share-based awards to purchase 77,079,743 ordinary shares were
outstanding and share-based awards to purchase 34,712,601 ordinary shares were available for future
grant under the Plan.
Modification
On October 1, 2015 (‘‘Modification Date’’), a consultant surrendered 1,000,000 options in exchange
for a reduction of the vesting period (‘‘Modified Option Agreement’’). The fair value of the options
immediately after the modification was higher than that immediately before the modification. The total
incremental compensation cost for the modification of $81 was recognized on Modification Date.
Subsequently, on November 1, 2015 (‘‘Date of the Change in Employment Status’’), the consultant
became an employee of the Company. Under the terms of the Modified Option Agreement, the
individual retains the same vesting terms; hence, there is no modification to account for. The fair value
of the options to the consultant has been re-measured on the Date of the Change in Employment
Status and compensation charges have been accounted for prospectively over the remaining vesting
period.
Upon the completion of the Company’s IPO on February 8, 2016, a consultant became a member
of the Company’s board of directors. Under the terms of the original option agreement, the individual
retains the option grants on a change in status; hence, there is no modification to account for. The fair
value of the options granted by the Company to the consultant has been re-measured as of February 8,
2016 and compensation charges have been accounted for prospectively over the remaining vesting
period.
There were no other modifications to the Company’s share option arrangements for the periods
presented.
F-40
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
15. Share-based compensation (Continued)
Employee share option
The following table summarizes the Company’s employee share option activities under the share
option plan:
Weighted
Average
Exercise
Price
Weighted
Average
Grant
Date Fair
Value
Weighted
Average
Remaining
Contractual
Term
Number of
Options
Aggregate
Intrinsic Value
Outstanding at December 31, 2015 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . .
Transferred from non-employee* . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . .
36,915,321
35,317,139
5,188,258
(608,950)
(5,279,350)
Outstanding at December 31, 2016 . . . . . . .
71,532,418
Exercisable as of December 31, 2016 . . . . .
16,678,891
$
0.35
2.32
—
0.10
0.92
1.29
0.26
Vested or expected to vest at December 31,
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . .
65,119,718
1.26
$
0.20
1.60
—
0.03
0.43
0.88
—
—
Years
8.71
—
—
—
—
8.63
7.11
$
—
—
—
1,350
—
—
34,577
8.58
73,297
* Represents share options of a consultant who became a member of the Company’s board of
directors on February 8, 2016, and thus this individual’s options are treated as employee share
options.
The aggregate intrinsic value in the table above represents the difference between the fair value of
Company’s ordinary shares as at the balance sheet date and the exercise price. Total intrinsic value of
options exercised for the years ended December 31, 2016, 2015 and 2014 was $1,350, $12,496 and $737,
respectively.
The total weighted average grant-date fair value of the equity awards granted during the years
ended December 31, 2016, 2015 and 2014 were $1.60, $0.28 and $0.01 per option, respectively. The
total fair value of the equity awards vested during the years ended December 31, 2016, 2015 and 2014
were $2,821, $72 and $87, respectively.
As of December 31, 2016, there were $54,939 of total unrecognized employee share-based
compensation expenses, net of estimated forfeitures, related to unvested share-based awards which are
expected to be recognized over a weighted-average period of 3.45 years. Total unrecognized
compensation cost may be adjusted for future changes in estimated forfeitures.
F-41
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
15. Share-based compensation (Continued)
Non-employee share option
The following table summarizes the Company’s non-employee share option activities under the
share option plan:
Weighted
Average
Exercise
Price
Weighted
Average
Grant
Date Fair
Value
Weighted
Average
Remaining
Contractual
Term
Number of
Options
Aggregate
Intrinsic Value
Outstanding at December 31, 2015 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . .
Transferred to employee* . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . .
7,194,669
3,604,080
(5,188,258)
(1,166)
(62,000)
Outstanding at December 31, 2016 . . . . . . .
5,547,325
Exercisable as of December 31, 2016 . . . . .
1,267,562
$
0.37
2.29
—
0.01
0.54
1.52
0.17
Vested or expected to vest at December 31,
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,547,325
1.52
$
0.08
1.63
—
0.01
0.37
1.06
—
—
Years
8.63
—
—
—
—
8.31
5.18
8.31
$
—
—
—
3
—
—
2,742
4,543
* Represents the share options of a consultant who became a member of the Company’s board of
directors on February 8, 2016, and thus this individual’s options are treated as employee share
options.
The aggregate intrinsic value in the table above represents the difference between the fair value of
Company’s ordinary share as at the balance sheet date and the exercise price. Total intrinsic value of
options exercised for the years ended December 31, 2016, 2015 and 2014 was $3, nil and $278,
respectively.
The total weighted average grant-date fair value of the equity awards granted during the years
ended December 31, 2016, 2015 and 2014 were $1.63, $0.35 and $0.01 per option, respectively. The
total fair value of the equity awards vested during the years ended December 31, 2016, 2015 and 2014
were $52, $578 and $251, respectively.
As of December 31, 2016, there was $6,262 of total unrecognized non-employee share-based
compensation expenses, net of estimated forfeitures, related to unvested share- based awards which are
expected to be recognized over a weighted-average period of 3.25 years. Total unrecognized
compensation cost may be adjusted for future changes in estimated forfeitures.
F-42
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
15. Share-based compensation (Continued)
Fair value of options
The binomial option-pricing model was applied in determining the estimated fair value of the
options granted. The model requires the input of highly subjective assumptions including the estimated
expected stock price volatility and, the exercise multiple for which employees are likely to exercise
share options. For expected volatilities, the trading history and observation period of the Company’s
own share price movement has not been long enough to match the life of the share option. Therefore,
the Company has made reference to the historical price volatilities of ordinary shares of several
comparable companies in the same industry as the Company. For the exercise multiple, the Company
was not able to develop an exercise pattern as reference, thus the exercise multiple is based on
management’s estimation, which the Company believes is representative of the future exercise pattern
of the options. The risk-free rate for periods within the contractual life of the option is based on the
U.S. Treasury Bills yield curve in effect at the time of grant. Prior to the completion of the Company’s
initial public offering, the estimated fair value of the ordinary shares, at the option grant dates, was
determined with assistance from an independent third party valuation firm, and the Company’s
management was ultimately responsible for the determination of the estimated fair value of its ordinary
shares. With the completion of the Company’s initial public offering, a public trading market for the
ADSs has been established, it is no longer necessary for the Company to estimate the fair value of
ordinary shares at the option grant dates.
The following table presents the assumptions used to estimate the fair values of the share options
granted in the years presented:
Year Ended December 31,
2016
2015
2014
2.2 ~ 2.8
1.85 ~ 2.84
0.01 ~ 0.30
0.33 ~ 1.62
1.5% ~ 2.6% 1.5% ~ 2.4% 1.9% ~ 2.6%
2.2 ~ 2.8
98% ~ 102% 94% ~ 106% 99% ~ 104%
0%
10 years
0%
10 years
0%
10 years
2.2 ~ 2.8
Fair value of ordinary share . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . .
Expected exercise multiple . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . .
Contractual life . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-43
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
15. Share-based compensation (Continued)
Restricted stock
The following table summarizes the Company’s employee restricted stock activities:
Numbers
of Shares
Weighted Average
Grant Date Fair Value
Outstanding at December 31, 2015 . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44,445
1,075,000
(44,445)
—
Outstanding at December 31, 2016 . . . . . . . . . . . . .
1,075,000
Expected to vest at December 31, 2016 . . . . . . . . . .
1,075,000
$
0.05
2.16
0.05
—
2.16
2.16
The Company had no non-employee restricted stock activities during the year ended December 31,
2016.
As of December 31, 2016, there was $2,045 of total unrecognized share-based compensation
expenses, net of estimated forfeitures, related to unvested restricted shares.
The following table summarizes total compensation cost recognized for the years ended
December 31, 2016, 2015 and 2014:
Research and development . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2016
$
8,076
2,549
2015
$
9,593
618
2014
$
4,030
2,607
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,625
10,211
6,637
F-44
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
16. Accumulated other comprehensive income
The movement of accumulated other comprehensive income is as follows:
Balance as of December 31, 2014 . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income before reclassifications . . . . . . .
Amounts reclassified from accumulated other comprehensive
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net-current period other comprehensive income . . . . . . . . . .
Balance as of December 31, 2015 . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income before reclassifications . . . . . . .
Amounts reclassified from accumulated other comprehensive
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net-current period other comprehensive income . . . . . . . . . .
Balance as of December 31, 2016 . . . . . . . . . . . . . . . . . . . . .
17. Shareholders’ equity
Conversion of Preferred Shares and Senior Promissory Note
Foreign Currency
Translation
Adjustments
Unrealized
Losses on
available-for-sale
securities
$
147
(749)
—
(749)
(602)
(245)
—
(245)
(847)
$
(47)
(1,474)
314
(1,160)
(1,207)
(307)
1,415
1,108
(99)
Total
$
100
(2,223)
314
(1,909)
(1,809)
(552)
1,415
863
(946)
Upon completion of the IPO, all outstanding Preferred Shares were converted into
199,990,641 ordinary shares and the related carrying value of $176,084 was reclassified from mezzanine
equity to shareholders’ equity. The outstanding unpaid principal and interest of the Senior Promissory
Note were converted into 7,942,314 ordinary shares, computed at the initial public offering price of
$1.85 per ordinary share and the related carrying value of $14,693 was reclassified from current liability
to shareholders’ equity.
Exercise of warrants and option
In January 2016 and February 2016, certain warrants in connection with the convertible promissory
notes and short term notes were exercised to purchase 621,637 Preferred Shares, which were converted
into 621,637 ordinary shares. On the IPO closing date, (i) the Company’s landlord exercised its option
to purchase 1,451,586 ordinary shares of the Company; (ii) Baker Bros. exercised their warrants to
purchase 2,592,593 ordinary shares at an exercise price of $0.68 per share; and (iii) a senior executive
exercised warrants to purchase 57,777 Preferred Shares at an exercise price of $0.68 per share, which
were converted into 57,777 ordinary shares. Upon the exercise of the aforementioned option and
warrants, except for Baker Bros.’ warrants, which were initially classified in equity, the related carrying
value totaling $3,687 was reclassified from current liabilities to shareholders’ equity.
F-45
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
18. Restricted net assets
The Company’s ability to pay dividends may depend on the Company receiving distributions of
funds from its PRC subsidiaries. Relevant PRC statutory laws and regulations permit payments of
dividends by the Company’s PRC subsidiaries only out of its retained earnings, if any, as determined in
accordance with PRC accounting standards and regulations. The results of operations reflected in the
consolidated financial statements prepared in accordance with GAAP differ from those reflected in the
statutory financial statements of the Company’s PRC subsidiaries.
In accordance with the company law of the PRC, a domestic enterprise is required to provide
statutory reserves of at least 10% of its annual after-tax profit until such reserve has reached 50% of its
respective registered capital based on the enterprise’s PRC statutory accounts. A domestic enterprise is
also required to provide discretionary surplus reserve, at the discretion of the Board of Directors, from
the profits determined in accordance with the enterprise’s PRC statutory accounts. The aforementioned
reserves can only be used for specific purposes and are not distributable as cash dividends. The
Company’s PRC subsidiaries were established as domestic invested enterprises and therefore were
subject to the above mentioned restrictions on distributable profits.
During the years ended December 31, 2016, 2015 and 2014, no appropriation to statutory reserves
was made because the PRC subsidiaries had substantial losses during such periods.
As a result of these PRC laws and regulations including the requirement to make annual
appropriations of at least 10% of after-tax income and set aside as general reserve fund prior to
payment of dividends, the Company’s PRC subsidiaries are restricted in their ability to transfer a
portion of their net assets to the Company.
Foreign exchange and other regulation in the PRC may further restrict the Company’s PRC
subsidiaries from transferring funds to the Company in the form of dividends, loans and advances. As
of December 31, 2016 and 2015, amounts restricted are the net assets of the Company’s PRC
subsidiaries, which amounted to $9,955 and $3,383, respectively.
19. Employee defined contribution plan
Full time employees of the Company in the PRC participate in a government mandated defined
contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and
other welfare benefits are provided to employees. Chinese labor regulations require that the Company’s
PRC subsidiaries make contributions to the government for these benefits based on certain percentages
of the employees’ salaries. The Company has no legal obligation for the benefits beyond the
contributions made. The total amounts for such employee benefits, which were expensed as incurred,
were $2,148, $1,443 and $1,030 for the years ended December 31, 2016, 2015 and 2014, respectively.
During the year ended December 31, 2016, the Company implemented a defined contribution 401(k)
savings plan (the ‘‘401(k) Plan’’) for U.S. employees. The 401(k) Plan covers all U.S. employees, and
allows participants to defer a portion of their annual compensation on a pretax basis. In addition, the
Company implemented a matching contribution to the 401(k) Plan, matching 50% of an employee’s
contribution up to a maximum of 3% of the participant’s compensation. Company contributions to the
401(k) plan totaled $0.1 million in the year ended December 31, 2016. The Company did not have a
F-46
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
19. Employee defined contribution plan (Continued)
401(k) matching contribution in 2015 or 2014. Employee benefits for the remaining subsidiaries were
immaterial.
20. Commitments and contingencies
Operating lease commitments
The Company leases office and manufacturing facilities under non-cancelable operating leases
expiring on different dates in the United States and China. Payments under operating leases are
expensed on a straight-line basis over the periods of their respective leases, and the terms of the leases
do not contain rent escalation, contingent rent, renewal, or purchase options.
There are no restrictions placed upon the Company by entering into these leases. Total expenses
under these operating leases were $1,974, $1,136 and $940 for the years ended December 31, 2016,
2015 and 2014, respectively.
Future minimum payments under non-cancelable operating leases consist of the following as of
December 31, 2016:
Year ending December 31:
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,931
2,723
1,804
1,600
457
9,515
On April 10, 2016, the Company entered into a Lease Agreement with Suzhou Industrial Park
Biotech Development Co., Ltd. for an approximately 11,000 square meter facility for research and
manufacturing use in Suzhou, China. The lease commenced on April 18, 2016 and will expire on
July 17, 2021. The initial rent, the payment of which commenced on July 18, 2016, is RMB 281 per
month, plus service charges of RMB 65 per month and other fees for use of the premises, including
water costs and electricity. The service charges will remain unchanged for the first three years and the
increasing range thereafter will not exceed 5% of the previous yearly service charges. Suzhou Industrial
Park Administrative Committee will pay full monthly rent for the first three years and 50% of the
monthly rent for the following two years.
Capital commitments
The Company had capital commitments amounting to $4,527 for the acquisition of property, plant
and equipment as of December 31, 2016, which was mainly for building BeiGene Suzhou’s
manufacturing facility in Suzhou, China.
F-47
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
21. Selected quarterly financial data (unaudited)
The following table summarizes the unaudited statements of operations for each quarter of 2016
and 2015 (in thousands except share and per share amounts). The unaudited quarterly information has
been prepared on a basis consistent with the audited financial statements and includes all adjustments
that the Company considers necessary for a fair presentation of the information shown. The operating
results for any fiscal quarter are not necessarily indicative of the operating results for a full fiscal year
or for any future period and there can be no assurances that any trend reflected in such results will
continue in the future.
2016
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to ordinary shareholders . . . . . . . .
Basic and diluted net loss per share(1) . . . . . . . . . . . . .
Quarter Ended
March 31
June 30
September 30
December 31
677
(20,334)
(22,001)
(22,001)
(0.07)
393
(24,628)
(24,124)
(24,124)
(0.06)
—
(34,828)
(35,494)
(35,494)
(0.08)
—
(37,270)
(37,598)
(37,598)
(0.08)
Quarter Ended
March 31
June 30
September 30
December 31
2015
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to ordinary shareholders . . . . . . . . .
Basic and diluted net loss per share(1) . . . . . . . . . . . .
1,379
(9,812)
(10,212)
(10,212)
(0.09)
1,380
(6,565)
(5,641)
(5,641)
(0.05)
1,380
(13,992)
(13,999)
(13,999)
(0.13)
4,677
(26,376)
(27,250)
(27,250)
(0.23)
(1) Per common share amounts for the quarters and full years have been calculated separately.
Accordingly, the sum of quarterly amounts may not equal the annual amount because of
differences in the weighted average common shares outstanding during each period, principally due
to the effect of share issuances by the Company during the year.
22. Subsequent events
Manufacturing Facility in Guangzhou
On March 7, 2017, BeiGene (Hong Kong) Co., Limited (‘‘BeiGene HK’’), a wholly owned
subsidiary of the Company, and Guangzhou GET Technology Development Co., Ltd. (‘‘GET’’), entered
into a definitive agreement to establish a commercial scale biologics manufacturing facility in
Guangzhou, Guangdong Province, PRC. The joint venture, (the ‘‘JV Company’’), BeiGene
Biologics Co., Ltd., will also provide funding for research and development of biologic drug candidates
in the PRC.
F-48
BEIGENE, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Amounts in thousands of U.S. Dollar (‘‘$’’) and Renminbi (‘‘RMB’’),
except for number of shares and per share data)
22. Subsequent events (Continued)
Under the terms of the Equity Joint Venture Contract, BeiGene HK will make an initial cash
capital contribution of RMB200,000 and a subsequent contribution of one or more biologics assets in
exchange for a 95% equity interest in the JV Company. GET will provide a total of RMB1,000,000
cash to the JV Company including a 5% equity interest in the JV Company and a shareholder loan
(the ‘‘Shareholder Loan’’) to the JV Company. The term of the Shareholder Loan is 72 calendar
months, commencing from the actual draw down date indicated in the receipt of the Shareholder Loan,
which has not yet occurred. Interest accrues at 8% per annum. No accrued interest is due and payable
prior to the repayment of the principal or the debt-to-equity conversion. The Shareholder Loan may be
prepaid or converted in full or partially into a mid-single digit percentage equity interest in the
JV Company prior to its maturity date pursuant to the terms of the JV Agreement upon the
achievement of certain regulatory milestones. The Shareholder Loan can only be used for the
JV Company, including the construction and operation of the biologics manufacturing facility and
research and development and clinical trials to be carried out by the JV Company. If the JV Company
does not use the Shareholder Loan proceeds for the specified purposes, GET may be entitled to
certain liquidated damages. In the event of an early termination of the JV Agreement, the Shareholder
Loan will become due and payable at the time of termination of the JV Agreement. Under the terms
of the Capital Increase Agreement, BeiGene HK will contribute RMB200,000 as cash capital
contributions over a three-year period commencing March 31, 2017. GET will contribute its full cash
contribution, including the Shareholder Loan, not later than March 31, 2017.
The JV Company will establish a biologics manufacturing facility in Guangzhou (the ‘‘Factory’’)
through a wholly-owned subsidiary (the ‘‘Factory Sub’’) to manufacture biologics, with a registered
capital of RMB1,000,000. The Factory Sub expects to acquire at least 100,000 square meters of land for
the Factory in the Sino-Singapore Guangzhou Knowledge City and borrow RMB1,000,000 in the form
of a commercial bank loan for the purpose of the construction and operation of the Factory and
expects to receive certain interest subsidies for commercial loan interest payment(s), subject to
limitation.
Collaboration with Merck KGaA, Darmstadt Germany
In March 2017, the Company regained the worldwide rights to BGB-283 after Merck KGaA,
Darmstadt Germany informed the Company it will not exercise the Continuation Option in its former
exclusive license to commercialize and manufacture BGB-283 outside of China.
F-49
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.
SIGNATURES
Date: March 22, 2017
BEIGENE, LTD.
By:
/s/ JOHN V. OYLER
John V. Oyler
Chief Executive Officer and Chairman (Principal
Executive Officer)
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and appoints John V.
Oyler and Howard Liang, 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, this Annual Report on
Form 10-K has been signed by the following persons in the capacities indicated below and on the dates
indicated:
Signature
Title
Date
/s/ JOHN V. OYLER
John V. Oyler
/s/ HOWARD LIANG
Howard Liang
/s/ TIMOTHY CHEN
Timothy Chen
/s/ DONALD W. GLAZER
Donald W. Glazer
Chief Executive Officer and Chairman
(Principal Executive Officer)
March 22, 2017
Chief Financial Officer and Chief
Strategy Officer (Principal Financial and March 22, 2017
Accounting Officer)
Director
Director
March 22, 2017
March 22, 2017
Signature
Title
Date
/s/ MICHAEL GOLLER
Michael Goller
/s/ RANJEEV KRISHANA
Ranjeev Krishana
/s/ THOMAS MALLEY
Thomas Malley
/s/ KE TANG
Ke Tang
/s/ XIAODONG WANG
Xiaodong Wang
/s/ QINGQING YI
Qingqing Yi
Director
Director
Director
Director
Director
Director
March 22, 2017
March 22, 2017
March 22, 2017
March 22, 2017
March 22, 2017
March 22, 2017
Exhibit
No.
3.1
Exhibit Index
Description
Fourth Amended and Restated Memorandum and Articles of Incorporation of the Registrant,
as currently in effect (incorporated by reference to Exhibit 3.1 of the Registrant’s Current
Report on Form 8-K (File No. 001-37686) filed on February 11, 2016)
4.1 Deposit Agreement dated February 5, 2016 by and among the Company, the Depositary and
holders of the American Depositary Receipts (incorporated by reference to Exhibit 4.1 of the
Registrant’s Current Report on Form 8-K (File No. 001-37686) filed on February 11, 2016)
4.2 Amendment No. 1 to Deposit Agreement, dated April 11, 2016, by and among the Registrant,
Citibank, N.A. and holders of the American Depositary Receipts (incorporated by reference to
Exhibit 4.1 of the Registrant’s Current Report on Form 8-K (File No. 001-37686) filed on
April 11, 2016)
4.3
4.4
4.5
Form of American Depositary Receipt (included in Exhibit 4.1)
Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.3 of the
Registrant’s Registration Statement on Form S-1 (File No. 333-207459) filed on December 9,
2015)
Second Amended and Restated Investors’ Rights Agreement, dated as of April 21, 2015, by
and among the Registrant and certain shareholders named therein (incorporated by reference
to Exhibit 4.4 of the Registrant’s Registration Statement on Form S-1 (File No. 333-207459)
filed on October 16, 2015)
4.6 Amendment No. 1 to Second Amended and Restated Investors’ Rights Agreement, dated
January 26, 2016, by and among the Registrant and certain shareholders named therein
(incorporated by reference to Exhibit 10.21 of the Registrant’s Registration Statement on
Form S-1 (File No. 333-207459) filed on January 27, 2016)
4.7
Letter Agreement, dated as of July 11, 2016, between the Registrant and Citibank, N.A.
(incorporated by reference to Exhibit 4.7 to the Registrant’s Quarterly Report on Form 10-Q
(File No. 001-37686) filed on August 10, 2016)
4.8 Registration Rights Agreement, dated as of November 16, 2016, by and among BeiGene, Ltd.
and the investors named therein (incorporated by reference to Exhibit 4.1 to the Registrant’s
Current Report on Form 8-K (File No. 001-37686) filed on November 17, 2016)
10.1† BeiGene, Ltd. 2011 Option Plan, as amended and form of option agreements thereunder
(incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on
Form S-1 (File No. 333-207459) filed on October 16, 2015)
10.2† 2016 Share Option and Incentive Plan and forms of agreements thereunder (incorporated by
reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-1 (File
No. 333-207459) filed on January 19, 2016)
10.3† Form of Indemnification Agreement, entered into between the Registrant and its directors and
officers (incorporated by reference to Exhibit 10.3 of the Registrant’s Registration Statement
on Form S-1 (File No. 333-207459) filed on January 19, 2016)
10.4
Lease dated February 1, 2011 by and between BeiGene (Beijing) Co., Ltd. and Beijing
Xintaike Medical Device Co., Ltd. (English translation) (incorporated by reference to
Exhibit 10.4 of the Registrant’s Registration Statement on Form S-1 (File No. 333-207459)
filed on October 16, 2015)
Exhibit
No.
Description
10.5# Amended and Restated License Agreement for BRAF in Ex-PRC, dated December 10, 2013,
by and between the Registrant and Merck KGaA, Darmstadt Germany (incorporated by
reference to Exhibit 10.5 of the Registrant’s Registration Statement on Form S-1 (File
No. 333-207459) filed on October 16, 2015)
10.6# Amended and Restated License Agreement for BRAF in PRC, dated December 10, 2013, by
and between the Registrant and Merck KGaA, Darmstadt Germany (incorporated by reference
to Exhibit 10.6 of the Registrant’s Registration Statement on Form S-1 (File No. 333-207459)
filed on October 16, 2015)
10.7# License Agreement for PARP in Ex-PRC, dated October 28, 2013, by and between the
Registrant and Merck KGaA, Darmstadt Germany (incorporated by reference to Exhibit 10.7
of the Registrant’s Registration Statement on Form S-1 (File No. 333-207459) filed on
October 16, 2015)
10.8# License Agreement for PARP in PRC, dated October 28, 2013, by and between the Registrant
and Merck KGaA, Darmstadt Germany (incorporated by reference to Exhibit 10.8 of the
Registrant’s Registration Statement on Form S-1 (File No. 333-207459) filed on October 16,
2015)
10.9# Purchase of Rights Agreement, dated October 1, 2015, by and between the Registrant and
Merck KGaA, Darmstadt Germany (incorporated by reference to Exhibit 10.14 of the
Registrant’s Registration Statement on Form S-1 (File No. 333-207459) filed on October 16,
2015)
10.10# Option Agreement, dated October 1, 2015, by and between the Registrant and Merck KGaA,
Darmstadt Germany (incorporated by reference to Exhibit 10.15 of the Registrant’s
Registration Statement on Form S-1 (File No. 333-207459) filed on October 16, 2015)
10.11# Amendment Agreement, dated October 1, 2015, by and between the Registrant and Merck
KGaA, Darmstadt Germany (incorporated by reference to Exhibit 10.16 of the Registrant’s
Registration Statement on Form S-1 (File No. 333-207459) filed on October 16, 2015)
10.12
Second Amendment Agreement, dated December 3, 2015, by and between the Registrant and
Merck KGaA, Darmstadt Germany (incorporated by reference to Exhibit 10.18 of the
Registrant’s Registration Statement on Form S-1 (File No. 333-207459) filed on December 9,
2015)
10.13† Employment Agreement, dated July 13, 2015, by and between BeiGene USA, Inc. and Howard
Liang (incorporated by reference to Exhibit 10.9 of the Registrant’s Registration Statement on
Form S-1 (File No. 333-207459) filed on October 16, 2015)
10.14† Employment Agreement, dated October 5, 2015, by and between BeiGene USA, Inc. and
RuiRong Yuan (incorporated by reference to Exhibit 10.17 of the Registrant’s Registration
Statement on Form S-1 (File No. 333-207459) filed on December 9, 2015)
10.15† Employment Contract, dated July 7, 2014, by and between BeiGene (Beijing) Co., Ltd. and
Jason Yang (incorporated by reference to Exhibit 10.10 of the Registrant’s Registration
Statement on Form S-1 (File No. 333-207459) filed on October 16, 2015)
10.16† Employment Contract, dated July 1, 2014, by and between BeiGene (Beijing) Co., Ltd. and
Wendy Yan (incorporated by reference to Exhibit 10.11 of the Registrant’s Registration
Statement on Form S-1 (File No. 333-207459) filed on October 16, 2015)
10.17† Senior Executive Cash Incentive Bonus Plan (incorporated by reference to Exhibit 10.19 of the
Registrant’s Registration Statement on Form S-1 (File No. 333-207459) filed on January 19,
2016)
Exhibit
No.
10.18
Senior Promissory Note, dated February 2, 2011, by the Registrant in favor of Essex
Chemie AG (incorporated by reference to Exhibit 10.12 of the Registrant’s Registration
Statement on Form S-1 (File No. 333-207459) filed on October 16, 2015)
Description
10.19 Note Amendment and Exchange Agreement, dated January 26, 2016, by and between the
Registrant and Merck Sharp & Dohme Research GmbH (incorporated by reference to
Exhibit 10.20 of the Registrant’s Registration Statement on Form S-1 (File No. 333-207459)
filed on January 27, 2016)
10.20# Entrusted Loan Contract, dated September 2, 2015, by and between BeiGene
(Suzhou) Co., Ltd.; Suzhou Industrial Park Biotech Development Co., Ltd.; and China
Construction Bank (English translation) (incorporated by reference to Exhibit 10.13 of the
Registrant’s Registration Statement on Form S-1 (File No. 333-207459) filed on October 16,
2015)
10.21
Lease Agreement, dated as of April 10, 2016, between BeiGene (Suzhou) Co., Ltd. and
Suzhou Industrial Park Biotech Development Co., Ltd (English Translation) (incorporated by
reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q (File
No. 001-37686) filed on May 12, 2016)
10.22† Separation Agreement and Release, dated as of April 28, 2016, by and between BeiGene
USA, Inc. and RuiRong Yuan (incorporated by reference to Exhibit 10.6 to the Registrant’s
Quarterly Report on Form 10-Q (File No. 001-37686) filed on May 12, 2016)
10.23† Employment Agreement, dated as of April 28, 2016, by and between BeiGene USA, Inc. and
Ji Li (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on
Form 10-Q (File No. 001-37686) filed on August 10, 2016)
10.24# Supplemental Agreement to the Entrusted Loan Contract, dated as of June 11, 2016, by and
between BeiGene (Suzhou) Co., Ltd.; Suzhou Industrial Park Biotech Development Co., Ltd.;
and China Construction Bank Suzhou Industrial Park Branch (incorporated by reference to
Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37686) filed on
August 10, 2016)
10.25† Employment Agreement, dated as of August 8, 2016, by and between BeiGene USA, Inc. and
Amy Peterson (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report
on Form 10-Q (File No. 001-37686) filed on November 10, 2016)
10.26† Employment Agreement, dated as of August 19, 2016, by and between BeiGene USA, Inc. and
Dr. Jane Huang (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly
Report on Form 10-Q (File No. 001-37686) filed on November 10, 2016)
10.27† Independent Director Compensation Policy (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K (File No. 001-37686) filed on November 17, 2016)
21.1
List of Subsidiaries of the Registrant
23.1 Consent of Ernst & Young Hua Ming LLP
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
31.2 Certification of Principle Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
32.1* Certification of Principal Executive Officer and Principle Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit
No.
101
Description
The following financial statements from the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2016, formatted in XBRL: (i) Consolidated Balance Sheets
(ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive
Loss, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of
Shareholders’ Equity (Deficit), and (vi) Notes to the Consolidated Financial Statements
†
Indicates a management contract or any compensatory plan, contract or arrangement.
# Confidential treatment has been granted by the U.S. Securities and Exchange Commission as to
certain portions of this exhibit omitted and filed separately.
*
Furnished herewith.
(This page has been left blank intentionally.)
Notice of 2017 Annual General Meeting of Shareholders
24AUG201511042639
and
Proxy Statement
BEIGENE, LTD.
c/o Mourant Ozannes Corporate Services (Cayman) Limited
94 Solaris Avenue, Camana Bay
Grand Cayman KY1-1108
Cayman Islands
NOTICE OF 2017 ANNUAL GENERAL MEETING OF SHAREHOLDERS
Notice is hereby given that the 2017 Annual General Meeting of Shareholders of BeiGene, Ltd.
will be held on June 1, 2017, at 2:30 p.m. local time, at the offices of Ernst & Young at EY Tower,
100 Adelaide St. W, Toronto, Canada. The purpose of the meeting is to consider and pass the
following:
1.
2.
3.
4.
ordinary resolution: to re-elect Timothy Chen to serve as a Class I director until the 2020
annual general meeting of shareholders and until his successor is duly elected and qualified,
subject to his earlier resignation or removal;
ordinary resolution: to re-elect John V. Oyler to serve as a Class I director until the 2020
annual general meeting of shareholders and until his successor is duly elected and qualified,
subject to his earlier resignation or removal;
ordinary resolution: to ratify the appointment of Ernst & Young Hua Ming LLP as the
Company’s independent registered public accounting firm for the year ending December 31,
2017; and
to transact such other business as may properly come before the meeting and any
adjournment or postponement.
The proposals for the election of directors relate solely to the election of Class I directors
nominated by the Board of Directors.
Our Board of Directors has fixed the close of business on April 20, 2017 as the record date.
Holders of record of our ordinary shares as of the close of business on the record date are entitled to
attend and vote at the meeting and any adjournment or postponement. Holders of American
Depositary Shares, or ADSs, each representing 13 of our ordinary shares, of record as of the record
date who wish to exercise their voting rights for the underlying ordinary shares must act through
Citibank, N.A., the depositary of the ADSs.
The accompanying Proxy Statement more fully describes the details of the business to be
conducted at the Annual Meeting. After careful consideration, our Board of Directors has approved
the proposals and recommends that you vote FOR each director nominee and FOR each other
proposal described in the Proxy Statement.
Your vote is important. As promptly as possible, you are urged to complete, sign, date and return the
accompanying proxy form to Mourant Ozannes Corporate Services (Cayman) Limited (for holders of our
ordinary shares) before the time of the Annual Meeting or your voting instructions to Citibank, N.A. (for
holders of the ADSs) no later than 10:00 a.m., New York Time, on May 23, 2017 if you wish to exercise your
voting rights.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE SHAREHOLDER MEETING TO BE HELD ON JUNE 1, 2017
The accompanying Proxy Statement and Annual Report on Form 10-K for the year ended
December 31, 2016 will also be available to the public at http://ir.beigene.com under ‘‘Annual Reports.’’
By Order of the Board of Directors,
/s/ JOHN. V. OYLER
John V. Oyler
Chairman and Chief Executive Officer
April 26, 2017
BEIGENE, LTD.
PROXY STATEMENT FOR
2017 ANNUAL GENERAL MEETING OF SHAREHOLDERS
TABLE OF CONTENTS
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OVERVIEW OF PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSALS 1 AND 2 ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL 3 RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS . . . . . .
TRANSACTION OF OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . .
EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS . . . . . . . . . . . . . . . . .
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION . . . . . . . . .
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE . . . . . . . . . . . . . . .
CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DIRECTOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DELIVERY OF PROXY MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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i
BEIGENE, LTD.
PROXY STATEMENT
FOR THE 2017 ANNUAL GENERAL MEETING OF SHAREHOLDERS
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of
Directors of BeiGene, Ltd. (the ‘‘Board of Directors’’) for use at its 2017 Annual General Meeting of
Shareholders (the ‘‘Annual Meeting’’) to be held on June 1, 2017 at 2:30 p.m. local time at the offices
of Ernst & Young at EY Tower, 100 Adelaide St. W, Toronto Canada, for the purpose of considering
and, if thought fit, passing the resolutions specified in the Notice of Annual General Meeting. This
Proxy Statement is being mailed to shareholders on or about April 27, 2017.
For a proxy to be effective, it must be properly executed and dated and lodged (together with a
duly signed and dated power of attorney or other authority (if any) under which it is executed (or a
notarially certified copy of such power of attorney or other authority)) at the offices of our registrar,
Mourant Ozannes Corporate Services (Cayman) Limited (the ‘‘Registrar’’) so as to be received before
the time of the Annual Meeting. Each proxy properly tendered will, unless otherwise directed by the
shareholder, be voted FOR the director nominees described in this Proxy Statement, FOR the
appointment of Ernst & Young Hua Ming LLP as the Company’s independent registered public
accounting firm for the year ending December 31, 2017, and at the discretion of the proxy holder(s)
with regard to all other matters that may properly come before the meeting.
We will pay all of the costs of soliciting proxies. Our directors, officers and employees may also
solicit proxies; however, we will not pay them additional compensation for any of these services. Proxies
may be solicited by telephone, facsimile, personal solicitation or otherwise.
In this Proxy Statement, the terms ‘‘BeiGene,’’ ‘‘we,’’ ‘‘us,’’ and ‘‘our’’ refer to BeiGene, Ltd and
its subsidiaries. The mailing address of our principal executive offices is c/o Mourant Ozannes
Corporate Services (Cayman) Limited, 94 Solaris Avenue, Camana Bay, Grand Cayman KY1-1108,
Cayman Islands.
EXPLANATORY NOTE
We are an ‘‘emerging growth company’’ under applicable United States federal securities laws and
therefore are permitted to take advantage of reduced public company reporting requirements. As an
emerging growth company, we provide in this Proxy Statement the disclosure permitted under the
Jumpstart Our Business Startups Act of 2012, including the compensation disclosures required of a
‘‘smaller reporting company,’’ as that term is defined in Rule 12b-2 under the U.S. Securities Exchange
Act of 1934, as amended (the ‘‘Exchange Act’’). In addition, as an emerging growth company, we are
not required to conduct votes seeking approval, on an advisory basis, of the compensation of our
named executive officers or the frequency with which such votes must be conducted. We will remain an
‘‘emerging growth company’’ until the earliest of (1) the last day of the fiscal year in which we have
more than $1.0 billion in annual revenue; (2) the date we qualify as a ‘‘large accelerated filer,’’ with at
least $700 million of equity securities held by non-affiliates; (3) the issuance, in any three-year period,
by BeiGene of more than $1.07 billion in non-convertible debt securities; and (4) December 31, 2021.
Shareholders Entitled to Vote; Record Date
Only holders of record of our ordinary shares, par value $0.0001 per share, at the close of business
on April 20, 2017, Cayman Islands time (the ‘‘record date’’) are entitled to notice of, and to attend and
to vote at, the Annual Meeting. As of the close of business on the record date, we had outstanding
518,602,349 ordinary shares, all of which are entitled to vote with respect to all matters to be acted
upon at the Annual Meeting. On the record date, approximately 256,548,929 ordinary shares were held
1
in the name of Citibank, N.A. (the ‘‘Depositary’’) as depositary for the ADS, which issues company-
sponsored American Depositary Receipts (‘‘ADRs’’), evidencing ADSs that in turn each represent 13 of
our ordinary shares. Each shareholder of record is entitled to one vote for each ordinary share held by
such shareholder.
Quorum
We are an exempted company incorporated in the Cayman Islands with limited liability, and our
affairs are governed by our memorandum and articles of association, the Companies Law (as amended)
of the Cayman Islands, which we refer to as the Cayman Companies Law, and the common law of the
Cayman Islands.
The quorum required for a general meeting of shareholders at which an ordinary resolution is
proposed consists of such shareholders present in person or by proxy who together hold shares carrying
the right to at least a simple majority of all votes capable of being exercised on a poll. The quorum
required for a general meeting at which a special resolution is proposed consists of such shareholders
present in person or by proxy who together hold shares carrying the right to at least two-thirds of all
votes capable of being exercised on a poll.
An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple
majority of the votes cast by the shareholders entitled to vote who are present in person or by proxy at
a general meeting, while a special resolution requires the affirmative vote of at least two-thirds of the
votes cast by the shareholders entitled to vote who are present in person or by proxy at a general
meeting (except for certain types of winding up of the company, in which case the required majority to
pass a special resolution shall be 100%). A special resolution is required for important matters such as
a change of name and amendments to our articles. Our shareholders may effect certain changes by
ordinary resolution, including increasing the amount of our authorized share capital, consolidating and
dividing all or any of our share capital into shares of larger amounts than our existing shares and
cancelling any authorized but unissued shares.
Voting
Persons who hold our ordinary shares directly on the record date (‘‘record holders’’) (1) must
return a proxy card (a) by mail to the offices of the Registrar: Mourant Ozannes Corporate Services
(Cayman) Limited, 94 Solaris Avenue, Camana Bay, Grand Cayman KY1-1108, Cayman Islands, or
(b) by email at CaymanAdmin@mourantozannes.com or (2) attend the Annual Meeting in person in
order to vote on the proposals. Persons who own our ordinary shares indirectly on the record date
through a brokerage firm, bank or other financial institution, including persons who own our ordinary
shares in the form of ADSs through the Depositary (‘‘beneficial owners’’) must return a voting
instruction form to have their shares or the shares underlying their ADSs, as the case may be, voted on
their behalf. Brokerage firms, banks or other financial institutions that do not receive voting
instructions from beneficial owners may either vote these shares on behalf of the beneficial owners or
return a proxy leaving these shares un-voted (a ‘‘broker non-vote’’).
ADR holders are not entitled to vote directly at the Annual Meeting, but the Deposit Agreement,
dated as of February 5, 2016, as amended (the ‘‘Deposit Agreement’’), exists among the Depositary, the
Company and the holders of ADRs pursuant to which registered holders of ADRs as of the record
date are entitled to instruct the Depositary how to exercise voting rights pertaining to the ordinary
shares so represented. The Depositary has agreed that it will endeavor, insofar as practicable and
permitted under applicable law and the provisions of the Deposit Agreement, to vote (in person or by
delivery to BeiGene of a proxy) the ordinary shares registered in the name of the Depositary in
accordance with the voting instructions received from the ADR holders. If the Depository does not
receive instructions from a holder, such holder shall be deemed, and the Depository shall (unless
2
otherwise specified in the notice distributed to holders of ADRs) deem such holder, to have instructed
the Depository to give a discretionary proxy to a person designated by us to vote the ordinary shares
represented by such holders’ ADSs, provided that no such discretionary proxy shall be given by the
Depositary with respect to any matter to be voted upon which we inform the Depositary that (a) we do
not wish such proxy to be given, (b) substantial opposition exists, or (c) the rights of holders of
ordinary shares may be materially adversely affected. In the event that the instruction card is executed
but does not specify the manner in which the ordinary shares represented are to be voted (i.e., by
marking a vote ‘‘FOR’’, ‘‘AGAINST’’ or any other option), the Depositary will vote in respect of each
proposal as recommended by the Board which is described in the Notice of Annual General Meeting.
Instructions from the ADR holders must be sent to the Depositary so that the instructions are received
by no later than 10:00 a.m. New York time on May 23, 2017.
Abstentions and broker non-votes will be counted for the purpose of determining the presence or
absence of a quorum, but will not be counted for the purpose of determining the number of votes cast
on a given proposal.
We have retained the Registrar to hold and maintain our register of members. The Registrar will
be engaged by us to take delivery of completed proxy forms posted to it in accordance with the details
above.
We encourage you to vote by proxy by mailing or emailing an executed proxy card. Voting in
advance of the meeting will ensure that your shares will be voted and reduce the likelihood that we will
be forced to incur additional expenses soliciting proxies for the Annual Meeting. Any record holder of
our ordinary shares may attend the Annual Meeting in person and may revoke the enclosed form of
proxy at any time by:
(cid:129) executing and delivering to the Registrar a later-dated proxy by mail or email pursuant to the
instructions above; or
(cid:129) voting in person at the Annual Meeting.
Beneficial owners of our ordinary shares and ADSs representing our ordinary shares who wish to
change or revoke their voting instructions should contact their brokerage firm, bank or other financial
institution or the Depositary, as applicable, for information on how to do so. Generally, however,
beneficial owners of our ordinary shares and ADSs representing our ordinary shares who wish to
change or revoke their voting instructions may do so until 10:00 a.m. New York time on May 23, 2017.
Beneficial owners who wish to attend the Annual Meeting and vote in person should contact their
brokerage firm, bank or other financial institution holding our ordinary shares on their behalf in order
to obtain a ‘‘legal proxy’’ which will allow them to both attend the meeting and vote in person. Without
a legal proxy, beneficial owners cannot vote at the Annual Meeting because their brokerage firm, bank
or other financial institution may have already voted or returned a broker non-vote on their behalf.
Record holders of ADSs who wish to attend the Annual Meeting and vote in person should contact the
Depositary (and beneficial owners wishing to do the same should contact their brokerage firm, bank or
other financial institution holding their ADSs) to cause their ADSs to be cancelled and the underlying
shares to be withdrawn in accordance with the terms and conditions of the Deposit Agreement so as to
be recognized by us as a record holder of our ordinary shares.
Expenses of Solicitation
We are making this solicitation and will pay the entire cost of preparing and distributing the proxy
materials and soliciting votes. If you choose to access the proxy materials over the Internet, you are
responsible for any Internet access charges that you may incur. Our officers, directors and employees
may, without compensation other than their regular compensation, solicit proxies through further
mailings, personal conversations, facsimile transmissions, emails, or otherwise. Proxy solicitation
expenses that we will pay include those for preparation, mailing, returning, and tabulating the proxies.
3
Procedure for Submitting Shareholder Proposals
The Cayman Companies Law provides shareholders with only limited rights to requisition a
general meeting and does not provide shareholders with a right to put any proposal before a general
meeting. However, these rights may be provided in a company’s articles of association. Our articles
allow our shareholders holding not less than a simple majority of the voting rights entitled to vote at
general meetings to requisition an extraordinary general meeting of our shareholders, in which case our
Board of Directors is obliged to convene an extraordinary general meeting and to put the resolutions
so requisitioned to a vote at such meeting. However, our shareholders may propose only ordinary
resolutions to be put to a vote at such meetings and shall have no right to propose resolutions with
respect to the election, appointment or removal of directors. Our articles provide no other right to put
any proposals before annual general meetings or extraordinary general meetings. As a Cayman Islands
exempted company, we are not obligated by law to call shareholders’ annual general meetings.
However, our corporate governance guidelines require us to call such meetings every year to the extent
required by the stock exchange listing rules.
Shareholders may present proper proposals for inclusion in our proxy statement and for
consideration at our next annual general meeting of shareholders by submitting their proposals in
writing to us in a timely manner. In order to be considered for inclusion in the proxy statement for the
2018 annual general meeting of shareholders, shareholder proposals must be received at our principal
executive offices no later than December 26, 2017, and must otherwise comply with the requirements of
Rule 14a-8 of the Exchange Act. Any shareholder proposal for the annual general meeting of
shareholders in 2018, which is submitted outside the processes of Rule 14a-8, shall be considered
untimely unless received by the Company in writing no later than March 13, 2018. If the date of the
annual meeting is moved by more than 30 days from the date contemplated at the time of the previous
year’s proxy statement, then notice must be received within a reasonable time before we begin to print
and send proxy materials. If that happens, we will publicly announce the deadline for submitting a
proposal in a press release or in a document filed with the SEC. A copy of all notices of proposals by
shareholders should be sent to us at c/o Mourant Ozannes Corporate Services (Cayman) Limited,
94 Solaris Avenue, Camana Bay, Grand Cayman KY1-1108, Cayman Islands.
OVERVIEW OF PROPOSALS
This Proxy Statement contains three proposals requiring shareholder action. Proposals 1 and 2
request the election of two directors to the Board of Directors. Proposal 3 requests the ratification of
the appointment of Ernst & Young Hua Ming LLP as our independent registered public accounting
firm for the fiscal year ending December 31, 2017. Each of the proposals is discussed in more detail in
the pages that follow.
PROPOSALS 1 AND 2
ELECTION OF DIRECTORS
Our articles provide that persons standing for election as directors at a duly constituted general
meeting with requisite quorum shall be elected by an ordinary resolution of our shareholders, which
requires the affirmative vote of a simple majority of the votes cast on the resolution by the
shareholders entitled to vote who are present in person or by proxy at the meeting. Our articles further
provide that our Board of Directors will be divided into three groups designated as Class I, Class II
and Class III with as nearly equal a number of directors in each group as possible. Directors assigned
to Class I shall initially serve until the first annual general meeting of shareholders following the
effectiveness of our articles upon completion of our initial public offering (the ‘‘Articles Effectiveness
Date’’); directors assigned to Class II shall initially serve until the second annual general meeting of
shareholders following the Articles Effectiveness Date; and directors assigned to Class III shall initially
serve until the third annual general meeting of shareholders following the Articles Effectiveness Date.
4
Commencing with the first annual general meeting of shareholders following the Articles Effectiveness
Date, each director of each class the term of which shall then expire shall, upon the expiration of his or
her term, be eligible for reelection at such annual general meeting to hold office for a three-year term
and until such director’s successor has been duly elected. Our articles provide that, unless otherwise
determined by shareholders in a general meeting, our Board will consist of not less than three
directors. We have no provisions relating to retirement of directors upon reaching a specified age.
In the event of a vacancy arising from the resignation of a former director or as an addition to the
existing board, our Board of Directors may, by the affirmative vote of a simple majority of the
remaining directors present and voting at a board meeting, appoint any person to be a director.
For so long as our shares or ADSs are listed on NASDAQ, our directors are required to comply
with the director nomination procedures of the NASDAQ Stock Market Rules, and our Board is
required to include at least such number of independent directors the NASDAQ Stock Market Rules
requires.
The terms of the Class I directors are scheduled to expire on the date of the 2017 Annual
Meeting. Based on the recommendation of the Nominating and Corporate Governance Committee of
the Board of Directors, the Board of Directors’ nominees for election by the shareholders are current
Class I members: Timothy Chen and John V. Oyler. If elected, each nominee will serve as a director
until the annual general meeting of shareholders in 2020 and until his successor is duly elected and
qualified, subject to his earlier resignation or removal. Ke Tang, who currently is a Class I director,
notified us of his decision not to stand for re-election to the Board of Directors when his current term
expires at the Annual Meeting. Mr. Tang will continue to serve as a member of the Board of Directors
and a member of the Audit Committee until the Annual Meeting.
The names of and certain information about the directors in each of the three groups are set forth
below. There are no family relationships among any of our directors or executive officers.
The proxy in the form presented will be voted, unless otherwise indicated, for the election of the
Class I director nominees to the Board of Directors. If any of the nominees should for any reason be
unable or unwilling to serve at any time prior to the Annual Meeting, the proxies will be voted for the
election of a substitute nominee designated by the Board of Directors.
Nominees for Class I Directors
The names of the nominees for Class I directors and certain information about each as of
April 26, 2017 are set forth below.
Name
Position(s)
Director
Since
Timothy Chen . . . . Director
John V. Oyler . . . . Founder, Chief Executive Officer and Chairman
2016
2010
Age
60
49
Set forth below are the biographies of each director, as well as a discussion of the particular
experience, qualifications, attributes, and skills that led our Board of Directors to conclude that each
such person nominated to serve or currently serving on our Board of Directors should serve as a
director.
Nominees for Election for a Three-Year Term Ending at the 2020 Annual General Meeting
Timothy Chen has served as a member of our Board of Directors since February 2016. Mr. Chen
has served as the Corporate Vice President of Hon Hai Technology Group and President of Asia
Pacific Telecom since January 2016. He was the President of Telstra International Group from
November 2012 to December 2015. He has also served as Chairman of the board of Autohome Inc.
5
since 2012. Previously, Mr. Chen was a partner of a China Opportunities Fund within GL Capital
Group from 2010 to 2012. He was the CEO of National Basketball Association China from 2007 to
2010, the Corporate Vice President of Microsoft and the CEO of its Greater China region from 2003
to 2007, the Corporate Vice President of Motorola and the Chairman and President of Motorola
(China) Electronics from 2001 to 2003. Before Microsoft, he was the CEO of 21CN Cybernet, a
company listed on the Hong Kong Stock Exchange, from 2000 to 2001. Prior to 2000, Mr. Chen spent
eight years in China with Motorola, including serving as the General Manager responsible for the sales
and marketing for the Greater China Cellular Infrastructure Division. He also spent nine years with
AT&T Bell Laboratories in the United States. Mr. Chen holds an MBA degree from the University of
Chicago, a master’s degree in both computer science and mathematics from Ohio State University, and
a bachelor’s degree from Chiao Tung University. We believe that Mr. Chen’s extensive business
expertise in Asia and globally qualify him to serve as a member of our Board of Directors.
John V. Oyler is our Founder and has served as our principal executive officer and a member of our
Board of Directors since 2010. From 2005 to 2009, Mr. Oyler served as President and Chief Executive
Officer of BioDuro, LLC, a drug discovery outsourcing company, which was acquired by
Pharmaceutical Product Development Inc. in 2010. From 2002 to 2004, Mr. Oyler served as Chief
Executive Officer of Galenea Corp., a biopharmaceutical company dedicated to the discovery of novel
therapies for central nervous system diseases, which initially were developed at Massachusetts Institute
of Technology. From 1997 to 2002, Mr. Oyler was a Founder and the President of Telephia, Inc. which
was sold to The Nielsen Company in 2007. From 1997 to 1998, Mr. Oyler served as Co-Chief Executive
Officer of Genta Incorporated (NASDAQ: GNTA), an oncology-focused biopharmaceutical company.
Mr. Oyler began his career as a management consultant at McKinsey & Company. Mr. Oyler received
his B.S. from Massachusetts Institute of Technology and MBA from Stanford University. Mr. Oyler’s
qualifications to serve on our Board of Directors include his extensive leadership, executive,
managerial, business and pharmaceutical and biotechnology company experience, along with his years
of industry experience in the development and commercialization of pharmaceutical products.
Directors Not Standing for Election or Re-Election
The names of and certain information as of April 26, 2017 about the members of the Board of
Directors who are not standing for re-election at this year’s Annual Meeting are set forth below.
Name
Position(s)
Director Since
Age
Donald W. Glazer . . . . . . . . . . . . . . . . . . . . . . . . . . . Director
Michael Goller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director
Ranjeev Krishana . . . . . . . . . . . . . . . . . . . . . . . . . . . Director
Thomass Malley . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director
Ke Tang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director
Xiaodong Wang, Ph.D. . . . . . . . . . . . . . . . . . . . . . . . Director
Qingqing Yi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director
2013
2015
2014
2016
2014
2016
2014
72
42
43
48
37
54
45
Directors Continuing in Office Until the 2018 Annual General Meeting
Donald W. Glazer has served as a member of our Board of Directors since February 2013.
Mr. Glazer has served as a member of the Board of Trustees of GMO Trust, a mutual fund group,
since 2000 and as the Chairman of the Board since 2005. Mr. Glazer was a Co-Founder and Secretary,
and from 2002 until 2010, Vice Chairman, of Provant, Inc., a provider of performance improvement
training solutions. From 1992 to 1995 Mr. Glazer was President of Mugar/Glazer Holdings and from
1992 to 1993 served as Vice Chairman—Finance of New England Television Corp and WHDH-TV, Inc.
From 1997 to the present, Mr. Glazer has served as Advisory Counsel to Goodwin Procter LLP. From
1970 to 1978 Mr. Glazer was an associate and from 1978 to 1992 a partner at Ropes & Gray LLP, a
6
Boston law firm. At Ropes & Gray, Mr. Glazer chaired the firm’s Emerging Companies Group.
Mr. Glazer was also a Lecturer in Law at Harvard Law School from 1978 to 1991, teaching a course
called The Business Lawyer. Mr. Glazer is a former member of the boards of directors of
Environics Inc.; Kronos Incorporated; Reflective Technologies, Inc.; and Teleco Oilfield Services Inc.
Mr. Glazer received his A.B. from Dartmouth College; J.D. from Harvard Law School, where he was
an editor of the Harvard Law Review; and L.L.M. from the University of Pennsylvania Law School.
Additionally, Mr. Glazer is a co-author of both Glazer and FitzGibbon on Legal Opinions, Third
Edition (Aspen Publishers) and Massachusetts Corporation Law & Practice, Second Edition (Aspen
Publishers). Mr. Glazer’s qualifications to serve on our Board of Directors include his extensive
leadership, executive, managerial, business, and corporate legal experience.
Michael Goller has served as a member of our Board of Directors since April 2015. Mr. Goller has
been with Baker Bros. Advisors LP since 2005 and currently serves as a Managing Director. Prior to
joining Baker Bros., Mr. Goller served as an Associate of JPMorgan Partners, LLC where he focused
on venture investments in the life sciences sector from 1999 to 2003. Mr. Goller began his career as an
investment banker with Merrill Lynch and Co. from 1997 to 1999. Mr. Goller holds a B.S. in Molecular
and Cell Biology from The Pennsylvania State University and Master’s degrees in each of
Biotechnology (School of Engineered and Applied Sciences) and Business Administration (Wharton
School) from the University of Pennsylvania. We believe that Mr. Goller is qualified to serve on our
Board of Directors based on his experience in the life sciences industry and for his knowledge in
financial and corporate development matters.
Thomas Malley has served as a member of our Board of Directors since January 2016. Mr. Malley
has served as President of Mossrock Capital, LLC, a private investment firm, since May 2007.
Mr. Malley worked for Janus Mutual Funds in positions of increasing responsibility from April 1991 to
May 2007. From January 1999 to May 2007, Mr. Malley served as the portfolio manager of the Janus
Global Life Sciences Fund and also led the Janus Healthcare team of analysts. From 1991 to 1998,
Mr. Malley served as an equity analyst for Janus covering, among others, healthcare and biotechnology
stocks. Mr. Malley has been a director of OvaScience, Inc. since October 2012, and a director of Kura
Oncology, Inc. since 2015. Previously, he served as a director of Synageva BioPharma Corp., a public
biopharmaceutical company, from 2006 to 2015, until its acquisition by Alexion Pharmaceuticals, Inc.,
Puma Biotechnology, Inc., a public biopharmaceutical company, from 2011 to 2015, and Cougar
Biotechnology, Inc., a public biopharmaceutical company, from 2007 to 2009, until its acquisition by
Johnson and Johnson. Mr. Malley holds a B.S. in Biology from Stanford University. Our Board of
Directors believes that Mr. Malley’s experience in the biopharmaceutical industry, including serving on
other boards of directors, and his executive experience qualify him to serve on our Board of Directors.
Directors Continuing in Office Until the 2019 Annual General Meeting
Ranjeev Krishana has served as a member of our Board of Directors since October 2014.
Mr. Krishana has worked at Baker Bros. Advisors LP from 2011 to the present and currently serves as
Head of International Investments. Prior to joining Baker Bros., Mr. Krishana held a series of
commercial, strategy, and business development leadership roles for Pfizer, Inc.’s pharmaceutical
business across a variety of international regions and markets, including Asia, Eastern Europe, and
Latin America. Mr. Krishana was at Pfizer from 2003 to 2007 and from 2008 to 2011. From 2008 to
2010, Mr. Krishana was based in Beijing, China, where he served as a Senior Director and a member
of the Pfizer China Leadership Team. Mr. Krishana began his career as a strategy consultant at
Accenture plc. Mr. Krishana holds a B.A. in Economics and Political Science from Brown University,
and a Masters of Public Policy from Harvard University. We believe Mr. Krishana’s knowledge of the
healthcare sector across international markets qualifies him to serve on our Board of Directors.
Xiaodong Wang, Ph.D. is our Founder and has served as the Chairman of our scientific advisory
board since 2011. Dr. Wang became a member of our Board of Directors in February 2016. Dr. Wang
7
has served as the founding Director of the National Institute of Biological Sciences in Beijing
since 2003 and became its Director and Investigator in 2010. Previously, he was a Howard Hughes
Medical Institute Investigator from 1997 to 2010 and held the position of the George L. MacGregor
Distinguished Chair Professor in Biomedical Sciences at the University of Texas Southwestern Medical
Center in Dallas, Texas from 2001 to 2010. In 2004, Dr. Wang founded Joyant Pharmaceuticals, Inc., a
venture capital-backed biotechnology company focused on the development of small molecule
therapeutics for cancer. Dr. Wang received his Ph.D. in Biochemistry from the University of Texas
Southwestern Medical Center and B.S. in Biology from Beijing Normal University. Dr. Wang has been
a member of the National Academy of Science, USA since 2004 and a foreign associate of the Chinese
Academy of Sciences since 2013. We believe that Dr. Wang’s extensive experience in cancer drug
research, combined with his experience in the biotech industry, qualify him to serve as a member of our
Board of Directors.
Qingqing Yi has served as a member of our Board of Directors since October 2014. Mr. Yi is a
Principal at Hillhouse Capital. He has worked with Hillhouse since the inception of the firm in 2005.
Prior to joining Hillhouse, Mr. Yi was an Equity Research Analyst at China International Capital
Corporation. Mr. Yi’s work at Hillhouse includes investments in the healthcare and consumer sectors in
both its public and private equity portfolios. He received a B.S in Engineering from Shanghai Maritime
University, as well as an MBA from University of Southern California. We believe Mr. Yi’s extensive
experience in capital markets and knowledge of the healthcare sector qualifies him to serve on our
Board of Directors.
Discontinuing Directors at the 2017 Annual General Meeting
Ke Tang has served as a member of our Board of Directors since October 2014. Mr. Tang has been
a Vice President at CITIC PE Private Equity Funds Management Co., Ltd. since 2013. Mr. Tang has
also served as an Executive Director of Changsheng Medial, a medical service company focusing on
renal diseases since July 2014. From 2012 to 2013, Mr. Tang served as Investment Manager at the
Principal Investment Department at Goldman Sachs Group, responsible for private equity investments
in China. Before that, Mr. Tang served as an Associate and Executive Director at the investment
banking division of Goldman Sachs Asia from 2008 to 2012. Mr. Tang holds a B.A. from Southeast
University and an MBA from Kellogg School of Management at Northwestern University. We believe
Mr. Tang’s knowledge of the healthcare sector, along with his extensive experience in capital markets,
qualifies him to serve on our Board of Directors.
Vote Required and Board of Directors’ Recommendation
Each director nominated for election will be elected if a simple majority of the votes cast by the
shareholders entitled to vote who are present in person or by proxy vote in favor of such director.
Broker non-votes and abstentions with respect to one or more Class I directors will not be treated as
votes cast for this purpose and, therefore, will not affect the outcome of the election.
The proposals for the election of directors relate solely to the election of Class I directors
nominated by the Board of Directors.
The Board of Directors recommends that shareholders vote FOR the election of each of the Class I director
nominees listed above.
8
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
On the recommendation of the Audit Committee of the Board of Directors (the ‘‘Audit
Committee’’), the Board of Directors has appointed Ernst & Young Hua Ming LLP as the Company’s
independent registered public accounting firm for the fiscal year ending December 31, 2017. The Board
of Directors recommends that shareholders vote for ratification of this appointment. If this proposal is
not approved at the Annual Meeting, the Board of Directors will reconsider its appointment. Even if
the appointment is ratified, the Audit Committee may, in its discretion, direct the appointment of a
different independent registered accounting firm at any time during the year if the Audit Committee
determines that such a change would be in our shareholders’ best interests.
Ernst & Young Hua Ming LLP has audited our financial statements for the fiscal years ended
December 31, 2016 and 2015. We expect representatives of Ernst & Young Hua Ming LLP to be
available telephonically at the Annual Meeting and available to respond to appropriate questions. They
will have the opportunity to make a statement if they desire to do so.
Auditor’s Fees
The following table summarizes the fees of Ernst & Young Hua Ming LLP, our registered
independent public accounting firm, billed to us for each of the last two fiscal years (in thousands).
Fee Category
2016
2015
Audit Fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-related Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,241
—
42
65
Total Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,348
$753
—
17
—
$770
(1) Audit fees consist of fees for the audit of our financial statements, the review of our
interim financial statements and services associated with our registration statement on
Form S-1.
(2) Tax fees consist of fees incurred for tax compliance, tax advice and tax planning and
includes fees for tax return preparation and tax consulting.
(3) All other fees consist of fees incurred for accounting related consulting services.
Pre-approval Policies
In connection with our initial public offering, our Board of Directors has adopted policies and
procedures for the pre-approval of audit and non-audit services by our Audit Committee for the
purpose of maintaining the independence of our independent auditor. We may not engage our
independent auditor to render any audit or non-audit service unless either the service is approved in
advance by the Audit Committee or the engagement to render the service is entered into pursuant to
the Audit Committee’s pre-approval policies and procedures. The Audit Committee pre-approved all
services performed since the pre-approval policy was adopted.
Vote Required and Board of Directors’ Recommendation
The approval of Proposal 3 requires that a simple majority of the votes cast by the shareholders
entitled to vote who are present in person or by proxy vote in favor of this proposal. Shares that are
voted ‘‘abstain’’ will not affect the outcome of this proposal. Brokers have discretion to vote on the
proposal for ratification of the independent registered public accounting firm.
The Board of Directors recommends that shareholders vote FOR ratification of the appointment of
Ernst & Young Hua Ming LLP as our independent registered public accounting firm for the fiscal year
ending December 31, 2017.
9
TRANSACTION OF OTHER BUSINESS
The Board of Directors knows of no other matters that will be presented for consideration at the
Annual Meeting. If any other matters are properly brought before the Annual Meeting, the person(s)
named in the accompanying proxy intend to vote on such matters in accordance with their best
judgment.
10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to us regarding beneficial ownership of
our share capital as of April 20, 2017 by:
(cid:129) each person, or group of affiliated persons, known by us to be the beneficial owner of more than
5% of any class of our voting securities;
(cid:129) each of our named executive officers;
(cid:129) each of our directors; and
(cid:129) all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes
voting or investment power with respect to securities. Except as noted by footnote, and subject to
community property laws where applicable, we believe based on the information provided to us that the
persons and entities named in the table below have sole voting and investment power with respect to
all securities shown as beneficially owned by them.
The table lists applicable percentage ownership based on 518,602,349 ordinary shares outstanding
as of April 20, 2017 and also lists applicable percentage ownership. Options to purchase ordinary shares
that are exercisable within 60 days of April 20, 2017 are deemed to be beneficially owned by the
persons holding these options for the purpose of computing percentage ownership of such persons, but
are not treated as outstanding for the purpose of computing any other person’s ownership percentage.
Beneficial ownership representing less than 1% is denoted with an asterisk (*).
11
Unless otherwise noted below, the address of each person listed on the table is: c/o Mourant
Ozannes Corporate Services (Cayman) Limited, 94 Solaris Avenue, Camana Bay, Grand
Cayman KY1-1108, Cayman Islands.
Name of Beneficial Owner
5% or Greater Shareholders
Number of
Percentage of
Ordinary Shares Ordinary Shares
Beneficially
Owned
Beneficially
Owned
Entities affiliated with Baker Bros. Advisors LP(1) . . . . . . . . . . . . . .
FMR LLC(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Entities affiliated with Hillhouse Capital Management, Ltd.(3) . . . . .
Merck Sharp & Dohme Research GmbH(4) . . . . . . . . . . . . . . . . . .
128,086,032
50,465,025
48,369,439
31,589,038
Named Executive Officers and Directors
John V. Oyler(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Howard Liang(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ji Li(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Timothy Chen(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Donald W. Glazer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael Goller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ranjeev Krishana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas Malley(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ke Tang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Xiaodong Wang(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qingqing Yi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79,385,357
2,310,833
1,069,000
153,542
4,882,006
—
—
574,250
—
16,147,573
—
All Directors and Executive Officers as a Group (13 persons)(11) . . . .
105,122,561
24.7%
9.7
9.3
6.1
15.2%
*
*
*
*
—
—
*
—
3.1
—
19.9%
(1) Based solely on a Schedule 13D/A filed by Baker Bros. Advisors LP, Baker Bros. Advisors
(GP) LLC, Felix J. Baker and Julian C. Baker on November 21, 2016, consists of (i) 11,150,709
ordinary shares held by 667, L.P., (ii) 116,295,723 ordinary shares held by Baker Brothers Life
Sciences, L.P. and (iii) 639,600 ordinary shares held by 14159 L.P. (collectively, ‘‘Baker Funds’’), as
of November 19, 2016. Baker Bros. Advisors LP is the investment advisor to Baker Funds and has
sole voting and investment power with respect to the shares held by Baker Funds. Baker Bros.
Advisors (GP) LLC is the sole general partner of Baker Bros. Advisors LP. The managing
members of Baker Bros. Advisors (GP) LLC are Julian C. Baker and Felix J. Baker. Julian C.
Baker and Felix J. Baker disclaim beneficial ownership of all shares except to the extent of their
pecuniary interest. The address for each of these entities is 667 Madison Avenue, 21st Floor,
New York, NY 10065.
(2) Based solely on a Schedule 13G filed by FMR LLC on January 10, 2017. Members of the Johnson
family, including Abigail P. Johnson, are the predominant owners, directly or through trusts, of
Series B voting common shares of FMR LLC, representing 49% of the voting power of
FMR LLC. The Johnson family group and all other Series B shareholders have entered into a
shareholders’ voting agreement under which all Series B voting common shares will be voted in
accordance with the majority vote of Series B voting common shares. Accordingly, through their
ownership of voting common shares and the execution of the shareholders’ voting agreement,
members of the Johnson family may be deemed, under the Investment Company Act of 1940, to
form a controlling group with respect to FMR LLC. Neither FMR LLC nor Abigail P. Johnson has
the sole power to vote or direct the voting of the shares owned directly by the various investment
companies registered under the Investment Company Act (‘‘Fidelity Funds’’) advised by Fidelity
Management & Research Company (‘‘FMR Co’’), a wholly owned subsidiary of FMR LLC, which
power resides with the Fidelity Funds’ Boards of Trustees. Fidelity Management & Research
12
Company carries out the voting of the shares under written guidelines established by the Fidelity
Funds’ Boards of Trustees. The address for FMR LLC is 245 Summer Street, Boston,
Massachusetts 02210.
(3) Based solely on a Schedule 13D filed by Hillhouse Capital Management, Ltd. on February 18,
2016, consists of (i) 8,372,000 ordinary shares held by Gaoling Fund, L.P., (ii) 728,000 ordinary
shares held by YHG Investment, L.P., and (iii) 30,626,779 ordinary shares held by BGN Holdings
Limited. Additionally, Hillhouse Capital Management, Ltd. and/or its affiliates purchased 8,642,660
ordinary shares in November 2016. Hillhouse Capital Management, Ltd. acts as the sole general
partner of YHG Investment, L.P. and the sole management company of Gaoling Fund, L.P. and
Hillhouse Fund II, L.P., which owns BGN Holdings Limited. Mr. Lei Zhang may be deemed to
have controlling power over Hillhouse Capital Management, Ltd. Mr. Lei Zhang disclaims
beneficial ownership of all of the shares held by Hillhouse Fund II, L.P., except to the extent of his
pecuniary interest therein. The registered address of Hillhouse Capital Management, Ltd. is
27 Hospital Road, George Town, Grand Cayman, Cayman Islands KY1 9008.
(4) Based solely on a Schedule 13G filed by Merck & Co., Inc., Merck Sharp & Dohme Corp., and
Merck Sharp & Dohme Research GmbH on February 12, 2016, consists of 31,589,038 ordinary
shares as of February 8, 2016, held by Merck Sharp & Dohme Research GmbH, which is a wholly
subsidiary of Merck Sharp & Dohme Corp., which is a wholly owned subsidiary of
Merck & Co., Inc. The entities reported shared voting and dispositive power over the ordinary
shares. The address for this entity is Weystrasse 20, CH-6000, Lucerne 6, Switzerland.
(5) Consists of (i) 27,250,149 ordinary shares held directly by Mr. Oyler; (ii) 4,180,183 shares issuable
to Mr. Oyler upon exercise of share options exercisable within 60 days after April 20, 2017;
(iii) 10,000,000 ordinary shares held for the benefit of Mr. Oyler in a Roth IRA PENSCO trust
account; (iv) 102,188 ordinary shares held by The John Oyler Legacy Trust, of which Mr. Oyler’s
father is a trustee, for the benefit of his minor child, for which Mr. Oyler disclaims beneficial
ownership; (v) 7,962,663 ordinary shares held for the benefit of Mr. Oyler in a grantor retained
annuity trust, of which Mr. Oyler’s father is a trustee, for which Mr. Oyler disclaims beneficial
ownership; and (vi) 29,890,174 ordinary shares held by Oyler Investment LLC, 99% of the limited
liability company interest owned by a grantor retain annuity trust, for which Mr. Oyler’s father is a
trustee, for which Mr. Oyler disclaims beneficial ownership.
(6) Consists of (i) 65,000 ordinary shares held directly by Dr. Liang and (ii) 2,245,833 shares issuable
to Dr. Liang upon exercise of share options exercisable within 60 days after April 20, 2017.
(7) Consists of (i) 475,000 ordinary shares held directly by Dr. Li and (ii) 594,000 shares issuable to
Dr. Li upon exercise of share options exercisable within 60 days after April 20, 2017.
(8) Consists of 153,542 shares issuable to Mr. Chen upon exercise of share options exercisable within
60 days after April 20, 2017.
(9) Consists of (i) 390,000 ordinary shares held directly by Mr. Malley and (ii) 184,250 shares issuable
to Mr. Malley upon exercise of share options exercisable within 60 days after April 20, 2017.
(10) Consists of (i) 13,500,393 ordinary shares held directly by Dr. Wang; (ii) 2,432,649 shares issuable
to Dr. Wang upon exercise of share options exercisable within 60 days after April 20, 2017; and
(iii) 214,531 ordinary shares held in a UTMA account for Dr. Wang’s minor child, for which
Dr. Wang disclaims beneficial ownership.
(11) Includes 9,790,457 ordinary shares issuable upon exercise of options within 60 days of April 20,
2017.
13
The following table sets forth the name, age and position of each of our executive officers as of
EXECUTIVE OFFICERS
April 26, 2017:
Name
John V. Oyler . . . . . . . . . . . . . . . . . . . . . . . . .
Age
49
Position(s)
Founder, Chief Executive Officer and
Chairman
Howard Liang, Ph.D.
. . . . . . . . . . . . . . . . . . .
53 Chief Financial Officer and Chief Strategy
Officer
Amy Peterson, M.D.
. . . . . . . . . . . . . . . . . . .
Jane Huang . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ji Li
50 Chief Medical Officer, Immuno-oncology
44 Chief Medical Officer, Hematology
49 Global Head of Business Development
You should refer to ‘‘Proposals 1 and 2: Election of Directors’’ above for information about our
Founder, Chief Executive Officer and Chairman, John V. Oyler. Biographical information for our other
executive officers, as of April 26, 2017, is set forth below.
Howard Liang, Ph.D. has served as our Chief Financial Officer and Chief Strategy Officer since
July 2015. Dr. Liang has more than 20 years of combined experience on Wall Street as an analyst
covering the biotechnology and pharmaceutical sectors and as a scientist in the biopharmaceutical
industry. Prior to joining us, from 2005 to 2015, Dr. Liang was at Leerink Partners LLC, a leading
investment bank specializing in the healthcare industry, where he served as a Managing Director and
Head of Biotechnology Equity Research. Dr. Liang served as a Senior Biotechnology Analyst at two
full-service investment banks: A.G. Edwards Inc., from 2004 to 2005, and JMP Securities, from 2003 to
2004. From 2000 to 2003, Dr. Liang served as an Associate Analyst at Prudential Securities, where he
covered major and specialty pharmaceuticals. Before Wall Street, from 1992 to 2000, Dr. Liang was
with Abbott Laboratories, where he was a Senior Scientist and a member of one of the pharmaceutical
industry’s leading structure-based discovery teams. During his career as a scientist, Dr. Liang authored
a review and 13 papers including six in Nature, Science, and Proceedings of the National Academy of
Sciences. Dr. Liang received his B.S. in Chemistry from Peking University and both his MBA and
Ph.D. in Biochemistry and Molecular Biology from the University of Chicago.
Amy Peterson, M.D. joined our Company in August 2016 as our Chief Medical Officer, Immuno-
Oncology. Prior to joining us, Dr. Peterson served as Vice President of Clinical Development at
Medivation, Inc. from December 2012 to July 2016 and as Senior Medical Director from August 2011
to December 2012. At Medivation, she was primarily responsible for the development of enzalutamide
and talazoparib in breast cancer and of pidilizumab in diffuse large B-cell lymphoma. Previously, she
served as Associate Group Medical Director at Genentech from March 2010 to August 2011 where she
was responsible for the development of early stage molecules targeting multiple major pathways in
oncology. Prior to joining Genentech, Dr. Peterson was an Instructor of Medicine in Oncology at the
University of Chicago, where she conducted translational research in tumor immunology in conjunction
with Dr. Thomas F. Gajewski. Dr. Peterson received her M.D. from Thomas Jefferson University, and
she completed her residency in Internal Medicine at Northwestern Memorial Hospital and Fellowship
in Hematology and Oncology at the University of Chicago. She holds a Bachelor of Arts degree from
Wesleyan University.
Jane Huang, M.D. joined our Company in September 2016 as our Chief Medical Officer,
Hematology. Prior to joining us, Dr. Huang served as the Vice President, Clinical Development at
Acerta Pharma from April 2015 to September 2016, where she oversaw global clinical development of
the BTK inhibitor, acalabrutinib. Previously, she worked at Genentech from 2005 to March 2015,
serving most recently as Group Medical Director, where she played a leading role in drug development
programs for several molecules at all stages of development, including venetoclax and obinutuzumab.
14
She is also adjunct clinical faculty and an attending physician in Oncology at Stanford University.
Dr. Huang received her Bachelor of Science degree in Biological Sciences from Stanford University
and her M.D. from University of Washington School of Medicine. She is board certified in hematology,
oncology, and internal medicine, and she completed her residency in Internal Medicine and fellowships
in Hematology and Oncology at Stanford University.
Ji Li, Ph.D. joined our Company in May 2016 as our Global Head of Business Development. Prior
to joining us, Dr. Li served as Vice President of Business Development and Licensing at Merck Inc.
from December 2013 to 2016, where he was responsible for late-stage inbound and outbound business
development opportunities across all therapeutic areas globally. From August 2010 to August 2013,
Dr. Li served as Executive Licensing Director for External Research and Development at Amgen,
where he led the company’s efforts in sourcing and evaluation of product partnering opportunities
across all therapeutic areas and at all stages of drug development. He served as a member of our
Board of Directors from January 2015 to February 2016. Dr. Li received his B.S. in Pharmacology from
Shanghai Medical University and his Ph.D. in Neuroscience from Mount Sinai School of Medicine.
15
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Other than compensation arrangements, we describe below transactions and series of similar
transactions, since January 1, 2016, to which we were a party or will be a party, in which:
(cid:129) the amounts involved exceeded or will exceed $120,000; and
(cid:129) any of our directors, executive officers or holders of more than 5% of our share capital, or any
member of the immediate family of the foregoing persons, had or will have a direct or indirect
material interest.
In connection with the completion of our initial public offering, we adopted a related party
transactions policy that requires all future transactions between us and any director, executive officer,
holder of 5% or more of any class of our capital shares or any member of the immediate family of, or
entities affiliated with, any of them, or any other related persons (as defined in Item 404 of
Regulation S-K) or their affiliates, in which the amount involved is equal to or greater than $120,000,
be approved in advance by our Audit Committee. Any request for such a transaction must first be
presented to our Audit Committee for review, consideration and approval. In approving or rejecting
any such proposal, our Audit Committee is to consider the relevant facts and circumstances available
and deemed relevant to the Audit Committee, including, but not limited to, the extent of the related
party’s interest in the transaction, and whether the transaction is on terms no less favorable to us than
terms we could have generally obtained from an unaffiliated third party under the same or similar
circumstances.
Certain of the transactions described below were entered into prior to the adoption of this written
policy but each such transaction was approved by our Board of Directors. Prior to our Board of
Directors’ consideration of a transaction with a related person, the material facts as to the related
person’s relationship or interest in the transaction were disclosed to our Board of Directors, and the
transaction was not approved by our Board of Directors unless a majority of the directors approved the
transaction.
We believe that all of the transactions described below were made on terms no less favorable to us
than could have been obtained from unaffiliated third parties. Compensation arrangements for our
directors and named executive officers are described in the section of this Proxy Statement titled
‘‘Executive Compensation.’’
Sales and Purchases of Securities
Participation in Our Initial Public Offering
In our initial public offering in February 2016, certain of our directors, executive officers and 5%
shareholders and their affiliates purchased an aggregate of 2,627,680 ADSs. Each of those purchases
was made through the underwriters at the initial public offering price of $24.00 per ADS. Certain
purchases were made at the public offering price through a directed share program offered to our
directors, officers, employees and business associated in connection with our initial public offering (the
‘‘Directed Share Program’’). The following table sets forth the aggregate number of ADSs that these
16
directors, executive officers and 5% shareholders and their affiliates purchased in our initial public
offering:
Purchaser(1)
Entities affiliated with Baker Bros. Advisors LP(2) . . . . . . .
Entities affiliated with Hillhouse Capital
Management, Ltd.(3) . . . . . . . . . . . . . . . . . . . . . . . . . .
Howard Liang(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RuiRong Yuan(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
ADSs
Total
Purchase
Price
1,912,680
$45,904,320
700,000
5,000
10,000
$16,800,000
120,000
$
240,000
$
(1) See ‘‘Security Ownership of Certain Beneficial Owners and Management’’ for more
information about the shares held by the above identified shareholders, directors and
executive officers.
(2) Michael Goller and Ranjeev Krishana, members of our Board of Directors, are,
respectively, a Managing Director and Head of International Investments of Baker Bros.
Advisors LP, affiliates of which collectively hold more than 5% of our voting securities.
(3) Qingqing Yi, a member of our Board of Directors, is a Principal at Hillhouse Capital,
affiliates of which collectively hold more than 5% of our voting securities.
(4) Dr. Liang, our Chief Financial Officer and Chief Strategy Officer, purchased the ADSs
through the Directed Share Program.
(5) Dr. Yuan, our former Chief Medical Officer and President of Global Clinical Research
and Development, purchased the ADSs through the Directed Share Program.
Participation in Our Follow-on Public Offering
In our follow-on public offering in November 2016, certain of our directors and 5% shareholders
and their affiliates purchased an aggregate of 2,455,315 ADSs. Each of those purchases was made
through the underwriters at the public offering price of $32.00 per ADS. In the offering, CB Biotech
Limited and Dr. Wang sold 375,000 ADSs and 93,750 ADSs, respectively, at the public offering price of
$32.00 per ADS. The following table sets forth the aggregate number of ADSs that these directors,
executive officers and 5% shareholders and their affiliates purchased in our follow-on public offering:
Purchaser(1)
Entities affiliated with Baker Bros. Advisors LP(2) . . . . . . .
Entities affiliated with Hillhouse Capital
Number of
ADSs
Total
Purchase
Price
1,760,495
$56,335,840
Management, Ltd.(3) . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas Malley(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
664,820
30,000
$21,274,240
960,000
$
(1) See ‘‘Security Ownership of Certain Beneficial Owners and Management’’ for more
information about the shares held by the above identified shareholders, directors and
executive officers.
(2) Michael Goller and Ranjeev Krishana, members of our Board of Directors, are,
respectively, a Managing Director and Head of International Investments of Baker Bros.
Advisors LP, affiliates of which collectively hold more than 5% of our voting securities.
17
(3) Qingqing Yi, a member of our Board of Directors, is a Principal at Hillhouse Capital,
affiliates of which collectively hold more than 5% of our voting securities.
(4) Mr. Malley, a member of our Board of Directors, purchased the ADSs in the follow-on
public offering.
Consulting Arrangements
Donald W. Glazer, a member of our Board of Directors, has been providing strategic consulting
services to our company since our inception in 2010. As full compensation for his consulting services,
on November 24, 2010, in connection with the initial formation of our company, we issued 4,000,000
ordinary shares to Mr. Glazer at $0.0001 per share to vest over five years. Those shares are fully
vested. We also reimbursed Mr. Glazer for the out of pocket expenses incurred in connection with his
consulting services.
Dr. Xiaodong Wang, our Founder, Chairman of the Scientific Advisory Board and director, has
been providing scientific and strategic advisory services to us. Dr. Wang currently receives an annual
fixed fee of $100,000. In March 2016, we granted him a cash bonus in the amount of $86,176. In
November 2016, we granted him an option to purchase 1,613,430 ordinary shares that option had fair
value on the grant date of $3,123,600. As of December 31, 2016, the aggregate number of shares
subject to options held by Dr. Wang was 7,112,597. In April 2017, we granted him a cash bonus in the
amount of $86,176.
Note Exchange
On February 2, 2011, we issued an 8% senior note for an aggregate principal amount of
$10 million to Merck Sharp & Dohme Research GmbH (‘‘MSD’’). On January 26, 2016, we entered
into a note amendment and exchange agreement with MSD. On February 8, 2016, the entire
outstanding unpaid principal and interest of the MSD note as of February 2, 2016 ($14,693,281) was
automatically exchanged for 7,942,314 of our ordinary shares at $1.85 per share, the initial offering
price per ordinary share calculated based on the initial public offering price per American Depositary
Share divided by 13, the ordinary share-to-ADS ratio.
Warrant Exercises
On February 8, 2016, in connection with the closing of our initial public offering, entities affiliated
with Baker Bros. Advisors LP exercised warrants previously granted to them to purchase 2,592,593
ordinary shares at an exercise price of $0.675 per share.
On February 8, 2016, in connection with the closing of our initial public offering, John V. Oyler
exercised warrants previously granted to him to purchase 57,777 Series A preferred shares at an
exercise price of $0.675 per share, which shares were converted into 57,777 ordinary shares.
Employment Agreements
For more information regarding employment agreements with certain of our executive officers, see
‘‘Executive Compensation—Employment Agreements with Our Named Executive Officers.’’
Indemnification Agreements
Cayman Islands law does not limit the extent to which a company’s articles of association may
provide indemnification of officers and directors, except to the extent any such provision may be held
by the Cayman Islands courts to be contrary to public policy, such as providing indemnification against
civil fraud or the consequences of committing a crime. Our amended and restated memorandum and
articles of association provide that each officer or director shall be indemnified out of assets of our
18
company against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred
or sustained by such directors or officer, other than by reason of such person’s dishonesty, willful
default or fraud, in or about the conduct of our company’s business or affairs (including as a result of
any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or
discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or
liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil
proceedings concerning our company or its affairs in any court whether in the Cayman Islands or
elsewhere.
In addition, we have entered into new agreements to indemnify our directors and executive
officers. These agreements, among other things, indemnify our directors and executive officers against
certain liabilities and expenses incurred by such persons in connection with claims made by reason of
their being such a director or executive officer.
Agreements With Our Shareholders
In connection with our preferred share financings, we entered into (1) an investors’ rights
agreement, (2) a right of first refusal and co-sale agreement and (3) a voting agreement, in each case,
with the purchasers of our preferred shares and certain holders of our ordinary shares. The primary
rights under each of these terminated upon the closing of our initial public offering, other than certain
registration rights for certain holders of our ordinary shares.
On November 16, 2016, we entered into an additional registration rights agreement with 667, L.P.,
Baker Brothers Life Sciences, L.P. and 14159, L.P. (collectively, the ‘‘Baker Entities’’), Hillhouse BGN
Holdings Limited, Gaoling Fund, L.P. and YHG Investment, L.P. (collectively, the ‘‘Hillhouse Entities’’)
(each an ‘‘Investor’’ and collectively, the ‘‘Investors’’), all of which are existing shareholders of our
Company. The Baker Entities are affiliated with two of the Company’s directors, Michael Goller and
Ranjeev Krishana. The Hillhouse Entities are affiliated with one of the Company’s directors, Michael
Yi. The registration rights agreement provides that, subject to certain limitations, if at any time and
from time to time, the Investors demand that we register the Company’s ordinary shares and any other
securities of the Company held by the Investors at the time any such demand is made on a registration
statement on Form S-3 for resale under the Securities Act, we would be obligated to effect such
registration. Our registration obligations under the registration rights agreement will continue in effect
for up to four years and include our obligation to facilitate certain underwritten public offerings of our
ordinary shares or ADSs by the Investors in the future. The registration rights agreement also requires
the Company to pay expenses relating to such registrations and indemnify the Investors against certain
liabilities.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our Compensation Committee has at any time during 2016 been an
officer or employee of the Company. None of our executive officers currently serves, or in the past
fiscal year has served, as a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving on our Board of Directors or Compensation
Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our officers and directors and persons who beneficially
own more than 10% of our ordinary shares (collectively, ‘‘Reporting Persons’’) to file reports of
beneficial ownership and changes in beneficial ownership with the SEC. Reporting Persons are required
by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on our
review of such reports received or written representations from certain Reporting Persons during the
fiscal year ended December 31, 2016, we believe that all Reporting Persons complied with all
Section 16(a) reporting requirements.
19
Composition of Our Board of Directors
CORPORATE GOVERNANCE
Our Board of Directors currently consists of nine members, all of whom were elected pursuant to
the board composition provisions of a voting agreement that terminated upon the closing of our initial
public offering. Currently, we are not subject to any contractual obligations regarding the election of
our directors. Our Nominating and Governance Committee and Board of Directors may therefore
consider a broad range of factors relating to the qualifications and background of nominees, which may
include diversity and is not limited to race, gender or national origin. We have no formal policy
regarding board diversity. Our Nominating and Governance Committee’s and Board of Directors’
priority in selecting board members is identification of persons who will further the interests of our
Company through his or her established record of professional accomplishment, the ability to
contribute positively to the collaborative culture among board members, knowledge of our business,
understanding of the competitive landscape and professional and personal experiences and relevant
expertise. Our directors hold office until their successors have been elected and qualified or until the
earlier of their resignation or removal.
Our amended and restated articles of association provide that our directors may be removed by
the affirmative vote of the holders of at least two-thirds of the votes cast at a shareholder meeting and
that any vacancy on our board of directors, including a vacancy resulting from an enlargement of our
Board of Directors, may be filled only by vote of a majority of our directors then in office.
In accordance with the terms of our amended and restated memorandum and articles of
association, our Board of Directors is divided into three classes, Class I, Class II and Class III, with
each class serving staggered three-year terms. Upon the expiration of the term of a class of directors,
directors in that class will be eligible to be elected for a new three-year term at the annual meeting of
shareholders in the year in which their term expires.
(cid:129) Our Class I directors are Timothy Chen, John V. Oyler and Ke Tang;
(cid:129) Our Class II directors are Donald W. Glazer, Michael Goller and Thomas Malley; and
(cid:129) Our Class III directors are Ranjeev Krishana, Xiaodong Wang and Qingqing Yi.
Ke Tang, who currently is a Class I director, notified us of his decision not to stand for re-election
to the Board of Directors when his current term expires at the Annual Meeting.
Our amended and restated memorandum and articles of association provide that the authorized
number of directors may be changed only by ordinary resolution of the shareholders. Any additional
directorships resulting from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class shall consist of one third of the Board of Directors.
Board and Committee Matters
Our Board of Directors has determined that all members of the Board of Directors, except
John V. Oyler and Xiaodong Wang, are independent, as determined in accordance with the rules of the
NASDAQ Stock Market. In making such independence determination, our Board of Directors
considered the relationships that each such non-employee director has with us and all other facts and
circumstances that the Board of Directors deemed relevant in determining their independence,
including the beneficial ownership of our share capital by each non-employee director. In considering
the independence of the directors listed above, our Board of Directors considered the association of
our directors with the holders of more than 5% of our share capital. We expect that the composition
and functioning of our Board of Directors and each of our committees will continue to comply with all
applicable requirements of the NASDAQ Stock Market and the rules and regulations of the SEC.
There are no family relationships among any of our directors or executive officers.
20
Corporate Governance
We adopted a written code of business conduct and ethics that applies to our directors, officers
and employees, including our principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. A current copy of the code is posted on
the Corporate Governance section of our website, which is located at http://ir.beigene.com. If we make
any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for
any officer, we will disclose the nature of such amendment or waiver on our website or in a current
report on Form 8-K.
Board Meetings and Committees
Our Board of Directors held 11 meetings during 2016. The directors regularly hold executive
sessions at meetings of the Board of Directors. During 2016, each of the directors then in office
attended at least 75% of the aggregate of all meetings of the Board of Directors and all meetings of
the committees of the Board of Directors on which such director then served, except Timothy Chen.
Now that we are a public company, continuing directors and nominees for election as directors in a
given year are encouraged to attend the annual general meeting of shareholders, barring significant
commitments or special circumstances. This is our first annual general meeting of shareholders since
we became a public company.
During 2016, our Board of Directors had three standing committees: Audit Committee,
Compensation Committee and Nominating and Corporate Governance Committee.
Audit Committee
Thomas Malley, Ke Tang and Qingqing Yi currently serve on the Audit Committee, which is
chaired by Thomas Malley. Our Board of Directors has determined that each member of the Audit
Committee is ‘‘independent’’ for Audit Committee purposes as that term is defined in the rules of the
SEC and the NASDAQ Stock Market. Our Board of Directors has designated each of Thomas Malley
and Ke Tang as an ‘‘audit committee financial expert,’’ as defined in SEC rules. The Audit Committee’s
responsibilities include:
(cid:129) appointing, approving the compensation of, and assessing the independence of our independent
registered public accounting firm;
(cid:129) approving auditing and permissible non-audit services, and the terms of such services, to be
provided by our independent registered public accounting firm;
(cid:129) reviewing the internal audit plan with the independent registered public accounting firm and
members of management responsible for preparing our financial statements;
(cid:129) reviewing and discussing with management and the independent registered public accounting
firm our annual and quarterly financial statements and related disclosures as well as critical
accounting policies and practices used by us;
(cid:129) reviewing the adequacy of our internal control over financial reporting;
(cid:129) establishing policies and procedures for the receipt and retention of accounting-related
complaints and concerns;
(cid:129) recommending, based upon the Audit Committee’s review and discussions with management and
the independent registered public accounting firm, whether our audited financial statements shall
be included in our Annual Report on Form 10-K;
(cid:129) monitoring the integrity of our financial statements and our compliance with legal and regulatory
requirements as they relate to our financial statements and accounting matters;
21
(cid:129) preparing the Audit Committee report required by the SEC rules to be included in our annual
proxy statement;
(cid:129) reviewing all related party transactions for potential conflict of interest situations and approving
all such transactions; and
(cid:129) reviewing earnings releases.
The Audit Committee held six meetings during 2016. The Audit Committee operates under a
written charter that satisfies the applicable standards of the SEC and the NASDAQ Stock Market. A
copy of the Audit Committee charter is available on our website at http://ir.beigene.com.
Compensation Committee
Qingqing Yi, Ranjeev Krishana and Timothy Chen currently serve on the Compensation
Committee, which is chaired by Qingqing Yi. Our Board of Directors has determined that each
member of the Compensation Committee is ‘‘independent’’ as that term is defined in the rules of the
NASDAQ Stock Market. The Compensation Committee’s responsibilities include:
(cid:129) annually reviewing and approving corporate goals and objectives relevant to the compensation of
our Chief Executive Officer and Chief Financial Officer;
(cid:129) evaluating the performance of our Chief Executive Officer and Chief Financial Officer in light
of such corporate goals and objectives and recommending to the Board of Directors for approval
our Chief Executive Officer’s and Chief Financial Officer’s compensation based on that
evaluation;
(cid:129) reviewing and approving the compensation of our other executive officers;
(cid:129) reviewing and establishing our overall management compensation, philosophy and policy;
(cid:129) overseeing and administering our compensation and similar plans;
(cid:129) evaluating and assessing potential current compensation advisors in accordance with the
independence standards identified in the rules of the NASDAQ Stock Market;
(cid:129) retaining and approving the compensation of any compensation advisors;
(cid:129) reviewing and approving our policies and procedures for the grant of equity-based awards;
(cid:129) reviewing and making recommendations to the Board of Directors with respect to director
compensation;
(cid:129) preparing the compensation committee report required by SEC rules to be included in our
annual proxy statement;
(cid:129) reviewing and discussing with management the compensation discussion and analysis to be
included in our annual proxy statement or Annual Report on Form 10-K; and
(cid:129) reviewing and discussing with the Board of Directors corporate succession plans for the Chief
Executive Officer and other key officers.
The Compensation Committee held seven meetings during 2016. The Compensation Committee
operates under a written charter adopted by the Board of Directors, which is available on our website
at http://ir.beigene.com.
Nominating and Corporate Governance Committee
Donald W. Glazer and Michael Goller currently serve on the Nominating and Corporate
Governance Committee, which is chaired by Donald W. Glazer. Our Board of Directors has determined
22
that each member of the Nominating and Corporate Governance Committee is ‘‘independent’’ as that
term is defined in the rules of the NASDAQ Stock Market. The Nominating and Corporate
Governance committee’s responsibilities include:
(cid:129) developing and recommending to the Board of Directors criteria for board and committee
membership;
(cid:129) establishing procedures for identifying and evaluating board of director candidates, including
nominees recommended by shareholders;
(cid:129) identifying individuals qualified to become members of the Board of Directors;
(cid:129) recommending to the Board of Directors the persons to be nominated for election as directors
and to each of the board’s committees;
(cid:129) developing and recommending to the Board of Directors a set of corporate governance
guidelines; and
(cid:129) overseeing the evaluation of the Board of Directors and management.
The Nominating and Corporate Governance committee held two meetings during 2016. The
Nominating and Corporate Governance Committee operates pursuant to a written charter adopted by
the Board of Directors, which is available on our website at http://ir.beigene.com.
Director Nominations
The Board of Directors will consider and approve from time to time the criteria that it deems
necessary or advisable for director candidates. The Board of Directors has full authority to modify such
criteria as it deems necessary or advisable. The Board of Directors has delegated to the Nominating
and Corporate Governance Committee the responsibility for developing and recommending to the
Board of Directors for its consideration and approval criteria for director candidates. The Nominating
and Corporate Governance Committee has adopted policies and procedures for director candidates.
The Board of Directors may, however, rescind its delegation and assume the responsibilities it
previously delegated to the Nominating and Corporate Governance Committee.
The Board of Directors has delegated to the Nominating and Corporate Governance Committee
the responsibility to identify candidates for nomination to the Board of Directors (including candidates
to fill vacancies) and assessing their qualifications in light of the policies and principles in our
Corporate Governance Guidelines and the Committee’s charter. The Nominating and Corporate
Governance Committee will recommend director candidates for the Board of Directors’ consideration
and review the candidates’ qualifications with the Board of Directors. The Board of Directors retains
the authority to nominate a candidate for election by the securityholders as a director and to fill
vacancies. In identifying director candidates, the Nominating and Corporate Governance Committee
may consider all facts and circumstances it deems appropriate, including, among other things, the skills
of the candidate, his or her depth and breadth of business experience and other background
characteristics, his or her independence and the needs of the Board of Directors.
Our Nominating and Corporate Governance Committee and Board of Directors may therefore
consider a broad range of factors relating to the qualifications and background of nominees, which may
include diversity and is not limited to race, gender or national origin. We have no formal policy
regarding board diversity. Our Nominating and Corporate Governance Committee’s and Board of
Directors’ priority in selecting board members is identification of persons who will further the interests
of our shareholders through his or her established record of professional accomplishment, the ability to
contribute positively to the collaborative culture among board members, knowledge of our business,
understanding of the competitive landscape and professional and personal experiences and relevant
expertise.
23
Director Nominations by Shareholders
Any shareholder wishing to recommend a director candidate for consideration by the Nominating
and Corporate Governance committee should provide the following information within the timeframe
set forth by our memorandum and articles of association and SEC rules to BeiGene, Ltd., c/o Mourant
Ozannes Corporate Services (Cayman) Limited, 94 Solaris Avenue, Camana Bay, Grand
Cayman KY1-1108, Cayman Islands, Attention: Secretary: (a) the name and address of record of the
shareholder; (b) a representation that the shareholder is a record holder of our securities or, if the
shareholder is not a record holder, evidence of ownership in accordance with Rule 14a-8(b)(2) of the
Exchange Act; (c) the candidate’s name, age, business and residential address, educational background,
current principal occupation or employment, and principal occupation or employment for the past five
years; (d) a description of the qualifications and background of the candidate that addresses the criteria
for board membership approved by our board of directors; (e) a description of all arrangements or
understandings between the shareholder and the candidate; (f) the consent of the candidate (i) to be
named in the proxy statement for our next shareholder meeting and (ii) to serve as a director if elected
at that meeting; and (g) and any other information regarding the candidate that is required to be
included in a proxy statement filed pursuant to SEC rules. The Nominating and Corporate Governance
Committee may seek further information from or about the shareholder making the recommendation,
the candidate, or any such other beneficial owner, including information about all business and other
relationships between the candidate and the shareholder and between the candidate and any such other
beneficial owner.
Securityholder Communications
The Board of Directors provides to every securityholder the ability to communicate with the Board
of Directors, as a whole, and with individual directors on the Board of Directors through an established
process for securityholder communication. For a securityholder communication directed to the Board of
Directors as a whole, securityholders may send such communication to the attention of our Secretary
via Regular Mail or Expedited Delivery Service to: BeiGene, Ltd., c/o Mourant Ozannes Corporate
Services (Cayman) Limited, 94 Solaris Avenue, Camana Bay, Grand Cayman KY1-1108, Cayman
Islands, Attn.: Board of Directors c/o Secretary.
For a securityholder communication directed to an individual director in his or her capacity as a
member of the Board of Directors, securityholders may send such communication to the attention of
the individual director via Regular Mail or Expedited Delivery Service to: BeiGene, Ltd., c/o Mourant
Ozannes Corporate Services (Cayman) Limited, 94 Solaris Avenue, Camana Bay, Grand
Cayman KY1-1108, Cayman Islands, Attn.: [Name of Individual Director].
We will forward by Regular Mail any such securityholder communication to each director, and the
Chairman of the Board of Directors in his capacity as a representative of the Board of Directors, to
whom such securityholder communication is addressed to the address specified by each such director
and the Chairman of the Board of Directors.
Board Leadership Structure and Role in Risk Oversight
Our Chief Executive Officer, John V. Oyler, is the Chairman of the Board of Directors. The Board
of Directors believes that Mr. Oyler is the director best suited to identify strategic opportunities and
focus of the Board of Directors due to his extensive understanding of our business as a founder. The
Board of Directors also believes that the combined role of Chairman and Chief Executive Officer can
promote the effective execution of strategic initiatives and facilitate the flow of information between
management and the Board of Directors. We do not have a lead independent director.
Our Board of Directors oversees the management of risks inherent in the operation of our
business and the implementation of our business strategies. Our Board of Directors performs this
24
oversight role by using several different levels of review. In connection with its reviews of our
operations and corporate functions, our Board of Directors addresses the primary risks associated with
those operations and corporate functions. In addition, our Board of Directors reviews the risks
associated with our business strategies periodically throughout the year.
Each of our board committees also oversees the management of our risk that falls within the
committee’s areas of responsibility. In performing this function, each committee has full access to
management, as well as the ability to engage advisors. Our Chief Financial Officer reports to the Audit
Committee and is responsible for identifying, evaluating and implementing risk management controls
and methodologies to address any identified risks. In connection with its risk management role, our
Audit Committee meets privately with representatives from our independent registered public
accounting firm and our Chief Financial Officer. The Audit Committee oversees the operation of our
risk management program, including the identification of the primary risks associated with our business
and periodic updates to such risks, and reports to our Board of Directors regarding these activities.
Audit Committee Report
The information contained in this report shall not be deemed to be (1) ‘‘soliciting material,’’
(2) ‘‘filed’’ with the SEC, (3) subject to Regulations 14A or 14C of the Exchange Act, or (4) subject to
the liabilities of Section 18 of the Exchange Act. This report shall not be deemed incorporated by
reference into any of our other filings under the Exchange Act or the Securities Act, except to the
extent that we specifically incorporate it by reference into such filing.
The Audit Committee operates under a written charter approved by the Board of Directors, which
provides that its responsibilities include the oversight of the quality of our financial reports and other
financial information and its compliance with legal and regulatory requirements; the appointment,
compensation, and oversight of our independent registered public accounting firm, Ernst & Young Hua
Ming LLP, including reviewing their independence; reviewing and approving the planned scope of our
annual audit; reviewing and pre-approving any non-audit services that may be performed by Ernst &
Young Hua Ming LLP; the oversight of our internal audit function; reviewing with management and
our independent registered public accounting firm the adequacy of internal financial controls; and
reviewing our critical accounting policies and estimates and the application of accounting principles
generally accepted in the United States of America.
The Audit Committee oversees our financial reporting process on behalf of the Board of Directors.
Management is responsible for our internal controls, financial reporting process, and compliance with
laws and regulations and ethical business standards. Ernst & Young Hua Ming LLP is responsible for
performing an independent audit of our consolidated financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States). The Audit Committee’s
main responsibility is to monitor and oversee this process.
The Audit Committee reviewed and discussed with management our audited financial statements
for the fiscal year ended December 31, 2016. The Audit Committee discussed with Ernst & Young Hua
Ming LLP the matters required to be discussed by Public Company Accounting Oversight Board
(‘‘PCAOB’’) Auditing Standard No. 1301, Communications with Audit Committees, and SEC
Regulation S-X Rule 207, Communications with Audit Committees. The Audit Committee has received
the written disclosures and the letter from the independent registered public accounting firm required
by applicable requirements of the PCAOB regarding the independent registered public accounting
firm’s communications with the Audit Committee concerning independence, and has discussed with the
independent registered public accounting firm the independent registered public accounting firm’s
independence.
25
The Audit Committee considered any fees paid to Ernst & Young Hua Ming LLP for the
provision of non-audit related services and does not believe that these fees compromise Ernst & Young
Hua Ming LLP’s independence in performing the audit.
Based on the review and discussions referred to above, the Audit Committee recommended to the
Board of Directors that such audited financial statements be included in our Annual Report on
Form 10-K for the year ended December 31, 2016, for filing with the SEC.
THE AUDIT COMMITTEE
Thomas Malley (Chairperson)
Ke Tang
Qingqing Yi
26
EXECUTIVE COMPENSATION
Overview
Our compensation programs are designed to:
(cid:129) attract and retain individuals with superior ability, technical, and managerial experience;
(cid:129) align executive officers’ incentives with our corporate strategies, business objectives and the
long-term interests of our shareholders; and
(cid:129) increase the incentive to achieve key strategic performance measures by linking incentive award
opportunities to the achievement of performance objectives and by providing a portion of total
compensation for executive officers in the form of ownership in the Company.
Our Compensation Committee is primarily responsible for developing and implementing our
compensation policies and establishing and approving the compensation for all of our executive officers;
with respect to the Chief Executive Officer and Chief Financial Officer, the Compensation Committee
reviews and makes recommendations to the full Board of Directors for approval. The Compensation
Committee oversees our compensation and benefit plans and policies, administers our equity incentive
plans, reviews and approves annually all compensation decisions relating to our executive officers, and
makes recommendations to the full Board of Directors on compensation for the Chief Executive
Officer and Chief Financial Officer. The Compensation Committee considers recommendations from
our Chief Executive Officer regarding the compensation of our executive officers other than the Chief
Executive Officer and Chief Financial Officer. Our Compensation Committee has the authority under
its charter to engage the services of a consulting firm or other outside advisor to assist it in designing
our compensation programs and in making compensation decisions.
In 2016, the Compensation Committee retained Willis Towers Watson to assist in an evaluation of
our compensation philosophy, validation of our compensation peer group, develop competitive market
data to benchmark the compensation for our named executive officers and advise on matters related to
our compensation structure and programs generally. The compensation consultant also consults with
the Compensation Committee about non-employee director compensation. Based on consideration of
the factors set forth in the rules of the SEC and NASDAQ, the Compensation Committee has
determined that their relationship with Willis Towers Watson and the work performed by Willis Towers
Watson on behalf of the Compensation Committees has not raised any conflict of interest.
Executive Compensation Components
Our executive compensation consists of base salary, performance-based cash compensation,
long-term incentive compensation in the form of share options, restricted shares and broad-based
benefits programs. The Compensation Committee considers a number of factors in setting
compensation for our executive officers, including company performance, as well as the executive’s
performance, experience, responsibilities and the compensation of executive officers in similar positions
at comparable companies.
Base Salary
Base salary is intended to provide compensation for day-to-day performance. The Compensation
Committee believes that a competitive base salary is a necessary element of any compensation program
that is designed to attract and retain talented and experienced executives. Base salaries for our named
executive officers are intended to be competitive with those received by other individuals in similar
positions at the companies with which we compete for talent. Base salaries are originally established at
the time the executive is hired based on individual experience, skills and expected contributions, our
understanding of what executives in similar positions at peer companies were paid, and also
27
negotiations during the hiring process. The base salaries of our named executive officers are reviewed
annually and may be adjusted to reflect market conditions, the financial position of the Company, and
our executives’ performance as well as any change in the scope of an officer’s responsibilities. As of
December 31, 2016, the base salaries of our named executive officers were as described in ‘‘—Summary
Compensation Table—2016’’ below.
Performance-Based Cash Bonus
Our Compensation Committee has the authority to award annual performance-based cash bonuses
to our executive officers and make recommendations to the full Board of Directors for approval of
performance-based cash bonuses for the Chief Executive Officer and Chief Financial Officer. Unless
otherwise provided by the provisions of his or her employment agreement, the target annual cash bonus
opportunities for our named executive officers are expressed as a percentage of base salary and
generally established by our Compensation Committee based on competitive market data and
recommendations by the Chief Executive Officer (other than in connection with his own
compensation). In 2017, the Board of Directors and Compensation Committee approved performance-
based cash bonuses for our named executive officers as described in ‘‘Summary Compensation Table—
2016’’ below. These payments were awarded in recognition of our named executive officer’s
performance in achieving corporate, clinical, and operational milestones in 2016.
Equity Incentive Compensation
Equity incentive grants to our named executive officers are made at the discretion of the
Compensation Committee under the terms of our equity incentive plans except for equity incentive
grants for the Chief Executive Officer and Chief Financial Officer, which are approved by the full
Board of Directors. We believe that equity incentives subject to vesting over time or upon achievement
of performance objectives can be an effective vehicle for the long-term element of compensation, as
these awards align individual and team performance with the achievement of our strategic and financial
goals over time and with shareholders’ interests. In 2016, the Compensation Committee made share
option and restricted share grants to our named executive officers as specified in the ‘‘Outstanding
Equity Awards at Fiscal Year-End Table—2016’’ below. All options to purchase shares granted to
executives have exercise prices equal to at least the fair market value of our ordinary shares on the
date of grant, and therefore reward executive officers only if the share price increases from the date of
grant.
Employee Benefits
In addition to the primary elements of compensation described above, the named executive officers
also participate in the same broad-based employee benefits programs available to all of our other
employees (which may vary based on the location of employment), including health insurance, pension
benefits, employee housing fund, welfare benefits, life and disability insurance, dental insurance, and
retirement plan. We do not provide special benefits to our named executive officers except as otherwise
described in this Proxy Statement.
28
Summary Compensation Table—2016
The following table presents information regarding the total compensation awarded to, earned by,
and paid during the fiscal years ended December 31, 2016 and 2015 to our Chief Executive Officer and
the two most highly-compensated executive officers (other than the Chief Executive Officer) who were
serving as executive officers at the end of the year ended December 31, 2016. These individuals are our
named executive officers for 2016.
Name and Principal Position
Salary
($)
Year
Bonus
($)
John V. Oyler . . . . . . . . . . . . . . . . . . 2016 350,004(2)(3) 320,000(4)
2015 344,705(6)(7) 172,352(8)
Founder, Chief Executive
Officer and Chairman
Howard Liang . . . . . . . . . . . . . . . . . . 2016 350,001(10)
2015 160,417(12)
Chief Financial Officer and Chief
Strategy Officer
182,001(4)
48,650(8)
Restricted
Option
Share Awards Awards Compensation
($)(1)
All Other
($)(1)
($)
Total
($)
—
—
3,963,960
3,890,991
3,392,840
1,622,880
7,952(2)(5) 4,641,916
16,206(6)(9) 4,424,254
7,875(11)
—
3,932,717
1,831,947
Ji Li . . . . . . . . . . . . . . . . . . . . . . . . 2016 230,865(13)
92,346(4)
970,096
3,813,331
—
5,106,638
Global Head of Business
Development
(1) Amounts represent the aggregate fair value on the grant date of restricted stock awards and option awards granted to our
named executive officers in 2016 and 2015 computed in accordance with FASB ASC Topic 718. The assumptions used in the
valuation of these awards are consistent with the valuation methodologies specified in the notes to our consolidated
financial statements and discussions in ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’ included in our Annual Report on Form 10-K for the year ended December 31, 2016. The amounts above
reflect our aggregate accounting expense for these awards and do not necessarily correspond to the actual value that will be
recognized by the named executive officers.
(2)
Payment in RMB was translated into dollars based on the noon buying rate of the Federal Reserve Bank of New York for
RMB of ¥1.00=$0.1440 at December 30, 2016.
(3) Represents base salary earned by Mr. Oyler for services as our Chief Executive Officer during 2016. Mr. Oyler’s current
annual base salary is $590,000. Upon recommendation of the Compensation Committee, in November 2016, the Board of
Directors decided to increase Mr. Oyler’s annual base salary from $350,000 to $590,000 based on his significant
contributions to the Company and his leadership and to remain competitive with the market for his position.
(4) Represents 2016 performance-based cash bonuses approved by the Compensation Committee or the Board of Directors, as
applicable, and paid in 2017.
(5) Consists of $7,232 in employer-paid health insurance premiums and $720 attributable to the use of a company car.
(6)
Payment in RMB was translated into dollars based on the noon buying rate of the Federal Reserve Bank of New York for
RMB of ¥1.00=$0.1544 at December 31, 2015.
(7) Represents base salary earned by Mr. Oyler for services as our Chief Executive Officer and Chairman during 2015.
(8) Represents 2015 performance-based cash bonuses approved by the Board of Directors and paid in 2016.
(9) Consists of $4,308 in employer-paid health insurance premiums and $11,898 attributable to the use of a company car.
(10) Represents base salary earned by Dr. Liang for services as our Chief Financial Officer and Chief Strategy Officer during
2016. Dr. Liang’s annual base salary during this period was $350,000. In April 2017, Dr. Liang’s base salary was increased to
$390,000.
(11) Amount reflects the Company match under our 401(k) plan.
(12) Represents base salary earned by Dr. Liang for services as our Chief Financial Officer and Chief Strategy Officer during
2015. Dr. Liang’s annual base salary during this period was $350,000.
(13) Represents base salary earned by Dr. Li for services as our Global Head of Business Development during 2016. Dr. Li’s
annual base salary during this period was $350,000.
Employment Agreements with Our Named Executive Officers
We have entered into employment agreements with each of our named executive officers.
John V. Oyler On April 25, 2017, we and certain of our subsidiaries entered into employment
agreements with John V. Oyler, pursuant to which Mr. Oyler will continue to serve as our Chief
29
Executive Officer. Mr. Oyler is entitled to a base salary of $590,000, which is subject to review and
adjustment in accordance with company policy. Mr. Oyler’s base salary will be allocated between us and
certain of our subsidiaries. Mr. Oyler is eligible for an annual bonus, with a target level of $320,000 and
a minimum payout level of 15% of the base salary, based on performance criteria determined by our
Board of Directors. Mr. Oyler is eligible to participate in our employee benefit plans generally available
to our employees, subject to the terms of those plans. Mr. Oyler’s employment agreements also provide
for certain transportation and international travel benefits and tax equalization payments. His
employment agreements have an initial three-year term and automatically renews for additional
one-year terms unless either party provides written notice of nonrenewal. Mr. Oyler’s employment can
be terminated at will by either party. Upon termination of Mr. Oyler’s employment for any reason, we
will pay (i) accrued but unpaid base salary during the final payroll period of employment; (ii) unpaid
vacation time; (iii) unpaid annual bonus from the previous calendar year; and (iv) any business
expenses incurred, documented and substantiated but not yet reimbursed (collectively, the ‘‘Final
Compensation’’). If Mr. Oyler’s employment is terminated by us other than for ‘‘cause’’ (as defined in
his employment agreements) or if Mr. Oyler terminates his employment for ‘‘good reason’’ (as defined
in his employment agreements), Mr. Oyler is entitled to (i) the Final Compensation, (ii) a lump sum
equal to the base salary divided by 12, then multiplied by the Severance Period, (iii) the
post-termination bonus calculated based on the target bonus for the year and the number of days
passed through the date of termination, (iv) a $20,000 one-time bonus and (v) acceleration of the
vesting schedule of his equity grants by 20 months. The ‘‘Severance Period’’ is 20 months; provided that
if Mr. Oyler’s employment is terminated without cause or for good reason during the initial three-year
term, the Severance Period will be the greater of 20 months or the number of the months remaining in
the initial three-year term; provided further that if Mr. Oyler’s employment terminates during the
12 month period following a ‘‘change in control’’ (as defined in his employment agreements), then the
Severance Period will be 24 months. His employment agreement provide that all unvested options will
immediately vest upon a ‘‘change in control.’’ Mr. Oyler’s employment agreements also prohibit
Mr. Oyler from engaging in certain competitive and solicitation activities during his employment and
18 months after the termination of his employment.
Howard Liang, Ph.D. On July 13, 2015, we entered into an employment agreement with Dr. Liang
for the position of Chief Financial and Chief Strategy Officer. Dr. Liang currently receives a base salary
of $350,000, which is subject to review and adjustment in accordance with company policy. Dr. Liang is
eligible for an annual merit bonus of up to $105,000, based on performance as determined by our
Compensation Committee. Dr. Liang was also granted an option to purchase up to 4,900,000 ordinary
shares, which vests over four years. Dr. Liang is eligible to participate in our employee benefit plans
generally available to our employees, subject to the terms of those plans. Dr. Liang’s employment has
no specified term, but can be terminated at will by either party. Dr. Liang’s employment may be
terminated by us without ‘‘cause’’ (as defined in his employment agreement), and if so he would receive
his base salary and health and dental insurance payments during a nine-month severance period and
other benefits including acceleration of the vesting schedule of his initial option grant by six months,
unless Dr. Liang breaches his confidentiality obligations. Dr. Liang may terminate his employment with
‘‘good reason’’ (as defined in his employment agreement) upon 30 days’ written notice received within
60 days of the occurrence of the event. If we do not cure the action identified in Dr. Liang’s notice, he
is entitled to the same benefits as if we terminated his employment without cause, subject to his
execution of a release of claims and unless he breaches his confidentiality obligations. We may also
terminate Dr. Liang’s employment for cause, in certain cases upon 30 days’ written notice, and
Dr. Liang may also terminate his employment without good reason upon 90 days’ written notice, in
either case, in which he would then only be entitled to receive certain accrued obligations.
Ji Li, Ph.D. On April 28, 2016, we entered into an employment agreement with Dr. Li for the
position of Executive Vice President and Global Head of Business Development. Dr. Li currently
receives a base salary of $350,000, which is subject to review and adjustment in accordance with
30
company policy. Dr. Li is eligible for an annual merit bonus of up to $140,000, based on performance
as determined by our Compensation Committee. Dr. Li was granted an option to purchase up to
2,376,000 ordinary shares, which vests over four years. Dr. Li was also granted 475,000 restricted shares,
which vest in equal installments annually over a four-year period. Dr. Li is eligible to participate in our
employee benefit plans generally available to our employees, subject to the terms of those plans.
Dr. Li’s employment has no specified term, but can be terminated at will by either party. Dr. Li’s
employment may be terminated by us without ‘‘cause’’ (as defined in his employment agreement), and
if so he would receive his base salary and health and dental insurance payments during a nine-month
severance period and other benefits including acceleration of the vesting schedules of his initial option
grant and restricted share award by 12 months (or 18 months if such termination occurs within
12 months following a ‘‘change in control’’ (as defined in his employment agreement)), unless Dr. Li
breaches his confidentiality obligations. Dr. Li may terminate his employment with ‘‘good reason’’ (as
defined in his employment agreement) upon 30 days’ written notice received within 60 days of the
occurrence of the event. If we do not cure the action identified in Dr. Li’s notice, he is entitled to the
same benefits as if we terminated his employment without cause, subject to his execution of a release
of claims and unless he breaches his confidentiality obligations. We may also terminate Dr. Li’s
employment for cause, in certain cases upon 30 days’ written notice, and Dr. Li may also terminate his
employment without good reason upon 90 days’ written notice, in either case, in which he would then
only be entitled to receive certain accrued obligations.
Outstanding Equity Awards at Fiscal Year-End Table—2016
The following table summarizes, for each of our named executive officers, the number of ordinary
shares underlying outstanding options and share awards held as of December 31, 2016.
Name
John V. Oyler . . . . . . . . . . . .
Howard Liang . . . . . . . . . . . .
Option Awards
Number of
securities
underlying
unexercised
options (#)
exercisable
Number of
securities
underlying
unexercised
options (#)
unexercisable
Option
exercise
price
($)
Option
expiration
date
Stock Awards
Number of
Shares
That
Have Not
Vested (#)
Market Value
of Shares or
Units of
Stock
That Have Not
Vested(1) ($)
3,230,142
8,170,358(2) 0.50
— 2,047,500(3) 2.84
7/19/2025
11/15/2026
1,735,417
3,164,583(4) 0.50
— 1,752,500(5) 2.84
7/1/2025
11/15/2026
Ji Li . . . . . . . . . . . . . . . . . . .
475,000(8) 1,111,500
— 2,376,000(6) 2.05
260,000(7) 2.29
—
5/2/2026
7/12/2026
(1) Based on a price of $2.34 per ordinary share, which was the closing price for an ADS as reported
by The NASDAQ Global Select Market on December 30, 2016, as converted to an ordinary share.
(2) 20% of our ordinary shares subject to this option became exercisable on July 19, 2016, and the
balance becomes exercisable in 48 successive equal monthly installments, subject to continued
service. In April 2017, the vesting schedule of this option was amended to provide that the
exercisability of this option will be accelerated upon a change in control or certain termination
events.
(3) 25% of our ordinary shares subject to this option become exercisable on July 13, 2017, and the
balance becomes exercisable in 36 successive equal monthly installments, subject to continued
31
service. The exercisability of this option will be accelerated upon a change in control or certain
termination events.
(4) 25% of our ordinary shares subject to this option became exercisable on July 15, 2016, and the
balance becomes exercisable in 36 successive equal monthly installments, subject to continued
service. The exercisability of this option will be accelerated upon a sale event or certain
termination events.
(5) 25% of our ordinary shares subject to this option become exercisable on July 13, 2017, and the
balance becomes exercisable in 36 successive equal monthly installments, subject to continued
service. The exercisability of this option will be accelerated upon a sale event.
(6) 25% of our ordinary shares subject to this option become exercisable on May 3, 2017, and the
balance becomes exercisable in 36 successive equal monthly installments, subject to continued
service. The exercisability of this option will be accelerated upon certain termination events.
(7) 25% of our ordinary shares subject to this option become exercisable on July 13, 2017, and the
balance becomes exercisable in 36 successive equal monthly installments, subject to continued
service.
(8) Represents the restricted shares granted on May 3, 2016. 25% of our ordinary shares subject to
this restricted share award vest on May 3, 2017 with the remaining shares vesting in 36 equal
successive monthly installments thereafter, subject to continued service. The vesting schedule of
this restricted share award will be accelerated upon certain termination events.
Compensation Risk Assessment
We believe that although a portion of the compensation provided to our executive officers and
other employees is performance-based, our executive compensation program does not encourage
excessive or unnecessary risk taking. This is primarily due to the fact that our compensation programs
are designed to encourage our executive officers and other employees to remain focused on both
short-term and long-term strategic goals, in particular in connection with our pay-for-performance
compensation philosophy. As a result, we do not believe that our compensation programs are
reasonably likely to have a material adverse effect on us.
Benefit Plans
Our full-time employees in the People’s Republic of China (‘‘PRC’’), including some of our named
executive officers, participate in a government mandated defined contribution plan, pursuant to which
pension benefits, medical care, employee housing fund and other welfare benefits are provided to
employees. Chinese labor regulations require that our PRC subsidiaries make contributions to the
government for these benefits based on percentages of the employees’ salaries.
Our U.S. subsidiary maintains a 401(k) retirement plan for all of its full-time employees in the
United States, including some of our named executive officers, with an opportunity to save for
retirement on a tax-advantaged basis. Pursuant to the 401(k) plan, participants will be able to elect to
defer their current compensation by up to the statutorily prescribed annual limit, with additional salary
deferral amounts available to participants beginning in the year they become 50 years of age. Our
U.S. subsidiary matches 50% of employee contributions, limited to the first 6% of compensation, those
employer-matching contributions to vest 50% after one year and be fully vested after the second
anniversary of the employment date.
32
Rule 10b5-1 Plans
Our policy governing transactions in our securities by directors, officers and employees permits our
officers, directors and certain other persons to enter into trading plans complying with Rule 10b5-1
under the Exchange Act. Under these trading plans, the individual relinquishes control over the
transactions once the trading plan is put into place. Accordingly, sales under these plans may occur at
any time, including possibly before, simultaneously with, or immediately after significant events
involving our Company.
Equity Compensation Plan Information
The following table contains information about our equity compensation plans as of December 31,
2016.
Number of Securities to
Be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
Weighted-average Exercise
Price of Outstanding
Option, Warrants and Rights
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column(a))
35,440,793(1)
$2.34
34,712,601(2)
Plan Category
Equity compensation plans
approved by security
holders . . . . . . . . . . . . . . .
Equity compensation plans
not approved by security
holders . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . .
77,079,743
41,638,950(3)
0.42
—
—(4)
34,712,601
(1) Includes 35,440,793 ordinary shares to be issued pursuant to outstanding awards under our 2016
Share Option and Incentive Plan (the ‘‘2016 Plan’’).
(2) As of December 31, 2016, there were 34,712,601 shares available for grant under the 2016 Plan.
The number of shares reserved for issuance under the 2016 Plan will be increased from time to
time by (i) the number of ordinary shares underlying any awards that are forfeited, cancelled, held
back upon exercise or settlement of any award to satisfy the exercise price or tax withholding,
reacquired by us prior to vesting, satisfied without any issuance of ordinary shares, expire or
otherwise terminated (other than by exercise) under our 2011 Option Plan (the ‘‘2011 Plan’’), and
(ii) annually on the first day of each year, by an amount equal to five percent of the number of
ordinary shares issued and outstanding on the immediately preceding December 31 or such lesser
number of ordinary shares as determined by the Administrator (as defined in the 2016 Plan). On
January 1, 2017, 25,791,680 ordinary shares were added to the 2016 Plan pursuant to this
provision, which shares are not reflected in the number of shares available for issuance under the
2016 Plan in the table above.
(3) Includes 26,438,283 ordinary shares to be issued pursuant to outstanding options under our 2011
Plan, and 15,200,667 ordinary shares to be issued pursuant to outstanding options granted outside
of our equity incentive plans.
(4) As of December 31, 2016, no shares were available for grant under our 2011 Plan.
Compensation Committee Report
The information contained in this report shall not be deemed to be (1) ‘‘soliciting material,’’
(2) ‘‘filed’’ with the SEC, (3) subject to Regulations 14A or 14C of the Exchange Act, or (4) subject to
the liabilities of Section 18 of the Exchange Act. This report shall not be deemed incorporated by
33
reference into any of our other filings under the Exchange Act or the Securities Act, except to the
extent that we specifically incorporate it by reference into such filing.
The Compensation Committee reviewed and discussed with management the disclosure included in
the Executive Compensation section of this Proxy Statement. Based on that review and discussions, the
Compensation Committee recommended to the Board of Directors that the disclosure included in the
Executive Compensation section be included in this Proxy Statement for the year ended December 31,
2016, for filing with the SEC.
THE COMPENSATION COMMITTEE
Qingqing Yi (Chairperson)
Ranjeev Krishana
Timothy Chen
34
DIRECTOR COMPENSATION
Our Board of Directors has adopted an independent director compensation policy that is part of a
total compensation package that is designed to enable us to attract and retain, on a long-term basis,
high caliber independent directors. Under the policy, all independent directors are paid cash
compensation as set forth below:
Annual
Retainer
($)
Board of Directors:
All independent directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$45,000
Audit Committee:
Chairperson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Chairperson members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee:
Chairperson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Chairperson members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominating and Corporate Governance Committee:
Chairperson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Chairperson members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,000
10,000
15,000
7,500
10,000
5,000
Under our independent director compensation policy, each newly appointed or elected
independent director is eligible to receive a one-time grant of a non-qualified option to purchase
260,000 ordinary shares. The date of grant is the date he or she first becomes an independent director.
These options become exercisable in three equal annual installments during the three years following
the grant date, subject to the director’s continued service on the Board of Directors.
In addition, on the date of each annual general meeting of shareholders, each continuing
independent director who has served as a director for the previous six months is eligible to receive a
non-qualified option to purchase 169,988 ordinary shares. The annual grants become exercisable on the
earlier of the one-year anniversary of the date of grant or the date of our next annual general meeting
of shareholders, subject to the director’s continued service on the Board.
The foregoing options will have an exercise price equal to one thirteenth of the fair market value
of an ADS on the NASDAQ Stock Market on the date of grant and be subject to the terms of the
2016 Plan.
We also reimburse all reasonable out-of-pocket expenses incurred by independent directors in
attending board and committee meetings.
The following table sets forth a summary of the compensation we paid to our directors during
2016. Other than as set forth in the table, we did not pay any compensation, make any equity awards
or non-equity awards to, or pay any other compensation to, any members of our Board of Directors in
2016. Mr. Oyler, our Founder, Chief Executive Officer and Chairman, receives no compensation for his
service as a director and, consequently, is not included in this table. Dr. Xiaodong Wang, Chair of our
Scientific Advisory Board, also receives no compensation for his service as a director. The
35
compensation received by Mr. Oyler as an employee during 2016 is presented in ‘‘Summary
Compensation Table—2016.’’
Name(1)
Fees Earned
or Paid
in Cash($)
Option
Awards($)(2)
All Other
Compensation($)
Timothy Chen . . . . . . . . . . . . . . . . . . . . . . . . . .
Donald W. Glazer . . . . . . . . . . . . . . . . . . . . . . .
Michael Goller . . . . . . . . . . . . . . . . . . . . . . . . .
Ranjeev Krishana . . . . . . . . . . . . . . . . . . . . . . .
Thomas Malley . . . . . . . . . . . . . . . . . . . . . . . . .
Ke Tang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Xiaodong Wang(3) . . . . . . . . . . . . . . . . . . . . . . .
Qingqing Yi(4) . . . . . . . . . . . . . . . . . . . . . . . . .
13,125
13,750
12,500
13,125
59,583
13,750
—
—
714,293
—
—
—
656,282
—
—
—
—
—
—
—
—
—
3,309,776
—
Total($)
727,418
13,750
12,500
13,125
715,865
13,750
3,309,776
—
(1) The total number of shares subject to options outstanding as of December 31, 2016 for the
independent directors was: Mr. Chen: 460,626 and Mr. Malley: 552,752. None of the other
independent directors held options to purchase ordinary shares or any other unvested share-based
awards as of December 31, 2016.
(2) Amounts represent the aggregate grant date fair value, including any incremental fair value, of
options granted to our directors in 2016 computed in accordance with FASB ASC Topic 718. The
assumptions used in the valuation of these options are consistent with the valuation methodologies
specified in the notes to our consolidated financial statements and discussions in ‘‘Management’s
Discussion and Analysis of Financial Condition and Results of Operations’’ included in our Annual
Report on Form 10-K for the year ended December 31, 2016. The amounts above reflect our
aggregate accounting expense for these options and do not necessarily correspond to the actual
value that will be recognized by the directors.
(3) The compensation received by Dr. Wang as a consultant during 2016 consisted of (i) $100,000 in
consulting fees, (ii) $86,176 in performance-based cash bonus and (iii) an option to purchase
1,613,430 ordinary shares with a grant date fair value of $3,123,600. As of December 31, 2016, the
total number of shares subject to options held by Dr. Wang was 7,112,597. See ‘‘Certain
Relationships and Related-Party Transactions’’ for additional information.
(4) Mr. Yi voluntarily waived the receipt of director compensation in 2016.
36
DELIVERY OF PROXY MATERIALS
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, including audited
consolidated financial statements, accompanies this Proxy Statement. Copies of our Annual Report on
Form 10-K for the fiscal year ended December 31, 2016 and the exhibits thereto are available from the
Company without charge upon written request of a shareholder. Copies of these materials are also
available online through the SEC at www.sec.gov. The Company may satisfy SEC rules regarding
delivery of proxy materials, including this Proxy Statement and the Annual Report, by delivering a
single set of proxy materials to an address shared by two or more Company shareholders. This delivery
method can result in meaningful cost savings for the Company. In order to take advantage of this
opportunity, the Company may deliver only a single set of proxy materials to multiple shareholders who
share an address, unless contrary instructions are received prior to the mailing date. Similarly, if you
share an address with another shareholder and have received multiple copies of our proxy materials,
you may write or call us at the address and phone number below to request delivery of a single copy of
the proxy materials in the future. We undertake to deliver promptly upon written or oral request a
separate copy of the proxy materials, as requested, to a shareholder at a shared address to which a
single copy of the proxy materials was delivered. If you hold ordinary shares as a record shareholder
and prefer to receive separate copies of proxy materials either now or in the future, please contact the
Company’s investor relations department at BeiGene, Ltd., c/o BeiGene USA, Inc., 55 Cambridge
Parkway, Suite 700W, Cambridge, MA 02142. If you hold ordinary shares in the form of ADSs through
the Depositary or hold ordinary shares through a brokerage firm or bank and you prefer to receive
separate copies of proxy materials either now or in the future, please contact the Depositary, your
brokerage firm or bank, as applicable.
EACH SHAREHOLDER IS URGED TO COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THE ENCLOSED PROXY.
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